HAWAIIAN AIRLINES INC/HI, PRES14A, 1995-12-13

HAWAIIAN AIRLINES INC/HI
PRES14A, 1995-12-13
AIR TRANSPORTATION, SCHEDULED

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
HAWAIIAN AIRLINES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PRELIMINARY COPIES

HAWAIIAN AIRLINES, INC.
3375 KOAPAKA STREET, SUITE G-350
HONOLULU, HAWAII 96819

Dear Fellow Shareholder:

You are cordially invited to attend a special meeting in lieu
of annual meeting of shareholders of Hawaiian Airlines, Inc. (the "Company")
to be held at the Airport Holiday Inn, 3401 North Nimitz Highway, Honolulu,
Hawaii 96819, in the Palm and Willow Rooms, on Thursday, January 25, 1996 at
10:00 a.m., Hawaii standard time.

At the special meeting, you will be asked to consider and vote
upon (i) an agreement between the Company and Airline Investors Partnership,
L.P. ("AIP") pursuant to which, among other things, the Company would issue and
sell to AIP 18,181,818 shares of the Company's Class A Common Stock and one
share of the Company's Series A Special Preferred Stock for a purchase price of
$20 million in cash (the "Proposed Investment"), (ii) the amendment of the
Company's Amended Articles of Incorporation to, among other things, increase the
number of authorized shares of Class A Common Stock of the Company, and
(iii) the election of 11 directors to serve until the 1997 annual meeting of
shareholders. Each of the foregoing proposals is more specifically described in
the attached Proxy Statement and you are urged to read the Proxy Statement
carefully and in its entirety.

ALTHOUGH THE THREE PROPOSALS WILL BE VOTED ON SEPARATELY,
UNLESS THE PROPOSED INVESTMENT IS APPROVED AND THE DIRECTOR NOMINEES ARE
ELECTED, NEITHER AIP NOR THE COMPANY WOULD BE OBLIGATED TO CONSUMMATE THE
PROPOSED INVESTMENT. THE DIRECTORS ELECTED AT THE SPECIAL MEETING WOULD NOT
TAKE OFFICE (AND THE CURRENT DIRECTORS WOULD CONTINUE IN OFFICE) IF THE PROPOSED
INVESTMENT IS NOT CONSUMMATED. CONSUMMATION OF THE PROPOSED INVESTMENT IS ALSO
SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS AS DESCRIBED IN THE PROXY
STATEMENT.

In connection with the Proposed Investment, the Company has
entered into certain arrangements with American Airlines, Inc., including an
amendment to the Company's long-term aircraft lease agreements with American,
which provide for, among other things, deferral of certain lease rents and
maintenance payments, and, upon satisfaction of certain conditions, rent
reduction, the making of certain rent and maintenance payments with a secured
promissory note, and the release of a security deposit in the form of a letter
of credit. In addition, the Company has agreed to issue to AMR Corporation (the
parent corporation of American) or its affiliate warrants to acquire up to
1,906,505 shares of the Class A Common Stock at $1.10 per share. The AMR
warrants will not be issued and certain of the arrangements with American will
terminate if the Proposed Investment is not consummated and certain other
conditions are not satisfied.

In addition, the Company has reached tentative agreements with
each of its four principal labor unions regarding certain modifications to the
collective bargaining agreements between the Company and the labor unions. The
agreed upon modifications include certain wage concessions, which will generate
significant annual cost savings to the Company. The contract modifications are
subject to membership ratification and consummation of the Proposed Investment.

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Your Board of Directors has carefully considered the Proposed
Investment and believes that the infusion of equity capital resulting from the
Proposed Investment, as well as the benefits to the Company from the
arrangements with American and the labor unions, is an essential element in the
Company's ongoing efforts to improve its financial condition and to bring needed
working capital to the Company. There is no assurance that the Company would be
able to obtain the necessary capital infusion from other sources on comparable
terms. Consummation of the proposed sale of shares to AIP, together with recent
actions taken by the Company aimed at reducing costs and enhancing our
competitive position, will help the Company in its efforts to meet the
challenges ahead. In connection with its review of the Proposed Investment, the
Board of Directors received a fairness opinion from Jefferies & Company, Inc.

If the Proposed Investment is not consummated and the Company
is unable to obtain an alternate source of adequate working capital on an
expedited basis, it may be necessary for the Company to seek protection from its
creditors under federal bankruptcy laws. The Company is currently unaware of
any such alternate source of working capital.

Please see the attached Proxy Statement for more information
regarding the arrangements with American and the labor unions.

YOUR BOARD OF DIRECTORS BELIEVES THAT THE SALE OF SHARES TO AIP
IS FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS. THE
BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED INVESTMENT AND THE
OTHER PROPOSALS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED
INVESTMENT AND THE OTHER PROPOSALS BEING SUBMITTED TO THE SHAREHOLDERS AT THE
SPECIAL MEETING.

If the Proposed Investment is consummated, AIP would initially
own approximately 73% of the outstanding voting power of the Company based on
shares outstanding on December 18, 1995 (which would constitute approximately
68% of the common equity). As a result, AIP would be able to control all
actions to be taken by the shareholders of the Company. After giving effect to
the issuance of shares of Class A Common Stock upon the exercise of rights to be
offered after the consummation of the Proposed Investment (which offering is
called for by the agreement with AIP), the issuance of shares of Class A Common
Stock upon the exercise of the AMR warrants, certain other issuances of Class A
Common Stock (as described in the Proxy Statement), and the conversion of all
outstanding shares of the Company's Class B Common Stock into shares of Class A
Common Stock, AIP would own approximately 44% of the outstanding voting power
and common equity of the Company (assuming that the rights referred to above are
exercised by persons other than AIP). Until such time as AIP ceases to own at
least 35% of the common equity, it would have the right to designate six of the
11 nominees to stand from time to time for election as directors of the Company.
Thereafter, AIP would have the right to designate five, four or three directors
so long as it owned at least 25%, 10% or 5%, respectively, of the common equity.
AIP has designated six of the director nominees being submitted to the
shareholders for approval at the special meeting.

Pursuant to collective bargaining agreements with three of the
Company's labor unions, each such union has a right to designate one of the 11
nominees to stand from time to time for election as a director of the Company.
Each such union has designated one of the director nominees being submitted to
the shareholders for election at the special meeting.

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It is important that your shares be represented and voted at
the special meeting to assure the presence of a quorum. Please sign, date and
promptly mail the enclosed proxy card in the envelope provided, even if you plan
to attend the meeting in person. Returning your executed proxy card will not
affect your right to attend the meeting and vote your shares in person.
Accordingly, I urge you to take a moment now to sign, date and mail your proxy.
I urge you to read the attached Proxy Statement in its entirety before voting.

On behalf of the Board of Directors, thank you for your support
and continued interest in Hawaiian Airlines.

Respectfully,

Bruce R. Nobles
Chairman of the Board, President
and Chief Executive Officer

Honolulu, Hawaii
December __, 1995

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HAWAIIAN AIRLINES, INC.
3375 KOAPAKA STREET, SUITE G-350
HONOLULU, HAWAII 96819

_______________________________

NOTICE OF SPECIAL MEETING
IN LIEU OF ANNUAL MEETING
OF SHAREHOLDERS

TO BE HELD JANUARY 25, 1996
_______________________________

TO THE SHAREHOLDERS OF HAWAIIAN AIRLINES, INC.:

Notice is hereby given that a special meeting in lieu of annual
meeting of shareholders of Hawaiian Airlines, Inc. (the "Company") will be held
at the Airport Holiday Inn, 3401 North Nimitz Highway, Honolulu, Hawaii 96819,
in the Palm and Willow Rooms, on Thursday, January 25, 1996 at 10:00 a.m.,
Hawaii standard time, for the following purposes:

1. To consider approval of an agreement between the Company
and Airline Investors Partnership, L.P. ("AIP") pursuant to which, among other
things, the Company would issue and sell to AIP 18,181,818 shares of the
Company's Class A Common Stock and one share of the Company's Series A Special
Preferred Stock for a purchase price of $20 million in cash (the "Proposed
Investment");

2. To consider approval of amendments to the Company's
Amended Articles of Incorporation to (i) increase the total number of authorized
shares of Class A Common Stock that the Company may issue from 40,000,000 to
60,000,000 shares and (ii) delete a provision that restricts transfers of common
stock, which provision by its terms would cease to have any effect upon
consummation of the Proposed Investment (the "Proposed Charter Amendments");

3. To elect eleven directors to serve until the 1997 annual
meeting of shareholders (the "Election of Directors"); and

4. To transact such other business as may properly come
before the special meeting or any adjournment thereof.

The affirmative vote of the holders of a majority of the shares
of Class A Common Stock represented in person or by proxy and entitled to vote
at the special meeting is required to approve the Proposed Investment and the
Election of Directors, provided that there is a quorum present at the special
meeting. The presence, in person or by proxy, at the special meeting of the
holders of a majority of the issued and outstanding shares of Class A Common
Stock as of the record date for the special meeting will constitute a quorum.
The affirmative vote by the holders of not less than two-thirds of the issued
and outstanding Class A Common Stock is required to approve the Proposed Charter
Amendments.

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Only holders of record of the Company's Class A Common Stock at
the close of business on December 18, 1995 will be entitled to notice of and to
vote at the special meeting and any adjournments or postponements thereof.

By Order of the Board of Directors

Rae A. Capps
Vice President, General Counsel
and Corporate Secretary

Honolulu, Hawaii
December __, 1995

YOUR VOTE IS IMPORTANT. ACCORDINGLY, PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. THANK YOU FOR YOUR PARTICIPATION.

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TABLE OF CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SUMMARY DESCRIPTION OF MATTER TO BE CONSIDERED . . . . . . . . . . . . . . 1
Proposal 1 - Proposed Investment Proposal . . . . . . . . . . . . . . 1
The Investment Agreement . . . . . . . . . . . . . . . . . . . . 1
Arrangements with American . . . . . . . . . . . . . . . . . . . 3
Arrangements with Principal Labor Unions . . . . . . . . . . . . 3
Background and Reasons for the Proposed Investment . . . . . . . 4
Proposal 2 - Amendment of Amended Articles of Incorporation . . . . . 5
Proposal 3 - Election of Directors. . . . . . . . . . . . . . . . . . 6
Other Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

REVOCABILITY OF PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . . 6

COSTS OF SOLICITATION OF PROXIES . . . . . . . . . . . . . . . . . . . . . 6

RECORD DATE, VOTING SECURITIES AND VOTING RIGHTS . . . . . . . . . . . . . 7

SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . 8

INVESTMENT PROPOSAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Background and Reasons for the Proposed Investment. . . . . . . . . . 12
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Airline Industry . . . . . . . . . . . . . . . . . . . . . . 13
Reorganization of the Company. . . . . . . . . . . . . . . . . . 13
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . 14
American Deferral. . . . . . . . . . . . . . . . . . . . . . . . 15
Proceedings with Potential Investors . . . . . . . . . . . . . . 17
Negotiations with AIP. . . . . . . . . . . . . . . . . . . . . . 17
November 6, 1995 Board of Directors Meeting. . . . . . . . . . . 18
Negotiation of Investment Agreement and Negotiations with
American and Principal Labor Unions . . . . . . . . . . . . 19
Approval of Investment Agreement . . . . . . . . . . . . . . . . 20
Board of Directors Recommendations. . . . . . . . . . . . . . . . . . 20
Opinion of Financial Advisor. . . . . . . . . . . . . . . . . . . . . 21
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Possible Bridge Loan. . . . . . . . . . . . . . . . . . . . . . . . . 25
Rights Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Effect on Existing Shareholders . . . . . . . . . . . . . . . . . . . 26
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Control of the Company . . . . . . . . . . . . . . . . . . . . . 26
Diminished Ability to Sell the Company . . . . . . . . . . . . . 27
Certain Tax Considerations . . . . . . . . . . . . . . . . . . . 27
Description of Arrangements with American . . . . . . . . . . . . . . 28
American Note and Related Arrangements . . . . . . . . . . . . . 28
Code Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . 29
AMR Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . 29

<PAGE>

Benefits to the Company. . . . . . . . . . . . . . . . . . . . . 30
Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . 30
Description of Arrangements with Principal Labor Unions . . . . . . . 31
Amendments to Bylaws and Description of Special Preferred Stock . . . 31
Bylaw Amendments . . . . . . . . . . . . . . . . . . . . . . . . 31
Terms of Special Preferred Stock . . . . . . . . . . . . . . . . 32
Amendments to Other Agreements. . . . . . . . . . . . . . . . . . . . 33
Shareholder Rights Plan. . . . . . . . . . . . . . . . . . . . . 33
Stock Option Agreements. . . . . . . . . . . . . . . . . . . . . 33
Existing Warrants. . . . . . . . . . . . . . . . . . . . . . . . 33
Alternatives to the Proposed Investment . . . . . . . . . . . . . . . 34
Regulatory Filings and Approvals. . . . . . . . . . . . . . . . . . . 34
Information Concerning AIP. . . . . . . . . . . . . . . . . . . . . . 34
Financial Information Concerning the Company. . . . . . . . . . . . . 35
Dissenters' Rights and Preemptive Rights. . . . . . . . . . . . . . . 35
Description of Investment Agreement . . . . . . . . . . . . . . . . . 35
Issuance and Sale of the Shares. . . . . . . . . . . . . . . . . 35
Certain Covenants. . . . . . . . . . . . . . . . . . . . . . . . 36
Representations and Warranties; Indemnification. . . . . . . . . 36
Non-Solicitation Provision . . . . . . . . . . . . . . . . . . . 37
Conditions to Closing. . . . . . . . . . . . . . . . . . . . . . 38
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Fees and Expenses of the Proposed Investment . . . . . . . . . . 39
Registration Rights Agreement. . . . . . . . . . . . . . . . . . 39

CHARTER AMENDMENTS PROPOSAL. . . . . . . . . . . . . . . . . . . . . . . . 39
Amendment to Article IV . . . . . . . . . . . . . . . . . . . . . . . 39
Deletion of Article XIII. . . . . . . . . . . . . . . . . . . . . . . 41

ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Executive Officers and Directors. . . . . . . . . . . . . . . . . . . 45
Interests of Certain Persons in Matters to be Voted Upon. . . . . . . 46
Compliance with Section 16(a) of the Exchange Act . . . . . . . . . . 46
Meetings and Committees of the Board of Directors . . . . . . . . . . 46

EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Retirement Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . 50
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Employee Stock Option Plan. . . . . . . . . . . . . . . . . . . . . . 50
Employee Stock Ownership Plans. . . . . . . . . . . . . . . . . . . . 51
Compensation Committee Interlocks and Insider Participation . . . . . 51
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . 52
Stock Performance Graph . . . . . . . . . . . . . . . . . . . . . . . 53

MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . 53

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SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING. . . . . . . . . . . . . . . 53

OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 54

INCORPORATION OF DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . . . . . 55

ANNEXES
Annex I - Stock Purchase Agreement dated as of December 8, 1995
between Hawaiian Airlines, Inc. and Airline Investors
Partnership, L.P.

Annex II - Opinion of Jefferies & Company, Inc. dated
December 7, 1995

iii

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PRELIMINARY COPIES

HAWAIIAN AIRLINES, INC.
3375 KOAPAKA STREET, SUITE G-350
HONOLULU, HAWAII 96819

____________________________

PROXY STATEMENT
FOR
SPECIAL MEETING IN LIEU OF ANNUAL MEETING
OF SHAREHOLDERS
JANUARY 25, 1996

____________________________

INTRODUCTION

This Proxy Statement and the accompanying Notice of Special Meeting
in Lieu of Annual Meeting of Shareholders and proxy card are being mailed on or
about December __, 1995 in connection with the solicitation of proxies by the
Board of Directors of Hawaiian Airlines, Inc., an Hawaii corporation ("Hawaiian
Airlines" or the "Company"), for use at the special meeting in lieu of annual
meeting of shareholders of the Company (the "Special Meeting") to be held at the
Airport Holiday Inn, 3401 North Nimitz Highway, Honolulu, Hawaii 96819, in the
Palm and Willow Rooms, on Thursday, January 25, 1996 at 10:00 a.m., Hawaii
standard time, and any adjournment or postponement thereof.

SUMMARY DESCRIPTION OF MATTER TO BE CONSIDERED

THE FOLLOWING IS A SUMMARY OF THE PROPOSALS (THE "PROPOSALS")
TO BE VOTED UPON BY THE SHAREHOLDERS OF THE COMPANY AT THE SPECIAL MEETING.
THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT. SHAREHOLDERS ARE URGED TO READ
THIS PROXY STATEMENT IN ITS ENTIRETY.

PROPOSAL 1 - PROPOSED INVESTMENT PROPOSAL

THE INVESTMENT AGREEMENT

At the Special Meeting, shareholders will be asked to consider and
vote upon approval of the Stock Purchase Agreement dated as of December 8, 1995
between the Company and Airline Investors Partnership, L.P., a Delaware limited
partnership ("AIP"), as the same may be amended from time to time (the
"Investment Agreement"), and the performance by the Company of all transactions
and acts contemplated by the Investment Agreement (collectively, the "Proposed
Investment"), including, among other things, the issuance and sale to AIP of
18,181,818 shares (the "Shares") of the Company's Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), and one share of the
Company's Series A Special Preferred Stock, par value $.01 per share (the
"Series A Special Preferred Stock"), for an aggregate purchase price of $20
million in cash (the "Purchase Price"). The Proposed Investment is subject to
the satisfaction of certain conditions on or before January 31, 1996, including,
among other things, (i) approval of the Proposed Investment and the election of
the director nominees by the requisite vote of

<PAGE>

shareholders at the Special Meeting, and (ii) the obtaining of all necessary
regulatory consents and approvals.

AIP is an investment partnership formed to make the Proposed
Investment. If the Proposed Investment is consummated, AIP would initially own
approximately 73% of the outstanding voting power of the Company based on shares
outstanding on December 18, 1995 (which would constitute approximately 68% of
the common equity). As a result, AIP would be able to control all actions to be
taken by the shareholders of the Company. After giving effect to the issuance
of shares of Class A Common Stock upon the exercise of the rights to be offered
after the consummation of the Proposed Investment as described below, the
issuance of shares of Class A Common Stock upon the exercise of the warrants
described below to be issued to AMR Corporation ("AMR"), certain other issuances
of Class A Common Stock described in this Proxy Statement, and the conversion of
all outstanding shares of the Company's Class B Common Stock, par value $.01 per
share (the "Class B Common Stock" and together with the Class A Common Stock,
the "Common Stock"), into shares of Class A Common Stock, AIP would own
approximately 44% of the outstanding voting power and common equity of the
Company (assuming that the rights referred to above are exercised by persons
other than AIP). Until such time as AIP ceases to own at least 35% of the
common equity, it would have the right to designate six of the 11 nominees to
stand from time to time for election as directors of the Company. Thereafter,
AIP would have the right to designate five, four or three directors so long as
it owned at least 25%, 10% or 5%, respectively, of the common equity. AIP has
designated six of the director nominees being submitted to the shareholders for
election at the Special Meeting. See "Investment Proposal-Effect on Existing
Shareholders-Control of the Company."

The Investment Agreement, as well as the modifications to the
collective bargaining agreements with the Company's four principal labor unions,
require that the Company's Amended Bylaws (the "Bylaws") be further amended to
provide for the designation of directors as described above. In addition, the
bylaw amendments provide that one director is to be an outside director, defined
as an individual not employed by the Company and not affiliated with the
Company's labor unions, AIP, or American, and one director is to be a senior
management official from the Company. The amendments, which have been approved
by the Board of Directors, would take effect upon the consummation of the
Proposed Investment.

If the Proposed Investment is consummated, the Company will
enter into a registration rights agreement pursuant to which AIP would have the
right to require the Company, on two occasions, to use its best efforts to
register, at the Company's expense, some or all of the Shares under the
Securities Act of 1933, as amended (the "Securities Act"). In addition, AIP
would have the right to have the Shares included in any other registered
offering of shares of Class A Common Stock made within ten years of the
consummation of the Proposed Investment.

The Investment Agreement requires AIP to use its best efforts
to cause the Company, as soon as practicable after the consummation of the
Proposed Investment, to make a rights offering (the "Rights Offering") pursuant
to which the Company would offer to

<PAGE>

such persons as the Board of Directors shall determine at the time of the Rights
Offering (which would not include AIP (except possibly with respect to Rights
not exercised during the allotted time) but would include, among others,
shareholders as of the Record Date who continue to hold shares until the Rights
Offering and holders of options granted under the 1994 Stock Option Plan) rights
("Rights") to purchase shares of Class A Common Stock, during the 20-day period
after the issuance of the Rights, at a discount equal to at least 30% of the
trading price of the Class A Common Stock measured over a period of time to be
designated by the Board of Directors prior to the Rights Offering, subject to a
minimum exercise price of $1.10 per Right. Unexercised Rights would be offered
to certain employees, as provided in the modifications to the collective
bargaining agreements described below, and possibly to AIP. The other terms and
conditions of the Rights Offering, including the number of Rights to be offered,
the record date for the Rights Offering and whether the Rights would be
transferable, would be established by the Board of Directors at the time of the
Rights Offering. It is currently expected that Rights with respect to
approximately 10,000,000 shares of Class A Common Stock would be offered,
subject to the Board's determination at the time of the Rights Offering. The
Rights Offering would be made only by means of a separate prospectus
constituting a part of a registration statement to be filed by the Company with
the Securities and Exchange Commission (the "SEC"). See "Investment Proposal-
Rights Offering."

The Company and AIP are currently in discussion regarding the
possibility of AIP making a bridge loan of up to $2 million in order to provide
the Company with short-term working capital pending the consummation of the
Proposed Investment. The terms of the loan have not been established and no
assurance can be given that the loan will be made.

For more information regarding the terms of the Investment
Agreement, see "Investment Proposal-Description of Investment Agreement." A
copy of the Investment Agreement is included as Annex I to this Proxy
Statement. For more information regarding AIP, see "Investment Proposal-
Information Regarding AIP."

ARRANGEMENTS WITH AMERICAN

In connection with the Proposed Investment, the Company has
entered into certain arrangements with American Airlines, Inc. ("American"),
including an amendment to the Company's long-term aircraft lease agreements
with American, which provide for, among other things, deferral of certain lease
rents and maintenance payments, and, upon satisfaction of certain conditions,
rent reduction, the making of certain rent and maintenance payments with a
secured promissory note, and the release of a security deposit in the form of a
letter of credit. In addition, the Company has agreed to issue to AMR (the
parent corporation of American) or its affiliate warrants to acquire up to
1,906,505 shares of the Class A Common Stock at $1.10 per share on or before
September 11, 2001 (the "AMR Warrants"). The AMR Warrants will not be issued
and certain of the arrangements with American will terminate if the Proposed
Investment is not consummated and certain other conditions are not satisfied.
See "Investment Proposal-Background and Reasons for the Proposed Investment-
American Deferral" and "-Description of Arrangements with American."

ARRANGEMENTS WITH PRINCIPAL LABOR UNIONS

In addition, the Company has reached tentative agreements with each
of its four principal labor unions regarding certain modifications to the
collective bargaining agreements between the Company and the labor unions. The
agreed upon modifications include certain wage concessions, which will generate
significant annual cost savings to the

<PAGE>

Company. The contract modifications are subject to membership ratification and
consummation of the Proposed Investment. See "Investment Proposal-Description
of Arrangements with Principal Labor Unions."

BACKGROUND AND REASONS FOR THE PROPOSED INVESTMENT

As described in more detail below, for a variety of reasons,
including the Company's financial results, its inability to meet its current
financial responsibilities, including its obligations to American, thereby
creating an urgent need to obtain an infusion of capital, and the uncertain
economic outlook, the Board of Directors determined in February 1995 to explore
options to supplement the Company's capital base, reduce its reliance on short-
term bank debt and promotional coupon sales and increase the Company's financial
flexibility. As a result of such efforts, on November 6, 1995, the Company
executed a letter of intent with AIP, which was followed by the execution on
December 8, 1995 of the definitive Investment Agreement setting out the terms of
the Proposed Investment.

If the Proposed Investment is consummated, the Company would
receive $20 million in cash minus transaction expenses (estimated to be $2.5
million), thereby substantially improving the Company's liquidity. In addition,
in connection with the Proposed Investment and the satisfaction of certain
conditions, the Company would have the benefit of certain arrangements with
American, which would further improve the Company's liquidity by approximately
$15 million and would result in the reduction of cash operating expenses by
approximately $3 million per year for three years. Furthermore, certain
arrangements with its principal labor unions would reduce cash operating
expenses by an amount currently estimated to average at least $5 million per
year for four years. It is anticipated that the combination of the Company's
improved liquidity and reduced operating costs would enable the Company to make
necessary capital expenditures, take advantage of prompt payment discounts,
avoid the need to provide early payment incentives to wholesalers and become
less dependent on promotional ticket sales to the traveling public. It will
also provide coverage for seasonal working capital needs, which tend to be
highest in the first quarter of the year.

If the Proposed Investment is not consummated, the Company
would have to seek alternate sources of working capital immediately. The
Company is currently unaware of any alternate source of adequate working capital
and there can be no assurance that the Company would be able to obtain the
necessary capital or that the terms under which it would be available would be
as favorable as those of the Proposed Investment. Failure to obtain the
necessary working capital on a timely basis would materially impair the
Company's ability to continue its operations and may make it necessary for the
Company to seek protection from its creditors under federal bankruptcy laws.

For more information regarding the background and reasons for
the Proposed Investment, see "Investment Proposal-Background and Reasons for the
Proposed Investment."

THE BOARD OF DIRECTORS BELIEVES THAT THE SALE OF SHARES TO AIP
PURSUANT TO THE INVESTMENT AGREEMENT IS FAIR TO, AND IN THE BEST INTERESTS OF,
THE COMPANY AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE PROPOSED INVESTMENT AND THE OTHER PROPOSALS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED INVESTMENT AND THE OTHER PROPOSALS
DESCRIBED BELOW.

The Board of Directors reserves the right to amend or waive the
provisions of the Investment Agreement and the other documents relating thereto
in all respects before or

<PAGE>

after the approval of the Proposed Investment by the shareholders. In addition,
the Board of Directors reserves the right to terminate the Investment Agreement
in accordance with its terms notwithstanding shareholder approval.

PROPOSAL 2 - AMENDMENT OF AMENDED ARTICLES OF INCORPORATION

At the Special Meeting, shareholders will be asked to consider
and vote upon adoption of amendments (the "Proposed Charter Amendments") to the
Amended Articles of Incorporation of the Company, as amended (the "Articles of
Incorporation"), to (i) amend Article IV to increase the authorized number of
shares of Class A Common Stock from 40,000,000 shares to 60,000,000 shares, and
(ii) delete Article XIII in its entirety.

The amendment to Article IV is being proposed so that the
Company would have a sufficient number of authorized and unissued shares of
Class A Common Stock to permit the exercise of all Rights under the Rights
Offering, as well as to provide the Company with authorized and unissued shares
that could be issued from time to time in the future to raise working capital.
After giving effect to the issuance of the Shares to AIP, the reservation of
shares of Class A Common Stock for issuance pursuant to the AMR Warrants and the
reservation of shares of Class A Common Stock for issuance pursuant to the anti-
dilution provisions of currently outstanding warrants (which anti-dilution
provisions would be triggered by the issuance of the Shares), the Company would
have approximately 8,225,000 authorized and unissued shares of Class A Common
Stock not reserved for future issuance. Therefore, absent the amendment of
Article IV, the Company would not have sufficient shares of Class A Common Stock
available for issuance upon exercise of the Rights (currently estimated to be
approximately 10,000,000).

Article XIII restricts certain transfers of the Common Stock in
order to prevent an "ownership change" of the Company for federal income tax
purposes. Article XIII provides that, following an ownership change, such
transfer restrictions cease to be effective. The deletion of Article XIII has
been proposed because the Company believes that the restrictions contained in
Article XIII are no longer warranted. Furthermore, although the matter is not
free from doubt, the proposed investment could constitute an ownership change,
thereby terminating the transfer restrictions pursuant to their terms.

If the Proposed Charter Amendments are not approved at the
Special Meeting, the Board of Directors would resubmit the Proposed Charter
Amendments for shareholder approval following the consummation of the Proposed
Investment and AIP has agreed under the Investment Agreement to vote in favor of
the Proposed Charter Amendments. Following consummation of the Proposed
Investment, AIP would have sufficient voting power to approve the Proposed
Charter Amendments regardless of the vote of other shareholders.

THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED
CHARTER AMENDMENTS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" SUCH PROPOSAL.

For more information regarding the Proposed Charter Amendments,
see "Charter Amendments Proposal."

PROPOSAL 3 - ELECTION OF DIRECTORS

At the Special Meeting, shareholders will be asked to consider
and vote upon the election of 11 directors, five of whom are currently serving
as directors of the Company and the other six of whom have been designated by
AIP. Of the five current directors, three

<PAGE>

have been designated by three of the Company's labor unions pursuant to their
respective collective bargaining agreements. The six directors designated by
AIP would replace current directors who would resign upon consummation of the
Proposed Investment. Each director elected at the Special Meeting would hold
office from the date of consummation of the Proposed Investment until his or her
successor shall have been elected and shall qualify or until he or she shall
resign or shall have been removed as provided in the Bylaws.

THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE NOMINATION
OF THE 11 DIRECTOR NOMINEES AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
ELECTION OF EACH NOMINEE.

For more information regarding the director nominees, see
"Election of Directors."

OTHER BUSINESS

In addition to the Proposals, at the Special Meeting,
shareholders will be asked to transact such other business as may properly come
before the Special Meeting and any postponement or adjournment thereof.

REVOCABILITY OF PROXIES

A proxy (a "Proxy") for use at the Special Meeting is enclosed.
Any shareholder who executes and delivers a Proxy has the right to revoke it at
any time before it is voted by filing with the Corporate Secretary of the
Company an instrument revoking it or a duly executed Proxy bearing a later date.
It also may be revoked by attending the Special Meeting and voting in person.
Subject to such revocation, all shares represented by a properly executed Proxy
received prior to or at the Special Meeting will be voted by the proxy holders
whose names are set forth in the accompanying Proxy (the "Proxy Holders") in
accordance with the instructions on the Proxy. If no instruction is specified
with respect to a Proposal, the shares represented by the Proxy will be voted
FOR such Proposal (and, in the case of Proposal 3, FOR the nominees for director
identified in this Proxy Statement). It is not anticipated that any matters
will be presented at the Special Meeting other than as set forth in the
accompanying Notice of Special Meeting of Shareholders. If, however, any other
matters properly are presented at the Meeting, the Proxy will be voted in
accordance with the best judgment and in the discretion of the Proxy Holders.

COSTS OF SOLICITATION OF PROXIES

This solicitation of Proxies is made for the Board of
Directors, and the Company will bear the costs of this solicitation, including
the expense of preparing, assembling, printing and mailing this Proxy Statement
and the material used in this solicitation of Proxies. It is contemplated that
Proxies will be solicited principally through the mails, but directors, officers
and regular employees of the Company may solicit Proxies personally or by
telephone. Although there is no formal agreement to do so, the Company may
reimburse banks, brokerage houses and other custodians, nominees and fiduciaries
for their reasonable

<PAGE>

expenses in forwarding these proxy materials to their principals. The Company
may pay for and use the services of other individuals or companies not regularly
employed by the Company in connection with the solicitation of Proxies if the
Board of Directors determines that this is advisable.

RECORD DATE, VOTING SECURITIES AND VOTING RIGHTS

Holders of record of Class A Common Stock at the close of
business on December 18, 1995 (the "Record Date") are entitled to notice of and
to vote at the Special Meeting and any adjournment or postponement thereof. On
the Record Date, 6,628,487 shares of Class A Common Stock were outstanding and
entitled to vote. Each outstanding share of Class A Common Stock entitles the
holder thereof to one vote. Holders of the Class B Common Stock will not be
entitled to vote at the Special Meeting.

Pursuant to Rule 713 of the American Stock Exchange (the "AMEX")
and the Company's listing agreement with the AMEX with respect to the
outstanding Class A Common Stock, shareholder approval is required for a
transaction involving the issuance by the Company of common stock equal to 20%
or more of presently outstanding common stock for less than the greater of book
or market value of the stock. The Proposed Investment would constitute such an
issuance. Under the rules of the AMEX, the affirmative vote of the holders of a
majority of the shares of Class A Common Stock represented in person or by proxy
and entitled to vote at the Special Meeting is required to approve the Proposed
Investment, provided that a quorum is present at the Special Meeting.

Pursuant to Article XI of the Articles of Incorporation,
approval of the Proposed Charter Amendments requires the affirmative vote of the
holders of not less than two-thirds of the issued and outstanding Class A Common
Stock.

The presence, in person or by proxy, at the Special Meeting of
the holders of a majority of the shares of Class A Common Stock outstanding as
of the Record Date will constitute a quorum for transacting business.
Abstentions and broker non-votes will be counted for purposes of determining
whether a quorum is present at the Special Meeting for the transaction of
business and will be treated as the equivalent of a negative vote for the
purpose of determining whether a proposal has been adopted.

7
<PAGE>

SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of December 18, 1995,
information relating to the beneficial ownership of the Company's common stock
by each person known to the Company to be the beneficial owner of more than five
percent of the outstanding shares of Class A Common Stock or Class B Common
Stock, by each director, by each of the executive officers named below, and by
all directors and executive officers as a group.

<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
------------------------ ----------------------
Number of % of Number of % of % of Total
Name and Address(1) Shares(2) Class Shares Class Common Stock
---------------- --------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
Hawaiian Airlines, 1,012,221 15.27 -- -- 11.88
Inc. Employee Stock Plan(3)
c/o First Hawaiian Bank, Trustee
P. O. Box 3200
Honolulu, HI 96847
Kawasaki Enterprises Inc.(4) -- -- 860,926 45.43 10.10
Shuwa Shiba Park Building
2-4-1, Shibakoen, Minato-Ku
Tokyo 105, JAPAN
Attn: Mr. Tetsuya Hara
GPA Group plc(5) 293,645 4.43 533,576 28.16 9.71
c/o Bogle & Gates
1031 W 4th Avenue, Suite 600
Anchorage, AK 99501
Hawaiian Airlines, 655,394 9.89 -- -- 7.69
Inc. Pilots' 401(k) Plan(6)
c/o Vanguard Group, Inc., Trustee
c/o Vanguard Fiduciary Trust Co.
200 Vanguard, 19355 Goliath Building
Malvern, PA 19355
John Hancock Mutual 582,469 8.79 -- -- 6.83
Life Insurance Company
John Hancock Tower - T-50
200 Clarendon Street
Boston, MA 02117
Attn: Alan R. Seghezzi
Robert R. Midkiff 494,506(7) 6.94 -- -- 5.48
4477 Kahala Avenue
Honolulu, HI 96816
Security Pacific 441,099 6.65 -- -- 5.18
Equipment Leasing, Inc.(8)
c/o Keith Pagan
Bank of America
Dept. 5027
555 California St., 18th Floor
San Francisco, CA 94104
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
--------------------------- ----------------------
Number of % of Number of % of % of Total
Name and Address(1) Shares(2) Class Shares Class Common Stock
---------------- --------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>

Kajima Leasing(4) 95,617 1.44 173,743 9.17 3.16
East 21 Tower 12F, 3-2
Toyo 6 - Chome
Koto-Ku, Tokyo 135, JAPAN
Nittetsu Lease Co., Ltd.(4) 38,634 * 147,142 7.76 2.18
9-3, Shiba 1-Chome, Minato-Ku
Tokyo 105, JAPAN
Attn: Mr. Y. Sawahara
Martin Anderson 494,505(7)(9) 6.94 -- -- 5.48
Jeffrey A. Brodsky -- -- -- -- --
Todd G. Cole -- -- -- -- --
Carol A. Fukunaga -- -- -- -- --
Richard L. Humphreys --(10) -- -- -- --
Clifton Kagawa --(11) -- -- -- --
Bruce R. Nobles 304,342(12) 4.39 -- -- 3.45
Einar Olafsson -- -- -- -- --
Samson Poomaihealani -- -- -- -- --
David B. Urrea 3,809(13) * -- -- *
Samuel A. Woodward -- -- -- -- --
Rae A. Capps 40,000(14) * -- -- *
C.J. David Davies 67,672(15) 1.01 -- -- *
Frank L. Forster 60,534(16) * -- -- *
Clarence K. Lyman 51,670(17) * -- -- *
All directors and 1,098,686 14.25 -- -- 11.44
executive officers as a
group including those named
above (21 persons)
</TABLE>

_____________

(1) The address of each of the executive officers and directors is 3375
Koapaka Street, Suite G-350, Honolulu, Hawaii 96819.
(2) Each executive officer and director has sole voting and investment power
with respect to the shares listed after his or her name except for shares
issued to the Hawaiian ESOP, as defined below, and the Company's Pilots'
401(k) Plan or as otherwise indicated below. The shares owned by each
person, or by the group, and the shares included in the total number of
shares outstanding have been adjusted, and the percentage owned (where the
percentage exceeds 1%) have been computed in accordance with Rule
13d-3(d)(1) under the Securities Exchange Act of 1934, as amended.
(3) Shares of the Company's Class A Common Stock allocated to participants'
accounts in the Hawaiian Airlines, Inc. Employee Stock Plan (the "Hawaiian
ESOP") are voted by the Trustee, First Hawaiian Bank, pursuant to written
directions of the participants on matters presented at meetings of
shareholders; shares with respect to which no participant directions are
received are voted according to the direction of the majority of number of
shares for which the Trustee received written directions; and unallocated
shares are voted by fiduciaries designated under the Hawaiian ESOP.
(4) Kajima Leasing, Kawasaki Enterprises Inc. and Nittetsu Lease Co., Ltd. are
affiliated with Kawasaki Enterprises Inc. for purposes of loans to the
Company for four L-1011 aircraft which were returned to the lessor during
the reorganization.
(5) Includes 28,904 shares of Class A Common Stock and 52,517 shares of Class B
Common Stock beneficially owned by AeroUSA, a wholly owned subsidiary of
GPA Group.

<PAGE>

(6) Shares of the Company's Class A Common Stock allocated to participants'
accounts in the Hawaiian Airlines, Inc. Pilots' 401(k) Plan ("401(k) Plan")
are voted by the Trustee, Vanguard Group, Inc., pursuant to written
directions of the participants on matters presented at meetings of
shareholders; shares with respect to which no participant directions are
received are voted according to the direction of the majority of number of
shares for which the Trustee received written directions; and unallocated
shares are voted by fiduciaries designated under the 401(k) Plan.
(7) Consists entirely of shares of Class A Common Stock subject to warrants to
purchase Class A Common Stock issued to Mr. Anderson and to Mr. Midkiff
which are presently exercisable.
(8) Security Pacific Equipment Leasing, Inc. is a wholly owned subsidiary of
BankAmerica Corporation ("BAC"). Other wholly owned subsidiaries of BAC are
Bank of America NT&SA which has beneficial ownership of 132,938 shares of
Class A Common Stock and BA Leasing & Capital Corp. which has beneficial
ownership of 70,230 shares of Class A Common Stock.
(9) Mr. Anderson is a partner of Goodsill Anderson Quinn & Stifel, a general
partnership which received 28,606 shares of Class A Common Stock upon the
initial distribution on about June 19, 1995. Mr. Anderson disclaims
ownership of these shares for the following reasons. Goodsill Anderson
Quinn & Stifel sold all 28,606 shares of Class A Common Stock after the
initial distribution. The decision to sell the shares was a partnership
decision, based on the recommendation of the Management Committee of the
firm. Mr. Anderson is not a member of the Management Committee, was not
consulted in connection with and did not participate in any way in the
decision to sell the shares.
(10) Mr. Humphreys is Chairman and Chief Executive Officer of a subsidiary of
BankAmerica Corporation, which is the parent company of Security Pacific
Equipment Leasing, Inc., a 5% beneficial owner; however, Mr. Humphreys has
no voting or investment power with respect to such shares.
(11) Mr. Kagawa is the President and Chief Executive Officer of Hill and
Knowlton Asia Pacific, and senior representative in Hawaii for WPP Group
plc, the parent company of Hill and Knowlton, Inc., and advertising agency
Ogilvy & Mather Worldwide. Hill and Knowlton, Inc. received 1,431 shares
of Class A Common Stock upon the initial distribution of Class A Common
Stock on June 19, 1995. Mr. Kagawa disclaims ownership of the shares for
the following reason. Hill and Knowlton, Inc. sold all 1,431 shares of
Class A Common Stock after the initial distribution. Ogilvy & Mather
Hawaii is a corporation which received 20,410 shares of Class A Common
Stock upon the initial distribution of Class A Common Stock on June 19,
1995. Mr. Kagawa disclaims ownership of the shares for the following
reason. Ogilvy & Mather Hawaii sold all 20,410 shares of Class A Common
Stock after the initial distribution.
(12) Includes options to purchase 300,000 shares of Class A Common Stock granted
on February 2, 1995 under the 1994 Stock Option Plan, exercisable one year
from the date of grant or earlier based on the terms of the 1994 Stock
Option Plan and expiring ten years from the date of grant; and 4,342 shares
issued to the Hawaiian ESOP.
(13) Consists entirely of Mr. Urrea's account in the Company's Pilots 401(k)
Plan.
(14) Consists entirely of options to purchase 40,000 shares of Class A Common
Stock granted on February 2, 1995 under the 1994 Stock Option Plan,
exercisable one year from the date of grant or earlier based on the terms
of the 1994 Stock Option Plan, and expiring ten years from the date of
grant.
(15) Includes options to purchase 65,000 shares of Class A Common Stock granted
on February 2, 1995 under the 1994 Stock Option Plan, exercisable one year
from the date of grant or earlier based on the terms of the 1994 Stock
Option Plan, and expiring ten years from the date of grant; and 2,672
shares issued to the Hawaiian ESOP.
(16) Includes options to purchase 60,000 shares of Class A Common Stock granted
on February 2, 1995 under the 1994 Stock Option Plan, exercisable one year
from the date of grant or earlier based on the terms of the 1994 Stock
Option Plan, and expiring ten years from the date of grant; and 534 shares
issued to the Hawaiian ESOP.
(17) Includes options to purchase 50,000 shares of Class A Common Stock granted
on February 2, 1995 under the 1994 Stock Option Plan, exercisable one year
from the date of grant or earlier based on the

<PAGE>

terms of the 1994 Stock Option Plan, and expiring ten years from the
date of grant; and 1,670 shares issued to the Hawaiian ESOP.
* Less than 1%

<PAGE>

INVESTMENT PROPOSAL

CERTAIN ASPECTS OF THE PROPOSED INVESTMENT ARE SUMMARIZED BELOW. THE
SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE INVESTMENT AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX I
TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS
ARE URGED TO READ THE INVESTMENT AGREEMENT IN ITS ENTIRETY.

INTRODUCTION

At the Special Meeting, shareholders will be asked to consider and
vote upon approval of the Investment Agreement, which was entered into on
December 8, 1995 between the Company and AIP, and the performance by the Company
of all transactions and acts contemplated by the Investment Agreement. The
Proposed Investment would consist of the issuance and sale to AIP of 18,181,818
shares of Class A Common Stock and one share of Series A Special Preferred Stock
for an aggregate purchase price of $20 million in cash. If the Proposed
Investment is approved and the director nominees are elected at the Special
Meeting, it is anticipated that the Proposed Investment would be consummated
within six business days after the Special Meeting, assuming satisfaction or
waiver of all conditions to closing. See "Description of Investment Agreement"
below. If the Proposed Investment is consummated, AIP would initially own
approximately 73% of the outstanding voting power of the Company, although AIP's
voting power would be approximately 44% on a fully diluted basis if all of the
Rights currently expected to be offered in the Rights Offering are exercised by
persons other than AIP. See "Effect on Existing Shareholders-Dilution" below.

BACKGROUND AND REASONS FOR THE PROPOSED INVESTMENT

OVERVIEW

As described in more detail below, for a variety of reasons, including
the Company's financial results, its inability to meet its current financial
responsibilities, including its obligations to American, thereby creating an
urgent need to obtain an infusion of capital, and the uncertain economic
outlook, the Board of Directors determined in February 1995 to explore options
to supplement the Company's capital base, reduce its reliance on short-term bank
debt and promotional coupon sales and increase the Company's financial
flexibility. As a result of such efforts, on November 6, 1995, the Company
executed a letter of intent with AIP, which was followed by the execution on
December 8, 1995 of the definitive Investment Agreement setting out the terms of
the Proposed Investment.

If the Proposed Investment is consummated, the Company would receive
$20 million in cash minus transaction expenses (estimated to be $2.5 million),
thereby substantially improving the Company's liquidity. In addition, in
connection with the Proposed Investment and the satisfaction of certain
conditions, the Company would have the benefit of certain arrangements with
American, which would further improve the Company's liquidity by approximately
$15 million and would result in the reduction of cash operating expenses by
approximately $3 million per year for three years. Furthermore, certain
arrangements with its principal labor unions would reduce cash operating
expenses by an amount currently estimated to average at least $5 million per
year for four years. See "Description of Arrangements with American" and
"Description of Arrangements with Principal Labor Unions" below. It is
anticipated that the combination of the Company's improved liquidity and reduced
operating costs would enable the Company to make necessary capital expenditures,
take advantage of prompt payment discounts, avoid the need to provide early

<PAGE>

payment incentives to wholesalers and become less dependent on promotional
ticket sales to the traveling public. It will also provide coverage for
seasonal working capital needs, which tend to be highest in the first quarter of
the year. See "Use of Proceeds" below.

If the Proposed Investment is not consummated, the Company would have
to seek alternate sources of working capital immediately. The Company is
currently unaware of any alternate source of adequate working capital and there
can be no assurance that the Company would be able to obtain the necessary
capital or that the terms under which it would be available would be as
favorable as those of the Proposed Investment. Failure to obtain the necessary
working capital on a timely basis would materially impair the Company's ability
to continue its operations and may make it necessary for the Company to seek
protection from its creditors under federal bankruptcy laws.

THE AIRLINE INDUSTRY

The Company's passenger airline business is its chief source of
revenue. Scheduled passenger service consists of, on average, approximately one
hundred fifty flights per day among the six major islands of the State of Hawaii
("Interisland"), daily service, primarily to U.S. West Coast cities ("Transpac")
and two flights per week to Pago Pago, American Samoa and one flight per week to
Papeete, Tahiti in the South Pacific ("Southpac"). At November 30, 1995, the
Company's Interisland fleet consisted of thirteen DC-9-50 aircraft; its Transpac
and Southpac operations were served by eight DC-10-10 aircraft leased from
American.

The airline industry is a highly cyclical business with substantial
volatility, and airlines frequently experience short-term peak cash requirements
caused by both seasonal fluctuations in traffic that often put a drain on cash
during off-peak periods and other exogenous factors, such as fuel price
fluctuations or unexpected maintenance costs. Accordingly, airlines require
substantial working capital to sustain continued operations under most
conditions. The Company has operated with limited cash resources and a working
capital deficit for a number of years. Although working capital deficits are
not uncommon in the airline industry since airlines typically have no product
inventories and trips sold but not yet flown are reflected as current
liabilities, the Company believes that its working capital deficit is an extreme
case. See "Liquidity and Capital Resources" below.

Since the commencement of deregulation in 1978, the airline industry
has become extremely competitive and volatile. Increased competition, rising
operational costs and pricing pressures have created financial difficulties for
most airlines and many airlines have been acquired, forced to restructure or
ceased operations. As with other airlines, Hawaiian Airlines has been adversely
affected by these conditions.

REORGANIZATION OF THE COMPANY

On September 21, 1993, Hawaiian Airlines together with HAL, INC.,
Hawaiian Airlines' parent company, and West Maui Airport, Inc., another wholly
owned subsidiary of HAL, INC., (collectively the "Debtors" or "Predecessor")
commenced reorganization cases by filing voluntary petitions for relief under
Chapter 11, Title 11 of the United States Code ("Chapter 11") in the United
States Bankruptcy Court for the District of Hawaii (the "Bankruptcy Court").
Concurrently therewith, the Debtors filed a Consolidated Plan of Reorganization
dated September 21, 1993 (as amended through the most recent amendment dated
April 20, 1995, the "Plan of Reorganization"). On August 30, 1994, the
Bankruptcy Court entered an order confirming the Plan of Reorganization and,
with the

<PAGE>

satisfaction of certain conditions, the Plan of Reorganization became effective
on September 12, 1994 (the "Effective Date").

Pursuant to the Plan of Reorganization, on the Effective Date, first
West Maui Airport, Inc. and then HAL, INC. were merged with and into Hawaiian
Airlines with Hawaiian Airlines being the sole surviving corporation. On the
Effective Date, all of the outstanding equity securities of the Company, HAL,
INC., and West Maui Airport, Inc. were canceled, including without limitation,
all outstanding common, preferred and preference stock of HAL, INC.

Under the Plan of Reorganization, the Company was to issue and
distribute 9,400,000 shares of its common stock to all of the unsecured
creditors with claims allowed under the Plan of Reorganization. The Company's
common stock consists of two classes, one with full voting rights, Class A
Common Stock, and the other with limited voting rights, Class B Common Stock.
On June 19, 1995, the Company commenced distribution of its Class A and Class B
Common Stock and as of December 18, 1995, 6,628,487 shares of Class A Common
Stock and 1,894,955 shares of Class B Common Stock were issued and outstanding.
The Company anticipates issuing another 852,865 shares of Class A Common Stock
by late 1996. As each disputed claim is finally resolved, the creditor holding
such claim will receive a distribution of stock. Any shares withheld in excess
of the amount distributed to such creditor will be held until all disputed
claims have been resolved. Upon resolution of all disputed claims, there will
be a final distribution of any remaining withheld shares to all general
unsecured creditors on a pro rata basis.

Pursuant to the Plan of Reorganization, the Company has granted
warrants to purchase an additional 989,011 shares of Class A Common Stock (the
"Existing Warrants"), none of which have been exercised. In addition, pursuant
to the Plan of Reorganization, 600,000 shares of the Company's Class A Common
Stock have been reserved for issuance under the Company's 1994 Stock Option
Plan.

The Company's Class A Common Stock began trading on the AMEX and the
Pacific Stock Exchange on June 21, 1995.

LIQUIDITY AND CAPITAL RESOURCES

Since its reorganization, the Company has financed its operations from
operating cash flow and borrowings under an $8.15 million credit facility
provided by CIT Group/Credit Finance, Inc. (the "Credit Facility"). The Company
currently does not have access to other credit facilities and does not have any
unencumbered assets. Accordingly, its access to additional sources of liquidity
is limited to payment deferrals from existing creditors, promotional ticket
sales and the sale of its equity securities.

The Credit Facility, which was approved by the Bankruptcy Court on
July 27, 1994, consists of a secured revolving credit facility and up to $3.0
million of letters of credit capacity. On the Effective Date, $2.0 million of
the revolving credit facility and $3.0 million of letters of credit were funded
to the Company. Available credit is subject to reduction determined by
recalculation of the borrowing base and repayments arising from disposition of
collateral. As of November 30, 1995, the total availability under the Credit
Facility had been effectively reduced due to recalculation of the borrowing base
to approximately $3.7 million, which amount was fully drawn in the form of $1.6
million in borrowings and $2.1 million in letters of credit. The Credit
Facility contains certain restrictive covenants, including one that requires the
Company to maintain a minimum net worth. Effective April 13, 1995, the

<PAGE>

minimum required net worth covenant was reduced from $28.0 million to $20.0
million. At September 30, 1995, the Company's net worth, as reflected in its
historical cost financial statements, was $29.9 million.

In order to increase liquidity, the Company has engaged in a series of
promotional ticket sale activities. Such promotional sales increase liquidity,
but also increase air traffic liability, which could adversely affect yields and
revenues, as well as liquidity in future periods.

As of September 30, 1995, the Company had a net working capital
deficit of $46.3 million, representing a $500,000 increase from the net working
capital deficit of $45.8 million at December 31, 1994. Principally, the
increase in the working capital deficit resulted from a net increase in accounts
payable, accrued liabilities and air traffic liability of $10.5 million being
offset by an aggregate increase in cash and accounts receivable of $10.2
million.

For several years, the Company has been operating with a cash balance
equivalent to less than one week's worth of operating expenses. Continuing to
operate at that level of liquidity would place the Company's existence at risk;
there would be no cushion to respond to unexpected operational upheavals that
have periodically affected the airline industry or to cover the seasonal
downturn typically experienced by the Company in the first quarter of the year.

Due to its working capital shortage, the Company has recently deferred
certain discretionary capital expenditures that could provide a high rate of
return. One example is a series of investments in improved software that are
expected to increase operating efficiency. Another is the outlay needed to
consolidate operations into one terminal at Honolulu International Airport. The
working capital shortage also has had an unfavorable effect on yield, which,
although difficult to quantify, is believed to be significant. The Company has
found it necessary to offer its products to wholesalers and to the public at
reduced rates in order to enhance cash flow. The uncertain financial situation
has also limited the availability of trade credit and at times has necessitated
the use of cash or equivalent security to obtain services. Finally, potential
partners in the airline industry have been reluctant to enter into business
arrangements with the Company until its financial difficulties have been
convincingly overcome for the long term.

AMERICAN DEFERRAL

Since the Effective Date, the Company has continued to experience
liquidity shortfalls. On October 31, 1994, the Company failed to make certain
payments due to American pursuant to the long-term aircraft lease agreement
entered into on the Effective Date (the "Aircraft Lease Agreement") pursuant to
which American leases six DC-10s to the Company. American sent the Company
notice of the failure to make rent and prepaid maintenance payments and noted
that such failure constituted an event of default under the Aircraft Lease
Agreement, but did not declare the Aircraft Lease Agreement in default or
exercise any of the remedies available to it, which include, but are not limited
to, termination of the Aircraft Lease Agreement, repossession of certain
aircraft and engines, recovery of damages and drawings under letters of credit
in the amount of $2 million posted by the Company as required by the Aircraft
Lease Agreement. The Company subsequently made the rent and prepaid maintenance
payments due American on November 4, and November 15, 1994, respectively.

<PAGE>

In December 1994 and January, February and March 1995, the Company
again failed to timely make certain payments in full due pursuant to the
Aircraft Lease Agreement. Again, while American sent the Company notice of the
failure to make such rent and prepaid maintenance payments in full, American did
not declare the Aircraft Lease Agreement in default or exercise any of the
remedies available to it. Effective April 13, 1995, the Company and American
executed an amendment to the Aircraft Lease Agreement providing for the deferral
of payment of approximately $11.1 million of delinquent rent and maintenance
payments. The amendment provided that the Company was to remit periodic
payments (generally on a weekly basis) to American commencing March 31, 1995 and
ending December 22, 1995, in amounts ranging from approximately $25,000 to
$950,000, including interest at 10% per annum, plus payments for the basic rent
of aircraft. Maintenance payments were also to be payable weekly, but in the
same aggregate amounts as set forth in the original terms of the Aircraft Lease
Agreement. Thereafter, commencing January 4, 1996, the Company would be
required to pay, weekly in advance, the basic rent payments owed for the
aircraft and maintenance payments in respect of the aircraft.

The Company paid to American the first five weekly payments of
deferred amounts due under the April amendment to the Aircraft Lease Agreement,
in an aggregate amount of approximately $4.2 million, leaving a balance due of
$6.9 million. However, the Company failed to make deferred and basic rent
payments to American of $600,000 and $986,000, respectively, commencing May 8,
1995.

The Company and American have subsequently deferred the due date
for the repayment of the remaining $6.9 million of deferred lease rents and
maintenance payments on five occasions. Amendment No. 3 dated June 1, 1995
deferred the due date until August 22, 1995. Amendment No. 4 dated August
22, 1995 deferred the due date until October 6, 1995. Amendment No. 5 dated
October 6, 1995 deferred the due date until November 20, 1995. Amendment No.
6 dated November 20, 1995 deferred the due date until December 9, 1995. As of
December 9, 1995, the amount of interest accrued on the deferred $6.9 million
brought the total amount due to approximately $7.1 million.

Amendment No. 7 dated December 8, 1995 (the "December Amendment")
permits the deferral of the payment of this $7.1 million (plus interest thereon)
and the periodic payments of lease rents and maintenance payments that become
due on or after December 8, 1995 up to a maximum of an additional $2.9 million
(including interest thereon) until the earlier of the consummation of the
Proposed Investment or February 7, 1996. The Company expects that it will be
able to defer all payments of lease rents and maintenance payments under the
Aircraft Lease Agreement until January 4, 1996, when the Company will be
required to pay, weekly in advance, basic rent payments and maintenance
payments.

The failure of the Company to timely make payment in full of $10
million (assuming full utilization of the additional deferral permitted by the
December Amendment) due on or before February 7, 1996 would permit American to
exercise remedies available to it, which include, but are not limited to,
termination of the Aircraft Lease Agreement, repossession of certain aircraft
and engines, recovery of damages and drawings under the $2 million of letters of
credit provided by the Company with respect to the Aircraft Lease Agreement.

In connection with the Proposed Investment, the Company has entered
into certain arrangements with American pursuant to which, upon consummation of
the Proposed Investment and satisfaction of certain other conditions, American
would accept the payment of up to $10 million of deferred lease rents and
maintenance payments through the issuance by

<PAGE>

the Company to American of a promissory note secured by certain assets of the
Company. See "Description of Arrangements with American" below. If the
Proposed Investment is not consummated, the ability of the Company to satisfy
its obligations with respect to making the payment due to American by February
7, 1996 will depend on the Company's ability to obtain additional financing. If
American were to repossess its aircraft, the Company's ability to conduct
continuing operations would be seriously jeopardized.

PROCEEDINGS WITH POTENTIAL INVESTORS

As it became apparent to management in December 1994 that the Company
did not have adequate cash resources to meet operating needs through the first
quarter of 1995, the Company began to explore the possibility of raising capital
through the issuance of additional equity or debt securities. Pursuant to an
engagement letter dated January 31, 1995, the Company retained Jefferies &
Company, Inc. ("Jefferies") to act as the exclusive financial advisor and sole
placement agent to the Company in connection with the structuring, issuance and
sale of up to $40 million of debt and/or equity securities. For several months,
Jefferies worked with the Company's management to negotiate a nonbinding
indication of terms for American's participation in the Company's strategic plan
and to prepare a confidential private placement memorandum to be provided to
potential investors (the "Memorandum").

Jefferies and members of senior management expended a great amount of
time and effort identifying more than 90 potential investors. In September and
October 1995 the Memorandum was distributed to over 60 potential investors who
had expressed an interest in receiving it. Company representatives were
available to discuss with any prospective investor, upon request made through
Jefferies, the information contained in the Memorandum and investors were given
the opportunity to visit the Company's facilities and to discuss its affairs
with appropriate Company personnel.

Jefferies and the Company provided further information to and
conducted more than 20 in-person meetings with 15 qualified investors. Eleven
investors completed secondary rounds of due diligence. Two of the most serious
investors conducted physical due diligence of the Company's operations in Hawaii
and met with representatives of American and other entities or groups of
importance to the Company. One of these investors met with certain individual
members of the Board of Directors. Throughout the process Jefferies and members
of senior management kept the Board of Directors apprised on an ongoing basis of
developments in the search for potential investors. In late October 1995, AIP
requested the opportunity to make a proposal to the Company. No other investor
has come forward with a formal offer.

NEGOTIATIONS WITH AIP

At the November 2, 1995 meeting of the Board of Directors, the
directors discussed AIP's request to present an offer to the Company. The
meeting was attended in person or by telephone by all of the Company's directors
except for Todd G. Cole and Samuel Woodward. Also in attendance were
representatives from the Company's outside legal counsel and representatives of
Jefferies.

