AMTRAN INC, S-2, 1998-05-14

AMTRAN INC
S-2, 1998-05-14
AIR TRANSPORTATION, NONSCHEDULED

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1998
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

AMTRAN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C>
INDIANA 35-1617970
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>

7337 WEST WASHINGTON STREET
INDIANAPOLIS, INDIANA 46231
(317) 247-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

MR. KENNETH K. WOLFF
CHIEF FINANCIAL OFFICER
7337 WEST WASHINGTON STREET
INDIANAPOLIS, INDIANA 46231
(317) 247-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
WILLIAM P. ROGERS, JR., ESQ. WILLIAM F. GORIN, ESQ.
CRAVATH, SWAINE & MOORE CLEARY, GOTTLIEB, STEEN & HAMILTON
825 EIGHTH AVENUE ONE LIBERTY PLAZA
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10006
(212) 474-1270 (212) 225-2510
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______

If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

[CAPTION]
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<S> <C> <C> <C> <C>

PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
AMOUNT TO BE AGGREGATE OFFERING PRICE OFFERING REGISTRATION
TITLE OF SHARES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, without par value............... 3,500,000 $20.5 $ 82,512,500 $ 24,341.19

<CAPTION>
TITLE OF SHARES TO BE REGISTERED
<S> <C>
Common Stock, without par value...............
</TABLE>

(1) Includes 525,000 shares subject to Underwriters' over-allotment option.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act of 1933 based
on the average of the high and low prices per share of Common Stock of the
Registrant as reported on the Nasdaq National Market System on May 13, 1998.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)
OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

________________________________________________________________________________
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PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MAY 14, 1998

3,500,000 SHARES
[LOGO]

AMTRAN, INC.

COMMON STOCK
------------------------

Of the 3,500,000 Shares of Common Stock offered hereby, 1,500,000 Shares are
being sold by Amtran, Inc. and 2,000,000 shares are being sold by the Selling
Shareholder. See 'Principal and Selling Shareholder.' The Company will not
receive any of the proceeds from the sale of Shares by the Selling
Shareholder. After completion of this Offering, the Selling Shareholder
will own 48.6% of the Common Stock (assuming the Underwriters'
over-allotment option is not exercised). The Common Stock is
quoted on the Nasdaq National Market System under the symbol
'AMTR.' On May 13, 1998, the last reported sale price of
the Company's Common Stock as reported on the Nasdaq
National Market System was $20 3/8 per share.

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

SEE 'RISK FACTORS' BEGINNING ON PAGE 9 FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
-------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

PRICE $ A SHARE
------------------------

<TABLE>
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER
------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share................................ $ $ $ $
Total(3)................................. $ $ $ $
</TABLE>

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(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See 'Underwriters.'

(2) Before deducting expenses payable by the Company estimated at $ .

(3) The Company and the Selling Shareholder have granted the Underwriters an
option, exercisable within 30 days of the date hereof, to purchase up to
an aggregate of 525,000 additional Shares of Common Stock at the price
to public less underwriting discounts and commissions, for the purpose
of covering over-allotments, if any. If the Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions, proceeds to the Company and proceeds to the Selling
Shareholder will be $ , $ , $ and $ , respectively.
See 'Underwriters.'

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

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Cleary, Gottlieb, Steen & Hamilton, counsel for the Underwriters. It is
expected that delivery of the Shares will be made on or about , 1998 at
the office of Morgan Stanley & Co . Incorporated, New York, N.Y., against
payment therefor in immediately available funds.

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

MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY

, 1998

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

------------------------
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[The inside front cover will have a map indicating nonstop scheduled
service of the Company.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY OVER-ALLOTMENT, ENTERING INTO STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE 'UNDERWRITERS.'

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER
OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED BY THIS
PROSPECTUS BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
----
Disclosure Regarding Forward-Looking Statements.................................................................... 2
Incorporation of Certain Documents By Reference.................................................................... 3
Prospectus Summary................................................................................................. 4
Risk Factors....................................................................................................... 9
Capitalization..................................................................................................... 17
Use of Proceeds.................................................................................................... 17
Price Range of Common Stock........................................................................................ 18
Dividend Policy.................................................................................................... 18
Selected Consolidated Financial Data............................................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 21
Business........................................................................................................... 60
Management......................................................................................................... 73
Principal Shareholders and Selling Shareholder..................................................................... 74
Certain Related Party Transactions................................................................................. 75
Description of Capital Stock....................................................................................... 76
Underwriters....................................................................................................... 79
Legal Matters...................................................................................................... 80
Experts............................................................................................................ 80
Available Information.............................................................................................. 80
Index to Consolidated Financial Statements......................................................................... F-1
</TABLE>

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus includes 'forward-looking statements' within the meaning of
various provisions of the Securities Act of 1933, as amended (the 'Securities
Act') and the Exchange Act. Such 'forward-looking statements' can be identified
by the use of forward-looking terminology such as 'believes,' 'expects,' 'may,'
'will,' 'should,' or 'anticipates' or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy. All
statements, other than statements of historical facts, included in this
Prospectus which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
estimated future net revenues from airline services (including charter and
scheduled service), future capital expenditures (including the amount and nature
thereof), business strategy and measures to implement strategy, competitive
strengths, goals, expansion and growth of the Company's business and operations,
plans, references to future success, references to intentions as to future
matters and other such matters are forward-looking statements. See, e.g.,
'Summary -- The Company -- Strategy,' 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and 'Business.' These statements
are based on certain assumptions and analyses made by the Company in light of
its experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. However,

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whether actual results and developments will conform with the Company's
expectations and predictions is subject to a number of risks and uncertainties,
including the risk factors discussed in this Prospectus; general economic,
market or business conditions; the opportunities (or lack thereof) that may be
presented to and pursued by the Company; competitive actions by other airline
carriers; changes in laws or regulations; and other factors, many of which are
beyond the control of the Company. Consequently, all of the forward-looking
statements made in this Prospectus are qualified by these cautionary statements
and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected consequences or effects on the Company or its
business or operations. See 'Risk Factors' for additional discussion of certain
factors that will affect whether actual future events will conform to the
Company's current expectations.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company hereby incorporates by reference into this Prospectus the
following documents or information filed with the Securities and Exchange
Commission (the 'Commission'):

(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997; and

(b) The Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1998.

Any statement contained in any documents incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purpose of this Prospectus to the extent that a subsequent statement
contained herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

This Prospectus incorporates documents by reference which are not
represented herein or delivered herewith. These documents are available without
charge upon written or oral request from Kenneth K. Wolff, Chief Financial
Officer of the Company, at the Company's principal executive offices located at
7337 West Washington Street, Indianapolis, Indiana 46231, telephone number (317)
247-4000.

------------------------
The Company is an Indiana corporation which was organized in 1984. The
Company's executive offices are located at 7337 West Washington Street,
Indianapolis, Indiana 46231, and its telephone number is (317) 247-4000.

3
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements of the Company and notes thereto included elsewhere in this
Prospectus. All references to the 'Company' in this Prospectus refer to Amtran,
Inc. and its subsidiaries (including American Trans Air, Inc., referred to
herein as 'ATA') collectively, unless the context otherwise requires.
The Shares of Common Stock offered by the Company (the 'Company Offering')
and the shares of Common Stock offered by the Selling Shareholder (the 'Selling
Shareholder Offering') constitute the 'Offering.' Unless otherwise indicated,
the information in this Prospectus assumes the Underwriters' over-allotment
option is not exercised.

THE COMPANY

The Company is the eleventh largest passenger airline in the United States
(based on 1997 revenues) and is a leading provider of airline services in
selected market segments. The Company is also the largest commercial charter
airline in the United States and the largest charter provider of passenger
airline services to the U.S. military, in each case based on revenues. For the
year ended December 31, 1997, the revenues of the Company consisted of 47.5%
scheduled service, 29.1% commercial charter service and 16.8% military charter
service, with the balance derived from related travel services.

SCHEDULED SERVICE

The Company provides scheduled service through ATA to selected destinations
primarily from its gateways at Chicago-Midway, Indianapolis and Milwaukee and
also provides transpacific services between the western United States and
Hawaii. The Company focuses on routes where it believes it can be a leading
provider of non-stop service and targets leisure and value-oriented business
travelers. In the third quarter of 1997, according to the most recently
available Department of Transportation ('DOT') statistics, the Company was
the leading carrier on over 70% of its non-stop scheduled service routes
and one of the top two carriers on over 90% of its non-stop scheduled
service routes.

The Company believes that it has significant competitive advantages in each
of its primary markets:

Chicago-Midway, the Company's largest and fastest growing gateway,
represented approximately 44% of the Company's total scheduled
service capacity in 1997. The Company is the number one carrier
in terms of market share in 9 out of its 10 non-stop routes
from Chicago-Midway. The Company believes its service at this gateway
would be difficult to replicate because of limited available airport
capacity and airport restrictions which require higher performance
aircraft on the majority of the Company's routes. The Company's
market position is also enhanced by Chicago-Midway's proximity to
downtown Chicago and a substantial population within the metropolitan
region, as well as the severe airspace constraints at Chicago-O'Hare.
The Company began service at Chicago-Midway in December 1992.

Hawaii represented approximately 25% of the Company's total scheduled
service capacity in 1997. The Company believes it is the lowest
cost provider of scheduled service between the western United
States and Hawaii, which is critical in this price sensitive,
predominantly leisure-oriented market. Furthermore, approximately 80%
of the Company's capacity in the Hawaiian market is prepurchased by
the nation's largest independent Hawaiian tour operator, which
assumes capacity, yield and fuel risk. The Company has served the
Hawaiian market since 1974 through its charter operations and since
1987 through its scheduled service operations.

Indianapolis represented approximately 21% of the Company's total
scheduled service capacity in 1997. The Company began scheduled
service from Indianapolis in 1986 and believes that it benefits
from being perceived as the hometown airline. The Company is
the number one provider in terms of market share in 8 of its 9
non-stop routes from Indianapolis. In Indianapolis, the Company
operates Ambassadair Travel Club, Inc. ('Ambassadair'), the nation's
largest travel club with approximately 35,000 individual or

4
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family memberships, providing the Company with a local marketing
advantage similar to a frequent flier program.

Milwaukee represented approximately 6% of the Company's total
scheduled service capacity in 1997. The Company believes it
enjoys a significant cost advantage over its competitors in this
market and consequently is able to offer what it believes to be the
only low fare alternative on most of the routes it serves from
Milwaukee. The Company has served Milwaukee since 1980 through its
commercial charter operations and since December 1993 through its
scheduled service operations.

COMMERCIAL CHARTER SERVICE

The Company is the largest commercial charter airline in the United States
and provides services throughout the world, primarily to U.S., South American
and European tour operators. The Company seeks to maximize the profitability of
these operations by leveraging its leading market position, diverse aircraft
fleet and worldwide operating capability. Management believes its commercial
charter services are a predictable source of revenues and operating profits in
part because its commercial charter contracts require tour operators to assume
capacity, yield and fuel price risk, and also because of the Company's ability
to readily re-deploy assets into favorable markets.

The Company's commercial charter services are marketed and distributed
through a network of domestic and international sales offices with an emphasis
primarily on tour operators. The Company benefits from long-term relationships
with many such operators and under its commercial charter contracts the Company
provides repetitive round-trip flights for specified periods ranging from
several weeks to several years.

MILITARY/GOVERNMENT CHARTER SERVICE

The Company has provided passenger airline services to the U.S. military
since 1983 and is currently the largest charter provider of these services.
Management believes that because these operations are generally less seasonal
than leisure travel, they have tended to have a stabilizing impact on the
Company's operating margins. The U.S. government awards one year contracts for
its military charter business and pre-negotiates contract prices for each type
of aircraft that a carrier makes available. The Company believes that its fleet
of aircraft, particularly its Boeing 757-200ERs, is well suited to the needs of
the military for long-range service.

STRATEGY

The Company intends to enhance its position as a leading provider of
passenger airline services to selected markets where it can capitalize on its
competitive strengths. The key components of this strategy are:

Participate in Markets Where it Can be a Leader. The Company focuses
on markets where it can be a leading provider of airline services. In
scheduled service, the Company concentrates on routes where it can be the
number one or number two carrier. The Company achieves this result
principally through superior non-stop schedules, value-oriented service,
focused marketing efforts and certain airport and aircraft advantages. The
Company is the leading provider of commercial and military charter services
in large part because of its variety of aircraft types, superior
operational performance and its worldwide service capability combined with
a proven history of reliable service and long standing relationships with
its customers.

Maintain Low Cost Position. For 1997, the Company's operating cost per
available seat mile ('ASM') of 6.09[c] was the lowest among large U.S.
passenger airlines. The Company believes that its low cost structure
provides a significant competitive advantage, allowing it to operate
profitably while pricing competitively in the scheduled service and
commercial and military charter

5
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markets. The Company believes its low cost position is primarily derived
from its simplified product, route structure, aircraft ownership costs
and low overhead costs.

Target Growth Opportunities. The Company intends to expand its
operations selectively in areas where it believes it can achieve attractive
financial returns. The Company will focus scheduled service growth
principally on Chicago-Midway, where the Company intends to increase
frequencies to certain existing destinations and add approximately 3 to 5
new markets (including New York-LaGuardia) over the next 18 months. To
support this expansion, the Company plans to acquire or lease up to 5
additional aircraft (up to 3 Boeing 757s and 2 Boeing 727s). In its
commercial and military charter service, the Company has a letter of
intent to purchase 5 Lockheed L-1011-500s, which the Company expects
will provide a market advantage, enabling it to offer a low capital
cost long-range aircraft seating 307 passengers. This will allow the
Company to compete for business that it cannot now accommodate (e.g.,
non-stop service to destinations in South America, Europe and Asia)
and that most competitors can only serve using a larger aircraft,
such as the Boeing 747 or DC-10, which are often viewed as too large
in both the commercial and military charter markets. The Company
believes the combined effect of fleet additions and increased asset
utilization will result in approximately 10% and 15% ASM growth in 1998 and
1999, respectively.

THE OFFERING

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<S> <C>
Common Stock offered by:
The Company............................. 1,500,000 shares
The Selling Stockholder................. 2,000,000 shares
Total.............................. 3,500,000 shares(1)
Common Stock to be outstanding after the
Offering................................... 13,145,529(1)(2)
Use of Proceeds by the Company............... The Company plans to use net proceeds from the Company Offering to
support aircraft fleet expansion over the next 18 months. Such
expansion is expected to consist primarily of the purchase of
Lockheed L-1011-500 aircraft and engines, Boeing 727 aircraft
currently leased, and hushkits for those Boeing 727 aircraft, as
well as for other general corporate purposes. Pending any such
use, the Company will invest such net proceeds in short-term
marketable securities. The Company will not receive any of the
proceeds from the Selling Shareholder Offering. See 'Use of
Proceeds.'
Nasdaq Symbol................................ 'AMTR'
</TABLE>

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(1) Excludes up to 525,000 shares which are subject to the Underwriters'
over-allotment option.

(2) Includes 11,645,529 shares outstanding as of March 31, 1998 but excludes
2,890,000 shares that were issuable as of March 31, 1998 upon exercise of
options then outstanding under the Company stock option plans.

6
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The following summary consolidated financial data are derived from the
consolidated financial statements of the Company for the periods presented. The
consolidated financial statements for each of the five years ended December 31,
1997, have been audited by Ernst & Young LLP, independent auditors. The
consolidated financial data for the three month periods ended March 31, 1997 and
1998 are unaudited but include all adjustments, consisting only of normal
recurring adjustments, which, in the opinion of management, are necessary for a
fair presentation of the financial position and results of operations for these
periods. The results for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year. The
consolidated financial data should be read in conjunction with the consolidated
financial statements of the Company and notes thereto and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations'
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------ -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Scheduled service..................... $138,089 $240,675 $361,967 $386,488 $371,762 $ 82,004 $117,889
Commercial charter service............ 213,666 204,045 229,545 226,372 228,062 69,641 61,304
Military charter service.............. 78,366 91,845 77,546 84,197 131,115 30,705 33,018
Ground package........................ 17,189 20,248 20,421 22,302 22,317 5,854 6,437
Other................................. 20,599 23,709 25,530 31,492 29,937 6,080 10,657
-------- -------- -------- -------- -------- -------- --------
Total operating revenues......... 467,909 580,522 715,009 750,851 783,193 194,284 229,305
-------- -------- -------- -------- -------- -------- --------
Depreciation and amortization.............. 37,418 46,178 55,827 61,661 62,468 14,140 18,158
Operating income (loss)(1)................. 6,620 8,415 17,936 (36,056) 13,484 7,728 23,409
Interest expense........................... 3,872 3,656 4,163 4,465 9,454 1,612 3,254
Income (loss) before income taxes.......... 3,866 5,879 14,653 (39,581) 6,027 6,317 21,271
Net income (loss).......................... 3,035 3,486 8,524 (26,674) 1,572 3,222 12,399
Net income (loss) per share-basic(2)....... 0.28 0.30 0.74 (2.31) 0.14 0.28 1.07
Net income (loss) per share-diluted(2)..... 0.28 0.30 0.74 (2.31) 0.13 0.27 1.02
BALANCE SHEET DATA (AT END OF PERIOD):
Cash....................................... $ 45,024 $ 61,752 $ 92,741 $ 73,382 $104,196 $ 65,953 $108,897
Non-cash working capital (deficiency)(3)... (48,601) (68,166) (80,639) (65,573) (100,731) (65,730) (107,322)
Property and equipment, net................ 172,244 223,104 240,768 224,540 267,681 231,166 276,255
Total assets............................... 269,830 346,288 413,137 369,601 450,857 375,077 466,221
Short-term debt (including current
maturities).............................. 18,242 8,447 3,606 30,271 8,975 33,851 4,279
Long-term debt............................. 61,090 109,659 134,641 119,100 182,829 114,140 177,980
Total debt................................. 79,332 118,106 138,247 149,371 191,804 147,991 182,259
Shareholders' equity(4).................... 69,941 72,753 81,185 54,744 56,990 58,428 69,804
SELECTED OPERATING DATA FOR PASSENGER
SERVICE(5):
ASMs (millions)(6)......................... 8,232.5 10,443.1 12,521.4 13,295.5 12,647.7 2,985.0 3,363.0
Revenue passenger miles (millions)(7)...... 5,593.5 7,158.8 8,907.7 9,172.4 8,986.0 2,210.1 2,394.5
Passenger load factor(8)................... 67.9% 68.6% 71.1% 69.0% 71.0% 74.0% 71.2%
Revenue per ASM(6)......................... 5.68[c] 5.56[c] 5.71[c] 5.65[c] 6.19[c] 6.51[c] 6.82[c]
Operating expense per ASM(6)(9)............ 5.60[c] 5.48[c] 5.56[c] 5.92[c] 6.09[c] 6.25[c] 6.12[c]
Block hours flown(10)...................... 76,542 103,657 126,295 138,114 139,426 30,969 39,157
Total aircraft............................. 31 41 46 45 45 45 45
</TABLE>

(footnotes on next page)

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(footnotes from previous page)

(1) In the third quarter of 1996, the Company recorded a $4.7 million loss on
the disposal of leased assets associated with both Boeing 757-200 aircraft
transactions. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.'

(2) In 1997, the Company adopted Financial Accounting Standards Board Statement
128, 'Earnings Per Share,' which establishes new standards for the
calculation and disclosure of earnings per share. All earnings per share
amounts disclosed in this Summary have been restated to conform to the new
standards under Statement 128.

(3) Non-cash working capital consists of total current assets (excluding cash)
less total current liabilities (excluding current maturities of long term
debt).

(4) No dividends were paid in any of the periods presented.

