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, 1999

OR

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

For the transition period from _________________ to _______________.

Commission file number 0-22526

TOWER AIR, INC.
(Exact name of registrant as specified in its charter)

(718) 553-4300
(Registrant’s telephone number, including area code)

        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___

        As of October 29, 1999, there were 15,438,758 shares of Common Stock, par value $.01 per share, outstanding.

Page 1 of 19 pages

TOWER AIR, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999

INDEX

Part I Financial Information

Item 1. Financial Statements

TOWER AIR, INC.
BALANCE SHEETS
(In thousands, except share data)

See accompanying notes to financial statements.

Note: The Balance Sheet at December 31, 1998 has been derived from the audited financial statements at that date.

TOWER AIR, INC.
STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)

See accompanying notes to financial statements

TOWER AIR, INC.
STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

See accompanying notes to financial statements.

NOTES TO FINANCIAL STATEMENTS

1.  Basis of Presentation

The accompanying unaudited financial statements have been prepared by Tower Air, Inc. (the “Company”) in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. These interim financial statements and related notes should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 1998. The results of operations for the three months and the nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the full year.

2.  Long-Term Debt

The Company had entered into a Loan Agreement which provided a line of credit between $15.0 million and $20.0 million at various times with Heller Financial, Inc. (Heller) until September 1999.

On September 10, 1999, the Company replaced the Heller line of credit with a new $25 million facility from GMAC Business Credit, LLC (GMAC). On this date, all outstanding borrowings on the Heller line were fully paid. This new line of credit, which is for two years, is secured by a lien upon and security interest in substantially all of the Company’s property and assets including, accounts receivable, general intangibles, inventory, intellectual property, cash held in the Company’s lock-box account, aircraft spare parts, landing and gate rights, rights related to terminals, hangars, and the Company’s ownership in the Equant stock (see: Note 3 “Stockholders’ Equity”). Currently under this new line, $24.5 million is available with $0.5 million in reserve. As of September 30, 1999, the Company had $23.0 million of obligations outstanding under the GMAC line of credit. This amount includes $2.2 million consisting of cash collateral for outstanding Heller letters of credit issued to various suppliers and insurance companies. Heller will return these funds to the Company upon the issuance and acceptance of replacement letters of credit issued by GMAC. The return of the cash collateral will then reduce the outstanding Notes Payable and will be replaced with letters of credit with no additional availability to the Company under the GMAC line of credit. Among other covenants, the Company must maintain, at all times, tangible net worth of at least $46 million and specific fixed charge coverage ratios for each quarter starting at .32 to 1 for the quarter ended December 31, 1999. At September 30, 1999 the Company had $46.02 million in tangible net worth.

In January 1998, the Company entered into a $15.0 million loan agreement with a commercial financial institution secured by twelve Pratt & Whitney engines, of which $11.3 million was used to pay the balance remaining on two previous agreements with the same commercial financial institution. On February 8, 1999, the aggregate balance of $6.8 million outstanding on this note was paid from the proceeds of a sale and leaseback transaction with another commercial financial institution. Under this capitalized sales and leaseback arrangement, the Company is required to make fixed monthly payments of approximately $0.3 million consisting of principal and interest at 10.6% through January 2004.

In February and March 1998, the Company borrowed $6.0 million which bears interest at a rate of 12% (the “12% Note”) from Funding Enterprises, LLC, a limited liability Company in which the Company’s Chairman and former President were members. On July 1, 1998, the Company discharged its obligations under the 12% Note by issuing a new note (the “Nachtomi Note”), due August 7, 1998, to the Company’s Chairman in the principal amount of $3.0 million and repaying the balance of the 12% Note in cash. The Nachtomi Note originally provided for interest at an annual rate of 12.0%, increasing to 15% after August 7, 1998. The Nachtomi Note was amended on August 6, 1998, establishing an annual interest rate of 12% after August 7, 1998, as well as a new maturity date of April 30, 1999. On April 14, 1999, the Nachtomi Note was amended to extend the maturity date to January 1, 2000. In connection with the 12% Note, warrants for the purchase of 1.2 million shares of Common Stock of the Company were issued with an exercise price of $5.00. The warrants expire in February 2008.