Jefferies presented the Board of Directors with an extensive summary
regarding the investors who had requested and received the Memorandum, those
with whom Jefferies and the Company had further meetings, and the overall
interest of all potential investors. Jefferies explained that AIP emerged from
the process as the potential investor with the greatest interest, the ability to
act swiftly and the greatest apparent likelihood of

<PAGE>

consummating a transaction. The Board of Directors acknowledged the Company's
urgent need to obtain an additional infusion of capital and that time was of the
essence. After the Jefferies presentation, the Board of Directors authorized a
committee of four directors, Clifton Kagawa, Bruce R. Nobles (the sole
non-voting member), David Urrea and Samuel Woodward (the "Negotiating
Committee") to immediately undertake, with the participation and assistance of
Jefferies, the negotiation with AIP of the terms and conditions of a purchase by
AIP of up to $40 million of newly issued capital stock of the Company, subject
to approval by the full Board of Directors.

On November 3, 1995, the Negotiating Committee, Jefferies and the
Company's outside legal counsel met with representatives of AIP and reviewed
AIP's proposal for an investment in the Company. The Negotiating Committee
considered the proposal internally, and determined to invite AIP to engage in
further negotiations. Later that day the Negotiating Committee and the
Company's advisors met with AIP's representatives and continued the negotiations
regarding the proposed terms of a transaction. During these discussions (which
continued into the evening, resumed the following morning and were concluded
that afternoon), a number of modifications to the proposed terms were made at
the request of the Company and its advisors. These included the establishment
of a ceiling on the expenses to be borne by the Company, a liberalization of the
Company's ability to respond to competitive offers, a reduction in the
termination fee payable by the Company in certain circumstances, and AIP's
agreement to the making of the Rights Offering.

NOVEMBER 6, 1995 BOARD OF DIRECTORS MEETING

On November 6, 1995, the Board of Directors reconvened with all of the
directors attending the meeting in person or by telephone. Also in attendance
were representatives from Jefferies and the Company's outside legal counsel.
The Board of Directors discussed the Company's current financial situation,
including the critical need for cash and the status of deferred payments due to
American. The Board had previously been provided with a draft of the proposed
letter of intent setting out the principal terms of the transaction with AIP as
negotiated by the Negotiating Committee and AIP. The Board then discussed in
detail the terms of the proposed transaction and received advice from the
Company's legal and financial advisors.

Legal counsel advised the Board of Directors as to its legal and
fiduciary responsibilities in considering the proposed transaction. It was
pointed out that no other offers had been forthcoming despite vigorous marketing
efforts and that, without an infusion of capital within the next few months, the
Company's ability to continue operations would be seriously jeopardized.

The terms of the proposed letter of intent were outlined for the
directors, and Jefferies made a detailed presentation of key financial and
market information, as well as a pro forma financial analysis of the Company
giving effect to the proposed transaction. Jefferies also outlined the
advantages and key considerations with respect to the AIP proposal from a
financial point of view, including the positive effect of the proposed
investment and a subsequent rights offering to shareholders (which was provided
for in the AIP proposal) on the Company's balance sheet and the potential
benefits to existing shareholders as a result of such investment and rights
offering. The directors thoroughly considered and reviewed the proposed
transaction and asked numerous questions of the Jefferies representatives and
outside legal counsel. In addition, a representative from AIP joined a portion
of the meeting and responded to questions from the Board of Directors.

<PAGE>

The Board of Directors concluded that it was unlikely that any
alternatives would provide the perceived benefits of the proposed transaction
with AIP or be successful on an expedited basis on terms as favorable to the
Company as the proposed transaction with AIP. After much discussion, the
directors unanimously approved executing the letter of intent with AIP and
instructed that definitive documentation be prepared, subject to review and
approval by the full Board of Directors.

Following the November 6 meeting, minor revisions were made to the
proposed form of letter of intent and the definitive letter of intent setting
forth the principal terms of the Proposed Investment (the "Letter of Intent")
was executed and delivered. Later that day the Company publicly announced the
terms of the Proposed Investment.

NEGOTIATION OF INVESTMENT AGREEMENT AND NEGOTIATIONS WITH AMERICAN AND
PRINCIPAL LABOR UNIONS

Between November 7 and December 8, 1995, the parties negotiated the
terms of the Investment Agreement and the other documents contemplated thereby,
setting out in definitive form the terms contained in the Letter of Intent. See
"Description of Investment Agreement" below.

On December 4, 1995, the Company received a letter from a foreign
entity expressing an interest in making an investment in the Company. On
December 6, 1995, persons purporting to represent a group of investors that
included such entity and an organization known as Unity House met with the
Company's outside legal counsel. Legal counsel explained that the Letter of
Intent prohibited the Company from negotiating with, or providing information
to any third party unless the third party entered into a confidentiality
agreement and satisfied certain other conditions set forth in the Letter of
Intent (which conditions were subsequently included in the Investment
Agreement, see "Description of Investment Agreement-Non-Solicitation
Provision" below). The Company's outside counsel informed the
representatives of the timetable for the Proposed Investment and later that
day provided the representatives with the required form of confidentiality
agreement. The Company has received no further contact from this group and
at this time has no basis to believe that the group could consummate a
transaction on terms more favorable to the Company than those of the Proposed
Investment.

The Letter of Intent provided that it was a condition to the execution
of the Investment Agreement that the Company enter into certain arrangements
with American and the Company's four principal labor unions. The arrangements
with the labor unions are necessary to bring the Company's cash flow
requirements in line with certain assumptions contained in the Memorandum.

Concurrently with the November negotiations between the Company and
AIP, representatives of the Company, AIP and Jefferies met with representatives
of American and worked out the principal terms of the arrangements with
American, including the December Amendment. See "Description of Arrangements
with American" below.

Following the execution of the Letter of Intent, the Company commenced
a series of negotiations with representatives of each of its four principal
labor unions, the International Association of Machinists and Aerospace Workers
(AFL-CIO) ("IAM"), the Air Line Pilots Association International ("ALPA"), the
Association of Flight Attendants ("AFA") and the Transport Workers Union
("TWU"), for the purpose of obtaining certain modifications to the collective
bargaining agreements between the Company and each of the unions. These
modifications are conditions to the obligation of AIP to consummate

<PAGE>

the Proposed Investment. As of December 7, the Company had reached tentative
agreements with IAM, ALPA, AFA and TWU, which agreements are subject to union
membership ratification and consummation of the Proposed Investment. See
"Description of Arrangements with Principal Labor Unions" below.

APPROVAL OF INVESTMENT AGREEMENT

On December 7, 1995, the Board of Directors met to review and consider
the Investment Agreement and the related documents setting out the terms of the
Potential Investment. A draft of the Investment Agreement, in substantially
final form, was provided to Board members in advance of the meeting.

Jefferies reviewed the terms of the Proposed Investment and the
arrangements with American and explained their effect on the Company's
capitalization, as well as the dilutive effect of the Proposed Investment on
the current shareholders. An analysis of comparable publicly-traded
companies and recent comparable offerings was presented and Jefferies
explained its analysis of the fairness of the consideration to be paid by
AIP. Jefferies then delivered its written opinion that as of that date and
subject to certain considerations and assumptions, the consideration to be
paid by AIP in the Proposed Investment was fair, from a financial point of
view, to the current common shareholders of the Company.

The Board of Directors then unanimously approved the Investment
Agreement and the Proposed Investment. The directors also unanimously
approved the Proposed Charter Amendments, the director nominees, and the
substance of the amendments to the Bylaws required by the Investment
Agreement. The officers of the Company were instructed to submit the
Investment Agreement to the Company's shareholders for their consideration
and approval at the Special Meeting. On December 8, 1995, the Investment
Agreement was executed and delivered by the Company and AIP. Later that day,
the Company publicly announced the entering into of the Investment Agreement.

BOARD OF DIRECTORS RECOMMENDATIONS

The Board of Directors has unanimously approved the Proposed
Investment and believes that the Proposed Investment is in the best interests of
the Company and its shareholders. The Board of Directors, in recommending
shareholder approval of the Proposed Investment, considered a number of factors,
including, without limitation, the following:

(a) the likelihood that, without the Proposed Investment, the Company
will be unable to obtain from American a forbearance or permanent waiver of the
existing defaults under the Aircraft Lease Agreement on a timely basis and on
terms satisfactory to the Company;

(b) the current liquidity crisis of the Company, which, if not
remedied, would materially impair the Company's ability to continue its
operations and could make it necessary for the Company to seek protection from
its creditors under federal bankruptcy laws;

<PAGE>

(c) the recent market prices and trading information with respect to
the Class A Common Stock and the decline in the price of the Class A Common
Stock to the detriment of the shareholders that is likely to occur if the
Proposed Investment is not consummated;

(d) the substantial increase in the Company's working capital that
should result from the Proposed Investment and the arrangements with American,
and the substantial reduction in cash operating expenses that should result from
the arrangements with the Company's principal labor unions, and the prospect
that, as a result of these, the Company should be able to make certain high
return capital expenditures, take advantage of prompt payment discounts, avoid
the need to provide early payment incentives to wholesalers and become less
dependent on short-term bank debt and promotional sales to the traveling public
to finance its operations;

(e) the benefit the Company expects to receive from the addition to
the Board of Directors of the directors designated by AIP;

(f) the existing assets, operations, earnings and prospects of the
Company in light of the economic climate, the seasonal downturn typically
experienced by the Company in the first quarter of the year and the Company's
net working capital deficit;

(g) the terms of the Proposed Investment and the terms of the
arrangements with American and the principal labor unions;

(h) the potential benefits to existing shareholders as a result of
the Rights Offering; and

(i) the opinion of Jefferies that the consideration to be paid by AIP
in the Proposed Investment is fair, from a financial point of view, to the
current common shareholders of the Company. See "Opinion of Financial Advisor"
below.

In view of the variety of factors considered by the Board of Directors
in connection with its evaluation of the Proposed Investment, the Board of
Directors did not find it practicable to, and did not, quantify or otherwise
assign relative weights to the individual factors considered in reaching its
determination and recommendation set forth above.

OPINION OF FINANCIAL ADVISOR

On December 7, 1995, Jefferies delivered to the Board of Directors its
written opinion to the effect that, as of such date and subject to certain
considerations and assumptions, the consideration to be paid by AIP in the
Proposed Investment is fair, from a financial point of view, to the current
common shareholders of the Company.

In conducting its analysis and arriving at its opinion, Jefferies
considered such financial and other factors as it deemed appropriate under the
circumstances, including, among others: (i) the terms and financial aspects of
the Proposed Investment; (ii) the Company's need for capital and available
alternatives for raising equity capital; (iii) the historical and current
markets for the Company's common stock and for securities of certain companies
believed by Jefferies to be comparable to the Company; (iv) public equity
issuances of certain other airline companies and the current environment for
public equity issuances; (v) the use of proceeds and the financial impact of the
Proposed Investment on the holders of the Company's stock; (vi) certain of the
Company's operating and financial information,

<PAGE>

including projections, analyses and estimates provided by management relating to
the Company's business and prospects; (vii) publicly available financial data
and stock market performance data of other public companies which Jefferies
deemed generally comparable to the Company; (viii) a draft of the Investment
Agreement and related exhibits and schedules, all in substantially final form;
and (ix) the Company's Annual Reports to Shareholders and Annual Reports on Form
10-K for the fiscal years ended on December 31, 1992 through December 31, 1994,
and its Quarterly Report on Form 10-Q for the period ended September 30, 1995.
Jefferies also discussed with representatives of management of the Company the
business, properties and prospects of the Company and undertook other reviews,
analyses and inquiries relating to the Company.

THE FULL TEXT OF THE WRITTEN OPINION OF JEFFERIES, DATED DECEMBER 7,
1995, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX II TO THIS PROXY STATEMENT.
THE COMPANY'S SHAREHOLDERS ARE URGED TO READ THIS OPINION CAREFULLY IN ITS
ENTIRETY. JEFFERIES' OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL
POINT OF VIEW, TO THE CURRENT COMMON SHAREHOLDERS OF THE COMPANY OF THE
CONSIDERATION TO BE PAID BY AIP IN THE PROPOSED INVESTMENT AND WAS PROVIDED
SOLELY FOR THE USE OF THE COMPANY'S BOARD OF DIRECTORS IN ITS EVALUATION OF THE
PROPOSED INVESTMENT, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED
INVESTMENT AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY OF THE COMPANY'S
SHAREHOLDERS AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING. IN
ADDITION, JEFFERIES EXPRESSED NO OPINION AS TO THE FAIRNESS OR CONSEQUENCES OF
THE RIGHTS OFFERING. JEFFERIES EXPRESSLY DISCLAIMED ANY OBLIGATION TO ADVISE ANY
PERSON OF ANY CHANGE IN ANY FACT OR MATTER AFFECTING ITS OPINION OF WHICH IT
BECOMES AWARE AFTER THE DATE HEREOF.

In Jefferies' review and analysis and in rendering its opinion,
Jefferies relied upon, and did not independently verify, the accuracy,
completeness and fair presentation of all financial and other information
(including financial projections and estimates) that were provided to or
otherwise discussed with it, or which were publicly available, and its opinion
is conditioned upon such information (whether written or oral) being complete,
accurate and fair in all material respects. With respect to the projected
financial information and estimates provided to or discussed with it, Jefferies
assumed without independent verification that such information was reasonably
prepared on bases reasonably reflecting management's best currently available
estimates and good faith judgments as to the future performance of the Company
and that the Company will perform in accordance with such projections for all
periods specified therein. Jefferies also assumed that all consents,
authorizations and agreements of other parties necessary to consummate the
Proposed Investment had been, or will be, obtained without material expense.
Jefferies did not make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company or conduct a physical
inspection of any of the assets of the Company, nor was Jefferies furnished with
any such appraisals. Jefferies' opinion is necessarily based on economic,
monetary, political, market, and other conditions that existed and could be
evaluated as of the date of the opinion and on information available to
Jefferies as of that date. Such conditions are subject to rapid and
unpredictable change.

In arriving at its opinion, Jefferies employed several analytical
methodologies, no one of which was regarded as critical to its overall
conclusion. The conclusions it reached were based on all the analyses and
factors considered as a whole and also on application of its own experience and
judgment. Such conclusions involved significant elements of subjective judgment
and qualitative analysis.

<PAGE>

In regard to the business and financial aspects of the Proposed
Investment, Jefferies considered the Company's critical need for cash to
continue as a going concern, and the likelihood that the Company could not
quickly complete bank financing, or access public debt or equity capital
markets, in a sufficient amount and on reasonable terms given its financial
position. With regard to the financial impact of the Proposed Investment on the
Company's shareholders, Jefferies considered the benefits to the Company's
current stockholders of the proposed Rights Offering. Jefferies also considered
the role of the Proposed Investment in facilitating the restructuring of the
Company's agreements with American and with certain labor unions. In addition,
Jefferies considered certain operating and financial information relating to the
Company and to certain companies deemed by Jefferies to be comparable to the
Company.

By letter dated January 31, 1995, the Company formally retained
Jefferies as its exclusive financial advisor and sole placement agent in
connection with the structuring, issuance and sale of up to $40,000,000 of
debt and/or equity securities and, on November 21, 1995, the Company formally
retained Jefferies to render the fairness opinion. The Company has agreed to
pay Jefferies a fee of $150,000 in connection with the rendering of the
fairness opinion and has agreed to pay Jefferies, upon consummation of the
Proposed Investment, a cash fee equal to 5.0% of the gross proceeds received
by the Company from such investment. In addition, the Company has agreed to
pay Jefferies a fee equal to 5% of the gross proceeds from the Rights
Offering. The Company also agreed to reimburse Jefferies for its out-of-
pocket expenses incurred in performing its services, including reasonable
attorneys' fees and expenses, and to indemnify Jefferies and related persons
against certain liabilities, including liabilities under federal securities
laws, arising out of Jefferies' engagement.

Jefferies has advised the Company that, in the ordinary course of
business, it may actively trade the securities of the Company for its own
account or for the account of its customers and, accordingly, may at any time
hold a long or short position in such securities.

Jefferies is a nationally recognized investment banking firm and was
selected by the Company based on Jefferies' experience and expertise.
Jefferies, as part of its investment banking services, is regularly engaged in
the evaluation of capital structures and the rendering of advice in financial
restructurings and recapitalizations. In addition, Jefferies performs valuations
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements, financial restructurings and
other financial services. Prior to the present engagement, the Company had not
previously engaged Jefferies to render any financial advisory services.

USE OF PROCEEDS

Although the Company has not designated specific uses for the proceeds
from the Proposed Investment, it is anticipated that such proceeds will be used
to provide permanent working capital and to pay fees and expenses associated
with the transactions (estimated to be $2.5 million).

POSSIBLE BRIDGE LOAN

The Company and AIP are currently in discussion regarding the
possibility of AIP making a bridge loan of up to $2 million in order to provide
the Company with short-

<PAGE>

term working capital pending the consummation of the Proposed Investment. The
terms of the loan are still to be determined and no assurance can be given that
the loan will be made.

RIGHTS OFFERING

The Investment Agreement requires AIP to use its best efforts to cause
the Company, as soon as practicable after the consummation of the Proposed
Investment, to make the Rights Offering, pursuant to which the Company would
offer Rights to such persons as the Board of Directors shall determine at the
time of the Rights Offering (which would not include AIP (except possibly with
respect to Rights not exercised during the allotted time) but would include,
among others, shareholders as of the Record Date who continue to hold shares
until the Rights Offering and holders of options granted under the 1994 Stock
Option Plan). Each Right would entitle the holder thereof, during the 20 days
following the issuance of the Rights, to acquire one share of Class A Common
Stock at a discount equal to at least 30% of the trading price of the Class A
Common Stock measured over a period of time to be designated by the Board of
Directors prior to the Rights Offering, subject to a minimum exercise price of
$1.10 per Right. Rights not exercised during the 20-day period would be offered
to certain employees, as provided in the modifications to the collective
bargaining agreements described below, and possibly to AIP. The other terms and
conditions of the Rights Offering, including the number of Rights to be offered,
the record date for the Rights Offering and whether the Rights would be
transferable, would be established by the Board of Directors at the time of the
Rights Offering. It is currently expected that Rights with respect to
approximately 10,000,000 shares of Class A Common Stock would be offered,
subject to the Board's determination at the time of the Rights Offering.

The Rights Offering would be made only by means of a separate
prospectus constituting a part of a registration statement to be filed by the
Company with the SEC.

EFFECT ON EXISTING SHAREHOLDERS

While the Board of Directors is of the opinion that the Proposed
Investment is fair to, and in the best interests of, the shareholders of the
Company, shareholders should consider the following possible effects in
evaluating the Investment Proposal.

DILUTION

As of the Record Date, there were 8,523,442 shares of Common Stock
issued and outstanding, with an additional 852,865 shares issuable pursuant to
the Plan of Reorganization and 1,589,011 shares issuable pursuant to the
Existing Warrants and the Company's 1994 Stock Option Plan, totaling 10,965,318
shares on a fully diluted basis. If the Proposed Investment were to be
consummated and the AMR Warrants were to be exercised, the total number of
shares of Common Stock outstanding on a fully diluted basis (after giving effect
to the issuance of 721,442 additional shares pursuant to the anti-dilution
provisions of the Existing Warrants (which anti-dilution provisions would be
triggered by the issuance of the Shares to AIP)) would be 31,775,083 shares),
resulting in an approximate 65% decrease in an existing shareholder's equity
interest in the Company as of the Record Date on a fully diluted basis.

The Rights Offering is intended to create the potential for increased
returns to existing shareholders and to offer a shareholder partial protection
against this dilution.

24
<PAGE>

CONTROL OF THE COMPANY

Immediately after the consummation of the Proposed Investment, AIP
would own approximately 73% of the outstanding voting power of the Company
based on voting shares outstanding on December 18, 1995. As a result, AIP
would be able to control all actions to be taken by the shareholders of the
Company. After giving effect to the issuance of the balance of shares of
Class A Common Stock reserved for issuance under the Plan of Reorganization,
the issuance of shares of Class A Common Stock upon the exercise of the Rights
(assuming that none of the Rights are exercised by AIP), the Existing Warrants,
the AMR Warrants and options granted under the Company's 1994 Stock Option
Plan, and the conversion of all outstanding shares of the Class B Common Stock
into shares of Class A Common Stock, AIP would own approximately 44% of the
outstanding voting power the Company. However, even at such time as sufficient
shares of Class A Common Stock have been issued to cause AIP to hold less than
50% of the aggregate voting power, its voting power would still be
substantially greater than that of any existing shareholder.

Pursuant to the amendments to the Bylaws required by the Investment
Agreement, AIP would have, until such time as AIP ceases to own at least 35% of
the common equity, the right to designate six of the 11 nominees to stand from
time to time for election as directors of the Company. AIP has designated six
of the director nominees being submitted to the shareholders for election at
the Special Meeting. If AIP's common equity percentage were to go below 35%,
its right to designate directors would be reduced as follows: five of the 11
directors if the percentage were at least 25% but less than 35%; four of the 11
directors if the percentage were at least 10% but less than 25%; three of the
11 directors if the percentage were at least 5% but less than 10%; and none of
the 11 directors if the percentage were less than 5%. See "Amendments to
Bylaws and Description of Special Preferred Stock" below.

In addition to the right of AIP to designate nominees for election as
members of the Board of Directors, three of the Company's labor unions (ALPA,
IAM and AFA) have the right pursuant to their collective bargaining agreements
to designate three of the nominees, thereby leaving the Board of Directors with
the authority to designate only two of the nominees to stand from time to time
for election as directors of the Company.

DIMINISHED ABILITY TO SELL THE COMPANY

As a result of AIP's substantial ownership interest in the Class A
Common Stock, it may be more difficult for a third party to acquire the
Company. A potential buyer would likely be deterred from any effort to acquire
the Company absent the consent of AIP or its participation in the transaction.
As of the date of this Proxy Statement, management knows of no specific effort
to accumulate the Company's securities or to obtain control of the Company by
means of a merger, tender offer, solicitation in opposition to management or
otherwise.

CERTAIN TAX CONSIDERATIONS

The Company anticipates that the Proposed Investment, once completed,
will result in, or significantly increase the likelihood of, an "ownership
change" of the Company for purposes of Section 382 of the Internal Revenue Code
of 1986, as amended (the "Code"). If the Company undergoes an ownership
change, the amount of its net operating losses ("NOLs"), as computed for
federal and state income tax purposes, that it can use to offset future taxable
income generally will be limited to an annual amount (the "Section 382

25
<PAGE>

Limitation") equal to the value of the Company's equity immediately before the
ownership change multiplied by the "long-term tax-exempt rate" (currently
5.75%). In general, to the extent taxable income for a year is less than the
Section 382 Limitation applicable to that year, the excess Section 382
Limitation increases the Section 382 Limitation available for the immediately
succeeding year. To the extent the Company's taxable income for a year exceeds
the Section 382 Limitation applicable to that year, plus the amount of any
unused NOLs not subject to the Section 382 Limitation (e.g., because they were
incurred following the ownership change), the Company will have federal taxable
income subject to tax at a maximum rate of 35% (plus any applicable state
taxes).

The Section 382 Limitation may be increased by certain "built-in"
income items recognized following an ownership change. While the Company
believes that any Section 382 Limitation resulting from the Proposed Investment
may be increased substantially as a result of certain of its "built-in" income
items, whether and the extent to which this rule will increase the Company's
Section 382 Limitation in the future currently are uncertain. Unused NOLs
generally expire 15 years after they are incurred.

In order to preserve a portion of the Company's NOLs in the event of
an ownership change within two years of its bankruptcy reorganization, the
Company made an election in its 1994 income tax return to be subject to the
limitations of Section 382. See "Charter Amendments Proposal--Deletion of
Article XIII." Based on values used by the Company in preparing its 1994
federal income tax return, the Company's Section 382 Limitation, which
generally applies to all NOLs attributable to the period prior to the ownership
change that resulted from the Company's bankruptcy reorganization, currently is
approximately $2.4 million (plus "built-in" income items as discussed above).
Another ownership change of the Company would result in a reduction in the
Company's Section 382 Limitation to the extent that the value of the Company's
equity immediately before that ownership change, as computed for Section 382
purposes, multiplied by 5.75%, plus any available "built-in" income items, is
less than the current Section 382 Limitation. Any reduction in the Section 382
Limitation could increase the Company's future tax liabilities. In addition,
another ownership change would subject to the Section 382 Limitation those NOLs
of the Company incurred after the ownership change resulting from its
bankruptcy reorganization (currently estimated to be approximately
$12 million), which NOLs are not currently subject to the Section 382
Limitation.

While the Company anticipates that another ownership change would
further reduce the amount of NOLs available on an annual basis following that
ownership change, the amount of such reduction and its effect on the Company
depend on numerous issues, including but not limited to the value of the
Company's equity at certain dates, the amount and timing of future taxable
income and loss, and the amount of "built-in" income items of the Company.
Therefore, while the effect of an ownership change could be to increase the
future tax liabilities of the Company, the precise effect of an ownership
change of the Company resulting from the Proposed Investment is unclear.

DESCRIPTION OF ARRANGEMENTS WITH AMERICAN

AMERICAN NOTE AND RELATED ARRANGEMENTS

American has agreed to the deferral, until the earlier of the
consummation of the Proposed Investment or February 7, 1996, of $10 million in
lease rents and maintenance payments ($8 million of which were due on December
8, 1995 and an additional $2 million of which would accrue after December 8,
1995). See "Background and Reasons for the

<PAGE>

Proposed Investment-American Deferral" above. If the Investment Proposal is
consummated and certain other conditions are satisfied, American has agreed
that the Company may pay the $10 million of deferred lease rents and
maintenance payments by issuing to American a promissory note (the "American
Note") secured by certain assets of the Company.

The American Note would bear interest at 10% per annum, payable
quarterly in arrears, and have a final maturity date of September 11, 2001.
The American Note would require repayment of principal equal to one-sixth of
the original principal amount on each anniversary of its date of issuance. The
Company would have the option to prepay the Note for $8,945,042.08 (plus any
increase in the principal amount of the American Note to effect the
reimbursement by the Company of American's transaction expenses as described
below) at any time within twelve months of the date of issuance, or at any time
thereafter, in whole or in part, at its remaining principal balance, without
premium. The American Note would be prepayable in full, at the option of the
holder, in the event and at the time that any person or group (other than AIP)
acquires more than 30% of the voting interest in the Company.

The American Note and the other obligations of the Company to
American would be secured by a lien on substantially all of the personal
property of the Company until December 31, 1997. This lien would be a first
priority lien except that it would be junior to (i) liens of security
deposits held by credit card processors and (ii) liens securing up to
$15,000,000 in obligations of the Company consisting of (x) secured
obligations of the Company (other than credit card processor security deposit
liens) existing on the date of issuance of the American Note, and (y)
additional secured obligations of the Company incurred after such issuance.
As of November 30, 1995, in addition to its credit card deposits, the Company
had $9.2 million in secured obligations (including all amounts under the
Credit Facility), the liens of which would be prior to the lien of the
American Note. On and after January 1, 1998, the Company would be obligated
to secure the American Note and the other obligations of the Company to
American with a first priority lien on identified assets with a fair market
value (supported by an appraisal) of at least 125% of the remaining
outstanding principal balance of the American Note from time to time.

In addition, if the Investment Proposal is consummated and certain
other conditions are satisfied, basic rents under the Aircraft Lease Agreement
would be reduced by approximately 28% for a period of three years and the
Company would agree to pay a minimum monthly charge for maintenance services.

If the Proposed Investment is consummated and certain other
conditions are satisfied, American would relinquish $2.0 million of letters of
credit that currently secure the Company's obligations to American under the
Aircraft Lease Agreement. The termination of these letters of credit would
increase the Company's borrowing capacity under the Credit Facility.

The Company has agreed to reimburse American for its reasonable costs
incurred in connection with the arrangements between the Company and American,
not to exceed $250,000. The Company may elect to pay such costs by increasing
the principal amount of the American Note by the amount of such costs.

AMR WARRANTS

If the Proposed Investment is consummated and the arrangements with
American are implemented, the Company would issue to AMR or its affiliate the
AMR Warrants, which would entitle the holder to acquire up to 1,906,505 shares
of the Class A

<PAGE>

Common Stock (the "AMR Warrant Shares") at $1.10 per share. One half of the
AMR Warrants would be immediately exercisable but the balance of the AMR
Warrants would only be exercisable if American and the Company enter into a
code sharing arrangement by January 1, 1997 regarding the placement of the two
letter flight designator code for American's flights on the Company's
Interisland flights. The AMR Warrants would expire on September 11, 2001.

AMR would have the right to require the Company, on two occasions, to
use its best efforts to register, at the Company's expense, some or all of the
AMR Warrant Shares under the Securities Act. In addition, AMR would have the
right to have the AMR Warrant Shares included in any other registered offering
of shares of Class A Common Stock made before September 11, 2001. If any
person or entity acquires a majority of the outstanding Common Stock before
September 11, 2001, the Company would be required to use its best efforts to
cause the seller or sellers of such Common Stock to permit AMR to include AMR
Warrant Shares in such sale on the same terms as those available to such
seller. AIP has agreed that, if it were to sell the requisite number of shares
of Common Stock, it would permit AMR to participate in such sale.

BENEFITS TO THE COMPANY

The arrangements with American, if consummated, would provide the
Company with substantial benefits. The payment of $10 million of deferred
rents and maintenance payments otherwise due on February 7, 1996 would
instead be made in installments over the period from January 1997 to
September 2001, thereby freeing up working capital for other purposes. In
addition, basic rents under the Aircraft Lease Agreement would be reduced by
approximately 28% for three years, resulting in lower operating costs.
Furthermore, the release by American of the security deposit letters of
credit would result in $2 million of borrowing capacity becoming available to
the Company under the Credit Facility.

CONDITIONS PRECEDENT

American's obligation to consummate the arrangements described above
is conditioned on the satisfaction (or waiver by American) of certain
conditions, including the following: (i) consummation of the Proposed
Investment or a comparable transaction; (ii) modification of the Company's
collective bargaining agreements in certain respects; (iii) consummation by the
Company of a plan concerning arrangements with certain of its existing
creditors acceptable to American; (iv) binding arrangements by the Company to
implement yield management and financial reporting systems; and (v) certain
adjustments to the Company's flight schedule that both parties agree would be
profitable. Condition (ii) will be satisfied if the labor unions ratify the
collective bargaining agreement modifications described below.

The AMR Warrants will not be issued and all of the arrangements
described in this "Description of Arrangements with American" section will
terminate if the Proposed Investment is not consummated and the other
conditions described above are not satisfied. In such event, the Company would
be required to pay $10 million to American on February 7, 1996 or face possible
termination of the Aircraft Lease Agreement. See "Background and Reasons for
the Proposed Investment-American Deferral" above.

28
<PAGE>

DESCRIPTION OF ARRANGEMENTS WITH PRINCIPAL LABOR UNIONS

The Company successfully concluded negotiations with representatives
of each of its four principal labor unions, IAM, ALPA, AFA and TWU, reaching
tentative agreements as of December 8, 1995 regarding modification of each of
the four collective bargaining agreements. The tentative agreements are
subject to ratification by the full membership of each of the four unions and
consummation of the Proposed Investment.

If ratified, the new labor agreements would extend the amendable
date of all four contracts from February 28, 1997 to February 28, 2000. Each
of the four unions tentatively agreed to certain economic concessions, which
include cancellation of certain scheduled pay increases, with new pay
increases to be effective December 1, 1998 and January 1, 2000. These
concessions would generate significant annual cost savings to the Company,
currently estimated to be an average of at least $5 million per year over the
next four years. In exchange for the wage concessions, the Company has
agreed to negotiate a gain-sharing program, which would provide employees the
opportunity to receive wage rate increases resulting from work rule and
productivity modifications, which would produce cost savings to the Company.
In addition, the Company has agreed to establish a profit bonus plan, which
would provide all employees (other than senior management) with cash bonuses
if the Company achieves certain pre-tax profit targets. The four contracts
as modified would provide additional furlough protection to employees under
certain specified circumstances. The Company and unions also have agreed to
include certain additional low-cost or no-cost provisions that are specific
to each of the respective union contracts.

It is a condition to AIP's obligation to consummate the Proposed
Investment and to American's obligation to consummate its arrangements with the
Company that the Company obtain the above-described modifications to the four
collective bargaining agreements.

Pursuant to their collective bargaining agreements, AFA, IAM and ALPA
each have the right to designate one of the nominees to stand from time to time
for election as directors of the Company. The proposed modifications to the
collective bargaining agreements call for this right to be reflected in the
Bylaws. The modifications also call for AFA, IAM and ALPA to receive a share
of Series F Special Preferred Stock, Series M Special Preferred Stock and
Series P Special Preferred Stock, respectively. See "Amendments to Bylaws and
Description of Special Preferred Stock" below.

AMENDMENTS TO BYLAWS AND DESCRIPTION OF SPECIAL PREFERRED STOCK

BYLAW AMENDMENTS

Pursuant to the Investment Agreement and the modifications to the
collective bargaining agreements with the Company's principal labor unions, the
Bylaws will be amended, effective as of the consummation of the Proposed
Investment, to provide that, of the 11 members of the Board of Directors, one
shall be designated by each of AFA, IAM and ALPA and six shall be designated by
AIP. In addition, the Bylaws will provide that one individual is to be an
outside director, defined as one who is not employed by the Company and is not
affiliated with the Company's labor unions, AIP or American, and one director
is to be a senior management official of the Company. The Bylaws will provide
that AIP's right to designate six directors will continue so long as it owns
35% of the outstanding Common Stock on a fully diluted basis and will be
reduced to five so long as it retains 25% of such

<PAGE>

Common Stock, reduced to four so long as it retains 10% of such Common Stock,
and reduced to three so long as it retains 5% of such Common Stock.
Thereafter, AIP will not have the right to designate any individuals to the
Board. To the extent Board members are not required to be representatives of
AIP because of the reductions in its stock holdings, such Board members are to
be outside directors.

In order to insure the representation on the Board of Directors as
set forth in the Bylaws, AIP will receive one share of Series A Special
Preferred Stock and AFA, IAM and ALPA will each receive one share of Series F
Special Preferred Stock, Series M Special Preferred Stock and Series P Special
Preferred Stock, respectively. Such shares of Special Preferred Stock will
permit the holder to remove and replace a director who does not meet the
qualifications described above in the event that the Board of Directors or the
shareholders do not comply with the Bylaw provisions relating to qualification
of directors. The holder of the Special Preferred Stock may remove its
representative on the Board and replace such representative with another
director or may fill a vacancy otherwise created in such representative's seat
on the Board.

Notwithstanding the right of the holders of Special Preferred Stock
to remove directors designated by such holders, the shareholders of the Company
retain the right to remove any director with or without cause upon the
requisite vote. However, a vacancy created by the shareholders' removal of a
director designated by the holder of a series of Special Preferred Stock may
only be filled by a director designated by the holder of such series of Special
Preferred Stock.

AIP has agreed with each of the labor unions that so long as the
right to have a representative on the Board is in its respective collective
bargaining agreement, AIP will vote its shares in favor of such union's nominee
for the Board of Directors.

TERMS OF SPECIAL PREFERRED STOCK

In addition to the rights of the Special Preferred Stock described
above, the terms of the Special Preferred Stock will be as follows:

RANKING AND LIQUIDATION PREFERENCE. With respect to rights on
liquidation, dissolution and winding up, the Series A, Series F, Series M and
Series P Special Preferred Stock will rank senior to the Common Stock and pari
passu with each other. In the event of the liquidation, dissolution or winding
up of the Company, the holder of each share of Special Preferred Stock will be
entitled to receive $.01 per share, and no more, before any payments are made
to holders of any stock ranking junior to the Special Preferred Stock.

DIVIDENDS. No dividends will be declared or paid in respect of the
Special Preferred Stock.

VOTING RIGHTS. The Special Preferred Stock will not be entitled to
vote, except that the holders of Special Preferred Stock will have the right to
vote to fill certain vacancies on the Board of Directors and to vote to remove
certain directors as provided in the amended Bylaws as described above. In
addition, the Special Preferred Stock will have such voting rights as are
provided by Hawaii law.

CONVERSION INTO COMMON STOCK. Each share of Special Preferred Stock
will automatically convert into one share of Class A Common Stock upon the
transfer of such

<PAGE>

share from the person to whom originally issued to any person that is not an
affiliate of such person.

AMENDMENTS TO OTHER AGREEMENTS

Certain agreements to which the Company is a party contain provisions
that would be triggered if the Proposed Investment were to be consummated. It
is a condition to AIP's obligations under the Investment Agreement that these
provisions be modified so that they will not be so triggered.

SHAREHOLDER RIGHTS PLAN

Under the Rights Agreement dated as of December 23, 1994 between the
Company and Chemical Trust Company of California, as Rights Agent, as amended
(the "Rights Agreement"), which sets out the terms of the Company's shareholder
rights plan, AIP's acquisition of the Shares would render AIP a "10%
Shareholder," (as that term is defined in the Rights Agreement), thereby
triggering the distribution of preferred stock purchase rights to the Company's
shareholders. Pursuant to the Rights Agreement, the Board has the power to
determine whether any person, including AIP, is or is not a "10% Shareholder,"
whether or not such a determination is adverse to any holder of preferred stock
purchase rights. The Board has determined that AIP's acquisition of the Shares
shall not render AIP a "10% Shareholder" and has approved an amendment to the
Rights Agreement to exclude AIP's acquisition of the Shares from triggering the
distribution of the preferred stock purchase rights.

STOCK OPTION AGREEMENTS

The options granted under the Company's 1994 Stock Option Plan vest
and are exercisable pursuant to the terms of the 1994 Stock Option Plan upon
the earlier of February 2, 1996 or upon a change of control, as described in
the 1994 Stock Option Plan. If the options vest through lapse of time, they
may be exercised at any time prior to February 2, 2005; however, if the options
vest due to a change of control, they may be exercised immediately prior to
such change of control, after which any unexercised options lapse. The
Proposed Investment would constitute a change of control for purposes of the
1994 Stock Option Plan, thereby accelerating both the vesting and expiration of
the options. In connection with the Proposed Investment, the 1994 Stock Option
Plan will be amended to provide that options will vest immediately prior to the
consummation of the Proposed Investment and will thereafter be exercisable
until 2005 notwithstanding the change of control.

EXISTING WARRANTS

The exercise price of, and number of shares issuable pursuant to, the
Existing Warrants are adjustable in certain circumstances if the Company issues
additional securities. These types of provisions are commonly known as "anti-
dilution provisions" and are favorable to the Existing Warrant holders because
the Existing Warrants will retain the value given for such Existing Warrants,
even if the Company issues additional securities. There are specific
exceptions to the anti-dilution provisions contained in the Existing Warrants.
The Board of Directors has approved an amendment to the Existing Warrants to
provide that the issuance of the AMR Warrants, the AMR Warrant Shares, the
Rights and shares of Class A Common Stock upon exercise of the Rights would not
entitle the Existing Warrant holders to the anti-dilution protection. However,
the anti-dilution provisions would be triggered by the issuance

<PAGE>

of the Shares to AIP, thereby entitling the holders of the Existing Warrants to
purchase an additional 721,442 shares of Class A Common Stock. It is a
condition to the consummation of the Proposed Investment that the Existing
Warrant holders agree to such amendments.

ALTERNATIVES TO THE PROPOSED INVESTMENT

In the event that the Proposed Investment is not approved at the
Special Meeting, or is not consummated for any other reason, the Company will
attempt to negotiate a further deferral with American, including a permanent
waiver of the existing defaults. There can be no assurance (and American has
given no indication) that the Company will be successful in any such efforts.
If the Proposed Investment is not consummated, the Company's inability to
obtain a permanent waiver of the existing defaults would materially impair the
Company's ability to continue its operations as currently conducted. If the
Proposed Investment is not consummated, the Board of Directors would seek other
investment or acquisition proposals. There can be no assurance, however, that
another investment or acquisition proposal would be received. If the Company
is unable to secure another investment or acquisition proposal, it may be
necessary for the Company to seek protection from its creditors under federal
bankruptcy laws. The Company is currently unaware of any person or entity,
other than AIP, who is willing and able to make a substantial investment in the
Company.

REGULATORY FILINGS AND APPROVALS

The Company currently holds licenses from the Federal Communications
Commission (the "FCC") to operate radios from its aircraft and ground
facilities. FCC regulations provide that a licensee must obtain new licenses
following a "change of control" of the licensee. Because the consummation of
the Proposed Investment would constitute a change of control of the Company
under these FCC regulations, the Company and AIP intend to file with the FCC an
application seeking issuance of the required licenses.

The Department of Transportation and the Federal Aviation
Administration issue certificates of Public Convenience and Necessity and Air
Carrier Operating Certificates, respectively, that must be maintained by the
carrier in order to continue operations. Both agencies have continuing
jurisdiction to amend, suspend, revoke or modify the Company's certificates
after opportunity for notice and hearing. Neither agency has prior review
authority to prohibit the Proposed Investment. The Company intends to file
with the Department of Transportation and the Federal Aviation Administration
applications seeking issuance of the required certificates after consummation
of the Proposed Investment.

INFORMATION CONCERNING AIP

AIP is an investment partnership formed to make the Proposed
Investments. AIP is a Delaware limited partnership, the sole general partner
of which is AIP General Partner, Inc., a Delaware corporation. Messrs. John W.
Adams and Richard F. Conway, two of the director nominees designated by AIP,
are the President and Vice President, respectively, of AIP General Partner.
Mr. Adams is also the sole shareholder of AIP General Partner.

AIP has informed the Company that the $20 million to be used to
purchase the Shares to be issued to AIP will come from capital contributions to
AIP from its partners.

<PAGE>

FINANCIAL INFORMATION CONCERNING THE COMPANY

Reference is made to the financial statements and notes thereto
appearing in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, as amended, and the Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, June 30 and September 30, 1995. Reference is
also made to "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing in the Annual Report on Form 10-
K for the fiscal year ended December 31, 1994, as amended, and to "Part I-
Financial Information, Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30,
1995, respectively. Such portions of such Annual Report on Form 10-K, and such
Quarterly Reports on Form 10-Q are incorporated herein by reference. See
"Incorporation of Documents by Reference" and "Available Information."

DISSENTERS' RIGHTS AND PREEMPTIVE RIGHTS

Shareholders have no dissenters' rights of appraisal or preemptive
rights in connection with the issuance of the Shares to AIP or the Rights
Offering.

DESCRIPTION OF INVESTMENT AGREEMENT

THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE INVESTMENT
AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX I TO THIS PROXY STATEMENT.
THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND SHAREHOLDERS ARE ENCOURAGED TO
READ THE INVESTMENT AGREEMENT IN ITS ENTIRETY.

The Board of Directors reserves the right to amend or waive the
provisions of the Investment Agreement and the other documents relating thereto
in all respects before or after the approval of the Proposed Investment by the
shareholders. In addition, the Board of Directors reserves the right to
terminate the Investment Agreement in accordance with its terms notwithstanding
shareholder approval.

ISSUANCE AND SALE OF THE SHARES

At the closing of the Proposed Investment (the "Closing"), the
Company will issue and sell, and AIP or certain of its affiliates will
purchase, 18,181,818 shares of the Company's Class A Common Stock and one share
of Series A Special Preferred Stock for a purchase price of $20 million in cash.

For a description of the Series A Special Preferred Stock, see
"Amendments to Bylaws and Description of Special Preferred Stock" above.

CERTAIN COVENANTS

The Investment Agreement contains certain covenants including the
following:

ACCESS. Upon reasonable notice, prior to the Closing, the Company
shall afford AIP and its representatives reasonable access during normal
business hours to its properties, books, contracts, records, personnel and
advisors and the Company shall furnish promptly to AIP all information
concerning its business, properties and personnel as AIP may reasonably
request.

<PAGE>

PUBLICITY. Except as required by applicable law, regulation or stock
exchange requirements, neither the Company nor AIP nor any of their respective
affiliates shall, without the consent of the other, make any public
announcement or issue any press release with respect to the transactions
contemplated by the Investment Agreement. In no event will the Company or AIP
make any public announcement or issue any press release without first
consulting with the other party to the extent feasible, as to the content of
such announcement or release.

PRE-CLOSING ACTIVITIES. From and after the date of the Investment
Agreement until the Closing, each of the Company and AIP shall act with good
faith towards, and shall use its reasonable efforts to consummate, the
transactions contemplated by the Investment Agreement, and neither the Company
nor AIP will take any action that would prohibit or impair its ability to
consummate the transactions contemplated by the Investment Agreement.

Additionally, pursuant to the Investment Agreement, the Company has
agreed that, prior to the Closing, the Company will conduct its business in the
ordinary course and, among other things, except as contemplated by the
Investment Agreement, will not, without the consent of AIP, which shall not
unreasonably be withheld: (i) adopt or propose (or agree to commit to) any
change in the Articles of Incorporation or Bylaws; (ii) incur indebtedness or
amend the terms of existing indebtedness; (iii) sell any assets other than in
the ordinary course; (iv) acquire any assets of, or equity, partnership or
other interests in, any person; (v) repay any indebtedness (except as required
thereby) or redeem or repurchase any shares of capital stock of the Company;
(vi) enter into any transaction with an affiliate; (vii) increase or modify
employment compensation or enter into or modify existing severance contracts;
(viii) take or fail to take any action which could result in the
representations or warranties of the Company contained in the Investment
Agreement being untrue as of the date of the Closing; (ix) agree to expend,
commit or otherwise obligate itself to make capital expenditures, and (x) amend
or agree to amend in any respect the Aircraft Equipment Leases (as defined in
the Investment Agreement), the Aircraft Equipment Services Agreements (as
defined in the Investment Agreement), the collective bargaining agreements with
the unions or the agreements and instruments governing any material
indebtedness of the Company.

REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION

The Investment Agreement contains various representations of the
Company and AIP.

The representations of the Company generally relate to the following:
due organization and good standing; corporate power and authority;
enforceability of the Agreement; capitalization; the absence of violations of
the Articles of Incorporation, Bylaws or material agreements; compliance with
law; consents and approvals; agreements; financial statements; public
disclosure; amendment of the Rights Agreement; litigation; registration rights;
subsidiaries; absence of certain changes; title to properties; aircraft leases
and servicing agreements; taxes; employee matters; patents and trademarks;
environmental matters; accuracy of information furnished; brokers; contingent
liabilities; absence of material adverse change; permits and license; and
exemption from registration.

The representations of AIP generally relate to the following: due
organization and good standing; partnership power and authority; enforceability
of the Investment Agreement; compliance with law; consents and approvals;
litigation; status and investment intent; and available funds.

<PAGE>

The Investment Agreement provides that the Company will indemnify,
defend and hold harmless AIP, its partners and affiliates and their respective
directors, officers, employees and agents and the successors and assigns of any
of them, from all claims for the period for which such representation or
warranty survives arising out of the breach of any representation or warranty
of the Company contained in the Investment Agreement or the breach of any
covenant or agreement by the Company contained in the Investment Agreement, or
the other agreements contemplated by the Investment Agreement.

NON-SOLICITATION PROVISION

Prior to the Closing, neither the Company nor any of its officers,
directors, employees, advisors, representatives or agents, directly or
indirectly, shall take any action to solicit or initiate the submission of any
Acquisition Proposal (as defined below), or, subject to the fiduciary duties of
the directors of the Company under Hawaii law based upon a good faith
determination by the Board of Directors after taking into account the advice of
counsel and independent investment advisors (as to financial terms and
availability of financing) with respect thereto, enter into any agreement with
respect to or propose any Acquisition Proposal or participate in any way in
discussions or negotiations with, or furnish any information to, any person
(other than AIP or any of its partners or officers, directors, employees,
representatives, investment bankers, attorneys, accountants, other agents or
affiliates) in connection with, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, an Acquisition Proposal.

"Acquisition Proposal" means any proposal or offer to the Company or
shareholders of the Company with respect to a merger, consolidation, tender
offer (including a self tender offer), exchange offer, recapitalization,
liquidation, dissolution or similar transaction involving the Company, any
purchase of, or option to purchase, any equity securities (or securities
convertible into equity securities) of the Company or any purchase of, or
option to purchase, any of the assets of the Company (other than (i) sales of
any assets of the Company and/or sales of any voting securities or preferred
stock or securities convertible into voting securities or preferred stock by
the Company in one or a series of transactions (whether related or unrelated)
for aggregate consideration (taking into account all such sales of assets
and/or securities) of less than $10,000,000 and (ii) grants and exercises of
options under the 1994 Stock Option Plan).

CONDITIONS TO CLOSING

AIP's obligation to effect the Closing is subject to various
conditions to be fulfilled to the reasonable satisfaction of AIP on or prior to
the Closing, including among others, the following:

(a) Execution of the registration rights agreement described below;

(b) Amendment of the Rights Agreement to permit the Proposed
Investment without causing adverse consequences to AIP as a result thereof;

(d) Approval of the Investment Agreement by the requisite vote of
the Company's shareholders;

35
<PAGE>

(e) Election to the Board of Directors of the persons designated by
AIP;
(f) The absence of any injunction or other court order restraining
or prohibiting the transactions contemplated by the Investment Agreement and
the absence of any pending or threatened action, suit or proceeding by any
governmental authority or any other person seeking such an injunction;

(g) The Company's compliance in all material respects with its
obligations under the Investment Agreement;

(h) Absence of any event prior to Closing that has had or would be
reasonably likely to have a material adverse effect on the Company;

(i) The modifications to the collective bargaining agreements
between the unions and the Company shall have been ratified and such
agreements, and the agreements with American and the Company's lenders, each as
contemplated by the Investment Agreement, shall be in full force and effect;
and

(j) The holders of the Existing Warrants shall have agreed to waive
certain provisions of such Warrants as contemplated by the Investment
Agreement.

TERMINATION

At any time prior to the Closing, the Investment Agreement may be
terminated (a) by the mutual agreement of the parties, (b) by either the
Company or AIP if (i) pursuant to the terms of the Investment Agreement
the Company enters into a definitive agreement (or in the case of AIP, a
letter of intent) with respect to an Acquisition Proposal, (ii) the
shareholders fail to approve the Investment Proposal, or (iii) there is a
judgment, injunction, order or decree enjoining the transactions contemplated
by the Investment Agreement, (c) by AIP if (i) the Board of Directors
withdraws, modifies, changes or does not give its approval or recommendation
of the sale of the Shares to AIP, (ii) there has been a material breach of
any representation, warranty, covenant or agreement by the Company, or (iii)
the Closing does not occur on or before January 31, 1996, or (d) by the
Company if there has been a material breach of any representation, warranty,
covenant or agreement by AIP.

FEES AND EXPENSES OF THE PROPOSED INVESTMENT

If the Investment Agreement is terminated (other than a termination
by the Company due to the breach of AIP ), the Company will pay to AIP a fee of
$250,000 and the Company shall reimburse AIP for all of the Transaction
Expenses (as defined below) up to a maximum of $400,000. "Transaction
Expenses" means the expenses of AIP (whether or not incurred prior to the date
of the Investment Agreement) arising out of, relating to or incidental to the
discussion, evaluation, negotiation, documentation and closing or potential
closing of the transactions contemplated by the Investment Agreement
(including, without limitation, the fees, disbursements and other expenses of
lawyers, accountants, actuaries, investment bankers and any other advisors
thereto) and any filing fees incurred in connection with such transactions;
PROVIDED, that Transaction Expenses shall not include any fees or expenses
payable to investment bankers.

In addition, in the event that prior to November 6, 1996 the Company
consummates any transaction described in the definition of "Acquisition
Proposal" or a series of such transactions, then the Company shall pay to AIP a
termination fee, not to exceed $750,000 equal to (x) 5% of the aggregate
consideration (which shall not include the

<PAGE>

proceeds of loans made to, or debt securities issued by, the Company in
connection with such transaction unless such loans or debt securities are
convertible into or exchangeable for equity securities or are issued together
with equity securities or warrants or similar rights to acquire equity
securities) received by the Company or its shareholders in any such transaction
or series of transactions if such consideration is received on or prior to May
6, 1996 and (y) 2.5% of the aggregate consideration received by the Company or
its shareholders after May 6, 1996 and on or prior to November 6, 1996. If
such termination fee is applicable, AIP may elect to receive all or a portion
of the termination fee in the form of Class A Common Stock valued at $1.10 per
share (subject to certain antidilution adjustments) and the remainder, if any,
in cash. If AIP receives any such shares it shall be entitled to participate
in registrations of shares of Class A Common Stock by the Company.

REGISTRATION RIGHTS AGREEMENT

The issuance of the Shares to AIP is not being registered under the
Securities Act pursuant to an exemption therefrom and therefore the Shares will
be restricted securities for purposes of the Securities Act. As a condition to
the consummation of the Proposed Investment, the Company will enter into a
registration rights agreement with AIP (the "Registration Rights Agreement"),
pursuant to which AIP, on up to two occasions, will have the right to require
the Company to use its best efforts to register under the Securities Act all or
any portion of the Shares, at the Company's expense and with appropriate
Company indemnification agreements. In addition, if the Company or any other
person, at any time within ten years after the Closing, seeks to register under
the Securities Act for sale to the public any of the Company's securities, AIP
will have the right to participate in such registered offering.

CHARTER AMENDMENTS PROPOSAL

AMENDMENT TO ARTICLE IV

The Board of Directors has unanimously approved and recommends for
shareholder approval a proposed amendment to Article IV of the Articles of
Incorporation providing for an increase in the number of authorized shares of
Class A Common Stock from 40,000,000 shares to 60,000,000 shares.

The authorized capital stock of the Company consists of 40,000,000
shares of Class A Common Stock, 3,050,000 shares of Class B Common Stock and
2,000,000 shares of Preferred Stock, $.01 par value. On December 18, 1995,
6,628,487 shares of the Class A Common Stock and 1,894,955 shares of the
Class B Stock, were issued and outstanding, and the following shares of Class A
Common Stock were reserved for issuance: 852,865 shares under the Plan of
Reorganization; 1,894,955 upon the conversion of shares of Class B Common
Stock; 989,011 shares pursuant to the Existing Warrants; and 600,000 shares in
connection with the 1994 Stock Option Plan. After giving effect to the
issuance of the Shares to AIP, the reservation of shares of Class A Common
Stock for issuance pursuant to the AMR Warrants and the reservation of shares
of Class A Common Stock for issuance pursuant to the anti-dilution provisions
of the Existing Warrants (which anti-dilution provisions would be triggered by
the issuance of the Shares), the Company would have approximately 8,225,000
authorized and unissued shares of Class A Common Stock that are not reserved
for future issuance. Therefore, absent the amendment of Article IV, the
Company would not have sufficient shares of Class A Common Stock available for
issuance upon exercise of the Rights (currently estimated to be approximately
10,000,000). If the Proposed Charter Amendments are approved, the Company
would have approximately 18,225,000 authorized

<PAGE>

and unissued shares of Class A Common Stock that it could issue from time to
time in the future to raise working capital (assuming the Rights are fully
exercised).

The Class A Common Stock is traded on the AMEX and the Pacific Stock
Exchange. The Board of Directors deems it advisable to amend the Articles of
Incorporation in order to increase the number of authorized shares of Class A
Common Stock. In addition to permitting the exercise of the Rights, the
proposed amendment of Article IV would provide the Company with flexibility in
the future by insuring that the Company would have an adequate number of
authorized and unissued shares available for corporate purposes, such as future
public and private equity offerings. The Board of Directors has adopted a
resolution approving the amendment of the Articles of Incorporation to affect
such an increase, subject to shareholder approval.

The additional shares of Class A Common Stock may generally be used
for any proper corporate purpose approved by the Board of Directors and upon
such terms and for such consideration as they determine without further action
by the shareholders, unless shareholder approval is required by applicable law
or by the rules of the AMEX or Pacific Stock Exchange or such other exchange
upon which the Company's stock is then listed. Except for shares of Class A
Common Stock that have been reserved or are to be reserved in connection with
the Existing Warrants, the 1994 Stock Option Plan, the Plan of Reorganization,
the possible issuance of shares of Class A Common Stock pursuant to the
Company's shareholder rights plan, the Proposed Investment, the AMR Warrants
and the Rights Offering, the Company has no present agreements or commitments
to issue any additional shares of Class A Common Stock except for shares
issuable in payment of the termination fee called for by the Investment
Agreement. See "Investment Proposal-Description of Investment Agreement-Fees
and Expenses of the Proposed Investment."

The issuance of additional shares of Class A Common Stock may have a
dilutive effect on the equity and voting rights of the Company's shareholders.

Paragraph (A) of Article IV of the Articles of Incorporation would be
amended to read as follows:

"A. The corporation is authorized to issue three classes
of shares of capital stock, which shall be designated Class A
Common Stock, Class B Common Stock and Preferred Stock,
respectively. The total number of shares of capital stock which
the corporation is authorized to issue is sixty-five million
fifty thousand (65,050,000) shares."

Paragraph (B)(i) of Article IV of the Articles of Incorporation would
be amended to read as follows:

"B. (i) The total number of shares of Common Stock which
the corporation shall have authority to issue is sixty-three
million fifty thousand (63,050,000) and all such shares shall
have a par value of $.01. The corporation shall be authorized
to issue three million fifty thousand (3,050,000) shares of
Class B Common Stock and sixty million (60,000,000) shares of
Class A Common Stock. Notwithstanding the foregoing, the
corporation shall not be authorized to have more than sixty
million (60,000,000) shares of Common Stock outstanding at any
one time. Upon conversion of shares of Class B

<PAGE>

Common Stock into Class A Common Stock, the shares of
Class B Common Stock acquired by the corporation shall be
canceled and shall not be reissued."

DELETION OF ARTICLE XIII

The Board of Directors has unanimously approved and recommends for
shareholder approval the deletion of Article XIII of the Articles of
Incorporation in its entirety.

Article XIII restricts certain transfers of Common Stock in order to
prevent the occurrence of an "ownership change" of the Company for purposes of
Section 382 of the Code. Article XIII contains certain exceptions to its
restrictions on transfer, including an exception permitting specified large
shareholders of the Company, determined immediately following its bankruptcy
reorganization, to transfer their shares of Common Stock under certain
circumstances (the "5% shareholder exception"). Article XIII also provides
that, following an ownership change, such transfer restrictions cease to be
effective.

The Company made a special election in its 1994 federal income tax
return to have its NOLs be subject to Section 382 of the Code following its
bankruptcy reorganization (the "Section 382(l)(6) election"). The purpose of
the Section 382(l)(6) election was to preserve the Company's ability to utilize
a portion of its NOLs even if it underwent an ownership change within two years
from the ownership change resulting from its bankruptcy reorganization.
(Absent that election the Section 382 Limitation following an ownership change
within that two-year period would have been zero.) As a result of the Section
382(l)(6) election, the Company's NOLs attributable to the period prior to the
ownership change resulting from its bankruptcy reorganization are subject to
the Section 382 Limitation, while NOLs incurred following that time (the "post-
change NOLs") generally are not currently subject to that limitation. Thus,
the benefit of restricting future ownership changes would arise if the
Company's Section 382 Limitation following any future ownership change would be
less than its Section 382 Limitation following any ownership change resulting
from or accelerated by the Proposed Investment, or if the Company were able to
utilize the post-change NOLs (e.g., if its taxable income for a future year
exceeds the Section 382 Limitation for that year). See "Investment Proposal--
Effect on Existing Shareholders--Certain Tax Considerations." The Company
believes that current and anticipated transactions with respect to its equity,
including those pertaining to the consummation of the Proposed Investment,
issuance of the AMR Warrants, consummation of the Rights Offering, and possible
transactions involving the 5% shareholder exception or outstanding options to
acquire equity in the Company, will result in or significantly increase the
likelihood of an ownership change of the Company notwithstanding the other
provisions of Article XIII. Thus, the Company believes that the consequences
of possible future reductions in its Section 382 Limitation and of limitations
on the use of the post-change NOLs, while potentially significant, do not
warrant the restrictions on transferability of its stock set forth in Article
XIII.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR APPROVAL OF THE PROPOSED CHARTER AMENDMENTS.

The affirmative vote of the holders of at least two-thirds of the
shares of Class A Common Stock is required to approve the Proposed Charter
Amendments.

If the Proposed Charter Amendments are not approved at the Special
Meeting, the Board of Directors would resubmit the Proposed Charter Amendments
for shareholder

<PAGE>

approval following the consummation of the Proposed Investment and AIP has
agreed pursuant to the Investment Agreement to vote in favor of the Proposed
Charter Amendments. At the time of such resubmission, AIP would have
sufficient voting power to approve the Proposed Charter Amendments regardless
of the vote of other shareholders.