(5) The operating data (exclusive of the number of aircraft), include the
operations of Chicago Express, Inc. ('Chicago Express') out of
Chicago-Midway, with which the Company has a code share arrangement under
which Chicago Express operates 19-seat Jetstream 31 propeller aircraft on
behalf of the Company (the 'Chicago Express Arrangement'). See
'Business -- The Company's Airline Operations.'

(6) 'Available seat miles' or 'ASMs' represent the number of seats available
for sale to passengers multiplied by the number of miles those seats are
flown.

(7) 'Revenue passenger miles' or 'RPMs' represent the number of seats occupied
by revenue passengers multiplied by the number of miles those seats are
flown.

(8) 'Passenger load factor' represents revenue passenger miles divided by
available seat miles.

(9) 'Operating expense per ASM' for any period represents the amount determined
by dividing total operating expense for such period by the total ASMs for
such period.

(10) 'Block hours flown' for any aircraft represents the elapsed time computed
from the moment the aircraft first moves under its own power from the
boarding ramp at one airport to the time it comes to rest at the boarding
ramp of the next point of landing.

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RISK FACTORS

Prospective purchasers of the Common Stock should consider carefully the
following factors as well as the other information and data included in this
Prospectus before purchasing Common Stock. The Company cautions the reader,
however, that this list of factors may not be exhaustive and that these or other
factors could have an adverse effect on the price of the Common Stock. This
Prospectus includes 'forward-looking statements' within the meaning of various
provisions of the Securities Act and the Exchange Act. Such 'forward-looking
statements' can be identified by the use of forward-looking terminology such as
'believes,' 'expects,' 'may,' 'will,' 'should,' or 'anticipates' or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results and developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, including the
risk factors discussed in this Prospectus; general economic, market or business
conditions; the opportunities (or lack thereof) that may be presented to and
pursued by the Company; competitive actions by other airline carriers; changes
in laws or regulations; and other factors, many of which are beyond the control
of the Company. Consequently, all of the forward-looking statements made in this
Prospectus are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences or effects on the Company or its business or operations.

INDUSTRY CONDITIONS AND COMPETITION

The Company's products and services face varying degrees of competition in
diverse markets.

COMPETITION FOR SCHEDULED SERVICES

In scheduled service, the Company competes both against the major U.S.
scheduled service airlines and, from time to time, against smaller regional or
start-up airlines. Competition is generally on the basis of price, frequency,
quality of service and convenience. All of the major U.S. scheduled airlines are
larger and most have greater financial resources than the Company. Where the
Company seeks to expand its service by adding routes or frequency, competing
airlines may respond with intense price competition. In addition, when other
airlines seek to establish a presence in a market, they may engage in
significant price discounting. Because of its size relative to the major
airlines, the Company is less able to absorb losses from these activities than
many of its competitors.

COMPETITION FOR COMMERCIAL CHARTER SERVICES

In the commercial charter market, the Company competes both against the
major U.S. scheduled airlines, as well as against small U.S. charter airlines
including Sun Country and Miami Air. The Company also competes against several
European and Mexican charter and scheduled airlines, many of which are larger
and have substantially greater financial resources than the Company. The
scheduled carriers compete for leisure travel customers with the Company's
commercial charter operations in a variety of ways, including wholesaling
discounted seats on scheduled flights to tour operators, promoting to travel
agents prepackaged tours for sale to retail customers and selling discounted,
excursion airfare-only products to the public. As a result, all charter
airlines, including the Company, generally are required to compete for customers
against the lowest revenue-generating seats of the scheduled airlines. During
periods of dramatic fare cuts by the scheduled airlines, the Company is forced
to respond competitively to these deeply discounted seats.

The Company also competes directly against other charter airlines. In the
United States, these charter airlines are smaller in size than the Company. In
Europe, several charter airlines are at least as large or larger than the
Company. Certain of these charter airlines are affiliates of major scheduled
airlines or tour operators. As a result, in addition to greater access to
financial resources, these charter

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airlines may have greater distribution capabilities, including, in certain
cases, exclusive or preferential relationships with affiliated tour operators.

COMPETITION FOR MILITARY/GOVERNMENT CHARTER SERVICES

The Company competes for military and other government charters with a
variety of larger and smaller U.S. airlines. The allocation of U.S. military air
transportation contracts is based upon the number and type of aircraft a
carrier, alone or through a teaming arrangement, makes available for use to the
military. The formation of competing teaming arrangements that have larger
partners than those in which the Company participates, an increase by other air
carriers in their commitment of aircraft to the military, or the withdrawal of
the Company's current partners, could adversely affect the Company's U.S.
military charter business.

LOW MARGINS AND HIGH FIXED COSTS

The airline industry as a whole and scheduled service in particular are
characterized by low gross profit margins and high fixed costs. The costs of
operating each flight do not vary significantly with the number of passengers
carried and, therefore, a relatively small change in the number of passengers or
in pricing or traffic mix could, in the aggregate, have a significant effect on
operating and financial results. Accordingly, a shortfall from expected revenue
levels could have a significant effect on earnings.

VOLATILITY OF EARNINGS

For the years ended December 31, 1995, 1996 and 1997, the Company had net
income of $8.5 million, a net loss of $26.7 million and net income of $1.6
million, respectively. The substantial net loss in 1996 reflected a number of
factors, including: (i) a significant increase in competition from larger
carriers in the scheduled service markets served by the Company, (ii) the
negative impact on low fare carriers resulting from unfavorable media coverage
of the effects of the ValuJet accident in Florida and, to a lesser extent, the
Company's own decompression incident, (iii) a significant increase in fuel costs
and (iv) a federal excise tax on jet fuel that became effective on October 1,
1995. In response, the Company implemented a significant restructuring of
scheduled service operations in 1996 (the '1996 Restructuring'). Although the
Company recorded net income for 1997 and the first quarter of 1998, there can be
no assurance that such profitability will continue. Moreover, because of the
cyclicality of the airline industry, the Company expects that its results of
operations will continue to be subject to volatility. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'

EFFECTS OF SEASONALITY OF BUSINESS ON THE COMPANY

The Company's business is significantly affected by seasonal factors
typically resulting in significant fluctuation in quarterly operating results.
Historically, the Company has experienced reduced demand during the fourth
quarter and, to a lesser extent the second quarter, as demand for leisure
airline services during such periods is lower relative to other times of the
year. The Company has recently experienced its strongest operating results in
the first quarter. As a result, the Company's results of operations for any one
quarter are not necessarily indicative of the Company's annual results of
operations. Moreover, in the case of 1998, the Company does not believe that the
level of profitability in the first quarter is necessarily indicative of the
Company's financial results for the remaining quarters.

SUBSTANTIAL LEVERAGE

At March 31, 1998, on a consolidated basis, the Company had approximately
$182.3 million of indebtedness outstanding, approximately $75.3 million of which
was collateralized. Total shareholders' equity of the Company on a consolidated
basis as of March 31, 1998 was approximately $69.8 million. In addition, the
Company has substantial obligations under operating leases for aircraft. The
debt and lease obligations together represent significant financial leverage,
even in the highly leveraged airline industry. See 'Capitalization' and
'Business -- Aircraft Fleet.'

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The degree to which the Company is leveraged could have important
consequences to holders of Common Stock, including the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be impaired;
(ii) the Company's degree of leverage and related debt service obligations, as
well as its obligations under operating leases for aircraft, may make it more
vulnerable than some of its competitors in a prolonged economic downturn; and
(iii) the Company's financial position may restrict its ability to exploit new
business opportunities and limit its flexibility to respond to changing business
conditions. The Company's competitive position may also be affected by the fact
that it may be more highly leveraged than some of its competitors.

AIRCRAFT FUEL

Because fuel costs are a significant portion of the Company's operating
costs (approximately 20% for both 1996 and 1997), significant changes in fuel
costs would materially affect the Company's operating results. Fuel prices
continue to be impacted by, among other factors, political and economic
influences that the Company cannot control. In the event of a fuel supply
shortage resulting from a disruption of oil imports or other events, higher fuel
prices or the curtailment of scheduled service could result. However, the
Company has been able to reduce certain of the risks associated with a rise in
fuel costs. For each of 1996 and 1997, approximately 50% and 53%, respectively,
of the Company's total operating revenues were derived from contracts which
enabled the Company to pass through increases in fuel costs, including contracts
with the U.S. military. The Company is exposed to increases in fuel costs that
occur within 14 days of flight time, to all increases associated with its
scheduled service (other than bulk seat sales) and to increases affecting
contracts that do not include fuel cost escalation provisions. The Company is
also exposed to the risk that a substantial rise in fuel costs could cause a
reduction in leisure travel and/or the cancellation or renegotiation of
previously-booked commitments from tour operators.

EFFECTIVE CONTROL BY SELLING SHAREHOLDER

Immediately after completion of the Offering, J. George Mikelsons, Chairman
of the Board of the Company (who is also the Selling Shareholder), will
beneficially own 6,477,000 shares, or approximately 48.6% ( % if the
Underwriters' over-allotment option is exercised in full), of the Company's
outstanding Common Stock. Consequently, he will have the effective ability to
elect all of the directors of the Company and to effect or prevent certain
corporate transactions which require majority approval, including mergers,
going-private transactions and other business combinations. In addition, the
Selling Shareholder has the right to require the Company to register his
remaining shares of Common Stock for sale under the Securities Act. See 'Certain
Related Party Transactions.'

LIQUIDITY, DEBT SERVICE AND CAPITAL EXPENDITURE REQUIREMENTS

Although the Company, like most other airlines, generally operates with a
working capital deficit, it has been able to meet its obligations as they have
become due. At March 31, 1998, the Company's current assets were $167.6 million,
and current liabilities were $170.3 million. In order to meet short-term cash
needs, the Company maintains bank credit facilities. In July 1997, the Company
amended its principal bank credit facility (the 'Credit Facility') to provide a
maximum of $50 million of available credit, subject to compliance with certain
collateral requirements. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- Credit
Facilities.'

The airline industry requires significant levels of continuing capital
investment for aircraft engines and maintenance. The Company currently expects
that capital expenditures for these items for 1998 will total approximately
$84 million. Such expenditures will be mainly for scheduled maintenance on
the Company's aircraft. Additionally, the Company expects to incur capital
expenditures in 1998 of approximately $60 million for acquisitions of
additional L-1011-500s, hushkits for Boeing 727s and renovations of the
Chicago-Midway terminal and hangar and the Indianapolis maintenance and
operations center. See 'Business -- Aircraft Fleet.'

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RESTRICTIONS UNDER FINANCING AGREEMENTS AND OPERATING LEASES

The financing agreements relating to the Company's outstanding indebtedness
impose significant operating and financial restrictions on the Company. For
example, the Credit Facility is collateralized by liens on certain Company-owned
Lockheed L-1011 aircraft and engines. In addition, the Credit Facility prohibits
or restricts in many respects the Company's ability to incur additional
indebtedness, create material liens on its assets, sell assets or engage in
mergers or consolidations, redeem or repurchase the 10 1/2% Senior Notes due
2004 (the '10 1/2% Notes'), make certain investments, pay cash dividends or
engage in other significant transactions. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Credit Facilities' and see ' -- 10 1/2% Senior Notes due
2004.'

Under certain of such financing agreements and operating leases relating to
aircraft, the Company is required to maintain compliance with certain specified
covenants, restrictions, financial ratios and other financial and operating
tests. The Company's ability to comply with any of the foregoing restrictions
and with loan repayment provisions will depend upon its future performance,
which will be subject to prevailing economic conditions and other factors,
including factors beyond the control of the Company. A failure to comply with
any of these obligations could result in an event of default under one or more
of such financing agreements and operating leases, which could permit
acceleration of the debt under such instrument and acceleration of debt under
the Company's other principal financing agreements and termination of the
Company's aircraft operating leases, some of which contain cross-default or
cross-acceleration provisions. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Credit Facilities' and see ' -- 10 1/2% Senior Notes due 2004.'

EMPLOYEE RELATIONS

The Company's flight attendants are represented by the Association of
Flight Attendants ('AFA') and the cockpit crews are represented by the
International Brotherhood of Teamsters ('IBT'). The current collective
bargaining agreement with the AFA expires in December 1998 and the current
collective bargaining agreement with the IBT expires in September 2000. The
Company expects to begin negotiations with the AFA in the third or fourth
quarter concerning a new collective bargaining agreement, but there can be no
assurance that there will not be work stoppages or other disruptions. The
existence of a significant dispute with any sizable number of its employees
could have a material adverse effect on the Company's operations.

CUSTOMERS

The Company's largest customer during each of 1995, 1996 and 1997 was the
U.S. military, accounting for approximately 11%, 11% and 17% respectively, of
the Company's total operating revenues. In 1996 and 1997, the Company's five
largest non-military customers accounted for approximately 22% and 16%,
respectively, of total operating revenues, and the Company's ten largest
non-military customers accounted for approximately 30% and 21% of total
operating revenues for the same periods. No single non-military customer
accounted for more than 10% of total operating revenues during this period.

The Company is subject to the risk that a customer which has contracted
with the Company will cancel or default on its contract or contracts and the
Company will be unable to obtain other business to cover the resulting loss in
revenues. If the size of the contract or contracts is significant enough, any
such default or cancelation could have a material adverse effect on the Company.

RELIANCE ON TRAVEL AGENTS AND TOUR OPERATORS FOR TICKET SALES

Approximately 71% and 75% of the Company's revenues for the years ended
December 31, 1996 and 1997, respectively, were derived from tickets sold by
travel agents or tour operators. Travel agents and tour operators generally have
a choice between one or more airlines when booking a customer's flight.
Accordingly, any effort by travel agencies or tour operators to favor another
airline or to disfavor the Company could adversely impact the Company. The
Company's relations with travel agencies and

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tour operators could be affected by, among other things, override commissions
offered by other airlines, by an increase in the Company's arrangements with
other distributors of its tickets or by the introduction of alternative methods
of selling tickets. Although management intends to continue to offer attractive
and competitive products to travel agencies and tour operators and to maintain
favorable relations with travel agencies and tour operators, there can be no
assurance that travel agencies or tour operators will not disfavor the Company
or favor other airlines in the future.

EFFECT OF GENERAL ECONOMIC CONDITIONS

The profitability of the Company's operations is influenced by the
condition of the U.S. and European economies, including fluctuations in currency
exchange rates, that may impact the demand for leisure travel and the Company's
competitive pricing position. The vast majority of the Company's commercial
charter and scheduled airline business is leisure travel. Because leisure travel
is discretionary, the Company has historically tended to experience somewhat
weaker financial results during economic downturns and other events affecting
international leisure travel, such as the Persian Gulf War. Nevertheless, the
Company's performance during these periods has been significantly better than
that of the U.S. airline industry as a whole.

REGULATORY MATTERS

The Company is subject to regulation by the DOT and the Federal Aviation
Administration (the 'FAA') under the provisions of the Federal Aviation Act of
1958, as amended (the 'Federal Aviation Act'), and by certain other governmental
agencies. The DOT regulates principally economic issues affecting air service,
including, among other matters, air carrier certification and fitness,
insurance, certain leasing arrangements, allocation of route rights and
authorization of proposed scheduled and commercial and military charter
operations, allocation of landing, departure slots in certain instances,
consumer protection and competitive practices. The FAA primarily regulates
flight operations, especially matters affecting air safety, including, among
other matters, airworthiness requirements for each type of aircraft the Company
operates and pilot and crew certification. The Company believes it is in
compliance with all requirements necessary to maintain in good standing its
operating authority granted by the DOT and its air carrier operating certificate
issued by the FAA. A modification, suspension or revocation of any of the
Company's DOT or FAA authorizations or certificates could have a material
adverse effect upon the Company.

In the last several years, the FAA has issued a number of maintenance
directives and other regulations relating to, among other things, collision
avoidance systems, airborne windshear avoidance systems, noise abatement and
increased inspection requirements. The Company expects to continue to incur
expenditures for the purpose of complying with the FAA's noise and aging
aircraft regulations.

The Company holds several Certificates of Public Convenience and Necessity
as well as other forms of authority issued by the DOT and an operating
certificate issued by the FAA. Each such authority is subject to continued
compliance with applicable stated rules and regulations pertaining to the
airline industry, including any new rules or regulations that may be adopted in
the future.

The Company is subject to the jurisdiction of the Federal Communications
Commission regarding the use of radio facilities. In addition, the Company is
subject to regulation on its international flights by the Commerce Department,
the Customs Service, the Immigration and Naturalization Service, and the Animal
and Plant Health Inspection Service of the Department of Agriculture. Also,
while its aircraft are in foreign countries on international flights, the
Company must comply with the requirements of similar authorities in such
countries. The Company is also subject to compliance with standards for aircraft
exhaust emissions promulgated by the Environmental Protection Agency (the 'EPA')
pursuant to the Clean Air Act of 1970, as amended. The Company is also subject
to regulations adopted by the various local authorities which operate the
airports it serves throughout its route network, including but not limited to
aircraft noise regulations and curfews. While the Company intends to maintain
all appropriate government licenses and to comply with all appropriate
standards, there can be no assurance that such licenses can be maintained or
that such standards will not be changed in the future. See
'Business -- Regulation.'

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Under the Airport Noise and Capacity Act of 1990 and related FAA
regulations, the Company's aircraft must comply with certain Stage 3 noise
restrictions by certain specified deadlines. These regulations require that the
Company achieve a 75% Stage 3 fleet by December 31, 1998, and will prohibit the
Company from operating any Stage 2 aircraft after December 31, 1999. As of
December 31, 1997, 67% of the Company's fleet met Stage 3 requirements. Although
the Company expects to meet future Stage 3 fleet requirements through Boeing
727-200 hushkit modifications, combined with additional future deliveries of
Stage 3 aircraft, failure to meet the December 31, 1998 deadline could require
the Company to ground one or more Stage 2 aircraft in order to meet the 75%
threshold requirement. See 'Business -- Environmental Matters.'

At its aircraft line maintenance facilities, the Company uses materials
which are regulated as hazardous under federal, state and local law. The Company
is required to maintain programs to protect the safety of its employees who use
these materials and to manage and dispose of any waste generated by the use of
these materials in compliance with all such laws. More generally, the Company is
also subject at these facilities to federal, state and local regulations
relating to protection of the environment and to discharge of materials into the
environment. The Company does not expect that the costs associated with ongoing
compliance with any such regulations at these facilities will have a material
adverse effect upon the Company's capital expenditures, earnings or competitive
position. See 'Business -- Environmental Matters.'

Additional laws and regulations have been proposed from time to time which
could significantly increase the cost of airline operations by, for instance,
imposing additional requirements or restrictions on operations. Laws and
regulations also have been considered from time to time that would prohibit or
restrict the ownership and/or transfer of airline routes or takeoff and landing
slots. Also, the award of international routes to U.S. carriers (and their
retention) is regulated by treaties and related agreements between the United
States and foreign governments which are amended from time to time. The Company
cannot predict what laws and regulations will be adopted or what changes to
international air transportation treaties will be effected, if any, or how they
will affect the Company.

BONDING REQUIREMENTS

Under current DOT regulations with respect to commercial charter
transportation originating in the United States, all commercial charter airline
tickets must generally be paid for in cash and all funds received from the sale
of commercial charter seats (and in some cases the costs of land arrangements)
must be placed into escrow by the tour operator or protected by a surety bond
satisfying certain prescribed standards. Currently, the Company provides a
third-party bond which is unlimited in amount in order to satisfy its
obligations under these regulations. Under the terms of its bonding
arrangements, the issuer of the bond has the right to terminate the bond at any
time on 30 days' notice. The Company provides a $2.5 million letter of credit to
secure its potential obligations to the issuer of the bond. If the bond were to
be materially limited or canceled, the Company, like all other U.S. charter
airlines, would be required to escrow funds to comply with the DOT requirements
summarized above. Compliance with such requirements would reduce the Company's
liquidity and require it to fund higher levels of working capital ranging up to
$13.5 million based on 1997's peak pre-paid bookings.