From September 1997 through March 1998, the Company entered into a finance agreement involving the conversion and refurbishment of Pratt & Whitney engines. In connection with this transaction, nine engines were financed for $40.3 million with interest at prime plus 2%. In September 1998, the lender agreed to increase the loan to include $4.2 million relating to certain engines previously overhauled. The loan was restructured to require a total monthly payment of $1.5 million through March 1999 and $2.0 million through July 1999 and $2.5 million through August 2000 which allows the Company to repair/overhaul additional engines currently at the repair facility with interest at 6% going up to a maximum of 9% per annum. Under this restructuring agreement, the Company was unable to make required payments for January through March 1999 amounting to $4.5 million and $3.0 million from April through September 1999. During the Second Quarter, the Company reached a further understanding with the financial institution whereby the Company would resume making monthly payments of $2.5 million starting July 1999. During the Third Quarter 1999, the Company reached another understanding with the lender whereby the Company would make monthly payments of $1.2 million starting September 1999 through February 2000 and will resume making monthly payments of $2.5 million starting March 2000.

On April 14, 1999, the Company obtained waivers under certain lease and debt agreements relating to defaults of certain covenants. The Company obtained agreements with other lessors for deferred or revised payment terms for approximately $8.1 million of lease and maintenance reserve payments of which approximately $0.2 million is outstanding at September 30, 1999. In addition, during the 1999 Second and Third Quarters, the Company reached an understanding with lessors for deferred or revised payment terms for approximately $4.7 million of lease and maintenance reserves payments. As of September 30, 1999, approximately $1.3 million of these amounts remained outstanding. The Company also agreed with certain of its lenders, vendors and suppliers to extend payment terms, and has, in some cases, obtained payment extensions with respect to certain of the Company’s current obligations.

On July 15, 1998, the Company purchased an existing leased aircraft from a lessor for a purchase price of $13.5 million of which a credit of $6.0 million was given by the lessor to the Company for the payment of maintenance reserves paid during the lease period and a balance of $7.5 million was financed by the same lessor. In addition, the lessor waived all previously outstanding rent and maintenance reserves through September 30, 1998 amounting to $1.4 million. This loan requires a monthly payment of approximately $50,000 of interest starting October 1998 through May 1999 and then a total monthly payment of approximately $0.4 million including principal and interest through March 2001.

On August 13, 1998, the Company restructured three existing loans with a financial institution under which the Company was required to pay a total monthly principal payment of $1.5 million. Under the terms of these restructured Aircraft Loan and Security Agreements, the Company was required to pay an aggregate monthly principal payment of $0.5 million plus interest through September 1999. The Company has paid off one of the three loans in April 1999, and the remaining two loans require a monthly principal and interest payment, commencing July 1999, of $1.2 million and $0.5 million through December 2002 and February 2003, respectively.

On November 13, 1998, the Company purchased another existing leased aircraft from a lessor for a purchase price of $21.0 million of which $20.0 million was financed by the same lessor. The loan is comprised of two notes of $10.0 million each and requires a fixed total monthly payment of $105,000 each consisting of principal and interest.

On December 31, 1998, the Company purchased three Pratt and Whitney engines from a vendor for a total purchase price of $8.1 million of which $6.7 million was financed by the same vendor. The loan, which bears interest at 9.0% per annum, is for three years and requires a fixed monthly payment of $.2 million consisting of principal and interest starting February 1, 1999.

On March 2, 1999, the Company purchased an existing leased aircraft for $24.5 million under a capitalized lease arrangement from the existing lessor. The Company is required to make fixed monthly payments of approximately $0.4 million consisting of principal and interest at 10.5% through September 2006.

On March 24, 1999, the Company purchased four Pratt & Whitney engines from a commercial financial institution for a total purchase price of $10.8 million of which $9.1 million was financed by the same financial institution. The loan, which bears interest at 10.0% per annum, is for a period of eighteen months and requires a fixed monthly payment of $0.5 million consisting of principal and interest starting April 23, 1999.