ELECTION OF DIRECTORS

Eleven directors, five of whom are currently serving as directors of
the Company and the other six of whom have been designated by AIP, are to be
elected at the Special Meeting. The six directors designated by AIP will
replace current directors who will resign upon consummation of the Proposed
Investment. Each director elected at the Special Meeting shall hold office
from the consummation of the Proposed Investment until his or her successor
shall have been elected and shall qualify at the Company's 1997 Annual Meeting
of Shareholders or until he or she shall resign or shall have been removed as
provided in the Bylaws. AIP has advised the Company that it currently has no
reason to believe that any of its nominees will be unable or unwilling to serve
if elected. Management has no reason to believe that any of the incumbent
nominees will be unable or unwilling to serve if elected. If any nominee
should become unavailable prior to the election, the accompanying Proxy Card
will be voted for the election in his or her stead of such other person as the
Board of Directors may recommend.

The 11 nominees receiving the highest number of affirmative votes of
the shares present or represented and entitled to be voted for them shall be
elected as directors.

Shareholders do not have the right to cumulate their votes in the
election of directors.

NOMINEES

The Board of Directors has recommended and approved the nomination of
the 11 candidates for director. The nominees for election as directors of the
Company are as follows:

NAME, YEAR FIRST
ELECTED OR APPOINTED
AS DIRECTOR OF THE PRINCIPAL OCCUPATIONS
COMPANY DURING PAST FIVE YEARS AND OTHER
AND AGE DIRECTORSHIPS
- ---------------------------------- -----------------------------------------
John W. Adams President of Smith Management Company, a
----- New York-based investment firm, 1984-
52 present; Chairman of the Board of
Directors of Regency Health Services,
Inc., September 1994-present; Director of
Servico, Inc., S.I. Handling Systems,
Harvard Industries, Inc. and several
privately held companies.

Todd G. Cole Managing Director of SH&E, Inc., an
1994 international aviation consultant, 1992-
74 present; Vice Chairman Eastern Airlines
DIP, 1989-1991; Director of Arrow Air,
Inc., Capital Markets Assurance
Corporation, Delta Insurance Corporation,
Dillon Read Structured Finance
Corporation, Kaiser Ventures, Inc. and NAC
Re Corporation.

40
<PAGE>

Richard F. Conway Vice President of Smith Management
----- Company, 1994-present; Senior Vice
41 President of Needham & Company, a New
York-based investment banking firm,
1992-1994; Vice President of Security
Pacific Merchant Bank, 1990-1991; Vice
President of Salomon Brothers, Inc.,
1988-1990; Director of Inland Resources
Inc.

Robert G. Coo Independent financial consultant,
----- February 1995-present; Vice President
54 and Chief Financial Officer holding
company, 1990-February 1995; Vice
President Finance and Secretary of
Renewable Resource Systems, Inc.,
a diversified venture capital company,
1987-Diego, California and Regency
Health Services, Inc.

Carol A. Fukunaga Attorney in private practice, 1986-
1991 present; Hawaii State Senator, 1992-
47 present; Hawaii State House of
Representatives, 1978-1992.

William Boyce Lum Psychologist/psychoanalyst; of Counsel
----- with Lum, Danzis, Positan, Drasco &
57 Kleinberg, a law firm in Roseland, New
Jersey; Director of Summit Bank
Corporation.

Richard K. Matros Chief Executive Officer and President of
----- Regency Health Services, Inc., April 1994-
[Age] present; Chief Executive Officer of Care
Enterprises, Inc., January 1994-April 1994
(at which time Care Enterprises was merged
into Regency Health Services); President
and Chief Operating Officer of Care
Enterprises, 1991-January 1994; Executive
Vice President of Operations of Care
Enterprises, 1988-1991.

Bruce R. Nobles Chairman of the Board, President and Chief
1993 Executive Officer, 1994-present; President
48 and Chief Executive Officer, 1993-1994;
President and Chief Executive Officer,
L'Express, Inc., New Orleans, Louisiana,
1991; President and Chief Operating
Officer, Trump Shuttle, Inc., New York,
New York, 1988-1990.

Samson Poomaihealani Assistant General Chairman of the Airline
1990 Machinists District 141 of IAM, 1987-
54 present.

Edward Z. Safady Vice President of Smith Management
----- Company, Inc., _________ 1995-present;
38 President, Chief Executive Officer and a
Director of Liberty National Bank, Austin,
Texas, _____-1995; Director of U.S.
Medical Products, Inc.

David B. Urrea Pilot for Hawaiian Airlines, 1971-present;
1994 Master Executive Council Chairman of ALPA
51 at the Company, 1988-1994.

Messrs. Adams, Conway, Coo, Lum, Matros and Safady have
been designated by AIP. Ms. Fukunaga, Mr. Poomaihealani and Mr. Urrea have
been designated by AFA, IAM and ALPA, respectively.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE SLATE OF NOMINEES SET FORTH ABOVE.

<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers of the Company are as follows:

NAME PRINCIPAL OCCUPATIONS
AND AGE DURING PAST FIVE YEARS AND OTHER DIRECTORSHIPS
- ----------------------------- -----------------------------------------

Bruce R. Nobles Chairman of the Board, President and Chief
48 Executive Officer, September 12, 1994-present;
President and Chief Executive Officer, 1993-
September 12, 1994. Refer to table above for
principal occupations during past five years.

Frank L. Forster Senior Vice President and Chief Operating
56 Officer, 1994-present; Maintenance Advisor
(consultant), 1991-1994; Vice President-
Maintenance and Engineering, 1990-1991.

C.J. David Davies Senior Vice President-Finance and Chief
58 Financial Officer, 1993-Present; Senior Vice
President, Treasurer and Chief Financial
Officer, Pan American World Airways, Inc., New
York, New York, 1976-1992.

Peter W. Jenkins Senior Vice President-Marketing and Sales, 1994-
54 present; Director of Communications, ITT
Sheraton Corporation, Honolulu, Hawaii, 1987-
1994.

Rae A. Capps Vice President-General Counsel and Corporate
43 Secretary, 1993-present; Law Firm of Goodsill
Anderson Quinn & Stifel, Honolulu, Hawaii, 1990-
1993.

Clarence K. Lyman Vice President-Finance, Treasurer and Assistant
49 Corporate Secretary, 1991-present; Vice
President-Treasurer and Assistant Corporate
Secretary, 1989-1991.

Alexander D. Jamile Vice President-Government and Community
56 Affairs, 1993-present; Vice President-
Administration/Governmental and Community
Affairs, 1992-1993; Director-Operations, Young
Bros., Ltd., Honolulu, Hawaii, 1987-1992.

John P. Solomito Vice President-Customer Services, 1992-present;
57 General Manager, Pan American World Airways,
Inc., Los Angeles, California, 1988-1992.

James H. Davis, Jr. Vice President-Flight Operations, 1995-present;
57 Partner and Vice President of Operations,
Hawaii Aviation Contract Services, Inc., 1990-
1994; DC-10 Chief Pilot, Japan Air Charter,
1990-1994; Wide Body Line Captain and Chief
Pilot of International Operations, Hawaiian
Airlines, Inc., 1968-1990.

Glen L. Stewart Vice President-Transpacific and Southpacific
53 Marketing, 1993-present; Senior Vice President-
Transpacific, 1991-1993; Senior Vice President-
North American Sales, 1991; Senior Vice
President-Finance and Chief Financial Officer,
1989-1991.

42
<PAGE>

Glenn G. Taniguchi Vice President-Schedule Planning and
52 Reservations, 1995-Present; Staff Vice
President-Schedule Planning and Reservations,
1991-1995; Director-Schedule Planning and
Reservations, 1986-1991.

All officers are appointed annually by the Board of Directors at
the Board of Directors' first meeting after the annual meeting or special
meeting of the stockholders at which the Board of Directors is elected.

No executive officer or director of the Company bears any
relationship by blood, marriage or adoption to any other executive officer or
director.

In September 1993, the Company, HAL, INC. and West Maui Airport,
Inc. filed a voluntary petition of relief under Chapter 11. At the time or
within two years before the time of the Chapter 11 filing, the present
executive officers of the Company except Messrs. Forster, Jenkins, Taniguchi
and Davis were executive officers of the Company, HAL, INC. and/or West Maui
Airport, Inc. and Messrs. Anderson, Nobles and Poomaihealani and Ms. Fukunaga
were directors of the Company, HAL, INC. and/or West Maui Airport, Inc.

INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE VOTED UPON

Two of the nominees standing for election as directors at the
Special meeting, Messrs. Adams and Conway, are executive officers of the
general partner of AIP. In addition, Mr. Adams is the sole stockholder of
the general partner.

Certain of the directors and executive officers of the Company
currently hold unvested options to purchase an aggregate of 592,500 shares of
Class A Common Stock pursuant to the Company's 1994 Stock Option Plan. Under
the present terms of the 1994 Stock Option Plan, the vesting of these options
would be accelerated in connection with the consummation of the Proposed
Investment and any options not exercised immediately prior to the Proposed
Investment would lapse. The 1994 Stock Option Plan will be amended to
provide that such options will continue in effect until 2005. See "Executive
Compensation-Employee Stock Option Plan."

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file with the SEC and the Company initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company. Based upon the information supplied it by such persons, the
Company is required to report any known failure to file these reports within
the period specified by the instructions to the reporting forms. To the
knowledge of the Company, based upon a review of the Section 16(a) reports
furnished to the Company and the written representations of officers and
directors, all these filing requirements were satisfied by the Company's
directors and executive officers with respect to 1994.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors held three meetings in 1994 and all directors
attended at least 75% of the meetings of the Board and Committees of which they
were members

<PAGE>

except for Mr. Urrea who attended two of the three meetings of the Board and
was not on any committee.

The Board of Directors has Audit, Compensation and Nominating
Committees, among others. The Audit Committee is comprised of Messrs. Brodsky
and Cole and Ms. Fukunaga. The Compensation Committee is comprised of
Messrs. Anderson, Kagawa and Cole. The Nominating Committee is comprised of
Messrs. Nobles, Anderson, Cole, Kagawa and Olafsson.

The Audit Committee met once during 1994. The responsibilities of
the Audit Committee include recommending to the Board the selection of the
independent auditors and reviewing the Company's internal accounting controls.
The Audit Committee is authorized to conduct such reviews and examinations as
it deems necessary or desirable with respect to the Company's accounting and
internal control practices and policies, and the relationship between the
Company and its independent auditors, including the availability of Company
records, information and personnel.

The Compensation Committee did not meet during 1994. The
Compensation Committee focuses on executive compensation, the administration of
the Company's stock option and stock purchase plans and making decisions on the
granting of discretionary bonuses.

The Nominating Committee did not meet during 1994 as it was
established in 1995. The responsibilities of the Nominating Committee include
recommending to the Board of Directors candidates for election to directorships
at annual meetings of shareholders. It was undetermined in 1994 whether the
Nominating Committee would consider nominees recommended by security-holders.

<PAGE>

EXECUTIVE COMPENSATION

The following Summary Compensation Table shows compensation paid by
the Company for services rendered during the 1994, 1993 and 1992 calendar years
for the person who was Chief Executive Officer at the end of the last fiscal
year and the four other most highly compensated executive officers of the
Company ("Named Executive Officers") whose salary and bonus exceeded $100,000
in the 1994 calendar year.

SUMMARY COMPENSATION TABLE

Annual Compensation
---------------------------------------
Salary Bonus Other Annual
Name and Principle Position Year ($) ($) Compensation
- ---------------------------- ---- --- --- ------------
Bruce R. Nobles 1994 199,166 53,106 40,643(1)
President and Chief 1993 100,454 50,000 39,590(1)
Executive Officer 1992 -- -- --

C.J. David Davies 1994 120,000 25,000 (2)
Senior Vice President- 1993 50,000 -- (2)
Finance and Chief 1992 -- -- --
Financial Officer

Frank L. Forster 1994 100,250 17,500 (2)
Senior Vice President and 1993 -- -- --
Chief Operating Officer 1992 -- -- --

Clarence K. Lyman 1994 95,000 17,500 --
Vice President-Finance, 1993 79,479 -- (2)
Treasurer and Assistant 1992 75,125 1,500 (2)
Corporate Secretary

Rae A. Capps 1994 90,000 17,500 (2)
Vice President-General 1993 24,545 -- --
Counsel and Corporate 1992 -- -- --
Secretary
______________

(1) Includes a housing allowance of $36,000 in the 1994 calendar year and
$20,000 in 1993 and certain Company or HAL, INC. related club and business
expenses.
(2) The Company provides various perquisites to its executives which are not
disclosed pursuant to SEC regulations. The value of such perquisites is
less than 10% of the executive's combined salary and bonus.

No stock options or stock appreciation rights were granted or
exercised in the 1994 calendar year.

<PAGE>

RETIREMENT PLANS

The Company has several retirement plans covering a substantial
number of its employees. The Hawaiian Airlines, Inc. Pension Plan for Salaried
Employees (the "Salaried Plan") covers those directors and officers who are
employees of the Company hired prior to September 1, 1992. Effective
October 1, 1993, the Salaried Plan was frozen. The Salaried Plan continued
after the Effective Date of the Plan of Reorganization, but credited service is
not recognized after September 1993 and the 1994 calendar year compensation is
not taken into account.

Benefits paid under the Salaried Plan are primarily determined by the
number of years the employee participated in the Salaried Plan through October
1, 1993 and the employee's average compensation for the five consecutive
calendar years through 1993 that results in the highest average. For purposes
of the Salaried Plan, compensation includes only base compensation; overtime,
bonuses and other forms of compensation are not included.

The following table shows the annual amounts payable in the form of a
single life annuity commencing at age 65 under the current provisions of the
Salaried Plan, without regard to any survivor options, based on assumed
earnings for various years of participation, as indicated. The benefits shown
in the table are not subject to a deduction for Social Security payments.

Assumed Average
Annual Earnings for
Highest Five
Consecutive Years of
Calendar Years Participation
15 20 25 30 35
$25,000 $6,000 $8,000 $10,000 $12,000 $14,000
50,000 $12,000 $16,000 $20,000 $24,000 $28,000
75,000 $18,000 $24,000 $30,000 $36,000 $42,000
100,000 $24,000 $32,000 $40,000 $48,000 $56,000
125,000 $30,000 $40,000 $50,000 $60,000 $70,000
150,000(1) $36,000 $48,000 $60,000 $72,000 $84,000
______________

(1) Pursuant to Section 401 of the Internal Revenue Code, effective January 1,
1994, no more than $150,000 (as adjusted from time to time by the Internal
Revenue Service) of compensation may be taken into consideration in
calculating benefits payable under the Salaried Plan.

The years of credited service as of October 1, 1993 and the 1994
calendar year compensation covered by the Salaried Plan for Messrs. Forster and
Lyman are 2.58 years and $0 and 7.17 years and $0, respectively. Compensation
earned in the 1994 calendar year is not taken into account when calculating
final average earnings under the Salaried Plan because the Salaried Plan was
frozen as of October 1, 1993. Messrs. Nobles and Davies and Ms. Capps are not
eligible to participate under the Salaried Plan.

<PAGE>

COMPENSATION OF DIRECTORS

For the portion of 1994 prior to the Effective Date, the directors of
the Company received no compensation for their service as directors. From and
after the Effective Date, all outside directors of the Company are entitled to
receive a retainer fee of $12,000 per year, an attendance fee of $1,250 for
each meeting of the Board of Directors, and an attendance fee of $500 for each
committee meeting (collectively, "Directors' Fees"). The Company provides
travel from the mainland to Hawaii for Board of Directors meetings, as well as
one night hotel and ground transportation as needed. For their service as
directors of the Company from the Effective Date through December 31, 1994, the
outside Directors earned a $4,000 retainer fee, except for Mr. Urrea who,
pursuant to his wishes, is only accepting reimbursement for expenses incurred
in attending meetings. Mr. Nobles does not receive Directors' Fees. In
February 1995, the Board of Directors resolved to defer payment of their
Directors' Fees until January 1996. Thus, Directors' Fees earned by the
directors in 1994 have not been paid.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS

Employment contracts which existed prior to the Effective Date were
terminated pursuant to the Chapter 11 proceedings. There are currently no
employment contracts between the Company and any of its executive officers.

EMPLOYEE STOCK OPTION PLAN

Pursuant to the terms of the Plan of Reorganization, 600,000 shares
of the Company's Class A Common Stock have been reserved for issuance under a
1994 Stock Option Plan. The 1994 Stock Option Plan provides for issuance of
options to officers and key employees of the Company, with the terms of such
options and the recipients of such options to be determined by a committee. In
February 1995, the Compensation Committee of the Board of Directors approved a
form of nonqualified stock option agreement and granted options under such
agreements covering substantially all of the 600,000 reserved shares. The
Compensation Committee established the exercise price of the options granted as
equal to 25% of the average of the closing prices of the Class A Common Stock
as reported on the American Stock Exchange for the ten consecutive days of
trading beginning on June 26, 1995. The initial distribution of the Company's
Class A Common Stock occurred on June 19, 1995. Trading during the succeeding
days was so volatile that the AMEX suspended trading on June 23, 1995. Trading
was resumed on June 26, 1995. The application of the aforementioned formula
resulted in an option exercise price of $1.62 per share. At the 1995 annual
meeting of shareholders, the shareholders ratified the prior approval of the
1994 Stock Option Plan. The Company has since registered these 600,000 shares
of Class A Common Stock with the SEC.

The options vest and are exercisable pursuant to the terms of the
1994 Stock Option Plan upon the earlier of February 2, 1996 or upon a change of
control, as described in the 1994 Stock Option Plan. If the options vest
through lapse of time, they may be exercised at any time prior to February 2,
2005; however, if the options vest due to a change of control, they may be
exercised immediately prior to such change of control, after which any
unexercised options lapse. The Proposed Investment would constitute a change
of control for purposes of the 1994 Stock Option Plan, thereby accelerating
both the vesting and expiration of the options. In connection with the
Proposed Investment, the 1994 Stock Option Plan will be amended to provide that
options will vest immediately prior to the consummation of the

<PAGE>

Proposed Investment and will thereafter be exercisable until 2005
notwithstanding the change of control.

The following officers and key employees of the Company were granted
the following number of options during 1995: Bruce R. Nobles, 300,000, Frank L.
Forster, 60,000, C. J. David Davies, 65,000, Clarence K. Lyman, 50,000, Peter
W. Jenkins, 40,000, Rae A. Capps, 40,000, John P. Solomito, 7,500, Alexander D.
Jamile, 7,500, Glen L. Stewart, 7,500, Glenn G. Taniguchi, 7,500, and Michael
P. Loo, 7,500. One officer to whom options were granted has resigned, and
therefore, 7,500 shares of Class A Common Stock subject to options remain to be
granted.

EMPLOYEE STOCK OWNERSHIP PLANS

Effective September 1, 1990, HAL, INC. established Employee Stock
Ownership Plans ("ESOPs") as part of the renegotiation of labor contracts for
union represented employees and a parallel salary reduction arrangement for
salaried employees. In exchange for work rule changes and 10.0% wage
reductions, HAL, INC. agreed to contribute 20.0% of its common stock on a fully
diluted basis to these tax-qualified ESOPs. The ESOPs include the Hawaiian
Airlines, Inc. Employee Stock Plan ("Hawaiian ESOP"), which provides ESOP
coverage for certain Hawaiian employees, including certain of the Named
Executive Officers.

Further commitments to contribute to the ESOPs resulted from
subsequent agreements. On the Effective Date, all shares of HAL, INC. common
stock, including shares already held by the Hawaiian ESOP and additional shares
of HAL INC. that remained to be contributed pursuant to the agreements, were
canceled.

Due to certain compensation and benefit changes for salaried
employees, arrangements were made for the allowance of employee concession
claims to be satisfied by contributions of common stock of the Company to the
Hawaiian ESOP.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1994 until the Effective Date, the Compensation Committee
consisted of directors Samson Poomaihealani, Gary H. Schoenfeld and Donald M.
Takaki. From the Effective Date until the present, the Compensation Committee
has consisted of directors Martin Anderson, Clifton Kagawa and Todd G. Cole.

During the 1994 calendar year, the Company paid the law firm Goodsill
Anderson Quinn & Stifel, of which Mr. Martin Anderson, a member and chairman of
the Compensation Committee, is a partner, legal fees in the amount of $268,840.
As of December 31, 1994, $7,500 of fees were outstanding. Goodsill Anderson
Quinn & Stifel received 28,606 shares of Class A Common Stock upon the June 19,
1995 initial distribution by the Company of shares of Class A Common Stock.

In conjunction with obtaining financing under the Plan of
Reorganization, $2.0 million of letters of credit were provided by certain
third parties as additional security for performance of the Company's
obligations under the financing. One such letter of credit in the amount of
$1.0 million is guaranteed by Mr. Anderson. In consideration for the
guarantee, Mr. Anderson received a subordinate security interest in the assets
securing the financing and received warrants to purchase 494,505 shares of the
Company's Class A Common Stock. The warrants have a five-year term, expiring
September 12, 1999, and are

<PAGE>

exercisable at a price equal to $2.73 per share, subject to adjustment pursuant
to anti-dilution provisions.

Mr. Anderson served as Vice President of the Company from 1976 to
1980, and Vice President-Legal and Assistant Secretary to the Company from 1980-
1981.

Mr. Clifton Kagawa, a member of the Compensation Committee, is the
President and Chief Executive Officer of Hill and Knowlton Asia Pacific, and
senior representative in Hawaii for WPP Group plc, the parent company of Hill
and Knowlton, Inc., and advertising agency Ogilvy and Mather Worldwide. Hill
and Knowlton, Inc. is a public relations company which provides services to the
Company. During the 1994 calendar year, this public relations company billed
the Company for services totaling $160,000 and collected net revenue of
$129,000. Hill and Knowlton, Inc. received 1,431 shares of Class A Common
Stock upon the June 19, 1995 initial distribution by the Company of shares of
Class A Common Stock. The Company also employs the services of Ogilvy & Mather
Hawaii, which received 20,410 shares of Class A Common Stock upon the June 19,
1995 initial distribution by the Company of shares of Class A Common Stock.
During the 1994 calendar year, this advertising agency billed the Company for
services totaling $1,913,000 and collected net revenue of $418,000.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors (the
"Committee") was formed in October 1994 after the Company emerged from the
Reorganization in September 1994. The Committee is charged with making salary
recommendations to the full Board of Directors for Company executive officers
at the Vice President level and higher along with recommendations for bonuses,
deferred compensation, stock option plans and director compensation. The
Committee grants awards under and administers the 1994 Stock Option Plan. The
Committee has solicited information from compensation consultants in
determining compensation.

Pursuant to the Plan of Reorganization, the initial executive
officers of the Company were the same as the officers of HAL, INC. at the time
the Company emerged from the Reorganization. While the Company rejected all
employment agreements with executive officers upon emerging from the
Reorganization, the Board of Directors determined that, with the exception of
the Chief Executive Officer, the compensation of officers in 1994 should
continue at the same rate of compensation received by the officers at the time
the Company emerged from the Reorganization. On December 1, 1994, the Board of
Directors approved a salary increase for the Chief Executive Officer. Because
the Company emerged from the Reorganization late in 1994, the Company's
performance in 1994 was not a relevant factor in determining officer
compensation for 1994.

COMPENSATION COMMITTEE
Martin Anderson
Todd G. Cole
Clifton Kagawa

The above report of the Committee will not be deemed to be
incorporated by reference into any filing by the Company under the Securities
Act or the Exchange Act, except to the extent that the Company specifically
incorporates the same by reference.

<PAGE>

STOCK PERFORMANCE GRAPH

The graph below compares cumulative total return of the Company,
the S&P 500 Index and the Company's selected Peer Issuer Index from June 21,
1995, the first day of trading of the Class A Common Stock on the AMEX, to
December 7, 1995. The Peer Issuers the Company selected consist of: Alaska
Airgroup Inc., America West Airlines, Inc., Amtran, Inc., Atlantic Coast
Airlines, Inc., Atlantic Southeast Airlines, Comair Holdings Inc., Great
Lakes Aviation Ltd., Mesa Airlines, Inc., Reno Air Inc., Southwest Airlines
Company and Valujet Airline, Inc. The S&P 500 Index and the Index for the
month of June have been prorated to arrive at the beginning index used in
this graph. The comparison assumes $100 was invested on June 21, 1995 in the
Class A Common Stock and each of the foregoing indices and assumes
reinvestment of dividends before consideration of income taxes.

6/21/95
BASE TO
PERIOD 12/7/95
COMPANY & INDEX NAME 6/21/95 RETURN
-------------------------------------------------------------
HAWAIIAN AIRLINES, INC. 100 73.33
S&P 500 INDEX 100 114.15
PEER GROUP 100 111.00

The stock performance depicted in the above graph is not necessarily
indicative of future performance. The Stock Performance Graph shall not be
deemed to be "soliciting material" or to be "filed" with the SEC or subject to
Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act,
except to the extent that the Company specifically requests that such
information be treated as soliciting material or specifically incorporates it
by reference into a filing under the Securities Act or Exchange Act.

MISCELLANEOUS

In the event that sufficient votes in favor of the Proposed
Investment are not received by January 25, 1996, the persons named in the
enclosed Proxy card may propose one or more adjournments of the meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of the votes cast on the matter at the meeting.
The Proxy Holders will vote in favor of such adjournment those proxies which
they are entitled to vote in favor of the Proposed Investment for which further
solicitation of proxies is to be made. They will vote against any such
adjournment those proxies required to be voted against such Proposed
Investment. The costs of any such additional solicitation and of any adjourned
session will be borne by the Company.

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

KPMG Peat Marwick LLP was the Company's certified public accountant
during 1994. The appointment of auditors is approved annually by the Board of
Directors which approval is based in part on the recommendation of the Audit
Committee. In making its recommendation, the Audit Committee reviewed both the
audit scope and estimated audit fees for the coming year. A representative of
KPMG Peat Marwick LLP will be present at the Special Meeting and will be given
an opportunity to make a statement if he or she desires to do so and will be
available to respond to questions from shareholders.

SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING

Shareholders are advised that any proposals of shareholders
intended to be presented at the 1997 Annual Meeting of Shareholders must be
received by the Corporate Secretary of the Company at its principal offices
at 3375 Koapaka Street, Suite G-350, Honolulu, Hawaii 96819 on or before
December 15, 1996 for inclusion in the Company's proxy statement and form of
proxy relating to that meeting.

<PAGE>

OTHER BUSINESS

Except for the matters referred to in the accompanying Notice of
Special Meeting, the Board of Directors does not intend to present any matter
for action at the Special Meeting and knows of no matter to be presented at the
Special Meeting that is a proper subject for action by the shareholders.
However, if any other matters should properly come before the Special Meeting
or any postponements or adjournments thereof, it is intended that votes will be
cast pursuant to the authority granted by the enclosed Proxy in accordance with
the best judgment of the Proxy Holders.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
other information filed by the Company may be inspected and copied (at
prescribed rates) at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the Commission's Regional Offices located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. In addition, such reports, proxy
statements and other information concerning the Company may also be inspected
at the offices of the American Stock Exchange, 86 Trinity Place, New York, New
York 10006 and the Pacific Stock Exchange, 115 Sansome Street, Suite 1104, San
Francisco, California 94104.

<PAGE>

INCORPORATION OF DOCUMENTS BY REFERENCE

The Company hereby incorporates by reference in this Proxy Statement
(i) the financial statements and notes thereto (including the independent
auditors' report of KPMG Peat Marwick LLP) contained in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, as amended by
Amendment No. 1 on Form 10-K/A and Amendment No. 2 on Form 10-K/A, (ii) the
financial statements and notes thereto contained in the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and
September 30, 1995, (iii) "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in such Annual Report
on Form 10-K, as amended, and (iv) "Part I-Financial Information, Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in such Quarterly Reports on Form 10-Q. THE COMPANY WILL
PROVIDE, WITHOUT CHARGE, COPIES OF THE FOREGOING REPORTS UPON REQUEST. WRITTEN
REQUESTS SHOULD BE MADE TO HAWAIIAN AIRLINES, INC., 3375 KOAPAKA STREET,
SUITE G-350, HONOLULU, HAWAII 96819, ATTENTION: SHAREHOLDER RELATIONS
DEPARTMENT, AND ORAL REQUESTS SHOULD BE MADE TO (808) 835-3700, ATTENTION:
SHAREHOLDER RELATIONS DEPARTMENT.

WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING, YOU
ARE URGED TO COMPLETE, SIGN AND RETURN YOUR PROXY PROMPTLY.

BY ORDER OF THE BOARD OF DIRECTORS

RAE A. CAPPS
Vice President, General Counsel
and Corporate Secretary

Honolulu, Hawaii
December __, 1995

<PAGE>

ANNEX I
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

STOCK PURCHASE AGREEMENT

BY AND BETWEEN

HAWAIIAN AIRLINES, INC.

AND

AIRLINE INVESTORS PARTNERSHIP, L.P.

-------------------------

Dated as of December 8, 1995

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>

TABLE OF CONTENTS
Page
----
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1 Time and Place of the Closing . . . . . . . . . . . . . . . 15
2.2 Transactions at the Closing . . . . . . . . . . . . . . . . 15

3. CONDITIONS TO THE CLOSING. . . . . . . . . . . . . . . . . . . . 16
3.1 Conditions Precedent to the Obligations of the Purchaser. . 16
3.1.1 Compliance by the Company . . . . . . . . . . . . . 16
3.1.2 Shareholder Approval. . . . . . . . . . . . . . . . 17
3.1.3 Amendment to Articles and Bylaws. . . . . . . . . . 17
3.1.4 Board of Directors. . . . . . . . . . . . . . . . . 17
3.1.5 Consents. . . . . . . . . . . . . . . . . . . . . . 17
3.1.6 Hart-Scott-Rodino . . . . . . . . . . . . . . . . . 18
3.1.7 Absence of Material Adverse Effect;
Existing Litigation . . . . . . . . . . . . . . . . 18
3.1.8 Registration Rights Agreement . . . . . . . . . . . 19
3.1.9 Restructuring Agreements, Stock Option
Amendment and Warrant Holder Amendment. . . . . . . 19
3.1.10 Legal Opinions. . . . . . . . . . . . . . . . . . . 19
3.1.11 Officer's Certificate . . . . . . . . . . . . . . . 20
3.1.12 Corporate Secretary's Certificate . . . . . . . . . 20
3.1.13 No Injunction . . . . . . . . . . . . . . . . . . . 20

<PAGE>

3.2 Conditions Precedent to Obligations of the Company . . . . . . . 21
3.2.1 Compliance by the Purchaser. . . . . . . . . . . . . . . 21
3.2.2 Shareholder Approval . . . . . . . . . . . . . . . . . . 21
3.2.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2.4 Hart-Scott-Rodino. . . . . . . . . . . . . . . . . . . . 22
3.2.5 Legal Opinion. . . . . . . . . . . . . . . . . . . . . . 22
3.2.6 General Partner's Certificate. . . . . . . . . . . . . . 22
3.2.7 No Injunction. . . . . . . . . . . . . . . . . . . . . . 23

4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . 23
4.1 Corporate Existence and Power. . . . . . . . . . . . . . . . . . 23
4.2 Power and Authority. . . . . . . . . . . . . . . . . . . . . . . 24
4.3 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . 25
4.4 No Contravention, Conflict, Breach, Etc. . . . . . . . . . . . . 25
4.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.6 Capitalization of the Company. . . . . . . . . . . . . . . . . . 27
4.7 Rights Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.8 Registration Rights. . . . . . . . . . . . . . . . . . . . . . . 28
4.9 No Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 29
4.10 SEC Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.11 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 30
4.12 No Existing Violation, Default, Etc. . . . . . . . . . . . . . . 31
4.13 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . 32
4.14 Title to Properties. . . . . . . . . . . . . . . . . . . . . . . 33
4.15 Leases . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.16 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . 34

<PAGE>

4.17 Environmental Matters. . . . . . . . . . . . . . . . . . . . . 37
4.18 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.19 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.20 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 42
4.21 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . 43
4.22 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.23 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . 46
4.24 No Material Adverse Change . . . . . . . . . . . . . . . . . . 47
4.25 Finder's Fees. . . . . . . . . . . . . . . . . . . . . . . . . 47
4.26 Investment Company . . . . . . . . . . . . . . . . . . . . . . 48
4.27 Exemption from Registration; Restrictions on Offer
and Sale of Same or Similar Securities . . . . . . . . . . . . 48
4.28 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 48

5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.. . . . . . . . . . . 49
5.1 Partnership Existence and Power. . . . . . . . . . . . . . . . 49
5.2 Power and Authority. . . . . . . . . . . . . . . . . . . . . . 49
5.3 No Contravention, Conflict, Breach, Etc. . . . . . . . . . . . 50
5.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.5 Acquisition for Own Account. . . . . . . . . . . . . . . . . . 51
5.6 Ownership of Common Stock. . . . . . . . . . . . . . . . . . . 52
5.7 Hart-Scott-Rodino Filing . . . . . . . . . . . . . . . . . . . 52
5.8 Available Funds. . . . . . . . . . . . . . . . . . . . . . . . 52

6. COVENANTS OF THE PARTIES. . . . . . . . . . . . . . . . . . . . . . . 52
6.1 Shareholder Meeting; Proxy Material; Articles
and Bylaws Amendments. . . . . . . . . . . . . . . . . . . . . 52
6.2 Pre-Closing Activities . . . . . . . . . . . . . . . . . . . . 54

iii

<PAGE>

6.3 Hart-Scott-Rodino. . . . . . . . . . . . . . . . . . . . . . . . 57
6.4 Access and Confidentiality . . . . . . . . . . . . . . . . . . . 57
6.5 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.6 Acquisition Proposals. . . . . . . . . . . . . . . . . . . . . . 59
6.7 Certificates for Shares To Bear Legends. . . . . . . . . . . . . 60
6.8 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 61
6.9 Rights Offering. . . . . . . . . . . . . . . . . . . . . . . . . 61
6.10 Purchaser Vote . . . . . . . . . . . . . . . . . . . . . . . . . 62

7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.. . . . . . . . 62

8. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.1 Indemnification by the Company . . . . . . . . . . . . . . . . . 63
8.2 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.3 Registration Rights Agreement. . . . . . . . . . . . . . . . . . 66

9. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
9.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 67
9.2 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . 69
9.3 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . 73

10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.1 Performance; Waiver. . . . . . . . . . . . . . . . . . . . . . . 74
10.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 75
10.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.6 Headings; Interpretation . . . . . . . . . . . . . . . . . . . . 77
10.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 77

<PAGE>

10.8 No Third Party Rights. . . . . . . . . . . . . . . . . . . . . 78
10.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 78

EXHIBITS

A. Form of Amendment to the By-Laws of the Company
B-1. Form of Legal Opinion of Gibson, Dunn & Crutcher
B-2. Form of Legal Opinion of Rae A. Capps, General Counsel of the Company
C. Form of Legal Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
D. The terms and conditions set forth in that certain letter dated
December 8, 1995
E. Letter relating to Lender participation
F. Term sheets with unions
G. Form of Registration Rights Agreement
H. Rights Plan Amendment
I. Stock Option Amendment
J. Confidentiality Agreement
K. Warrant Holder Waiver
L. Articles Amendment

v
<PAGE>
STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT ("AGREEMENT"), dated as of December 8, 1995,
between Hawaiian Airlines, Inc., a Hawaiian corporation (the "Company"), and
Airline Investors Partnership, L.P., a Delaware limited partnership (the
"Purchaser").

WHEREAS, the Company desires to sell to the Purchaser, and the Purchaser
desires to purchase, an aggregate of 18,181,818 shares of Class A common stock,
par value $.01 per share, of the Company (the "Class A Common Stock"), at a
purchase price equal to $1.10 per Share (the "Purchase Price Per Share") (or
$20,000,000 in the aggregate) and 1 share of special preferred stock, par value
$1.10 per share, of the Company (the "Special Preferred Stock"), at a purchase
price equal to the Purchase Price Per Share upon the terms and subject to the
conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions contained
herein, the Company and the Purchaser agree as follows:

1. DEFINITIONS.

The terms defined in this Section 1 shall have the following
meanings for all purposes of this Agreement:

"AA" means American Airlines Inc.

"Acquisition Proposal" means any proposal or offer to the Company or
shareholders of the Company with respect to

<PAGE>

a merger, consolidation, tender offer (including a self tender offer),
exchange offer, recapitalization, liquidation, dissolution or similar
transaction involving the Company, any purchase of, or option to purchase, any
equity securities (or securities convertible into equity securities) of the
Company or any purchase of, or option to purchase, any of the assets of the
Company (other than (i) sales of any assets of the Company and/or sales of any
Voting Securities or preferred stock or securities convertible into Voting
Securities or preferred stock by the Company in one or a series of transactions
(whether related or unrelated) for aggregate consideration (taking into account
all such sales of assets and/or securities) of less than $10,000,000 and
(ii) grants and exercises of options under the Stock Option Plan).

"Act" means the Securities Act of 1933, as amended, or any superseding
Federal statute, and the rules and regulations promulgated thereunder, all as
the same shall be in effect from time to time. References to a particular
section of the Securities Act of 1933, as amended, shall include a reference to
the comparable section, if any, of any such superseding Federal statute.

An "Affiliate" of, or a person "affiliated" with, a specified Person, means
a Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified. The term "control" (including the terms "controlling,"

<PAGE>

"controlled by" and "under common control with") means the possession, direct
or indirect, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting securities,
by contract, or otherwise. No owner of a limited partnership interest of the
Purchaser shall be deemed an affiliate of, or a Person "affiliated" with, the
Purchaser solely by reason of such ownership.

"Aircraft Equipment" has the meaning set forth in Section 4.15.

"Aircraft Equipment Leases" has the meaning set forth in Section 4.15.

"Aircraft Equipment Services Agreements" has the meaning set forth in
Section 4.15.

"Annual Report" means the Company's Annual Report on Form 10-K for the
year ended December 31, 1994 as filed with the SEC (including all exhibits and
schedules thereto and documents incorporated by reference therein).

"Articles" means the Amended Articles of Incorporation of the Company, as
in effect on the date hereof.

"Articles Amendment" means the proposed amendment to the Articles in the
form of Exhibit L hereto.

"Benefit Plans" has the meaning set forth in Section 4.21.

"Board of Directors" means the Board of Directors of the Company, as
constituted from time to time.

3
<PAGE>

"Bylaws" means the Amended Bylaws of the Company, as amended through the
date hereof.

"Bylaws Amendment" means the proposed amendment to the Bylaws
substantially in the form of Exhibit A hereto, with such changes thereto as
shall be agreed upon by the parties, including changes required by the
Restructuring Agreements with the Unions.

"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601 ET SEQ., as amended.

"Change of Control" means the acquisition by any Person or 13D Group
(other than the Purchaser and its Affiliates or any transferee thereof) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
Voting Securities representing 35% or more of the outstanding Voting
Securities.

"Class A Common Stock" has the meaning set forth in the first recital of
this Agreement.

"Class B Common Stock" means the Class B Common Stock, par value $.01 per
share, of the Company.

"Closing" has the meaning set forth in Section 2.1.

"Closing Date" has the meaning set forth in Section 2.1.

"Code" means the Internal Revenue Code of 1986, as amended.

<PAGE>

"Common Stock" is the collective reference to the Class A Common Stock and
the Class B Common Stock.

"Company" has the meaning set forth in the preamble to this Agreement.

"Contaminant" means any toxic waste, pollutant, contaminants, hazardous
substance, toxic substance, Hazardous Waste, petroleum or petroleum-derived
substance or waste, radioactive substance or waste, or any hazardous
constituent of any such substance or waste, or any other substance defined by,
or regulated under, any Environmental Law.

"Disclosure Letter" has the meaning set forth in Article 4.

"Disinterested Director" means, with respect to any transaction or series
of related transactions, a member of the Board of Directors who does not have
any material direct or indirect financial interest in or with respect to such
transaction or series of related transactions.

"Disinterested Shareholder" means, with respect to any transaction or
series of related transactions, a holder of Common Stock who does not have any
material direct or indirect financial interest in or with respect to such
transaction or series of related transactions, other than its pro rata interest
as a shareholder of the Company.

"Encumbrance" means any mortgage, pledge, lien, security interest,
restriction upon voting or transfer, claim or other encumbrance of any kind.

<PAGE>

"Environment" shall have the meaning set forth in CERCLA at 42 U.S.C.
Section 9601(8).

"Environmental, Health and Safety Permit" means any authorization, permit,
license or similar requirement, necessary for the lawful operation of the
Company or its Subsidiaries under or pursuant to Environmental Laws and/or
Worker Health and Safety Laws.

"Environmental Laws" means all Laws and Orders, in effect as of the
Closing Date, that relate to pollution or protection of the Environment, or
the emission, discharge, release or threatened release of pollutants,
contaminants, toxic or hazardous substances or wastes into the environment,
including, without imitation, CERCLA, the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 ET SEQ., the Toxic Substances Control Act, 15
U.S.C. Section 2601 ET SEQ., the Federal Water Pollution Control Act, 33
U.S.C. Section 1251 ET SEQ., the Clean Air Act, 42 U.S.C. Section 7401 ET
SEQ., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
Section 121 ET SEQ., the Asbestos Hazard Emergency Response Act, 15 U.S.C.
Section 2601 ET SEQ., the Safe Drinking Water Act, 42 U.S.C. Section 300f ET
SEQ., the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 ET SEQ., and the
analogous state acts.

"ERISA" has the meaning set forth in Section 4.21.

"Evaluation Material" means all information and documents, whether in
written or oral form, which the Company furnishes or otherwise discloses to the
Purchaser or any of

<PAGE>

the Representatives pursuant to Section 6.4 or which the Company has previously
furnished to the Purchaser or any of the Representatives pursuant to the Letter
Agreement dated November 6, 1995 between the Company and Airline Investors
Partnership, together with all analyses, compilations, studies or other
documents, records or data prepared by the Purchaser or any of the
Representatives which contain or otherwise reflect or are generated from such
information and documents; PROVIDED, that the term "Evaluation Material" does
not include any information which (i) at the time of disclosure is or becomes
generally available to and known by the public (other than as a result of a
disclosure directly or indirectly by the Purchaser or any of the
Representatives) or (ii) was available to the Purchaser on a non-confidential
basis from a source other than the Company, that to the knowledge of the
Purchaser is not and was not bound by a confidentiality agreement with the
Company or otherwise prohibited from transmitting the information to the
Purchaser on a non-confidential basis by a contractual, legal or fiduciary
obligation.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any superseding Federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of such superseding
Federal statute.

<PAGE>

"Existing Indebtedness" means the indebtedness of the Company for money
borrowed existing on the date hereof.

"Governmental Authority" means the government of any nation or state, or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.

"Hazardous Waste" shall have the meaning set forth in the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act, at 42
U.S.C. Section 6903(5).

"Intellectual Property" has the meaning set forth in Section 4.16(A).

"Investment Proposal" has the meaning set forth in Section 6.1.

"IP Licenses" has the meaning set forth in Section 4.16(B).

"Knowledge of the Company" means the knowledge of the senior executives of
the Company after due inquiry.

"Law" means any law, treaty, rule or regulation of a Governmental
Authority or legally binding judgment, order, writ, injunction or determination
of an arbitrator or a court or other Governmental Authority.

"Lenders" means CIT Group Credit Finance, Inc., GPA Group PLC and Kawasaki
Enterprise Inc.

<PAGE>

"Liabilities" has the meaning set forth in Section 8.1.

"Licenses" means any certificates, permits, licenses, franchises,
consents, approvals, orders, authorizations and clearances from appropriate
Governmental Authorities.

"Material Adverse Effect" means a material adverse effect on the assets,
results of operations, business, prospects or condition (financial or
otherwise) of the Company.

"1994 Audited Financial Statements" has the meaning set forth in
Section 4.11.

"Non-Purchaser Director" means any person nominated for election to the
Board of Directors or serving as a member of the Board of Directors who has
been nominated in accordance with Section 3.02 of the Bylaws, or elected to
fill a vacancy or newly created directorship in accordance with Section 3.12 of
the Bylaws, as amended by the Bylaws Amendment.

"Person" means any individual, firm, corporation, partnership, limited
liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

"Proxy Statement" means the proxy statement of the Company on Schedule 14A
to be filed with the SEC in connection

<PAGE>

with the Shareholder Meeting, as amended or supplemented (including all
exhibits and schedules thereto and documents incorporated by reference
therein).

"Purchase Price Per Share" has the meaning set forth in the first recital
of this Agreement.

"Purchaser" has the meaning set forth in the preamble to this Agreement.

"Purchaser General Partner" means AIP General Partner, Inc. (or any other
Person that is the general partner of the Purchaser).

"Purchaser Director" means any person designated for election to the Board
of Directors or serving as a member of the Board of Directors who has been
designated by the Purchaser in accordance with this Agreement or designated in
accordance with Section 3.02 of the Bylaws, or elected to fill a vacancy or
newly created directorship in accordance with Section 3.12 of the Bylaws, of
the Bylaws, as amended by the Bylaws Amendment.

"Quarterly Reports" means the Company's Quarterly Report on Form 10-Q for
the quarters ended March 31, June 30 and September 30, 1995 each as filed with
the SEC.

"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and the Purchaser, substantially in the form of Exhibit G
hereto, with such changes thereto as shall be agreed upon by the parties,
including changes that may be required to conform such

<PAGE>

agreement to other registration rights agreements of the Company.

"Release" shall have the meaning set forth in CERCLA at 42 U.S.C.
Section 9601(22).

"Remedial Action" shall have, collectively, the meaning of Remedial Action
set forth in CERCLA at 42 U.S.C. Section 9601(24) and the meaning of Removal
Action set forth in CERCLA at 42 U.S.C. Section 9601(23).

"Representatives" shall mean the partners of the Purchaser and the
employees, counsel, accountants and other authorized representatives of the
Purchaser or any of their respective Affiliates.

"Restructuring Agreements" means the Agreements between the Company and
each of AA, the Lenders and the Unions, each in form and substance reasonably
satisfactory to the Purchaser consistent with the terms thereof set forth in
Exhibits D, E, and F, respectively, and containing such waivers of the
provisions of any existing agreements with such parties as shall be necessary
in the reasonable judgment of the Purchaser to permit the consummation of the
transactions contemplated hereby.

"Rights" has the meaning set forth in Section 6.9.

"Rights Offering" has the meaning set forth in Section 6.9.

"Rights Plan" means that certain agreement, dated as of December 23, 1994,
by and between the Company and Chemical

<PAGE>

Trust Company of California, as amended by Amendment No. 1 thereto dated as of
December 23, 1994.

"Rights Plan Amendment" means the amendment of the Rights Plan
substantially in the form of Exhibit H hereto.

"scheduled Closing Date" has the meaning set forth in Section 2.1.

"SEC" means the Securities and Exchange Commission.

"SEC Documents" means the Annual Report and all documents (including the
Annual Report) filed by the Company with the SEC (including all exhibits and
schedules thereto and documents incorporated by reference therein) since
January 1, 1994 and prior to the date hereof, but shall not include any portion
of any document which is not deemed to be filed under applicable SEC rules and
regulations.

"Shareholder Meeting" has the meaning set forth in Section 6.1.

"Shares" means the collective reference to the 18,181,818 shares of
Class A Common Stock and the 1 share of Special Preferred Stock to be purchased
by the Purchaser pursuant to this Agreement.

"Special Preferred Stock" has the meaning set forth in the first recital
of this Agreement.

"Stock Option Amendment" means the amendment to the Company's Stock Option
Plan substantially in the form of Exhibit I hereto.

<PAGE>

"Stock Option Plan" means the Company's 1994 Stock Option Plan, as amended
through the date hereof.

"Subsidiary" means, with respect to any Person, any corporation, limited
or general partnership, joint venture, association, limited liability company
or partnership, joint stock company, trust, unincorporated organization, or
other entity analogous to any of the foregoing of which 50% or more of the
equity ownership (whether voting stock or comparable interest) is, at the time,
owned, directly or indirectly, by such Person.

"Successor Transaction" means, with respect to any transaction
contemplated by an Acquisition Proposal, an alternative transaction that is
agreed to, or accepted by, the Company or that is proposed or publicly
announced by any Person, in each case, prior to the termination of an agreement
or negotiations relating to the transaction contemplated by the Acquisition
Proposal or another alternative transaction to such transaction.

"Tax" or "Taxes" has the meaning set forth in Section 4.18.

"13D Group" means any partnership, limited partnership, syndicate or other
"group" (as such term is used in Section 13(d)(3) of the Exchange Act).

"Transaction Expenses" means, with respect to the Purchaser and its
Affiliates, the expenses of such Person or Persons (whether or not incurred
prior to the date hereof)

<PAGE>

arising out of, relating to or incidental to the discussion, evaluation,
negotiation, documentation and closing or potential closing of the transactions
contemplated hereby (including, without limitation, the fees, disbursements and
other expenses of lawyers, accountants, actuaries, investment bankers and any
other advisors thereto) and any filing fees incurred in connection with such
transactions; PROVIDED, that Transaction Expenses shall not include any fees or
expenses payable to investment bankers.

"Unaffiliated Director" means (i) a Non-Purchaser Director who is not an
officer or employee of the Company or (ii) a Purchaser Director who is not an
officer or employee of the Company, who is not a partner of the Purchaser, who
is not an Affiliate of the Purchaser or any of its partners, who is not a
director, officer or employee of the Purchaser, any of its partners or any of
its or their Affiliates, and who has no material business relationship with the
Purchaser or any of its partners or its or their Affiliates.

"Unions" means the collective reference to the International Association
of Machinists and Aerospace Workers (AFL-CIO), the Air Line Pilots Association
International, the Association of Flight Attendants, and the Transport Workers
Union of America.

"Voting Securities" means any securities of the Company entitled to vote
generally in the election of

<PAGE>

directors, or securities convertible into or exercisable or exchangeable for
such securities.

"Warrant Holder Waiver" means the waiver by the holders of the Company's
outstanding warrants of, among other things, the antidilution protections
provided for in the warrants to the extent such provisions may be triggered by
the Rights Offering or the issuance to AA of warrants as contemplated by the
Restructuring Agreements with AA, such waiver to be in the form attached as
Exhibit K hereto.

"Worker Health and Safety Laws" means all Laws, orders, rules and
regulations relating to employee health and safety, or health and safety in the
workplace including, without limitation, the Occupational Safety and Health
Act, 29 U.S.C. Section 651 ET SEQ. and any analogous state or local laws.

2. CLOSING.

2.1 TIME AND PLACE OF THE CLOSING. Subject to the terms and
conditions of this Agreement, the closing of the sale and purchase of the
Shares contemplated hereby (the "Closing") shall take place at the offices of
Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New
York, New York 10019-6064, at 10:00 A.M., New York time, on a date to be
mutually agreed upon by the parties, which date shall be no later than the
first business day after the satisfaction or waiver of all conditions set forth
in Section 3 (such date, the "scheduled Closing Date"). The "Closing Date"
shall be the date the Closing occurs.

<PAGE>

2.2 TRANSACTIONS AT THE CLOSING. At the Closing, subject to
the terms and conditions of this Agreement, the Company shall issue and sell to
the Purchaser, and the Purchaser shall purchase, the Shares at the Purchase
Price Per Share. At the Closing, the Company shall deliver to the Purchaser
certificates representing the Shares, each registered in the name of the
Purchaser or its nominees, against payment of the Purchase Price Per Share with
respect thereto by wire transfer of immediately available funds to an account
or accounts previously designated by the Company.

3. CONDITIONS TO THE CLOSING.

3.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASER.
The obligations of the Purchaser to be discharged under this Agreement on or
prior to the Closing are subject to satisfaction of the following conditions at
or prior to the Closing (unless expressly waived in writing by the Purchaser at
or prior to the Closing):

3.1.1 COMPLIANCE BY THE COMPANY. All of the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Company at or prior to the Closing shall have been complied with and
performed by it in all material respects, and the representations and
warranties made by the Company in this Agreement shall be true and correct in
all material respects at and as of the Closing, with the same force and effect
as though such representations and warranties had been made at and as of the
Closing, except

<PAGE>

for changes expressly contemplated by this Agreement and except for
representations and warranties that are made as of a specific time, which shall
be true and correct only as of such time.

3.1.2 SHAREHOLDER APPROVAL. The sale of the Shares to the
Purchaser pursuant to this Agreement shall have been duly approved by the
holders of the Common Stock at the Shareholder Meeting.

3.1.3 AMENDMENT TO ARTICLES AND BYLAWS. The Board of
Directors shall have duly approved the Articles Amendment and the Bylaws
Amendment and the Bylaws Amendment shall be in full force and effect.

3.1.4 BOARD OF DIRECTORS. The holders of the Common Stock
shall have duly elected a new Board of Directors at the Shareholder Meeting,
which shall take office effective upon the Closing and shall consist of eleven
members, (A) six of whom shall be designated by the Purchaser in writing to the
Company prior to the mailing of the definitive Proxy Statement to the holders
of the Common Stock and (B) five of whom shall be selected by the existing
Board of Directors.

3.1.5 CONSENTS. All consents, approvals, authorizations,
orders, registrations, filings and qualifications of or with any
(A) Governmental Authority including, without limitation, the Department of
Transportation, the Federal Aviation Administration and the

<PAGE>

Federal Communications Commission, (B) stock exchange on which the securities
of the Company are traded and (C) other Persons (whether acting in an
individual, fiduciary or other capacity) necessary or required to be made or
obtained by the Company or any of its Subsidiaries for the consummation of the
transactions contemplated by this Agreement or the Registration Rights
Agreement (except for such approvals and filings as may be required under the
Act and State securities laws in connection with the performance by the Company
of its obligations under the Registration Rights Agreement), shall have been
made or obtained, as the case may be, and shall be in full force and effect,
and the Purchaser shall have been furnished with appropriate evidence thereof.

3.1.6 HART-SCOTT-RODINO. The waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 shall have expired or been
terminated, to the extent applicable.

3.1.7 ABSENCE OF MATERIAL ADVERSE EFFECT; EXISTING
LITIGATION. No event or events shall have occurred after September 30, 1995
that individually or in the aggregate has had or would reasonably be expected
to have a Material Adverse Effect. In the event that any action is taken in
connection with the case of BROKERAGE MAUI, LIMITED V. HAWAIIAN AIRLINES, INC.
on or after the date hereof and prior to the Closing Date, the Purchaser shall
have reasonably

<PAGE>

determined that such litigation could not have a Material Adverse Effect.

3.1.8 REGISTRATION RIGHTS AGREEMENT. The Company shall have
executed and delivered to the Purchaser a Registration Rights Agreement.

3.1.9 RESTRUCTURING AGREEMENTS, STOCK OPTION AMENDMENT AND
WARRANT HOLDER AMENDMENT. The Restructuring Agreements in the form to be
executed and delivered at the Closing shall have been delivered to the
Purchaser on or prior to January 15, 1996. As of the Closing Date, the
Restructuring Agreements shall have been executed and delivered by the Company
and the other parties thereto and shall be in full force and effect and all
conditions precedent contained therein shall have been complied with or waived.
The Stock Option Amendment shall have been executed and delivered by the
Company and the other parties thereto and shall be in full force and effect.
The holders of the Company's outstanding warrants shall have executed and
delivered the Warrant Holder Waiver and the Warrant Holder Waiver shall be in
full force and effect as of the Closing Date.

3.1.10 LEGAL OPINIONS. The Company shall have furnished to
the Purchaser on the Closing Date the opinions of (i) Gibson, Dunn & Crutcher,
special counsel for the Company, dated the Closing Date, substantially in the
form of Exhibit B-1 hereto and (ii) Rae A. Capps, Vice President,

<PAGE>

General Counsel and Corporate Secretary of the Company, dated the Closing Date,
substantially in the form of Exhibit B-2 hereto.

3.1.11 OFFICER'S CERTIFICATE. The Purchaser shall have
received a certificate, dated the Closing Date and signed by the Chairman of
the Board of Directors or the President of the Company, certifying that the
conditions set forth in this Section 3.1 have been satisfied on and as of such
date.
3.1.12 CORPORATE SECRETARY'S CERTIFICATE. The Purchaser
shall have received a certificate, dated the Closing Date and signed by the
Corporate Secretary of the Company, certifying the truth and correctness of
attached copies of the Articles (including amendments thereto), the Bylaws
(including amendments thereto), and resolutions of the Board of Directors and
the holders of the Common Stock approving the sale of the Shares to the
Purchaser and the other transactions contemplated hereby.

3.1.13 NO INJUNCTION. There shall be no judgment,
injunction, order or decree enjoining the Company or the Purchaser from
consummating the transactions contemplated by this Agreement to be consummated
at or before the Closing and there shall be no pending or threatened action,
suit or proceeding seeking such a judgment, injunction, order or decree;
PROVIDED, that in the case of such a threatened action, suit or proceeding, the
Purchaser shall have

<PAGE>

reasonably determined that it is likely that such action, suit or proceeding
will be instituted.

3.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to be discharged under this Agreement on or prior to
the Closing are subject to satisfaction of the following conditions at or prior
to the Closing (unless expressly waived in writing by the Company at or prior
to the Closing):

3.2.1 COMPLIANCE BY THE PURCHASER. All of the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Purchaser at or prior to the Closing, shall have been complied with and
performed by the Purchaser in all material respects and the representations and
warranties made by the Purchaser in this Agreement shall be true and correct in
all material respects at and as of the Closing, with the same force and effect
as though such representations and warranties had been made at and as of the
Closing, except for changes contemplated by this Agreement.

3.2.2 SHAREHOLDER APPROVAL. The sale of the Shares to the
Purchaser shall have been duly approved by the holders of the Common Stock at
the Shareholder Meeting.

3.2.3 CONSENTS. All consents, approvals, authorizations,
orders, registrations, filings and qualifications of or with any
(A) Governmental Authority, including, without limitation, the Department of
Transportation, the Federal Aviation Administration and the

<PAGE>

Federal Communications Commission, and (B) other Persons (whether acting in an
individual, fiduciary or other capacity) necessary or required to be made or
obtained by the Purchaser for the consummation of the transactions contemplated
by this Agreement or the Registration Rights Agreement (except for such
approvals and filings as may be required under the Act and state securities
laws in connection with the performance by the Company of its obligations under
the Registration Rights Agreement), shall have been made or obtained, as the
case may be, and shall be in full force and effect, and the Company shall have
been furnished with appropriate evidence thereof.

3.2.4 HART-SCOTT-RODINO. The waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 shall have expired or been
terminated, to the extent applicable.

3.2.5 LEGAL OPINION. The Purchaser shall have furnished to
the Company on the Closing Date the opinion of Paul, Weiss, Rifkind, Wharton &
Garrison, special counsel for the Purchaser, dated the Closing Date,
substantially in the form of Exhibit C hereto.

3.2.6 GENERAL PARTNER'S CERTIFICATE. The Company shall have
received a certificate, dated the Closing Date and signed by the general
partner of the Purchaser, certifying that the conditions set forth in this
Section 3.2 have been satisfied on and as of such date.

<PAGE>

3.2.7 NO INJUNCTION. There shall be no judgment,
injunction, order or decree enjoining the Company or the Purchaser from
consummating the transactions contemplated by this Agreement to be consummated
at or before the Closing and there shall be no pending or threatened action,
suit or proceeding seeking such judgment, injunction, order or decree;
PROVIDED, that in the case of any such threatened action, suit or proceeding,
the Company shall have reasonably determined that it is likely that such
action, suit or proceeding will be instituted.