INSURANCE COVERAGE

The Company is subject to potential losses which may be incurred in the
event of an aircraft accident. Any such accident could involve not only repair
or replacement of a damaged aircraft and its consequent temporary or permanent
loss from service, but also potential claims of injured passengers and others.
The Company is required by the DOT to carry liability insurance on each of its
aircraft. The Company currently maintains public liability insurance in the
amount of $1.25 billion. Although the Company currently believes its insurance
coverage is adequate, there can be no assurance that the amount of such coverage
will not be changed or that the Company will not be forced to bear substantial
losses from accidents. Substantial claims resulting from an accident could have
a material adverse effect on the business, financial condition and results of
operations of the Company, and could seriously inhibit passenger acceptance of
the Company's services. The Company's insurance policies also impose

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certain geographic restrictions on where the Company may provide airline
service. See 'Business -- Insurance.'

DIVIDEND POLICY

The Company has not paid any dividend since becoming a public company in
1993 and does not currently anticipate paying cash dividends on its Common
Stock. The Company expects to retain any earnings generated from its operations
for use in the Company's business. Any future determination as to the payment of
dividends will be at the discretion of the Board of Directors of the Company
(the 'Board') and will depend upon the Company's operating results, financial
condition and capital requirements, general business conditions and such other
factors as the Board deems relevant. The Company's ability to pay dividends is
also limited by certain other factors, including the ability of its subsidiaries
to pay dividends and make other payments to the Company and the terms of the
Company's various credit facilities and debt instruments. Accordingly, there can
be no assurance that the Company will pay dividends at any time in the future.
Under the most restrictive of the covenants pertaining to the Company's ability
to pay dividends, the maximum amount available for the payment of dividends was
$2.4 million as of March 31, 1998.

POSSIBLE LIMITATION ON NOL CARRYFORWARDS

The Company has approximately $78.6 million of net operating loss
carryforwards and $3.0 million of investment and other tax credit carryforwards
(as of December 31, 1997) which may, depending on the circumstances, be
available to reduce U.S. federal income taxes payable by the Company in the
future. However, if the Company undergoes an 'ownership change' within the
meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the
'Code'), the Company's utilization of its net operating loss carryforwards and
investment tax credit carryforwards could be subject to limitation.

In general, an ownership change under Section 382 will occur if, over a
three-year period, certain stockholders who own directly or indirectly 5% or
more of the capital stock of the corporation (including the so-called 'public
group') increase their percentage ownership by more than 50 percentage points in
the aggregate. The effect on the Company of the imposition of a limitation on
the use of its tax attributes in the event of an ownership change in the future
would depend on a number of factors, including the profitability of the Company
and the timing of the sale of certain assets, some of which factors are beyond
the control of the Company. The impact on the Company of such a limitation could
be materially adverse under certain circumstances. In addition, for financial
reporting purposes, such an ownership change could, in certain circumstances,
require the Company to reduce the amount of its deferred tax benefits, with a
resulting charge to earnings.

CERTAIN ANTI-TAKEOVER PROVISIONS

Insofar as Mr. Mikelsons will retain effective control of the Company after
the Offering through his ownership of approximately 48.6% of the outstanding
Common Stock ( % if the Underwriters' over-allotment is exercised in
full), the Company will not be, under most circumstances, vulnerable to a
takeover without the approval of Mr. Mikelsons.

Following the Offering, Mr. Mikelsons will own less than 50% of the
combined voting power of the outstanding stock of the Company, and, as result,
certain provisions of the Restated Articles of Incorporation (the 'Articles')
and By-laws of the Company will become effective that may discourage an
unsolicited takeover of the Company that the Board determines would not be in
the best interests of the Company and its shareholders. These provisions
therefore, could potentially discourage certain attempts to acquire the Company
or to remove incumbent management even if some or a majority of the Company's
shareholders deemed such an attempt to be in their best interests.

The Articles provide, among other things, that following the Offering, the
Board will be divided into three classes serving staggered three-year terms and
that directors will only be removable from office for 'cause' (as such term is
used in the Articles) and only by the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of voting stock,
voting together as a single class. The Articles further provide that, following
the Offering, in the case of certain mergers,

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sales of assets, issuances of securities, liquidations or dissolutions, or
reclassifications or recapitalizations involving 'interested shareholders' (as
such term is used in the Articles), such transactions must be approved by (i)
80% of the voting power of the then outstanding voting stock of the Company and
(ii) a majority of the then outstanding voting stock of the Company held by
'disinterested stockholders' (as such term is used in the Articles), in each
case voting together as a single class, unless, in the case of certain such
transactions, the transaction is approved by the 'disinterested directors' (as
such term is used in the Articles) or unless certain minimum price, form of
consideration and procedural requirements are satisfied as provided by the
Articles.

Following the Offering, the Articles stipulate that the affirmative vote of
(i) 80% of the combined voting power of the then outstanding shares of voting
stock and (ii) a majority of the combined voting power of the then outstanding
shares of voting stock held by the disinterested stockholders is required to
amend certain provisions of the Articles, including the provisions referred to
above relating to the classification of the Board, removal of directors and
approval of certain mergers, business combinations and other similar
transactions.

The requirement of a supermajority vote to approve certain corporate
transactions and certain amendments to the Articles could enable a minority of
the Company's shareholders to exercise veto powers over such transactions and
amendments. So long as Mr. Mikelsons owns more than 20% of the combined power of
the outstanding voting stock, he will be able to exercise such veto powers.

Pursuant to the By-laws, following the Offering, and subject to the terms
of any series of preferred stock or any other securities of the Company,
openings on the Board due to vacancies or newly created directorships may, if
the remaining directors fail to fill any such vacancy, be filled by the
shareholders at the next annual or special meeting called for that purpose. The
By-laws provide that a special meeting may only be called by the majority of the
Board. Following the Offering, the By-laws also establish strict notice
procedures, with regard to the nomination of candidates for election as
directors (other than by or at the direction of the Board or a committee
thereof), and with regard to other matters to be brought before an annual
meeting of stockholders of the Company. See 'Description of Capital Stock --
Certain Provisions of the Restated Articles of Incorporation and By-laws.'

YEAR 2000 TECHNOLOGY RISKS

Until recently, many computer programs were written to store only two
digits of year-related date information in order to make the storage and
manipulation of such data more efficient. Programs which use two digit date
fields, however, may not be able to distinguish between such years as 1900 and
2000. In some circumstances this date limitation could result in system failures
or miscalculations, potentially causing disruptions of business processes or
system operations. The Company is currently preparing its software systems and
hardware components for operational compliance with year 2000 standards. The
Company believes, based upon its assessment of year 2000 readiness, that it will
be prepared to mitigate all significant risks of business and operational
disruption arising from non-compliant computer components. The Company's
preparedness is dependent upon the availability to the Company of a wide range
of technical skills from both internal and external sources, and is also
dependent upon the availability of purchased software and hardware components.
The Company cannot be assured that such resources and components can be acquired
in the quantities needed, or by the times needed, to successfully ensure
readiness, in which case it is possible that the Company could suffer serious
disruptions to business processes and operations as a consequence of system
failures attributable to the year 2000 problem. Such disruptions could impair
the Company's ability to operate its flight schedule, and could impose
significant economic penalties on the Company by increasing the cost of
operations through the temporary loss of efficiencies provided by computer
software and hardware.

In addition, the Company cannot be assured that domestic and foreign air
transportation infrastructure, such as airports and air traffic control systems,
will be fully compliant with year 2000 requirements by the end of 1999. A
significant lack of readiness of the air transportation infrastructure to meet
year 2000 standards could result in a material adverse effect on the Company's
results of operations and financial condition by imposing serious limitations on
the Company's ability to operate its flight schedule.

16
<PAGE>
<PAGE>
CAPITALIZATION

The following table sets forth at March 31, 1998 (i) the unaudited actual
consolidated capitalization of the Company and (ii) such capitalization as
adjusted for the Offering (assuming the Underwriters' over-allotment option is
not exercised). See 'Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources' and 'Use of
Proceeds.'

This table should be read in conjunction with the Consolidated Financial
Statements and related notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AT MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash(1)....................................................................... $108,897 $
-------- -----------
-------- -----------
Short-term debt (consisting of current maturities of long-term debt).......... $ 4,279 $ 4,279
-------- -----------
Long-term debt
Secured note due July 1999............................................... 26,515 26,515
Secured bank debt, due 2001(1)........................................... 30,000 30,000
Tax-exempt mortgage bonds, due 2020...................................... 6,000 6,000
Tax-exempt mortgage bonds, due 2050...................................... 10,000 10,000
10 1/2% Senior Notes due 2004............................................ 100,000 100,000
Unsecured debt........................................................... 5,451 5,451
Other notes.............................................................. 14 14
-------- -----------
Total long-term debt................................................ 177,980 177,980
-------- -----------
Total debt..................................................... 182,259 182,259
-------- -----------
Total shareholders' equity................................ $ 69,804
-------- -----------
Total capitalization...................................... $252,063 $
-------- -----------
-------- -----------
</TABLE>

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

(1) At March 31, 1998, the Company had borrowed $30.0 million under the Credit
Facility, the proceeds of which were held in cash and $4.2 million was
available to Company to be borrowed under the Credit Facility after
deduction of $15.8 million for outstanding letters of credit secured by the
Credit Facility. On April 1, 1998, $30.0 million was repaid under the Credit
Facility representing all outstanding borrowings thereunder.

USE OF PROCEEDS

The net proceeds to be received by the Company from the Company Offering
are estimated to be approximately $ (approximately $ million if
the Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and estimated Offering expenses. The
Company will not receive any of the proceeds from the Selling Shareholder
Offering.

The Company plans to use the net proceeds from the Company Offering to
support aircraft fleet expansion over the next 18 months. Such expansion is
expected to consist primarily of the purchase of Lockheed L-1011-500 aircraft
and engines, Boeing 727 aircraft currently leased, and hushkits for those
Boeing 727 aircraft, as well as for other general corporate purposes. Pending
any such use, the Company will invest such net proceeds in short-term
marketable securities.

17
<PAGE>
<PAGE>
PRICE RANGE OF COMMON STOCK

The Company's Common Stock is quoted on the Nasdaq National Market System
under the symbol 'AMTR.' The following table sets forth, for the periods
indicated, the high and low sales prices per share of Common Stock as reported
by Nasdaq.

<TABLE>
<CAPTION>
HIGH LOW
------------ ------------

<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
First quarter..................................................................... $ 13 1/4 $ 11 5/8
Second quarter.................................................................... 12 3/8 8 1/4
Third quarter..................................................................... 9 1/4 6 3/4
Fourth quarter.................................................................... 8 3/4 6 5/8
YEAR ENDED DECEMBER 31, 1997
First quarter..................................................................... 10 3/4 7
Second quarter.................................................................... 9 5/8 7 7/8
Third quarter..................................................................... 8 1/2 6 3/4
Fourth quarter.................................................................... 8 1/2 7
YEAR ENDED DECEMBER 31, 1998
First quarter..................................................................... 16 1/4 7 1/2
Second quarter (through May 13, 1998)............................................. 22 1/2 15 1/8
</TABLE>

On May 13, 1998 the last reported sales price of the Common Stock as
reported by Nasdaq was $20 3/8 per share. The approximate number of shareholders
of record on March 31, 1998 was 324.

DIVIDEND POLICY

The Company has not paid any dividends since becoming a public company in
1993 and does not currently anticipate paying cash dividends on its Common
Stock. The Company expects to retain any earnings generated from its operations
for use in the Company's business. Any future determination as to the payment of
dividends will be at the discretion of the Board and will depend upon the
Company's operating results, financial condition and capital requirements,
general business conditions and such other factors as the Board deems relevant.
Because the Company is a holding company, its ability to pay dividends will also
be dependent on the ability of its subsidiaries to pay dividends and make other
payments to the Company. In addition, the Company's various credit facilities
and debt instruments contain covenants that limit the ability of the Company to
pay dividends. Under the most restrictive of such covenants, the maximum amount
available for the payment of dividends was $2.4 million as of March 31, 1998.
See 'Risk Factors -- Dividend Policy' and 'Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Credit Facilities.'

18
<PAGE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the
consolidated financial statements of the Company for the respective periods
presented. The consolidated financial statements for each of the five years
ended December 31, 1997, have been audited by Ernst & Young LLP, independent
auditors. The consolidated financial data for the three month periods ended
March 31, 1997 and 1998 are unaudited but include all adjustments, consisting
only of normal recurring adjustments, which, in the opinion of management, are
necessary for a fair presentation of the financial position and results of
operations for these periods. The results for the three months ended March 31,
1998 are not necessarily indicative of the results to be expected for the full
year. The consolidated financial data should be read in conjunction with the
consolidated financial statements of the Company and notes thereto and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- ---------- ---------- ---------- ---------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Scheduled service.......................... $138,089 $ 240,675 $ 361,967 $ 386,488 $ 371,762 $ 82,004 $117,889
Commercial charter service................. 213,666 204,045 229,545 226,372 228,062 69,641 61,304
Military charter service................... 78,366 91,845 77,546 84,197 131,115 30,705 33,018
Ground package............................. 17,189 20,248 20,421 22,302 22,317 5,854 6,437
Other...................................... 20,599 23,709 25,530 31,492 29,937 6,080 10,657
-------- ---------- ---------- ---------- ---------- -------- --------
Total operating revenues.............. 467,909 580,522 715,009 750,851 783,193 194,284 229,305
-------- ---------- ---------- ---------- ---------- -------- --------
Operating expenses:
Salaries, wages and benefits............... 96,104 113,789 141,072 163,990 172,499 40,490 49,746
Fuel and oil............................... 85,418 106,057 129,636 161,226 153,701 40,671 36,778
Handling, landing and navigation fees...... 48,918 60,872 74,400 70,122 69,383 17,248 17,505
Passenger service.......................... 20,918 29,804 34,831 32,745 32,812 8,186 8,203
Aircraft rentals........................... 44,428 48,155 55,738 65,427 54,441 14,147 12,926
Aircraft maintenance, materials and
repairs.................................. 32,838 46,092 55,423 55,175 51,465 11,085 12,815
Depreciation and amortization.............. 37,418 46,178 55,827 61,661 62,468 14,140 18,158
Other...................................... 95,247 121,160 150,146 176,561 172,940 40,589 49,765
-------- ---------- ---------- ---------- ---------- -------- --------
Total operating expenses.............. 461,289 572,107 697,073 786,907 769,709 186,556 205,896
-------- ---------- ---------- ---------- ---------- -------- --------
Operating income (loss)(1).................... 6,620 8,415 17,936 (36,056) 13,484 7,728 23,409
-------- ---------- ---------- ---------- ---------- -------- --------
Other income (expense):
Interest income............................ 292 191 410 617 1,584 146 1,042
Interest expense........................... (3,872) (3,656) (4,163) (4,465) (9,454) (1,612) (3,254)
Other...................................... 826 929 470 323 413 55 74
-------- ---------- ---------- ---------- ---------- -------- --------
Other income (expense), net................... (2,754) (2,536) (3,283) (3,525) (7,457) (1,411) (2,138)
-------- ---------- ---------- ---------- ---------- -------- --------
Income (loss) before income taxes............. 3,866 5,879 14,653 (39,581) 6,027 6,317 21,271
-------- ---------- ---------- ---------- ---------- -------- --------
Income taxes (credits)........................ 831 2,393 6,129 (12,907) 4,455 3,095 8,872
-------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss)............................. $ 3,035 $ 3,486 $ 8,524 $ (26,674) $ 1,572 $ 3,222 $ 12,399
-------- ---------- ---------- ---------- ---------- -------- --------
-------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss) per share-basic(2).......... $ 0.28 $ 0.30 $ 0.74 $ (2.31) $ 0.14 $ 0.28 $ 1.07
-------- ---------- ---------- ---------- ---------- -------- --------
-------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss) per share-diluted(2)........ $ 0.28 $ 0.30 $ 0.74 $ (2.31) $ 0.13 $ 0.27 $ 1.02
-------- ---------- ---------- ---------- ---------- -------- --------
-------- ---------- ---------- ---------- ---------- -------- --------
</TABLE>

(table continued on next page)

19
<PAGE>
<PAGE>
(table continued from previous page)

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

(1) In the third quarter of 1996, the Company recorded a $4.7 million loss on
the disposal of leased assets associated with both Boeing 757-200 aircraft
transactions.

(2) In 1997, the Company adopted Financial Accounting Standards Board Statement
128, 'Earnings Per Share,' which establishes new standards for the
calculation and disclosure of earnings per share. All earnings per share
amounts disclosed in this summary have been restated to conform to the new
standards under Statement 128.

(3) Non-cash working capital consists of total current assets (excluding cash)
less total current liabilities (excluding current maturities of long-term
debt).

(4) No dividends were paid in any of the periods presented.

(5) EBITDAR represents net income plus interest expense (net of capitalized
interest), income tax expense, depreciation, amortization and aircraft
rentals. EBITDA represents net income plus interest expense (net of
capitalized interest), income tax expense, depreciation and amortization.
EBITDAR and EBITDA are presented because each is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDAR and EBITDA should not be considered in isolation, as a
substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.

(6) The operating data (exclusive of the number of aircraft), include the
operations of Chicago Express, Inc. ('Chicago Express') out of
Chicago-Midway, with which the Company has a code share arrangement under
which Chicago Express operates 19-seat Jetstream 31 propeller aircraft on
behalf of the Company (the 'Chicago Express Arrangement'). See
'Business -- The Company's Airline Operations.'

(7) 'Available seat miles' or 'ASMs' represent the number of seats available
for sale to passengers multiplied by the number of miles those seats are
flown.

(8) 'Revenue passenger miles' or 'RPMs' represent the number of seats occupied
by revenue passengers multiplied by the number of miles those seats are
flown.

(9) 'Passenger load factor' represents revenue passenger miles divided by
available seat miles.

(10) 'Operating expense per ASM' for any period represents the amount determined
by dividing total operating expense for such period by the total ASMs for
such period.

(11) 'Block hours flown' for any aircraft represents the elapsed time computed
from the moment the aircraft first moves under its own power from the
boarding ramp at one airport to the time it comes to rest at the boarding
ramp of the next point of landing.

20
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

RESULTS OF OPERATIONS

In the first quarter of 1998 the Company generated record operating
earnings and net income as compared to any quarter in the Company's 25-year
history. Although all business units performed well during this period,
scheduled service generated the strongest overall growth in pricing and traffic
of the Company's major business units. The Company believes that several key
factors were significant in producing these record profits in the first quarter
of 1998.

The Company generated a consolidated 4.8% improvement in RASM during the
first quarter of 1998 as compared to the first quarter of 1997. Military
RASM increased by 7.2% due primarily to rate increases obtained for
the current contract year; scheduled service RASM increased by 4.3% due to
strong customer demand, even though the Company increased total capacity in this
business unit by 37.8% between quarters; and commercial charter RASM increased
by 3.1%.

The Company at the same time reduced its operating CASM by 2.1% between
quarters. Fuel price reductions were a significant contributor to lower
operating costs. After adjusting for fuel, CASM for all other operating
expenses increased by 2.9% in the first quarter of 1998, as compared to the same
period of 1997, in spite of strong upward cost pressures in such expense lines
as salaries and benefits, depreciation and amortization, and scheduled service
distribution expenses. The Company remains focused on controlling growth in
operating costs in 1998 so as to retain most of the benefit of strengthened
revenues and lower fuel costs, and believes that most unit cost increases
which did occur in the first quarter of 1998 actually provided, or will
provide in future periods, offsetting benefits to operating margins through
enhanced revenues or improved operating efficiencies.