The Company has from time to time entered into arrangements to consider leasing Boeing 777 and 747-300 aircraft. It has not considered this an opportune time to enter into additional long term leasing arrangements. The Company is currently pursuing other options to acquire or lease other types of newer aircraft.

As of September 30, 1999, the Company had $59.5 million of required principal payments on long-term debt due within one year.

3.  Stockholders’ Equity

In an effort to conserve cash, the Company suspended cash dividends on its Common Stock after the third quarter of 1996.

As of September 30, 1999, the Company has ownership of 81,185 shares of “The SITA Foundation” which holds a legal interest in the Class “A” shares of Equant N.V. (formerly SITA Telecommunications Holding N.V.), which is presented in the financial statements as available for sale securities.

4.  Subsequent Event

The arbitrator in Terry V. Hallcom v. Tower Air, Inc. awarded the plaintiff $1,485,303.30 and denied plaintiff’s additional claim for the value of stock options in the amount of $2,027,037. Plaintiff’s Motion in the U.S. District Court for the Southern District of New York to confirm the arbitration award was deferred by the court pending consideration by the arbitrator of the Company’s Request to Modify Award. Any award which might be paid will be recorded in the fourth quarter of 1999.

5.  Income Taxes

Income taxes are calculated at the estimated annual effective tax rate of 25%, which differs from the federal statutory rate of 35.0%, primarily due to the effect of state income taxes and certain nondeductible items.

6.  Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

TOWER AIR, INC.
SELECTED OPERATING DATA
(Unaudited)

__________

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking Statements:

Certain statements contained herein constitute “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements incorporate assumptions that entail uncertainties and unknown risks. A variety of factors may cause the actual results and performance of the Company or industry to differ materially from any future results or performance expressed or implied by such forward-looking statements. These factors include, among others, the following: general economic conditions affecting the industry and the Company; competition within the industry; changes in consumer preferences; regulatory changes; and political, social and economic conditions in key markets.

Results of Operations

Three Months ended September 30, 1999 Compared with Three Months Ended September 30, 1998

For the three months ended September 30, 1999 (the “1999 Third Quarter”), the Company reported an operating profit of $3.8 million compared to an operating profit of $24.2 million for the three months ended September 30, 1998 (the “1998 Third Quarter”). The net loss in the 1999 Third Quarter was $1.0 million compared to net income of $12.1 million in the 1998 Third Quarter. Scheduled passenger service unit operating expenses (per scheduled ASM) increased by 12.1% in the 1999 Third Quarter compared with the 1998 Third Quarter. Overall operating margins decreased from 14.8% in the 1998 Third Quarter to 2.6% in the 1999 Third Quarter.

Operating Revenues. The Company’s total operating revenues decreased by $13.5 million, or 8.3%, to $149.4 million in the 1999 Third Quarter from $162.9 million in the 1998 Third Quarter.

Scheduled passenger service revenues decreased $9.6 million, or 7.5%, to $118.1 million in the 1999 Third Quarter from $127.7 million in the 1998 Third Quarter. This decrease was primarily attributable to decreased frequencies on the Athens route, which was impacted by the Kosovo Crisis. Scheduled passenger traffic (as measured in RPMs) for the 1999 Third Quarter decreased by 5.1% and scheduled capacity (as measured in ASMs) for the 1999 Third Quarter decreased 3.1%, resulting in a load factor of 76.5% in the 1999 Third Quarter compared to 78.1% in the 1998 Third Quarter. For the 1999 Third Quarter, passenger yield decreased 2.5% to $0.0818 per RPM compared with $0.0839 per RPM for the 1998 Third Quarter.

Commercial charter revenues decreased $6.8 million, or 48.8%, to $7.1 million in the 1999 Third Quarter from $13.9 million in the 1998 Third Quarter. This decrease was primarily due to decreased activities in certain foreign operations under a wet lease agreement during 1998.

Military charter revenues increased by $2.5 million, or 20.5%, to $15.0 million in the 1999 Third Quarter from $12.4 million in the 1998 Third Quarter primarily as a result of increased activity related to the deployment of troops. The military charter business depends in large part upon the deployment and repatriation of troops and revenues from this market are subject to significant fluctuation.