4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company hereby represents and warrants to the
Purchaser that, except as disclosed in the SEC Documents or in writing by the
Company to the Purchaser in a letter specifically with respect to this
Article 4 (the "Disclosure Letter") delivered to the Purchaser on or prior to
the date hereof:

4.1 CORPORATE EXISTENCE AND POWER.

(A) The Company is a corporation duly organized under the
territory of Hawaii and is validly existing and in good standing under the laws
of the State of Hawaii. The Company has the corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the SEC Documents and as currently conducted. The Company is duly qualified
to transact business

<PAGE>

as a foreign corporation and is in good standing (if applicable) in each
jurisdiction in which the conduct of its business or its ownership, leasing or
operation of property requires such qualification, other than any failure to be
so qualified or in good standing as would not singly or in the aggregate with
all such other failures reasonably be expected to have a Material Adverse
Effect.

(B) True and complete copies of the Articles and the
Bylaws as in effect on the date hereof have been provided by the Company to the
Purchaser. The minute books of the Company contain in all material respects
true and complete records of all meetings and consents in lieu of meetings of
the Board of Directors (and any committees thereof) and of the shareholders of
the Company.

4.2 POWER AND AUTHORITY. The Company has the full corporate
power and authority to execute and deliver this Agreement and the
Registration Rights Agreement and, subject to approval by the shareholders at
the Shareholder Meeting, to perform its obligations under this Agreement and
the Registration Rights Agreement. The execution, delivery and performance
by the Company of this Agreement and the Registration Rights Agreement and
the consummation by the Company of the transactions contemplated hereby and
thereby have been duly authorized and approved by the Board of Directors and
no further corporate action on the part of the Company (other than the
actions described in Sections 3.1.2

<PAGE>

and 3.1.4, the filing of the Articles Amendment with the Hawaiian Department of
Commerce and Consumer Affairs and filings and other actions in connection with
the performance by the Company of its obligations under the Registration Rights
Agreement) is necessary to authorize the execution, delivery and performance by
the Company of such agreements or the consummation by the Company of the
transactions contemplated hereby. Subject to shareholder approval, the Board
of Directors shall have duly adopted the Articles Amendment. Each of this
Agreement and the Registration Rights Agreement has been duly executed and
delivered by the Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.

4.3 AFFILIATE TRANSACTIONS. The Company has not entered into
any material transaction or material series of transactions with any
shareholder, director, officer, employee or Affiliate of the Company.

4.4 NO CONTRAVENTION, CONFLICT, BREACH, ETC. The execution,
delivery and performance of each of this Agreement and the Registration
Rights Agreement by the Company and the consummation of the transactions
contemplated hereby will not conflict with, contravene or result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, or result in the creation or imposition of any Encumbrance upon any
assets or properties of the Company or cause the Company to be required to
redeem, repurchase or

<PAGE>

offer to repurchase any of their respective indebtedness under (A) the
Articles, the Bylaws or other organizational document of the Company, (B) any
material Law of any Governmental Authority having jurisdiction over the
Company or any of its assets, properties or operations or (C) any indenture,
mortgage, loan agreement, note or other agreement or instrument for borrowed
money, any guarantee of any agreement or instrument for borrowed money or any
material lease, permit, license or other material agreement or instrument to
which the Company is a party or by which the Company is bound or to which any
of the assets, properties or operations of the Company is subject.

4.5 CONSENTS. No consent, approval, authorization, order,
registration, filing or qualification of or with any (A) Governmental
Authority, (B) stock exchange on which the securities of the Company are
traded or (C) other Person (whether acting in an individual, fiduciary or
other capacity) is required to be made or obtained by the Company for the
execution, delivery and performance by the Company of this Agreement and the
Registration Rights Agreement and the consummation of the transactions
contemplated hereby, except the actions described in Sections 3.1.2 and 3.1.4
and such approvals and filings as may be required under the Act and state
securities laws in connection with the performance by the Company of its
obligations under the Registration Rights

<PAGE>

Agreement and except consents which are not material to the business or
operations of the Company.

4.6 CAPITALIZATION OF THE COMPANY. As of the date hereof,
the authorized capital stock of the Company consists of: (A) 43,050,000
shares of Common Stock of which 40,000,000 shares are Class A Common Stock
and 3,050,000 shares are Class B Common Stock and of which 6,619,769 shares
of Class A Common Stock and 1,894,955 shares of Class B Common Stock are
outstanding and (B) 2,000,000 shares of Preferred Stock, of which 20,000
shares have been designated as Series A Junior Participating Cumulative
Preferred Stock, par value $.01 per share and of which none is outstanding.
Except as contemplated by the Restructuring Agreements with the Unions, no
other class of capital stock of the Company is, or at the Closing will be,
authorized or issued. From the date hereof until the Closing, except for the
issuance of the Shares and the exercise of any options or warrants described
in the Disclosure Letter, the Company will not issue any shares of its
capital stock. All outstanding shares of capital stock of the Company have
been duly authorized, are validly issued, fully paid and nonassessable and
have been issued in compliance with applicable federal and state securities
laws. At the Closing, all of the Shares will be duly authorized and, when
issued in accordance with this Agreement, will be validly issued, fully paid
and nonassessable. The shareholders of the Company have no preemptive or
similar rights with respect to

<PAGE>

the Shares or other securities of the Company. There are no outstanding
(i) securities or obligations of the Company convertible into or exchangeable
for any capital stock of the Company, (ii) warrants, rights or options to
subscribe for or purchase from the Company any such capital stock or any such
convertible or exchangeable securities or obligations or (iii) obligations of
the Company to issue such capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options.

4.7 RIGHTS PLAN. The Rights Plan Amendment has been duly
adopted by the Board of Directors of the Company and has been duly executed and
delivered by the Company and the Rights Agent (as defined in the Rights Plan)
prior to the execution and delivery of this Agreement. The amendments to the
Rights Plan intended to be effected by the Rights Plan Amendment are permitted
to be made by the Company pursuant to Section 27(a) of the Rights Plan without
the consent of any holder of Rights (as defined in the Rights Plan). The
Purchaser has not and will not become a 10% Shareholder (as defined in the
Rights Plan, as amended by the Rights Plan Amendment) solely as a result of the
execution and delivery of this Agreement or the acquisition by the Purchaser of
the Shares and the transactions contemplated hereby do not constitute a
triggering event under the Rights Plan.

4.8 REGISTRATION RIGHTS. The Company has not previously
entered into any agreement granting any

<PAGE>

registration rights to any Person, whether consistent or inconsistent with the
rights to be granted to the Purchaser in the Registration Rights Agreement.

4.9 NO SUBSIDIARIES. The Company has no Subsidiaries. The
Company holds no equity, partnership, joint venture or other similar interest
in any Person.

4.10 SEC DOCUMENTS.

(A) The Company has delivered true and complete copies of
all SEC Documents to the Purchaser.

(B) As of its filing date, each SEC Document filed, and
each SEC Document that will be filed by the Company prior to the Closing Date,
as amended or supplemented prior to the Closing Date, if applicable, pursuant
to the Exchange Act (i) complied or will comply in all material respects with
the applicable requirements of the Exchange Act and (ii) did not or will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading.

(C) At the time the Proxy Statement is first mailed to the
shareholders of the Company, and at the time such shareholders vote on approval
of the transactions contemplated hereby, the Proxy Statement, as then amended
or supplemented, will not contain any untrue statement of a material fact or
omit to state a material fact necessary in

<PAGE>

order to make the statements therein, in the light of circumstances under which
they were made, not misleading; provided that the Company makes no
representation or warranty with respect to (i) any statement or omissions
included in the Proxy Statement based upon information furnished in writing to
the Company by the Purchaser specifically for use therein or (ii) any portion
thereof which is not deemed to be filed under applicable SEC rules and
regulations.

4.11 FINANCIAL STATEMENTS. The audited consolidated financial
statements and related schedules and notes included in the SEC Documents
comply in all material respects with the requirements of the Exchange Act and
the Act and the rules and regulations of the SEC thereunder, were prepared in
accordance with generally accepted accounting principles and except as noted
in the SEC Documents, consistently applied throughout the period involved and
fairly present in all material respects the financial condition, results of
operations, cash flows and changes in shareholders' equity of the Company at
the dates and for the periods presented. The Company previously delivered
true and complete copies of the audited consolidated financial statements and
related schedules and notes of the Company as of December 31, 1994 and
December 31, 1993 and for each of the three years in the period ended
December 31, 1994 (the "1994 Audited Financial Statements"). The 1994 Audited
Financial Statements comply in all material respects with the requirements of
the

<PAGE>

Exchange Act and the Act and the rules and regulations of the SEC thereunder,
were prepared in accordance with generally accepted accounting principles
consistently applied throughout the period involved and fairly present in all
material respects the financial condition, results of operations, cash flows
and changes in shareholders' equity of the Company at the dates and for the
periods presented. The unaudited quarterly consolidated financial statements
and the related notes included in the SEC Documents fairly present in all
material respects the financial condition, results of operations and cash flows
of the Company at the dates and for the periods to which they relate, subject
to year-end adjustments (consisting only of normal recurring accruals), and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis except as otherwise stated therein and have been
prepared on a basis consistent with that of the audited financial statements
referred to above except as otherwise stated therein.

4.12 NO EXISTING VIOLATION, DEFAULT, ETC. The Company is not
(A) in violation of any provision of the Articles, Bylaws or other
organizational documents or (B) in violation of any applicable Law, stock
exchange rule or regulation, which violation has had or would reasonably be
expected to have a Material Adverse Effect. No breach, event of default or
event that, but for the giving of notice or the lapse of time or both, would
constitute an event of default

<PAGE>

exists under any indenture, mortgage, loan agreement, note or other agreement
or instrument for borrowed money, any guarantee of any agreement or instrument
for borrowed money or any lease, permit, license or other agreement to which
the Company is a party or by which the Company is bound or to which any of the
properties, assets or operations of the Company is subject, which breach, event
of default, or event that, but for the giving of notice or the lapse of time or
both, would constitute an event of default, has had or would reasonably be
expected to have a Material Adverse Effect. Except as set forth in the
Disclosure Letter, without giving effect to any waiver previously granted, (i)
no event of default, (ii) no event that, but for the giving of notice or the
lapse of time or both, would constitute an event of default and (iii) no event
that would require the Company to prepay, redeem, repurchase or offer to
repurchase any of its indebtedness exists under the Existing Indebtedness.

4.13 LICENSES AND PERMITS. The Company has such Licenses as
are necessary to own, lease or operate its properties and to conduct its
businesses in the manner described in the SEC Documents and as currently owned
or leased and conducted and all such Licenses are valid and in full force and
effect except such Licenses that the failure to have or to be in full force and
effect individually or in the aggregate has not had, and would not reasonably
be expected to have, a Material Adverse Effect. The Company has not received

<PAGE>

any written notice that any violations are being or have been alleged in
respect of any such License and no proceeding is pending or, to the Knowledge
of the Company, threatened, to suspend, revoke or limit any such License the
effect of which would reasonably be expected to have a Material Adverse Effect.
The Company is in compliance with its obligations under such Licenses, with
such exceptions as individually or in the aggregate have not had, and would not
reasonably be expected to have, a Material Adverse Effect, and no event has
occurred that allows, or after notice or lapse of time would allow, revocation,
suspension, limitation or termination of such Licenses, except such events as
have not had, or would not reasonably be expected to have, a Material Adverse
Effect.

4.14 TITLE TO PROPERTIES. The Company has sufficient title to
all material properties (real and personal) owned by the Company that are
necessary for the conduct of the business of the Company as described in the
SEC Documents and as currently conducted, free and clear of any Encumbrance
that may materially interfere with the conduct of its business, and all
properties held under lease by the Company are held under valid, subsisting and
enforceable leases except for such leases the loss of which would not
reasonably be expected to have a Material Adverse Effect.

4.15 LEASES. Supplementing Sections 4.14 and 4.22, the
Disclosure Letter includes a true, complete and correct list of (a) all lease
agreements covering all aircraft

<PAGE>

and aircraft engines (the "Aircraft Equipment"), used or held by the Company in
connection with the operation of its business (the "Aircraft Equipment Leases")
and (b) all material service agreements pursuant to which any Person provides
any services in connection with the maintenance of the Aircraft Equipment (the
"Aircraft Equipment Services Agreements"). True and complete copies of all
such Aircraft Equipment Leases and Aircraft Equipment Services Agreements have
been delivered by the Company to the Purchaser. All such Aircraft Equipment
Leases and Aircraft Equipment Services Agreements are in full force and effect
and the Company is not in breach of or in default under any such agreement and,
to the Knowledge of the Company, no other party to any such agreement is in
material breach of or in material default under any such agreement.

4.16 INTELLECTUAL PROPERTY.

(A) The Company owns or is licensed to use all (i)
patents, trademarks, trade names, service marks, copyrights and any
applications therefor and (ii) trade secrets, know-how, computer software
programs and proprietary information, in each case, that have been utilized
since September 30, 1995 in the conduct of the business of the Company as
described in the SEC Documents and as currently conducted, free and clear of
any Encumbrance that may materially interfere with the conduct of its
business ("Intellectual Property").

<PAGE>

(B) The Disclosure Letter lists (i) all Intellectual
Property described in Section 4.16(A)(i) owned by the Company, specifying as to
each item, as applicable: (a) the category of Intellectual Property, (b) the
owner of the item; (c) the jurisdictions in which the item is recognized or
registered, or in which any application for registration has been filed,
including the registration or application number; (d) the issue date and
expiration date of the item, and (e) with respect to any trademarks or service
marks, the type of goods or services on which such mark is or is intended to be
used; and (ii) all material licenses, sublicenses and other agreements ("IP
Licenses") under which the Company is either a licensor or licensee of any
Intellectual Property. True and complete copies of all material documents
evidencing Intellectual Property as in effect on the date hereof have been
delivered by the Company to the Purchaser.

(C) The Company is not in breach of or default under, and
to the Knowledge of the Company, no other party is in material breach of or
material default under, any IP License. Each IP License is now, and
immediately following the consummation of the transactions herein contemplated
will be, valid and in full force and effect.

(D) No litigation is pending or, to the Knowledge of the
Company, threatened, that challenges the validity, enforceability or
ownership of, or right to use or

<PAGE>

license, any Intellectual Property, nor does the Company have Knowledge of any
valid grounds for any such claim.

(E) No item of Intellectual Property is subject to any
outstanding order, ruling, judgment, decree or agreement restricting the use
thereof by the Company except for agreements made in the ordinary course of
business of the Company. The Company has not agreed to indemnify any person
against any charge of infringement or other violation with respect to any
Intellectual Property owned or used by the Company except in the ordinary
course of business.

(F) To the Knowledge of the Company, the Company has not
infringed upon or otherwise violated the intellectual property rights of third
parties which would reasonably be expected to have a Material Adverse Effect.
The Company has not received any written complaint or notice alleging any such
infringement or other violation.

(G) To the Company's Knowledge, no third party is
infringing upon or otherwise violating the Intellectual Property rights of the
Company, which infringement or violation, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect.

(H) All material patents and registered trademarks and
copyrights held by the Company are valid and subsisting. The Company has
taken all necessary action to maintain and protect the Intellectual Property
that it owns or

<PAGE>

uses other than such actions taken in the ordinary course of business of the
Company that would not reasonably be expected to have a material adverse effect
on any of the Intellectual Property.

(I) To the Knowledge of the Company, all material trade
secrets of the Company are protected against the use of such trade secrets by
other persons to an extent and in a manner customary in the industry in which
the Company operates.

4.17 ENVIRONMENTAL MATTERS. To the Knowledge of the Company:

(A) The Company and its operations and properties are and
have been in compliance with all applicable Environmental Laws except for such
failures which, individually and in the aggregate, have not had, and would not
reasonably be expected to result in a Loss to the Company in excess of $50,000.

(B) The Company has obtained all Environmental, Health and
Safety Permits necessary for its operation, and all such permits are in effect,
no appeal is pending therefrom, nor is any action to revoke the same pending,
and the Company is in material compliance with all terms and conditions of such
permits;

(C) With respect to facilities currently or formerly
owned or operated by the Company, the Company (and any of its former
Subsidiaries or Affiliates) is not subject

<PAGE>

to any outstanding written notice, demand, suit, investigation, or order from
or agreement with any Governmental Authority or other Person in respect to
which the Company (a) may be required to take any Remedial Action which is
likely, either indirectly or in the aggregate with other Remedial Actions, to
result in Losses to the Company in excess of $50,000 or (b) may incur any Loss
arising from the Release or threatened Release of a Contaminant into the
environment that could result in Losses to the Company in excess of $50,000.

(D) The Company has not filed any notice required under
any Environmental Law indicating past or present treatment, storage for in
excess of 90 days or disposal of a Hazardous Waste on any property currently or
formerly owned or operated by the Company.

(E) The Company has not filed any written notice under any
applicable Environmental Law reporting a Release of a Contaminant into the
environment arising out of the current or former operations of the Company.

(F) There is not now at, on or in the real property or any
portion thereof or any other property of the Company:

(1) any treatment, recycling, storage in excess of 90 days or
disposal of any Hazardous Waste requiring a permit under the Resource
Conservation and Recovery Act;

<PAGE>

(2) any underground storage tank, dump, surface impoundment, or
uncontained waste disposal area, and

(3) any visible sign of any material Releases of a Contaminant,
at, upon, under, or within the properties currently or formerly owned or
operated by the Company.

4.18 TAXES. (a) The Company has timely filed or caused to be
filed, or will timely file, or has properly filed extensions for, all material
Tax returns that are required to be filed on or before the Closing Date and all
such returns are true, correct and complete. The Company has timely paid or
caused to be paid or will timely pay on or before the Closing Date all material
Taxes as shown on said returns and on all material assessments received by it to
the extent that such Taxes have become due, except Taxes the validity or amount
of which is being contested in good faith by appropriate proceedings and with
respect to which adequate reserves, in accordance with generally accepted
accounting principles, have been established. The Company has timely paid or
caused to be paid, or will timely pay, or have established reserves that the
Company reasonably believes to be adequate in all material respects for, all Tax
liabilities applicable to the Company for all fiscal years or portions thereof
ending on or before the Closing Date that have not been examined and reported on
by the taxing authorities (or

<PAGE>

closed by applicable statutes). United States Federal income tax returns of the
Company have been examined and closed through the fiscal year ended December 28,
1991. For purposes of this Section 4.18, "Tax" or "Taxes" means any federal,
state, county, local, foreign and other taxes (including, without limitation,
income, profits, premium, estimated, excise, sales, use, occupancy, gross
receipts, franchise, ad valorem, severance, capital levy, production, transfer,
withholding, employment, unemployment compensation, payroll and property taxes,
import duties and other governmental charges and assessments), whether or not
measured in whole or in part by net income, and including deficiencies,
interest, additions to tax or interest, and penalties with respect thereto, and
including expenses incurred in connection with contesting any proposed
adjustments related to any of the foregoing.

(b) The Company has, on or prior to September 15, 1995,
properly elected pursuant to Section 382(1)(6) of the Code, to be subject to the
annual limitation rules with respect to net operating loss carryforwards set
forth in such Section.

(c) The Company is not a party to any extension or waiver
that is currently in effect of the statute of limitations in respect of the
assessment or collection of any material Tax due or in respect of any adjustment
to any material Tax return.

<PAGE>

(d) The Company has not filed a consent under Section
341(f) of the Code.

(e) The Company is not a party to any Tax allocation or Tax
sharing agreement or has any liability for the Taxes of any person (i) under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign law), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.

(f) The Company has complied in all material respects with
all applicable laws, rules and regulations relating to the withholding of Taxes
and have timely collected or withheld and paid over (and up to the Closing Date
will have timely collected or withheld and paid over) to the proper Governmental
Authority all amounts required to be so collected or withheld and paid over for
all periods or portions thereof though the Closing Date under all applicable
laws.

4.19 LITIGATION. There are no pending actions, suits,
proceedings, arbitrations or investigations against or affecting the Company or
any of its properties, assets or operations, or with respect to which the
Company is responsible by way of indemnity or otherwise, that are required under
the Exchange Act to be described in such SEC Documents or that, if successful,
could singly, or in the aggregate, with all such other actions, suits,
investigations or proceedings, reasonably be expected to have, a Material

<PAGE>

Adverse Effect and, to the Knowledge of the Company, no such actions, suits,
proceedings or investigations are threatened.

4.20 LABOR MATTERS. The Company currently does not have or at
any time during the past two years has not had nor, to the Knowledge of the
Company, is there now threatened, any walkout, strike, union activity,
picketing, work stoppage, work slowdown or any other similar occurrence that has
or may have a Material Adverse Effect. The Company has complied in all material
respects with all applicable laws (including, without limitation, the Railway
Labor Act, as amended), rules and regulations, as relates to the employment of
labor, including those relating to wages, hours, unemployment insurance,
collective bargaining and the payment and withholding of taxes, and the Company
has withheld all amounts required by law or agreement to be withheld from the
wages or salaries of the employees of the Company (the "Employees") and the
Company is not liable for any arrears of wages or other taxes or penalties for
failure to comply with any of the foregoing. There are no material
controversies pending or to the Knowledge of the Company, threatened between the
Company and any of the Employees or any labor union or other collective
bargaining unit representing any of the Employees. Except for the Unions, no
union or other collective bargaining unit is certified or recognized by the
Company as representing any of the Employees and, except as set forth in the
Disclosure Letter, to the Knowledge of the

<PAGE>

Company, there has not been any attempt by any union to organize or represent
the Employees within the last two years. Except as set forth in the Disclosure
Letter, no approval of any union or other collective bargaining unit is required
in connection with the execution, delivery or performance of this Agreement, or
any other agreement contemplated hereby.

4.21 EMPLOYEE BENEFITS. (A) Except for the plans set forth in
the Disclosure Letter (the "Benefit Plans"), there are no employee benefit plans
or arrangements of any type (including, without limitation, plans described in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder ("ERISA")), under which the Company has or in the
future could have directly, or indirectly through a Commonly Con trolled Entity
(within the meaning of Code Sections 414(b), (c), (m) and (o)), any liability
with respect to any current or former employee of the Company or any Commonly
Controlled Entity. No such Benefit Plan is a "multiemployer plan" (within the
meaning of ERISA Section 4001(a)(3)).

(B) With respect to each Benefit Plan: to the extent
applicable, the Company has delivered or made available to the Purchaser
complete and accurate copies of (i) all plan texts and agreements (as amended or
modified to date), (ii) all summary plan descriptions and similar material
employee communications, (iii) the most recent annual report (Form 5500
including, if applicable, Schedule B thereto),

<PAGE>

(iv) the most recent annual and periodic accounting of plan assets, (v) the most
recent determination of qualification received from the Internal Revenue Service
and (vi) the most recent actuarial valuation.

(C) With respect to each Benefit Plan: (i) such Benefit
Plan has been maintained and administered at all times in material compliance
with its terms and applicable law and regulation; (ii) to the Knowledge of the
Company, no event has occurred or is continuing under which the Company could
directly, or indirectly through a Commonly Controlled Entity, incur any material
liability under ERISA, the Code or otherwise (other than routine claims for
benefits and other liabilities arising in the ordinary course pursuant to the
normal operation of such Benefit Plan); (iii) there are no actions, suits or
claims (other than routine claims for benefits) pending or, to the Knowledge of
the Company, threatened, with respect to any Benefit Plan or against the assets
of any Benefit Plan with respect to which suits the Company could incur any
material liability; (iv) all contributions and premiums due and owing to any
Benefit Plan have been made or paid on a timely basis to the extent permitted by
law, and no "accumulated funding deficiency", as defined in Code Section 412,
has been incurred, whether or not waived; (v) all contributions made under any
Benefit Plan have met the requirements for deductibility under the Code, and all
contributions that have not been made have been properly

<PAGE>

recorded on the books of the Company or a Commonly Controlled Entity thereof in
accordance with generally accepted accounting principles and (vi) if such
Benefit Plan is intended to be qualified under Code Section 401(a), such Benefit
Plan is the subject of a favorable determination of qualification from the
Internal Revenue Service and a recognition of exemption from Federal income
taxation under Code Section 501(a) has been received for each such Benefit Plan
and no event has occurred since the date of such determinations, including
effective changes in laws or regulations or modifications to the Benefit Plans,
that would adversely affect such qualification or exemption.

(D) The Accumulated Postretirement Benefit Obligation (as
defined in Statement of Financial Accounting Standards No. 106) in respect of
post-retirement health and medical benefits for current and former employees of
the Company, calculated as of December 31, 1994, on the basis of reasonable
actuarial assumptions in accordance with generally accepted accounting
principles, does not exceed $22,015,000.

(E) There is no contract, plan or arrangement (written or
otherwise) covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment by the Company of
any amount that would not be deductible pursuant to the terms of Code
Section 280G.

<PAGE>

(F) No employee or former employee of the Company will
become entitled, pursuant to the collective bargaining agreements with the
Unions or otherwise, to any bonus, retirement, severance, job security or
similar benefit or enhanced such benefit (including acceleration of vesting or
exercise of an incentive award) as a result of the transactions contemplated
hereby.

4.22 CONTRACTS. All of the material contracts of the Company
that are required to be described in the SEC Documents or to be filed as
exhibits thereto are described in the SEC Documents or filed as exhibits thereto
and are in full force and effect in accordance with their terms. True and
complete copies of all such material contracts have been delivered by the
Company to the Purchaser. Neither the Company nor, to the Knowledge of the
Company, any other party is in breach of or in default under any such contract
except for such breaches and defaults as in the aggregate have not had, and
would not reasonably be expected to have, a Material Adverse Effect.

4.23 CONTINGENT LIABILITIES. Except as fully reflected or
reserved against in the 1994 Audited Financial Statements, or disclosed in the
footnotes contained in such financial statements, the Company had no liabilities
(including tax liabilities) at the date of such financial statements, absolute
or contingent, that were material either individually or in the aggregate to the
Company.

<PAGE>

4.24 NO MATERIAL ADVERSE CHANGE. Except as set forth in the
Disclosure Letter, since September 30, 1995: (A) the Company has not incurred
any material liability or obligation (indirect, direct or contingent), or
entered into any material oral or written agreement or other transaction, that
is not in the ordinary course of business or that would reasonably be expected
to result in a Material Adverse Effect; (B) the Company has not sustained any
loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity (whether or not covered by insurance) that
has had or that would reasonably be expected to have a Material Adverse Effect;
(C) there has been no material change in the indebtedness of the Company; (D)
there has been no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock; (E) the Company has not made (nor
does it propose to make) (i) any material change in its accounting methods or
practices or (ii) any material change in the depreciation or amortization
policies or rates adopted by it, in either case, except as may be required by
law or applicable accounting standards; and (F) there has been no event causing
a Material Adverse Effect, nor any development that would, singly or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.

4.25 FINDER'S FEES. Except for Jefferies & Company, Inc., no
broker, finder or other party is entitled to

<PAGE>

receive from the Company any brokerage or finder's fee for the transactions
contemplated by this Agreement as a result of the actions of the Company or any
of its Affiliates.

4.26 INVESTMENT COMPANY. The Company is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

4.27 EXEMPTION FROM REGISTRATION; RESTRICTIONS ON OFFER AND SALE
OF SAME OR SIMILAR SECURITIES. Assuming the representations and warranties of
the Purchaser set forth in Section 5.5 hereof are true and correct in all
material respects, the offer and sale of the Shares made pursuant to this
Agreement will be exempt from the registration requirements of the Act. Neither
the Company nor any Person acting on its behalf has, in connection with the
offering of the Shares, engaged in (A) any form of general solicitation or
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Act), (B) any action involving a public offering within the meaning of
Section 4(2) of the Act, or (C) any action that would require the registration
under the Act of the offering and sale of the Shares pursuant to this Agreement
or that would violate applicable state securities or "blue sky" laws. As used
herein, the terms "offer" and "sale" have the meanings specified in Section 2(3)
of the Act.

4.28 FULL DISCLOSURE. To the Knowledge of the Company, no
statement by the Company contained in this

<PAGE>

Agreement, the Disclosure Letter, the SEC Documents or any other documents
listed in the Disclosure Letter, or any certificates, notices or consents
delivered to the Purchaser in connection with the purchase and sale of the
Shares at or prior to the Closing, taken as a whole, in light of the
circumstances in which made, contains (or will contain) an untrue statement of a
material fact or omits (or will omit) to state a material fact required to be
stated therein or necessary to make the statements made, in the light of the
circumstances in which made, not materially false or misleading.

5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.

The Purchaser hereby represents and warrants to the Company that:

5.1 PARTNERSHIP EXISTENCE AND POWER. The Purchaser is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to own, lease
and operate its properties and to conduct its business as currently conducted
and as proposed to be conducted.

5.2 POWER AND AUTHORITY. The Purchaser has the full power and
authority to execute and deliver this Agreement and the Registration Rights
Agreement and to perform its obligations under this Agreement and the
Registration Rights Agreement. The execution, delivery and performance by

<PAGE>

the Purchaser of this Agreement and the Registration Rights Agreement and the
consummation by the Purchaser of the transactions contemplated hereby have been
duly authorized. Each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered by the Purchaser and is a valid and binding
agreement of the Purchaser, enforceable against the Purchaser in accordance with
its respective terms.

5.3 NO CONTRAVENTION, CONFLICT, BREACH, ETC. The execution,
delivery and performance of each of this Agreement and the Registration Rights
Agreement by the Purchaser and the consummation of the transactions contemplated
hereby will not conflict with, contravene or result in a breach or violation of
any of the terms and provisions of, or constitute a default under, (A) the
partnership agreement or other organizational documents of the Purchaser,
(B) any Law of any Governmental Authority having jurisdiction over the Purchaser
or (iii) any agreement to which the Purchaser is a party.

5.4 CONSENTS. No consent, approval, authorization, order,
registration, filing, or qualification of or with any (A) Governmental Authority
or (B) other Person (whether acting in an individual, fiduciary or other
capacity) is required to be made or obtained by the Purchaser for the
consummation of the transactions contemplated hereby except for compliance with
any applicable requirements of (i) the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and

<PAGE>

(ii) the United States Department of Transportation, the Federal Aviation
Administration and the Federal Communications Commission.

5.5 ACQUISITION FOR OWN ACCOUNT. The Shares to be acquired by
the Purchaser pursuant to this Agreement are being acquired by it for its own
account and with no intention of distributing or reselling the Shares in any
transaction that would be in violation of the Act or the securities laws of any
state, without prejudice, however, to the rights of the Purchaser at all times
to sell or otherwise dispose of all or any part of the Shares under an effective
registration statement under the Act, under an exemption from such registration
available under the Act, and subject, nevertheless, to the disposition of the
Purchaser's property being at all times within its control. The Purchaser
(A) has such knowledge, sophistication and experience in business and financial
matters that it is capable of evaluating the merits and risks of an investment
in the Shares, (B) fully understands the nature, scope and duration of the
limitations on transfer contained in this Agreement and (C) can bear the
economic risk of an investment in the Shares and can afford a complete loss of
such investment. The Purchaser acknowledges receipt of the SEC Documents, the
Disclosure Letter and all documents delivered in accordance therewith and that
it has been afforded the opportunity to ask such questions as it deemed
necessary of, and to receive answers from,

<PAGE>

representatives of the Company concerning the merits and risks of investing in
the Shares and to obtain such additional information that the Company possesses
or can acquire without unreasonable effort or expense that is necessary to
verify the accuracy and completeness of the information contained in the SEC
Documents. Notwithstanding the foregoing, nothing contained in this Section 5.5
shall affect or be deemed to modify any representation or warranty made by the
Company.

5.6 OWNERSHIP OF COMMON STOCK. Except as otherwise disclosed in
writing to the Company prior to the execution of this Agreement, the Purchaser
owns beneficially (within the meaning of Rule 13d-3 of the Exchange Act) no
shares of Common Stock.

5.7 HART-SCOTT-RODINO FILING. Neither the annual net sales nor
the total assets of the Purchaser's "ultimate parent entity" as defined in the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), as such
terms are defined in the coverage rules promulgated under the HSR Act, exceed
$10,000,000.

5.8 AVAILABLE FUNDS. The Purchaser has capital that is
sufficient to purchase the Shares pursuant to this Agreement.

6. COVENANTS OF THE PARTIES.

6.1 SHAREHOLDER MEETING; PROXY MATERIAL; ARTICLES AND BYLAWS
AMENDMENTS. The Company shall cause a meeting of its shareholders to be duly
called and held as soon

<PAGE>

as practicable, subject to the Company's right to adjourn such meeting at any
time or from time to time if in the Board of Directors' good faith judgment such
action is desirable to effectuate the transactions contemplated hereunder, for
the purpose of voting on (A) the approval of the purchase of the Shares by the
Purchaser pursuant to the terms of this Agreement and the election of the Board
of Directors following the Closing (collectively, the "Investment Proposal"),
(B) the increase of the number of shares of Class A Common Stock that the
Company is authorized to issue to 60 million shares and (C) transacting such
other business as may properly come before the meeting or any adjournment
thereof (the "Shareholder Meeting"). The Board of Directors shall recommend
approval and adoption of the Investment Proposal unless the Board of Directors
shall have determined in good faith, based upon advice of outside counsel, that
not taking such actions is necessary for the Board of Directors to comply with
its fiduciary duties under Hawaii law, in which case Sections 9.1(C) and 9.2
shall be applicable. In connection with the Shareholder Meeting, the Company:
(A) shall promptly prepare and file with the SEC in accordance with the Exchange
Act the Proxy Statement, shall use all reasonable efforts to have the Proxy
Statement and/or any amendment or supplement thereto cleared by the SEC and
shall thereafter mail to its shareholders as promptly as practicable the Proxy
Statement; (B) shall use all reasonable efforts to obtain the necessary

<PAGE>

approvals by its shareholders of the Investment Proposal (unless the Board of
Directors shall have determined in good faith, based upon advice of outside
counsel, that not taking such actions is necessary for the Board of Directors to
comply with its fiduciary duties under Hawaii law, in which case Sections 9.1
and 9.2 shall be applicable); and (C) shall otherwise comply with all legal
requirements applicable to such meeting. The Company shall make available to
the Purchaser prior to the filing thereof with the SEC copies of the preliminary
Proxy Statement and any amendments or supplements thereto and shall make any
changes therein reasonably requested by the Purchaser insofar as such changes
relate to any matters relating to the Purchaser or the description of the
transactions contemplated by this Agreement.

6.2 PRE-CLOSING ACTIVITIES. From and after the date of this
Agreement until the Closing, each of the Company and the Purchaser shall act
with good faith towards, and shall use its reasonable efforts to consummate, the
transactions contemplated by this Agreement, and neither the Company nor the
Purchaser will take any action that would prohibit or impair its ability to
consummate the transactions contemplated by this Agreement, subject to the
fiduciary duties of the Board of Directors under Hawaii law, in which case
Sections 9.1 and 9.2 shall be applicable. From the date hereof until the
Closing, the Company shall conduct its

<PAGE>

business in the ordinary course and shall use all reasonable efforts to preserve
intact its business organization and relationships with third parties and,
except as otherwise provided herein, to keep available the services of the
present directors, officers and key employees. Without limiting the generality
of the foregoing, from the date hereof until the Closing, except as contemplated
by this Agreement or as permitted by Section 6.6 or as disclosed in the
Disclosure Letter, without the Purchaser's prior written consent which shall not
be unreasonably withheld:

(A) the Company shall not adopt or propose (or agree to commit
to) any change in the Articles or its Bylaws, except for the Articles
Amendment and the Bylaws Amendment;

(B) the Company shall not (i) enter into any loan agreement or
other agreement pursuant to which the Company incurs indebtedness for
borrowed money or (ii) amend any such existing agreement;

(C) the Company shall not sell any of the assets of the Company
(or the securities of entities holding the same) in one transaction or a
series of related transactions (other than in the ordinary course of
business of the Company);

(D) the Company shall not acquire any assets of any other Person
or Persons or acquire any equity,

<PAGE>

partnership or other interests in any other Person or Persons;

(E) except scheduled repayments of Existing Indebtedness
required to be made or repayments required to be made under the Company's
revolving credit facility, the Company shall not repay, redeem or
repurchase any indebtedness of the Company or any shares of capital stock
of the Company;

(F) the Company shall not enter into any transaction with any
director, executive officer or Affiliate of the Company other than in the
ordinary course of its business;

(G) the Company shall not (i) grant to any employee any increase
in salary or other remuneration or any increase in severance or termination
pay; (ii) grant or approve any general increase in salaries of all or a
substantial portion of its employees; (iii) pay or award any bonus,
incentive compensation, service award or other like benefit for or to the
credit of any employee except in accordance with written agreements
referred to in the Disclosure Letter; or (iv) enter into any employment
contract or severance arrangement with any employee or adopt or amend in
any material respect any employee benefit plans except as required by law;

(H) the Company shall not take or agree to commit to take any
action that would make any

<PAGE>

representation or warranty of the Company hereunder required to be true at
and as of the Closing as a condition to the Purchaser's obligations to
consummate the transactions contemplated hereby, inaccurate at the Closing;

(I) the Company shall not agree to expend, commit or otherwise
obligate itself to make any capital expenditures;

(J) the Company shall not amend or agree to amend in any respect
the Aircraft Equipment Leases, the Aircraft Equipment Services Agreement,
the collective bargaining agreements with the Unions or the agreements and
instruments governing any material indebtedness of the Company; and

(K) the Company shall not agree or commit to do any of the
foregoing.

6.3 HART-SCOTT-RODINO. To the extent applicable, the Company
and the Purchaser shall make all filings and furnish all information required
with respect to the transactions contemplated by this Agreement by the HSR Act
and shall use their reasonable best efforts to obtain the early termination of
the waiting period thereunder.

6.4 ACCESS AND CONFIDENTIALITY.

(A) Upon reasonable notice prior to the Closing, the
Company shall afford the Purchaser and the Representatives reasonable access
during normal business hours

<PAGE>

to its properties, books, contracts and records and personnel and advisors (who
will be instructed by the Company to cooperate), and the Company shall furnish
promptly to the Purchaser all information concerning its business, properties
and personnel as the Purchaser or the Representatives may reasonably request,
provided that any review will be conducted in a way that will not interfere
unreasonably with the conduct of the Company's business, and provided, further,
that no review pursuant to this Section 6.4 shall affect or be deemed to modify
any representation or warranty made by the Company.

(B) The Purchaser covenants and agrees to abide by the
terms of the Confidentiality Agreement attached as Exhibit J hereto.

6.5 PUBLICITY. Except as required by law, regulation or stock
exchange requirements, neither (A) the Company or any of its Affiliates nor
(B) the Purchaser or any of its Affiliates shall, without the consent of the
other, make any public announcement or issue any press release with respect to
the transactions contemplated by this Agreement. In no event will either
(i) the Company or any of its Affiliates or (ii) the Purchaser or any of its
Affiliates make any public announcement or issue any press release without
consulting with the other party, to the extent feasible, as to the content of
such public announcement or press release, and in no event will the Company or
any of its Affiliates or the Purchaser or any of its Affiliates make any public

<PAGE>

announcement or press release concerning the identity of the other party without
the prior agreement of the other party.

6.6 ACQUISITION PROPOSALS. From the date hereof until the
earlier of the Closing or the termination of this Agreement, the Company shall
not, directly or indirectly, take (nor shall the Company authorize or permit its
officers, directors, employees, representatives, investment bankers, attorneys,
accountants or other agents or Affiliates, to take) any action to: solicit or
initiate the submission of any Acquisition Proposal, or, subject to the
fiduciary duties of the directors of the Company under Hawaii law based upon a
good faith determination by Board of Directors after taking into account the
advice of counsel and independent investment advisors (as to financial terms and
availability of financing) with respect thereto (in which case Sections 9.1 and
9.2 shall be applicable), enter into any agreement with respect to or propose
any Acquisition Proposal or participate in any way in discussions or
negotiations with, or furnish any information to, any Person (other than the
Purchaser or any of its partners or officers, directors, employees,
representatives, investment bankers, attorneys, accountants, other agents or
Affiliates) in connection with, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, an Acquisition Proposal. The Company shall give immediate
telephonic notice to the Purchaser (promptly followed by

<PAGE>

written notice) of its receipt of any Acquisition Proposal or of any inquiry or
request for information contemplating an Acquisition Proposal. The Company
shall keep the Purchaser informed, on a current basis, of the status of any
Acquisition Proposal and any negotiations or discussions relating to such a
proposal.

Except as required by law, the Company agrees that it shall not
disclose to any Person any written information furnished to it by the Purchaser
or any of its Representatives (including, without limitation, Paul, Weiss,
Rifkind, Wharton & Garrison).

6.7 CERTIFICATES FOR SHARES TO BEAR LEGENDS.

(A) So long as the Shares are not sold pursuant to an
effective registration statement under the Act or pursuant to Rule 144 under the
Act, the Shares shall be subject to a stop-transfer order and the certificates
therefor shall bear the following legend by which each holder thereof shall be
bound:

"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION
THEREUNDER."

(B) After the termination of the legend requirements of
Section 6.7(A), the Company shall, upon the written request of the holders of
the Shares and receipt by

<PAGE>

the Company of evidence reasonably satisfactory to it that such requirement has
terminated (including a written opinion of outside counsel), issue certificates
for such Shares that do not bear all or part of the legend described in Section
6.7(A).

6.8 USE OF PROCEEDS. The net proceeds of the sale of the Shares
will be used by the Company as determined by the Board of Directors as
constituted immediately following the Closing.

6.9 RIGHTS OFFERING. The Purchaser agrees that as soon as
practicable following the Closing Date it shall use its best efforts to cause
the Company to make a rights offering to such persons and with such terms and
conditions as the Board of Directors as at such time constituted shall
determine, but including the following (the "Rights Offering"):

(a) Each shareholder and option holder shall be entitled to
the right (a "Right") to acquire one share of Class A Common Stock for each
share of Common Stock owned, or subject to an option owned, by such Person; and

(b) Each Right shall be exercisable for twenty (20) days at
a discount equal to at least 30% of the Market Price for the Class A Common
Stock measured over a period of time (as determined by the Board of Directors as
at such time constituted) prior to the exercise date, subject to a minimum
exercise price of $1.10 per share.

<PAGE>

6.10 PURCHASER VOTE. In the event that the vote required under
the Articles and Hawaiian law to approve the Articles Amendment is not obtained,
then the Purchaser hereby agrees that promptly following the Closing, it will
deliver to the Corporate Secretary of the Company a written request that the
Corporate Secretary call a special meeting of shareholders to approve the
Articles Amendment, and the Purchaser further agrees that it will vote the Class
A Common Stock acquired by it hereunder in favor of the Articles Amendment at
such meeting of shareholders.

7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.

The representations and warranties and all covenants and
agreements contained herein shall survive the execution and delivery of this
Agreement and the Closing hereunder and continue in effect thereafter through,
to and including December 8, 1997, at which time they shall terminate except
with respect to claims asserted for any breach or inaccuracy prior to
December 8, 1997; PROVIDED, that following the Closing Date, the Purchaser shall
have a claim pursuant to a breach of the representation and warranty contained
in Section 4.17 only if the facts and circumstances giving rise to such breach
have had, or would be reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect.

<PAGE>

8. INDEMNIFICATION.

8.1 INDEMNIFICATION BY THE COMPANY. In addition to all other
sums due hereunder or provided for in this Agreement, the Company agrees to
indemnify and hold harmless the Purchaser, its partners and their respective
Affiliates and the respective officers, directors, agents, employees,
subsidiaries, partners, advisors, representatives and controlling Persons of
each of the foregoing (each, an "indemnified party") to the fullest extent
permitted by law from and against any and all losses, claims, damages, expenses
(including reasonable fees, disbursements and other charges of counsel) or other
liabilities ("Liabilities") resulting from any legal, administrative or other
actions brought by any Person or entity (including actions brought by the
Company or any equity or debt holders of the Company or derivative actions
brought by any Person claiming through the Company or in the Company's name),
proceedings or investigations (whether formal or informal), or written threats
thereof, based upon, relating to or arising out of this Agreement, the
transactions contemplated hereby, or any indemnified party's role therein or in
the transactions contemplated hereby; PROVIDED, that the Company shall not be
liable under this Section 8.1 to an indemnified party to the extent that it is
finally judicially determined that such Liabilities resulted primarily from the
willful malfeasance of such indemnified party; and PROVIDED, FURTHER, that if
and to the extent that such indemnification

<PAGE>

is unenforceable for any reason other than the immediately preceding proviso,
the Company shall make the maximum contribution to the payment and satisfaction
of such indemnified Liabilities that shall be permissible under applicable laws.
In connection with the obligation of the Company to indemnify for Liabilities as
set forth above, the Company further agrees to reimburse each indemnified party
for all such expenses (including reasonable fees, disbursements and other
charges of counsel) as they are incurred by such indemnified party provided that
each such indemnified party shall have undertaken to repay any such amounts in
the event that it is finally judicially determined that the Company is not
liable under this Section 8.1 for such Liabilities.

8.2 NOTIFICATION. Each indemnified party under this Section 8
will, promptly after the receipt of notice of the commencement of any action or
other proceeding against such indemnified party in respect of which indemnity
may be sought from the Company under Section 8, notify the Company in writing of
the commencement thereof. The omission of any indemnified party so to notify
the Company of any such action shall not relieve the Company from any liability
that it may have to such indemnified party unless the Company is materially
prejudiced thereby. In case any such action or other proceeding shall be
brought against any indemnified party and it shall notify the Company of the
commencement thereof, the Company shall be entitled to participate therein

<PAGE>

and, to the extent that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER, that any
indemnified party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action or
proceeding in which both the Company and an indemnified party is, or is
reasonably likely to become, a party, such indemnified party shall have the
right to employ separate counsel at the Company's expense and to control its own
defense of such action or proceeding if, in the reasonable opinion of counsel to
such indemnified party, there are or may be legal defenses available to such
indemnified party or to other indemnified parties that are different from or
additional to those available to the Company which, if the Company and such
indemnified party were to be represented by the same counsel, would constitute a
conflict of interest for such counsel or materially prejudice the prosecution of
the defenses available to such indemnified party; PROVIDED, HOWEVER, that in no
event shall the Company be required to pay fees and expenses under this
Article 8 for more than one firm of attorneys representing the indemnified
parties (together, if appropriate, with one firm of local counsel per
jurisdiction) in any one legal action or group of related legal actions. The
Company shall not be liable for any settlement of such action or proceeding
effected without its prior written consent, not to be unreasonably withheld. The

<PAGE>

Company agrees that the Company will not, without the prior written consent of
the Purchaser, not to be unreasonably withheld, settle, compromise or consent to
the entry of any judgment in any pending or threatened claim, action or
proceeding relating to any matter subject to indemnification hereunder unless
such settlement, compromise or consent includes an unconditional release of the
Purchaser and each other indemnified party from all Liabilities and the
Purchaser and each other indemnified party are not obligated to take or forego
taking any action, including the payment of money, thereunder. The rights
accorded to indemnified parties hereunder shall be in addition to any rights
that any indemnified party may have at common law, under federal and state
securities laws, by separate agreement or otherwise.

8.3 REGISTRATION RIGHTS AGREEMENT. Notwithstanding anything to
the contrary in this Section 8, the indemnification and contribution provisions
of the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.

9. TERMINATION.

9.1 TERMINATION. Subject to Section 9.2, this Agreement may be
terminated at any time prior to the Closing:

(A) by the Company if, after complying with Section 6.6,
(i) the Company enters into a definitive agreement to effect a transaction
contemplated by an

<PAGE>

Acquisition Proposal, (ii) pursuant to action of the Board of Directors, the
Board of Directors accepts, or recommends to the shareholders of the Company, an
Acquisition Proposal, or (iii) a tender offer or exchange offer for Voting
Securities of the Company is commenced, which would result in a Change of
Control, and the Board of Directors recommends that the shareholders of the
Company tender their Voting Securities in such tender or exchange offer;

(B) by the Purchaser if (i) the Company enters into a
letter of intent or a definitive agreement to effect a transaction contemplated
by an Acquisition Proposal, (ii) pursuant to action of the Board of Directors,
the Board of Directors accepts, or recommends to the shareholders of the
Company, an Acquisition Proposal, (iii) a tender offer or exchange offer for
Voting Securities of the Company is commenced, which would result in a Change of
Control, and the Board of Directors (a) recommends that the shareholders of the
Company tender their Voting Securities in such tender or exchange offer or
(b) states that it is neutral with respect to such tender or exchange offer, or
(iv) a Change of Control occurs;

(C) by the Purchaser if the Board of Directors determines
not to give, withdraws, modifies or changes its approval or recommendation of
the sale of the Shares to the Purchaser or any of the other matters contemplated
by Sections 3.1.2, 3.1.3 and 3.1.4;

<PAGE>

(D) by the Purchaser or the Company if the Shareholder
Meeting is held to consider the transactions contemplated hereby and the
shareholders fail to approve the sale of the Shares to the Purchaser or any of
the other matters contemplated by Sections 3.1.2 and 3.1.4;

(E) by the Purchaser if there has been a material breach of
any representation, warranty, covenant or agreement of the Company contained in
this Agreement, which breach is incurable or has not been cured by the Company
within 30 days after written notice from the Purchaser; PROVIDED, HOWEVER, that
no pending or threatened action, suit, proceeding or investigation questioning
the validity of this Agreement or the Registration Rights Agreement or any
action to be taken pursuant hereto or thereto or seeking to enjoin consummation
of any of the transactions contemplated hereby or thereby, shall give the
Purchaser any right to terminate this Agreement under this Section 9.1(E) except
as set forth in paragraph (J) below;

(F) by the Company if there has been a material breach of
any representation, warranty, covenant or agreement of the Purchaser contained
in this Agreement, which breach is incurable or has not been cured by the
Purchaser within 30 days after written notice from the Company;

(G) by the Purchaser if any one or more of the conditions
to the obligation of the Purchaser to close has not been fulfilled as of the
scheduled Closing Date;

<PAGE>

(H) by the Company if any one or more of the conditions to
the obligation of the Company to close has not been fulfilled as of the
scheduled Closing Date;

(I) by the Purchaser, if the Closing shall not have
occurred on or before January 31, 1996;

(J) by the Company or the Purchaser, if any judgment,
injunction, order or decree enjoining the Company or the Purchaser from
consummating the transactions contemplated by this Agreement is entered and such
judgment, injunction, order or decree becomes final and nonappealable; PROVIDED,
HOWEVER, that the party seeking to terminate this Agreement must use all
reasonable efforts to remove such judgment, injunction, order or decree; and

(K) by mutual written consent of the Company and the
Purchaser.

9.2 FEES AND EXPENSES.

(A) If this Agreement is terminated pursuant to Section
9.1(A), (B), (C), (D), (E), (G), (I) or (J), then the Company shall promptly,
but in no event later than one business day after the date of termination of
this Agreement, pay the Purchaser a termination fee of $250,000 and reimburse
the Purchaser for all of the Transaction Expenses of the Purchaser and its
Affiliates (up to a maximum amount of $400,000); PROVIDED, that notwithstanding
the foregoing, in connection with this Section 9.2(A) only, with respect to a
termination of this Agreement pursuant to Section 9.1(I) or

<PAGE>

(J), if the facts or circumstances giving rise to the right of a party to
terminate this Agreement pursuant to either such Section were beyond the
reasonable control of the Company, then the Company shall not be obligated to
pay to the Purchaser the $250,000 termination fee provided for in this Section
9.2(A).

(B) In the event that prior to November 6, 1996 the Company
consummates any transaction described in the definition of "Acquisition
Proposal" or a series of such transactions or consummates a Successor
Transaction, then the Company shall pay to the Purchaser a termination fee, not
to exceed $750,000 equal to (x) 5% of the aggregate consideration (which shall
not include the proceeds of loans made to, or debt securities issued by, the
Company in connection with such transaction unless such loans or debt securities
are convertible into or exchangeable for equity securities or are issued
together with equity securities or warrants or similar rights to acquire equity
securities) received by the Company or its shareholders in any such transaction
or series of transactions if such consideration is received on or prior to May
6, 1996 and (y) 2-1/2% of the aggregate consideration received by the Company or
its shareholders after May 6, 1996 and on or prior to November 6, 1996.

<PAGE>

in the form of Class A Common Stock valued at $1.10 per share (the "Valuation
Price"). The following provisions shall be applicable to such election:

(i) The Purchaser shall make its election within 30
days of the consummation of the transaction giving rise to the termination fee,
by giving notice to the Company (the "Election Notice") of the Purchaser's
election to receive all or a portion of the termination fee in the form of Class
A Common Stock and the number of shares so elected ("Stock Election") or to
receive the termination fee entirely in cash. In the absence of any election
Notice, the Purchaser shall be deemed to have elected to receive the termination
fee entirely in cash.

(ii) If the Stock Election is made, the Company shall
deliver to the Purchaser a certificate or certificates representing the number
of shares referred to in the Stock Election, and the remainder of the
termination fee in cash.

(iii) Prior to the issuance of the shares pursuant to
the Stock Election, the Company shall have taken all necessary corporate action
to authorize the issuance of the shares of Class A Common Stock issued pursuant
to the Stock Election, all of which, upon such issuance and delivery will be
duly authorized, validly issued, fully paid and non-assessable and not subject
to any preemptive rights or options or other rights of any kind.

<PAGE>

(iv) The Purchaser will acquire the shares issued
pursuant to the Stock Election for investment purposes only and not with a view
to any public resale or distribution thereof in violation of, and will not sell
any such shares except in compliance with, the Securities Act of 1933, as
amended (the "1933 Act"). If the Company effects a registration of Class A
Common Stock for its own account or for any other shareholder of the Company
(other than on Form S-4 or Form S-8, or any successor form), it shall allow the
Purchaser to participate in such registration; provided, however, that if the
managing underwriters in such offering advise the Company in writing that in
their opinion the number of shares of Common Stock requested to be included in
such registration exceeds the number which can be sold in such offering, the
Company will include the securities requested to be included therein pro rata
among the holders requesting to be included. Such registration shall be
effected at the Company's expense, except for underwriting discounts and
commissions, and fees and expenses of the Purchaser's counsel.

(v) In the event of any change in the number of issued
and outstanding shares of Class A Common Stock by reason of any stock dividend,
split-up, merger, recapitalization, reclassification, combination or other
change in the capital stock of the Company, the number and kind of shares
referred to in the Stock Election and the

<PAGE>

Valuation Price shall be appropriately adjusted to restore to the Purchaser its
rights to the termination fee.

(D) In the event that any party (the "plaintiff") brings a
legal action against any other party (the "defendant") for the collection of any
termination fees or Transaction Expenses under this Section 9.2 and thereafter
the plaintiff collects any portion of such fees or Transactions Expenses from
the defendant, the defendant shall also reimburse the plaintiff for all out-of-
pocket costs, fees and expenses, including, without limitation, the fees and
disbursements of counsel and the expenses of litigation, incurred by the
plaintiff in connection with such legal action.

(E) All amounts payable in cash under this Section 9.2
shall be paid in immediately available funds to an account or accounts
designated by the relevant party.

9.3 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 9.1, this Agreement shall become void and of no effect
with no liability on the part of any party hereto, except (A) to the extent
such termination results from the breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, then such party shall be required to pay only the liquidated
damages specified in Section 9.2 and (B) that the representation contained in
Section 4.25 (Finder's Fee) and the covenants and agreements contained in

<PAGE>

Sections 6.4(B) (Confidentiality), 6.5 (Publicity), 8.1 (Indemnification), 8.2,
9.2 (Termination), 9.3 and 10 shall survive the termination hereof.

10. MISCELLANEOUS.

10.1 PERFORMANCE; WAIVER. The provisions of this Agreement may
be modified or amended, and waivers and consents to the performance and
observance of the terms hereof may be given by written instrument executed and
delivered by (A) prior to the Closing, the Company and the Purchaser and (B)
after the Closing, (i) with respect to this Section 10.1, the Company (with the
approval of a majority of the Disinterested Directors who are not partners of
the Purchaser, or the Purchaser General Partner or officers, directors or
employees of any of the foregoing and including in such majority one
Unaffiliated Director), and (ii) with respect to all other Sections of this
Agreement, the Company (with the approval of a majority of the Disinterested
Directors) and the Purchaser. The failure at any time to require performance of
any provision hereof shall in no way affect the full right to require such
performance at any time thereafter (unless performance thereof has been waived
in accordance with the terms hereof for all purposes and at all times by the
parties to whom the benefit of such performance is to be rendered). The waiver
by any party to this Agreement of a breach of any provision hereof shall not be
taken or held to be a waiver of any succeeding breach of such provision or any
other provision

<PAGE>

or as a waiver of the provision itself unless the waiver specifically so states.

10.2 SUCCESSORS AND ASSIGNS. All covenants and agreements
contained in this Agreement by or on behalf of the parties hereto shall bind,
and inure the benefit of, the respective successors and assigns of the parties
hereto; PROVIDED, HOWEVER, that the rights and obligations of either party
hereto may not be assigned (other than by the Purchaser to an Affiliate of the
Purchaser ) without the prior written consent of the other party. Each such
assignment shall be made by such assignee and assignor, as the case may be, and
the Company executing an agreement pursuant to which the assignee shall
expressly agree to become a party to this Agreement and to be bound by the terms
of this Agreement.

10.3 NOTICES. All notices or other communications given or made
hereunder shall be validly given or made if in writing and delivered by
facsimile transmission or in Person at, mailed by registered or certified mail,
return receipt requested, postage prepaid, or sent by a reputable overnight
courier to, the following addresses (and shall be deemed effective at the time
of receipt thereof).

If to the Company:

Hawaiian Airlines, Inc.
3376 Koapaka Street
Honolulu, Hawaii 96819
Telecopy: (808) 835-3690
Attention: General Counsel

with a copy to:

<PAGE>

Gibson Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071-3197
Telecopy: (212) 229-7520
Attention: Ronald S. Beard, Esq.

If to the Purchaser:

Airline Investors Partnership, L.P.
885 Third Avenue
34th Floor
New York, New York 10022
Telecopy: (212) 751-9501
Attention: John Adams and Richard Conway

with a copy to:

Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Judith R. Thoyer, Esq.

or to such other address as the party to whom notice is to be given may have
previously furnished notice in writing to the other in the manner set forth
above.

10.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE. EACH OF THE PARTIES
HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS IN
THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT.

10.5 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, each of the Company and the Purchaser directs
that such court interpret and apply the remainder of this

<PAGE>

Agreement in the manner that it determines most closely effectuates their intent
in entering into this Agreement, and in doing so particularly take into account
the relative importance of the term, provision, covenant or restriction being
held invalid, void or unenforceable.

10.6 HEADINGS; INTERPRETATION. The index and section headings
herein are for convenience only and shall not affect the construction hereof.
References to sections means sections of this Agreement unless the context
otherwise requires. References to herein or hereof mean this Agreement.

10.7 ENTIRE AGREEMENT. This Agreement (together with the
Exhibits hereto) embodies the entire agreement between the parties relating to
the subject matter hereof and supersedes any and all prior oral or written
agreements, representations or warranties, contracts, understandings,
correspondence, conversations, and memoranda between the Company and the
Purchaser, or between or among any agents, representatives, parents,
Subsidiaries, Affiliates, predecessors in interest or successors in interest,
with respect to the subject matter hereof (including, without limitation, the
Letter Agreement dated November 6, 1995 between the Company and Airline
Investors Partnership).

10.8 NO THIRD PARTY RIGHTS. Except for the indemnified parties,
directors and officers described in Article 8 and the rights of such Persons
expressly created under Article 8, this Agreement is intended solely for the

<PAGE>

benefit of the parties hereto and is not intended to confer any benefits upon,
or create any rights in favor of, any Person (including, without limitation, any
shareholder or debtholder of the Company or any limited partner of the
Purchaser) other than the parties hereto.

10.9 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and both of which
together shall be deemed to be one and the same instrument.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement.

HAWAIIAN AIRLINES, INC.

By: /s/ BRUCE R. NOBLES
-----------------------------------------
Name: Bruce R. Nobles
Title: President

By: /s/ RAE A. CAPPS
-----------------------------------------
Name: Rae A. Capps
Title: Vice President and
General Counsel

AIRLINE INVESTORS PARTNERSHIP, L.P.