In the first quarter of 1998, the Company also significantly increased
average aircraft utilization as compared to the prior year, as measured by
average daily block hours flown per aircraft including spares. The Boeing
757-200 fleet flew an average of 20.6% more block hours per day; the Boeing 727-
200 fleet flew an average 20.2% more block hours per day; and the Lockheed
L-1011 fleet flew an average of 7.2% more block hours per day in the 1998
quarter as compared to the 1997 quarter.

The combined effects of record operating revenues, lower operating
expenses, and the more productive use of aircraft generated a record operating
income in the first quarter of 1998 that was more than triple the operating
income of the first quarter of 1997, as well as being a record for quarterly net
income. Other records established in the first quarter of 1998 included
scheduled service yield of 9.09 cents and charter RASM of 6.10 cents.

21
<PAGE>
<PAGE>
RESULTS OF OPERATIONS IN CENTS PER ASM

The following table sets forth, for the periods indicated, operating
revenues and expenses expressed as cents per ASM. The Company's operations under
the Chicago Express Arrangement are included in the Company's results of
operations.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDING DECEMBER 31, MARCH 31,
-------------------------- ---------------
1995 1996 1997 1997 1998
---- ----- ----- ----- ----

<S> <C> <C> <C> <C> <C>
Operating revenues.............................................. 5.71[c] 5.65[c] 6.19[c] 6.51[c] 6.82[c]
Operating expenses:
Salaries, wages and benefits............................... 1.13 1.23 1.36 1.36 1.48
Fuel and oil............................................... 1.03 1.21 1.22 1.36 1.09
Handling, landing and navigation fees...................... 0.59 0.53 0.55 0.58 0.52
Depreciation and amortization.............................. 0.45 0.47 0.49 0.47 0.54
Aircraft rentals........................................... 0.44 0.49 0.43 0.47 0.38
Aircraft maintenance, materials and repairs................ 0.44 0.42 0.41 0.37 0.38
Crew and other employee travel............................. 0.25 0.27 0.29 0.27 0.28
Passenger service.......................................... 0.28 0.25 0.26 0.27 0.24
Commissions................................................ 0.20 0.20 0.21 0.20 0.21
Ground package cost........................................ 0.13 0.14 0.15 0.18 0.17
Other selling expenses..................................... 0.12 0.13 0.12 0.11 0.17
Advertising................................................ 0.07 0.08 0.10 0.12 0.13
Facility and other rents................................... 0.06 0.07 0.07 0.07 0.07
Disposal of assets......................................... -- 0.03 -- -- --
Other operating expenses................................... 0.37 0.40 0.43 0.42 0.46
---- ----- ----- ----- ----
Total operating expenses................................... 5.56 5.92 6.09 6.25 6.12
---- ----- ----- ----- ----
Operating income (loss).................................... 0.15 (0.27) 0.10 0.26 0.70
---- ----- ----- ----- ----
---- ----- ----- ----- ----
ASMs (in millions)......................................... 12,521 13,296 12,648 2,985 3,363
</TABLE>

22
<PAGE>
<PAGE>
QUARTER ENDED MARCH 31, 1998, VERSUS QUARTER ENDED MARCH 31, 1997

CONSOLIDATED FLIGHT OPERATIONS AND FINANCIAL DATA

The following table sets forth, for the periods indicated, certain key
operating and financial data for the consolidated flight operations of the
Company. Data shown for 'Jet' operations include the consolidated operations of
Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in all of the
Company's business units. Data shown for 'J31' operations include operations
under the Chicago Express Arrangement.

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------
1997 1998 INC (DEC) % INC (DEC)
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Departures Jet................................................ 9,629 11,178 1,549 16.09
Departures J31(a)............................................. -- 3,714 3,714 N/M
--------- --------- --------- -----------
Total Departures(b)...................................... 9,629 14,892 5,263 54.66
--------- --------- --------- -----------
Block Hours Jet............................................... 30,969 35,606 4,637 14.97
Block Hours J31............................................... -- 3,550 3,550 N/M
--------- --------- --------- -----------
Total Block Hours(c)..................................... 30,969 39,156 8,187 26.44
--------- --------- --------- -----------
RPMs Jet (000s)............................................... 2,210,061 2,388,383 178,322 8.07
RPMs J31 (000s)............................................... -- 6,112 6,112 N/M
--------- --------- --------- -----------
Total RPMs (000s)(d)..................................... 2,210,061 2,394,495 184,434 8.35
--------- --------- --------- -----------
ASMs Jet (000s)............................................... 2,984,994 3,351,090 366,096 12.26
ASMs J31 (000s)............................................... -- 11,940 11,940 N/M
--------- --------- --------- -----------
Total ASMs (000s)(e)..................................... 2,984,994 3,363,030 378,036 12.66
--------- --------- --------- -----------
Load Factor Jet............................................... 74.04 71.27 (2.77) (3.74)
Load Factor J31............................................... -- 51.19 N/M N/M
--------- --------- --------- -----------
Total Load Factor(f)..................................... 74.04 71.20 (2.84) (3.84)
--------- --------- --------- -----------
Passengers Enplaned Jet....................................... 1,407,128 1,526,649 119,521 8.49
Passengers Enplaned J31....................................... -- 34,330 34,330 N/M
--------- --------- --------- -----------
Total Passengers Enplaned(g)............................. 1,407,128 1,560,979 153,851 10.93
--------- --------- --------- -----------
Revenue $(000s)............................................... 194,284 229,305 35,021 18.03
RASM in cents(h).............................................. 6.51 6.82 0.31 4.76
CASM in cents(i).............................................. 6.25 6.12 (0.13) (2.08)
Yield in cents(j)............................................. 8.79 9.58 0.79 8.99
</TABLE>

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

N/M -- Not Meaningful

(a) Effective April 1, 1997, the Company began the Chicago Express Arrangement
between Chicago-Midway and the cities of Indianapolis, Milwaukee, Des
Moines, Dayton and Grand Rapids. Services were expanded to include Lansing,
Michigan and Madison, Wisconsin in October 1997. Services are provided using
Jetstream 31 ('J31') propeller aircraft.

(b) A departure is a single takeoff and landing operated by a single aircraft
between an origin city and a destination city.

(c) Block hours for any aircraft represent the elapsed time computed from the
moment the aircraft first moves under its own power from the origin city
boarding ramp to the moment it comes to rest at the destination city
boarding ramp.

(d) Revenue passenger miles (RPMs) represent the number of seats occupied by
revenue passengers multiplied by the number of miles those seats are flown.
RPMs are an industry measure of the total seat capacity actually sold by the
Company.

(e) Available seat miles (ASMs) represent the number of seats available for sale
to revenue passengers multiplied by the number of miles those seats are
flown. ASMs are an industry measure of the total seat capacity offered for
sale by the Company, whether sold or not.

(f) Passenger load factor is the percentage derived by dividing RPMs by ASMs.
Passenger load factor is relevant to the evaluation of scheduled service
because incremental passengers normally provide incremental revenue and
profitability when seats are sold individually. In the case of commercial
charter and U.S. military charter, load factor is less relevant because an
entire aircraft is sold by the Company instead of individual seats. Since
both costs and revenues are largely fixed for these types of flights,
changes in load factor have less impact on business unit profitability.
Consolidated load factors and scheduled service load factors for the Company
are shown in the appropriate tables for industry comparability, but load
factors for individual charter businesses are omitted from applicable
tables.

(g) Passengers enplaned are the number of revenue passengers who occupied seats
on the Company's flights. This measure is also referred to as 'passengers
boarded.'

(h) Revenue per ASM 'RASM' (expressed in cents) is total operating revenue
divided by total ASMs. RASM measures the Company's unit revenue using total
available seat capacity. In the case of scheduled service, RASM is a measure
of the combined impact of load factor and yield (see (j) below for the
definition of yield).

(footnotes continued on next page)

23
<PAGE>
<PAGE>
(footnotes continued from previous page)

(i) Cost per ASM 'CASM' (expressed in cents) is total operating expense divided
by total ASMs. CASM measures the Company's unit cost using total available
seat capacity.

(j) Revenue per RPM (expressed in cents) is total operating revenue divided by
total RPMs. This measure is also referred to as 'yield.' Yield is relevant
to the evaluation of scheduled service because yield is a measure of the
price paid by customers purchasing individual seats. Yield is less relevant
to the tour operator and U.S. military business units because the entire
aircraft is sold at one time for one price. Consolidated yields and
scheduled service yields are shown in the appropriate tables for industry
comparability, but yields for individual charter businesses are omitted from
applicable tables.

OPERATING REVENUES

Total operating revenues for the first quarter of 1998 increased 18.0% to
$229.3 million from $194.3 million in the first quarter of 1997. This increase
was due to a $35.9 million increase in scheduled service revenues, a $2.3
million increase in military charter service revenues, a $4.6 million increase
in other revenues, and a $0.5 million increase in ground package revenues, as
partially offset by an $8.3 million decrease in commercial charter revenues.

Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for 'Jet' operations include the combined
operations of Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in
scheduled service. Data shown for 'J31' operations include operations under the
Chicago Express Arrangement.

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------
1997 1998 INC (DEC) % INC (DEC)
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Departures Jet................................................ 4,991 7,095 2,104 42.16
Departures J31(a)............................................. -- 3,714 3,714 N/M
--------- --------- --------- -----------
Total Departures(b)...................................... 4,991 10,809 5,818 116.57
--------- --------- --------- -----------
Block Hours Jet............................................... 14,926 21,085 6,159 41.26
Block Hours J31............................................... -- 3,550 3,550 N/M
--------- --------- --------- -----------
Total Block Hours(c)..................................... 14,926 24,635 9,709 65.05
--------- --------- --------- -----------
RPMs Jet (000s)............................................... 950,158 1,290,761 340,603 35.85
RPMs J31 (000s)............................................... -- 6,112 6,112 N/M
--------- --------- --------- -----------
Total RPMs (000s)(d)..................................... 950,158 1,296,873 346,715 36.49
--------- --------- --------- -----------
ASMs Jet (000s)............................................... 1,256,319 1,719,042 462,723 36.83
ASMs J31 (000s)............................................... -- 11,940 11,940 N/M
--------- --------- --------- -----------
Total ASMs (000s)(e)..................................... 1,256,319 1,730,982 474,663 37.78
--------- --------- --------- -----------
Load Factor Jet............................................... 75.63 75.09 (0.54) (0.71)
Load Factor J31............................................... -- 51.19 N/M N/M
--------- --------- --------- -----------
Total Load Factor(f)..................................... 75.63 74.92 (0.71) (0.94)
--------- --------- --------- -----------
Passengers Enplaned Jet....................................... 686,496 939,785 253,289 36.90
Passengers Enplaned J31....................................... -- 34,330 34,330 N/M
--------- --------- --------- -----------
Total Passengers Enplaned(g)............................. 686,496 974,115 287,619 41.90
--------- --------- --------- -----------
Revenues $(000s).............................................. 82,004 117,889 35,885 43.76
RASM in cents(h).............................................. 6.53 6.81 0.28 4.29
Yield in cents(j)............................................. 8.63 9.09 0.46 5.33
Revenues per segment $(k)..................................... 119.45 121.02 1.57 1.31
</TABLE>

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

N/M -- Not Meaningful

See footnotes (a) through (j) on pages 23 and 24.

(k) Revenue per segment flown is determined by dividing total scheduled service
revenues by the number of passengers boarded. Revenue per segment is a broad
measure of the average price obtained for all flight segments flown by
passengers in the Company's scheduled service route network.

Scheduled service revenues in the first quarter of 1998 increased 43.8% to
$117.9 million from $82.0 million in the first quarter of 1997. Scheduled
service revenues comprised 51.4% of consolidated revenues in the 1998 quarter,
as compared to 42.2% of consolidated revenues in 1997. Scheduled service RPMs
increased 36.5% to 1.297 billion from 950.2 million, while ASMs increased 37.8%
to 1.731 billion from 1.256 billion, resulting in an decrease of 0.7 points in
passenger load factor to 74.9% in the first quarter of 1998, from 75.6% in the
same period of 1997. Scheduled service yield in the 1998 first quarter

24
<PAGE>
<PAGE>
increased 5.3% to 9.09 cents from 8.63 cents in 1997, while RASM increased 4.3%
to 6.81 cents from 6.53 cents between the same periods.

Scheduled service departures in the first quarter of 1998 increased 116.6%
to 10,809 from 4,991 in the first quarter of 1997; block hours increased 65.1%
to 24,635 in 1998, from 14,926 in 1997; and passengers boarded increased 41.9%
between periods to 974,115, as compared to 686,496. Year-over-year percentage
changes in departures, block hours and passengers boarded were significantly
impacted by the operation of the Chicago Express Arrangement in the first
quarter of 1998, which did not operate in the first quarter of 1997; such
operations generate comparatively less impact to ASMs and RPMs due to the small
seat capacity and short stage length of Chicago Express J31 aircraft as compared
to the Company's jet operations. Under the Chicago Express Arrangement, Chicago
Express operates between Chicago-Midway and the cities of Indianapolis,
Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing and Madison, on behalf of
the Company.

The Company's first quarter 1997 scheduled service jet operations included
services between Chicago-Midway and five Florida cities, Las Vegas, Phoenix, Los
Angeles and San Francisco; Indianapolis to four Florida cities, Las Vegas and
Cancun; Milwaukee to three Florida cities; Hawaii service from San Francisco,
Los Angeles and Phoenix; and service between Orlando and San Juan and Nassau.
The Company began new service in June 1997, between New York's John F. Kennedy
International Airport and Chicago Midway, Indianapolis and St. Petersburg, and
also added frequencies between the midwest and west coast for the 1997 summer
season. New York service to Chicago-Midway and St. Petersburg was retained for
the 1997-98 winter season, although service to Indianapolis was discontinued in
late 1997.

The Company's first quarter 1998 jet scheduled service at Chicago-Midway
accounted for approximately 48.9% of scheduled service jet departures, as
compared to 48.1% of such departures in the first quarter of 1997. In addition
to the single new destination to New York's Kennedy Airport from Chicago-Midway,
the Company added new frequencies in 1998 to many existing markets, including
Ft. Lauderdale, Orlando, St. Petersburg, Las Vegas, Phoenix, Los Angeles and San
Francisco. The Company's frequencies between Chicago-Midway and Ft. Myers and
Sarasota did not change significantly between quarters. All of the Chicago
Express Arrangement J31 departures in the first quarter of 1998 served
Chicago-Midway from the cities of Indianapolis, Milwaukee, Des Moines, Dayton,
Grand Rapids, Lansing and Madison, whereas such service was not in effect in the
first quarter of 1997. When considering all jet and propeller services from
Chicago-Midway to seventeen non-stop destinations served in the first quarter of
1998, such service accounted for 66.5% of scheduled service departures in that
period, as compared to 48.1% of scheduled service departures in the first
quarter of 1997.

The Company anticipates that its Chicago-Midway operation will represent a
growing significance for its scheduled service business in 1998 and beyond. The
Company has announced a significant expansion of Chicago-Midway jet services for
the 1998 summer season. Prominent in this expansion are the addition on May 1 of
three daily non-stop flights to Dallas-Ft. Worth and two daily non-stop flights
to Denver, and the addition of three daily non-stop flights to San Juan, Puerto
Rico on May 27. The Company has also announced three daily non-stop flights to
New York-LaGuardia airport beginning July 7, using five slots newly awarded to
the Company by the DOT. The Company will also add new frequencies to several of
its existing jet markets from Chicago-Midway for the 1998 summer season,
including Orlando, St. Petersburg, San Francisco, Phoenix, Ft. Lauderdale and
Los Angeles. The Company expects to operate 54 average peak daily departures
from Chicago-Midway and serve 21 destinations on a non-stop basis in the summer
of 1998, including Chicago Express Arrangement J31 commuter services. This
capacity expansion is expected to require the addition of five hundred new
employees in the Chicago area by the end of 1998. In the first and second
quarters of 1998 the Company will also complete an estimated $1.5 million
renovation of the existing terminal facilities at Chicago-Midway to enhance its
attractiveness and functionality for customers during the upcoming 1998 summer
season. The Company has also announced that it will occupy 12 gates at the new
Chicago-Midway terminal which is presently scheduled for completion in 2002, an
increase of 100% over the six gates currently occupied in the existing terminal.

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The Company's growing commitment to Chicago-Midway is consistent with its
strategy for enhancing revenues and profitability in scheduled service by
focusing primarily on low-cost, non-stop flights from airports where it has
market or aircraft advantages in addition to its low cost. The Company believes
that its high performance Boeing 757-200 and Boeing 727-200ADV aircraft
presently give it a competitive advantage at Chicago-Midway because, unlike many
aircraft flown by its competitors, these aircraft can fly larger passenger
capacities substantially longer distances while operating from the airport's
short runways. The Company also expects its growing concentration of connecting
flights at Chicago-Midway to provide both revenue premiums and operating cost
efficiencies, as compared to the Company's other gateway cities.

The Company's Indianapolis gateway accounted for 25.4% of scheduled service
jet departures in the first quarter of 1998, as compared to 27.4% of such
departures in the same period of 1997. In the first quarter of 1998 the Company
added non-stop service to Los Angeles, Montego Bay and Nassau, and operated
significantly expanded frequencies to St. Petersburg, Sarasota and Ft.
Lauderdale as compared to the first quarter of 1997. The Company operated
similar frequencies in both quarters to Cancun, Las Vegas, Orlando, and Ft.
Myers, and also operated limited seasonal service to San Francisco in early
1998. The Company has served Indianapolis for 25 years through Ambassadair, and
since 1986 through scheduled service. The Company believes that as the
Indianapolis 'hometown airline,' it has developed significant brand recognition
and customer loyalty in this market which provides a competitive advantage. The
Chicago Express Arrangement from Indianapolis to Chicago-Midway offers
Indianapolis-originating customers a large selection of additional connections
west to Hawaii, east to New York and south to Florida and the Caribbean which
are more economically served from Indianapolis through this connection than by
direct flights.

The Company's Milwaukee gateway accounted for 7.6% of scheduled service jet
departures in the first quarter of 1998, as compared to 8.7% of such departures
in the first quarter of 1997. The Company provided non-stop service to Orlando,
St. Petersburg and Ft. Myers in both quarters, although frequencies were
increased to St. Petersburg and Ft. Myers and decreased to Orlando in the first
quarter of 1998 as compared to the prior year. The Company believes that it is
the only low-cost choice in the Milwaukee market to these destinations.

The Company's Hawaii service accounted for 7.3% of scheduled service jet
departures in the first quarter of 1998, as compared to 9.8% of such departures
in the same quarter of 1997. The Company provided non-stop services in both
quarters from the mainland cities of Los Angeles, San Francisco and Phoenix to
both Honolulu and Maui, with connecting service between Honolulu and Maui. In
addition, in the first quarter of 1998 non-stop service was operated from
Seattle to Maui, which was not operated in the first quarter of 1997. The
Company provides these services through a marketing alliance with Pleasant
Hawaiian Holidays, a large tour operator serving leisure travelers to Hawaii
from the United States. The Company uses primarily wide-body Lockheed L-1011
aircraft, supplemented with some narrow-body flights using Boeing 757-200
aircraft. Pleasant Hawaiian Holidays generally purchases approximately 80% of
the available seats on these flights and markets them to their leisure
customers, often in conjunction with ground arrangements. The Company
distributes the remaining seats on these flights through normal scheduled
service distribution channels. The Company believes it has superior operating
efficiencies in west coast-Hawaii markets due to the relatively low ownership
cost of the Lockheed L-1011 fleet, and because of the high daily hours of
utilization obtained for both aircraft and crews.

The Company's San Juan service accounted for 6.3% of scheduled service jet
departures in the first quarter of 1998, as compared to 2.2% of such departures
in the same period of 1997. The Company provided non-stop service between San
Juan and Orlando in both quarters, although frequencies were significantly
increased in the first quarter of 1998, at which time the Company also began
non-stop service between San Juan and St. Petersburg, which was not operated in
the first quarter of 1997.