Cargo service revenue increased by $2.1 million, or 47.4%, to $6.4 million in the 1999 Third Quarter from $4.3 million in the 1998 Third Quarter. The increase was primarily due to the availability of the third B747-200 cargo aircraft which was grounded as a result of a ground damage incident on December 1, 1998. This damage was caused during the fueling of the aircraft as a result of fire in the fuel truck which was owned and operated by a third party. The repair to the aircraft is covered by insurance and the Company is also seeking monetary compensation for the loss of revenue as well as other expenses incurred by the Company in connection with the loss of service of this aircraft. One of the Company’s cargo aircraft has been inoperable since February 1996, when the FAA promulgated certain ADs which restricted the cargo carrying capacity of one of the Company’s Boeing 747-100 cargo aircraft, as well as nine other similarly converted Boeing 747-100 cargo aircraft operated by other carriers. At that time, the Company decided to ground the aircraft rather than operate it with restricted payload as required by such ADs. The FAA has approved modifcations to enhance cargo capacity. The Company is assessing the costs associated with this program. There is no assurance that such aircraft will be returned to service.

Operating Expenses. The Company’s operating expenses increased $6.9 million, or 4.9%, to $145.5 million in the 1999 Third Quarter from $138.7 million in the 1998 Third Quarter.

Aircraft fuel expenses increased $4.2 million, or 18.5%, to $26.7 million in the 1999 Third Quarter from $22.5 million in the 1998 Third Quarter. This increase resulted from a 2.0% increase in consumption due to a change of business mix and a 15.2% increase in the cost of fuel which contributed an increase of $3.5 million.

Flight equipment rentals and insurance expenses decreased $1.3 million, or 16.1%, to $7.0 million in the 1999 Third Quarter from $8.3 million in the 1998 Third Quarter. This decrease was attributable to lower rental costs associated with the purchase of two previously leased Boeing 747 aircraft in the second half of 1998 and the conversion to a capital lease of a third Boeing 747 in the 1999 First Quarter, partially offset by an increased amount of leased engines to support the current operational requirements.

Maintenance costs increased $0.5 million, or 3.9%, to $13.1 million in the 1999 Third Quarter from $12.6 million in the 1998 Third Quarter. The increase was primarily due to expenses associated with the Company’s efforts to upgrade aircraft interior coupled with an increased cost of maintenance of leased engines to support the Company’s operation. These increases were partially offset by the purchase of two Boeing 747 aircraft in the second half of 1998 and the conversion of one Boeing 747-200 aircraft to a capitalized lease agreement during the 1999 First Quarter.

Crew costs and other expenses decreased $1.1 million, or 14.3%, to $6.8 million in the 1999 Third Quarter from $8.0 million in the 1998 Third Quarter. The decrease primarily resulted from a 3.6% decrease in total block hours flown as well as decreased costs associated with a change in the Company’s business mix. In 1998, the Company operated in a charter operation which was subject to certain foreign regulations resulting in additional overtime and hotel costs.

Aircraft and traffic servicing expenses increased $3.9 million, or 14.0%, to $31.3 million in the 1999 Third Quarter from $27.5 million in the 1998 Third Quarter. This increase resulted from a change in the structure of the aircraft servicing personnel workforce to maintain quality along with an 0.8% increase in scheduled service block hours flown. Scheduled service block hours, where the Company is responsible for all operating expenses, represented 75.7% of total block hours flown for the 1999 Third Quarter compared to 73.0% for the 1998 Third Quarter.

Passenger servicing expenses decreased $1.7 million, or 10.0%, to $15.2 million in the 1999 Third Quarter from $16.9 million in the 1998 Third Quarter. This decrease resulted primarily from a 3.6% decrease in total block hours flown, resulting in lower cabin crew cost, partially offset by higher cost associated with increased scheduled service block hours as described above.

Promotion, sales and commission expenses decreased $0.1 million, or 0.5%, to $22.3 million in the 1999 Third Quarter from $22.5 million in the 1998 Third Quarter. This decrease was a result of decreased advertising expense partially offset by increased costs related with the computerized reservation system (“CRS”).