By: AIP GENERAL PARTNER, INC., its
general partner

By: /s/ JOHN W. ADAMS
-----------------------------------------
Name: John W. Adams
Title: President

79
<PAGE>
[JEFFERIES & COMPANY, INC. - LETTERHEAD]

December 7, 1995

Annex II

Board of Directors
HAWAIIAN AIRLINES, INC.
3375 Koapaka Street
Suite G-350
Honolulu, Hawaii 96819

Ladies and Gentlemen:

You have requested our opinion as to the fairness, from a financial point
of view, to the current holders of Class A Stock Common Stock and Class B Common
Stock (collectively "Common Stock") of Hawaiian Airlines, Inc. ("Hawaiian" or
the "Company") of the consideration to be paid by Airline Investors Partnership,
L.P., a Delaware limited partnership ("AIP") to acquire 18,181,818 shares (the
"Common Shares") of the Company's Class A Common Stock (the "Equity Infusion")
and 1 share of the Company's newly created special voting preferred stock (the
"Preferred Shares," and with the Common Shares, the "New Shares"). The terms of
the Equity Infusion are set forth in the Stock Purchase Agreement to be entered
into on December 8, 1995 by and among the Company and AIP (the "Agreement"). We
understand that, pursuant to the Agreement, the aggregate consideration for the
New Shares is $20,000,000 or $1.10 per share. The closing sale price of the
Company's Class A Common Stock on the American Stock Exchange as of December 6,
1995, was $2.75. The New Shares represent approximately 60.9% of the fully
diluted common equity of the Company as of September 30, 1995 (assuming exercise
of all outstanding warrants and options and issuance of all shares to be issued
under the Company's Third Amended Consolidated Plan of Reorganization, as
amended). In addition, we understand that, pursuant to the Agreement, AIP and
the Company will have additional rights and obligations with respect to the
issuance of additional equity securities of the Company to AIP and existing
shareholders and corporate governance matters, including, among other things,
the size and composition of the Company's Board of Directors and the approvals
required to engage in certain extraordinary transactions.

Jefferies & Company, Inc. ("Jefferies"), as part of its investment banking
business, is regularly engaged in the evaluation of capital structures and the
rendering of advice in financial restructurings and recapitalizations. In
addition, Jefferies performs valuations of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, financial restructurings and other financial services. As you are
aware, Jefferies has received a fee for providing this opinion in connection
with its engagement as exclusive financial advisor to the Company and will
receive a fee in connection with the Equity Infusion. In addition to delivering
its opinion, Jefferies has actively assisted the Company in obtaining and
negotiating the terms of the Equity Infusion.

<PAGE>

Board of Directors
HAWAIIAN AIRLINES, INC.
December 7, 1995
Page 2

In the ordinary course of our business, we may actively trade securities of
Hawaiian for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.

In connection with our opinion, we have reviewed a draft copy of the
Agreement (draft dated December 6, 1995) and related exhibits thereto and
certain financial and other information that was publicly available or furnished
to us by Hawaiian, including certain internal financial analyses, financial
forecasts, reports and other information prepared by management of Hawaiian. We
have also discussed with representatives of management of Hawaiian the business,
properties and prospects of Hawaiian and undertaken other reviews, analyses and
inquiries relating to Hawaiian.

In our review and analysis and in rendering this opinion, we have relied
upon, and have not independently verified, the accuracy, completeness and fair
presentation of all financial and other information (including financial
projections and estimates) that were provided to us by or on behalf of Hawaiian,
or which were publicly available, and this opinion is conditioned upon such
information (whether written or oral) being complete, accurate and fair in all
material respects. With regard to the historical financial information, we have
relied upon the opinion, issued by Hawaiian's independent public accountants, in
connection with the Company's audited financial statements. With respect to the
above noted projected financial information, we have assumed with your
permission and without independent verification, that such information has been
reasonably prepared on bases reasonably reflecting management's best currently
available estimates and good faith judgments as to the future performance of
Hawaiian and that Hawaiian will perform in accordance with such projections for
all periods specified therein. We have not made an independent evaluation or
appraisal or conducted a physical inspection of any of the assets of Hawaiian,
nor have we been furnished with any such appraisals. Our opinion is based on
economic, monetary, political, market, and other conditions existing and which
can be evaluated as of the date of this opinion; however, such conditions are
subject to rapid and unpredictable change. We have assumed, with your
permission, that all consents, authorizations and agreements of other parties
necessary to consummate the Equity Infusion have been, or will be, obtained
without material expense. Our opinion is addressed solely to the fairness, from
a financial point of view, of the consideration to be paid by AIP in the Equity
Infusion. In addition, we express no opinion as to the fairness or consequences
of the common stock purchase rights offering contemplated by the Agreement.

Without limiting the foregoing, we expressly disclaim any undertaking or
obligation to advise any person of any change in any fact or matter affecting
our opinion of which we become aware after the date hereof.

In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others: (i) the terms and
business and financial aspects of the Equity Infusion; (ii) the Company's need
for capital and available alternatives for raising equity

-2-
<PAGE>

Board of Directors
HAWAIIAN AIRLINES, INC.
December 7, 1995
Page 3

capital; (iii) the historical and current markets for the Company's common stock
and for other securities of certain companies believed by Jefferies to be
comparable to the Company; (iv) public equity issuances of other airline
companies and the current environment for public equity issuances; (v) the use
of proceeds and the financial impact of the Equity Infusion on the holders of
the Company's common and preferred stock; (vi) certain of the Company's
operating and financial information, including projections provided by
management relating to the Company's business and prospects; (vii) publicly
available financial data and stock market performance data of other public
companies which Jefferies deemed generally comparable to the Company; (viii) the
Agreement and related Exhibits and Schedules, all in substantially final form;
and (ix) the Company's Annual Reports to Shareholders and Annual Reports on Form
10-K for the fiscal years ended on December 31, 1992 through 1994, and its
Quarterly Report on Form 10-Q for the period ended September 30, 1995.

Based upon and subject to the foregoing, and based upon such other matters
as we considered relevant, it is our opinion as investment bankers that, as of
the date hereof, the consideration to be paid by AIP in the Equity Infusion is
fair, from a financial point of view, to current common stock holders of
Hawaiian.

It is understood that this letter is for the use of the Board of Directors
of the Company only and may not be used for any other purpose without our prior
written consent. Without limiting the foregoing, this letter does not
constitute a recommendation to any stockholder of Hawaiian as to how such
stockholder should vote with respect to the Equity Infusion. Jefferies reserves
the right to approve all references to Jefferies and this opinion that may
appear in any proxy materials that may be filed with the Securities and Exchange
Commission in connection with the Equity Infusion.

Sincerely,

JEFFERIES & COMPANY, INC.

-3-
<PAGE>
Appendix A

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995

( ) 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 1-8836

HAWAIIAN AIRLINES, INC.
(Exact Name of Registrant as Specified in Its Charter)

HAWAII 99-0042880
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (808) 835-3700

Indicate by check mark 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. (X) Yes ( ) No

Indicate by check mark whether the Registrant has 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. (X) Yes ( ) No

As of November 10, 1995, 6,581,133 shares of Class A Common Stock and 1,933,589
shares of Class B Common Stock of the Registrant are outstanding.

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED BALANCE SHEETS (in thousands) (Unaudited)

REORGANIZED
COMPANY
---------------------------------------
SEPTEMBER 30,1995 DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,427 $ 3,501
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . 22,499 16,275
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,249 6,234
Assets held for sale, net . . . . . . . . . . . . . . . . . . . . . . . . . 1,594 1,594
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . 4,812 6,079
------------- ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 43,581 33,683

Property and equipment, less accumulated depreciation and
amortization of $4,004 in 1995 and $922 in 1994 . . . . . . . . . . . . . . 40,611 37,756
Assets held for sale, net . . . . . . . . . . . . . . . . . . . . . . . . . . 8,166 11,789
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,047 9,139
Reorganization value in excess of amounts allocable to
identifiable assets, less accumulated amortization of $3,791 in
1995 and $1,090 in 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 68,233 70,934
------------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,638 163,301
------------- ------------
------------- ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . 6,482 6,394
Current portion of capital lease obligations . . . . . . . . . . . . . . . . 2,657 2,907
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,157 17,529
Air traffic liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,065 40,382
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,481 12,298
------------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 89,842 79,510

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,482 14,152
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 10,791 12,764
Other liabilities and deferred credits. . . . . . . . . . . . . . . . . . . . 27,598 23,026
------------- ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,713 129,452
------------- ------------

Shareholders' equity:
Class A common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 -
Class B common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . 39,006 -
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 40,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,075) (6,151)
------------- ------------
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 29,925 33,849
------------- ------------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $ 165,638 $ 163,301
------------- ------------
------------- ------------

</TABLE>

- 2 -
<PAGE>

ITEM 1. (continued)

CONDENSED STATEMENTS OF OPERATIONS (in thousands) (Unaudited)

PREDECESSOR
REORGANIZED COMPANY COMPANY
-----------------------------------------------------
PERIOD FROM
REORGANIZATION
THREE MONTHS (SEPTEMBER 12, PERIOD FROM
ENDED 1994 TO JULY 1, 1994 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 11,
1995 1994) 1994
-----------------------------------------------------
<S> <C> <C> <C>
Operating Revenues:
Passenger . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79,796 $ 11,786 $ 68,502
Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,711 - 11
Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,589 847 3,044
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,259 538 1,774
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,355 13,171 73,331
---------- ---------- ----------
Operating Expenses:
Flying operations . . . . . . . . . . . . . . . . . . . . . . 26,515 4,589 21,110
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . 21,489 3,994 13,548
Passenger service . . . . . . . . . . . . . . . . . . . . . . 10,167 1,605 7,642
Aircraft and traffic servicing . . . . . . . . . . . . . . . 13,697 2,782 11,153
Promotion and sales . . . . . . . . . . . . . . . . . . . . . 10,984 2,008 8,442
General and administrative . . . . . . . . . . . . . . . . . 2,744 793 3,581
Depreciation and amortization . . . . . . . . . . . . . . . . 1,865 514 1,138
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,461 16,285 66,614
---------- ---------- ----------
Operating Income (Loss) . . . . . . . . . . . . . . . . . . . . 5,894 (3,114) 6,717
---------- ---------- ----------
Nonoperating Income (Expense):
Interest expense, net . . . . . . . . . . . . . . . . . . . . (844) (77) (624)
Gain (loss) on disposition of equipment . . . . . . . . . . . (431) - 164
Reorganization items . . . . . . . . . . . . . . . . . . . . - - (10,914)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 202 12 99
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,073) (65) (11,275)
---------- ---------- ----------
Income (Loss) Before Extraordinary Item . . . . . . . . . . . . 4,821 (3,179) (4,558)
Extraordinary Item . . . . . . . . . . . . . . . . . . . . . . - - 190,063
---------- ---------- ----------
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . $ 4,821 $ (3,179) $ 185,505
---------- ---------- ----------
---------- ---------- ----------
Net Income (Loss) Per Share . . . . . . . . . . . . . . . . . . $ ***0.48 $ **(0.34) $ *N/M
---------- ---------- ----------
---------- ---------- ----------
Weighted Average Number of Common Shares and Share Equivalents ***10,068 **9,400 7,137
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

* Not Meaningful - Per share data is not meaningful as the Predecessor
Company has been recapitalized and has adopted fresh start reporting as
of September 11, 1994.
** Per share data has been calculated assuming that the Reorganized Company
will issue approximately 9.4 million shares of common stock. As of
November 10, 1995, 6,581,133 shares of Class A and 1,933,589 shares of
Class B Common Stock are issued and outstanding.
*** Per share data has been calculated assuming that the Reorganized Company
will issue approximately 9.4 million shares of common stock, adjusted to
reflect assumed exercise of stock options and warrants.

- 3 -

<PAGE>

ITEM 1. (continued)

CONDENSED STATEMENTS OF OPERATIONS (in thousands) (Unaudited)

Operating Expenses:
Flying operations . . . . . . . . . . . . . . . . . . . . . . 76,376 4,589 71,768
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . 58,794 3,994 47,281
Passenger service . . . . . . . . . . . . . . . . . . . . . . 29,222 1,605 25,224
Aircraft and traffic servicing . . . . . . . . . . . . . . . 40,686 2,782 34,325
Promotion and sales . . . . . . . . . . . . . . . . . . . . . 32,009 2,008 28,499
General and administrative . . . . . . . . . . . . . . . . . 10,808 793 12,063
Depreciation and amortization . . . . . . . . . . . . . . . . 5,534 514 4,085
Early retirement provision . . . . . . . . . . . . . . . . . 2,000 - -
---------- ---------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,429 16,285 223,245
---------- ---------- ---------

Operating Loss . . . . . . . . . . . . . . . . . . . . . . . . (1,102) (3,114) (6,422)
---------- ---------- ---------

Nonoperating Income (Expense):
Interest expense, net . . . . . . . . . . . . . . . . . . . . (2,798) (77) (850)
Gain (loss) on disposition of equipment . . . . . . . . . . . (426) - 45
Reorganization items . . . . . . . . . . . . . . . . . . . . - - (13,949)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 402 12 501
---------- ---------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,822) (65) (14,253)
---------- ---------- ---------

Loss Before Extraordinary Item . . . . . . . . . . . . . . . . (3,924) (3,179) (20,675)

Extraordinary Item . . . . . . . . . . . . . . . . . . . . . . - - 190,063
---------- ---------- ---------

Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . $ (3,924) $ (3,179) $ 169,388
---------- ---------- ---------
---------- ---------- ---------
Net Income (Loss) Per Share . . . . . . . . . . . . . . . . . . $ **(0.42) $ ** (0.34) $ *N/M
---------- ---------- ---------
---------- ---------- ---------
Weighted Average Number of Shares . . . . . . . . . . . . . . . **9,400 **9,400 7,137
---------- ---------- ---------
---------- ---------- ---------

</TABLE>

* Not Meaningful - Per share data is not meaningful as the Predecessor
Company has been recapitalized and has adopted fresh start reporting as
of September 11, 1994.

** Per share data has been calculated assuming that the Reorganized Company
will issue approximately 9.4 million shares of common stock. As of
November 10, 1995, 6,581,133 shares of Class A and 1,933,589 shares of
Class B Common Stock are issued and outstanding.

- 4 -

<PAGE>

ITEM 1. (continued)

CONDENSED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)

PREDECESSOR
REORGANIZED COMPANY COMPANY
-----------------------------------------------------
PERIOD FROM
REORGANIZATION
THREE MONTHS (SEPTEMBER 12, PERIOD FROM
ENDED 1994 TO JULY 1, 1994 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 11,
1995 1994) 1994
-----------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities: . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ (3,924) $ (3,179) $ 169,388
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 5,800 277 4,488
Net periodic postretirement benefit cost . . . . . . . . . . . . . . . 2,628 - 1,988
Loss (gain) on disposition of property and equipment . . . . . . . . . 426 - (45)
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . . . . . - - (190,063)
Decrease (increase) in accounts receivable . . . . . . . . . . . . . (5,466) 2,267 (5,801)
Decrease (increase) in inventories . . . . . . . . . . . . . . . . . (1,015) (78) 497
Decrease (increase) in prepaid expenses and other . . . . . . . . . . 1,267 (3,581) (1,133)
Increase (decrease) in accounts payable . . . . . . . . . . . . . . . 7,431 (4,077) 5,774
Increase (decrease) in accrued liabilities . . . . . . . . . . . . . . 9,183 1,628 (734)
Increase (decrease) in air traffic liability . . . . . . . . . . . . . (6,317) 75 10,602
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,224 5,231 336
--------- -------- ----------
Net cash provided by (used in) operations before
reorganization items . . . . . . . . . . . . . . . . . . . . . . . . 16,237 (1,437) (4,703)
Reorganization items . . . . . . . . . . . . . . . . . . . . . . . . - - 10,799
--------- -------- ----------
Net cash provided by (used in) operating activities 16,237 (1,437) 6,096
--------- -------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . (6,544) (379) (3,682)
Net proceeds from disposition of property and equipment . . . . . . . . 2,875 - 817
Issuance of security deposits . . . . . . . . . . . . . . . . . . . . . - - (3,007)
--------- -------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . . (3,669) (379) (5,872)
--------- -------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . 1,474 2,000 -
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,893) (242) (689)
Principal payments under capital lease obligations . . . . . . . . . . (2,223) - (1,345)
--------- -------- ----------
Net cash provided by (used in) financing activities . . . . . . . . . (8,642) 1,758 (2,034)
--------- -------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . 3,926 (58) (1,810)

Cash and Cash Equivalents, Beginning of Period . . . . . . . . . . . . . . 3,501 2,463 4,273
--------- -------- ----------
Cash and Cash Equivalents, End of Period . . . . . . . . . . . . . . . . $ 7,427 $ 2,405 $ 2,463
--------- -------- ----------
--------- -------- ----------

</TABLE>

- 5 -

<PAGE>
ITEM 1. (continued)

OPERATING STATISTICS (Unaudited)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------------------------
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SCHEDULED OPERATIONS:
Revenue passengers . . . . . . . . . . . . . . . . 1,218 1,267 3,567 3,414
Revenue passenger miles * . . . . . . . . . . . . 855,459 825,191 2,327,459 2,187,098
Available seat miles * . . . . . . . . . . . . . . 1,132,989 1,072,492 3,106,753 2,950,751
Passenger load factor . . . . . . . . . . . . . . 75.5% 76.9% 74.9% 74.1%
Revenue ton miles * . . . . . . . . . . . . . . . 98,417 91,422 266,881 243,172
Revenue plane miles * . . . . . . . . . . . . . . 4,712 4,498 12,982 11,946
Passenger revenue per passenger mile . . . . . . . 9.3 cents 9.7 cents 9.4 cents 9.7 cents

OVERSEAS CHARTER OPERATIONS:
Revenue passengers . . . . . . . . . . . . . . . 46 - 108 -
Revenue passenger miles * . . . . . . . . . . . . 127,720 21 297,430 526
Available seat miles * . . . . . . . . . . . . . 132,675 27 305,656 827

</TABLE>
* In thousands

- 6 -

<PAGE>

ITEM 1. (CONTINUED)

In the opinion of management, the unaudited condensed financial statements
included in this report contain all adjustments necessary for a fair
presentation of the results of operations and cash flows for the interim
periods covered and the financial condition of Hawaiian Airlines, Inc.
("Hawaiian Airlines" or the "Company" or the "Reorganized Company") as of
September 30, 1995 and December 31, 1994. The operating results for the
interim periods are not necessarily indicative of the results to be expected
for the full fiscal year.

The unaudited financial statements at September 30, 1995 have been prepared
on a going concern basis which assumes continuity of operations and
realization of assets and liquidation of liabilities in the ordinary course
of business. As discussed herein, the Company has continued to experience
net and operating losses. Furthermore, there can be no assurance that the
Company will succeed in solving its liquidity problems or that the Company
will have sufficient cash resources to support its continued operations.
Because of the Company's liquidity shortage, an adverse change in events and
circumstances could result in the Company being unable to meet its financial
obligations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts,
or the amounts and classification of liabilities that might be necessary as a
result of the outcome of the uncertainties discussed herein. Management
recognizes that the continuation of the Company as a going concern is
dependent upon a return to profitable, positive cash flow operations and the
generation of adequate funds to meet its ongoing obligations.

In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards (the "SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of." This SFAS No. 121 is effective for years beginning after December 15,
1995 and applies to long-lived assets and certain identifiable intangible
assets whether held and used or to be disposed of, and goodwill.

SFAS No. 121 requires that a review be made of long-lived assets and certain
identifiable intangible assets for determination of possible impairment
adjustments whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the future cash flows
expected to result from use of the asset (undiscounted and without interest
charges) are less than the carrying amount of the asset, an impairment loss
is recognized. Such impairment loss is measured as the amount by which the
carrying amount of the asset exceeds the fair value of the asset. In
instances where goodwill is identified with assets that are subject to an
impairment loss, such goodwill should be allocated to the assets tested for
recoverability on a pro rata basis using the relative fair values of the
assets acquired in the transaction generating the goodwill.

SFAS No. 121 also requires that long-lived assets and certain identifiable
intangible assets to be disposed of be reported at the lower of the asset
carrying amount or fair value, less cost to sell.

The Company plans to adopt SFAS No. 121 in 1996. Restatement of previously
issued financial statements is not permitted. The Company has not estimated
the impact that adoption of the Statement is expected to have on its
financial statements.

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a new, fair value based method of
accounting for stock-based compensation, but does not require an entity to
adopt the new method for

-7-

<PAGE>

purposes of preparing its basic financial statements. For entities not
adopting the new method, SFAS No. 123 requires that they disclose in their
footnotes pro forma net income and earnings per share information as if the
fair value based method had been adopted. The disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years
beginning after December 15, 1995. The Company plans to either adopt the
new, fair value based method or the disclosure requirements of SFAS No. 123
in its financial statements for 1996.

Certain reclassifications have been made to conform prior period's data to
current period's presentation.

As disclosed in the Supplemental Financial Information, Unaudited Quarterly
Financial Information contained in Hawaiian Airlines' Annual Report on Form
10-K for the year ended December 31, 1994 (the "1994 Form 10-K"), certain
significant quarterly adjustments for calendar year 1994 were recorded. The
results for the appropriate quarters of 1994 have been restated to reflect
those adjustments. All period-to-period comparisons contained in Management's
Discussion and Analysis of Financial Condition and Results of Operations
refer to the restated 1994 results.

The accompanying financial statements should be read in conjunction with the
financial statements and the notes thereto contained in the 1994 Form 10-K,
which are incorporated herein by reference.

-8-

<PAGE>

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

INTRODUCTION

On September 21, 1993, Hawaiian Airlines together with HAL, INC., Hawaiian
Airlines' parent company, and West Maui Airport, Inc., another wholly owned
subsidiary of HAL, INC., (collectively the "Debtors" or "Predecessor")
commenced reorganization cases by filing voluntary petitions for relief under
Chapter 11, Title 11 ("Chapter 11") of the United States (the "U.S.") Code in
the U.S. Bankruptcy Court for the District of Hawaii (the "Bankruptcy
Court"). Concurrently therewith, the Debtors filed a Consolidated Plan of
Reorganization dated September 21, 1993 (as amended through the most recent
amendment dated April 20, 1995 the "Plan"). On August 30, 1994, the
Bankruptcy Court entered an order confirming the Plan and with the
satisfaction of certain conditions, the Plan became effective on September
12, 1994 (the "Effective Date").

Pursuant to the Plan, on the Effective Date, first West Maui Airport, Inc.
and then HAL, INC. were merged with and into Hawaiian Airlines with Hawaiian
Airlines being the sole surviving corporation. On the Effective Date, all of
the outstanding equity securities of the Company, HAL, INC., and West Maui
Airport, Inc. were cancelled, including without limitation, all outstanding
common, preferred and preference stock of HAL, INC.

Under the Plan, the Company is to issue and distribute 9,400,000 shares of
its common stock to all of the unsecured creditors with claims allowed under
the Plan. The Company's common stock consists of two classes, one with full
voting rights, Class A Common Stock, and the other with limited voting
rights, Class B Common Stock. On June 19, 1995, the Company commenced
distribution of its Class A and Class B Common Stock and as of November 10,
1995, 6,581,133 shares of Class A and 1,933,589 shares of Class B Common
Stock are issued and outstanding. The Company anticipates distributing a
majority of the remaining 885,278 shares of Class A Common Stock and Class B
Common Stock by the end of the fiscal year. Included in the amount not yet
distributed is an estimated 335,141 shares of Class A Common Stock for
resolution of claims still being disputed with general unsecured creditors.
As disputed claims are finally resolved, the creditor holding such claim will
receive a distribution of stock. Any shares withheld in excess of the amount
distributed to such creditor will be held until all disputed claims have been
resolved. Upon resolution of all disputed claims, there will be a final
distribution of any remaining withheld shares to all general unsecured
creditors on a pro rata basis.

Pursuant to the Plan, the Company has granted warrants to purchase an
additional 989,011 shares of its Class A Common Stock, none of which have
been exercised. Pursuant to the terms of the Plan, 600,000 shares of the
Company's Class A Common Stock have been reserved for issuance under a 1994
Stock Option Plan. The Company's Class A Common Stock began trading on the
American Stock Exchange and the Pacific Stock Exchange on June 21, 1995.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1995, the Company had a net working capital deficit of
$46.3 million, representing a $500,000 increase from the net working capital
deficit of $45.8 million at December 31, 1994. Principally, the increase in
the working capital deficit resulted from a net increase in accounts payable,
accrued liabilities and air traffic liability of $10.5 million

-9-

<PAGE>

being offset by an aggregate increase in cash and accounts receivable of
$10.2 million. The Company continues to experience liquidity shortages.

Effective April 13, 1995, the Company and American Airlines, Inc.
("American") executed Amendment No. 2 (the "April Amendment") to the
long-term Aircraft Lease Agreement (the "Aircraft Lease Agreement") providing
for the deferral of payment of approximately $11.1 million of delinquent
lease rents and maintenance payments. The April Amendment provides that the
Company is to remit periodic payments (generally on a weekly basis) to
American commencing March 31, 1995 and ending December 22, 1995, in amounts
ranging from approximately $25,000 to $950,000, including interest at 10.0%
per annum, plus payments for the basic rent of aircraft. Maintenance payments
will also be payable weekly, but in the same aggregate amounts as set forth
in the original terms of the Aircraft Lease Agreements. Thereafter,
commencing January 5, 1996, the Company is required to pay, weekly in
advance, the basic rent payments owed for the aircraft and maintenance
payments in respect of the aircraft. The Company paid to American the first
five weekly payments of deferred amounts due under the April Amendment, in an
aggregate amount of approximately $4.2 million, leaving a balance due of $6.9
million. However, the Company failed to make deferred and basic rent payments
to American of $600,000 and $986,000, respectively, commencing May 8, 1995.

The Company and American have subsequently deferred the due date for the
repayment of the remaining $6.9 million of delinquent lease rents and
maintenance payments on three occassions. Amendment No. 3 dated June 1, 1995
deferred the due date until August 22, 1995. Amendment No. 4 dated August
22, 1995 deferred the due date until October 6, 1995. The most recent
amendment, Amendment No. 5 dated October 6, 1995 (the "October Amendment")
defers the due date until November 20, 1995. By November 20, 1995, the
amount of interest accrued on the delinquent $6.9 million brings the total
amount due to $7.1 million. The October Amendment provides that if the
Company remits to American payments of approximately $6.9 million on or
before November 20, 1995, the Company will pay (generally on a weekly basis)
to American the remaining $226,000 of the $7.1 million deferred rent
commencing November 22, 1995 and ending December 22, 1995, in amounts ranging
from approximately $25,000 to $125,000. In addition, the Company will remit
to American periodic payments (generally on a weekly basis) commencing May 1,
1995 through and including December 31, 1995 for the basic rent of aircraft.
Thereafter, commencing January 1, 1996, the Company will be required to pay,
weekly in advance, the basic rent payments owed for the aircraft and
maintenance payments in respect of the aircraft.

The Company is current with respect to its payments for basic rent of
aircraft under the October Amendment and maintenance payments under the
Aircraft Lease Agreement. As of September 30, 1995, approximately $7.1
million of deferred lease rents and maintenance payments is outstanding. The
failure of the Company to timely make payment in full of $6.9 million due on
or before November 20, 1995 would permit American to exercise remedies
available to it, which include, but are not limited to, termination of the
lease, repossession of certain aircraft and engines, recovery of damages and
drawings under the letters of credit provided by the Company with respect to
the Aircraft Lease Agreement.

The ability of the Company to satisfy its obligations with respect to making
the payment due to American by November 20, 1995 will depend on the Company's
ability to obtain additional debt or equity financing. There can be no
assurance that American will agree to a further extension, or that the
Company will be able to make the payment by November 20, 1995 or any extended
due date or that a favorable resolution of the matter will occur.

-10-

<PAGE>

The Company has made credit facility borrowings under a financing arrangement
with CIT Group/Credit Finance, Inc. ("CIT"). The financing arrangement
consists of a credit facility of up to $8.15 million consisting of a secured
revolving credit facility including up to $3.0 million of letters of credit
(the "Financing"). Available credit is subject to reduction determined by
recalculation of the borrowing base and repayments arising from disposition
of collateral. As of the date of this report, the amount of the facility had
been effectively reduced to approximately $5.0 million, which amount was
fully drawn in the form of $2.9 million in borrowings and $2.1 million in
letters of credit.

The Company currently does not have access to other unutilized credit
facilities and does not have any unencumbered assets. Accordingly, its
access to additional sources of liquidity remains limited. The Company has
engaged an investment bank to assist in obtaining additional financing. A
series of discussions with potential investors to solicit interest in
providing additional capital in return for shares representing an equity
interest have been held. The Company has also presented a proposal to its
pilots, flight attendants, ground crews and clerical staff to amend their
current collective bargaining agreements to, among other things, extend the
existing agreements beyond their current terms.

As a result of and following the discussions with potential investors, on
November 6, 1995, the Company signed a letter of intent with a private
investor group to provide $20.0 million of new equity capital to the Company
in exchange for 18,181,818 shares of Hawaiian Airlines Class A Common Stock.
The letter of intent also contemplates a rights offering to the Company's
existing shareholders, to take place at some point during 1996, at a
substantial discount from the then current market price. The transaction,
which will result in the investor group having six of the current eleven
Board of Director seats, is subject to numerous conditions, including the
negotiation and execution of definitive agreements and certain modifications
to the agreements with the Company's unions and certain of its creditors. If
the conditions are satisfied, it is contemplated that the definitive
agreements will be signed in early December 1995, with closing scheduled as
soon as possible thereafter. Unless it is successful in these efforts, there
are likely to be liquidity shortages in the future.

See discussion with respect to preparation of financial statements on a going
concern basis in Part I, Item 1, Financial Statements, above.

-11-

<PAGE>

RESULTS OF OPERATIONS

The Company believes that the operating revenues and expenses of the
Reorganized Company for the three and nine months ended September 30, 1995
have been presented on a basis which is in all material respects consistent
with the presentation of the operating revenues and expenses of the
Predecessor for the three and nine months ended September 30, 1994.

The Company generated operating and net income of $5.9 million and $4.8
million, respectively, during the third quarter of 1995. This represents an
increase of $2.3 million in operating income and a decrease of $77.5 million
in net income from the third quarter of 1994.

OPERATING REVENUES

The following table compares third quarter 1995 operating revenues to those
in third quarter 1994, in thousands, by service type:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
INCREASE
1995 1994 (DECREASE)
------- ------- ----------
<S> <C> <C> <C>
Interisland:
Passenger.................... $30,248 $32,200 $(1,952)
Charter...................... 11 8 3
Cargo........................ 1,603 1,608 (5)
Other........................ 1,481 1,529 (48)
------- ------- ----------
33,343 35,345 (2,002)
------- ------- ----------

Transpacific:
Passenger.................... 43,841 42,287 1,554
Cargo........................ 2,560 1,889 671
Other........................ 747 746 1
------- ------- ----------
47,148 44,922 2,226
------- ------- ----------

South Pacific:
Passenger.................... 5,707 5,801 (94)
Cargo........................ 426 392 34
Other........................ 31 39 (8)
------- ------- ----------
6,164 6,232 (68)
------- ------- ----------

Overseas Charter:
Passenger.................... 6,700 3 6,697
Other........................ - - -
------- ------- ----------
6,700 3 6,697
------- ------- ----------

Total...................... $93,355 $86,502 $ 6,853
------- ------- ----------
------- ------- ----------

</TABLE>

-12-

<PAGE>

The following table compares applicable third quarter 1995 operating and
financial passenger revenue statistics to those in third quarter 1994:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
INCREASE
1995 1994 (DECREASE) %
------- ------- ---------- ------
<S> <C> <C> <C> <C>
Interisland:
Revenue passengers*.......... 927 995 (68) (6.8)
Revenue passenger miles*..... 121,955 129,528 (7,573) (5.8)
Available seat miles*........ 250,561 237,333 13,228 5.6
Passenger load factor........ 48.7% 54.6% (5.9)% (10.8)
Yield........................ 24.8CENTS 24.9CENTS (0.1)CENTS (0.4)

Transpacific:
Revenue passengers*.......... 272 251 21 8.4
Revenue passenger miles*..... 682,642 640,307 42,335 6.6
Available seat miles*........ 813,069 766,435 46,634 6.1
Passenger load factor........ 84.0% 83.5% 0.5% 0.6
Yield........................ 6.4CENTS 6.6CENTS (0.2)CENTS (3.0)

South Pacific:
Revenue passengers*.......... 19 21 (2) (9.5)
Revenue passenger miles*..... 50,862 55,356 (4,494) (8.1)
Available seat miles*........ 68,359 68,724 635 0.9
Passenger load factor........ 73.3% 80.5% (7.2)% (8.9)
Yield........................ 11.2CENTS 10.5CENTS 0.7CENTS 6.7

Overseas Charter:
Revenue passengers*.......... 46 - 46 100.0
Revenue passenger miles*..... 127,720 21 127,699 100.0
Available seat miles*........ 132,675 27 132,648 100.0
</TABLE>

* In thousands

Operating revenues totalled $93.4 million during the third quarter of 1995,
compared to $86.5 million during the same period in 1994, an increase of $6.9
million or 8.0%.

Revenues from Interisland passenger service totalled $30.2 million during
third quarter 1995, a decrease of $2.0 million or 6.1% from third quarter
1994. Large volume promotional fare ticket programs used by Interisland
competitors in the third quarter of 1995 had a direct effect in decreasing
the number of Interisland passengers carried by the Company and revenue
passenger miles period over period by 6.8% and 5.8%, respectively. Also,
Interisland yield decreased by 0.1CENTS or 0.4% due to the prevalence of such
promotional fare ticket programs in the Interisland market.

Revenues from Transpacific passenger operations amounted to $43.8 million
during the third quarter of 1995 compared to $42.3 million in the third
quarter of 1994, an increase of $1.6 million or 3.7%. Increases of 8.4% and
6.6% in revenue passengers carried and revenue passenger miles, respectively,
were offset by a decrease of 0.2CENTS or 3.0% in Transpacific

-13-

<PAGE>

yield. Increased frequency to Los Angeles, California, Las Vegas, Nevada and
Portland, Oregon resulted in increased revenue passengers carried, revenue
passenger miles and available seat miles. The decrease in yield was
primarily caused by continued downward pressure on fares due to heavy pricing
competition in the Transpacific market.

Overseas charter revenues of $6.7 million were earned in the third quarter of
1995 due to the commencement of charter operations between Honolulu, Hawaii
and Las Vegas, Nevada in 1995.

OPERATING EXPENSES

The following table compares operating expenses for the third quarter of 1995
with the third quarter of 1994 by major category, in thousands of dollars:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
INCREASE
1995 1994 (DECREASE)
------- ------- ----------
<S> <C> <C> <C>
Wages and benefits...................... $25,893 $26,581 $ (688)
Maintenance materials and repairs....... 17,054 12,714 4,340
Aircraft fuel, including taxes and oil.. 14,527 12,986 1,541
Purchased services...................... 5,058 5,477 (419)
Aircraft rentals........................ 4,265 5,204 (939)
Sales commissions....................... 3,831 3,601 230
Passenger food.......................... 2,709 2,567 142
Rentals other than aircraft and engines. 2,310 2,460 (150)
Reservation fees and services........... 2,231 2,088 143
Advertising and promotion............... 2,067 1,229 838
Depreciation and amortization........... 2,003 1,714 289
Reservation fees and services........... 1,731 1,694 37
Personnel expenses...................... 959 922 37
Interrupted trips....................... 497 388 109
Other................................... 2,326 3,274 (948)
------- ------- ----------
Total.............................. $87,461 $82,899 $4,562
------- ------- ----------
------- ------- ----------
</TABLE>

Operating expenses totalled $87.5 million in the third quarter of 1995, an
increase of $4.6 million or 5.5% over the third quarter of 1994.

Wages and benefits in third quarter 1995 decreased by $688,000 or 2.6% from
third quarter 1994. The Company changed its workers' compensation insurance
carrier and policy in the third quarter of 1995 which resulted in a $700,000
decrease in workers' compensation premiums and related expenses for the
period.

Maintenance materials and repairs period over period increased by $4.3
million or 34.1%. The increase was primarily caused by 1) $2.5 million in
additional maintenance costs associated with the use of eight DC-10-10
aircraft in third quarter 1995 versus five DC-10-10 aircraft

-14-

<PAGE>

and one L-1011 aircraft in third quarter 1994; and 2) $2.3 million in
increased engine repairs associated with the Company's DC-9-50 aircraft.

Aircraft fuel, including taxes and oil, increased by $1.5 million or 11.9% in
third quarter 1995 over third quarter 1994. Due to increased frequencies
quarter over quarter, the Company consumed approximately 3.0 million or 14.0%
more gallons of aircraft fuel. Increased fuel usage was offset by a decrease
in the average cost per gallon in the third quarter of 1995 versus the third
quarter of 1994 by 1.1CENTS or 1.9%. The Company anticipates further
increases in its aircraft fuel costs as a 4.3CENTS per gallon surcharge tax
will become effective October 1, 1995.

Aircraft rentals decreased by $939,000 or 18.0% in 1995. The decrease was
primarily caused by $1.0 million less in DC-9-50 aircraft and engine rents
due to such rents being restructured on the Effective Date.

Advertising and promotion increased by $838,000 or 68.2%, a direct result of
efforts to increase the Company's exposure in the Interisland and West Coast
markets through advertising and telecommunications media.

The decrease in other operating expenses is principally due to the reversal
of $1.8 million in preconfirmation contingency accruals initially provided
for on the Effective Date.

REORGANIZATION ITEMS

Reorganization items of $10.9 million were recorded in the third quarter of
1994 representing reorganization legal and professional fees, certain
transactions as contemplated under the Plan and the revaluation of assets and
liabilities on the Effective Date.

EXTRAORDINARY ITEM

An extraordinary item of $190.1 million was recorded in the third quarter of
1994 primarily due to the extinguishment of prepetition liabilities.

-15-

<PAGE>
Appendix B

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, 1995

( ) 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 1-8836

HAWAIIAN AIRLINES, INC.
(Exact Name of Registrant as Specified in Its Charter)

HAWAII 99-0042880
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (808) 835-3700

Indicate by check mark 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. (X) Yes ( ) No

As of August 11, 1995, 5,721,395 shares of Class A Common Stock and 1,718,828
shares of Class B Common Stock of the Registrant are outstanding.

<PAGE>
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)

<TABLE>
<CAPTION>
REORGANIZED
COMPANY
--------------------------------
JUNE 30, DECEMBER 31,
1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 3,285 $ 3,501
Accounts receivable, net . . . . . . . . 20,715 16,275
Inventories, net . . . . . . . . . . . . 7,093 6,234
Assets held for sale, net . . . . . . . . 1,594 1,594
Prepaid expenses and other . . . . . . . 5,287 6,079
------------ -----------
Total current assets . . . . . . . . . 37,974 33,683

Property and equipment, less accumulated
depreciation and amortization of $2,911
in 1995 and $922 in 1994 . . . . . . . . 40,419 37,756
Assets held for sale, net . . . . . . . . . 10,229 11,789
Other assets . . . . . . . . . . . . . . . 4,808 9,139
Reorganization value in excess of amounts
allocable to identifiable assets, less
accumulated amortization of $2,890 in
1995 and $1,090 in 1994 . . . . . . . . . 69,134 70,934
------------ -----------
Total assets . . . . . . . . . . . . . 162,564 163,301
------------ -----------
------------ -----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . 6,801 6,394
Current portion of capital lease
obligations . . . . . . . . . . . . . . 2,741 2,907
Accounts payable . . . . . . . . . . . . 27,221 17,529
Air traffic liability . . . . . . . . . . 37,712 40,382
Accrued liabilities . . . . . . . . . . . 15,594 12,298
------------ -----------
Total current liabilities . . . . . . . 90,069 79,510

Long-term debt . . . . . . . . . . . . . . 9,504 14,152
Capital lease obligations . . . . . . . . . 11,463 12,764
Other liabilities and deferred credits . . . 26,424 23,026
------------ -----------
Total liabilities . . . . . . . . . . . 137,460 129,452
------------ -----------
Shareholders' Equity:
Class A common stock . . . . . . . . . . . 70 -
Class B common stock . . . . . . . . . . . 24
Capital in excess of par value . . . . . . 39,006 -
Warrants . . . . . . . . . . . . . . . . 900 40,000
Accumulated deficit . . . . . . . . . . . (14,896) (6,151)
------------ -----------
Shareholders' equity . . . . . . . . . . 25,104 33,849
------------ -----------
Total liabilities and
shareholders' equity . . . . . . . . . $ 162,564 $ 163,301
------------ -----------
------------ -----------

</TABLE>

-2-

<PAGE>

ITEM 1. (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1995 1994 1995 1994
- -------------------------------------------------------------------------- --------------------------
REORGANIZED REORGANIZED
COMPANY PREDECESSOR COMPANY PREDECESSOR
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger . . . . . . . . . . . . . . . . $ 73,671 $ 66,403 $ 139,272 $ 131,000
Charter . . . . . . . . . . . . . . . . . 5,180 107 8,747 124
Cargo . . . . . . . . . . . . . . . . . . 4,577 3,938 8,538 7,997
Other . . . . . . . . . . . . . . . . . . 2,036 2,067 4,415 4,371
--------- --------- --------- ---------
Total . . . . . . . . . . . . . . . . . 85,464 72,515 160,972 143,492
--------- --------- --------- ---------

OPERATING EXPENSES:
Flying operations . . . . . . . . . . . . 25,572 24,672 49,861 50,658
Maintenance . . . . . . . . . . . . . . . 19,524 17,927 37,305 33,733
Passenger service . . . . . . . . . . . . 9,787 9,070 19,055 17,582
Aircraft and traffic servicing . . . . . 13,447 12,313 26,989 23,172
Promotion and sales . . . . . . . . . . . 10,827 9,834 21,025 20,057
General and administrative . . . . . . . 4,033 3,932 8,064 8,482
Depreciation and amortization . . . . . . 1,843 1,450 3,669 2,947
Early retirement provision . . . . . . . - - 2,000 -
--------- --------- --------- ---------
Total . . . . . . . . . . . . . . . . . 85,033 79,198 167,968 156,631
--------- --------- --------- ---------

OPERATING INCOME (LOSS) . . . . . . . . . . 431 (6,683) (6,996) (13,139)
--------- --------- --------- ---------

NONOPERATING INCOME (EXPENSE):
Interest expense, net . . . . . . . . . . (927) (168) (1,954) (226)
Gain (loss) on equipment retired . . . . (43) (39) 5 (119)
Reorganization expenses . . . . . . . . . - (2,272) - (3,035)
Other, net . . . . . . . . . . . . . . . 88 397 200 402
--------- --------- --------- ---------
Total . . . . . . . . . . . . . . . . . (882) (2,082) (1,749) (2,978)
--------- --------- --------- ---------

NET LOSS . . . . . . . . . . . . . . . . . $ (451) $ (8,765) $ (8,745) $ (16,117)
--------- --------- --------- ---------
--------- --------- --------- ---------

PROFORMA NET LOSS PER SHARE . . . . . . . . $ **(0.05) $ *N/M $ **(0.93) $ *N/M
--------- --------- --------- ---------
--------- --------- --------- ---------

WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING . . . . . . . . . . . . . . . **9,400 7,137 **9,400 7,137
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

* Not Meaningful-Per share data is not meaningful as the Predecessor
has been recapitalized and has adopted fresh start reporting as of
September 12, 1994

** Proforma per share data has been calculated assuming that the Reorganized
Company will issue approximately 9.4 million shares of common stock.
As of June 30, 1995, 4,896,361 shares of Class A and 1,718,828 shares of
Class B Common Stock are issued and outstanding.

-3-
<PAGE>

ITEM 1. (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------------
REORGANIZED COMPANY PREDECESSOR
--------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . $ (8,745) $ (16,117)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . 3,796 3,304
Net periodic postretirement benefit cost . . . . . 1,752 2,047
Loss (gain) on disposition of property and
equipment . . . . . . . . . . . . . . . . . . . . (5) 119
Increase in accounts receivable . . . . . . . . . (4,440) (6,415)
Decrease (increase) in inventories . . . . . . . (859) 349
Decrease (increase) in prepaid expenses
and other . . . . . . . . . . . . . . . . . . . . 792 (2,848)
Increase in accounts payable . . . . . . . . . . . 9,991 4,745
Increase (decrease) in accrued liabilities . . . . 3,296 (895)
Increase (decrease) in air traffic
liability . . . . . . . . . . . . . . . . . . . . (2,670) 24,438
Other, net . . . . . . . . . . . . . . . . . . . 6,048 (3,094)
---------- ----------
Net cash provided by operations before
reorganization expenses . . . . . . . . . . . . 8,956 5,633
Reorganization expenses . . . . . . . . . . . . . - 3,035
---------- ----------
Net cash provided by operating activities . . . 8,956 8,668
---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . (5,074) (2,609)
Net proceeds from disposition of property
and equipment . . . . . . . . . . . . . . . . . . . 1,832 300
---------- ----------
Net cash used in investing activities . . . . . (3,242) (2,309)
---------- ----------

CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . . . . 1,247 -
Repayment of long-term debt . . . . . . . . . . . . (5,710) (507)
Principal payments under capital lease
obligations . . . . . . . . . . . . . . . . . . . . (1,467) (81)
---------- ----------
Net cash used in financing activities . . . . . (5,930) (588)
---------- ----------

NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . (216) 5,771

CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD . . . . . . . . . . . . . . . . . . . . . . . 3,501 4,273
---------- ----------

CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . $ 3,285 $ 10,044
---------- ----------
---------- ----------
</TABLE>

-4-
<PAGE>

ITEM 1. (CONTINUED)
OPERATING STATISTICS (UNAUDITED)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------------------------------------------------
1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
REORGANIZED REORGANIZED
COMPANY PREDECESSOR COMPANY PREDECESSOR
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SCHEDULED OPERATIONS:

Revenue passengers* . . . . . . . . . . 1,197 1,070 2,349 2,147
Revenue passenger miles * . . . . . . . 791,658 713,358 1,472,000 1,361,907
Available seat miles * . . . . . . . . 1,034,221 952,463 1,973,764 1,878,260
Passenger load factor . . . . . . . . . 76.5% 74.9% 74.6% 72.5%
Revenue ton miles * . . . . . . . . . . 91,460 79,525 168,464 151,750
Revenue plane miles * . . . . . . . . . 4,314 3,802 8,270 7,448
Passenger revenue per passenger mile . 9.3 CENTS 9.3 CENTS 9.5 CENTS 9.6 CENTS

OVERSEAS CHARTER OPERATIONS

Revenue passengers* . . . . . . . . . . 37 - 62 -
Revenue passenger miles* . . . . . . . 100,442 505 169,710 505
Available seat miles* . . . . . . . . . 102,451 830 172,981 830

</TABLE>

* In thousands

-5-

<PAGE>

ITEM 1. (CONTINUED)

In the opinion of management, the unaudited condensed financial statements
included in this report contain all adjustments necessary for a fair
presentation of the results of operations and cash flows for the interim periods
covered and the financial condition of Hawaiian Airlines, Inc. ("Hawaiian
Airlines" or the "Company" or the "Reorganized Company") as of June 30, 1995 and
December 31, 1994. The operating results for the interim periods are not
necessarily indicative of the results to be expected for the full fiscal year.

The unaudited financial statements at June 30, 1995 have been prepared on a
going concern basis which assumes continuity of operations and realization of
assets and liquidation of liabilities in the ordinary course of business. As
discussed herein, the Company has continued to experience net and operating
losses. Furthermore, there can be no assurance that the Company will succeed in
solving its liquidity problems or that the Company will have sufficient cash
resources to support its continued operations. Because of the Company's
liquidity shortage, an adverse change in events and circumstances outside the
control of management could result in the Company being unable to meet its
financial obligations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts, or
the amounts and classification of liabilities that might be necessary as a
result of the outcome of the uncertainties discussed herein. Management
recognizes that the continuation of the Company as a going concern is dependent
upon a return to profitable, positive cash flow operations and the generation of
adequate funds to meet its ongoing obligations.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to Be Disposed Of" (the "Statement"). This
Statement is effective for years beginning after December 15, 1995 and applies
to long-lived assets and certain identifiable intangible assets whether held and
used or to be disposed of, and goodwill.

The Statement requires that a review be made of long-lived assets and certain
identifiable intangible assets for determination of possible impairment
adjustments whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the future cash flows
expected to result from use of the asset (undiscounted and without interest
charges) are less than the carrying amount of the asset, an impairment loss is
recognized. Such impairment loss is measured as the amount by which the
carrying amount of the asset exceeds the fair value of the asset. In instances
where goodwill is identified with assets that are subject to an impairment loss,
such goodwill should be allocated to the assets tested for recoverability on a
pro rata basis using the relative fair values of the assets acquired in the
transaction generating the goodwill.

The Statement also requires that long-lived assets and certain identifiable
intangible assets to be disposed of be reported at the lower of the asset
carrying amount or fair value, less cost to sell.

The Company plans to adopt the Statement in 1996. Restatement of previously
issued financial statements is not permitted. The Company has not estimated the
impact that adoption of the Statement is expected to have on its financial
statements.

Certain reclassifications have been made to conform prior period's data to
current period's presentation.

-6-
<PAGE>

As disclosed in the Supplemental Financial Information, Unaudited Quarterly
Financial Information contained in Hawaiian Airlines' Annual Report on Form 10-K
for the year ended December 31, 1994 (the "1994 Form 10-K"), certain significant
quarterly adjustments for calendar year 1994 were recorded. The results for the
appropriate quarters of 1994 have been restated to reflect those adjustments.
All period-to-period comparisons contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations refer to the restated
1994 results.

The accompanying financial statements should be read in conjunction with the
financial statements and the notes thereto contained in the 1994 Form 10-K,
which are incorporated herein by reference.

-7-

<PAGE>

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

INTRODUCTION

On September 21, 1993, Hawaiian Airlines together with HAL, INC., Hawaiian
Airlines' parent company, and West Maui Airport, Inc., another wholly owned
subsidiary of HAL, INC., (collectively the "Debtors" or "Predecessor") commenced
reorganization cases by filing voluntary petitions for relief under Chapter 11,
Title 11 ("Chapter 11") of the United States (the "U.S.") Code in the U.S.
Bankruptcy Court for the District of Hawaii (the "Bankruptcy Court").
Concurrently therewith, the Debtors filed a Consolidated Plan of Reorganization
dated September 21, 1993 (as amended through the most recent amendment dated
April 20, 1995 the "Plan"). On August 30, 1994, the Bankruptcy Court entered an
order confirming the Plan and with the satisfaction of certain conditions, the
Plan became effective on September 12, 1994 (the "Effective Date").

Pursuant to the Plan, on the Effective Date, first West Maui Airport, Inc. and
then HAL, INC. were merged with and into Hawaiian Airlines with Hawaiian
Airlines being the sole surviving corporation. On the Effective Date, all of
the outstanding equity securities of the Company, HAL, INC., and West Maui
Airport, Inc. were cancelled, including without limitation, all outstanding
common, preferred and preference stock of HAL, INC.

Under the Plan, the Company is to issue and distribute 9,400,000 shares of its
common stock to all of the unsecured creditors with claims allowed under the
Plan. The Company's common stock consists of two classes, one with full voting
rights, Class A Common Stock, and the other with limited voting rights, Class B
Common Stock. On June 19, 1995, the Company commenced distribution of its Class
A and Class B Common Stock and as of June 30, 1995, 4,896,361 shares of Class A
and 1,718,828 shares of Class B Common Stock are issued and outstanding. The
Company anticipates distributing another 2,111,138 shares of Class A Common
Stock and 673,673 shares of Class B Common Stock by the end of September, 1995
subject to withholding distribution of an estimated 448,820 shares of Class A
Common Stock pending resolution of disputed claims with general unsecured
creditors. As disputed claims are finally resolved, the creditor holding such
claim will receive a distribution of stock. Any shares withheld in excess of
the amount distributed to such creditor will be held until all disputed claims
have been resolved. Upon resolution of all disputed claims, there will be a
final distribution of any remaining withheld shares to all general unsecured
creditors on a pro rata basis.

Pursuant to the Plan, the Company has granted warrants to purchase an additional
989,011 shares of its Class A Common Stock, none of which have been exercised.
Pursuant to the terms of the Plan, 600,000 shares of the Company's Class A
Common Stock have been reserved for issuance under a 1994 Stock Option Plan.
The Company's Class A Common Stock began trading on the American Stock Exchange
and the Pacific Stock Exchange on June 21, 1995.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 1995, the Company had a net working capital deficit of $52.1
million, representing a $6.3 million increase from the net working capital
deficit of $45.8 million at December 31, 1994. The deterioration in the
Company's working capital position is primarily due to increased accounts
payable and accrued liabilities of approximately $13.0 million net of an
increase in accounts receivable of $4.4 million and a reduction of air traffic
liability of

-8-

<PAGE>

$2.7 million. The reduction in air traffic liability has resulted from 1)
the effects of the usage of promotional sale tickets which were unused and
outstanding as of December 31, 1994; and 2) relatively flat ticket sales due
to competition and to the fact that total tourism counts through the first
six months of 1995 were only 1.9% higher than the first six months of 1994.
The Company continues to experience liquidity shortages.

Effective April 13, 1995, the Company and American Airlines, Inc. ("American")
executed Amendment No. 2 (the "April Amendment") to the long-term Aircraft Lease
Agreement (the "Aircraft Lease Agreement") providing for the deferral of payment
of approximately $11.1 million of delinquent lease rents and maintenance
payments. The April Amendment provides that the Company is to remit periodic
payments (generally on a weekly basis) to American commencing March 31, 1995 and
ending December 22, 1995, in amounts ranging from approximately $25,000 to
$950,000, including interest at 10.0% per annum, plus payments for the basic
rent of aircraft. Maintenance payments will also be payable weekly, but in the
same aggregate amounts as set forth in the original terms of the Aircraft Lease
Agreements. Thereafter, commencing January 5, 1996, the Company is required to
pay, weekly in advance, the basic rent payments owed for the aircraft and
maintenance payments in respect of the aircraft. The Company paid to American
the first five weekly payments of deferred amounts due under the April
Amendment, in an aggregate amount of approximately $4.2 million, leaving a
balance due of $6.9 million. However, the Company failed to make deferred and
basic rent payments to American of $600,000 and $986,000, respectively,
commencing May 8, 1995.

As a result, the Company and American entered into Amendment No. 3 to the
Aircraft Lease Agreement dated June 1, 1995 (the "June Amendment"). The June
Amendment provides for the deferral of the remaining $6.9 million of delinquent
lease rents and maintenance payments until August 22, 1995. The June Amendment
provides that if the Company remits to American payments of approximately $5.3
million on or before August 22, 1995, then the Company shall pay to American the
remainder of the $6.9 million deferred rent commencing September 1, 1995 and
ending December 22, 1995, in amounts ranging from approximately $25,000 to
$125,000. In addition, the Company shall remit to American periodic payments
(generally on a weekly basis) commencing May 1, 1995 through and including
December 31, 1995 for the basic rent of aircraft. Thereafter, commencing
January 1, 1996 the Company is required to pay, weekly in advance, the basic
rent payments owed for the aircraft and maintenance payments in respect of the
aircraft.

The Company is current on its payments for basic rent of aircraft under the June
Amendment and maintenance payments under the Aircraft Lease Agreement. As of
June 30, 1995, approximately $6.9 million of deferred lease rents and
maintenance payments is outstanding. The failure of the Company to timely make
payment in full of $5.3 million due on or before August 22, 1995 would permit
American to exercise remedies available to it, which include, but are not
limited to, termination of the lease, repossession of certain aircraft and
engines, recovery of damages and drawings under the letters of credit provided
by the Company with respect to the Aircraft Lease Agreement.

The ability of the Company to satisfy its obligations with respect to making the
payment due to American by August 22, 1995, will depend on the Company's ability
to obtain additional debt or equity financing. The Company has been actively
exploring possible sources of additional financing. The Company is attempting
to obtain the agreement of American to an extension of the August 22, 1995 due
date in order to give the Company the opportunity to obtain the financing it
needs to be able to make the payment. There can be no assurance that American
will agree to an extension, or that the Company will be able to make the payment

-9-

<PAGE>

by August 22, 1995 or any extended due date or that a favorable resolution of
the matter will occur.

On or about July 5, 1995, the Company entered into an aircraft lease agreement
with American pursuant to which the Company is leasing an additional DC-10-10
aircraft from American until January 8, 1996, unless American terminates the
lease earlier upon giving the Company 30 days prior written notice. The
aircraft was placed into revenue service on August 2, 1995. The basic rent and
supplemental rent for maintenance will be payable weekly based upon hours of
use.

On the Effective Date, credit facility borrowings were made by the Company under
a financing arrangement with CIT Group/Credit Finance, Inc. ("CIT"). The
financing arrangement consists of a credit facility of up to $8.15 million
consisting of a secured revolving credit facility including up to $3.0 million
of letters of credit (the "Financing"). Available credit is subject to
reduction determined by recalculation of the borrowing base and repayments
arising from disposition of collateral. As of the date of this report, the
amount of the facility had been effectively reduced to approximately $5.0
million, which amount was approximately fully drawn in the form of $2.9 million
in borrowings and $2.1 million in letters of credit.

The Company currently does not have access to other unutilized credit facilities
and does not have any unencumbered assets. Accordingly, its access to
additional sources of liquidity remains limited. The Company is seeking other
possible sources of external financing, including equity. In addition to
assisting the Company in overcoming its working capital difficulties, this would
also permit it to reduce its reliance on promotional and discounted ticket sales
whose low yields continue to impact operating results. Unless it is successful
in these efforts, there are likely to be liquidity shortages in the future.

See discussion on going concern basis in Part I, Item 1, Financial Statements,
above.

-10-

<PAGE>

RESULTS OF OPERATIONS

The Company believes that the operating revenues and expenses of the Reorganized
Company for the three and six months ended June 30, 1995 have been presented on
a basis which is in all material respects consistent with the presentation of
the operating revenues and expenses of the Predecessor for the three and six
months ended June 30, 1994.

The Company generated operating income of $431,000 and incurred a net loss of
$451,000 during the second quarter of 1995. These amounts represent decreases
of $7.4 million and $8.3 million over second quarter 1994 operating and net
losses of $7.0 million and $8.7 million, respectively.

OPERATING REVENUES

The following table compares second quarter 1995 operating revenues to those in
second quarter 1994, in thousands, by service type:

Transpacific:
Passenger . . . . . 37,767 34,496 3,271
Cargo . . . . . . . 2,375 1,660 715
Other . . . . . . . 661 769 (108)
----------- ---------- ---------
40,803 36,925 3,878
----------- ---------- ---------

South Pacific:
Passenger . . . . . . 4,761 4,028 733
Cargo . . . . . . . . 463 646 (183)
Other . . . . . . . . 83 120 (37)
----------- ---------- ---------
5,307 4,794 513
----------- ---------- ---------

Overseas Charter:
Passenger . . . . . . 5,168 107 5,061
Other . . . . . . . . 1 - 1
----------- ---------- ---------
5,169 107 5,062
----------- ---------- ---------
Total . . . . . . $ 85,464 $ 72,515 $ 12,949
----------- ---------- ---------
----------- ---------- ---------
</TABLE>

-11-

<PAGE>

The following table compares applicable second quarter 1995 operating and
financial passenger revenue statistics to those in second quarter 1994:

<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------
1995 1994
--------------------------
Reorganized Increase
Company Predecessor (Decrease) %
------------------------------------------------------- ----------------
<S> <C> <C> <C> <C>
Interisland:
Revenue passengers*. . . . 933 834 99 11.9
Revenue passenger miles* . 123,272 109,798 13,474 12.3
Available seat miles*. . . 232,380 196,254 36,126 18.4
Passenger load factor . . 53.0% 56.0% (3.0)% (5.4)
Yield . . . . . . . . . . 25.3CENTS 25.4CENTS (0.1)CENTS (0.4)

Transpacific:
Revenue passengers*. . . . 248 221 27 12.2
Revenue passenger miles* . 624,251 563,738 60,513 10.7
Available seat miles* . . 737,325 687,706 49,619 7.2
Passenger load factor. . . 84.7% 82.0% 2.7% 3.3
Yield . . . . . . . . . . 6.0CENTS 6.1CENTS (0.1)CENTS (1.6)

South Pacific:
Revenue passengers* . . . 16 15 1 6.7
Revenue passenger miles* . 44,135 39,822 4,313 10.8
Available seat miles* . . 64,516 68,503 (3,985) (5.8)
Passenger load factor. . . 68.4% 58.1% 10.3% 17.7
Yield . . . . . . . . . . 10.8CENTS 10.1CENTS 0.7CENTS 6.9

Overseas Charter:
Revenue passengers*. . . . 37 - 37 100.0
Revenue passenger miles* . 100,442 505 99,937 197.9
Available seat miles* . . 102,451 830 101,621 122.4

</TABLE>

* In thousands

Operating revenues totalled $85.5 million during the second quarter of 1995,
compared to $72.5 million during the same period in 1994, an increase of $13.0
million or 17.9%.