The Company continues to evaluate the profitability of its scheduled
service business unit and may further expand scheduled service in targeted
markets. The Company believes that first quarter 1998 scheduled service yields
have benefited from unprecedented customer demand for air transportation in the
United States during a period of constrained industry growth in seat capacity
relative to this demand. The ability of the Company to increase its own
scheduled service seat capacity by 37.8%, with

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a negligible (0.7) point loss in load factor between quarters, further
underscores the fundamental strength of demand in the domestic scheduled service
marketplace. The Company believes that its scheduled service product is
attractively priced and has developed strong customer acceptance in the leisure
and value-oriented business traveler markets that the Company has chosen to
serve, and is therefore well positioned for continued profitability.

Commercial Charter Revenues. The Company's commercial charter revenues are
derived principally from independent tour operators and specialty charter
customers. The Company's commercial charter product provides full-service air
transportation to hundreds of customer-designated destinations throughout the
world. Commercial charter revenue growth in the first quarter of 1998 was
constrained by the reassignment of several narrow-body aircraft to scheduled
service expansion and by subservice contracts with other airlines, which the
Company believes are more profitable for these aircraft than the charter
applications they replaced. The Company, however, continues to believe that tour
operator and specialty charter are businesses where the Company's experience and
size provide a meaningful competitive advantage, and are businesses to which the
Company remains fully committed.

The Company is addressing its seat capacity limitations in the commercial
charter business unit through the planned acquisition of long-range Lockheed
L-1011 series 500 aircraft. The Company announced on April 27, 1998 that it had
signed a letter of intent to purchase up to five such aircraft from Royal
Jordanian Airlines, for delivery in late 1998 and throughout 1999. Although
these aircraft, in respect of maintenance and cockpit design, are comparable to
the Company's existing fleet of Lockheed L-1011 series 50 and series 100
aircraft, they differ operationally in that their range of ten to eleven hours
permits them to operate non-stop to parts of Asia, South America and Central and
Eastern Europe using an all-coach seating configuration preferred by the
Company's commercial charter customers. If the terms of the letter of intent are
satisfied, the Company expects to place these aircraft into service in
commercial charter operations between December 1998 and the fourth quarter of
1999, which would provide a substantial increase in available seat capacity for
the commercial charter business, in addition to opening new long-range market
opportunities to the Company which it cannot economically or operationally serve
with its existing fleet.

The following table sets forth, for the periods indicated, certain key
operating and financial data for the commercial charter flying operations of the
Company.

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------
1997 1998 INC(DEC) %INC(DEC)
--------- --------- -------- ---------

<S> <C> <C> <C> <C>
Departures(b)................................................... 3,378 2,655 (723) (21.40)
Block Hours(c).................................................. 11,241 9,073 (2,168) (19.29)
RPMs (000s)(d).................................................. 1,008,711 827,715 (180,996) (17.94)
ASMs (000s)(e).................................................. 1,206,913 1,030,760 (176,153) (14.60)
Passengers Enplaned(g).......................................... 651,901 508,833 (143,068) (21.95)
Revenues $(000s)................................................ 69,641 61,304 (8,337) (11.97)
RASM in cents(h)................................................ 5.77 5.95 0.18 3.12
</TABLE>

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

See footnotes (b) through (h) on pages 23 and 24.

Commercial charter revenues derived from independent tour operators and
specialty charter customers decreased 11.9% to $61.3 million in the first
quarter of 1998, as compared to $69.6 million in the first quarter of 1997.
Commercial charter revenues accounted for 26.7% of consolidated revenues in the
first quarter of 1998, as compared to 35.8% in the first quarter of 1997.
Commercial charter RPMs decreased 18.0% to 827.7 million in 1998 from 1.009
billion in 1997, while ASMs decreased 14.6% to 1.031 billion from 1.207 billion.
Commercial charter RASM increased 3.1% to 5.95 cents from 5.77 cents between the
same periods. Commercial charter passengers boarded decreased 22.0% to 508,833
in 1998, as compared to 651,901 in 1997; departures decreased 21.4% to 2,655 in
1998, as compared to 3,378 in 1997; and block hours decreased 19.3% to 9,073 in
1998, as compared to 11,241 in 1997.

The Company operates in two principal components of the commercial charter
business, known as 'track charter' and 'specialty charter.' The larger track
charter business component is generally comprised of low frequency but
repetitive domestic and international flights between city pairs, which

27
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support high passenger load factors and are marketed through tour operators,
providing value-priced and convenient non-stop service to vacation destinations
for the leisure traveler. Since track charter resembles scheduled service in
terms of its repetitive flying patterns between fixed city pairs, it allows the
Company to achieve reasonable levels of crew and aircraft utilization (although
less than for scheduled service), and provides the Company with meaningful
protection from some fuel price increases through the use of fuel escalation
reimbursement clauses in tour operator contracts.

The Company believes that although price is the principal competitive
criterion for its commercial charter programs, product quality, reputation for
reliability and delivery of services which are customized to specific needs have
become increasingly important to the buyer of this product. Accordingly, as the
Company continues to emphasize the growth and profitability of this business
unit, it will seek to maintain its low-cost pricing advantage, while
differentiating itself from competitors through the delivery of customized
services and the maintenance of consistent and dependable operations. In this
manner, the Company believes that it will produce significant value for its tour
operator partners by delivering an attractively priced product which exceeds the
leisure traveler's expectations.

Specialty charter is a product which is designed to meet the unique
requirements of the customer and is a business characterized by lower frequency
of operation and by greater variation in city pairs served than the track
charter business. Specialty charter includes such diverse contracts as flying
university alumni to football games, transporting political candidates on
campaign trips and moving NASA space shuttle ground crews to alternate landing
sites. The Company also operates an increasing number of trips in
all-first-class configuration for certain corporate and high-end leisure
clients. Although lower utilization of crews and aircraft and infrequent service
to specialty destinations often result in higher average operating costs, the
Company has determined that the revenue premium earned by meeting special
customer requirements usually more than compensates for these increased costs.
In addition, specialty charter programs sometimes permit the Company to increase
overall aircraft utilization by providing filler traffic during periods of low
demand from other programs such as track charter. The Company believes that it
is competitively advantaged to attract this type of business due to the size and
geographic dispersion of its fleet, which reduces costly ferry time for aircraft
and crews and thus permits more competitive pricing. The diversity of the
Company's three fleet types also permits the Company to meet a customer's
particular needs by choosing the aircraft type which provides the most
economical solution for those requirements.

Military/Government Charter Revenues. The following table sets forth, for
the periods indicated, certain key operating and financial data for the military
flight business of the Company.

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
1997 1998 INC(DEC) %INC(DEC)
------- ------- -------- ---------
<S> <C> <C> <C> <C>
Departures(b)....................................................... 1,220 1,219 (1) (0.08)
Block Hours(c)...................................................... 4,689 4,563 (126) (2.69)
RPMs(000s)(d)....................................................... 247,731 232,361 (15,370) (6.20)
ASMs(000s)(e)....................................................... 514,248 515,655 1,407 0.27
Passengers Enplaned(g).............................................. 66,303 58,637 (7,666) (11.56)
Revenue $(000s)..................................................... 30,706 33,018 2,313 7.53
RASM in cents(h).................................................... 5.97 6.40 0.43 7.20
</TABLE>

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

See footnotes (b) through (h) on pages 23 and 24.

Charter revenues derived from the U.S. military increased 7.5% to $33.0
million in the first quarter of 1998, as compared to $30.7 million in the first
quarter of 1997. In the first quarter of 1998, the Company's U.S. military
revenues represented 14.4% of consolidated revenues, as compared to 15.8% in the
first quarter of 1997. U.S. military RPMs decreased 6.2% to 232.4 million in
1998, from 247.7 million in 1997, while ASMs increased 0.3% to 515.7 million
from 514.2 million. Military RASM increased 7.2% to 6.40 cents from 5.97 cents
between the same time periods. U.S. military passengers boarded decreased 11.6%
to 58,637 in 1998, as compared to 66,303 in 1997; departures increased 0.1% to
1,219 in 1998, as compared to 1,220 in 1997; and block hours decreased 2.7% to
4,563 in 1998 as compared to 4,689 in 1997.

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<PAGE>
The Company participates in two related military programs known as 'fixed
award' and 'short-term expansion.' Pursuant to the U.S. military's fixed award
system, each participating airline is awarded certain 'mobilization value
points' based upon the number and type of aircraft made available by that
airline for military flying. In order to increase the number of points awarded,
in 1992 the Company entered into a contractor teaming arrangement with four
other cargo airlines serving the U.S. military. Under this arrangement, the team
has a greater likelihood of receiving fixed award business and, to the extent
that the award includes passenger transport, the opportunity for the Company to
operate this flying is enhanced since the Company represents all of the
passenger transport capacity of the team. As part of its participation in this
teaming arrangement, the Company pays a commission to the team, which passes
that revenue on to all team members based upon their mobilization points. All
airlines participating in the fixed award business contract annually with the
U.S. military from October 1 to the following September 30. For each contract
year, reimbursement rates are determined for aircraft types and mission
categories based upon operating cost data submitted by the participating
airlines. These contracts generally are not subject to renegotiation once they
become effective.

Short-term expansion business is awarded by the U.S. military first on a
pro rata basis to those carriers who have been awarded fixed-contract business
and then to any other carrier with aircraft availability. Expansion flying is
generally offered to airlines on very short notice.

The Company principally committed four Boeing 757-200 aircraft to the
military charter business in both quarters, and provided substantially the same
number of military ASMs between years, although the relatively faster growth in
scheduled service ASMs reduced the relative share of military ASMs between
years. As a result of more accurately documenting the actual costs associated
with military flying, the Company was able to obtain approval for some rate
increases for the U.S. military contract year ending September 30, 1998, which
resulted in higher RASM in the 1998 first quarter as compared to the same
quarter of the prior year.

Because military flying is generally less seasonal than leisure travel
programs, the Company believes that a larger U.S. military charter business will
tend to have a stabilizing impact on seasonal earnings fluctuations. The Company
believes it is also contractually protected from changes in fuel prices. The
Company further believes that its fleet of aircraft has a competitive advantage
in serving the transportation needs of the U.S. military. Although foreign bases
have reduced troop size, the U.S. military still desires to maintain its service
frequency to those bases and therefore often has a preference for
smaller-capacity, long-range aircraft such as the Company's Boeing 757-200.
Furthermore, in 1993, the Company became the first North American carrier to
receive FAA certification to operate Boeing 757-200 aircraft with 180-minute
Extended Twin Engine Operation (ETOPS), permitting these aircraft to operate
missions over water to airports up to three hours from the nearest alternate
airport. The Company believes that this certification, which applies to all of
the Company's Boeing 757-200 fleet, provides a competitive advantage in
receiving awards of certain military flying.

The overall amount of military flying that the Company performs in any one
year is dependent upon several factors, including (i) the percentage of
mobilization value points represented by the Company's team as compared to total
mobilization value points of all providers of military service; (ii) the
percentage of passenger capacity of the Company with respect to its own team;
(iii) the amount of fixed award and expansion flying required by the U.S.
military in each contract year; and (iv) the availability of the Company's
aircraft to accept and fly expansion awards. In 1997, there was an unusual
amount of both fixed award and expansion business available to the Company as
compared to prior years. The Company expects that it will operate approximately
as much military charter business in 1998 as it did in 1997.

Ground Package Revenues. The Company earns ground package revenues through
the sale of hotel, car rental and cruise accommodations in conjunction with the
Company's air transportation product. The Company markets these ground packages
exclusively to Ambassadair club members and through its ATA Vacations, Inc.
subsidiary ('ATA Vacations') to the general public. In the first quarter of
1998, ground package revenues increased 8.5% to $6.4 million, as compared to
$5.9 million in the first quarter of 1997.

Ambassadair offers hundreds of tour-guide-accompanied vacation packages to
its approximately 35,000 individual and family members annually. In the first
quarter of 1998, total packages sold

29
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<PAGE>
decreased 3.1%, as compared to the first quarter of 1997, while the average
revenue earned for each ground package sold increased 26.3% between those
periods.

ATA Vacations offers numerous ground package combinations to the general
public for use on the Company's scheduled service flights throughout the United
States. These packages are marketed through travel agents, as well as directly
by the Company. In the first quarter of 1998, the number of ground packages sold
increased 8.8%, as compared to the first quarter of 1997, while the average
revenue earned for each ground package sold decreased 10.0% between those
periods.

The average revenue earned by the Company for a ground package sale is a
function of the mix of vacation destinations served, the quality and types of
ground accommodations offered and general competitive conditions with other air
carriers offering similar products in the Company's markets, all of which
factors can change from period to period.

Other Revenues. Other revenues are comprised of the consolidated revenues
of affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled and charter operations of the Company. Other
revenues increased 75.4% to $10.7 million in the first quarter of 1998, as
compared to $6.1 million in the same period of 1997, primarily due to a $2.9
million increase in revenues earned between periods by providing substitute
service to other airlines. A substitute service agreement typically provides for
the Company to operate aircraft with its crews on routes designated by the
customer airline to carry the passengers of that airline for a limited period of
time. The Company has experienced increased demand for this type of service in
1998 due to some delays in new aircraft deliveries to several airlines from the
manufacturers.

OPERATING EXPENSES

Salaries, Wages and Benefits. Salaries, wages and benefits include the cost
of salaries and wages paid to the Company's employees, together with the
Company's cost of employee benefits and payroll-related state and federal taxes.
Salaries, wages and benefits expense in the first quarter of 1998 increased
22.7% to $49.7 million from $40.5 million in the first quarter of 1997.

The Company increased its available average equivalent employees by 15.5%
between quarters in order to appropriately staff the growth in seats offered
between periods. Categories of employees where this growth was most significant
included cockpit and cabin crews, reservations agents, airport passenger and
ramp service agents, and aircraft maintenance personnel, all of which are
influenced directly by flight activity. Between the first quarter of 1998 and
the first quarter of 1997, jet departures increased by 16.1%, jet block hours
increased by 15.0%, and jet passengers boarded increased by 8.5%. Some
employment growth in the first quarter of 1998 was also needed to correct for
certain employee shortages in 1997, particularly in the areas of cockpit crews,
reservations agents and airframe and power plant mechanics.

The average rate of pay earned by the Company's employees (including base
wages and overtime but excluding benefits) was unchanged between the first
quarters of 1997 and 1998. This result is attributed to the downward impact on
average pay of the 15.5% increase in available average equivalent employees in
some employment categories, as new employees are usually hired at lower average
rates of pay than average rates in effect for existing employee groups, tempered
by wage rate increases given to most existing employee groups through
performance or scale increases in pay between those periods.

In the first quarter of 1998, the Company recorded $2.5 million of costs
incurred for variable compensation as a result of the significant improvement in
net income as compared to the same quarter of 1997, when no such compensation
was earned.

Salaries, wages and benefits cost per ASM increased 8.8% in the first
quarter of 1998 to 1.48 cents, as compared to 1.36 cents in 1997. The majority
of this unit cost increase was attributable to the incentive compensation earned
in the first quarter of 1998 which had not been earned in the prior year.

Fuel and Oil. Fuel and oil expense for the first quarter of 1998 decreased
9.6% to $36.8 million from $40.7 million in the first quarter of 1997. During
the first quarter of 1998, the Company consumed 10.4% more gallons of jet fuel
for flying operations than during the first quarter of 1997, which resulted

30
<PAGE>
<PAGE>
in an increase in fuel expense of approximately $4.9 million between periods.
Jet fuel consumption increased due to the increased number of block hours of jet
flying operations between quarters. The Company flew 35,606 jet block hours in
the first quarter of 1998, as compared to 30,969 jet block hours in the same
period of 1997, an increase of 15.0% between periods. The slower rate of growth
in gallons consumed as compared to block hours flown was due to a change in the
mix of block hours flown by fleet type between periods. Most of the Company's
growth in block hours between quarters occurred in the narrow-body Boeing
727-200 and Boeing 757-200 fleets, which burn fuel at less than half the rate
per block hour as the larger wide-body Lockheed L-1011 aircraft. In the first
quarter of 1998, the percentage of jet block hours flown by the Boeing 727-200
and Boeing 757-200 fleets was 77.6%, as compared to 74.2% in the first quarter
of 1997.

During the first quarter of 1998, the Company's average cost per gallon of
fuel consumed decreased by 22.3% as compared to the first quarter of 1997,
resulting in a decrease in fuel and oil expense of approximately $9.2 million
between years. This reduction in fuel price was experienced throughout the
airline industry in the first quarter of 1998 as a result of significant
reductions in average crude oil and distillate product prices as compared to the
same period of 1997.

During the first quarter of 1998, the Company entered into two fuel price
hedge contracts under which the Company sought to reduce the risk of fuel price
increases during February and March. The Company insured approximately 27.3% of
first quarter 1998 gallon consumption under a swap agreement which established a
specific swap price for February and March, and further insured an additional
27.3% of first quarter 1998 gallon consumption under a fuel cap agreement which
guaranteed a maximum price per gallon for February and March. The Company
recorded $1.1 million in fuel and oil expense under the swap agreement in the
first quarter of 1998, since the actual price of jet fuel was lower than the
agreed swap price, and recorded fuel and oil expense of $0.3 million in the
first quarter of 1998 for the fuel cap agreement. Had such agreements not been
in effect in the first quarter of 1998, fuel and oil expense would have been
approximately $1.4 million lower during that quarter, and the average price of
fuel consumed would have been approximately 2.6 cents per gallon lower, or a
total of 25.4% lower than prices paid in the first quarter of 1997.

The Company has entered into a fuel collar agreement for the second quarter
of 1998, providing a fuel price minimum and maximum for a portion of gallons
expected to be consumed in the second quarter. This collar agreement impacts the
Company's fuel expense if the actual price of fuel is below the collar minimum
price, in which case the Company must reimburse the fuel cost savings to the
other party, or it is above the collar maximum price, in which case the other
party must reimburse the Company's excess fuel cost.

Also during the first quarter of 1998, the Company incurred approximately
$0.4 million in fuel and oil expense to operate the Jetstream 31 aircraft
pursuant to its Chicago Express Arrangement, which agreement was not in effect
in the first quarter of 1997.

Fuel and oil expense decreased 19.9% to 1.09 cents per ASM in the first
quarter of 1998, as compared to 1.36 cents per ASM in the same quarter of 1997.
This unit cost reduction was substantially due to the quarter-to-quarter
decrease in the average price of fuel consumed.

Depreciation and Amortization. Depreciation reflects the periodic expensing
of the recorded cost of owned airframes and engines, and rotable parts for all
fleet types, together with other property and equipment owned by the Company.
Amortization is primarily the periodic expensing of capitalized airframe and
engine overhauls for all fleet types on a units-of-production basis using
aircraft flight hours and cycles (landings) as the units of measure.
Depreciation and amortization expense increased 29.1% to $18.2 million in the
first quarter of 1998, as compared to $14.1 million in the first quarter of
1997.

Depreciation expense attributable to owned airframes and engines increased
$0.4 million in the first quarter of 1998, as compared to the same period of
1997. The Company purchased one Boeing 757-200 and one Boeing 727-200 aircraft
in late 1997 which had been previously financed through operating leases,
thereby increasing depreciation expense on airframes and engines between those
periods. (The Company recorded a reduction in aircraft rental expense between
quarters for the termination of operating leases for these aircraft, which is
further described below under ' -- Aircraft Rentals.') The Company also incurred
increased debt issue costs between years relating to debt facility and senior

31
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<PAGE>
unsecured notes issued in July 1997; recorded additional inventory obsolescence
expense for certain aircraft parts held for sale which were sold during the
first quarter of 1998; and increased its investment in rotable parts and
computer hardware and software. These changes resulted in an increase in
depreciation expense of $0.6 million in the first quarter of 1998 as compared to
the same period of 1997.