General and administrative expenses increased $0.7 million, or 11.4%, to $6.6 million in the 1999 Third Quarter from $5.9 million in the 1998 Third Quarter. This increase was primarily due to increases in legal fees associated with the Company’s ongoing legal cases. As a percentage of operating revenue, general and administrative expenses for the 1999 Third Quarter was 4.4% compared to 3.6% for the 1998 Third Quarter.

Depreciation and amortization expenses increased $2.0 million, or 13.5%, to $16.5 million in the 1999 Third Quarter from $14.5 million in the 1998 Third Quarter. This increase was primarily due to the purchase of two Boeing 747-200 aircraft in the second half of 1998 and the conversion to a capital lease of another Boeing 747 aircraft along with additional capitalized engine overhauls.

Other Expenses and Income. Interest expense increased $1.5 million, or 48.9%, to $4.5 million in the 1999 Third Quarter from $3.0 million in the 1998 Third Quarter. This increase primarily reflects a higher average outstanding debt balance in the 1999 Third Quarter. Other income for the 1998 Third Quarter resulted from a settlement of litigation in that quarter.

Income Tax Provision. The income tax provision for the 1999 Third Quarter was $0.2 million compared with a provision of $9.9 million in the 1998 Third Quarter. This decrease was based on the Company’s pretax loss for the 1999 Third Quarter and the decrease in its effective tax rate to 25.0% compared to 45.0% in the 1998 Third Quarter.

Nine Months Ended September 30, 1999 Compared with Nine Months Ended September 30, 1998.

For the nine months ended September 30, 1999 (the “1999 Nine-Month Period”), the Company reported an operating income of $5.9 million compared to an operating income of $18.8 million for the nine months ended September 30, 1998 (the “1998 Nine-Month Period”). The net loss in the 1999 Nine-Month Period was $5.6 million compared to a net income of $5.2 million in the 1998 Nine-Month Period. Scheduled passenger service unit operating expenses (per scheduled ASM) increased by 4.7% in the 1999 Nine-Month Period compared with the 1998 Nine-Month Period. Overall operating margins decreased to 1.6% in the 1999 Nine-Month Period from 4.9% in the 1998 Nine-Month Period.

Operating Revenues. The Company’s total operating revenues decreased by $12.8 million, or 3.4% to $366.4 million in the 1999 Nine-Month Period from $379.2 million in the 1998 Nine-Month Period.

Scheduled passenger service revenues increased $2.9 million, or 1.1%, to $257.3 million in the 1999 Nine-Month Period from $254.4 million in the 1998 Nine-Month Period. This increase was primarily attributable to increased demand in the domestic market as well as the inception of new international routes. Scheduled passenger traffic (as measured in RPMs) for the 1999 Nine-Month Period increased by 1.6% and scheduled capacity (as measured in ASMs) for the 1999 Nine-Month Period increased by 2.1%, resulting in a load factor of 75.7% in the 1999 Nine-Month Period compared to 76.1% in the 1998 Nine-Month Period. For the 1999 Nine-Month Period, passenger yield was $0.0794 per RPM compared with $0.0798 per RPM for the 1998 Nine-Month Period, a 0.5% decrease.

Commercial charter revenues decreased $13.2 million, or 22.6% to $45.2 million in the 1999 Nine-Month Period from $58.5 million in the 1998 Nine-Month Period. This decrease was primarily due to decreased activities in Hajj charter operations from seven aircraft in 1998 compared to four aircraft in 1999 partially offset by a new contract to transport refugees from Europe along with a sub-service contract with an African airline.

Military charter revenues decreased by $1.6 million, or 3.7%, to $41.4 million in the 1999 Nine-Month Period from $43.1 million in the 1998 Nine-Month Period primarily as a result of a temporary two-week suspension of the military contract during the 1999 First Quarter partially offset by increased activities related to the deployment of troops during the 1999 Third Quarter.