Revenues from Interisland passenger service totalled $31.1 million during second
quarter 1995, an increase of $3.3 million or 11.9% from second quarter 1994.
Increases of 11.9% and 12.3% in Interisland passengers carried and revenue
passenger miles, respectively, were offset by a decrease in Interisland yield of
0.1CENTS or 0.4%. Increases in revenue passengers carried, revenue passenger
miles and available seat miles were a direct result of 1) the utilization of
thirteen DC-9-50 aircraft during the second quarter of 1995 versus, on average
nine DC-9-50 aircraft in the second quarter of 1994; 2) increased passenger
counts due to newly implemented operational concepts such as the Hawaiian
Airlines Island Shuttle from Honolulu to Maui and Kauai; and 3) use of
promotional fare ticket programs. While promotional fare ticket programs were
the primary cause of dilution in second quarter 1995 Interisland yield, included
in second quarter 1995 Interisland passenger revenues is

-12-

<PAGE>

approximately $1.0 million of promotional coupon breakage (unused coupons
with expired validity).

Revenues from Transpacific passenger operations amounted to $37.8 million during
the second quarter of 1995 compared to $34.5 million in the second quarter of
1994, an increase of $3.3 million or 9.6%. Again, increases of 12.2% and 10.7%
in revenue passengers carried and revenue passenger miles, respectively, were
offset by a decrease of 0.1CENTS or 1.6% in Transpacific yield. Increased
frequency to Los Angeles, California, Las Vegas, Nevada and Portland, Oregon
resulted in increased revenue passengers carried, revenue passenger miles and
available seat miles. The decrease in yield was primarily caused by continued
downward pressure on fares due to heavy pricing competition in the Transpacific
market. Similar to Interisland passenger revenues, second quarter 1995
Transpacific passenger revenues includes approximately $1.0 million of
promotional coupon breakage.

Overseas charter revenues of $5.2 million were earned in the second quarter
of 1995 due to the commencement of charter operations between Honolulu,
Hawaii and Las Vegas, Nevada in 1995.

OPERATING EXPENSES

The following table compares operating expenses for the second quarter of 1995
with the second quarter of 1994 by major category, in thousands of dollars:

Three Months Ended
June 30,
-------------------------
1995 1994
--------------------------
Reorganized Increase
Company Predecessor (Decrease)
------------------------------------------------------- ----------
<S> <C> <C> <C>
Wages and benefits . . . . $ 27,005 $ 26,354 $ 651
Maintenance materials and
repairs . . . . . . . . . 14,736 11,902 2,834
Aircraft fuel, including
taxes and oil . . . . . . 13,434 10,975 2,459
Purchased services . . . . 5,033 4,979 54
Aircraft rentals . . . . . 4,004 6,356 (2,352)
Sales commissions . . . . . 3,103 2,917 186
Passenger food . . . . . . 2,527 2,191 336
Rentals other than aircraft
and engines . . . . . . . 2,285 2,480 (195)
Advertising and promotion . 2,016 1,359 657
Depreciation and
amortization . . . . . . 1,944 1,537 407
Landing fees . . . . . . . 1,904 1,168 736
Reservation fees and
services . . . . . . . . 1,887 1,510 377
Personnel expenses . . . . 1,020 1,169 (149)
Insurance-hull and
liability . . . . . . . . 970 668 302
Interrupted trips . . . . . 372 509 (137)
Other . . . . . . . . . . . 2,793 3,124 (331)
---------- --------- ---------
Total . . . . . . . . . $ 85,033 $ 79,198 $ 5,835
---------- --------- ---------
---------- --------- ---------
</TABLE>

-13-

<PAGE>

Operating expenses totalled $85.0 million in the second quarter of 1995, an
increase of $5.8 million or 7.3% over the second quarter of 1994.

Maintenance materials and repairs increased $2.8 million or 23.5% over 1994. In
second quarter 1995, the Company incurred approximately $3.3 million less in
DHC-7 and L-1011 aircraft maintenance expense as these aircraft were phased out
throughout 1994. The decrease was offset by increased maintenance expense of 1)
$4.7 million associated with the Company's DC-10-10 wide-body aircraft; and 2)
$1.4 million related to DC-9-50 airframes and engines.

Aircraft fuel, including taxes and oil, increased by $2.5 million or 22.7%
quarter over quarter. The Company consumed approximately 4.9 million or 27.7%
more gallons of aircraft fuel due to increased frequencies in second quarter
1995 as compared to second quarter 1994. Increased fuel usage was offset by a
decrease in the average cost per gallon in the second quarter of 1995 versus the
second quarter of 1994 by 2.6CENTS or 4.2%.

Aircraft rentals decreased by $2.4 million or 37.5% in 1995. The decrease was a
net result of 1) $2.0 million less in aircraft rents due to the phase out of
DHC-7 and L-1011 aircraft throughout 1994; 2) $1.6 million less in DC-9-50
aircraft and engine rents due to such rents being restructured on the Effective
Date; and 3) $1.3 million more in aircraft rents for DC-10-10 aircraft.

-14-

<PAGE>
Appendix C

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 March 31, 1995

( ) 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 1-8836

HAWAIIAN AIRLINES, INC.
(Exact Name of Registrant as Specified in Its Charter)

HAWAII 99-0042880
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

531 Ohohia Street
Honolulu, Hawaii 96819
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (808) 835-3700

Indicate by check mark 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. (X) Yes ( ) No

As of May 10, 1995, no shares of common stock of the Registrant were
outstanding.

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS (in thousands) (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REORGANIZED
COMPANY
-------------------------------------
MARCH 31, 1995 DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 5,387 $ 3,501
Accounts receivable, net. . . . . . . . . . . . . . . . . 17,837 16,275
Inventories, net. . . . . . . . . . . . . . . . . . . . . 6,704 6,234
Assets held for sale, net . . . . . . . . . . . . . . . . 1,594 1,594
Prepaid expenses and other. . . . . . . . . . . . . . . . 5,256 6,079
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . 36,778 33,683

Property and equipment, less accumulated depreciation and
amortization of $1,875 in 1995 and $922 in 1994 . . . . . 39,203 37,756
Assets held for sale, net . . . . . . . . . . . . . . . . . 11,590 11,789
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 3,524 9,139
Reorganization value in excess of amounts allocable to
identifiable assets, less accumulated amortization of
$1,990 in 1995 and $1,090 in 1994 . . . . . . . . . . . . 70,034 70,934
----------- -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . 161,129 163,301
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt . . . . . . . . . . . . 6,466 6,394
Current portion of capital lease obligations. . . . . . . 2,824 2,907
Accounts payable. . . . . . . . . . . . . . . . . . . . . 24,576 17,529
Air traffic liability . . . . . . . . . . . . . . . . . . 39,853 40,382
Accrued liabilities . . . . . . . . . . . . . . . . . . . 13,199 12,298
----------- -----------
Total current liabilities. . . . . . . . . . . . . . . 86,918 79,510

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 11,320 14,152
Capital lease obligations. . . . . . . . . . . . . . . . . . 12,120 12,764
Other liabilities and deferred credits . . . . . . . . . . . 25,216 23,026
----------- -----------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . 135,574 129,452
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock. . . . . . . . . . . . . . . . . . . . . . . - -
Capital in excess of par value. . . . . . . . . . . . . . - -
Common stock, warrants and options issuable. . . . . . . 40,000 40,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . (14,445) (6,151)
----------- -----------
Shareholders' equity . . . . . . . . . . . . . . . . . 25,555 33,849
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . $ 161,129 $ 163,301
----------- -----------
----------- -----------
</TABLE>

-2-
<PAGE>

ITEM 1. (CONTINUED)
- -------------------------------------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS (in thousands)(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR
-------------------------------------
<S> <C> <C>
OPERATING REVENUES:
Passenger . . . . . . . . . . . . . . . . . . . . . . . . $ 65,601 $ 64,597
Charter . . . . . . . . . . . . . . . . . . . . . . . . . 3,567 17
Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . 3,961 4,059
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 2,379 2,304
----------- ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . 75,508 70,977
----------- ------------

OPERATING EXPENSES:
Flying operations . . . . . . . . . . . . . . . . . . . . 24,289 25,986
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 17,781 15,806
Passenger service . . . . . . . . . . . . . . . . . . . . 9,268 8,512
Aircraft and traffic servicing. . . . . . . . . . . . . . 13,542 10,859
Promotion and sales . . . . . . . . . . . . . . . . . . . 10,198 10,223
General and administrative. . . . . . . . . . . . . . . . 4,031 4,550
Depreciation and amortization . . . . . . . . . . . . . . 1,826 1,497
Early retirement provision. . . . . . . . . . . . . . . . 2,000 -
----------- ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . 82,935 77,433
----------- ------------

OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . . . (7,427) (6,456)
---------- ------------
NONOPERATING INCOME (EXPENSE):
Interest expense, net. . . . . . . . . . . . . . . . . . . (1,027) (58)
Gain (loss) on equipment retired . . . . . . . . . . . . . 48 (80)
Reorganization expenses . . . . . . . . . . . . . . . . . - (763)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . 112 6
----------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . (867) (895)
----------- ------------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . $ (8,294) $ (7,351)
----------- ------------
----------- ------------

PROFORMA NET LOSS PER SHARE. . . . . . . . . . . . . . . . . $ **(0.88) $ *N/M
----------- ------------
----------- ------------

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING . . . . . . . **9,400 7,137
----------- ------------
----------- ------------
</TABLE>

* Not Meaningful-Per share data is not meaningful as the Predecessor has been
recapitalized and has adopted fresh start reporting as of September 12,
1994

** Proforma per share data has been calculated assuming that the Reorganized
Company will issue approximately 9.4 million shares of common stock

-3-
<PAGE>

ITEM 1. (CONTINUED)
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

THREE MONTHS ENDED
MARCH 31,
-----------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR
-----------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (8,294) $ (7,351)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 1,854 1,766
Amortization of prepaid letter of credit fees . . . . . . . . . . . - 48
Net periodic postretirement benefit cost . . . . . . . . . . . . . 876 984
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . - 211
Loss on disposition of property and equipment . . . . . . . . . . . (48) 80
Increase in accounts receivable . . . . . . . . . . . . . . . . . . (1,562) (2,156)
Decrease (increase) in inventories . . . . . . . . . . . . . . . . (470) 204
Decrease (increase) in prepaid expenses and other . . . . . . . . . 823 (2,251)
Increase in accounts payable . . . . . . . . . . . . . . . . . . . 7,347 1,734
Increase (decrease) in accrued liabilities . . . . . . . . . . . . 901 (886)
Increase (decrease) in air traffic liability . . . . . . . . . . . (529) 7,442
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,676 318
------------- -------------
Net cash provided by operations before reorganization expenses . 7,574 143
Reorganization expenses . . . . . . . . . . . . . . . . . . . . . . - 763
------------- -------------
Net cash provided by operating activities . . . . . . . . . . . . 7,574 906
------------- -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . . . . . . . . . . (2,483) (1,546)
Net proceeds from disposition of property and equipment . . . . . . . 393 257
------------- -------------
Net cash used in investing activities . . . . . . . . . . . . . . (2,090) (1,289)
------------- -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . 179 -
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . (3,049) (252)
Principal payments under capital lease obligation . . . . . . . . . . (728) -
------------- -------------
Net cash used in financing activities . . . . . . . . . . . . . . (3,598) (252)
------------- -------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . 1,886 (635)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . 3,501 4,273
------------- -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . $ 5,387 $ 3,638
------------- -------------
------------- -------------
</TABLE>

-4-
<PAGE>

ITEM 1. (CONTINUED)
- --------------------------------------------------------------------------------
OPERATING STATISTICS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

THREE MONTHS ENDED
MARCH 31,
-------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR
-------------------------------------------------
<S> <C> <C>
SCHEDULED OPERATIONS:
Revenue passengers* . . . . . . . . . . . . 1,152 1,077
Revenue passenger miles *. . . . . . . . . . 680,342 648,549
Available seat miles * . . . . . . . . . . . 939,543 925,797
Passenger load factor . . . . . . . . . . . 72.4 % 70.1 %
Revenue ton miles *. . . . . . . . . . . . . 77,004 72,225
Revenue plane miles *. . . . . . . . . . . . 3,956 3,646
Passenger revenue per passenger mile . . . . 9.6 CENTS 10.0 CENTS

OVERSEAS CHARTER OPERATIONS:
Revenue passengers*. . . . . . . . . . . . . 25 -
Revenue passenger miles* . . . . . . . . . . 69,268 -
Available seat miles*. . . . . . . . . . . . 70,530 -
</TABLE>

* In thousands

-5-
<PAGE>

ITEM 1. (CONTINUED)

In the opinion of management, the unaudited financial statements included in
this report contains all adjustments necessary for a fair presentation of the
results of operations and statements of cash flow for the interim periods
covered and the financial condition of Hawaiian Airlines, Inc. ("Hawaiian
Airlines" or the "Company" or the "Reorganized Company") as of March 31, 1995
and December 31, 1994. The operating results for the interim period are not
necessarily indicative of the results to be expected for the full fiscal year.

Certain reclassifications have been made to conform prior year's data to current
year's presentation.

As disclosed in the Supplemental Financial Information, Unaudited Quarterly
Financial Information contained in Hawaiian Airlines' Annual Report on Form 10-K
for the year ended December 31, 1994, certain significant adjustments were
recorded and the results for the first quarter of 1994 have been restated to
reflect those adjustments. All period-to-period comparisons contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations refer to the restated 1994 results.

The accompanying financial statements should be read in conjunction with the
financial statements and the notes thereto contained in Hawaiian Airlines'
Annual Report on Form 10-K for the year ended December 31, 1994 (the "1994 Form
10-K"), which are incorporated herein by reference.

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

INTRODUCTION

On September 21, 1993, Hawaiian Airlines together with HAL, INC., Hawaiian
Airlines' parent company, and West Maui Airport, Inc., another wholly owned
subsidiary of HAL, INC., (collectively the "Debtors" or "Predecessor") commenced
reorganization cases by filing voluntary petitions for relief under Chapter 11,
Title 11 ("Chapter 11") of the United States (the "U.S.") Code in the U.S.
Bankruptcy Court for the District of Hawaii (the "Bankruptcy Court").
Concurrently therewith, the Debtors filed a Consolidated Plan of Reorganization
dated September 21, 1993 (as amended through the most recent amendment dated
April 20, 1995, the "Plan"). On August 30, 1994, the Bankruptcy Court entered
an order confirming the Plan and with the satisfaction of certain conditions,
the Plan became effective on September 12, 1994 (the "Effective Date").

Pursuant to the Plan, on the Effective Date, first West Maui Airport, Inc. and
then HAL, INC. were merged with and into Hawaiian Airlines with Hawaiian
Airlines being the sole surviving corporation. On the Effective Date, all of
the outstanding equity securities of the Company, HAL, INC., and West Maui
Airport, Inc. were cancelled, including without limitation, all outstanding
common, preferred and preference stock of HAL, INC. Under the Plan, the Company
is to issue and distribute 9,400,000 shares of its common stock to all of the
unsecured creditors with claims allowed under the Plan.

A portion of the shares to be distributed to general unsecured creditors
(currently estimated at 540,000 shares) will be held pending resolution of
disputed claims. As disputed claims are finally resolved, the creditor holding
such claim will receive a distribution of stock. Any shares

-6-
<PAGE>

reserved in excess of the amount distributed to such creditor will be held until
all disputed claims have been resolved. Upon resolution of all disputed claims,
there will be a final distribution of shares to all general unsecured creditors
on a pro rata basis. By the date of the initial distribution, the Company
anticipates that approximately 92.9% of the disputed claims should be resolved.

Under the Plan, the shares of new common stock were to be distributed by
December 12, 1994. As disputed claims were settled, the Company became
concerned that a distribution of new common stock pursuant to the Plan could
result in the Company failing to meet certain requirements under the
Transportation Act regarding the citizenship of its owners. See Item 1 of the
1994 Form 10-K. Accordingly, the Company twice sought and received approval
from the Bankruptcy Court to postpone the distribution of the new common stock.

On April 20, 1995, the Company obtained Bankruptcy Court approval of an
amendment to the Plan which the Company believes will enable it to satisfy the
citizenship test of the Transportation Act and still make all contemplated
distributions under the Plan. The new common stock will be bifurcated into two
classes, one with full voting rights, Class A Common Stock and the other with
limited voting rights, Class B Common Stock. The amendment provides that the
holders of the two largest general unsecured claims and certain of their
affiliates (all of whom are non-U.S. citizens) will receive the distribution due
them under the Plan in part in Class B Common Stock and in part in Class A
Common Stock. The number of shares of Class A Common Stock to be distributed to
them will be determined to assure that after giving effect to the distributions,
non-U.S. citizens will not hold more than 24.0% of the outstanding shares of
Class A Common Stock. The balance of their distribution will be made in shares
of Class B Common Stock and they will be the only persons receiving shares of
Class B Common Stock under the Plan. All other claimants entitled to receive
distributions in stock under the Plan will receive their entire distribution in
shares of Class A Common Stock. The Company anticipates that its shares of new
common stock will be distributed during the second quarter of 1995.

Pursuant to the Plan, the Company has granted warrants to purchase an additional
989,011 shares of its common stock, none of which have been exercised. Pursuant
to the terms of the Plan, 600,000 shares of the Company's common stock have been
reserved for issuance under a 1994 Stock Option Plan. The grant of such options
is subject to the approval of the 1994 Stock Option Plan by shareholders of the
Company.

The Company's Class A Common Stock will be listed on the American Stock Exchange
and the Pacific Stock Exchange. The actual commencement of trading, however,
may be delayed depending on the timing of the distribution of stock to general
unsecured creditors and because significant amounts of stock may be held in
employee stock ownership plans.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 1995, the Reorganized Company had a net working capital deficit
of $50.1 million representing a $4.3 million increase from the net working
capital deficit of $45.8 million at December 31, 1994. The deterioration in the
Company's working capital position is primarily due to a combination of an
increase in accounts payable of approximately $7.0 million net of increases in
cash and cash equivalents and accounts receivable of $3.4 million. Since the
Effective Date, the Company has experienced liquidity shortfalls.

-7-
<PAGE>

Effective April 13, 1995, the Company and American Airlines, Inc.-Registered
Trademark- ("American") executed an amendment to the long-term Aircraft Lease
Agreement providing for the deferral of payment of approximately $11.1
million of delinquent lease rents and maintenance payments. The amendment
provides that the Company is to remit periodic payments (generally on a
weekly basis) to American commencing March 31, 1995 and ending December 22,
1995, in amounts ranging from approximately $25,000 to $950,000, including
interest at 10.0% per annum, plus payments for the basic rent of aircraft.
Maintenance payments will also be payable weekly, but in the same aggregate
amounts as set forth in the original terms of the long-term Aircraft Lease
Agreement. Thereafter, commencing January 5, 1996, the Company is required
to pay, weekly in advance, the basic rent payments owed for the aircraft and
maintenance payments in respect of the aircraft. The Company paid to
American the first five weekly payments of deferred amounts due under the
amendment, in an aggregate amount of approximately $4.2 million. However,
the Company failed to make the payment of $600,000 due May 8, 1995. The
ability of the Company to make up the missed payment and to make the
remaining scheduled weekly payments of deferred amounts under the amendment
is in question. The Company also failed to make a basic rent payment to
American of $986,000 also due on May 8, 1995, but intends to make such
payment as soon as possible, hopefully by no later than the next scheduled
basic rent due date, May 15, 1995. The failure of the Company to timely make
payment in full of payments due under either the amendment or the Aircraft
Lease Agreement gives American the right to exercise remedies available to it
under the Aircraft Lease Agreement, which include, but are not limited to,
termination of the lease, repossession of aircraft and engines, recovery of
damages and drawings under the letters of credit provided by the Company with
respect to the Aircraft Lease Agreement.

Aggregate rent payments of approximately $100,000 due to the lessors on the DC-9
operating leases also were not paid timely by the Company on May 8, 1995; the
Company expects to make those payments within the grace periods provided for in
the lease agreements.

On the Effective Date, credit facility borrowings were made by the Company under
a financing arrangement with CIT Group/Credit Finance, Inc. ("CIT"). The
financing arrangement consists of a credit facility of up to $8.15 million
consisting of a secured revolving credit facility including up to $3.0 million
of letters of credit (the "Financing"). Available credit is subject to
reduction determined by recalculation of the borrowing base and repayments
arising from disposition of collateral. As of the date of this report, the
amount of the facility had been effectively reduced to approximately $5.5
million, which amount was approximately fully drawn in the form of $3.4 million
in borrowings and $2.1 million in letters of credit. The Financing contains
certain restrictive covenants, one of which requires a maintenance of minimum
net worth. Effective April 13, 1995, the minimum required net worth covenant
was reduced from $28.0 million to $20.0 million.

The Company currently does not have access to other unutilized credit facilities
and, since there are no remaining unencumbered assets, its access to additional
sources of liquidity remains limited. The Company is seeking other possible
sources of external financing, but unless it is successful in these efforts,
there may continue to be liquidity shortfalls in the future.

The Company's unaudited financial statements at March 31, 1995, have been
prepared on a going concern basis which assumes continuity of operations and
realization of assets and liquidation of liabilities in the ordinary course of
business. As discussed herein, the Company has continued to experience net and
operating losses post Effective Date. Furthermore, there can be no assurance
that the Company will succeed in solving its liquidity problems or that

-8-
<PAGE>

the Company will have sufficient cash resources to support its continued
operations. Because of the Company's liquidity situation, an adverse change in
events and circumstances outside the control of management could result in the
Company being unable to meet its financial obligations. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts, or the amounts and classification of
liabilities that might be necessary as a result of the outcome of the
uncertainties discussed herein. Management recognizes that the continuation of
the Company as a going concern is dependent upon a return to profitable,
positive cash flow operations and the generation of adequate funds to meet its
ongoing obligations.

RESULTS OF OPERATIONS

The Company believes that the operating revenues and expenses of the Reorganized
Company for the first quarter 1995 have been presented on a basis which is in
all material respects consistent with the presentation of the operating revenues
and expenses of the Predecessor for the first quarter 1994 except as stated in
Item 1 above.

During the first quarter of 1995, the Company incurred operating and net losses
of approximately $7.4 million and $8.3 million, respectively. However,
reflected in the accompanying financial statements is a one-time, non-monetary
early retirement provision of $2.0 million representing the estimated effects of
an early retirement program on the Company's pension and postretirement benefit
obligations as of March 31, 1995. In the first quarter of 1995, in an effort to
further reduce labor costs, an early retirement program was offered by the
Company to qualified participants of the ground and salaried personnel defined
benefit plans. Elections by qualified participants were completed with early
retirements scheduled to commence in the second quarter of 1995. Depending on
the number of early retirees who are replaced, as of the date of this report and
as a result of this program, the Company anticipates savings in labor and
benefit costs in excess of $500,000 per year. Excluding the effects of the one-
time, non-monetary early retirement provision, first quarter 1995 operating and
net losses would have been approximately $5.4 million and $6.3 million. This
represents a decrease of $1.1 million over both first quarter 1994 operating and
net losses of $6.5 million and $7.4 million, respectively.

-9-
<PAGE>

OPERATING REVENUES

The following table compares first quarter 1995 operating revenues to those in
first quarter 1994, in thousands, by service type:

Three Months Ended
March 31,
---------------------------
1995 1994
---------------------------
Reorganized Increase
Company Predecessor (Decrease)
- ------------------------------------------------------------- -----------
<S> <C> <C> <C>
Interisland:
Passenger . . . . . $ 30,987 $ 29,053 $ 1,934
Charter . . . . . . 10 17 (7)
Cargo . . . . . . . 1,653 1,566 87
Other . . . . . . . 1,440 1,443 (3)
---------- ---------- ----------
34,090 32,079 2,011
---------- ---------- ----------

Transpacific:
Passenger . . . . . 30,337 31,950 (1,613)
Cargo . . . . . . . 1,805 1,823 (18)
Other . . . . . . . 884 810 74
---------- ---------- ----------
33,026 34,583 (1,557)
---------- ---------- ----------

South Pacific:
Passenger . . . . . 4,277 3,594 683
Cargo . . . . . . . 503 670 (187)
Other . . . . . . . 55 51 4
---------- ---------- ----------
4,835 4,315 520
---------- ---------- ----------

Overseas Charter:
Passenger. . . . . . 3,556 - 3,556
Other. . . . . . . . 1 - 1
---------- ---------- ----------
3,557 - 3,557
---------- ---------- ----------

Total . . . . . $ 75,508 $ 70,977 $ 4,531
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

-10-
<PAGE>

The following table compares applicable first quarter 1995 operating and
financial passenger revenue statistics to those in first quarter 1994:

Three Months Ended
March 31,
------------------------
1995 1994
----------- -----------
Reorganized Increase
Company Predecessor (Decrease) %
- ----------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C>
Interisland:
Revenue passengers* ....... 932 869 63 7.2
Revenue passenger miles* .. 122,041 112,998 9,043 8.0
Available seat miles* ..... 221,332 183,898 37,434 20.4
Passenger load factor ..... 55.1% 61.4% (6.3)% (10.3)
Yield ..................... 25.4 CENTS 25.7 CENTS (0.3) CENTS (1.2)

Transpacific:
Revenue passengers* ....... 205 196 9 4.6
Revenue passenger miles* .. 519,564 501,170 18,394 3.7
Available seat miles* ..... 653,508 668,888 (15,380) (2.3)
Passenger load factor ..... 79.5% 74.9% 4.6% 6.1
Yield ..................... 5.8 CENTS 6.4 CENTS (0.6) CENTS (9.4)

South Pacific:
Revenue passengers* ....... 15 12 3 25.0
Revenue passenger miles* .. 38,737 34,381 4,357 12.7
Available seat miles* ..... 64,703 73,011 (8,307) (11.4)
Passenger load factor ..... 59.9% 47.1% 12.8% 27.2
Yield ..................... 11.0 CENTS 10.5 CENTS 0.5 CENTS 4.8

Overseas Charter:
Revenue passengers* ....... 25 - 25 100.0
Revenue passenger miles* .. 69,268 - 69,268 100.0
Available seat miles* ..... 70,530 - 70,530 100.0
</TABLE>

* In thousands

Operating revenues totalled $75.5 million during the first quarter of 1995,
compared to $71.0 million during the same period in 1994.

Revenues from Interisland passenger service totalled $31.0 million during first
quarter 1995, an increase of $1.9 million or 6.5% from first quarter 1994.
Increases of 7.2% and 8.0% in Interisland passengers carried and revenue
passenger miles, respectively, were offset by a decrease in Interisland yield of
0.3% or 1.2%. Increases in revenue passengers carried, revenue passenger miles
and available seat miles were a direct result of 1) the utilization of thirteen
DC-9-50 aircraft during the first quarter of 1995 versus four DHC-7 and, on
average nine DC-9-50 aircraft in the first quarter of 1994; 2) increased
passenger counts due to newly implemented operational concepts such as the
Hawaiian Airlines Island Shuttle from Honolulu to Maui and Kauai; and 3) use of
promotional fare ticket programs. However, the promotional fare ticket programs
were also the primary cause of dilution in first quarter 1995 Interisland yield.

-11-
<PAGE>

Revenues from Transpac passenger operations amounted to $30.3 million during the
first quarter of 1995 compared to $32.0 million in the first quarter of 1994, a
decrease of $1.7 million or 5.3%. Again, increases of 4.6% and 3.7% in revenue
passengers carried and revenue passenger miles, respectively, were offset by a
decrease of 0.6% or 9.4% in Transpac yield. The decrease in yield was primarily
caused by continued downward pressure on fares due to charter operators in the
Transpacific market.

Overseas charter revenues of $3.6 million were earned in the first quarter of
1995 due to the commencement of charter operations between Honolulu, Hawaii and
Las Vegas, Nevada in conjunction with a Hawaii tour operator.

OPERATING EXPENSES

The following table compares operating expenses for the first quarter of 1995
with the first quarter of 1994 by major category, in thousands of dollars:

Three Months Ended
March 31,
-------------------------
1995 1994
-------------------------
Reorganized Increase
Company Predecessor (Decrease)
------------------------------------------------------------------------ ------------
<S> <C> <C> <C>
Wages and benefits . . . . . . . . $ 27,027 $ 25,408 $ 1,619
Maintenance materials and repairs . 13,009 10,180 2,829
Aircraft fuel, including taxes and oil 12,444 10,224 2,220
Purchased services . . . . . . . . 4,802 4,408 394
Aircraft rentals . . . . . . . . . 3,869 8,542 (4,673)
Sales commissions . . . . . . . . . 2,943 3,783 (840)
Rentals other than aircraft and engines 2,331 1,981 350
Passenger food . . . . . . . . . . 2,248 1,775 473
Advertising and promotion . . . . . 2,070 816 1,254
Landing fees . . . . . . . . . . . 1,897 1,308 589
Depreciation and amortization . . . 1,854 1,767 87
Reservation fees and services . . . 1,656 2,250 (594)
Personnel expenses . . . . . . . . 960 823 137
Insurance-hull and liability. . . . 654 791 (137)
Interrupted trips . . . . . . . . . 541 720 (179)
Early retirement provision. . . . . 2,000 - 2,000
Other . . . . . . . . . . . . . . . 2,630 2,657 (27)
-------- -------- ----------

Total . . . . . . . . . . . . . $ 82,935 $ 77,433 $ 5,502
-------- -------- ----------
-------- -------- ----------
</TABLE>

Operating expenses totalled $82.9 million in the first quarter of 1995, an
increase of $5.5 million or 7.1% over the first quarter of 1994.

-12-
<PAGE>

Wages and benefits increased $1.6 million or 6.3% in 1995. The increase is
primarily attributable to an increase in wage rates effective September 1, 1994
ranging from 5.0% to 6.7%, together with a 9.1% increase in seat miles flown,
offset by a significant improvement in productivity.

Maintenance materials and repairs increased $2.8 million or 27.5% over 1994. In
first quarter 1995, the Company incurred approximately $4.3 million less in DHC-
7 and L-1011 aircraft maintenance expense as these aircraft were phased out
throughout 1994. The decrease was offset by increased maintenance expense of
$7.3 million associated with the Company's DC-10-10 wide-body aircraft.

Aircraft fuel, including taxes and oil increased by $2.2 million or 21.6%
quarter over quarter. The average cost per gallon increased by 2.1 CENTS or
3.8% in the first quarter of 1995 versus the first quarter of 1994. Further,
the Company consumed approximately 3.0 million or 17.5% more gallons of aircraft
fuel due to increased frequencies in first quarter 1995 as compared to first
quarter 1994.

Aircraft rentals decreased by $4.7 million or 55.3% in 1995. The decrease was a
net result of 1) $6.6 million less in aircraft rents due to the phase out of L-
1011 and DHC-7 aircraft throughout 1994 and 2) $1.9 million more in aircraft
rents for DC-10-10 aircraft.

Advertising and promotion increased $1.3 million or 162.5% over first quarter
1994. The increase was due to a conscious effort by management to increase the
Company's exposure through advertising and promotional media.

As mentioned above, early retirement provision of $2.0 million represents the
estimated effects on the Company's pension and postretirement benefit
obligations from the early retirement program offered in the first quarter of
1995.

NEW ACCOUNTING PRONOUNCEMENT

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to Be Disposed Of." This Statement is
effective for years beginning after December 15, 1995 and applies to long-lived
assets and certain identifiable intangible assets whether held and used or to be
disposed of, and goodwill.

The Statement also requires that long-lived assets and certain identifiable
intangible assets to be disposed of be reported at the lower of the asset
carrying amount or fair value, less cost to sell.

-13-
<PAGE>

-14-

<PAGE>
Appendix D

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-8836

HAWAIIAN AIRLINES, INC.
(Exact name of registrant as specified in its charter)

HAWAII 99-0042880
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)

531 Ohohia Street
Honolulu, Hawaii 96819
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (808) 835-3700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock ($0.01 par value) American Stock Exchange
Pacific Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark 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 and (2) has been subject to such filing
requirements for the past 90 days. Yes (X ) No ( )

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )

Indicate by check mark whether the registrant has 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 the court. Yes (X ) No ( )

As of April 14, 1995, no shares of common stock of the Registrant were
outstanding (see Note 1 of Notes to Financial Statements). Accordingly, the
aggregate market value of voting stock held by non-affiliates of the registrant
is $0.00.

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

INTRODUCTION

The airline industry has been, and continues to be, suffering poor financial
operating results. Aggregate losses of the U.S. airline industry during the
past five years have exceeded the total of all cumulative profits from its
inception. Since the commencement of deregulation in 1978, the airline
industry has become extremely competitive and volatile. Increased
competition, rising operational costs and pricing pressures have created
financial difficulties for most airlines and many airlines have been
acquired, forced to restructure or ceased operations. Signs of recovery are
still moderate. The Air Transport Association projects that despite record
traffic, the airline industry will post a loss of approximately $100.0
million in 1994.

As with other airlines, Hawaiian Airlines has been adversely affected by
these conditions. On September 21, 1993, Hawaiian Airlines together with
HAL, INC., Hawaiian Airlines' parent company, and West Maui Airport, Inc.,
another wholly owned subsidiary of HAL, INC., commenced reorganization cases
by filing voluntary petitions for relief under Chapter 11 of Title 11 of the
U.S. Code in Bankruptcy Court. Concurrently therewith, the Debtors filed a
Consolidated Plan of Reorganization dated September 21, 1993, which was
amended on March 5, 1994, May 6, 1994, August 29, 1994, November 2, 1994 and
February 16, 1995. On August 30, 1994, the U.S. Bankruptcy Court entered an
order confirming the Plan and with the satisfaction of certain conditions,
the Plan became effective on September 12, 1994 with all of the outstanding
common, preferred and preference stock of the Debtors being cancelled.
Pursuant to the Plan, on the Effective Date, HAL, INC. and West Maui Airport,
Inc. were merged with and into Hawaiian Airlines with Hawaiian Airlines being
the sole surviving corporation.

LIQUIDITY AND CAPITAL RESOURCES

The airline industry is a highly cyclical business with substantial
volatility, and airlines frequently experience short-term peak cash
requirements caused by both seasonal fluctuations in traffic that often put a
drain on cash during off-peak periods and other exogenous factors, such as
fuel price fluctuations or unexpected maintenance costs. Accordingly,
airlines require substantial working capital to sustain continued operations
under most conditions. The Company has operated with limited cash and cash
equivalents and a working capital deficit for a number of years. Working
capital deficits are not uncommon in the airline industry since airlines
typically have no product inventories and sales not yet flown are reflected
as current liabilities.

On the Effective Date, the Company recognized an extraordinary gain of $190.1
million representing the relief of approximately $204.7 million in
prepetition liabilities net of offsets and certain prepetition liabilities
which survived. However, as of December 31, 1994, the Reorganized Company had
a net working capital deficit of $45.8 million. The net working capital
deficit as of December 31, 1994 represents a $4.6 million increase from the
net working capital deficit of $41.2 million at December 31, 1993. The
deterioration in the Company's working capital position at December 31, 1994
from that at December 31, 1993 is due to a combination of the following:

- - In relation to current assets, increases in accounts receivable, assets
held for sale, and prepaid expenses of $2.0 million, $1.6 million and
$2.2 million, respectively, being

-2-

<PAGE>

offset by decreases in cash and cash equivalents of $800,000 and
inventories of $5.3 million;

- - In relation to current liabilities, increases in current portion of
long-term debt, current portion of capital lease obligations, air
traffic liability and accrued liabilities of $4.2 million, $2.9 million,
$10.3 million and $1.0 million, respectively, reduced by decreases in
accounts payable of $14.1 million.

On the Effective Date, credit facility borrowings were made by the
Reorganized Company under a financing arrangement with CIT Group/Credit
Finance, Inc. ("CIT"). The financing arrangement was approved by the
Bankruptcy Court on July 27, 1994 and consists of a credit facility of up to
$8.15 million consisting of a secured revolving credit facility including up
to $3.0 million of letters of credit (the "Financing"). On the Effective
Date of the Plan, $2.0 million of the revolving credit facility and $3.0
million of letters of credit were funded to the Reorganized Company.
Available credit is subject to reduction determined by recalculation of the
borrowing base and repayments arising from disposition of collateral. As of
the date of this report, the amount of the facility had been effectively
reduced to approximately $5.5 million, which amount was approximately fully
drawn in the form of $3.4 million in borrowings and $2.1 million in letters
of credit. The Financing contains certain restrictive covenants one of which
requires a minimum net worth. Effective April 13, 1995, the minimum required
net worth covenant was reduced from $28.0 million to $20.0 million.

In order to increase liquidity, the Company has also engaged in a series of
promotional ticket sale activities. As of the date of this report, another
such promotional activity is in progress. Such promotional activities
increase liquidity, but also increase air traffic liability which could
affect revenues and liquidity in future periods. Liquidity was further
enhanced when 1) in December 1994, $3.0 million of letters of credit issued
under the Financing and held by the Airline Reporting Corporation were
supplanted with a letter of credit of $100,000, effectively increasing the
availability of the revolving credit facility, as required under the
Financing and 2) in March 1995, $3.6 million in fuel facility notes
receivable held by the Company were collected with $1.5 million of the
proceeds reducing borrowings under the Financing and $2.1 million reverting
back to the Company.

Notwithstanding the above, since the Effective Date, the Company has
continued to experience liquidity shortfalls. On October 31, 1994, the
Company failed to timely make certain payments due to American pursuant to
the long-term Aircraft Lease Agreement entered into on the Effective Date.
American sent the Company notice of the failure to make rent and prepaid
maintenance payments, but did not declare the Aircraft Lease Agreement in
default or exercise any of the remedies available to it, which include, but
are not limited to, termination of the lease, repossession of aircraft and
engines, recovery of damages and drawings under the letters of credit. The
Company subsequently made the rent and prepaid maintenance payments due
American on November 4 and November 15, 1994, respectively. In December 1994
and January, February and March 1995 the Company again failed to timely make
certain full payments due pursuant to the long-term Aircraft Lease Agreement.
Again, while American sent the Company notice of the failure to make such
full rent and prepaid maintenance payments, American did not declare the
Aircraft Lease Agreement in default or exercise any of the remedies available
to it.

Effective April 13, 1995, the Company and American executed an amendment to
the long-term Aircraft Lease Agreement providing for the deferral of payment
of approximately $11.1 million of delinquent lease rents and maintenance
payments. The amendment provides that the Company is to remit periodic
payments (generally on a weekly basis) to American commencing March 31, 1995
and ending December 22, 1995, in amounts ranging from

-3-

<PAGE>

approximately $25,000 to $950,000, including interest at 10.0% per annum,
plus payments for the basic rent of aircraft. Maintenance payments will also
be payable weekly, but in the same aggregate amounts as set forth in the
original terms of the long-term Aircraft Lease Agreement. Thereafter,
commencing January 5, 1996, the Company is required to pay, weekly in
advance, the basic rent payments owed for the aircraft and maintenance
payments in respect of the aircraft.

The Company currently does not have access to other unutilized credit
facilities and, since there are no remaining unencumbered assets, its
access to additional sources of liquidity remains limited. The Company is
seeking other possible sources of external financing, but unless it is
successful in these efforts, there may continue to be liquidity shortfalls in
the future.

The financial statements at December 31, 1994, have been prepared on a going
concern basis which assumes continuity of operations and realization of
assets and liquidation of liabilities in the ordinary course of business. As
discussed herein, the Company has continued to experience net and operating
losses post Effective Date. Furthermore, there can be no assurance that the
Company will succeed in solving its liquidity problems or that the Company
will have sufficient cash resources to support its continued operations.
Because of the Company's liquidity shortfall, an adverse change in events and
circumstances outside the control of management could result in the Company
being unable to meet its financial obligations. The financial statements do
not include any adjustments relating to the recoverability and classification
of recorded asset amounts, or the amounts and classification of liabilities
that might be necessary as a result of the outcome of the uncertainties
discussed herein. Management recognizes that the continuation of the Company
as a going concern is dependent upon a return to profitable, positive cash
flow operations and the generation of adequate funds to meet its ongoing
obligations.

RESULTS OF OPERATIONS

1994 COMPARED TO 1993

INTRODUCTION

The Company believes that its operating revenues and expenses after the
Effective Date have been presented on a basis which is in all material
respects consistent with the presentation of operating revenues and expenses
before the Effective Date. Therefore, operating revenues and expenses of the
Reorganized Company and the Predecessor in 1994 have been combined for
purposes of comparison to 1993.

Excluding nonrecurring items, the Company's operating and net losses for 1994
decreased over 1993 by $12.1 million and $16.0 million, respectively, to
$12.7 million and $12.9 million, respectively.

-4-

<PAGE>

OPERATING REVENUES

The following table compares 1994 operating revenues to those in 1993, in
thousands, by service type:
Increase
1994 1993 (Decrease)
--------------------------------------------
Interisland:
Passenger. . . . . . . . $ 119,750 $ 118,530 $ 1,220
Charter. . . . . . . . . 25 1,016 (991)
Cargo. . . . . . . . . . 6,513 6,954 (441)
Other. . . . . . . . . . 5,645 5,569 76
--------- --------- ---------
131,933 132,069 (136)
--------- --------- ---------
Transpac:
Passenger. . . . . . . . 142,116 136,543 5,573
Cargo. . . . . . . . . . 7,688 6,121 1,567
Other. . . . . . . . . . 2,896 2,669 227
--------- --------- ---------
152,700 145,333 7,367
--------- --------- ---------

Southpac:
Passenger. . . . . . . . 18,311 18,313 (2)
Cargo. . . . . . . . . . 2,138 1,925 213
Other. . . . . . . . . . 252 178 74
--------- --------- ---------
20,701 20,416 285
--------- --------- ---------

Overseas Charter:
Passenger. . . . . . . . 646 6,153 (5,507)
Other. . . . . . . . . . - 138 (138)
--------- --------- ---------
Total. . . . . . . . . 646 6,291 (5,645)
--------- --------- ---------
$ 305,980 $ 304,109 $ 1,871
========= ========= =========

-5-

<PAGE>

The following table compares applicable 1994 operating and financial
passenger revenue statistics to those in 1993:
Increase
1994 1993 (Decrease) %
-------------------------------------------------
Interisland:
Revenue passengers*. . . . 3,639 3,386 253 7.5
Revenue passenger miles* . 476,051 438,979 37,072 8.5
Available seat miles*. . . 854,073 770,171 83,902 10.9
Passenger load factor. . . 55.7% 57.0% (1.3)% (2.3)
Yield. . . . . . . . . . . 25.2CENTS 27.0CENTS (1.8)CENTS (6.7)

Transpac:
Revenue passengers*. . . . 880 885 (5) (0.6)
Revenue passenger miles* . 2,231,106 2,257,472 (26,366) (1.2)
Available seat miles*. . . 2,857,081 2,784,980 72,101 2.6
Passenger load factor. . . 78.1% 81.1% (3.0)% (3.7)
Yield. . . . . . . . . . . 6.4CENTS 6.0CENTS 0.4CENTS 6.7

Southpac :
Revenue passengers*. . . . 65 66 (1) (1.5)
Revenue passenger miles* . 173,182 174,262 (1,080) (0.6)
Available seat miles*. . . 284,495 294,983 (10,488) (3.6)
Passenger load factor. . . 60.9% 59.1% 1.8% 3.1
Yield. . . . . . . . . . . 10.6CENTS 10.5CENTS 0.1CENTS 1.0

* In thousands

Operating revenues totalled $306.0 million in 1994 compared to $304.1 million
in 1993, an increase of $1.9 million or 0.6%.

Revenues from Interisland passenger service totalled $119.8 million during
1994, an increase of $1.3 million or 1.1% from 1993 Interisland passenger
revenues of $118.5 million. Increases of 7.5% and 8.5% in Interisland
passengers carried and revenue passenger miles, respectively, were offset by
a decrease in Interisland yield of 1.8CENTS or 6.7%. Increases in revenue
passengers carried, revenue passenger miles and available seat miles were a
direct result of 1) the utilization of thirteen DC-9-50 aircraft during a
majority of 1994 versus four DHC-7 and, on average nine DC-9-50 aircraft in
1993; and 2) increased passenger counts due to the overall increase in Hawaii
tourism year over year and, newly implemented operational concepts such as
the Island Shuttle to Maui and Kauai and promotional fare ticket programs.
However, the promotional fare ticket programs, such as those held in the
second and fourth quarters of 1994, were also the primary cause of dilution
in the 1994 Interisland yield.

Revenues from Transpac passenger operations amounted to $142.1 million during
1994 compared to $136.5 million in 1993, an increase of $5.6 million or 4.1%.
The increase in Transpac passenger revenues resulted primarily from a 0.4CENTS
or 6.7% increase in Transpac yield year over year. The increase in yield was
offset by decreases in revenue passengers carried and revenue passenger miles
of 0.6% and 1.2%, respectively. As noted above, promotional fare ticket
programs were held in 1994, with a portion of such promotional fare ticket
programs associated with Transpac routes. Such allocations assisted in
increasing Transpac yields in 1994 as no such allocations were made in 1993.
Decreases in Transpac revenue passengers carried, revenue passenger miles
flown and available seat miles were a

-6-

<PAGE>

direct result of the Company completing in 1994 its transition to an all
DC-10-10 aircraft fleet from an all L-1011 fleet. In their current
configuration, at full load, the DC-10-10 on average accommodates thirty five
less passengers than the L-1011.

Southpac passenger revenues in 1994 remained comparable to 1993 at $18.3
million. While period over period revenue passengers carried and revenue
passenger miles decreased by 1.5% and 0.6%, respectively, Southpac yield
increased by 0.1CENTS or 1.0%. Again, decreases in Southpac revenue passengers
carried, revenue passenger miles flown and available seat miles may be
attributed to the transition to an all DC-10-10 aircraft fleet in 1994.
Southpac yields increased due to the downsized operations of a competitor in
the Southpac market in 1994.

Transpac cargo revenues increased by $1.6 million or 26.1% from 1993.
Increased frequency in its Transpac routes allowed the Company to transport
5.4 million or 34.3% more pounds of freight in 1994. The increase in tonnage
was offset by a decrease in yield year over year of 2.5CENTS or 6.4%.

Overseas charter revenues decreased by $5.6 million or 91.0% upon comparison
of 1994 to 1993. A majority of the decrease is associated with the
Predecessor obtaining in 1993 a $3.9 million settlement from the Military
Airlift Command for charter operations during Operations Desert Shield and
Desert Storm in 1991 and 1990.

OPERATING EXPENSES

The following table compares operating expenses for 1994 with 1993 by major
category, in thousands. Certain reclassifications have been made to conform
prior year's information with the current year:

Increase
1994 1993 (Decrease)
------------------------------------
Wages and benefits . . . . . . . . . . . . $ 102,670 $ 101,292 $ 1,378
Aircraft fuel, including taxes and oil . . 47,682 49,777 (2,095)
Maintenance materials and repairs. . . . . 46,541 40,986 5,555
Aircraft rentals . . . . . . . . . . . . . 23,966 29,342 (5,376)
Purchased services . . . . . . . . . . . . 19,866 17,789 2,077
Sales commissions. . . . . . . . . . . . . 12,841 11,153 1,688
Rentals other than aircraft and engines. . 9,633 7,292 2,341
Passenger food . . . . . . . . . . . . . . 8,972 8,150 822
Depreciation and amortization. . . . . . . 6,797 7,442 (645)
Landing fees . . . . . . . . . . . . . . . 6,793 4,803 1,990
Reservation fees and services. . . . . . . 6,635 5,762 873
Advertising and promotion. . . . . . . . . 4,909 3,154 1,755
Personnel expenses . . . . . . . . . . . . 4,056 4,199 (143)
Insurance-hull and liability . . . . . . . 3,388 2,126 1,262
Interrupted trips. . . . . . . . . . . . . 2,038 4,074 (2,036)
Nonreorganization professional
and legal fees . . . . . . . . . . . . . 1,656 3,872 (2,216)
Restructuring charges. . . . . . . . . . . - 14,000 (14,000)
Other. . . . . . . . . . . . . . . . . . . 10,226 13,734 (3,508)
--------- --------- ---------
Total. . . . . . . . . . . . . $ 318,669 $ 328,947 $ (10,278)
========= ========= =========

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<PAGE>

Operating expenses totalled $318.7 million in 1994, a decrease of $10.2
million or 3.1% from total operating expenses of $328.9 million in 1993.

Wages and benefits increased $1.4 million or 1.4% in 1994. The increase is
primarily attributed to 5.0% to 6.7% wage increases effective September 1,
1994.

Aircraft fuel, including taxes and oil decreased by $2.1 million or 4.2% from
$49.8 in 1993 to $47.7 million in 1994. In addition to a $0.05 or 7.6%
decrease in average cost per gallon year over year, the Company incurred
approximately $2.3 million less in aircraft fuel expense in 1994 due to the
phase out of its DC-8 aircraft in 1993.

Maintenance materials and repairs totaled $46.5 million in 1994 an increase
of $5.6 million or 13.7% over 1993. On a net basis, the Company incurred
approximately $5.1 million in additional maintenance expense from the
DC-10-10 aircraft transitioned in 1994.

Aircraft rentals decreased by $5.4 million or 18.4%, of which $4.1 million
represents decreased rents due to DC-9-50 aircraft operating under capital
versus operating leases in 1994 and other DC-9-50 aircraft operating lease
rents being restructured on the Effective Date. Approximately $1.3 million
of the decrease is attributable to decreased rents associated with phased out
L-1011, DHC-7 and DC-8 aircraft in 1994 and 1993.

Purchased services increased $2.1 million or 11.8%, to $19.9 million in 1994
from $17.8 million in 1993. The Company incurred an additional $1.6 million
in costs in 1994 associated with simulator training, operation of its flight
operating system, credit card fees and outsourced computer mainframe services.

Sales commissions totaled $12.8 million in 1994, an increase of $1.6 million
or 14.3% over total sales commissions of $11.2 million in 1993. The increase
is primarily attributable to an 18.0% increase in commissionable sales
processed through area settlement plans.

Rentals other than aircraft and engines totaled $9.6 million in 1994 versus
$7.3 million in 1993. The $2.3 million or 31.5% increase is due to increased
space rental rates and additional joint use and system support expenses
charged primarily by the State of Hawaii airport authorities.

Landing fees increased by $2.0 million or 41.6% to $6.8 million in 1994.
Increases associated with DC-9-50 aircraft landings and wide-body aircraft
landings of $1.4 million and $900,000, respectively, were experienced in
1994. Such increases were due to 1) increased landing fee rates in Hawaii and
Los Angeles, California and 2) increased frequency due to implementation of
the Island Shuttle, schedule changes to Los Angeles, California and Las
Vegas, Nevada and commencement of scheduled service to Portland, Oregon.

Advertising and promotion totaled $4.9 million in 1994, an increase of $1.8
million or 57.1% over 1993. Approximately $900,000 is due to a conscious
effort by management to increase the Company's exposure through advertising
and promotional media, especially on the U.S. West Coast. Another $200,000
of additional expenses were incurred in connection with the Company's
participation in American's frequent flyer program.

Insurance-hull and liability increased from $2.1 million in 1993 to $3.4
million in 1994. The $1.3 million or 61.9% increase was mainly due to an
84.2% increase in the applicable premium rate for liability applied to the
Company's revenue passenger miles in 1994.

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<PAGE>

Interrupted trip expense decreased by $2.0 million or 49.1% year over year.
The Company experienced $1.8 million less in flight interruption manifest and
denied boarding expenses due to its continual efforts to improve customer
service and on-time performance.

Nonreorganization professional and legal fees decreased $2.2 million period
over period due to a majority of professional and legal fees being
classified, in accordance with the provisions of Statement of Position
("SOP") 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code", as reorganization expenses during the year 1994.

Restructuring charges in 1993 represent the Predecessor's provision for the
anticipated return and termination of five of its DC-9-50 aircraft in the
second quarter of 1993.

NONOPERATING INCOME (EXPENSE)

Reorganization expenses in 1994 totaled $14.0 million and principally
represents $5.7 million in legal and professional fees associated with the
Predecessor's Chapter 11 process and $8.3 million in fresh start adjustments
recorded on the Effective Date in accordance with SOP 90-7.

Reorganization expenses in 1993 of $52.6 million primarily consists of $47.1
million in anticipated L-1011 and DHC-7 aircraft rental and return costs,
$4.7 million for the write-off of related flight equipment leasehold
improvements and $0.8 million in legal and professional fees.

EXTRAORDINARY ITEMS

An extraordinary gain of approximately $190.1 million was recorded in the
third quarter of 1994 primarily due to the extinguishment of prepetition
obligations.

The $12.1 million extraordinary item in 1993 represents a one-time
non-monetary gain due to the reduction in the net accrued pension benefit
obligation of the Predecessor. Effective October 1, 1993, the IAM and
salaried employee defined benefit pension plans were frozen with no future
pay or credited service increases.

NEW ACCOUNTING PRONOUNCEMENT

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This Statement
is effective for years beginning after December 15, 1995 and applies to
long-lived assets and certain identifiable intangible assets whether held and
used or to be disposed of, and goodwill.

The Statement requires that a review be made of long-lived assets and certain
identifiable intangible assets to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the future cash flows expected to result
from use of the asset (undiscounted and without interest charges) are less
than the carrying amount of the asset, an impairment loss is recognized.
Such impairment loss is measured as the amount by which the carrying amount
of the asset exceeds the fair value of the asset. In instances where
goodwill is identified with assets that are subject to an impairment loss,
such goodwill should be allocated to the assets tested for recoverability on
a pro rata basis using the relative fair values of the assets acquired in the
transaction generating the goodwill.

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<PAGE>

The Statement also requires that long-lived assets and certain identifiable
intangible assets to be disposed of be reported at the lower of the asset
carrying amount or fair value, less cost to sell.

The Company plans to adopt the Statement in 1996. Restatement of previously
issued financial statements is not permitted. The Company has not estimated
the impact that adoption of the Statement is expected to have on its
financial statements.

1993 COMPARED TO 1992

INTRODUCTION

In 1993 the Predecessor incurred a net loss of $69.4 million versus net
income of $29.0 million in 1992.

The net loss recorded in 1993 includes $52.6 million of reorganization
expenses, representing $51.8 million in estimated costs associated with the
anticipated rejection of certain aircraft leases, including the Predecessor's
L-1011 and DHC-7 fleet types and $800,000 in professional fees, and an
extraordinary gain of $12.1 million representing a one-time non-monetary gain
from the reduction in its net accrued pension benefit obligation. The net
income of 1992 contains a nonoperating gain of $41.7 million arising from the
sale of the Predecessor's Honolulu to Fukuoka, Japan Route ("Fukuoka Route"
or "Northpac") to Northwest and an extraordinary gain of approximately $106.6
million resulting from the Predecessor's debt restructuring with the Bank of
America, National Trust and Savings Association (the "Bank") pursuant to the
1992 restructuring transactions. The gain on the Fukuoka Route sale
represents the reversal of the operating expenses previously accrued and
recorded by the Predecessor during the period (May 13, 1991 through September
28, 1992) it operated the Fukuoka Route under a wet lease arrangement with
Northwest. The operating expenses accrued were forgiven by Northwest at the
date of the Fukuoka Route transfer, as was a $7.0 million loan, and accrued
interest thereon, which had previously been extended to the Predecessor and
secured by the Fukuoka Route. The extraordinary gain on the Bank debt
restructuring was generated when the Bank cancelled indebtedness of
approximately $80.0 million and surrendered for cancellation its warrant to
purchase approximately 8.0% of the Predecessor's stock on a fully-diluted
basis and all of the outstanding shares of the Predecessor's Class C Senior
Preferred Stock, which had a liquidation preference of approximately $54.0
million and certain rights to mandatory redemption. The gains arising from
both of these transactions did not result in any cash flow to the Predecessor
although the Bank debt cancellation saved the Predecessor substantial future
debt payments and preferred stock redemption obligations.

The Predecessor's operating loss in 1993 decreased to $24.8 million from
$111.0 million in 1992. Included in the 1993 operating loss were one-time
noncash restructuring charges due to the accruals of $14.0 million in
provisions for the early return during 1993 of five of its DC-9-50 aircraft.
Included in its 1992 operating loss was a one-time noncash $7.5 million
charge to write-off an intangible asset ("favorable operating leases"), and a
$26.6 million loss from the operation of the Fukuoka Route which likewise did
not result in cash outflow. The Predecessor also recorded restructuring
charges of approximately $29.2 million in the fourth quarter of 1992 which
consisted primarily of a $23.0 million reserve for the potential costs
associated with the early termination and return of the Predecessor's DC-8
aircraft to its lessors. Of the remaining restructuring costs of $6.2
million, $5.3 million pertained to the write-down of DC-8 parts inventory to
their net realizable value and the write-off of capitalized improvements made
to the DC-8's, $646,000 to severance compensation and the remainder to the
write-down of DC-9-15 parts. Without such nonrecurring and noncash items and

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<PAGE>

restructuring costs, the Predecessor's 1993 and 1992 operating losses would
have been $10.8 million and $47.7 million, respectively.

For purposes of comparing the operating results during 1993 to those of 1992,
revenue and expenses are presented to include and exclude those relating to
the Predecessor's operation of the Fukuoka Route. This method more fairly
presents the true financial comparability of the two years as Northwest
ultimately bore the risks and sustained the economic losses associated with
the Fukuoka Route during the entire period it was operated by the Predecessor
as explained below.