Amortization of capitalized engine and airframe overhauls increased $2.9
million in the first quarter of 1998 as compared to the first quarter of 1997,
after including the offsetting amortization associated with manufacturers'
credits. Changes to the cost of overhaul amortization were partly due to the
increase in total block hours and cycles flown between comparable periods for
the Boeing 727-200 fleet, since such expense varies with that activity, and
partly due to the completion of more engine and airframe overhauls between
periods for the Boeing 727-200 and the Lockheed L-1011 fleets. Rolls-
Royce-powered Boeing 757-200 aircraft, five of which were delivered new from the
manufacturer between late 1995 and late 1997, are not presently generating any
engine or airframe overhaul expense since the initial post-delivery overhauls
for these aircraft are not yet due under the Company's maintenance programs.

Boeing 727-200 block hours increased 20.3% and cycles increased 21.6% in
the first quarter of 1998, as compared to the first quarter of 1997. Engine and
airframe amortization for the Company's fleet of Boeing 727-200 aircraft
increased by approximately $1.7 million in the first quarter of 1998, as
compared to the first quarter of 1997, partly due to increases in flight
activity, and partly due to the completion of new overhauls for Pratt & Whitney
JT8D engines powering the Boeing 727-200 fleet, as well as additional airframe
overhauls. The number of such overhauls in service has increased as some Boeing
727-200 aircraft added to the Company's fleet in 1995 and 1996 are now
undergoing their first overhauls under the Company's maintenance program.

The increase between the first quarter of 1998 and the first quarter of
1997 in engine and airframe amortization expense for the Company's Lockheed
L-1011 fleet was approximately $1.0 million, $0.6 million of which was due to an
increase in total engine overhauls in service between those periods, since block
hours and cycles for this fleet type did not change significantly between
periods. The remaining $0.4 million of the increase was due to a
quarter-to-quarter reduction in manufacturers' credits applied to overhaul
costs, since fewer such credits are being earned currently than in prior years.

The cost of engine overhauls that become worthless due to early engine
failures and which cannot be economically repaired is charged to depreciation
and amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these write-offs did not change
significantly between quarters. When these engine failures can be economically
repaired, the related repairs are charged to aircraft maintenance, materials and
repairs expense.

Depreciation and amortization expense per ASM increased 14.9% to 0.54 cents
in the first quarter of 1998, as compared to 0.47 cents in the first quarter of
the prior year. This increase is primarily due to the increased amount of
overhaul cost incurred to maintain the Company's Boeing 727-200 and Lockheed
L-1011 airframes and engines. Airframes and engines which originally enter the
Company's fleet from time to time often do not require such overhauls until
several years later. Therefore, units added to the Company's fleet over the last
several years are currently scheduled for, and in some cases are undergoing,
overhaul. Such overhaul expense, incurred and to be incurred, is incremental in
comparison to prior periods. Although the Company's fleet of new Boeing 757-200
aircraft has not yet begun this initial overhaul cycle, the Company anticipates
that the fleet will do so beginning in late 1998 and 1999, at which time
increased overhaul amortization per ASM will be incurred for this fleet as well.

Handling, Landing and Navigation Fees. Handling and landing fees include
the costs incurred by the Company at airports to land and service its aircraft
and to handle passenger check-in, security and baggage where the Company elects
to use third-party contract services in lieu of its own employees. Where the
Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are assessed when the Company's aircraft fly over certain foreign airspace.

Handling, landing and navigation fees increased by 1.7% to $17.5 million in
the first quarter of 1998, as compared to $17.2 million in the first quarter of
1997. During the 1998 quarter, the average cost per system jet departure for
third-party aircraft handling decreased 2.9% as compared to the 1997

32
<PAGE>
<PAGE>
quarter, and the average cost of landing fees per system jet departure decreased
5.1% between the same periods. The total number of system-wide jet departures
between quarters increased by 16.1% to 11,178 from 9,629, resulting in
approximately $1.5 million in volume-related handling and landing expense
increases between periods. This volume-related increase was partially offset,
however, by an approximately $1.1 million price-related handling and landing
expense decrease between periods attributable primarily to a change in jet
departure mix. Because each airport served by the Company has a different
schedule of fees, including variable prices for different aircraft types,
average handling and landing fee costs are a function of the mix of airports
served and the fleet composition of departing aircraft. On average, handling and
landing fee costs for Lockheed L-1011 wide-body aircraft are higher than for
narrow-body aircraft, and average costs at foreign airports are higher than at
many U.S. domestic airports. As a result of the shift of revenue production
towards scheduled service operations in the first quarter of 1998, as compared
to the same period of 1997, the Company's jet departures in the 1998 quarter
included proportionately more domestic and narrow-body operations than in the
1997 quarter. In the first quarter of 1998, 80.8% of the Company's jet
departures were operated with narrow-body aircraft, as compared to 77.3% in the
first quarter of 1997, and 81.7% of the Company's first quarter 1998 jet
departures were from domestic locations, as compared to 75.2% in the first
quarter of 1997.

The cost per ASM for handling, landing and navigation fees decreased 10.3%
to 0.52 cents in the first quarter of 1998, from 0.58 cents in the comparable
1997 period. This decrease in unit cost was primarily due to the reduced average
cost of handling and landing per departure described above.

Aircraft Rentals. Aircraft rentals expense for the first quarter of 1998
decreased 8.5% to $12.9 million from $14.1 million in the first quarter of 1997.
Approximately $1.4 million of this decrease was attributable to the purchase of
one Boeing 757-200 aircraft and one Boeing 727-200 aircraft in September and
December 1997, respectively, which had been previously financed under operating
leases. (The Company incurred additional depreciation expense for these two
aircraft in the first quarter of 1998 as compared to the first quarter of 1997,
as is described above under ' -- Depreciation and Amortization.')

Other transactions which affected aircraft rentals expense between quarters
included: (i) the return of one Boeing 757-200 to the lessor during 1997, and
the delivery of one new Boeing 757-200 aircraft from the manufacturer in the
fourth quarter of 1997, which had approximately equal and offsetting impacts to
rental expense between quarters; (ii) the sale/leaseback of one Boeing 727-200
in September 1997, which increased aircraft rentals expense by $0.3 million
between quarters; and (iii) the cancellation of leases on three Lockheed L-1011
airframes during 1997, which reduced aircraft rentals expense by $0.1 million
between quarters.

Aircraft rentals expense for the first quarter of 1998 was 0.38 cents per
ASM, a decrease of 19.1% from 0.47 cents per ASM in the same period of 1997. The
cancellation of the operating lease and purchase of the Boeing 757-200 aircraft
during 1997 was the primary cause for this unit cost reduction, although a unit
cost increase was incurred for depreciation and amortization as a result of that
purchase.

Aircraft Maintenance, Materials and Repairs. This expense includes the cost
of expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for heavy check and line maintenance activities, and
other non-capitalized direct costs related to fleet maintenance, including spare
engine leases, parts loan and exchange fees, and related shipping costs.
Aircraft maintenance, materials and repairs expense increased 15.3% to $12.8
million in the first quarter of 1998, as compared to $11.1 million in the first
quarter of 1997. The cost per ASM increased by 2.7% to 0.38 cents in the 1998
quarter, as compared to 0.37 cents in the 1997 quarter.

The most significant change in maintenance expense components in the first
quarter of 1998 as compared to the prior year was a $1.1 million increase in the
cost of off-site contract labor. This labor is used to perform heavy maintenance
checks to the Company's airframes under approved and supervised maintenance
programs. The Company performed a total of 12 such airframe checks on its fleet
during the first quarter of 1998, as compared to 11 such checks performed in the
first quarter of 1997, an increase of 9.1% between quarters. However, in the
case of the Boeing 727-200 fleet, five such checks were performed off-site by
contract vendors in the 1998 quarter, while no such checks occurred off-site

33
<PAGE>
<PAGE>
in the first quarter of 1997. The cost of materials consumed and components
repaired in association with
such checks and other maintenance activity increased by $0.9 million between
quarters.

Many of the Company's aircraft under operating leases have certain return
conditions applicable to the maintenance status of airframes and engines as of
the termination of the lease. The Company accrues estimated return condition
costs as a component of maintenance, materials and repairs expense based upon
the actual condition of the aircraft as each lease termination date approaches,
and based upon the Company's ability to estimate the expected cost of conforming
to these conditions. Return condition expenses accrued in the first quarter of
1998 were $0.1 million lower than in the first quarter of 1997, primarily due to
the negotiation of purchase options on some of the leased aircraft during the
first quarter of 1998, eliminating return condition obligations existing prior
to these negotiations.

Crew and Other Employee Travel. Crew and other employee travel is primarily
the cost of air transportation, hotels and per diem reimbursements to cockpit
and cabin crew members incurred to position crews away from their bases and to
operate Company flights throughout the world. The cost of air transportation is
generally more significant for the commercial charter business unit since these
flights often operate between cities in which Company crews are not normally
based and may involve extensive international positioning of crews. Hotel and
per diem expenses are incurred for both scheduled and commercial charter
services, and higher per diem and hotel rates generally apply to international
assignments.

The cost of crew and other employee travel increased 19.0% to $9.4 million
in the first quarter of 1998, as compared to $7.9 million in the first quarter
of 1997. During the 1998 quarter, the Company's average full-time-equivalent
cockpit and cabin crew employment was 17.1% higher, as compared to the 1997
quarter, even though jet block hours increased only 15.0% between periods.
Although the Company experienced some limited crew shortages in the first
quarter of 1998 associated with high aircraft utilization, shortages of both
cockpit and cabin crews were more chronic in the first quarter of 1997
immediately following a crew furlough program occurring in the fourth quarter of
1996.

The shift in revenue production emphasis away from commercial charter and
toward scheduled service in the first quarter of 1998 resulted in a 17.1%
reduction in the unit cost per crew member of positioning. However, the cost per
crew member of hotels and per diem expenses increased by 22.4% and 8.0%,
respectively, in the 1998 quarter as compared to 1997. The unit cost increase
for hotels reflected strong domestic hotel occupancy in the 1998 quarter
resulting in the incurrence of higher room rates for crew members than in the
prior period.

The cost per ASM for crew and other employee travel increased 3.7% to 0.28
cents in the first quarter of 1998, as compared to 0.27 cents in the comparable
period of 1997.

Passenger Service. Passenger service expense includes the onboard costs of
meal and non-alcoholic beverage catering, the cost of alcoholic beverages and
in-flight movie headsets sold, and the cost of onboard entertainment programs,
together with certain costs incurred for mishandled baggage and passengers
inconvenienced due to flight delays or cancellations. For the first quarter of
1998 and 1997, catering represented 84.1% and 77.8%, respectively, of total
passenger service expense.

The total cost of passenger service was unchanged at $8.2 million in the
first quarters of 1998 and 1997. The Company experienced a decrease of
approximately 1.1% in the average cost of catering to each passenger, but total
jet passengers boarded increased 8.5% to 1,526,649 in the first quarter of 1998,
as compared to 1,407,128 in the first quarter of 1997, resulting in a $0.6
million increase in catering costs between quarters. The cost of handling
passengers inconvenienced by flight delays and cancellations decreased by $0.5
million between quarters due to a reduction in the average length of such
delays. Such decrease occurred even though the total number of delays over 15
minutes increased slightly between periods.

The cost per ASM of passenger service decreased 11.1% to 0.24 cents in the
first quarter of 1998, as compared to 0.27 cents in the first quarter of 1997.

Commissions. The Company incurs commissions expense in association with the
sale by travel agents of single seats on scheduled service. In addition, the
Company pays commissions to secure some commercial charter and military charter
business. Commissions expense increased 22.0% to $7.2 million in the first
quarter of 1998, as compared to $5.9 million in the first quarter of 1997.
Scheduled service

34
<PAGE>
<PAGE>
commissions expense increased by $1.2 million, or 27.3%, between quarters partly
as a result of the 43.8% increase in total scheduled service revenues earned.
This increase in commission expense was partially offset by an industry-wide
reduction in the standard travel agency commission rate from 10% to 8% during
October 1997. Military charter commission expense increased by $0.1 million due
to the increased level of commissionable military revenues earned between
quarters, while there was no material change in commercial charter commission
expense between periods.

The cost per ASM of commission expense increased by 5.0% to 0.21 cents in
the first quarter of 1998, as compared to 0.20 cents in the same period of 1997,
primarily due to the shift in revenue production to scheduled service where
higher unit rates of commission apply as compared to the commercial charter and
military charter business.

Other Selling Expenses. Other selling expenses are comprised of (i) booking
fees paid to computer reservation systems (CRSs) to reserve single-seat sales
for scheduled service; (ii) credit card discount expenses incurred when selling
single seats and ground packages to customers using credit cards for payment;
(iii) costs of providing toll-free telephone services, primarily to single-seat
and vacation package customers who contact the Company directly to book
reservations; and (iv) miscellaneous other selling expenses primarily associated
with single-seat sales. Other selling expenses increased 75.0% to $5.6 million
in the first quarter of 1998, as compared to $3.2 million in the first quarter
of 1997.

CRS fees increased $1.2 million in the first quarter of 1998, as compared
to the first quarter of 1997 due to both a 67.8% increase in total CRS bookings
made for the expanded scheduled service business unit between quarters, and due
to a 21.2% increase in the average cost of each CRS booking made between
periods. Toll-free telephone costs increased $0.4 million between periods due to
higher usage related to higher reservations activity, while credit card discount
expense increased $0.8 million due to higher earned revenues in scheduled
service which were sold using credit card forms of payment.

Other selling cost per ASM increased 54.5% to 0.17 cents in the first
quarter of 1998, as compared to 0.11 cents in the same quarter of the previous
year, primarily due to the substantial growth in scheduled service ASMs between
years where such selling expenses are incurred.

Ground Package Cost. Ground package cost includes the expenses incurred by
the Company for hotels, car rental companies, cruise lines and similar vendors
to provide ground and cruise accommodations to Ambassadair and ATA Vacations
customers. Ground package cost increased 5.8% to $5.5 million in the first
quarter of 1998, as compared to $5.2 million in the first quarter of 1997. The
increase in cost between periods was primarily due to a 3.7% increase in the
number of Ambassadair and ATA Vacations ground packages sold, together with a
small increase in the average package cost between quarters.

Advertising. Advertising expense increased 20.0% to $4.2 million in the
first quarter of 1998, as compared to $3.5 million in the comparable period of
1997. The Company incurs advertising costs primarily to support single-seat
scheduled service sales and the sale of air-and-ground packages. Advertising
support for these lines of business was increased in the 1998 quarter consistent
with the Company's overall strategy to enhance RASM in these businesses through
increases in load factor and yield. The increase in total advertising expense
was smaller than the 43.8% increase in scheduled service revenues between
quarters since the majority of the Company's growth in the 1998 quarter was from
added frequencies in existing markets, providing greater advertising
efficiencies in the 1998 quarter as compared to total scheduled service
capacity.

The cost per ASM of advertising increased 8.3% to 0.13 cents in the first
quarter of 1998, as compared to 0.12 cents in the first quarter of 1997,
primarily due to the substantial growth in scheduled service ASMs between years
where such advertising is incurred.

Facility and Other Rentals. Facility and other rentals includes the cost of
all ground facilities that are leased by the Company such as airport space,
regional sales offices and general offices. The cost of facility and other
rentals increased 14.3% to $2.4 million in the first quarter of 1998, as
compared to $2.1 million in the same period of 1997. This increase in facility
costs was consistent with the 12.7% increase in ASMs between quarters, and was
required to support the increase in flight activity at airport locations. The
cost per ASM for facility and other rentals was therefore unchanged between
periods at 0.07 cents.

35
<PAGE>
<PAGE>
Other Operating Expenses. Other operating expenses increased 21.3% to $15.4
million in the first quarter of 1998, as compared to $12.7 million in the first
quarter of 1997. Other operating expenses which experienced significant changes
between years included (i) $1.5 million of additional costs for the Chicago
Express Arrangement, which arrangement was not in effect in the 1997 first
quarter; (ii) $0.9 million in increased costs associated with the general growth
of the Company between quarters, including such expenses as passenger
reprotection on other airlines, flight simulator training for cockpit crews,
computer hardware and maintenance agreements, and uncollectible accounts; (iii)
$0.4 million in increased aircraft rental costs for small corporate aircraft
used primarily to position crews and aircraft parts; (iv) $0.2 million in losses
on the sale of primarily surplus aircraft parts; and (v) $0.2 million in reduced
hull and liability insurance expenses.

Other operating cost per ASM increased 9.5% to 0.46 cents in the first
quarter of 1998, as compared to 0.42 cents in the same quarter of 1997.

Interest Income and Expense. Interest expense in the first quarter of 1998
increased 106.3% to $3.3 million, as compared to $1.6 million in the same period
of 1997. The increase in interest expense between periods was primarily due to
changes in the Company's capital structure resulting from (i) the offering of
the 10 1/2% Notes, and (ii) the implementation of the Credit Facility.

The capital structure of the Company, prior to completing these new
financings, provided for borrowings under the former $122.0 million credit
facility to be constantly adjusted to meet the expected cash flow requirements
of the Company, thereby minimizing the level of borrowings on which interest
would be paid. Under the new capital structure of the Company, the borrowings
under the 10 1/2% notes remain fixed at $100.0 million without regard to actual
cash requirements at any point in time. During the first quarter of 1998, the
weighted average borrowings were approximately $153.0 million, as compared to
$85.6 million in the first quarter of 1997.

The weighted average effective interest rate applicable to the Company's
borrowings in the first quarter of 1998 was 8.51%, as compared to 7.54% in the
same period of 1997. The increase in the weighted average effective interest
rates between years was primarily due to the 10 1/2% Notes, which was higher
than the average interest rates which were applicable to borrowings under the
former credit facility.

In order to minimize the interest expense impact of the 10 1/2% Notes, the
Company invested excess cash balances in short-term government securities and
commercial paper and thereby earned $1.0 million in interest income in the first
quarter of 1998, an increase of 900.0% over interest income of $0.1 million
earned in the same quarter of 1997.

INCOME TAX EXPENSE

In the first quarter of 1998, the Company recorded $8.9 million in income
tax expense applicable to the $21.3 million of pre-tax income for that year,
while in the first quarter of 1997 income tax expense of $3.1 million was
recognized pertaining to $6.3 million in pre-tax income. The effective tax
rate applicable to the first quarter of 1998 was 41.7%, while the effective tax
rate applicable to the first quarter of 1997 was 49.0%.

Income tax expense and credits in both periods were significantly affected
by the permanent non-deductibility for federal income tax purposes of a
percentage of amounts paid for crew per diem (45% in 1998 and 50% in 1997). The
effect of this permanent difference on the effective income tax rate for
financial accounting purposes becomes more pronounced in cases where before-tax
income or loss approaches zero, which was the primary reason for the higher
effective tax rate in the 1997 first quarter.