Cargo service revenue decreased to $14.0 million in the 1999 Nine-Month Period from $14.1 million in the 1998 Nine-Month Period due to a ground damage incident which occurred on one of the Company’s two B747-200 cargo aircraft on December 1, 1998. This aircraft was returned to service during the 1999 Third Quarter. One of the Company’s cargo aircraft has been inoperable since February 1996, when the FAA promulgated certain ADs which restricted the cargo carrying capacity of one of the Company’s Boeing 747-100 cargo aircraft, as well as nine other similarly converted Boeing 747-100 cargo aircraft operated by other carriers. The Company decided to ground the aircraft rather than operate it with restricted payload as required by such ADs. The FAA has approved modifcations to enhance cargo capacity. The Company is assessing the costs associated with this program. There is no assurance that such aircraft will be returned to service. The decreased revenue was partially offset by a new ACMI Contract with a European airline.

Operating Expenses. The Company’s operating expenses were consistent at $360.5 million in the 1999 Nine-Month Period compared with $360.4 million in the 1998 Nine-Month Period.

Aircraft fuel expenses increased $9.1 million, or 16.5%, to $64.2 million in the 1999 Nine-Month Period from $55.1 million in the 1998 Nine-Month Period. This increase resulted from a 12.7% increase in consumption due to a change in the business mix whereby the Company, in 1999, is responsible for fuel cost under a certain charter agreement compared with ACMI agreements in 1998, along with a 2.8% increase in the cost of fuel.

Flight equipment rentals and insurance expenses decreased $5.6 million, or 21.8%, to $20.1 million in the 1999 Nine-Month Period from $25.7 million in the 1998 Nine-Month Period. This decrease was attributable to lower rental associated with the purchase of two previously leased Boeing 747 aircraft in the second half of 1998 and the conversion to a capital lease of a third Boeing 747 in the 1999 First Quarter.

Maintenance costs decreased $8.4 million, or 22.1%, to $29.6 million in the 1999 Nine-Month Period from $38.1 million in the 1998 Nine-Month Period. This decrease was attributable primarily to lower maintenance reserves associated with the following factors: (i) a one-time refund of $1.5 million previously paid by the Company under the operating lease agreement of a Boeing 747 aircraft as a result of converting to a capital lease, and (ii) the purchase of two Boeing 747 aircraft in the second half of 1998.

Crew costs and other expenses decreased $3.0 million, or 13.0%, to $20.3 million in the 1999 Nine-Month Period from $23.3 million in the 1998 Nine-Month Period. The decrease resulted primarily from a 6.7% decrease in total block hours flown. The decrease also reflected costs incurred in 1998 for a charter operation whereby the Company was subjected to certain foreign regulations which resulted in increased costs including additional overtime and hotel costs. Aircraft and traffic servicing expenses increased $5.6 million, or 8.5%, to $71.8 million in the 1999 Nine-Month Period from $66.2 million in the 1998 Nine-Month Period. This increase resulted primarily from a 5.8% increase in scheduled service block hours flown. Scheduled service block hours, where the Company is responsible for all operating expenses, represented 65.4% of total block hours flown for the 1999 Nine-Month Period compared to 57.7% for the 1998 Nine-Month Period.

Passenger servicing expenses decreased $3.6 million, or 8.4%, to $39.0 million in the 1999 Nine-Month Period from $42.5 million in the 1998 Nine-Month Period. This decrease resulted primarily from a 6.7% decrease in total block hours flown, resulting in a lower cabin crew cost, partially offset by higher cost associated with increased scheduled service block hours as described above.

Promotion, sales and commission expenses decreased $3.7 million, or 7.1%, to $48.8 million in the 1999 Nine-Month Period from $52.6 million in the 1998 Nine-Month Period. This decrease was primarily due to a decrease in the average commission rate to 12.7% in 1999 compared to 14.5% in 1998. This decrease was partially offset by increased costs of the Computerized Reservation System (CRS) due to increased scheduled service activities.

General and administrative expenses increased $2.6 million, or 16.8%, to $18.0 million in the 1999 Nine-Month Period from $15.4 million in the 1998 Nine-Month Period. This increase was primarily due to increases in consulting fees related to a financial planning project and legal fees associated with the Company’s ongoing legal cases. As a percentage of operating revenue, general and administrative expenses for the 1999 Nine-Month Period was 4.9% compared to 4.1% for the 1998 Nine-Month Period.