OPERATING REVENUES

The following table compares 1993 operating revenues to those in 1992, in
thousands, by service type:

Increase
1993 1992 (Decrease)
--------- --------- ----------
Interisland:
Passenger. . . . . . . . $ 118,530 $ 123,787 $ (5,257)
Charter. . . . . . . . . 1,016 4,334 (3,318)
Cargo. . . . . . . . . . 6,954 7,566 (612)
Other. . . . . . . . . . 5,569 6,218 (649)
--------- --------- ----------
132,069 141,905 (9,836)
--------- --------- ----------

Transpac:
Passenger. . . . . . . . 136,543 125,995 10,548
Cargo. . . . . . . . . . 6,121 5,095 1,026
Other. . . . . . . . . . 2,669 2,189 480
--------- --------- ----------
145,333 133,279 12,054
--------- --------- ----------

Southpac:
Passenger. . . . . . . . 18,313 29,208 (10,895)
Cargo. . . . . . . . . . 1,925 4,068 (2,143)
Other. . . . . . . . . . 178 270 (92)
--------- --------- ----------
20,416 33,546 (13,130)
--------- --------- ----------

Northpac:
Passenger. . . . . . . . - 63,106 (63,106)
Cargo. . . . . . . . . . - 137 (137)
Other. . . . . . . . . . - 7 (7)
--------- --------- ----------
- 63,250 (63,250)
--------- --------- ----------

Overseas Charter:
Passenger. . . . . . . . 6,153 23,096 (16,943)
Other. . . . . . . . . . 138 - 138
--------- --------- ----------
6,291 23,096 (16,805)
--------- --------- ----------
Total. . . . . . . . . $ 304,109 $ 395,076 $ (90,967)
========= ========= ==========

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<PAGE>

The following table compares applicable 1993 operating and financial
passenger revenue statistics to those in 1992:

Increase
1993 1992 (Decrease) %
- -------------------------------------------------------------------------------
Interisland:
Revenue passengers* . . . 3,386 3,604 (218) (6.1)
Revenue passenger miles*. 438,979 473,675 (34,696) (7.3)
Available seat miles* . . 770,171 936,635 (166,464) (17.8)
Passenger load factor . . 57.0% 50.6% 6.4% 12.6
Yield . . . . . . . . . . 27.0CENTS 26.1CENTS 0.9CENTS 3.4

Transpac:
Revenue passengers* . . . 885 857 28 3.3
Revenue passenger miles*. 2,257,472 2,196,657 60,815 2.8
Available seat miles* . . 2,784,980 2,669,975 115,005 4.3
Passenger load factor . . 81.1% 82.3% (1.2)% (1.5)
Yield . . . . . . . . . . 6.0CENTS 5.8CENTS 0.2CENTS 3.4

Southpac:
Revenue passengers* . . . . 66 96 (30) (31.3)
Revenue passenger miles*. . 174,262 259,203 (84,941) (32.8)
Available seat miles* . . . 294,983 459,960 (164,977) (35.9)
Passenger load factor . . . 59.1% 56.4% 2.7% 4.8
Yield . . . . . . . . . . . 10.5CENTS 11.3CENTS (0.8)CENTS (7.1)

Northpac:
Revenue passengers* . . . . - 90 (90) (100.0)
Revenue passenger miles*. . - 392,510 (392,510) (100.0)
Available seat miles* . . . - 644,225 (644,225) (100.0)
Passenger load factor . . . - 60.9% (60.9)% (100.0)
Yield . . . . . . . . . . . - 16.1CENTS (16.1)CENTS (100.0)

* In thousands

Operating revenues totaled $304.1 million during 1993 compared to $395.1
million in 1992 representing a decrease of $91.0 million or 23.0%. Included
in the 1992 amounts are operating revenues for the Fukuoka Route of $63.3
million. Without the operating revenue from the Fukuoka Route, operating
revenues totaled $331.8 million during 1992.

Interisland revenues decreased $9.8 million or 6.9% in 1993 to $132.1 million
from $141.9 million in 1992. Passenger revenues from interisland operations
totaled $118.5 million as compared to $123.8 million during 1993 versus 1992
representing a decease of $5.3 million or 4.3%. Enplaned passengers
decreased 6.1% during 1993 to 3,385,609 from 3,604,397 in 1992 primarily due
to the overall decline in tourism to the State of Hawaii. Available seat
miles decreased 17.8% in 1993 from 936,635,139 in 1992 to 770,171,943 in 1993
due to conscious efforts by the Predecessor to decrease overcapacity in early
1993. Due to these efforts, Interisland passenger load factor increased by
12.6% to 57.0% in 1993 versus 50.6% in 1992 based on 438,979,203 revenue
passenger miles in 1993 compared to 473,674,552 revenue passenger miles in
1992. The $3.3 million decrease in Interisland charter revenues resulted
from the termination of an Interisland space block agreement with Japan
Airlines Co., Ltd. in 1993.

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<PAGE>

Passenger yields increased to 27.0CENTS per revenue passenger mile in 1993
versus 26.1CENTS per revenue passenger mile in 1992.

Transpac revenues increased $12.0 million or 9.0% in 1993 to $145.3 million
from $133.3 million in 1992. Passenger revenues from scheduled Transpac
operations amounted to $136.5 million during 1993 compared to $126.0 million
1992, an increase of $10.5 million or 8.3%. The Predecessor enplaned 884,634
passengers during 1993 as opposed to 857,389 during 1992, reflecting the
Predecessor's continued emphasis on using its long range aircraft for
scheduled passenger service versus charter service on long haul routes.
Available seat miles increased to 2,784,980,544 in 1993 from 2,669,975,351 in
1992 or 4.3%. During 1993, passenger yields increased by 3.4% to 6.0CENTS from
5.8CENTS in 1992. Passenger load factor remained relatively static at 81.1%
in 1993 compared to 82.3% in 1992. Freight revenue increased 19.6% from
$5.1 million in 1992 to $6.1 million in 1993 as a result of management's focus
on its Transpac freight operations and marketing.

Southpac revenues decreased 39.1% in 1993 to $20.4 million from $33.5 million
in 1992. Southpac passenger revenues totaled $18.3 million during 1993
versus $29.2 million in 1992, a decrease of $10.9 million or 37.3%. The
decrease resulted from a decline in passenger yields from 11.3CENTS in 1992 to
10.5CENTS in 1993. Available seat miles decreased to 294,983,004 in 1993 from
459,959,984 in 1992 or 35.9% due to the discontinuation of several
unprofitable scheduled Southpac routes in 1993. As a consequence, freight
revenue also decreased 53.7% from $4.1 million in 1992 to $1.9 million in
1993.

In 1992, Northpac passenger revenues resulted from the Predecessor's wet
lease operation of its Fukuoka Route. Revenues generated from this route
totaled $63.3 million during 1992. Passenger revenues totaled $63.1 million
during 1992 while passenger yield equalled 16.1CENTS. Northpac yield included
sales rebates to purchasers of tickets in Japan reported to the Predecessor
by Northwest as commission.

Overseas charter revenues declined by $16.8 million or 72.7% during 1993 to
$6.3 million versus $23.1 million in 1992, reflecting the continuation of the
Predecessor's strategic plan to deploy its long range aircraft in scheduled
Transpac service. The $6.3 million of overseas charter revenues primarily
represents ad hoc charters performed by the Predecessor in 1993 and $3.9
million received from the Military Airlift Command in May 1993 following the
settlement with the Predecessor on its claim for additional compensation for
charter operations during Desert Storm and Desert Shield in 1991 and 1990.

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<PAGE>

OPERATING EXPENSES

The following table compares operating expenses for 1993 with 1992 by major
category, in thousands. Certain reclassifications have been made to 1993
information to conform with 1994 presentation:

Increase
1993 1992 (Decrease)
-----------------------------------------
EXCLUSIVE OF FUKUOKA ROUTE:
Wages and benefits . . . . . . . $ 101,292 $ 112,083 $ (10,791)
Aircraft fuel,including
taxes and oil. . . . . . . . . 49,777 64,785 (15,008)
Maintenance materials
and repairs. . . . . . . . . . 40,986 66,819 (25,833)
Aircraft rentals . . . . . . . . 29,342 44,221 (14,879)
Purchased services . . . . . . . 17,789 18,553 (764)
Sales commissions. . . . . . . . 11,153 13,142 (1,989)
Passenger food . . . . . . . . . 8,150 8,504 (354)
Depreciation and amortization. . 7,442 6,965 477
Reservation fees and services. . 5,762 5,855 (93)
Personnel expenses . . . . . . . 4,199 7,098 (2,899)
Interrupted trips. . . . . . . . 4,074 4,576 (502)
Advertising and promotion. . . . 3,154 8,033 (4,879)
Write-off of favorable
operating leases . . . . . . . - 7,454 (7,454)
Restructuring charges. . . . . . 14,000 29,249 (15,249)
Other. . . . . . . . . . . . . . 31,827 18,889 12,938
--------- --------- ----------
Total . . . . . . . . . . . . $ 328,947 $ 416,226 $ (87,279)
========= ========= ==========

FUKUOKA ROUTE EXPENSE*:
Aircraft rentals . . . . . . . . $ - $ 47,611 $ (47,611)
Sales commissions. . . . . . . . - 40,642 (40,642)
Purchased services . . . . . . . - 1,638 (1,638)
--------- --------- ----------
Total . . . . . . . . . . . . $ - $ 89,891 $ (89,891)
========= ========= ==========

INCLUSIVE OF FUKUOKA ROUTE:
Wages and benefits . . . . . . . $ 101,292 $ 112,083 $ (10,791)
Aircraft fuel, including
taxes and oil. . . . . . . . . 49,777 64,785 (15,008)
Maintenance materials
and repairs. . . . . . . . . . 40,986 66,819 (25,833)
Aircraft rentals . . . . . . . . 29,342 91,832 (62,490)
Purchased services . . . . . . . 17,789 20,191 (2,402)
Sales commissions. . . . . . . . 11,153 53,784 (42,631)
Passenger food . . . . . . . . . 8,150 8,504 (354)
Depreciation and amortization. . 7,442 6,965 477
Reservation fees and services. . 5,762 5,855 (93)
Personnel expenses . . . . . . . 4,199 7,098 (2,899)
Interrupted trips. . . . . . . . 4,074 4,576 (502)
Advertising and promotion. . . . 3,154 8,033 (4,879)
Write-off of favorable
operating leases . . . . . . . - 7,454 (7,454)
Restructuring charges. . . . . . 14,000 29,249 (15,249)
Other. . . . . . . . . . . . . . 31,827 18,889 12,938
--------- --------- ----------
Total . . . . . . . . . . . . $ 328,947 $ 506,117 $ (177,170)
========= ========= ==========

* Transferred to Northwest on September 28, 1992

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<PAGE>

Operating expenses totaled $328.9 million during 1993, down $177.2 million
from $506.1 million in 1992. Included in the 1992 amounts are operating
expenses applicable to the Fukuoka Route totaling $89.9 million. Operating
expenses, exclusive of the Fukuoka Route, totaled $416.2 million during 1992.
In addition, included in 1993 operating expenses is $14.0 million of
restructuring charges due to the early return of five DC-9-50 aircraft.
Similarly, included in 1992 operating expense is $29.2 million of
restructuring charges primarily related to the Predecessor's decision in the
fourth quarter of 1992 to eliminate its DC-8 fleet.

Wages and benefits decreased $10.8 million from $112.1 million during 1992 to
$101.3 million in 1993 representing a decrease of 9.6%. In conjunction with
the overall decrease in the average number of employees in 1993 versus 1992,
the decrease is primarily attributable to approximately $5.5 million in
payroll and related costs associated with the operation of DC-8 aircraft in
1992 and the incurrence of $5.0 million in employee stock option plan expense
in 1992.

Aircraft fuel, including taxes and oil, totaled $49.8 million during 1993
versus $64.8 million during 1992 representing a decrease of $15.0 million or
23.2%. In 1993, fuel usage decreased by 19.6% from 93.3 million gallons in
1992 to 74.9 million gallons in 1993. Also, the average price per gallon
decreased to $0.66 in 1993 from $0.70 in 1992, a decrease of $0.04 or 5.7%.

Maintenance materials and repairs decreased $25.8 million to $41.0 million in
1993 from $66.8 million in 1992. This 38.6% decrease is due to 1) $13.5
million of DC-8 maintenance costs incurred in 1992; 2) reduced DC-9-50
maintenance expense of $4.9 million due to a reduced fleet and less flight
hours flown during 1993 versus 1992; and 3) related reductions in material
costs.

Aircraft rentals decreased from $91.8 million in 1992 to $29.3 million in
1993 representing a $62.5 million or a 68.1% decrease. Of this decrease,
$47.6 million relates to the Fukuoka Route wet lease rentals for 1992. In
addition, $14.3 million of the decrease is attributable to 1) $10.0 million
in DC-8 rents being provided for in 1992 upon finalization of the decision to
phase out these aircraft from scheduled service in 1992; 2) $1.4 million in
decreased DC-9-50 aircraft rents under amended lease terms; and 3) $2.9
million in DC-9-50 rents being provided for in the second quarter of 1993 in
connection with the recordation of a $14.0 million reserve for the return of
these aircraft.

Purchased services decreased by $2.4 million during 1993 or 11.9%, of which
$1.6 million and $800,000 are attributable to ground handling services
associated with the Fukuoka Route and decreased ground handling charges
incurred from other vendors, respectively.

Sales commissions totaled $11.2 million during 1993 versus $53.8 million during
1992. Of the $42.6 million decrease, $40.6 million of sales commissions related
to the Fukuoka Route in 1992. The remaining decrease of $2.0 million is due to
less enplaned passengers primarily in the Predecessor's Interisland operations.

Personnel expense decreased $2.9 million during 1993 as opposed to 1992
primarily as a result of the Predecessor's continual shift to scheduled
service from charter operations which substantially reduced the cost of
flight crew scheduling changes, transportation, meals and accommodations.

Advertising and promotion decreased by $4.9 million or 61.0% from 1992 to
1993 reflecting the Predecessor's decreased marketing activity due to its
financial condition during 1993.

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<PAGE>

During 1993, the Predecessor returned or terminated the respective leases
under five of its DC-9-50 aircraft and provided for $14.0 million in
anticipated aircraft rental and return costs. As part of the Predecessor's
restructuring of its operations in the last quarter of 1992, the Predecessor
provided for approximately $23.0 million in anticipated aircraft rental and
return costs for its six DC-8 aircraft, $5.6 million for the write-down to
net realizable value of DC-8 aircraft improvements and deferred charges and
approximately $650,000 in severance cost related to scheduled personnel
reductions. In addition, approximately $7.5 million of favorable operating
leases were completely written down to reflect the changes in the economic
value of the restructured lease terms.

NONOPERATING INCOME (EXPENSE)

Net interest expense decreased $6.5 million to $4.7 million in 1993 from
$11.2 million in 1992. This decrease was due primarily to the Predecessor's
financial restructuring of its Canadian Government and Bank debt in July and
November 1992, respectively. Included in nonoperating income (expense) in
the third quarter of 1992 is a $41.7 million gain on the transfer of the
Predecessor's Fukuoka Route to Northwest. Reorganization expense in 1993 of
$52.6 million primarily consists of $51.8 million of estimated costs for the
anticipated phase-out of the Predecessor's L-1011 and DHC-7 fleet types.
Included in this amount is approximately $47.1 million in anticipated
aircraft rental and return costs and $4.7 million for the write-off of
related flight equipment leasehold improvements. The remainder of the
reorganization expense of $800,000 primarily relates to legal fees.

EXTRAORDINARY ITEMS

The $12.1 million extraordinary item in 1993 represents a one-time
non-monetary gain representing the actuarial equivalent of the reduction in
the net accrued pension benefit obligation of the Predecessor as of September
30, 1993. The gain results from the cessation of future pay and credited
service increases in the actuarial formulas used to derive the pension
benefit obligation. The IAM defined benefit pension plan was frozen
effective October 1, 1993 upon ratification of the new IAM collective
bargaining unit agreement on September 8, 1993. The salaried employee defined
benefit pension plan was also frozen effective October 1, 1993.

The Predecessor recognized a $2.2 million gain in the third quarter of 1992
arising from the restructuring of the Predecessor's debt with the Canadian
Government applicable to certain DHC-7 aircraft. As previously discussed,
the Predecessor recognized a $106.6 million gain in the fourth quarter of
1992 resulting from the Predecessor's debt restructuring with the Bank.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

On January 1, 1992, the Predecessor adopted the provisions of Statement of
Financial Accounting Standards No. 109 "Accounting For Income Taxes" and in
accordance with these provisions, elected to reflect the change in accounting
principle without restating the effects of adoption under prior years'
financial statements. The cumulative effect of the change in accounting
principle was a tax benefit of approximately $2.2 million in the first
quarter of 1992.

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<PAGE>

[KPMG Peat Marwick LLP Letterhead]

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Hawaiian Airlines, Inc.:

We have audited the accompanying balance sheets of Hawaiian Airlines, Inc. as
of December 31, 1994 and 1993, and the related statements of operations,
shareholders' equity (deficit) and cash flows for the period September 12,
1994 through December 31, 1994, the period January 1, 1994 through September 11,
1994, and for each of the years in the two-year period ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hawaiian Airlines, Inc. as
of December 31, 1994 and 1993, and the results of its operations and its cash
flows for the period September 12, 1994 through December 31, 1994, the period
January 1, 1994 through September 11, 1994, and for each of the years in the
two-year period ended December 31, 1993 in conformity with generally accepted
accounting principles.

As discussed in notes 1 and 2 to the financial statements, on September 12,
1994, Hawaiian Airlines, Inc. emerged from bankruptcy. The financial
statements of the Reorganized Company reflect the impact of adjustments to
reflect the fair value of assets and liabilities under fresh start reporting.
As a result, the financial statements of the Reorganized Company are
presented on a different basis than those of the Predecessor Company and,
therefore, are not comparable in all respects. Furthermore, as discussed in
note 4 to the financial statements, the Company changed its method of
accounting for income taxes in 1992.

The accompanying financial statements have been prepared assuming that
Hawaiian Airlines, Inc. will continue as a going concern. As discussed in
note 14 to the financial statements, the Company's recurring losses from
operations, deficit working capital and its limited sources of additional
liquidity raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note 14. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

KPMG Peat Marwick LLP

Honolulu, Hawaii
April 14, 1995

<PAGE>

HAWAIIAN AIRLINES, INC.
BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, 1994 (REORGANIZED COMPANY) AND 1993 (PREDECESSOR)

<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR
-------------------- -----------
1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 3,501 $ 4,273
Accounts receivable, net of allowance for doubtful accounts of $500 in 1994
and $800 in 1993............................................................ 16,275 14,301
Inventories, net of allowance for obsolescence of $315 in 1994 and $1,212 in
1993........................................................................ 6,234 11,526
Assets held for sale......................................................... 1,594 --
Prepaid expenses............................................................. 6,079 3,915
---------- -----------
Total current assets................................................... 33,683 34,015
---------- -----------
PROPERTY AND EQUIPMENT:
Flight equipment............................................................. 34,702 52,003
Ground equipment, buildings, and leasehold improvements...................... 3,976 11,037
---------- -----------
Total.................................................................. 38,678 63,040
Accumulated depreciation and amortization.................................... (922) (26,482)
---------- -----------
Property and equipment, net............................................ 37,756 36,558
---------- -----------
OTHER ASSETS:
Nonoperating assets, net of accumulated depreciation of $6,828 in 1993....... -- 22,838
Assets held for sale......................................................... 11,789 --
Lease security and other deposits............................................ 603 5,464
Long-term prepayments and other.............................................. 8,536 6,665
Reorganization value in excess of amounts allocable to identifiable assets,
net......................................................................... 70,934 --
---------- -----------
Total other assets..................................................... 91,862 34,967
---------- -----------
TOTAL ASSETS........................................................... $ 163,301 $ 105,540
---------- -----------
---------- -----------
</TABLE>

F-2
<PAGE>
HAWAIIAN AIRLINES, INC.
BALANCE SHEETS, CONTINUED (IN THOUSANDS)
DECEMBER 31, 1994 (REORGANIZED COMPANY)
AND 1993 (PREDECESSOR)

<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR
-------------------- -----------
1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt............................................ $ 6,394 $ 2,175
Current portion of capital lease obligations................................. 2,907 --
Accounts payable............................................................. 17,529 31,595
Air traffic liability........................................................ 40,382 30,037
Other accrued liabilities.................................................... 4,916 4,832
Current portion of accrued vacation liability................................ 5,040 4,397
Accrued salaries and wages................................................... 2,342 2,203
---------- -----------
Total current liabilities.............................................. 79,510 75,239
---------- -----------
LONG-TERM DEBT................................................................. 14,152 2,615
---------- -----------
CAPITAL LEASE OBLIGATIONS...................................................... 12,764 --
---------- -----------
OTHER LIABILITIES AND DEFERRED CREDITS:
Noncurrent portion of accrued vacation liability............................. 485 1,460
Accumulated pension and other postretirement benefit obligations............. 22,013 23,834
Other........................................................................ 528 1,072
---------- -----------
Total other liabilities and deferred credits........................... 23,026 26,366
---------- -----------
Total liabilities not subject to compromise............................ 129,452 104,220
---------- -----------
LIABILITIES SUBJECT TO COMPROMISE.............................................. -- 205,229
---------- -----------
REDEEMABLE PREFERRED AND PREFERENCE STOCK SUBJECT TO COMPROMISE................ -- 5,973
---------- -----------
SHAREHOLDERS' EQUITY (DEFICIT):
Commo stock - $0.01 par value and no par or stated value in 1994 and 1993,
respectively; 20,000,000 shares and 16,000,000 shares authorized in 1994 and
1993, respectively; no shares and 7,136,577 shares issued and outstanding in
1994 and 1993, respectively................................................. -- 40,504
Capital in excess of par value............................................... -- 12,479
Common stock, warrants and options issuable.................................. 40,000 --
Accumulated deficit.......................................................... (6,151) (262,865)
---------- -----------
Shareholders' equity (deficit)......................................... 33,849 (209,882)
---------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTES 6, 7, 10, 12 AND 13)
SUBSEQUENT EVENTS (NOTES 7, 12, 13 AND 14)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)................... $ 163,301 $ 105,540
---------- -----------
---------- -----------
</TABLE>

See accompanying Notes to Financial Statements.

F-3
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE PERIOD FROM SEPTEMBER 12, 1994 TO DECEMBER 31, 1994 (REORGANIZED
COMPANY), THE PERIOD FROM JANUARY 1, 1994 TO SEPTEMBER 11, 1994 (PREDECESSOR),
YEARS ENDED DECEMBER 31, 1993 (PREDECESSOR) AND 1992 (PREDECESSOR)

<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR
--------------------------------------------------
PERIOD FROM PERIOD FROM
SEPTEMBER 12, JANUARY 1,
1994 TO 1994 TO
DECEMBER 31, SEPTEMBER 11,
1994 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger.................................................. $ 80,675 $ 199,502 $ 273,386 $ 342,096
Charter.................................................... 536 135 7,169 27,430
Cargo...................................................... 5,300 11,039 15,000 16,866
Other...................................................... 2,646 6,147 8,554 8,684
------------- ------------- --------- ---------
Total................................................ 89,157 216,823 304,109 395,076
------------- ------------- --------- ---------
OPERATING EXPENSES:
Flying operations.......................................... 28,650 71,768 107,959 187,260
Maintenance................................................ 21,547 47,281 65,963 85,187
Passenger service.......................................... 10,647 25,224 33,748 38,941
Aircraft and traffic servicing............................. 16,720 34,324 44,135 50,102
Promotion and sales........................................ 10,892 28,499 35,563 81,584
General and administrative................................. 4,696 12,063 21,610 19,377
Depreciation and amortization.............................. 2,273 4,085 5,969 6,965
Restructuring charges...................................... -- -- 14,000 36,701
------------- ------------- --------- ---------
Total................................................ 95,425 223,244 328,947 506,117
------------- ------------- --------- ---------
OPERATING LOSS............................................... (6,268) (6,421) (24,838) (111,041)
------------- ------------- --------- ---------
NONOPERATING INCOME (EXPENSE):
Interest and amortization of debt expense.................. (1,286) (1,150) (5,066) (11,885)
Interest income............................................ 318 300 360 668
Gain on sale of routes..................................... -- -- -- 41,702
Gain (loss) on disposition of equipment.................... 558 45 (659) (1,075)
Other, net................................................. 527 502 1,312 (321)
Reorganization expenses.................................... -- (13,950) (52,637) --
------------- ------------- --------- ---------
Total................................................ 117 (14,253) (56,690) 29,089
------------- ------------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE.............................. (6,151) (20,674) (81,528) (81,952)
Extraordinary gain, net...................................... -- 190,063 12,104 108,722
------------- ------------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE........................................ (6,151) 169,389 (69,424) 26,770
Cumulative Effect on Prior Year of Change in Accounting for
Income Taxes................................................ -- -- -- 2,192
------------- ------------- --------- ---------
NET INCOME (LOSS)............................................ $ (6,151) $ 169,389 $ (69,424) $ 28,962
------------- ------------- --------- ---------
------------- ------------- --------- ---------
PROFORMA LOSS PER COMMON SHARE (UNAUDITED):
Before extraordinary items and cumulative effect of change in
accounting principle........................................ $ **(0.65) $ *N/M $ *N/M $ *N/M
Extraordinary gain, net...................................... ** *N/M *N/M *N/M
Cumulative effect of change in accounting principle.......... ** *N/M *N/M *N/M
------------- ------------- --------- ---------
NET INCOME (LOSS)............................................ $ **(0.65) $ *N/M $ *N/M $ *N/M
------------- ------------- --------- ---------
------------- ------------- --------- ---------
Weighted Average Number of Common Shares Outstanding......... $ **9,400 $ 7,137 $ 6,170 $ 5,123
------------- ------------- --------- ---------
------------- ------------- --------- ---------
</TABLE>

* Not Meaningful - Per share data is not meaningful as the Predecessor has been
recapitalized and has adopted fresh start reporting as of September 12, 1994
** Proforma per share data has been calculated assuming that the Reorganized
Company will issue approximately 9.4 million shares of common stock

See accompanying Notes to Financial Statements.

F-4
<PAGE>

HAWAIIAN AIRLINES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
FOR THE PERIOD FROM SEPTEMBER 12, 1994 TO DECEMBER 31, 1994 (REORGANIZED
COMPANY), THE PERIOD FROM JANUARY 1, 1994 TO SEPTEMBER 11, 1994 (PREDECESSOR),
YEARS ENDED DECEMBER 31, 1993 (PREDECESSOR) AND 1992 (PREDECESSOR)

<TABLE>
<CAPTION>
Class D Capital in Common
Junior excess of stock,
Convertible par value, warrants and
Preference Common including options Accumulated
Stock Stock warrants issuable deficit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991. . . . . . . . . . . . $ 2,172 $12,395 $ - $ - $(221,034)

Net income . . . . . . . . . . . . . . . . . . . - - - - 28,962
Return and cancellation of 600,000 shares of
Class D Junior Convertible Preference Stock
and 504,742 shares of common stock from
NWA, Inc. . . . . . . . . . . . . . . . . . . (2,172) (1,827) 423 - -
Conversion of 487,992 shares of Class A
Convertible Preferred Stock to 487,992 shares
of common stock by Pan-Pacific Hoteliers, Inc. - 19,519 - - -
Return and cancellation of 479,758 shares of
common stock as part of the financial
restructuring. . . . . . . . . . . . . . . . . - (4,650) 4,650 - -
Issuance of warrants to purchase common stock. . - - 8,000 - -
Issuance of 2,816,659 shares of common stock
as part of the private placement . . . . . . . - 10,478 (594) - -
Issuance of 283,370 shares of common stock to
the Employee Stock Option Plans. . . . . . . . - 1,707 - - -
Accretion in value of Class B Preference Stock . - - - - (750)
------- ------- -------- ------- ---------

BALANCE, DECEMBER 31, 1992 . . . . . . . . . . . . - 37,622 12,479 - (192,822)

Net loss . . . . . . . . . . . . . . . . . . . . - - - - 69,424
Exercise of warrants for 1,075,268 shares of
of common stock. . . . . . . . . . . . . . . . - 11 - - -
Issuance of 348,038 shares of common stock to
the Employee Stock Option Plans. . . . . . . . - 2,871 - - -
Accretion in value of Class B Preference Stock . - - - - (619)
------- ------- -------- ------- ---------

BALANCE, DECEMBER 31, 1993 . . . . . . . . . . . . - 40,504 12,479 - (262,865)

Net income . . . . . . . . . . . . . . . . . . . - - - - 169,389
Fresh start adjustments, net . . . . . . . . . . - (40,504) (12,479) 40,000 93,476
------- ------- -------- ------- ---------

BALANCE SEPTEMBER 12, 1994 . . . . . . . . . . . . - - - 40,000 -

Net Loss . . . . . . . . . . . . . . . . . . . . - - - - (6,151)
------- ------- -------- ------- ---------

BALANCE, DECEMBER 31, 1994 . . . . . . . . . . . . $ - $ - $ - $40,000 $ (6,151)
------- ------- -------- ------- ---------
------- ------- -------- ------- ---------
</TABLE>

See accompanying Notes to Financial Statements.

F-5
<PAGE>

HAWAIIAN AIRLINES, INC.
STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE PERIOD FROM SEPTEMBER 12, 1994 TO DECEMBER 31, 1994 (REORGANIZED COMPANY), THE PERIOD FROM JANUARY 1, 1994 TO
SEPTEMBER 11, 1994 (PREDECESSOR), YEARS ENDED DECEMBER 31, 1993 (PREDECESSOR) AND 1992 (PREDECESSOR)

REORGANIZED
COMPANY PREDECESSOR
----------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
SEPTEMBER 12, JANUARY 1,
1994 TO 1994 TO
DECEMBER 31, SEPTEMBER 11,
1994 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . $(6,151) $ 169,389 $(69,424) $ 28,962
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization. . . . 1,219 4,488 7,001 13,318
Amortization of reorganization
value in excess of identifiable
assets . . . . . . . . . . . . . . 1,090 - - -
Amortization of debt discount. . . . 136 - - 433
Cumulative effect of change in
accounting principle . . . . . . . - - - (2,192)
Allowance for doubtful accounts. . . - 422 4,811 1,615
Amortization and write-off of
favorable operating leases . . . . - - - 10,006
Net periodic postretirement benefit
cost . . . . . . . . . . . . . . . 903 1,988 2,916 2,327
Contribution to Employee Stock
Ownership Plans. . . . . . . . . . - - - 4,973
Gain on sale of routes . . . . . . . - - - (41,702)
(Gain) loss from disposition of
equipment. . . . . . . . . . . . . (558) (45) 659 1,075
Extraordinary items. . . . . . . . . - (190,063) (12,104) (108,722)
(Increase) decrease in accounts
receivable . . . . . . . . . . . . 3,401 (6,223) 44 (1,579)
(Increase) decrease in inventories . 220 497 (419) (2,946)
(Increase) decrease in prepaid
expenses . . . . . . . . . . . . . (2,233) (1,133) (406) 2,096
(Decrease) increase in accounts
payable. . . . . . . . . . . . . . (1,966) 5,774 (22,923) 44,667
(Decrease) increase in air traffic
liability. . . . . . . . . . . . . (319) 10,602 (14,319) (2,348)
(Decrease) increase in accrued
liabilities. . . . . . . . . . . . (1,323) (734) 66,408 40,216
Other, net . . . . . . . . . . . . . 316 335 (972) 2,620
------- --------- -------- ---------
Net cash used by operations before
reorganization expenses. . . . . (5,265) (4,703) (38,728) (7,181)
Reorganization expenses. . . . . . . - 10,799 52,637 -
------- --------- -------- ---------

NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES . . . . . . (5,265) 6,096 13,909 (7,181)

CASH FLOWS FROM INVESTING ACTIVITIES:
Return (issuance) of security
deposits . . . . . . . . . . . . . . 6,979 (3,007) (3,800) -
Deposit received on nonoperating
assets . . . . . . . . . . . . . . . - - - 25,000
Additions to property and equipment. . (3,603) (3,682) (7,037) (15,373)
Net proceeds from disposition of
equipment. . . . . . . . . . . . . . 673 817 992 840
------- --------- -------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES . . . . . . 4,049 (5,872) (9,845) 10,467

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt . . . . . . 5,393 - - -
Repayment of long-term debt. . . . . . (2,095) (689) (1,730) (20,258)
Repayment of capital lease
obligations. . . . . . . . . . . . . (1,044) (1,345) - -
Issuance of common stock . . . . . . . - - 11 10,478
------- --------- -------- ---------

NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES . . . . . . 2,254 (2,034) (1,719) (9,780)
------- --------- -------- ---------

NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . 1,038 (1,810) 2,345 (6,494)

Cash and Cash Equivalents - Beginning of
Year or Period . . . . . . . . . . . . 2,463 4,273 1,928 8,422
------- --------- -------- ---------

CASH AND CASH EQUIVALENTS - END OF YEAR
OR PERIOD. . . . . . . . . . . . . . . $ 3,501 $ 2,463 $ 4,273 $ 1,928
------- --------- -------- ---------
------- --------- -------- ---------

(continued)

</TABLE>

F-6

<PAGE>

HAWAIIAN AIRLINES, INC.
STATEMENTS OF CASH FLOWS, CONTINUED (IN THOUSANDS)
FOR THE PERIOD FROM SEPTEMBER 12, 1994 TO DECEMBER 31, 1994 (REORGANIZED COMPANY), THE PERIOD FROM JANUARY 1, 1994 TO
SEPTEMBER 11, 1994 (PREDECESSOR), YEARS ENDED DECEMBER 31, 1993 (PREDECESSOR) AND 1992 (PREDECESSOR)

SUPPLEMENTAL SCHEDULE OF NONCASH
ACTIVITIES:
LIABILITIES SUBJECT TO COMPROMISE:
Reclassification of long-term debt. . . - - 5,537 -
Reclassification of accounts payable. . - - 30,074 -
Reclassification of air traffic
liability . . . . . . . . . . . . . . - - 3,280 -
Reclassification of other accrued
liabilities . . . . . . . . . . . . . - - 95,719 -
Reclassification of sales deposit . . . - - 25,000 -
Reclassification of other liabilities
and deferred credits. . . . . . . . . - - 1,429 -

RECLASSIFICATION OF REDEEMABLE PREFERRED
AND PREFERENCE STOCK SUBJECT TO
COMPROMISE. . . . . . . . . . . . . . . - - 5,973 -

BANK OF AMERICA, NATIONAL TRUST AND
SAVINGS DEBT RESTRUCTURING TRANSACTIONS:
Exercise of warrants for common stock . - - 8,000 -
Cancellation of debt, net of replacement
debt. . . . . . . . . . . . . . . . . - - - 47,000
Cancellation of accrued interest
payable . . . . . . . . . . . . . . . - - - 10,342
Issuance of new warrant to purchase
common stock. . . . . . . . . . . . . - - - 8,000
Cancellation of common stock warrants . - - - 2,900
Cancellation of Class C Senior Preferred
Stock . . . . . . . . . . . . . . . . - - - 54,470

NORTHWEST AIRLINES, INC. TRANSACTIONS:
Surrender of common and Class D Junior
Convertible Stock . . . . . . . . . . - - - 4,000
Bilateral prorate agreement recorded as
air traffic liability . . . . . . . . - - - 3,510
Honolulu-Fukuoka route transfer to
Northwest Airlines, Inc:
Cancellation of note payable. . . . . - - - 7,482
Cancellation of wet lease obligation. - - - 34,229
Conversion of Northwest Airlines, Inc.
accrued interest into debt. . . . . . - - - 236

CANADIAN GOVERNMENT DEBT RESTRUCTURING:
Transfer of ownership of nonoperating
assets, net . . . . . . . . . . . . . - - - 9,284
Cancellation of accrued interest
payable . . . . . . . . . . . . . . . - - - 2,574
Cancellation of debt, net of
replacement debt. . . . . . . . . . . - - - 8,879

OTHER CAPITAL TRANSACTIONS:
Issuance of 348,038 shares of common
stock to the Employee Stock Option
Plans . . . . . . . . . . . . . . . . - - 2,871 -
Return of common stock by shareholders. - - - 4,650
Class A Convertible Preferred Stock
converted to common stock . . . . . . - - - 19,520
Class B Preference Stock accretion. . . - - 619 750

(continued)

</TABLE>

F-7

<PAGE>

</TABLE>

See accompanying Notes to Financial Statements

F-8

<PAGE>

HAWAIIAN AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS

1. CHAPTER 11 REORGANIZATION

On September 21, 1993 (the "Petition Date"), Hawaiian Airlines together with
HAL, INC., Hawaiian Airlines' parent company, and West Maui Airport, Inc.,
another wholly owned subsidiary of HAL, INC., (collectively the "Debtors" or
"Predecessor") commenced reorganization cases by filing voluntary petitions for
relief under Chapter 11, Title 11 ("Chapter 11") of the United States (the
"U.S.") Code in the U.S. Bankruptcy Court for the District of Hawaii (the
"Bankruptcy Court"). Concurrently therewith, the Debtors filed a Consolidated
Plan of Reorganization dated September 21, 1993 (as amended on March 5, 1994,
May 6, 1994, August 29, 1994, November 2, 1994 and February 16, 1995, the
"Plan"). By order dated May 10, 1994, the Debtors received Bankruptcy Court
approval of their disclosure statement for soliciting acceptances of the Plan,
and commenced solicitation on May 13, 1994. In the balloting completed on June
13, 1994 the class of creditors holding general unsecured claims and the class
comprised of holders of Class B Preference Stock interests both failed to
approve the Plan. On August 30, 1994, the Bankruptcy Court entered an order
confirming the Plan and with the satisfaction of certain conditions, the Plan
became effective on September 12, 1994 (the "Effective Date"). Due to the
aforementioned voting results on the Plan, on the Effective Date, all of the
outstanding equity securities of the Debtors were cancelled, including without
limitation, all outstanding common, preferred and preference stock of HAL, INC.

Pursuant to the Plan, on the Effective Date, first West Maui Airport, Inc. and
then HAL, INC. were merged with and into Hawaiian Airlines with Hawaiian
Airlines (the "Reorganized Company" or the "Company") being the sole surviving
corporation. All unsecured creditors with allowed claims (except with respect
to certain immaterial claims and claims relating to assumed executory
contracts) will receive Reorganized Company common stock in consideration for
their allowed claims. Generally, secured creditors amended the terms of their
existing indebtedness, but retained a security interest in the collateral that,
at the Effective Date, secured their claims.

The Plan contemplated that the Reorganized Company would issue approximately
9,400,000 shares of common stock, $0.01 par value per share, and warrants and
options to purchase an additional 1,589,011 shares of such common stock. A
portion of the shares to be distributed to general unsecured creditors
(currently estimated at 3,212,927 shares) will be held pending resolution of
disputed claims. As disputed claims are finally resolved, the creditor holding
such claim will receive a distribution of stock. Any shares reserved in excess
of the amount distributed to such creditor will be held until all disputed
claims have been resolved. Upon resolution of all disputed claims, there will
be a final distribution of shares to all general unsecured creditors on a pro
rata basis.

Under the Plan, the shares of new common stock were to be distributed by
December 12, 1994. By order entered December 15, 1994, the Reorganized Company
received approval from the Bankruptcy Court to postpone distribution of the
Reorganized Company's new common stock as originally contemplated under the
Plan. By order entered March 14, 1995, the Reorganized Company received a
second extension from the Bankruptcy Court to postpone the distribution of the
Reorganized Company's new common stock. The Reorganized Company now
anticipates that its shares of new common stock will be distributed during the
second quarter of 1995.

F-9

<PAGE>

The Reorganized Company postponed the distribution for two reasons. First, the
Company had received very few completed Letters of Distribution Request (which
all claimants are required to return to the Distribution Agent under the Plan
in order to receive their distributions of new common stock) from holders of
allowed claims so that very few distributions could be made. Second, the
Reorganized Company was concerned that it could have been required to make
distributions to claimants who are not citizens of the U.S. that could have
resulted in Hawaiian Airlines failing to be a citizen of the U.S. as defined in
Section 40102 of the Transportation Act (49 U.S.C. Section 40102).

In order to hold a Section 401 Certificate which is necessary for Hawaiian
Airlines to carry on its business as a provider of interstate and foreign
scheduled air transportation, Hawaiian Airlines must be a citizen of the U.S.
In order for Hawaiian Airlines to be deemed a citizen of the U.S. for these
purposes, the president and at least two-thirds of the board of directors and
other managing officers must be citizens of the U.S., and at least 75.0% of the
voting interest must be owned and controlled by persons that are citizens of
the U.S.

Accordingly, the Reorganized Company has filed with the Bankruptcy Court a
motion seeking approval of an amendment to the Plan which the Reorganized
Company believes will enable it to satisfy the citizenship test of the
Transportation Act and still make all contemplated distributions under the
Plan. The amendment would accomplish this by bifurcating the new common stock
into two classes, one with limited voting rights ("Class B Common Stock") and
the other with full voting rights ("Class A Common Stock"). The Company has
asked the holders of the two largest general unsecured claims entitled to
receive stock to accept Class B Common Stock for the distribution due them
under the Plan. If they agree, then all other claimants entitled to receive
distributions in stock under the Plan would receive shares of Class A Common
Stock. If they do not agree, then non-U.S. citizens holding general unsecured
claims would receive a portion of their distribution in shares of Class A
Common Stock and a portion in shares of Class B Common Stock. The number of
shares of Class A Common Stock to be distributed to them would be determined to
assure that after giving effect to the distributions, non-U.S. citizens would
not hold more than 24.0% of the outstanding shares of Class A Common Stock.
The balance of their distribution would be made in shares of Class B Common
Stock. All distributions to other claimants entitled to receive distributions
in stock under the Plan would be made in shares of Class A Common Stock. The
Company believes that the issuance of shares of Class B Common Stock in either
of the foregoing manners will enable the Reorganized Company to meet the
citizenship test described above.

Because implementation of the proposed amendment requires several Bankruptcy
Court hearings and determinations, as well as either an agreement with the
holders of the two claims who would agree to receive shares of Class B Common
Stock, or, failing such agreement, a solicitation of approval of the claimants
classified as non-U.S. citizens, it is impossible to determine when or whether
the Reorganized Company will succeed in such implementation. If the
Reorganized Company is unsuccessful in implementing the amendment, it may seek
Bankruptcy Court approval to make distributions to U.S. citizens and withhold
distributions to non-U.S. citizens or it may seek to implement alternative
strategies to enable distributions under the Plan. However, if the Reorganized
Company is unsuccessful in implementing any of the alternatives, distributions
of stock to all claimants may be delayed indefinitely.

The Reorganized Company's new common stock has been approved for listing on the
American Stock Exchange and Pacific Stock Exchange. The actual commencement of
trading, however, may be delayed depending on the timing of the distribution of
stock to general

F-10

<PAGE>

unsecured creditors. Because a significant amount (up to 42.5% of the stock
to be distributed to general unsecured creditors) may not be distributed
until most disputed claims have been resolved, and because significant
amounts of stock may be held in employee stock ownership plans, the trading
volume may be limited. By first distribution, the Reorganized Company
anticipates that approximately 28.9% of the disputed claims should be
resolved.

In connection with the satisfaction of legal requirements for confirmation of
the Plan, certain financial projections were furnished to the Bankruptcy Court.
The Reorganized Company will not update or comment further on such projections,
which were not intended to be, and should not be, relied upon by post-
reorganization investors in the Reorganized Company's common stock. As a
matter of policy, the Reorganized Company does not intend to publish
projections of future financial performance.

F-11

<PAGE>

2. FRESH START REPORTING

The fresh start reporting common equity value of approximately $40.0
million was determined by the Reorganized Company's management and was
calculated by employing a methodology based on a multiple of earnings before
interest and taxes. Analyses of publicly available information of other
companies believed to be comparable to the Reorganized Company were used in
determining a multiple which was then applied to financial projections of the
Reorganized Company. Management's estimate of common equity value considered
a number of factors including relevant industry and economic conditions,
expected future performance, and the amount of available cash and current
market conditions, and may not necessarily be indicative of the value at
which the Reorganized Company's common shares may trade. Under fresh start
reporting, the reorganization value of the entity has been allocated to the
Reorganized Company's assets and liabilities on a basis substantially
consistent with the purchase method of accounting. The portion of
reorganization value not attributable to specific tangible or identifiable
intangible assets of the Reorganized Company has been reflected as
"Reorganization value in excess of amounts allocable to identifiable assets"
in the accompanying balance sheets.

The effects of the Plan and fresh start reporting in accordance with the
provisions of the American Institute of Certified Public Accountants Statement
of Position (the "SOP") 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" on the Reorganized Company's balance
sheet as of the Effective Date are as follows, in thousands:

REORGANIZED
PREDECESSOR COMPANY'S
BALANCE SHEET FRESH START BALANCE SHEET
SEPTEMBER 11, DEBT DISCHARGE ADJUSTMENTS SEPTEMBER 11,
1994 (a) (b) 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . $ 2,463 $ - $ - $ 2,463
Accounts receivable, net . . . . . 20,052 - (376) 19,676
Inventories, net . . . . . . . . . 10,714 - (4,260) 6,454
Assets held for sale . . . . . . . - - 1,594 1,594
Prepaid expenses and other . . . . 5,048 (549) (653) 3,846
----------- --------- --------- ---------
Total current assets . . . . . . 38,277 (549) (3,695) 34,033

Property and equipment, net . . . . . 48,516 - (15,204) 33,312
Nonoperating assets . . . . . . . . . 25,818 (20,968) (4,850) -
Assets held for sale . . . . . . . . - - 11,925 11,925
Reorganization value in excess of
amounts allocable to identifiable
assets . . . . . . . . . . . . . . . - - 72,024 72,024
Other assets . . . . . . . . . . . . 15,172 (882) 1,627 15,917
----------- --------- --------- ---------
TOTAL ASSETS . . . . . . . . . $ 127,783 $(22,399) $ 61,827 $ 167,211
----------- --------- --------- ---------
----------- --------- --------- ---------

</TABLE>

F-12

<PAGE>

FRESH START REPORTING (CONTINUED)

<TABLE>
<CAPTION>
REORGANIZED
PREDECESSOR COMPANY'S
BALANCE SHEET FRESH START BALANCE SHEET
SEPTEMBER 11, DEBT DISCHARGE ADJUSTMENTS SEPTEMBER 11,
1994 (a) (b) 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt . . $ 1,416 $ 4,418 $ (145) $ 5,689
Current portion of capital lease
obligations . . . . . . . . . . . . 2,121 - - 2,121
Accounts payable . . . . . . . . . . 34,787 (14,789) (504) 19,494
Accrued liabilities . . . . . . . . . 12,774 (129) 439 13,084
Air traffic liability . . . . . . . . 40,639 - 61 40,700
------------ ------------- ---------- ---------
Total current liabilities . . . . . 91,737 (10,500) (149) 81,088

Long-term debt . . . . . . . . . . . . 2,684 8,737 - 11,421
Capital lease obligations . . . . . . . 12,591 - - 12,591
Other liabilities and deferred
credits . . . . . . . . . . . . . . . 31,789 - (9,678) 22,111
------------ ------------- ---------- ---------
Total liabilities not subject to
compromise . . . . . . . . . . . 138,801 (1,763) (9,827) 127,211
------------ ------------- ---------- ---------

Total liabilities subject to
compromise . . . . . . . . . . . . . 204,726 (204,726) - -
------------ ------------- ---------- ---------
TOTAL LIABILITIES . . . . . . . . 343,527 (206,489) (9,827) 127,211
------------ ------------- ---------- ---------

REDEEMABLE PREFERRED AND PREFERENCE
STOCK SUBJECT TO COMPROMISE . . . . . 5,973 (5,973) - -

SHAREHOLDERS' EQUITY (DEFICIT):
Common stock . . . . . . . . . . . . 40,504 - (40,504) -
Capital in excess of par value . . . 12,479 - (12,479) -
Common stock, warrants and options
issuable . . . . . . . . . . . . . - - 40,000 40,000
Accumulated deficit . . . . . . . . . (274,700) 190,063 84,637 -
------------ ------------- ---------- ---------

SHAREHOLDERS' EQUITY (DEFICIT). . . (221,717) 190,063 71,654 40,000
------------ ------------- ---------- ---------

TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT) . $ 127,783 $ (22,399) $ 61,827 $ 167,211
------------ ------------- ---------- ---------
------------ ------------- ---------- ---------

</TABLE>

(a) To record the discharge or reclassification of obligations
pursuant to the Plan. Substantially all of these obligations are
only entitled to receive such distributions of cash and common
stock as provided under the Plan. Portions of these obligations
were restructured and will continue, as restructured, to be
liabilities of the Reorganized Company.

(b) To record adjustments to reflect assets and liabilities at
estimated fair value (including the establishment of
Reorganization value in excess of amounts allocable to
identifiable assets), the establishment of the Reorganized
Company's equity value of $40.0 million and the cancellation of
the Predecessor's equity.

F-13

<PAGE>

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The financial statements included herein have been prepared in accordance with
SOP 90-7 which was adopted by the Company effective September 22, 1993.

For periods during the Chapter 11 proceeding, prepetition liabilities which
were unsecured or estimated to be unsecured are classified as "Liabilities
Subject to Compromise." The accrual of interest on such liabilities was
discontinued for the period from September 22, 1993 to the Effective Date of
the Plan.

For accounting purposes, the Effective Date of the Plan and inception date for
the Reorganized Company is deemed to be September 12, 1994. Under fresh start
reporting, the reorganization value of the entity has been allocated to the
Reorganized Company's assets and liabilities on a basis substantially
consistent with the purchase method of accounting. The portion of
reorganization value not attributable to specific tangible or identifiable
intangible assets of the Company has been reflected as "Reorganization value in
excess of amounts allocable to identifiable assets" in the accompanying balance
sheets.

Because of the application of fresh start reporting, the financial statements
for periods after reorganization are not comparable to the financial statements
for periods prior to the reorganization.

CASH AND CASH EQUIVALENTS

The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents. Short-term cash investments at
December 31, 1994 and 1993 were valued at cost and amounted to $2.6 and $3.0
million, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. The fair value of short-
and long-term debt is based on rates negotiated with prepetition creditors and
approximates carrying value. Letters of credit had a fair value of
approximately $2.1 million. The fair values of the letters of credit were
based on the face value of the underlying instruments. See Note 7.

INVENTORIES

Inventories consisting of flight equipment expendable parts and supplies are
stated at average cost, less an allowance for obsolescence.

ASSETS HELD FOR SALE

Assets held for sale consisting of expendable inventory parts and rotable
flight equipment are stated at the lower of average cost or net realizable
value. As of December 31, 1994 and 1993, the Company had approximately $13.4
million and $1.6 million, respectively, of expendable inventory parts and
rotable flight equipment held for sale internally or on a consignment basis
with a third party. In 1993, Assets held for sale were presented as a part of
Inventories and Nonoperating assets.

F-14

<PAGE>

PROPERTY AND EQUIPMENT

Owned property and equipment are stated at cost. Costs of major improvements
are capitalized. Depreciation and amortization are provided on a straight-line
basis over the following estimated useful lives:

<TABLE>
<S> <C>
Flight equipment . . . . . . . . . . 12-15 years, 15% residual value
Ground equipment . . . . . . . . . . 5-15 years
Airport terminal facility . . . . . . 30 years
Buildings . . . . . . . . . . . . . . 15-20 years
Leasehold improvements . . . . . . . Shorter of lease term or useful life

</TABLE>

Maintenance and repairs are charged to operations as incurred, except that 1)
costs of overhauling engines are charged to operations in the year the engines
are removed for overhaul and 2) scheduled heavy airframe overhauls on DC-9-50
aircraft are recorded under the deferral method whereby the cost of overhaul is
capitalized and amortized over the shorter of the period benefitted or the
lease term. Additionally, provision is made for the estimated cost of
scheduled heavy airframe overhauls required to be performed on leased DC-9-50
aircraft prior to their return to lessors.

REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS

Reorganization value in excess of amounts allocable to identifiable assets is
amortized on a straight-line basis over 20.0 years. Accumulated amortization
at December 31, 1994 totalled approximately $1.1 million. The Company will
continue to assess and evaluate whether the remaining useful life of the asset
requires revision or, through the use of estimated future undiscounted cash
flows over the remaining life of the asset, whether the remaining balance of
the asset may not be recoverable.

OTHER ASSETS

Material preoperating costs associated with the introduction of new flight
equipment are amortized on a straight-line basis over the shorter of the lease
period or five years.

ACCRUED VACATION LIABILITY

Accrued vacation in excess of the amount expected to be taken by employees
during the following year are classified as a noncurrent liability.

FREQUENT FLYER AWARDS

A liability for frequent flyer awards is recognized on the incremental cost
basis in the period during which passengers have accumulated sufficient mileage
for award redemption. Incremental costs primarily include fuel and catering.

PASSENGER REVENUES

Passenger fares are recorded as operating revenues when the transportation is
provided. The value of unused passenger tickets is included as air traffic
liability.

F-15

<PAGE>

INCOME (LOSS) PER SHARE

Income (loss) per share is based on the weighted average number of common stock
shares and common stock equivalents outstanding during each year.

NEW ACCOUNTING PRONOUNCEMENT

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to Be Disposed Of." This Statement is
effective for years beginning after December 15, 1995 and applies to long-lived
assets and certain identifiable intangible assets whether held and used or to
be disposed of, and goodwill.

The Statement requires that a review be made of long-lived assets and certain
identifiable intangible assets to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the future cash flows expected to result from
use of the asset (undiscounted and without interest charges) are less than the
carrying amount of the asset, an impairment loss is recognized. Such
impairment loss is measured as the amount by which the carrying amount of the
asset exceeds the fair value of the asset. In instances where goodwill is
identified with assets that are subject to an impairment loss, such goodwill
should be allocated to the assets tested for recoverability on a pro rata basis
using the relative fair values of the assets acquired in the transaction
generating the goodwill.

The Statement also requires that long-lived assets and certain identifiable
intangible assets to be disposed of be reported at the lower of the asset
carrying amount or fair value, less cost to sell.

The Company plans to adopt the Statement in 1996. Restatement of previously
issued financial statements is not permitted. The Company has not estimated
the impact that adoption of the Statement is expected to have on its financial
statements.

4. CHANGE IN ACCOUNTING METHODS

Effective January 1, 1992, the Predecessor elected early adoption of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." The deferred tax liability recognized at January 1, 1992, as
calculated under SFAS No. 96, reflected the alternative minimum tax created by
the limitation on the Predecessor's net operating loss carryforwards. The
provisions of SFAS No. 109 minimized the effect of alternative minimum tax on
the measurement of the gross deferred tax liability. Accordingly, the
implementation of SFAS No. 109 eliminated the Predecessor's deferred tax
liability existing as of January 1, 1992.

The effect of the change in method of accounting for income taxes on net income
before cumulative effect of change in accounting principle for the year ended
December 31, 1992 was insignificant. The cumulative effect of the change in
method of accounting for income taxes on prior years was approximately $2.2
million.

F-16

<PAGE>

5. FLIGHT EQUIPMENT

All of the Company's aircraft are leased except for one DC-9-50. The
composition of the Company's aircraft fleet is as follows:

Reorganized
Company Predecessor
-------------------------------------------
December 31, 1994 December 31, 1993
-------------------------------------------
Aircraft Type Leased Owned Leased Owned
--------------------------------------------------------------
<S> <C> <C> <C> <C>
DC-10-10 7 - -
L-1011-1 - - 1 -
L-1011-50 - - 6 -
DC-9-50 12 1 8 1
DHC-7 - - 4 -
------ ----- ------ -----
Total 19 1 19 1
------ ----- ------ -----
------ ----- ------ -----

</TABLE>

During 1994, the Reorganized Company completed its transition from L-1011
aircraft to DC-10-10 aircraft and ceased its DHC-7 operations in April 1994.

6. LEASES

AIRCRAFT LEASES

Six DC-10-10 aircraft are leased under operating leases which expire in year
2001. A seventh DC-10-10 is leased under a short term operating lease which
expires in 1995. Seven and five DC-9-50 aircraft and related flight equipment
are leased under operating and capital leases, respectively, for various
periods ranging through the year 2004.

Most of the aircraft under operating leases include renewal options and fair
market value purchase options at the end of the lease period.

OTHER LEASES

The Company leases office space for its headquarters, airport facilities,
ticket offices and certain ground equipment in varying terms to 2008.

GENERAL

Rent expense for aircraft, office space, real property and other equipment
during 1994, 1993 and 1992 was $33.6, $36.6 million and $105.3 million
(including $47.6 million in 1992 related to the Northwest wet lease agreement,
see Note 17), respectively, net of sublease rental income from operating leases
of $368,000, $48,000 and $276,000, respectively.

F-17

<PAGE>

Scheduled future minimum lease commitments under operating and capital leases
for the Reorganized Company as of December 31, 1994, in thousands, are as
follows:

Operating Capital
Leases Leases
------------------------------------------------------------------
<S> <C> <C>
1995 . . . . . . . . . . . . . . . . . . $ 17,296 $ 4,210
1996 . . . . . . . . . . . . . . . . . . 17,165 3,715
1997 . . . . . . . . . . . . . . . . . . 16,164 3,643
1998 . . . . . . . . . . . . . . . . . . 15,551 3,281
1999 . . . . . . . . . . . . . . . . . . 15,030 3,281
Thereafter . . . . . . . . . . . . . . . 30,928 1,501
------- ------
Total minimum lease payments . . . . . $ 112,134 19,631
-------
-------

Less amount representing interest. . . 3,960
------

Present value of obligations under
capital leases . . . . . . . . . . . . 15,671

Less current portion of capital
lease obligations. . . . . . . . . . . 2,907
------

Capital lease obligations, excluding
current portion . . . . . . . . . . . $ 12,764
------
------

</TABLE>

In addition to scheduled future minimum lease payments, the Company is required
to prepay for monthly DC-10-10 maintenance services in accordance with the
American Airlines, Inc.-Registered- ("American") Long-Term Agreements, as
hereafter defined. The payments are based on estimated flight hours for the
month. For the period from September 12, 1994 to December 31, 1994, the
Company incurred $8.9 million in maintenance expenses under the Long-Term
Agreements.

As discussed in Notes 12, 13 and 14, prior to April 1995, the Company failed to
make certain payments due American under its lease arrangements. An amendment
to the long-term Aircraft Lease Agreement providing for the deferral of payment
of any remaining delinquent amounts owed by the Company over scheduled dates
throughout 1995 became effective April 13, 1995.

The net book value of property held under capital leases as of December 31,
1994 totalled $17.3 million.

F-18

<PAGE>

7. DEBT

At December 31, 1994, the Company's long-term debt, including obligations under
capital leases, consists of the following, in thousands:

Reorganized
Company Predecessor
-----------------------------
1994 1993
----------------------------------------------------------------------------
<S> <C> <C>
Secured obligations due 1996-1999 . . . . $ 13,537 $ 4,790

Tax obligations due 1995-2000 . . . . . . 668 -

Unsecured obligations due 1996-1997 . . . 6,341 -

Obligations under capital leases due
1995-2000 . . . . . . . . . . . . . . . . 15,671 -
------------- ----------
36,217 4,790

Current portion . . . . . . . . . . . . . (9,301) (2,175)
------------- ----------
Long-term debt and obligations under
capital leases, excluding current
portion . . . . . . . . . . . . . . $ 26,916 $ 2,615
------------- ----------
------------- ----------

</TABLE>

Secured obligations due 1996-1999 are as follows:

* A note payable executed in 1994 in settlement of $6.0 million of
administrative claims related to unpaid prepetition L-1011 and DC-9-50
aircraft rents. The note is due in 1999, bears interest at 8.0% per annum
and is payable in monthly installments of principal and interest of
$121,658. At December 31, 1994, $5.8 million is outstanding;

* A secured note payable executed in 1992 pursuant to a settlement agreement
with the Government of Canada related to two DHC-7 aircraft and related
flight equipment. The note is due in 1996 and is payable in installments
of $50,000 per month. As the note bears no interest, interest has been
imputed as of the Effective Date at 10.0% per annum. As of December 31,
1994 and 1993, $1.0 million and $1.8 million were outstanding,
respectively;

* A secured note executed in 1993 for the purchase of a DC-9-50 aircraft
from a lessor. The mortgage note is due in 1999 and is payable in monthly
installments of principal and interest of $59,876. Interest accrues at
10.315% per annum. At December 31, 1994 and 1993, $2.6 million and $3.0
million were outstanding, respectively;

* On the Effective Date, credit facility borrowings were made by the
Reorganized Company under a financing arrangement with CIT Group/Credit
Finance, Inc. ("CIT"). The financing arrangement was approved by the
Bankruptcy Court on July 27, 1994 and consists of a credit facility of up
to $8.15 million consisting of a secured revolving credit facility
including up to $3.0 million of letters of credit (the "Financing"). On
the

F-19

<PAGE>

Effective Date of the Plan, $2.0 million of the revolving credit
facility and $3.0 million of letters of credit were funded to the
Reorganized Company. Borrowings under the revolving credit facility have
been recorded net of discount representing the estimated fair value of
issued warrants as discussed in Note 11. The Financing has a term of two
years and bears interest at the rate of prime plus 2.5% (11.0% at December
31, 1994). Available credit is subject to reduction determined by
recalculation of the borrowing base and repayments arising from
disposition of collateral. At December 31, 1994, $4.1 million and $2.1
million of borrowings and letters of credit, respectively, were
outstanding. The Financing contains certain restrictive covenants one of
which requires a minimum net worth. Effective April 13, 1995, the minimum
required net worth covenant was reduced from $28.0 million to $20.0
million. See Note 14.