YEAR ENDED DECEMBER 31, 1997, VERSUS YEAR ENDED DECEMBER 31, 1996

CONSOLIDATED FLIGHT OPERATIONS AND FINANCIAL DATA

36
<PAGE>
<PAGE>
Company's business units. Data shown for 'J31' operations include operations
under the Chicago Express Arrangement.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 INC (DEC) % INC (DEC)
---------- ---------- --------- -----------

<S> <C> <C> <C> <C>
Departures Jet............................................ 46,416 39,517 (6,899) (14.86)
Departures J31(a)......................................... -- 10,091 10,091 N/M
---------- ---------- --------- -----------
Total Departures(b).................................. 46,416 49,608 3,192 6.88
---------- ---------- --------- -----------
Block Hours Jet........................................... 138,114 129,216 (8,898) (6.44)
Block Hours J31........................................... -- 10,210 10,210 N/M
---------- ---------- --------- -----------
Total Block Hours(c)................................. 138,114 139,426 1,312 0.95
---------- ---------- --------- -----------
RPMs Jet (000s)........................................... 9,172,438 8,967,900 (204,538) (2.23)
RPMs J31 (000s)........................................... -- 18,055 18,055 N/M
---------- ---------- --------- -----------
Total RPMs (000s)(d)................................. 9,172,438 8,985,955 (186,483) (2.03)
---------- ---------- --------- -----------
ASMs Jet (000s)........................................... 13,295,505 12,615,230 (680,275) (5.12)
ASMs J31 (000s)........................................... -- 32,453 32,453 N/M
---------- ---------- --------- -----------
Total ASMs (000s)(e)................................. 13,295,505 12,647,683 (647,822) (4.87)
---------- ---------- --------- -----------
Load Factor Jet........................................... 68.99 71.09 2.10 3.04
Load Factor J31........................................... -- 55.63 N/M N/M
---------- ---------- --------- -----------
Total Load Factor(f)................................. 68.99 71.05 2.06 2.99
---------- ---------- --------- -----------
Passengers Enplaned Jet................................... 5,680,496 5,210,578 (469,918) (8.27)
Passengers Enplaned J31................................... -- 96,812 96,812 N/M
---------- ---------- --------- -----------
Total Passengers Enplaned(g)......................... 5,680,496 5,307,390 (373,106) (6.57)
---------- ---------- --------- -----------
Revenue $(000s)........................................... 750,851 783,193 32,342 4.31
RASM in cents(h).......................................... 5.65 6.19 0.54 9.56
CASM in cents(i).......................................... 5.92 6.09 0.17 2.87
Yield in cents(j)......................................... 8.19 8.72 0.53 6.47
</TABLE>

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

N/M -- Not Meaningful

See footnotes (a) through (j) on pages 23 and 24.

OPERATING REVENUES

Total operating revenues for 1997 increased 4.3% to $783.2 million from
$750.9 million in 1996. This increase was due to a $1.6 million increase in
commercial charter revenues and a $47 million increase in military charter
revenues, partially offset by a $14.7 million decrease in scheduled service
revenues and a $1.6 million decrease in other revenues.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 INC (DEC) % INC (DEC)
--------- ---------- ---------- -----------

<S> <C> <C> <C> <C>
Departures Jet............................................. 31,467 23,800 (7,667) (24.37)
Departures J31(a).......................................... -- 10,091 10,091 N/M
--------- ---------- ---------- -----------
Total Departures(b)................................... 31,467 33,891 2,424 7.70
--------- ---------- ---------- -----------
Block Hours Jet............................................ 85,836 72,883 (12,953) (15.09)
Block Hours J31............................................ -- 10,210 10,210 N/M
--------- ---------- ---------- -----------
Total Block Hours(c).................................. 85,836 83,093 (2,743) (3.20)
--------- ---------- ---------- -----------
</TABLE>

(table continued on next page)

37
<PAGE>
<PAGE>
(table continued from previous page)

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 INC (DEC) % INC (DEC)
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
RPMs Jet (000s)............................................ 4,918,045 4,523,245 (394,800) (8.03)
RPMs J31 (000s)............................................ -- 18,055 18,055 N/M
--------- ---------- ---------- -----------
Total RPMs (000s)(d).................................. 4,918,045 4,541,300 (376,745) (7.66)
--------- ---------- ---------- -----------
ASMs Jet (000s)............................................ 7,304,897 6,209,825 (1,095,072) (14.99)
ASMs J31 (000s)............................................ -- 32,453 32,453 N/M
--------- ---------- ---------- -----------
Total ASMs (000s)(e).................................. 7,304,897 6,242,278 (1,062,619) (14.55)
--------- ---------- ---------- -----------
Load Factor Jet............................................ 67.33 72.84 5.51 8.18
Load Factor J31............................................ -- 55.63 N/M N/M
--------- ---------- ---------- -----------
Total Load Factor(f).................................. 67.33 72.75 5.42 8.05
--------- ---------- ---------- -----------
Passengers Enplaned Jet.................................... 3,551,141 3,087,706 (463,435) (13.05)
Passengers Enplaned J31.................................... -- 96,812 96,812 N/M
--------- ---------- ---------- -----------
Total Passengers Enplaned(g).......................... 3,551,141 3,184,518 (366,623) (10.32)
--------- ---------- ---------- -----------
Revenues $(000s)........................................... 386,488 371,762 (14,726) (3.81)
RASM in cents(h)........................................... 5.29 5.96 0.67 12.67
Yield in cents(j).......................................... 7.86 8.19 0.33 4.20
Revenues per segment $(k).................................. 108.83 116.74 7.91 7.27
</TABLE>

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

N/M -- Not Meaningful

See footnotes (a) through (j) on pages 23 and 24.

Scheduled service revenues in 1997 decreased 3.8% to $371.8 million from
$386.5 million in 1996. Scheduled service revenues comprised 47.5% of
consolidated revenues in 1997, as compared to 51.5% of consolidated revenues in
1996. Scheduled service RPMs decreased 7.7% to 4.541 billion from 4.918 billion,
while ASMs decreased 14.6% to 6.242 billion from 7.305 billion, resulting in an
increase of 5.5 points in passenger load factor to 72.8% in 1997, from 67.3% in
1996. Scheduled service yield in 1997 increased 4.2% to 8.19 cents from 7.86
cents in 1996, while RASM increased 12.7% to 5.96 cents from 5.29 cents between
the same periods. Scheduled service departures in 1997 increased 7.7% to 33,891
from 31,467 in 1996; block hours decreased 3.2% to 83,093 in 1997, from 85,836
in 1996; and passengers boarded decreased 10.3% between periods to 3,184,518, as
compared to 3,551,141.

The Company added scheduled service capacity during the second and third
quarters of 1996 which primarily included expanded direct and connecting
frequencies through the Company's four major gateway cities of Chicago-Midway,
Indianapolis, Milwaukee and Boston to west coast and Florida markets already
being served. New seasonal scheduled service was also introduced in the second
and third quarters of 1996 from New York to Shannon and Dublin, Ireland, and
Belfast, Northern Ireland, and from the midwest to Seattle. New year-round
service also commenced to San Diego, California, in the second quarter of 1996.

The introduction of this new capacity coincided closely, however, with the
May 11, 1996 ValuJet accident in Florida, and the resulting persistent negative
media attention directed toward airline safety, and especially toward low-fare
airlines. On May 12, the Company experienced a cabin decompression incident on
one of its own flights which, although it resulted in no serious injury to crew
or passengers, it nevertheless attracted additional negative media attention,
occurring as it did one day after the ValuJet tragedy. As a consequence, during
the second and third quarters of 1996, the Company estimates that it lost
significant scheduled service revenues from both canceled reservations and
reservations which were never received.

38
<PAGE>
<PAGE>
An analysis by the Company in 1996 of the profitability of its scheduled
service and commercial and military charter service business units disclosed
that a number of scheduled service markets then being served by the Company had
become unprofitable at that point in time.

As a result of this analysis, in August 1996, the Company announced a
significant restructuring of scheduled service operations. The Company
eliminated its Boston and intra-Florida scheduled service operations and also
exited, or reduced in frequency, certain markets served from Chicago-Midway,
Indianapolis and Milwaukee. In conjunction with this restructuring, the Company
completed a 15% reduction in its employee and contract work forces by the end of
1996.

In addition, the Company re-evaluated the relative economic performance of
its three aircraft fleet types in the context of the restructured markets to be
served by the Company and optimized the type and number of aircraft through a
fleet restructuring which was completed by the end of 1996. The Company reduced
the number of Boeing 757-200 aircraft from 11 units at the end of 1995 to seven
units at the end of 1996. The remaining seven Boeing 757-200 aircraft are all
powered by Rolls-Royce engines. The Company committed the seven Boeing 757-200s
to mission-specific uses in the U.S. military and scheduled service business
units.

On April 3, 1996 the Company implemented a code share agreement with
Chicago Express to provide incremental connecting traffic between Indianapolis,
Milwaukee and other smaller midwestern cities into the Company's Chicago-Midway
connections with certain Florida and west-coast destinations. This code share
agreement, as amended effective April 1, 1997, is the Chicago Express
Arrangement. Under the Chicago Express Arrangement, as amended, Chicago Express
operates 19-seat Jetstream 31 propeller aircraft between Chicago-Midway and the
cities of Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing,
and Madison on behalf of the Company.

After the 1996 Restructuring, the Company's 1997 core jet scheduled service
included flights between Chicago-Midway and five Florida cities, Las Vegas,
Phoenix, Los Angeles and San Francisco; Indianapolis to four Florida cities, Las
Vegas and Cancun; Milwaukee to three Florida cities; Hawaii service from San
Francisco, Los Angeles and Phoenix; and service between Orlando and San Juan and
Nassau.

As a result of the 1996 Restructuring, scheduled service profitability was
substantially improved in 1997 as compared to 1996. Profitability was enhanced
through a combination of significantly higher load factors and yields between
periods, even though total revenues in scheduled service declined between years.
The Company believes that profitability was enhanced in this business unit
through the selective elimination of flights which had previously produced
below-average load factors and yield, and that the elimination of intra-Florida
flying in particular was a prominent factor in this improvement. Profitability
was further enhanced in certain scheduled service markets through the
reassignment of aircraft fleet types to provide better balance within markets
between revenues, costs, and aircraft operational capabilities.

Scheduled service profitability improvement in 1997 was accomplished in
spite of what would normally have been a demand-dampening effect from the
re-introduction of the U.S. departure and 10% federal excise taxes on tickets on
March 7, 1997, which had expired on January 1, 1997. In August 1997, federal
legislation was enacted which indefinitely extends these taxes until 2007. The
U.S. departure tax for international destinations was increased from $6 to $12
per passenger, and a new U.S. arrivals tax of $12 per passenger was added for
passengers arriving into the United States from international cities. Effective
October 1, 1997, the new tax law also changed the method of computation of the
federal excise tax from a standard 10% of ticket sale value, to a declining
percentage of ticket sale value (ranging from 9.0% to 7.5%), plus an increasing
inflation-indexed charge per passenger segment flown (ranging from $1 to $3).
The Company does not currently believe that the change in federal excise tax
computation has placed it at either a significant pricing advantage or
disadvantage as compared to the previous computation method. The Company does
believe that certain of its low-fare competitors may be disadvantaged by the new
computation method due to their lower average segment fares and higher average
intermediate stops as compared to the Company in similar markets.

The Company began new service in June 1997, between New York's John F.
Kennedy International Airport and Chicago-Midway, Indianapolis and St.
Petersburg, and also added several frequencies

39
<PAGE>
<PAGE>
between the midwest and the west coast for the summer season. New York service
to Chicago-Midway and St. Petersburg was retained for the 1997-98 winter season.
New non-stop service between Chicago-Midway and Dallas/Ft. Worth, San Juan and
Denver have been announced beginning in May 1998.

Commercial Charter Revenues. The following table sets forth, for the
periods indicated, certain key operating and financial data for the commercial
charter flying operations of the Company.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
--------------------------------------------------
1996 1997 INC (DEC) % INC (DEC)
--------- --------- --------- -----------

<S> <C> <C> <C> <C>
Departures(b)................................................. 10,920 10,589 (331) (3.03)
Block Hours(c)................................................ 38,154 36,836 (1,318) (3.45)
RPMs (000s)(d)................................................ 3,470,450 3,373,840 (96,610) (2.78)
ASMs (000s)(e)................................................ 4,363,220 4,169,102 (194,118) (4.45)
Passengers Enplaned(g)........................................ 1,854,262 1,840,056 (14,206) (0.77)
Revenue $(000s)............................................... 226,372 228,062 1,690 0.75
RASM in cents(h).............................................. 5.19 5.47 0.28 5.39
</TABLE>

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

See footnotes (b) through (h) on page 23.

Commercial charter revenues derived from independent tour operators and
specialty charter customers increased 0.8% to $228.1 million in 1997, as
compared to $226.4 million in 1996. Commercial charter RPMs decreased 2.8% to
3.374 billion in 1997 from 3.470 billion in 1996, while ASMs decreased 4.4% to
4.169 billion from 4.363 billion. Commercial charter RASM increased 5.4% to 5.47
cents from 5.19 cents between the same periods. Passengers boarded decreased
0.8% to 1,840,056 in 1997, as compared to 1,854,262 in 1996; departures
decreased 3.0% to 10,589 in 1997, as compared to 10,920 in 1996; and block hours
decreased 3.5% to 36,836 in 1997, as compared to 38,154 in 1996.

Military/Government Charter Revenues. The following table sets forth, for
the periods indicated, certain key operating and financial data for the military
flight business of the Company.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
--------------------------------------------------
1996 1997 INC (DEC) % INC (DEC)
--------- --------- --------- -----------

<S> <C> <C> <C> <C>
Departures(b)................................................. 3,414 4,860 1,446 42.36
Block Hours(c)................................................ 12,294 18,704 6,410 52.14
RPMs (000s)(d)................................................ 665,494 1,044,317 378,823 56.92
ASMs (000s)(e)................................................ 1,442,113 2,165,169 723,056 50.14
Passengers Enplaned(g)........................................ 185,575 265,862 80,287 43.26
Revenue $(000s)............................................... 84,197 131,115 46,918 55.72
RASM in cents(h).............................................. 5.84 6.06 0.22 3.77
</TABLE>

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

See footnotes (b) through (h) on page 23.

Revenues derived from the U.S. military increased 55.7% to $131.1 million
in 1997, as compared to $84.2 million in 1996. In 1997, the Company's U.S.
military revenues represented 16.8% of consolidated revenues, as compared to
11.2% in 1996. U.S. military RPMs increased 56.9% to 1.044 billion in 1997, from
665.5 million in 1996, while ASMs increased 50.1% to 2.165 billion from 1.442
billion. Military RASM increased 3.8% to 6.06 cents from 5.84 cents between the
same time periods. U.S. military passengers boarded increased 43.3% to 265,862
in 1997, as compared to 185,575 in 1996; departures increased 42.4% to 4,860 in
1997, as compared to 3,414 in 1996; and block hours increased 52.1% to 18,704 in
1997 as compared to 12,294 in 1996.

The U.S. military business grew at a faster year-over-year rate than any
other business unit of the Company during 1997. As a result of the restructuring
of scheduled service and the reconfiguration of the Company's fleet in 1996, the
Company committed four of its seven remaining Boeing 757-200 aircraft to the
U.S. military for the contract year ending September 30, 1997. As a result of an
analysis undertaken during 1996, the Company was also successful in more
accurately documenting the actual costs associated with military flying and was
therefore able to obtain rate increases for the contract year

40
<PAGE>
<PAGE>
ending September 30, 1997. The Company has obtained additional rate increases
for the contract year ending September 30, 1998.

Ground Package Revenues. In 1997 and 1996, ground package revenues were
unchanged at $22.3 million.

In 1997, total Ambassadair packages sold increased 9.4% over 1996, and the
average revenue earned for each ground package sold increased 8.2% between
periods.

During 1997, the number of ATA Vacations ground packages sold increased
0.5% as compared to 1996. Lack of growth in the number of ground packages sold
between periods was mainly due to the reduction of the Company's scheduled
service operations between years. During 1997, the average revenue earned for
each ground package sold decreased 15.8% as compared to 1996.

Other Revenues. Other revenues decreased 5.1% to $29.9 million in 1997, as
compared to $31.5 million in 1996, primarily due to a reduction in revenues
earned between periods by providing substitute service to other airlines,
partially offset by increases in other miscellaneous revenue categories. A
substitute service agreement typically provides for the Company to operate
aircraft with its crews on routes designated by the customer airline to carry
the passengers of that airline for a limited period of time.

OPERATING EXPENSES

Salaries, Wages and Benefits. Salaries, wages and benefits expense in 1997
increased 5.2% to $172.5 million from $164.0 million in 1996.

Approximately $3.2 million of the increase between periods was attributable
to changes made in the third quarter of 1996 in senior executive positions and
associated senior executive compensation plans. Special compensation totaling
$3.0 million was prepaid to the Company's former President and Chief Executive
Officer during the fourth quarter of 1996 and the first quarter of 1997, which
was being amortized to expense over the anticipated two-year term of his
employment ending August 1998. Due to his resignation in late May 1997, a
one-time charge to expense for the unamortized $2.0 million prepaid balance was
made in the second quarter of 1997 to salaries, wages and benefits, whereas no
such charge to expense was incurred in the prior year.

The cost of salaries and wages earned by cockpit crew members and related
flight operations support staff in 1997 was approximately $5.8 million higher
than in 1996. These cost increases were incurred even though jet block hours
flown by cockpit crew members declined by 6.4% between periods. This increase in
the unit cost of cockpit crews was attributable to the following significant
factors: (i) the implementation of the cockpit crew collective bargaining
agreement in August 1996, under which a 7.5% rate increase became effective;
(ii) crew utilization for U.S. military flying was significantly lower than for
scheduled service and tour operator flying, and U.S. military block hours
increased as a percentage of total block hours to 14.5% in 1997, as compared to
8.9% in 1996; (iii) cockpit crew shortages during the first three quarters of
1997 resulted in the need to increase premium pay to cockpit crew members in
order to adequately staff the spring and summer flying schedule; and (iv)
cockpit crew productivity was reduced by the fleet restructuring completed
during 1996, which increased the percentage of jet block hours flown by
three-crew-member aircraft (Lockheed L-1011 and Boeing 727-200) to 78.9% in
1997, as compared to 70.6% in 1996.

The salaries, wages and benefits cost for other employee groups declined by
$0.8 million in 1997 as compared to 1996. These costs declined partially as a
result of the decline in equivalent full-time employment between periods. Total
equivalent full-time employment declined by 7.7% between years, although
equivalent full-time employment in the fourth quarter of 1997 was 10.0% higher
that in the fourth quarter of 1996. The increase in employment in late 1997 was
primarily due to the addition of cockpit and cabin crews and reservations agents
to adequately staff expected growth in flying capacity in 1998 compared to the
fourth quarter of 1996 when the Company had just completed significant staff
reductions.

In addition to those planned staff reductions completed during the fourth
quarter of 1996, the change in salaries, wages and benefits expense for other
employee groups was significantly affected by

41
<PAGE>
<PAGE>
reduced employment in Maintenance and Engineering, which accounted for a $1.4
million reduction in expense between 1997 and 1996. Employment of Maintenance
and Engineering staff, such as airframe and powerplant mechanics and engineers,
was constrained in 1997 by broad shortages in related labor markets attributable
to very strong current demand for these skills within the airline industry. The
Company compensated for some of these shortages in 1997 by acquiring these
skills through third-party contract labor vendors. The cost of maintenance
contract labor (which is a component of Aircraft Maintenance, Materials and
Repairs) increased by $2.3 million in 1997 as compared to 1996.

Salaries, wages and benefits cost per ASM increased 10.6% in 1997 to 1.36
cents, as compared to 1.23 cents in 1996.

Fuel and Oil. Fuel and oil expense for 1997 decreased 4.7% to $153.7
million from $161.2 million in 1996. During 1997, as compared to 1996, the
Company consumed 3.1% fewer gallons of jet fuel for flying operations, which
resulted in a reduction in fuel expense of approximately $5.4 million between
periods. The reduction in jet fuel consumed was due to the reduced number of
block hours of jet flying operations between years. The Company flew 129,216 jet
block hours in 1997, as compared to 138,114 jet block hours in 1996, a decrease
of 6.4% between periods. During 1997, the Company's average cost per gallon of
fuel consumed decreased by 1.8% as compared to 1996, which resulted in a
decrease in fuel and oil expense of approximately $2.9 million between years.
Also during the last three quarters of 1997, the Company incurred approximately
$1.0 million in fuel and oil expense to operate the Jetstream 31 aircraft under
its agreement with Chicago Express, which was not in effect in the last three
quarters of 1996.