Depreciation and amortization expenses increased $7.1 million, or 17.1%, to $48.7 million in the 1999 Nine-Month Period from $41.6 million in the 1998 Nine-Month Period. This increase was primarily due to the purchase of two Boeing 747-200 aircraft in the second half of 1998 and the conversion to a capital lease of another Boeing 747 aircraft along with capitalized engine overhauls.

Other Expenses and Income. Interest expense increased $2.4 million, or 22.7%, to $13.3 million in the 1999 Nine-Month Period from $10.8 million in the 1998 Nine-Month Period. This increase primarily reflects a higher average outstanding debt balance in the 1999 Nine-Month Period. Other income for the 1998 Nine-Month Period includes settlement of litigation, restructuring of an outstanding loan, partially offset by interest associated with issuance of warrants.

Income Tax Provision. The income tax benefit for the 1999 Nine-Month Period was $1.9 million compared with a provision of $4.3 million in the 1998 Nine-Month Period. This decrease was principally attributable to a pretax loss during the 1999 Nine-Month Period coupled with a decrease in its effective tax rate to 25.0% compared to 45.0% in the 1998 Nine-Month Period.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its working capital and capital expenditure requirements with cash flow generated from operations and through lease, debt and equity financing.

The Company’s cash, cash equivalents and certificates of deposit at September 30, 1999 and December 31, 1998 were $5.5 million and $3.8 million, respectively. The Company generated cash from operations for the 1999 Nine-Month Period and 1998 Nine-Month Period of $43.7 million and $40.3 million, respectively.

The description of the Company’s long-term debt included in Note 2 to Financial Statements in Item 1 of this Quarterly Report on Form 10-Q is incorporated by reference herein.

Net cash used in investing activities was $25.4 million for the 1999 Nine-Month Period compared with $25.9 million for the 1998 Nine-Month Period. The Company’s expenditures for flight equipment were $28.1 million for the 1999 Nine-Month Period compared with $29.2 million for the 1998 Nine-Month Period. Expenditures for flight equipment in the 1999 Nine-Month Period included capitalized engine overhauls and heavy airframe maintenance (See Note 2 to the Financial Statements for additional information regarding the financing of certain flight equipment expenditures).

The Company has no significant unused lines of credit and must satisfy all of its working capital, debt service and capital expenditure requirements from either internally generated funds, from external financing sources or from the sale of assets. The Nachtomi Note in the amount of $30 million is due January 1, 2000. In addition, the Company has no significant unpledged assets and, to the extent that pledged assets are sold, the applicable financing arrangements generally require the sale proceeds to be applied to repay the corresponding indebtedness.

As of September 30, 1999, the Company had negative working capital of $142.5 million compared to negative working capital of $140.4 million as of December 31, 1998. Historically, the Company has operated with a working capital deficit.

The Company is highly leveraged and has and will continue to have significant debt service obligations. As of September 30, 1999, the Company has $5.9 million of required principle payments on long-term debt due within one year. The Company currently expects that capital expenditures (net of finance) for 1999 will total approximately $40.0 million, including expenditures for scheduled heavy airframe maintenance and engine overhaul on the Company’s aircraft.

To the extent that the Company’s access to capital is constrained, the Company may not be able to make certain capital expenditures, meet certain other requirements or continue to implement certain other aspects of its strategic plan. The Company’s ability to make scheduled principal and interest payments and to refinance its indebtedness and to meet its other obligations and future capital commitments will be dependent upon its financial and operating performance, which is subject to general economic conditions and to financial, business and other factors, including factors beyond its control. Management believes that the Company’s cash flow from its operations and financing activities should be sufficient in the next twelve months to meet the Company’s debt service and other obligations, future capital commitments and liquidity requirements. In addition, the airline industry in general, and the Company in particular, are subject to significant risks and uncertainties, therefore, there can be no assurance that the Company’s operating results and financing activities will be sufficient in the foreseeable future to meet such obligations and commitments.

In an effort to conserve cash, the Company suspended cash dividends on its Common Stock after the third quarter of 1996.