Estimated tax obligations due 1995-2000 represent allowed priority tax claims
for various taxing jurisdictions, which in accordance with the provisions of
the Plan, bear interest at 7.0% per annum and are payable in twenty-four
quarterly installments commencing on the first through sixth anniversaries of
the Effective Date.

Unsecured notes payable due 1996-1997 are as follows:

* A note executed in 1994 in settlement of $4.7 million of administrative
claims related to unpaid postpetition L-1011 aircraft rents. The note is
due in 1996, bears interest at prime plus 3.0% (11.5% at December 31,
1994) and is payable in monthly installments of principal and interest of
$194,010. At December 31, 1994, $3.9 million was outstanding;

* A note executed in 1994 in settlement of $2.8 million of administrative
claims related to unpaid prepetition airport use and occupancy fees to the
State of Hawaii. The note is due in 1997 and is payable in monthly
installments of $100,000. The note bears no interest; however, interest
has been imputed at 10.0% per annum. As of December 31, 1994, $2.2
million was outstanding;

* A note executed in 1994 in settlement of $276,000 of administrative claims
related to unpaid L-1011 aircraft rents. The note is due in 1996 and is
payable in monthly principal installments of $11,518. At December 31,
1994, $254,000 remained outstanding. Interest accrues at prime plus 3.0%
per annum (11.5% at December 31, 1994).

Obligations under capital leases represent the present value of aggregate
future minimum lease payments discounted using interest rates ranging from 8.5%
to 9.0%.

F-20

<PAGE>

The following table represents a summary of the Reorganized Company's assets as
of December 31, 1994 which are pledged as security for the indicated
obligations as of December 31, 1994:

Net Book Value of Balance of Obligation
Asset/Nature of Security as of as of
Security December 31, 1994 Creditor December 31, 1994
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Security interst in $6.0 million GPA Group PLC $5.8 million note due
certain DC-9 rotable and 1999
parts AEROUSA, INC.

Security interest in $2.0 million Canadian $1.0 million note due
certain ground and Government 1996
flight equipment,
$15.0 million
stipulated judgment to
be filed upon default
of payments due

Mortgage interest in $3.7 million GATX Capital $2.6 million mortgage
DC-9-50 aircraft Corporation note due 1999

First priority security Unspecified CIT Group/Credit $4.1 million revolving
interest in Finance, Inc. credit facility obligation
substantially all due 1996, $2.1 million
assets, with certain letters of credit
limited exceptions
including prior liens
contemplated by the
Plan, $2.0 million
letters of credit (See
Note 11)

</TABLE>

8. REORGANIZATION AND NONRECURRING OPERATING ITEMS

The following reorganization and other items associated with the bankruptcy
proceeding were incurred by the Predecessor during the period from January 1,
1994 to September 11, 1994, in thousands:

<TABLE>

<S> <C>
Reorganization Items:
Professional fees . . . . . . . . . . . . . . . $ 5,744
Employee share of common stock distribution . . 7,568
Other . . . . . . . . . . . . . . . . . . . . . 268
Revaluation of assets and liabilities . . . . . . 370
---------
$ 13,950
---------
---------
</TABLE>

F-21

<PAGE>

During 1993, the Predecessor returned or terminated the respective leases under
five of its DC-9-50 aircraft. As a result, the Company provided for $14.0
million in anticipated aircraft rental and return costs. In accordance with
SOP 90-7, following the Petition Date, the Predecessor classified
reorganization and other costs associated with the bankruptcy proceeding as
nonoperating reorganization expenses. The balance for the period from
September 22, 1993 through December 31, 1993 includes the following, in
thousands:

<TABLE>
<S> <C>
Provisions for claims related to rejection of L-1011
and DHC-7 aircraft leases . . . . . . . . . . . . . $ 51,456
Provisions for claims related to various contract
disputes, litigation and other matters . . . . . . . 346
Professional fees and expenses related to
reorganization proceedings . . . . . . . . . . . . . 835
----------
$ 52,627
----------
----------
</TABLE>

Charter revenues in 1993 include $3.9 million received from the Military
Airlift Command in May 1993 following a settlement with the Debtors on its
claim for additional compensation for charter operations during Operations
Desert Shield and Desert Storm in 1991 and 1990.

As part of the Predecessor's restructuring of its operations in the last
quarter of 1992, the Predecessor provided for approximately $23.0 million in
anticipated aircraft rental and return costs for its six DC-8 aircraft, $5.6
million for the write-down to net realizable value of DC-8 aircraft
improvements and deferred charges and approximately $650,000 in severance cost
related to scheduled personnel reductions. In addition, approximately $7.5
million of favorable operating leases were completely written down to reflect
the changes in the economic value of the restructured lease terms.

9. INCOME TAXES

In 1992, the Financial Accounting Standards Board issued SFAS No. 109. Under
the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

The Predecessor adopted SFAS No. 109 as of January 1, 1992. The cumulative
effect of this change in accounting for income taxes of $2.2 million was
determined as of January 1, 1992 and is reported separately in the statement of
operations for the year ended December 31, 1992.

As a result of net operating losses in the current year and net operating
losses carried forward from prior years, the Company and the Predecessor were
not required to provide for federal and state income taxes for 1994 and 1993.

F-22

<PAGE>

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1994
and 1993 are presented below, in thousands:

<TABLE>
<CAPTION>
Reorganized
Company Predecessor
------------------------------
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts . . . . . $ 198 $ 319
Accured pension and post-retirement
benefits . . . . . . . . . . . . . . . . 10,448 10,796
Accrued vacation . . . . . . . . . . . . . . 1,644 1,861
Net operating loss carryforwards . . . . . . 34,181 24,585
Investment tax credit carryforwards. . . . . 2,569 2,569
Airframe return provision . . . . . . . . . 76 37,184
Other . . . . . . . . . . . . . . . . . . . 3,813 1,403
--------- ---------

Total gross deferred tax assets . . . . 52,929 78,717

Less valuation allowance . . . . . . . . (47,086) (66,407)
--------- ---------

Net deferred tax assets . . . . . . . . 5,843 12,310
--------- ---------

Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation . . . . . . . (5,843) (12,220)
Other . . . . . . . . . . . . . . . . . . . - (90)
--------- ---------

Total gross deferred tax liability . . . (5,843) (12,310)
--------- ---------

Net deferred tax liability . . . . . . . $ - $ -
--------- ---------
--------- ---------

</TABLE>

The valuation allowance for deferred tax assets as of December 31, 1993 was
$66.4 million. The net change in the total valuation allowance for the year
ended December 31, 1994 was a decrease of $19.3 million.

As a result of the November 1992 debt restructuring and recapitalization
transaction, an ownership change of the Company occurred which resulted in a
limitation on the use of its net operating loss (and tax credit) carryforwards
pursuant to Sections 382 and 383 of the Internal Revenue Code. Consequently,
the Company's ability to utilize net operating loss and tax credit
carryforwards that arose prior to that ownership change is limited to $2.8
million annually ("Section 382 limitation"). Any part of the Section 382
limitation that is not utilized in a given year may be carried forward to the
next year and combined with that year's originating Section 382 limitation of
$2.8 million. Net operating loss carryforwards generated after the ownership
change resulting from the November 1992 restructuring, are not subject to the
Section 382 limitation, but were affected by the Company's Chapter 11
reorganization, as discussed below. After taking into account the reductions
in net operating loss carryforwards resulting from the November 1992 debt

F-23

<PAGE>

restructuring and recapitalization transaction, as of December 31, 1994 the
Company has approximately $44.8 million of net operating loss (and equivalent
tax credit) carryforwards attributable to the period prior to the November 1992
restructuring ("pre-November 1992 NOLs") that are subject to the Section 382
limitation.

The financial reorganization of the Company in 1994 resulted in the
cancellation of substantial debts of the Company. Such cancellation of
indebtedness can result in taxable income under the Internal Revenue Code equal
to the excess of the amount of debt canceled over the cash and fair market
value of property (including new stock of the Company) paid to the creditors.
However, the Internal Revenue Code provides that the cancellation of
indebtedness does not give rise to taxable income if the cancellation was
pursuant to a plan approved by the court in a bankruptcy case. Moreover, under
the judicial "stock-for-debt exception," as modified by Section 108 of the
Internal Revenue Code, the Company will not be required to reduce its net
operating loss and tax credit carryforwards as a result of the issuance of the
Company's new stock to creditors in connection with the Company's
reorganization, except as discussed below.

The Chapter 11 reorganization of the Company resulted in another "ownership
change" of the Company under Section 382 of the Internal Revenue Code.
Ordinarily, an ownership change would result in a significant limitation on the
Company's ability to utilize its net operating loss carryforwards following the
ownership change. However, pursuant to the so-called "Section 382(l)(5)
bankruptcy exception," provided the Company's reorganization resulted in the
ownership of 50.0% or more of the Company's stock by "qualifying creditors" and
pre-change stockholders, the general limitations imposed by Section 382 will
not apply, but the Company's net operating loss carryforwards will be reduced
by (i) certain interest paid or accrued on indebtedness converted into stock
pursuant to the Plan and (ii) 50.0% of the excess of the amount of debt
canceled (other than debt incurred for interest described in (i)) over the
value of the Company's stock issued in exchange for the canceled debt.

If the Section 382(l)(5) bankruptcy exception applies and the Company undergoes
another ownership change within two years after the ownership change resulting
from its Chapter 11 reorganization, the Company would not be entitled to use
any net operating loss and tax credit carryforwards that accrued prior to such
subsequent ownership change to offset taxable income earned following such
ownership change. In addition, the Section 382(l)(5) bankruptcy exception will
not affect the limitations imposed on the Company's pre-November 1992 NOLs,
and therefore such pre-November 1992 NOLs will remain subject to the $2.8
million Section 382 limitation.

If the Company determines that the net operating loss reduction rules mandated
by the Section 382(l)(5) bankruptcy exception would seriously reduce the amount
of the Company's net operating loss carryforwards, or if there is a
significant possibility that the Company will undergo another ownership change
within the two-year period following the ownership change resulting from its
Chapter 11 reorganization, the Company may elect to be subject to the annual
limitation rules under Section 382(l)(6) of the Internal Revenue Code (the
"Section 382(l)(6) election"). Under this provision, the Company's ability to
utilize net operating loss and equivalent tax credit carryforwards in the
future will generally will be subject to an annual limitation (the "Section
382(l)(6) limitation") determined by multiplying the applicable long term tax-
exempt rate of 6.05% as of September 1994, by the lower of (1) the value of the
Company's assets immediately before the ownership change, determined without
regard to liabilities; or (2) the aggregate new stock value immediately after
the ownership change. If the Section 382(l)(6) election

F-24

<PAGE>

is made, the Company's net operating loss and credit carryforwards will not
be subject to the reductions mandated by the Section 382(l)(5) bankruptcy
exception, nor will there be a complete prohibition on the use of net
operating loss and credit carryforwards if the Company undergoes another
ownership change within the two-year period described above. Moreover, if
the Section 382(l)(6) election is made and the Section 382(l)(6) limitation
is greater than the $2.8 million Section 382 limitation discussed above, the
$2.8 million Section 382 limitation will continue to apply to the
pre-November 1992 NOLs.

After giving consideration to the provisions of Section 382(l)(5), the Company
has post-November 1992 net operating loss and equivalent investment tax credit
carryforwards of $49.1 million. Such amounts are in addition to the pre-
November 1992 NOLs, and if the Company decides not to make the Section
382(l)(6) election, such amounts would not be subject to limitation under
Section 382 until the occurrence of another ownership change. The Company's
net operating loss and credit carryforwards will expire in 2006 at the
earliest.

While it is anticipated that the Section 382(l)(5) bankruptcy exception would
be most advantageous, the Company has until September 15, 1995 to decide on
whether or not to make the Section 382(l)(6) election.

If the Company, in future tax periods, were to recognize tax benefits
attributable to tax attributes of the Predecessor (such as net operating loss
and other carryforwards), any such benefit would first be applied to reduce the
balance of Reorganization value in excess of amounts allocable to identifiable
assets.

10. BENEFIT PLANS

DEFINED BENEFIT PENSION PLANS

The Company has several pension plans covering substantially all of its
employees hired prior to September 1, 1992. Pilots and ground personnel are
covered under three defined benefit plans which provide benefits based
primarily on years of service and employee compensation near retirement. The
International Association of Machinists ("IAM") defined benefit pension plan
was frozen effective October 1, 1993 upon ratification of the new IAM
collective bargaining unit agreement. The salaried employee defined benefit
pension plan was also frozen effective October 1, 1993. Funding for the ground
personnel plans is based on minimum Employee Retirement Income Security Act
requirements. Pension cost for the Air Line Pilots Association ("ALPA") plan
is funded on a current basis based on the amortization of prior service cost
over 20 years. Plan assets consist primarily of common stocks, government
securities, insurance contract deposits and cash management funds.

F-25

<PAGE>

The following table summarizes the funded status of the defined benefit plans
as of December 31, 1994 and 1993, in thousands:

<TABLE>
<CAPTION>
Reorganized
Company Predecessor
-------------------------------
1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets . . . . . . . . . $ 122,625 $ 130,257
----------- ----------
Accumulated benefit obligation:
Vested . . . . . . . . . . . . . . . . . (108,119) (114,290)
Nonvested . . . . . . . . . . . . . . . (7,991) (10,588)
----------- ----------
(116,110) (124,878)

Additional benefits based on future
salary levels . . . . . . . . . . . . . (10,244) (6,956)
----------- ----------
Projected benefit obligation . . . . . . . (126,354) (131,834)
----------- ----------
Projected benefit obligation in excess of
plan assets . . . . . . . . . . . . . . (3,729) (1,577)
Unrecognized prior service cost . . . . . . - 3,275
Unrecognized actuarial net (gain) loss . . 5,956 (6,114)
Unrecognized net transition obligation . . - 144
----------- ----------
Prepaid (accrued) pension cost . . . . . . $ 2,227 $ (4,272)
----------- ----------
----------- ----------
</TABLE>

The projected benefit obligation was determined using an assumed weighted-
average discount rate of 8.25% and 7.25% for 1994 and 1993, respectively. At
December 31, 1994, the assumed weighted-average rate of compensation increase
was 4.50% for pilots and 0.00% for ground personnel. The assumed weighted-
average rate of compensation increase was 4.25% in 1993. The assumed weighted-
average expected long-term rate of return on plan assets was 9.0% for 1994 and
1993.

In the third quarter of 1994, ALPA further ratified certain funding assumption
changes to their defined benefit pension plan which resulted in decreased
required cash contributions to the plan. The changes were ratified by ALPA in
exchange for 1) an additional allowed general unsecured claim under the
Predecessor's Chapter 11 process; 2) payment by the Reorganized Company of the
pilots' pension plan investment and advisory fees and administrative expenses
in 1994 and 1995, with payments being limited to $100,000 in 1994; 3) if
applicable, future payment directly by the Reorganized Company for retirement
benefits accrued in excess of statutory compensation limits; and 4)
forgiveness of certain immaterial fees due from ALPA.

Subsequent to December 31, 1994, in the first quarter of 1995, an early out
retirement program has been offered by the Company to qualified participants of
the IAM and salaried defined benefit plans. As of the date of this report, the
Company is not able to determine the dollar adjustment required to its defined
benefit and postretirement obligations as a result of this program.

F-26

<PAGE>

The net periodic pension cost for defined benefit plans in 1994 included the
following components, in thousands:

Reorganized Predecessor
Company
----------------------------------------
Period from
September 12, Period from January
1994 to 1, 1994 to
December 31, September 11,
1994 1994
-----------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits earned
during the period . . . . . . . . $ 818 $ 2,326
Interest cost on projected
benefit obligation . . . . . . . . 2,831 6,828
Actual return on plan assets . . . . 3,109 (2,244)
Net amortization and deferral. . . . (6,366) (5,515)
Fresh start adjustment . . . . . . . - (8,284)
--------- ----------
Net periodic pension (gain) cost . . $ 392 $ (6,889)
--------- ----------
--------- ----------

</TABLE>

The net periodic pension cost in 1994 was determined using an assumed weighted-
average discount rate of 8.25% and 7.25% for the period from September 12, 1994
to December 31, 1994 and the period from January 1, 1994 to September 11, 1994,
respectively.

Fresh start adjustment of $8.3 million represents the net effect of fresh start
accounting, as applied by the Company in accordance with SOP 90-7, on the
pension benefit obligation as of September 12, 1994.

Net pension cost for defined benefit plans in 1993 and 1992 included the
following components, in thousands:

<TABLE>
<CAPTION>
Predecessor
---------------------------------
1993 1992
-----------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits earned
during the year . . . . . . . . $ 5,740 $ 6,043
Interest cost on projected
benefit obligation . . . . . . 9,919 9,592
Actual return on plan assets . . (11,455) (7,983)
Net amortization and deferral . . 645 (2,126)
Curtailment gain . . . . . . . . (12,104) -
---------- ----------
Net periodic pension (gain) cost. $ (7,255) $ 5,526
---------- ----------
---------- ----------

</TABLE>

The net periodic pension cost in 1993 and 1992 was determined using an assumed
weighted-average discount rate of 7.25% and 8.0%, respectively.

F-27

<PAGE>

Curtailment gain of $12.1 million representing the actuarial equivalent of the
reduction in the net accrued pension benefit obligation as of September 30,
1993 is reflected in the accompanying financial statements as an extraordinary
item. The gain results from the cessation of future pay and credited service
increases due to the aforementioned freezing of the IAM and salaried employee
defined benefit pension plans as of October 1, 1993.

POSTRETIREMENT PLANS

In addition to providing pension benefits, the Company sponsors two defined
benefit postretirement plans. Employees in the Company's non-pilot group are
eligible for certain medical benefits under one plan if they meet certain age
and service requirements at the time of retirement. Employees in the Company's
pilot group are eligible for certain medical and life insurance benefits under
another plan if they become disabled or reach normal retirement age while
working for the Company. The Company continues to fund the cost of medical and
life insurance benefits in the year incurred.

The postretirement benefit plans' combined benefit obligations as of December
31, 1994 and 1993 are as follows, in thousands:

Reorganized
Company Predecessor
-----------------------------
1994 1993
--------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents . . . . . . . . . . . $ (5,278) $ (4,504)
Fully eligible active plan participants . . . (346) (267)
Other active plan participants . . . . . . . (16,391) (14,273)
--------- ---------

Unfunded accumulated postretirement benefit
obligation . . . . . . . . . . . . . . . . . (22,015) (19,044)
Unrecognized net (gain) loss . . . . . . . . . 2 (2,744)
Unrecognized prior service cost . . . . . . . . - (711)
--------- ---------

Accrued postretirement benefit cost . . . . . . $ (22,013) $ (22,499)
--------- ---------
--------- ---------

</TABLE>

The accumulated postretirement benefit obligation was determined using an
assumed weighted-average discount rate of 8.25% and 7.25% for 1994 and 1993,
respectively.

Net periodic postretirement benefit cost in 1994 included the following
components, in thousands:

Reorganized Predecessor
Company
----------------------------------------
Period from Period from January
September 12, 1, 1994 to
1994 to December September 11,
31, 1994 1994
-----------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits attributed to
service during the period . . . . . $ 444 $ 1,074
Interest cost on accumulated
postretirement benefit
obligation . . . . . . . . . . . . 459 986
Net amortization and deferral . . . . - (72)
-------- ----------
Net periodic postretirement
benefit cost . . . . . . . . . . . $ 903 $ 1,988
-------- ----------
-------- ----------
</TABLE>

F-28

<PAGE>

A weighted average discount rate of 8.25% and 7.25% was used for the period
from September 12, 1994 to December 31, 1994 and the period from January 1,
1994 to September 11, 1994, respectively.

For measurement purposes, a graded rate ranging from an initial rate of 15.0%
to a termination rate of 6.0% was used in the per capita cost of covered
medical benefits for the period from September 12, 1994 to December 31, 1994.
A graded rate ranging from an initial rate of 14.0% to a termination rate of
5.0% was used in the per capita cost of covered medical benefits for the period
from January 1, 1994 to September 11, 1994. The medical cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing the assumed medical cost trend rates by 1.0% in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1994, 1993 and 1992 by $3.7 million, $3.5 million and $2.9 million,
respectively, and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the years then ended by $584,000,
$593,000 and $495,000, respectively.

Net periodic postretirement benefit cost in 1993 and 1992 included the
following components, in thousands:

<TABLE>
<CAPTION>
Predecessor
---------------------------------
1993 1992
-----------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits attributed
to service . . . . . . . . . . . $ 1,480 $ 1,281
Interest cost on accumulated
postretirement benefit
obligation . . . . . . . . . . . 1,479 1,157
Net amortization and deferral . . (43) (111)
---------- ----------
Net periodic postretirement
benefit cost . . . . . . . . . . $ 2,916 $ 2,327
---------- ----------
---------- ----------

</TABLE>

A weighted average discount rate of 7.25% and 8.0% was used as of December 31,
1993 and 1992, respectively.

A graded rate ranging from an initial rate of 14.0% to a termination rate of
5.0% was used in the per capita cost of covered medical benefits as of December
31, 1993. A graded rate ranging from an initial rate of 15.0% to a termination
rate of 6.0% was used in the per capita cost of covered medical benefits as of
December 31, 1992.

OTHER

During September 1990, the Predecessor agreed to establish Employee Stock
Option Plans (the "ESOPs") as a part of the renegotiation of labor contracts
covering the pilots, flight attendants and other union represented employees.
In exchange for work rule changes and 10.0% wage rate reductions for the two-
year period commencing September 1, 1990, the Predecessor contributed 20.0% of
its common stock on a fully diluted basis to the tax-

F-29

<PAGE>

qualified ESOPs. The final increment of 220,931 shares was contributed on
January 2, 1992 and recorded as a $1.3 million charge to compensation expense
in 1992.

In 1992, the Predecessor agreed to contribute 425,000 shares of common stock to
the pilots 401(k) plan in exchange for revisions to work rules, shared health
care costs and a change in the interest rate assumption used for funding the
pilot's retirement plan. The Predecessor accrued an obligation of
approximately $3.5 million in 1992 based on the market price of the
Predecessor's common stock at the date of commitment. On August 12, 1993,
348,038 of such shares were issued.

In 1993 the Company entered into new collective bargaining agreements with the
IAM, ALPA, Association of Flight Attendants ("AFA") and Transport Workers Union
("TWU") and made certain changes to the compensation and benefits of salaried
employees. The new agreements and the changes for the salaried employees are
for a duration of three-and-a-half years. These new agreements contemplated
that the employees would have claims relating to these concessions which would
be satisfied through the issuance of the new common stock of the Reorganized
Company. See Note 1.

The Company also has separate deferred compensation plans (401(k)) for its
pilots, flight attendants and ground and salaried personnel. Participating
employer cash contributions are not required under the terms of the pilots'
plan. However, the Company made contributions of 5.0% in 1994, 7.0% in 1993 and
6.25% in 1992, of defined compensation pursuant to the terms of the flight
attendants' plan. Effective January 1, 1994, the Company is required to
contribute an additional 2.0% to participants in the flight attendants' plan.
Contributions to the flight attendants' plan are funded currently and totalled
approximately $889,000, $868,000 and $832,000 in 1994, 1993 and 1992,
respectively. Effective September 1, 1993, in conjunction with the
modifications to IAM and salaried employees benefits, the Company was required
to contribute 2.0% of eligible earnings to the 401(k) plan for IAM and salaried
personnel. Effective September 1, 1994, the Company is required to contribute
4.0% of eligible earnings to the IAM and salaried personnel plan.
Contributions from the Company are required only for those employees who were
participants in the plan as of September 1, 1993. Contributions to the IAM and
salaried 401(k) plan totalled $1.1 million and $288,000 in 1994 and 1993,
respectively.

11. COMMON STOCK WARRANTS, RIGHTS AND OPTIONS

In conjunction with obtaining the Financing, $2.0 million of letters of credit
were provided by certain third parties as additional security for performance
of the Reorganized Company's obligations under the Financing. One such letter
of credit in the amount of $1.0 million is guaranteed by a Director of the
Reorganized Company. The persons providing the letters of credit received a
subordinated security interest in the assets securing the Financing and
received warrants to purchase 989,011 shares of the Reorganized Company's
common stock. The warrants have a five-year term, expiring September 12, 1999,
and are exercisable at a price equal to $2.73 per common share, subject to
adjustment pursuant to anti-dilution provisions.

On December 1, 1994 the Board of Directors of the Company authorized adoption
of a shareholder rights plan pursuant to which there will be attached to each
share of common stock of the Reorganized Company one preferred stock purchase
right (a "Right"). The rights plan provides that in the event any person
becomes the beneficial owner of 10.0% or more of the outstanding common shares,
each Right (other than a Right held by the 10.0% shareholder) will be
exercisable, on and after the close of business on the tenth business day

F-30

<PAGE>

following such event, to purchase Hawaiian Airlines preferred stock having a
market value equal to two times the then current exercise price (initially
$8.00). The rights plan further provides that if, on or after the occurrence
of such event, the Company is merged into any other corporation or 50.0% or
more of the Company's assets or earning power are sold, each right (other than
a Right held by the 10.0% shareholder) will be exercisable to purchase common
shares of the acquiring corporation having a market value equal to $16.00. The
Rights expire on December 1, 2004 (unless previously triggered) and are subject
to redemption by the Company at $0.01 per Right at any time prior to the first
date upon which they become exercisable.

Pursuant to the terms of the Plan, 600,000 shares of the Reorganized Company's
new common stock have been reserved for issuance under a 1994 Stock Option
Plan. The 1994 Stock Option Plan provides for issuance of options to officers
and key employees of the Reorganized Company, with the terms of such options
and the recipients of such options to be determined by a committee. In
February 1995, the Compensation Committee of the Board of Directors approved a
form of nonqualified stock option agreement and granted options under such
agreements covering substantially all of the 600,000 reserved shares. The
grant of such options is subject to approval of the 1994 Stock Option Plan by
shareholders of the Reorganized Company.

12. TRANSACTIONS WITH AMERICAN AND CERTAIN OF ITS AFFILIATES

On November 8, 1993, the Predecessor entered into a letter of intent as amended
from time to time with AMR Training & Consulting Group, Inc. ("AMRCG"), an
affiliate of American. As contemplated by the Letter, Hawaiian Airlines, Inc.
entered into a variety of agreements with AMRCG's affiliates (collectively, the
"Interim Agreements") for certain services, including data processing,
licensing of reservations system, leasing of DC-10-10 aircraft, maintenance
services on such DC-10-10 aircraft and participation in the AAdvantage-
Registered Trademark- frequent flyer program. Pursuant to its participation in
the program, members who are redeeming mileage to fly to Hawaii or among the
islands may fly on Hawaiian Airlines (subject to space limitations) with
American paying Hawaiian Airlines an agreed fee for transporting such
passengers. In addition, passengers flying on Hawaiian Airlines can earn
AAdvantage-Registered Trademark- miles.

On September 12, 1994, long-term agreements with American and certain of its
affiliates (the "Long-Term Agreements") were entered into pursuant to the
confirmation of the Plan, and superseded the Interim Agreements. Services
provided under the Long-Term Agreements are substantially identical to those
services specified in the Interim Agreements and include the lease of six DC-10-
10 aircraft from American. In November 1994, an additional DC-10-10 aircraft
was leased by American to the Company on a a short-term basis, which lease has
been extended until April 30, 1995. At December 31, 1994, the obligations of
the Company under the Long-Term Agreements were secured by a $2.0 million
letter of credit issued under the Company's working capital line of credit.
See Note 7.

On October 31, 1994, the Company failed to timely make certain payments due to
American pursuant to the long-term Aircraft Lease Agreement entered into on the
Effective Date. American sent the Company notice of the failure to make rent
and prepaid maintenance payments, but did not declare the Aircraft Lease
Agreement in default or exercise any of the remedies, which include, but are
not limited to, termination of the lease, repossession of aircraft and engines,
recovery of damages and drawings under the letters of credit, available to it.
The Company subsequently made the rent and prepaid maintenance payments due
American on November 4 and November 15, 1994, respectively. In December 1994
and

F-31

<PAGE>

January, February and March 1995 the Company again failed to timely make
certain full payments due pursuant to the long-term Aircraft Lease Agreement.
Again, while American sent the Company notice of the failure to make such full
rent and prepaid maintenance payments, American did not declare the Aircraft
Lease Agreement in default or exercise any of the remedies available to it.

Certain additional payments were subsequently made by the Company to American
and effective April 13, 1995, the Company and American executed an amendment to
the long-term Aircraft Lease Agreement providing for the deferral of payment of
approximately $11.1 million of delinquent lease rents and maintenance payments.
The amendment provides that the Company is to remit periodic payments
(generally on a weekly basis) to American commencing March 31, 1995 and ending
December 22, 1995, in amounts ranging from approximately $25,000 to $950,000,
including interest at 10.0% per annum, plus payments for the basic rent of
aircraft. Maintenance payments will also be payable weekly, but in the same
aggregate amounts as set forth in the original terms of the long-term Aircraft
Lease Agreement. Thereafter, commencing January 5, 1996, the Company is
required to pay, weekly in advance, the basic rent payments owed for the
aircraft and maintenance payments in respect of the aircraft.

13. COMMITMENTS AND CONTINGENT LIABILITIES

LITIGATION

The Reorganized Company is a party to a number of legal proceedings,
substantially all of which were filed prior to the Petition Date. The Chapter
11 filing resulted in the imposition of an automatic stay against the
commencement or continuation of any judicial, administrative or other action or
proceeding against the Reorganized Company that was or could have been
commenced before the Petition Date. The outcomes of these proceedings cannot be
predicted with certainty. However, adverse outcomes in any of the legal
proceedings filed prior to the Chapter 11 filing and any resultant allowed
claim will share pro rata with other unsecured creditors in common stock of the
Reorganized Company.

Claims have been, or may be, asserted against the Reorganized Company for
alleged administrative claims on or before the Effective Date of the Plan.
Management believes that the Reorganized Company has established adequate
reserves for these claims.

The Reorganized Company is a party to various other claims and legal actions
which are incidental to the conduct of its business. In the opinion of
management, after consultation with legal counsel, the Reorganized Company
believes that the ultimate disposition of these matters will not have a
material adverse effect on the Reorganized Company's operations or financial
condition.

OTHER CARRIER SETTLEMENT

In the first quarter of 1995, the Company reached agreement with one of its
creditors for settlement of approximately $2.0 million in liabilities owed.
The creditor will receive 1) $300,000 of the Reorganized Company's new common
stock shares and 2) $1.7 million to be paid in specified installments over 20.0
months. The $2.0 million in liabilities are included in air traffic liability
as of December 31, 1994.

AIRCRAFT MAINTENANCE

F-32

<PAGE>

Maintenance on the Company's DC-10-10 aircraft fleet is being performed by
American in accordance with FAA regulations and Hawaiian Airlines' approved
maintenance program. The Company is required to prepay for such maintenance
services on a monthly basis in accordance with the Long-Term Agreements. Prior
to April 1995, the Company was delinquent in making certain payments due
American under its lease arrangements. See Notes 6, 12 and 14.

Hawaiian Airlines anticipates that in the period 1995 through 1999, eight of
its thirteen DC-9-50 aircraft will require a heavy airframe overhaul check (the
"D Check"). The D Check for a DC-9-50 requires more than 10,000 man-hours of
maintenance work and includes stripping the airframe, extensively testing the
airframe structure and a large number of parts and components, and reassembling
the overhauled airframe with new or rebuilt components. The Company
anticipates each D Check to cost approximately $900,000.

As a result of certain incidents in 1989 and 1988 involving structural damage
to aircraft in flight operated by carriers other than the Company, the Federal
Aviation Administration (the "FAA") is requiring or is expected to require
structural modifications and the replacement of certain parts, as well as the
implementation of additional maintenance programs or changes to current
programs, with respect to various types of aircraft over a certain age. These
requirements vary, depending on the type of aircraft covered. Based on
information currently available, the Company estimates that the total cost of
complying with the aging aircraft requirements over the 1995 through 1999
period will approximate $300,000 per DC-9-50 aircraft.

In addition, the Company expects to incur approximately $100,000 per DC-9-50
aircraft per year, for maintenance required under a corrosion prevention and
control program. This program is anticipated to continue indefinitely in the
future.

During the period from 1995 through 1999, the Company anticipates implementing
its supplemental inspection document program for certain of its DC-9-50
aircraft which is estimated to range up to $50,000 per aircraft.

The estimated future cost of complying with FAA regulations as discussed in the
preceding paragraphs will be in addition to the costs of the Company's current
DC-9-50 fleet maintenance programs.

LOS ANGELES AIRPORT OPERATING TERMINAL

On December 1, 1985, the Company entered into an Interline Agreement with other
airlines for, among other things, the sharing of costs, expenses and certain
liabilities related to the acquisition, construction and renovation of certain
passenger terminal facilities at the Los Angeles International Airport
("Facilities"). Current tenants and participating members of LAX Two
Corporation (the "Corporation"), a mutual benefit corporation, are jointly and
severally obligated to pay their share of debt service payments related to
Facilities Sublease Revenue Bonds issued to finance the acquisition,
construction and renovation of the Facilities which totalled $111.9 million at
completion. The Corporation leases the Facilities from the Regional Airports
Improvement Corporation under a lease agreement. In addition, the Corporation
is also obligated to make annual payments to the city of Los Angeles for
charges related to its terminal ground rental. All leases of the Corporation
are accounted for as operating leases with related future commitments as of
December 31, 1994 amounting to approximately $208.1 million. Rent expense
relating to these operating leases totalled $4.4 million, $3.6 million and $4.2
million in 1994, 1993 and 1992, respectively.

F-33

<PAGE>

Member airlines pay the expenses associated with the Facilities on a prorata
share basis calculated primarily upon their respective numbers of passengers
utilizing the Facilities. The Company accounts for its obligation under this
agreement as an operating lease and incurred $737,000, $672,000 and $557,000 of
rent in 1994, 1993 and 1992, respectively.

FREQUENT FLYER PROGRAM

The Company's Gold Plus frequent flyer program offers a variety of awards based
on accumulated mileage. The Company recognizes a liability in the period in
which members have accumulated sufficient mileage points to allow for award
redemption. The incremental cost method is used, computed primarily on the
basis of fuel and catering costs, exclusive of any overhead or profit margin.
Non-travel awards are valued at the incremental cost of tickets exchanged for
such awards.

As of December 31, 1994 and 1993, Gold Plus members had accumulated
approximately 3.0 and 3.1 billion miles, respectively, representing liabilities
totalling approximately $489,000 and $450,000 at the end of each year,
respectively. The Company's accruals assume full redemption of mileage points.
During the years ended December 31, 1994, 1993 and 1992, 636.0 million, 493.0
million and 264.0 million award miles were redeemed, respectively.

The Company believes that the usage of free travel awards will not result in
the displacement of revenue customers and, therefore, such usage will not
materially affect the Company's liquidity or operating results. The use of
free travel awards is subject to effective capacity control/yield management
programs maintained by the Company to limit the possibility of displacing
revenue passengers. Usage of Gold Plus travel redemption accounted for
approximately 2.7%, 2.1% and 1.2% of Interisland traffic and an insignificant
percentage of Transpacific and South Pacific traffic in 1994, 1993 and 1992,
respectively.

14. FINANCIAL CONDITION AND LIQUIDITY

On the Effective Date, the Company recognized an extraordinary gain of $190.1
million representing the relief of approximately $204.7 million in prepetition
liabilities net of offsets and certain prepetition liabilities which survived.
However, as of December 31, 1994, the Reorganized Company had a net working
capital deficit of $45.8 million. The net working capital deficit as of
December 31, 1994 represents a $4.6 million increase from the net working
capital deficit of $41.2 million at December 31, 1993. The deterioration in
the Company's working capital position at December 31, 1994 from that at
December 31, 1993 is due to a combination of the following:

* In relation to current assets, increases in accounts receivable, assets
held for sale, and prepaid expenses of $2.0 million, $1.6 million and $2.2
million, respectively, being offset by decreases in cash and cash
equivalents of $800,000 and inventories of$5.3 million;

* In relation to current liabilities, increases in current portion of long-
term debt, current portion of capital lease obligations, air traffic
liability and accrued liabilities of $4.2 million, $2.9 million, $10.3
million and $1.0 million, respectively, reduced by decreases in accounts
payable of $14.1 million.

As discussed in Note 7, on the Effective Date, credit facility borrowings were
made by the Reorganized Company under the Financing. As of the date of this
report, the amount of the facility had been effectively reduced to
approximately $5.5 million, which amount was

F-34

<PAGE>

approximately fully drawn in the form of $3.4 million in borrowings and $2.1
million in letters of credit.

In order to increase liquidity, the Company has also engaged in a series of
promotional ticket sales activities. As of the date of this report, another
such promotional activity is in progress. Such promotional activities increase
liquidity, but also increase air traffic liability which could affect revenues
and liquidity in future periods. Liquidity was further enhanced when 1) in
December 1994, $3.0 million of letters of credit issued under the CIT Financing
and held by the Airline Reporting Corporation were supplanted with a letter of
credit of $100,000, effectively increasing the availability of the revolving
credit facility under the Financing and 2) in March 1995, $3.6 million in fuel
facility notes receivable held by the Company were collected with $1.5 million
of the proceeds reducing borrowings under the Financing and $2.1 million
reverting back to the Company.

Notwithstanding the above, since the Effective Date, the Company has continued
to experience liquidity shortfalls. As discussed in Notes 6, 12 and 13, prior
to April 1995, the Company failed to timely make certain payments due American
under the long-term Aircraft Lease Agreement with the Company and American
executing an amendment to the long-term Aircraft Lease Agreement, effective
April 13, 1995, providing for the deferral of payment of the delinquent lease
rents and maintenance payments.

The Company currently does not have access to other unutilized credit
facilities and, since there are no remaining unencumbered assets, its access to
additional sources of liquidity remains limited. The Company is seeking other
possible sources of external financing, but unless it is successful there may
continue to be liquidity shortfalls in the future.

The financial statements at December 31, 1994, have been prepared on a going
concern basis which assumes continuity of operations and realization of assets
and liquidation of liabilities in the ordinary course of business. As
discussed herein, the Company has continued to experience net and operating
losses post Effective Date. Furthermore, there can be no assurance that the
Company will succeed in solving its liquidity problems or that the Company will
have sufficient cash resources to support its continued operations. Because of
the Company's liquidity shortfall, an adverse change in events and
circumstances outside the control of management could result in the Company
being unable to meet its financial obligations. The financial statements do
not include any adjustments relating to the recoverability and classification
of recorded asset amounts, or the amounts and classification of liabilities
that might be necessary as a result of the outcome of the uncertainties
discussed herein. Management recognizes that the continuation of the Company
as a going concern is dependent upon a return to profitable, positive cash flow
operations and the generation of adequate funds to meet its ongoing
obligations.

15. CONCENTRATION OF BUSINESS RISK

The Company's scheduled service operations are primarily focused on providing
air transportation service to, from, or throughout the Hawaiian Islands.
Therefore, the Company's operations, including its ability to collect its
outstanding receivables, are significantly affected by economic conditions in
the State of Hawaii and by other factors affecting the level of tourism in
Hawaii.

The Company's Interisland, Transpacific and South Pacific scheduled service is
marketed through a number of wholesalers and tour operators. No wholesaler or
tour operator accounted for more than 10.0% of total passenger revenues in 1994
or 1992. In 1993, one

F-35

<PAGE>

wholesaler accounted for approximately 11.0% of total passenger revenues.
The wholesaler primarily purchased tickets in the Interisland and
Transpacific markets with total purchases in 1993 aggregating approximately
$31.0 million.

16. RELATED PARTY TRANSACTIONS

NWA, INC. ("NWA") AND NORTHWEST AIRLINES, INC. ("NORTHWEST")

The Predecessor incurred certain operating revenues and expenses in 1992 in
relation to certain operating and marketing agreements with NWA and Northwest.
Both NWA and Northwest ceased being related parties in 1992. Refer to Note 17.

JAPAN AIRLINES CO., LTD. ("JAL")

Pursuant to a Space Block Agreement, the Predecessor provided JAL with blocks
of seats on certain of its flights from Honolulu to Kahului, Maui and certain
ground handling services. The Predecessor earned $970,000 and $4.5 million in
revenue under this arrangement during 1993 and 1992, respectively. Ground
handling charges related to those segments under the Space Block Agreement
totalled an additional $267,000 during 1992. The Space Block Agreement was
terminated in 1993.

OTHER

The Company incurred $276,000, $583,000 and $1.5 million in legal fees from one
of its outside legal counsel in 1994, 1993 and 1992, respectively. One of the
directors of the Company, Mr. Martin Anderson, is a partner in this law firm.
As of December 31, 1994, $7,500 of fees were outstanding.

17. 1992 FINANCIAL RESTRUCTURING AND RECAPITALIZATION PLAN

The Predecessor implemented a complex and comprehensive financial and operating
restructuring in November 1992 (the "1992 Restructuring"). Most of the
components of the restructuring were consummated at the same time, and
contingent upon each other. The principal components of this restructuring
were as follows:

TRANSACTIONS WITH THE BANK OF AMERICA, NATIONAL TRUST AND SAVINGS (THE "BANK")

An extraordinary gain of $106.6 million was recognized in 1992 when pursuant to
an agreement with the Debtors in November 1992, the Bank cancelled indebtedness
of approximately $80.0 million and surrendered for cancellation its warrant to
purchase approximately 8.0% of the Predecessor's common stock on a fully
diluted basis and all of the outstanding shares of the Predecessor's Class C
Senior Preferred Stock ("Class C Stock"), which had a liquidation preference of
approximately $55.0 million and certain rights to mandatory redemption.

The Debtors transferred to the Bank 1) approximately $18.6 million of cash
proceeds received from the condemnation of the West Maui Airport; 2)
approximately $200,000 in payment for the Bank's attorneys' fees and for
accrued and future letter of credit fees related to $3.0 million in letters of
credit issued for the Debtors' benefit; 3) a warrant to purchase 1,075,268
shares of the common stock of the Predecessor representing approximately 13.1%
of the common stock of the Predecessor following closing, exercisable at a
price of $0.01 per share at any time through November 9, 2002; and 4) an
unsecured subordinated promissory note

F-36

<PAGE>

payable in the principal amount of approximately $3.4 million. The $3.0
million in letters of credit were secured by most of the mortgages and
security interests that had previously secured the Debtors' indebtedness to
the Bank. The outstanding letters of credit and mortgages and security
interests securing such were cancelled on the Effective Date.

NWA AND NORTHWEST TRANSACTIONS

In 1992, the Predecessor completed a series of transactions with Northwest and
its parent NWA involving the sale of its Honolulu, Hawaii-Fukuoka Route (the
"Fukuoka Route") in exchange for 1) the forgiveness of $7.5 million in loans
plus related accrued interest and $34.2 million in outstanding net wet lease
obligations resulting in a nonoperating gain of approximately $41.7 million, 2)
the return and cancellation of its shares of common and Class D Junior
Convertible Preference Stock ("Class D Stock"), and NWA's option to purchase up
to 49.0% of the Predecessor's common stock on a fully diluted basis; 3) the
extension through 1995 of certain marketing and operational agreements relating
to fuel purchase, engine overhaul and repair and flight simulator training and
ground handling and 4) new ten-year agreements for code sharing and proration
of fares designed to save Northwest up to $500,000 per year off of the Debtors'
standard prorated fares on Interisland flights, assuming Northwest provided
certain volumes of feeder traffic. The Debtors' performance obligations under
these ten-year agreements were secured by 100,000 Interisland ticket coupons
and were to be used by Northwest had the Debtors materially defaulted under the
agreements. The ten-year agreements were rejected on the Effective Date and
the 100,000 Interisland ticket coupons subsequently returned to the Reorganized
Company.

The Predecessor incurred approximately $63.3 million and $135.7 million in
operating revenues and expenses, respectively, in 1992 related to the operation
of the Fukuoka Route and the marketing and operational agreements with
Northwest and NWA.

CANCELLATION OF CERTAIN SHARES OF STOCK

In addition to the shares of common, Class C and Class D Stock surrendered for
cancellation by NWA and the Bank, J. Thomas Talbot and Peter V. Ueberroth, two
former directors of the Predecessor, surrendered a total of 479,758 common
stock shares for cancellation. Messrs. Talbot's and Ueberroth's voting rights
with respect to an additional 1,006,994 shares of the Predecessor's common
stock were also terminated. Prior to the restructuring, Messrs. Talbot and
Ueberroth held voting control of approximately 36.2% of the outstanding voting
securities of the Predecessor.

Pan Pacific Hoteliers, Inc. ("PPH"), a subsidiary of JAL, converted its 487,992
shares of Class A Convertible Preferred Stock ("Class A stock") into 487,992
shares of common stock, thereby relieving the Predecessor from a mandatory
redemption obligation commencing in December 1998 that would have aggregated
approximately $19.5 million. PPH was also granted the right to "put" its
487,992 shares of common stock to the Company for $10.0 million if a "Control
Change" (sale of the Predecessor to certain U.S. air carriers) occurred on or
prior to the first anniversary of the restructuring or for $5.0 million if the
Control Change occurred after the first anniversary and on or before the fifth
anniversary of the 1992 Restructuring. PPH's Common Stock interests in the
Predecessor along with any remaining Class A Stock were cancelled on the
Effective Date.

F-37

<PAGE>

PRIVATE PLACEMENT

As part of the 1992 Restructuring, the Debtors also closed a private placement
of 2,816,659 shares of HAL, Inc. common stock at a purchase price of $3.72 per
share for total proceeds of approximately $10.5 million.

AMENDMENTS TO UNION AGREEMENTS

In 1992, the Predecessor received ratification agreements with three of its
unions to assist in lowering expenses and increasing productivity. Included
in these agreements were (1) revised work rules; (2) sharing of health care
costs; and (3) a change in the interest rate assumption used for funding the
pilots' retirement plan in exchange for 425,000 shares of the Predecessor's
common stock.

SALE OF WEST MAUI AIRPORT

In October 1992, the State of Hawaii filed an action to condemn the West Maui
Airport (the "Airport") pursuant to a prior agreement with the Debtors. The
Airport was owned by the Debtors and located on land leased from a third party.
By an agreement between the State of Hawaii, the Debtors and the third party,
the State agreed to pay $18.6 million to the Debtors and $6.4 million to the
third party. The net proceeds were utilized to repurchase the Debtors's
indebtedness to the Bank as part of the 1992 Restructuring. The Debtors
discontinued operations to the Airport on April 18, 1994 with title of the
Airport transferring to the State of Hawaii on the Effective Date.

F-38

<PAGE>

HAWAIIAN AIRLINES, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
UNAUDITED QUARTERLY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
Predecessor Reorganized Company
-------------------------------------- -------------------------
First Second Fourth
Quarter Quarter (a) (b) Quarter
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994:
Operating revenues:
As previously reported . . . . . . . . . . . $ 70,395 $ 71,933 $ 72,877 $ 13,171
Adjustment to passenger revenues . . . . . . 582 582 454 -
-------- --------- -------- ---------
As adjusted . . . . . . . . . . . . . . . . 70,977 72,515 73,331 13,171 $ 75,986
-------- --------- -------- --------- ---------
-------- --------- -------- --------- ---------

Operating income (loss):
As previously reported . . . . . . . . . . . (7,643) (7,645) 5,973 (2,714)
Adjustment to passenger revenues . . . . . . 582 582 454 -
Adjustment to wages and benefits . . . . . . 605 380 291 (400)
-------- --------- -------- ---------
As adjusted . . . . . . . . . . . . . . . (6,456) (6,683) 6,718 (3,114) $ (3,154)
-------- --------- -------- --------- ---------
-------- --------- -------- --------- ---------

Loss before extraordinary items and
cumulative effect of change in accounting
principle:
As previously reported . . . . . . . . . . . (8,538) (9,727) (17,816) (2,779)
Adjustment to operating income (loss) . . . 1,187 962 745 (400)
Adjustment to interest expense . . . . . . - - (3) -
Adjustment to reorganization expenses . . . - - 12,516 -
-------- --------- -------- ---------
As adjusted . . . . . . . . . . . . . . . . (7,351) (8,765) (4,558) (3,179) $ (2,972)
-------- --------- -------- --------- ---------
-------- --------- -------- --------- ---------

Net income (loss):
As previously reported . . . . . . . . . . . (8,538) (9,727) 170,448 (2,779)
Adjustment to operating income (loss) . . . 1,187 962 745 (400)
Adjustment to nonoperating expenses . . . . - - 12,513 -
Adjustment to extraordinary item . . . . . - - 1,799 -
-------- --------- -------- ---------
As adjusted . . . . . . . . . . . . . . . (7,351) (8,765) 185,505 (3,179) $ (2,972)
-------- --------- -------- --------- ---------
-------- --------- -------- --------- ---------

Proforma loss per share:**
As previously reported . . . . . . . . . . . *N/M *N/M *N/M **(0.30)
Adjustments . . . . . . . . . . . . . . . . *N/M *N/M *N/M **(0.04)
-------- --------- -------- ---------
As adjusted . . . . . . . . . . . . . . . $ *N/M $ *N/M $ *N/M $ **(0.34) $**(0.31)
-------- --------- -------- --------- ---------
-------- --------- -------- --------- ---------

1993:
Operating revenues . . . . . . . . . . . . . . $ 73,918 $ 67,512 $ 86,412 $ 76,267
Operating loss . . . . . . . . . . . . . . . . (4,074) (22,904) 3,052 (912)
Loss before income taxes . . . . . . . . . . . (5,246) (24,386) 1,262 (53,159)
Net loss . . . . . . . . . . . . . . . . . . . (5,246) (24,386) 13,367 (53,159)
Loss per share . . . . . . . . . . . . . . . . *N/M * N/M *N/M * N/M
</TABLE>

The results for the fourth quarter of 1993 include $52.6 million of
expenses related to the reorganization processes of the Company, including
$51.8 million for the early termination of the Company's L-1011 aircraft
leases.

The results of operations for the first three quarters of 1994 and 1993 were
adjusted for the impact of certain significant fourth quarter adjustments
which related to the prior quarters.

(a) Period from July 1, 1994 to September 11, 1994
(b) Period from September 12, 1994 to September 30, 1994

* Not Meaningful - Per share data is not meaningful as the Predecessor
has been recapitalized and has adopted fresh start reporting as of
September 11, 1994
** Proforma loss per share data has been calculated assuming that the
Reorganized Company will issue approximately 9.4 million shares of
common stock

F-39
<PAGE>

HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Reorganized Company Predecessor
----------------------------------------------
Period from Period from
September 12, 1994 January 1, 1994
to December 31, to September 11,
1994 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Summary of Operations:
Operating revenues . . . . . . . . $ 89,157 $ 216,823
Operating expenses . . . . . . . . 95,425 223,244
----------- ------------
Operating loss . . . . . . . . . . (6,268) (6,421)
Interest expense, net . . . . . . . (968) (850)
Gain on disposition of equipment . . 558 45
Reorganization expenses . . . . . . - (13,950)
Other, net . . . . . . . . . . . . 527 502
----------- ------------

Loss before extraordinary item . . (6,151) (20,674)
Extraordinary gain, net . . . . . - 190,063
----------- ------------

Net income (loss) . . . . . . . . $ (6,151) $ 169,389
----------- ------------
----------- ------------

Proforma Loss Per Common Share:
Before extraordinary item . . . . . $ **(0.65) $ *N/M
Extraordinary gain, net . . . . . . **- *N/M
----------- ------------
Net loss . . . . . . . . . . . . . $ *(0.65) $ *N/M
----------- ------------
----------- ------------

Weighted Average Shares Outstanding . **9,400 7,137
Shareholders' Equity (Deficit)
Per Share . . . . . . . . . . . . . $ **3.60 $ *N/M
Shares Outstanding at Year End . . . **- 7,137

<CAPTION>
December 31, 1994 September 11, 1994
----------------- ------------------
Balance Sheet Items:
Total assets . . . . . . . . . . . $ 163,301 $ 167,211
Property and equipment, net . . . . 37,756 33,312
Long-term debt . . . . . . . . . . 14,152 11,421
Capital lease obligations,
excluding current portion . . . . . 12,764 12,591
Shareholders' equity . . . . . . . 33,849 40,000
</TABLE>

* Not Meaningful - Per share data is not meaningful as the Predecessor
has been recapitalized and has adopted fresh start reporting as of
September 11, 1994

** Proforma per share data has been calculated assuming that the
Reorganized Company will issue approximately 9.4 million shares of
common stock

See Notes to Financial Statements (continued)

F-40
<PAGE>

HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Predecessor
----------------------------------------------------------
1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Summary of Operations:
Operating revenues . . . . . . . . . . . . . . . . . $ 304,109 $ 395,076 $ 365,042 $ 340,730
Operating expenses . . . . . . . . . . . . . . . . . 328,947 506,117 460,036 442,475
---------- ---------- ---------- ----------
Operating loss . . . . . . . . . . . . . . . . . . . (24,838) (111,041) (94,994) (101,745)
Interest expense, net . . . . . . . . . . . . . . . . (4,706) (11,217) (12,493) (11,827)
Loss on disposition of equipment . . . . . . . . . . (659) (1,075) (3,888) (1,996)
Gain on sale of routes . . . . . . . . . . . . . . . - 41,702 9,000 -
Reorganization expenses . . . . . . . . . . . . . . . (52,637) - - -
Other, net . . . . . . . . . . . . . . . . . . . . . 1,312 (321) 1,217 (3,780)
---------- ---------- ---------- ----------
Loss before income taxes, extraordinary item
and cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . (81,528) (81,952) (101,158) (119,348)
Income taxes . . . . . . . . . . . . . . . . . . . . - - 2,610 1,022
---------- ---------- ---------- ----------
Loss before extraordinary items and cumulative
effect of change in accounting principle . . . . . . (81,528) (81,952) (98,548) (118,326)
Extraordinary items, net . . . . . . . . . . . . . . 12,104 108,722 - -
---------- ---------- ---------- ----------
Income (loss) before cumulative effect
of change in accounting principle . . . . . . . . . (69,424) 26,770 (98,548) (118,326)
Cumulative effect of change in accounting principle . - 2,192 - (2,961)
---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . $ (69,424) $ 28,962 $ (98,548) $ (121,287)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

Income (Loss) Per Share:
Before extraordinary items and cumulative effect
of change in accounting principle . . . . . . . . . $ *N/M $ *N/M $ *N/M $ *N/M
Extraordinary items, net . . . . . . . . . . . . . . *N/M *N/M *N/M *N/M
Cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . *N/M *N/M *N/M *N/M
---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . $ *N/M $ *N/M $ *N/M $ *N/M
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

Weighted Average Shares Outstanding . . . . . . . . . . 6,170 5,123 2,777 2,181
Shareholders' Deficit Per Share . . . . . . . . . . . . $ *N/M $ *N/M $ *N/M $ *N/M
Shares Outstanding at Year End . . . . . . . . . . . . 7,136 5,713 3,110 2,274
Balance Sheet Items:
Total assets . . . . . . . . . . . . . . . . . . . . $ 105,540 $ 105,743 $ 133,758 $ 192,817
Property and equipment, net . . . . . . . . . . . . . 36,558 38,956 65,317 78,928
Long-term debt . . . . . . . . . . . . . . . . . . . 2,615 1,800 75,958 -
Redeemable preferred stock and preference stock . . . - 5,354 79,276 23,479
Redeemable warrants to purchase common stock . . . . - - 2,900 14,175
Shareholders' deficit . . . . . . . . . . . . . . . . (209,882) (142,720) (206,467) (114,049)

</TABLE>

See Notes to Financial Statements

F-41
<PAGE>

HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA, CONTINUED

<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Statistics:
Revenue passengers* . . . . . . . . . . . . . . . . 4,583 4,337 4,647 3,765 4,736
Revenue passenger miles* . . . . . . . . . . . . . 2,880,338 2,870,713 3,322,045 2,021,698 2,571,956
Available seat miles* . . . . . . . . . . . . . . . 3,995,649 3,850,133 4,710,795 3,203,842 3,899,447
Passenger load factor . . . . . . . . . . . . . . . 72.1% 74.6% 70.5% 63.1% 66.0%
Cargo tons . . . . . . . . . . . . . . . . . . . . 22,740 19,669 15,694 12,003 14,354
Revenue ton miles* . . . . . . . . . . . . . . . . 324,096 314,725 353,067 211,070 275,705
Revenue plane miles* . . . . . . . . . . . . . . . 16,243 15,256 20,909 14,702 17,979
Passenger revenue per passenger mile . . . . . . . 9.7CENTS 9.4CENTS 10.3CENTS 12.7CENTS 9.7CENTS
</TABLE>

*In thousands

Effective July 1, 1993, the Predecessor began to treat passengers flying on
promotional or frequent flyer awards as revenue passengers. This change
decreased passenger revenue per passenger mile by 0.1 CENTS in 1993 and
increased the number of revenue passengers, revenue passenger miles and
passenger load factor by 4.0%, 2.0%, and 1.5%, respectively, in 1993 over the
amounts that would have been reported without the change.

F-42
<PAGE>

HAWAIIAN AIRLINES, INC.
STOCK TRADING RANGE (PER SHARE)

Stock trading range (per share) is not meaningful as the Predecessor has been
recapitalized and has adopted fresh start reporting as of September 11, 1994.
Further, the new Common Stock shares of the Reorganized Company have not
been distributed as of the date of this report.

F-43

<PAGE>

Preliminary Copies

PROXY
HAWAIIAN AIRLINES, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE JANUARY 25, 1996 SPECIAL MEETING
IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS

The undersigned hereby constitutes and appoints Bruce R. Nobles, C. J.
David Davies and Rae A. Capps, and each or any of them, attorneys and proxies
with full power of substitution, to represent the undersigned and to vote all
shares of Class A Common Stock, $.01 par value, of Hawaiian Airlines, Inc.
(the "Company") held of record by the undersigned on December 18, 1995, at
the Special Meeting in Lieu of Annual Meeting of Shareholders of the Company
to be held on January 25, 1996 at the Airport Holiday Inn, 3401 North Nimitz
Highway, Honolulu, Hawaii at 10:00 A.M. Hawaii standard time, and at any and
all adjournments or postponements thereof, as herein specified upon the
proposals listed herein and described in the Proxy Statement for the meeting
and in his or her discretion upon any other matter that may properly come
before the meeting. The Board of Directors has proposed the matters set
forth below for the vote of the shareholders of the Company.

<PAGE>

Preliminary Copies

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3

1. Approval to issue and sell to Airline Investors Partnership
18,181,818 shares of Class A Common Stock
and one share of Series A Special Preferred Stock FOR AGAINST ABSTAIN

2. Amendment to the Company's Amended Articles of
Incorporation:
a): to increase the number of authorized
shares of Class A Common Stock: FOR AGAINST ABSTAIN
b): to delete restrictions on common
stock transfers FOR AGAINST ABSTAIN

3. Election of Directors
FOR WITHHOLD AUTHORITY
all nominees listed below all nominees listed below
(EXCEPT AS MARKED TO THE CONTRARY BELOW)

Election of the following nominees as directors: John W. Adams, Todd G.
Cole, Richard F. Conway, Robert C. Coo, Carol A. Fukunaga, Richard K. Matros,
Bruce R. Nobles, Samson Poomaihealani, Edward Z. Safady, Douglas Teitlbaum
and David B. Urrea

(INSTRUCTIONS: To withhold authority to vote for any nominee, strike a line
through the nominee's name in the list above.)

4. In their discretion, on such other business as may properly come before
the meeting or any adjournment thereof.

THE SHARES VOTED BY THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN
THE MANNER INSTRUCTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3 LISTED
ABOVE AND IN THE DISCRETION OF THE PROXY HOLDER ON MATTERS DESCRIBED IN ITEM
4.

IMPORTANT: Please sign your name or names exactly as
stenciled on this Proxy. When signing as attorney,
executor or administrator, trustee or guardian, please give
your full title as such. If shares are held jointly, EACH
holder should sign.

____________________________________________________________
Signature

DATE: ________________________________________________, 1996

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN
AND RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.