Year 2000

The Year 2000 problem exists because many computer programs use only the last two digits to refer to a year. This convention could affect date-sensitive calculations that treat “00” as the year 1900, rather than 2000. An additional issue is that 1900 was not a leap year, whereas the Year 2000 is. Therefore, some programs may not properly provide for February 29, 2000. This anomaly could result in miscalculations when processing critical date-sensitive information after December 31, 1999.

The Company’s comprehensive Year 2000 initiative is being managed by an internal Y2K team. To assist with Y2K efforts, the MIS team was strengthened with the hiring of additional computer experts who are familiar with information system issues confronting both the Company in particular and the airline industry in general. The Y2K team’s activities are designed to ensure that there is no adverse effect on the Company’s core business operation and that transactions with customers, suppliers and financial institutions are fully supported. The Company has determined that due to its most recent and near term software upgrades, its internal systems will function properly with respect to dates in the Year 2000 and beyond. The Company has initiated discussions with its significant suppliers, large customers and financial institutions to ensure that those parties have appropriate plans to remediate Year 2000 issues where their systems interface with the Company’s systems or otherwise impact its operations. The Company has assessed the extent to which its operations are vulnerable should those organizations fail to remediate properly their computer systems. While the Company believes its planning efforts are adequate to address its Year 2000 concerns, there can be no guarantee that the systems of other companies or governmental agencies on which the Company’s systems and operations rely will be converted on a timely basis and, if not so converted, will not have a material adverse effect on the Company’s business.

The Company’s Y2K team continues to assess the need to develop remediation contingency plans and business resumption contingency plans specific to the Year 2000. Remediation contingency plans address the actions to be taken if the current approach to remediating a system is falling behind schedule or otherwise appears in jeopardy of failing to deliver a Year 2000 ready system when needed. Business resumption contingency plans address the actions that would be taken if critical business functions can not be carried out in the normal manner upon entering the next century due to system or supplier failure.

The Company, as an International Air Transport Association (IATA) member airline, is a participant in the “IATA Year 2000 Project”. The IATA Year 2000 Project is an initiative to increase the awareness of third party suppliers and to assess/promote their Year 2000 preparedness. Working closely with The Airports Council International, the International Civil Aviation Organization, (ICAO) and other industry organizations, IATA has developed and piloted a standard methodology to assess Year 2000 readiness. The project provides training on how to use the methodology, and tracks the status of remedial programs so that problems can be identified early. IATA estimates that the cost of the Project will be approximately $20 million, of which the Company’s pro rata share is approximately $67,000. The Company does not expect the total cost of its Year 2000 initiatives to have a material adverse effect on the Company’s business.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

        None.

Part II.  Other Information

Item 1.  Legal Proceedings.

The only changes in legal proceedings as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 1998 and in the Company’s Form 10-Q for each of the quarterly periods ended March 31, 1999 and June 30, 1999 are the following:

The arbitrator in Terry V. Hallcom v. Tower Air, Inc. awarded the plaintiff $1,485,303.30, and denied plaintiff’s additional claim for the value of stock options in the amount of $2,027,037. Plaintiff’s Motion in the U.S. District Court for the Southern District of New York to confirm the arbitration award was deferred by the court pending consideration by the arbitrator of the Company’s Request to Modify Award.

Plaintiff in Leticia Parra, individually and on behalf of herself and other similarly situated v. Tower Air, Inc. has filed a Motion for reconsideration of the dismissal of this case which is presently pending.

Cross Motions for Summary Judgment have been filed in Solar Travel v. Tower Air, Inc. and are presently pending.

Cross Motions for Summary Judgment have been filed in Steven Liechtung on behalf of himself and others similarly situated v. Tower Air, Inc. and are being briefed.

The trial date in Hart to Hart Aircraft Detailing, Inc. v. Tower Air, Inc. has been reset for January 4, 2000.

Item 2.  Changes in Securities and Use of Proceeds.

        None.

Item 3.  Defaults Upon Senior Securities.

        None.

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

        None.

Item 5.  Other Information.

        None.

Item 6.  Exhibits and Reports on Form 8-K.

Signatures

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