Fuel and oil expense increased 0.8% to 1.22 cents per ASM in 1997, as
compared to 1.21 cents per ASM in 1996. The increase in the cost per ASM of fuel
and oil expense between periods was partly due to the change in mix of jet block
hours flown from the more-fuel-efficient twin-engine Boeing 757-200 aircraft to
the less-fuel-efficient three-engine Boeing 727-200 and Lockheed L-1011
aircraft. In 1997, 21.1% of total jet block hours were flown by the Boeing
757-200 fleet, as compared to 29.4% in 1996. The increase in cost per ASM caused
by the shift in fleet mix of jet block hours flown was substantially offset by
the 1.8% reduction in the average cost of jet fuel between periods.

Handling, Landing and Navigation Fees. Handling, landing and navigation
fees decreased by 1.0% to $69.4 million in 1997, as compared to $70.1 million in
1996. During 1997, the average cost per system jet departure for third-party
aircraft handling increased 6.9% as compared to 1996, and the average cost of
landing fees per system jet departure increased 5.2% between the same periods.
Due to the restructuring of scheduled service in the fourth quarter of 1996, the
absolute number of system-wide jet departures between 1997 and 1996 declined by
14.9% to 39,517 from 46,416, which resulted in approximately $7.4 million in
volume-related handling and landing expense reductions between periods. This
volume-related decline was partially offset, however, by an approximately $4.8
million price-related handling and landing expense increase between periods
attributable primarily to a change in jet departure mix. Because each airport
served by the Company has a different schedule of fees, including variable
prices for different aircraft types, average handling and landing fee costs are
a function of the mix of airports served and the fleet composition of departing
aircraft. On average, handling and landing fee costs for Lockheed L-1011
wide-body aircraft are higher than for narrow-body aircraft, and average costs
at foreign airports are higher than at many U.S. domestic airports. As a result
of the reduction in the Company's narrow-body Boeing 757-200 fleet and the shift
of revenue production towards charter operations, the Company's jet departures
in 1997 included proportionately more international and wide-body operations
than in 1996. In 1997, 21.1% of the Company's jet departures were operated with
wide-body aircraft, as compared to 19.4% in 1996, and 22.4% of the Company's
1997 jet departures were from international locations, as compared to 18.9% in
the prior year.

The cost per ASM for handling, landing and navigation fees increased 3.8%
to 0.55 cents in 1997, from 0.53 cents in 1996.

Depreciation and Amortization. Depreciation and amortization expense
increased 1.3% to $62.5 million in 1997, as compared to $61.7 million in 1996.

Depreciation expense attributable to owned airframes and engines decreased
$0.4 million in 1997 as compared to 1996. The Company reduced its year-over-year
investment in engines and airframe

42
<PAGE>
<PAGE>
improvements due to the reconfiguration of the Boeing 757-200 fleet in the
fourth quarter of 1996. As a result of the net reduction of four Boeing 757-200
aircraft at the end of 1996, as compared to the end of 1995, and the complete
elimination of Pratt & Whitney-powered Boeing 757-200s from the fleet, some
airframe and leasehold improvements were disposed of, and all spare Pratt &
Whitney engines and rotable parts were reclassified as Assets Held for Sale in
the accompanying balance sheet. None of these assets therefore gave rise to
depreciation expense in 1997. The Company did increase its investment in
computer equipment and furniture and fixtures between years; placed the west bay
of the renovated Midway Hangar No. 2 into service in mid-1996; and incurred
increased debt issue costs between years relating to debt facility and senior
unsecured notes issued, as well as and aircraft lease negotiations completed
primarily in the fourth quarter of 1996. These changes, together with increased
costs pertaining to remaining rotable components and the provision for
obsolescence of aircraft parts inventories, resulted in an increase in
depreciation expense of $0.8 million in 1997 as compared to 1996.

Amortization of capitalized engine and airframe overhauls increased $0.4
million in 1997 as compared to 1996 after including the offsetting amortization
associated with manufacturers' credits. Changes to the cost of overhaul
amortization were partly due to the reduction of total block hours and cycles
flown between comparable periods. This expense was also favorably impacted by
the late-1996 reconfiguration of the Boeing 757-200 fleet and, in particular,
the disposal of all Pratt & Whitney-powered Boeing 757-200 aircraft. All
unamortized net book values of engine and airframe overhauls pertaining to the
Pratt & Whitney-powered aircraft were charged to the cost of the disposal of
these assets in the third quarter of 1996. The Company's seven remaining
Rolls-Royce-powered Boeing 757-200 aircraft, four of which were delivered new
from the manufacturer in late 1995 and late 1996, are not presently generating
any engine and airframe overhaul expense since the initial post-delivery
overhauls for the Rolls-Royce-powered Boeing 757-200s are not yet due under the
Company's maintenance programs. The net reduction in engine and airframe
amortization expense in 1997 pertaining to changes in the Company's Boeing
757-200 fleet was approximately $3.5 million as compared to 1996. Engine and
airframe amortization for the Company's fleet of Boeing 727-200 aircraft
increased by approximately $2.6 million in 1997 as compared to 1996 due to the
on-going expansion of this fleet type and due to the completion of new overhauls
for Pratt & Whitney JT8D engines that power the Boeing 727-200 fleet. The
increase between years in engine and airframe amortization expense for the
Company's Lockheed L-1011 fleet was approximately $0.8 million, which was
primarily due to the addition of airframe overhauls to the fleet.

Depreciation and amortization expense per ASM increased 6.5% to 0.49 cents
in 1997, as compared to 0.46 cents in the prior year.

Aircraft Rentals. Aircraft rentals expense for 1997 decreased 16.8% to
$54.4 million in 1997 from $65.4 million in 1996. This decrease was primarily
attributable to the reconfiguration of the Company's Boeing 757-200 fleet in the
fourth quarter of 1996, as a result of which the number of Boeing 757-200
aircraft operated by the Company was reduced by four units. The reduction in the
size of the Boeing 757-200 fleet was an integral component of the Company's 1996
restructuring of scheduled service, based upon profitability analysis which
disclosed that, for some uses of the Boeing 757-200 in the Company's markets, it
was more profitable to substitute other aircraft with lower ownership costs.
Aircraft rentals expense declined by $14.4 million between 1997 and 1996 as a
result of the Boeing 757-200 fleet restructuring.

Four additional Boeing 727-200 aircraft were acquired and financed by
sale/leasebacks at various times during the first three quarters of 1996, while
one Boeing 727-200 aircraft previously on an operating lease was purchased
during the second quarter of 1996, and was subsequently sold and leased back in
September 1997. The net increase in leased Boeing 727-200 aircraft between
years, together with the incorporation of hushkits into new sale/leasebacks of
several Boeing 727-200 aircraft between periods, added approximately $3.2
million in aircraft rentals expense between 1997 and 1996.

Aircraft rentals expense for 1997 was 0.43 cents per ASM, a decrease of
12.2% from 0.49 cents per ASM in 1996. The period-to-period decrease in the size
of the Boeing 757-200 fleet was a significant factor in this change since the
rental cost of ASMs produced by this fleet type was significantly higher than
for the Company's other aircraft.

43
<PAGE>
<PAGE>
Aircraft Maintenance, Materials and Repairs. Aircraft maintenance,
materials and repairs expense decreased 6.7% to $51.5 million in 1997, as
compared to $55.2 million in 1996. The cost per ASM decreased by 2.4% to 0.41
cents in 1997, as compared to 0.42 cents in the prior year.

Repair costs were $4.2 million lower in 1997 as compared to the prior year.
This was due to a reduction in both the total number of repairs performed and
the average unit cost of repairs between periods. Negotiations were completed in
early 1997 with several repair vendors which resulted in reduced unit charges
for some repair activity. Additionally, the Company established a maintenance
disposition board in late 1996 which carefully reviews significant repair
decisions in light of anticipated fleet requirements and the available quantity
of serviceable components in stock.

The cost of expendable parts consumed increased $1.9 million in 1997, as
compared to 1996. The increase in the cost of expendable parts consumed was
closely related to the Company's heavy maintenance check programs for its fleet,
which resulted in several more heavy airframe checks being completed in 1997
than in the previous year.

The cost of maintenance contract labor increased by $2.3 million in 1997,
as compared to 1996. As explained above under 'Salaries, Wages and Benefits,'
the Company increased its utilization of maintenance contract labor in 1997 to
compensate for some shortages of airframe and powerplant mechanics and
engineers.

The cost of parts loans and exchanges was $1.3 million lower in 1997, as
compared to 1996 due to improved internal procedures to limit the need for such
loans and exchanges.

Return condition expenses accrued in 1997 were $1.8 million lower than in
1996, primarily due to the negotiation of new terms and conditions for several
aircraft leases during 1997, which eliminated return condition obligations which
had existed prior to those negotiations.

Crew and Other Employee Travel. The cost of crew and other employee travel
increased 1.9% to $36.6 million in 1997, as compared to $35.9 million in 1996.
During 1997, the Company's average full-time-equivalent cockpit and cabin crew
employment was 8.6% lower as compared to the prior year, even though jet block
hours decreased by only 6.4% between periods. Although the Company did
experience some crew shortages in the first quarter of 1996 associated with
severe winter weather, shortages of both cockpit and cabin crews were more
chronic in the first nine months of 1997, and per-crew-member travel costs were
consequently higher since crews spent greater amounts of time away from their
bases to operate the Company's schedule. In addition, average crew travel costs
for the U.S. military and specialty charter businesses are much higher than for
track charter and scheduled service since these flights more often operate away
from crew bases.

The cost per ASM for crew and other employee travel increased 7.4% to 0.29
cents in 1997, as compared to 0.27 cents in 1996.

Passenger Service. For 1997 and 1996, catering represented 83.0% and 80.4%,
respectively, of total passenger service expense.

The cost of passenger service increased 0.3% in 1997 to $32.8 million, as
compared to $32.7 million in 1996. This change between periods was primarily due
to an increase of approximately 8.4% in the average cost to cater each
passenger, offset by a decrease of 8.3% in jet passengers boarded to 5,210,578
in 1997, as compared to 5,680,496 in 1996. Catering unit cost increased due to a
change in the mix of passengers boarded from fewer scheduled service toward more
charter and military passengers; the latter passengers, particularly military,
are the most expensive passengers to cater in the Company's business mix.
Military and charter passengers accounted for 40.4% of passengers boarded in
1997, as compared to 35.9% of passengers boarded in 1996.

The cost per ASM of passenger service increased 4.0% to 0.26 cents in 1997,
as compared to 0.25 cents in 1996.

Commissions. Commissions expense decreased 2.2% to $26.1 million in 1997,
as compared to $26.7 million in 1996. Scheduled service commissions expense
declined by $2.2 million between periods, primarily as a result of the decline
in total scheduled service revenues earned, and also as a result of an
industry-wide reduction in the standard travel agency commission rate from 10%
to 8% during October 1997. Military and commercial charter commissions expense
increased by $1.9 million and $0.1 million,

44
<PAGE>
<PAGE>
respectively, due to the increased level of commissionable revenues earned in
those business units in 1997, as compared to 1996.

The cost per ASM of commissions expense increased by 5.0% to 0.21 cents in
1997, as compared to 0.20 cents in 1996.

Ground Package Cost. Ground package cost increased 5.5% to $19.2 million in
1997, as compared to $18.2 million in 1996. The increase in cost between periods
was primarily due to a 9.4% increase in the number of Ambassadair ground
packages sold. There was no material change in the average cost of ground
packages sold between years.

Ground package cost per ASM increased by 7.1% to 0.15 cents in 1997, as
compared to 0.14 cents in 1996.

Other Selling Expenses. Other selling expenses decreased 11.9% to $15.5
million in 1997, as compared to $17.6 million in 1996.

CRS fees decreased $1.3 million in 1997, as compared to 1996 due to both a
7.7% decrease in total CRS bookings made for the smaller scheduled service
business unit between periods, and due to a 14.4% reduction in the average cost
of each CRS booking made between years. Toll-free telephone costs decreased $0.7
million between periods due to less usage and lower rates.

Other selling cost per ASM decreased 7.7% to 0.12 cents in 1997, as
compared to 0.13 cents in the previous year.

Advertising. Advertising expense increased 23.3% to $12.7 million in 1997,
as compared to $10.3 million in 1996. The Company incurs advertising costs
primarily to support single-seat scheduled service sales and the sale of
air-and-ground packages. Advertising support for these lines of business was
increased in 1997 consistent with the Company's overall strategy to enhance RASM
in these businesses through increases in load factor and yield. Additionally,
advertising was comparatively low in the third quarter of 1996 due to the
restructuring of numerous scheduled service markets which was initiated in the
latter part of that quarter.

The cost per ASM of advertising increased 25.0% to 0.10 cents in 1997, as
compared to 0.08 cents in 1996. This increase in cost per ASM resulted from
higher absolute advertising dollars being spent in a period of declining ASMs,
but was nevertheless an integral part of the Company's strategy in 1997 to
enhance profitability in the scheduled service business.

Facility and Other Rentals. The cost of facility and other rentals
decreased 10.4% to $8.6 million in 1997, as compared to $9.6 million in 1996.
There were some changes in specific facilities utilized by the Company between
periods, such as the addition of hangar space at Chicago-Midway and the
elimination of airport facilities at Boston. The Company also reduced total
facility expense between years through the sublease of excess facilities to
third parties.

The cost per ASM for facility and other rentals was unchanged between
periods at 0.07 cents.

Other Operating Expenses. Other operating expenses increased 0.9% to $54.3
million in 1997, as compared to $53.8 million in 1996. Other operating expenses
which experienced significant increases between years included (i) the cost of
the Chicago Express Agreement; and (ii) the cost of property and sales taxes.
Other operating expenses which experienced significant decreases between periods
included (i) the cost of insurance; (ii) the cost of data and voice
communications; and (iii) the cost of professional consulting fees. Several
other categories of other operating expenses were lower in 1997 than in 1996,
primarily due to the smaller size of the airline between periods.

Other operating cost per ASM increased 4.9% to 0.43 cents in 1997, as
compared to 0.41 cents in 1996.

Interest Income and Expense. Interest expense in 1997 increased 111.1% to
$9.5 million, as compared to $4.5 million in 1996. The increase in interest
expense between periods was primarily due to the change in the Company's capital
structure from (i) the offering of the 10 1/2% Notes, and (ii) the
implementation of the Credit Facility.

The capital structure of the Company, prior to completing these new
financings, provided for borrowings under the former credit facility to be
constantly adjusted to meet the expected cash flow

45
<PAGE>
<PAGE>
requirements of the Company, thereby minimizing the level of borrowings on which
interest would be paid. Under the new capital structure of the Company, the
borrowings under the 10 1/2% Notes remain fixed at $100.0 million without regard
to actual cash requirements at any point in time. During 1997, the weighted
average borrowings were approximately $117.2 million, as compared to $86.1
million in 1996.

The weighted average effective interest rate applicable to the Company's
borrowings in 1997 was 8.06%, as compared to 5.18% in 1996. The increase in the
weighted average effective interest rates between years was primarily due to the
10.5% interest rate applicable to the 10 1/2% Notes, which was higher than the
average interest rates applicable to borrowings under the former credit
facility.

In order to minimize the interest expense impact of the 10 1/2% Notes, the
Company invested excess cash balances in short-term government securities and
commercial paper and thereby earned $1.6 million in interest income in 1997, an
increase of 166.7% over interest income of $0.6 million earned in 1996.

INCOME TAX EXPENSE

In 1997, the Company recorded $4.5 million in income tax expense applicable
to the income before income taxes for that year, while in 1996 income tax
credits of $12.9 million were recognized pertaining to the loss before income
taxes for that year of $39.6 million. The effective tax rate applicable to 1997
was 73.9%, while the effective tax rate applicable to 1996 was 32.6%.

Income tax expense and credits in both periods were significantly affected
by the non-deductibility for federal income tax purposes of 50% of amounts paid
for crew per diem. The effect of this permanent difference on the effective
income tax rate for financial accounting purposes becomes more pronounced in
cases where before-tax income or loss approaches zero, which was a significant
cause for the unusually high effective tax rate in 1997.

Income tax expense and the effective tax rate for 1997 were also
significantly affected by the one-time $2.0 million charge to salaries, wages
and benefits in the second quarter of 1997 for the prepaid executive
compensation package provided to the Company's former President and Chief
Executive Officer. Of the total compensation paid to this former executive of
the Company in 1997, approximately $1.7 million was permanently non-deductible
against the Company's federal income taxes, and thus constituted an additional
significant permanent difference between income for federal income tax purposes
and financial accounting income in 1997 which did not exist in 1996.

YEAR ENDED DECEMBER 31, 1996, VERSUS YEAR ENDED DECEMBER 31, 1995

CONSOLIDATED FLIGHT OPERATIONS AND FINANCIAL DATA

The following table sets forth, for the periods indicated, certain key
operating and financial data for the consolidated flight operations of the
Company, which includes the consolidated operations of Lockheed L-1011, Boeing
727-200 and Boeing 757-200 aircraft in all of the Company's business units.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 INC (DEC) % INC (DEC)
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Departures(b)............................................... 42,815 46,416 3,601 8.41
Block Hours(c).............................................. 126,295 138,114 11,819 9.36
RPMs (000s)(d).............................................. 8,907,698 9,172,438 264,740 2.97
ASMs (000s)(e).............................................. 12,521,405 13,295,505 774,100 6.18
Load Factor(f).............................................. 71.14 68.99 (2.15) (3.02)
Passengers Enplaned(g)...................................... 5,368,171 5,680,496 312,325 5.82
Revenue $(000s)............................................. 715,009 750,851 35,842 5.01
RASM in cents(h)............................................ 5.71 5.65 (0.06) (1.05)
CASM in cents(i)............................................ 5.56 5.92 0.36 6.47
Yield in cents(j)........................................... 8.03 8.19 0.16 1.99
</TABLE>

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

See footnotes (b) through (j) on pages 23 and 24.

46
<PAGE>
<PAGE>
OPERATING REVENUES

Total operating revenues in 1996 increased 5.0% to $750.9 million from
$715.0 million in 1995. This increase was due to a $24.5 million increase in
scheduled service revenues, a $6.7 million increase in military charter
revenues, a $1.9 million increase in ground package revenues and a $6.0 million
increase in other revenues, partially offset by a $3.1 million decrease in
commercial charter revenues.

Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
flight operations of the Company, which includes the consolidated operations of
Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in scheduled
service.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
--------------------------------------------------
1995 1996 INC (DEC) % INC (DEC)
--------- --------- --------- -----------

<S> <C> <C> <C> <C>
Departures(b)................................................. 27,573 31,467 3,894 14.12
Block Hours(c)................................................ 73,816 85,836 12,020 16.28
RPMs (000s)(d)................................................ 4,673,210 4,918,045 244,835 5.24
ASMs (000s)(e)................................................ 6,604,087 7,304,897 700,810 10.61
Load Factor(f)................................................ 70.76 67.33 (3.43) (4.85)
Passengers Enplaned(g)........................................ 3,304,369 3,551,141 246,772 7.47
Revenue $(000s)............................................... 361,967 386,488 24,521 6.77
RASM in cents(h).............................................. 5.48 5.29 (0.19) (3.47)
Yield in cents(j)............................................. 7.75 7.86 0.11 1.42
Revenue per segment $(k)...................................... 109.54 108.83 (0.71) (0.65)
</TABLE>

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

See footnotes (b) through (j) on pages 23 and 24.

Scheduled service revenues in 1996 increased 6.8% to $386.5 million from
$362.0 million in 1995. Scheduled service revenues comprised 51.5% of total
operating revenues in 1996, as compared to 50.6% of operating revenues in 1995.
Scheduled service RPMs increased 5.2% to 4.918 billion from 4.673 billion, while
ASMs increased 10.6% to 7.305 billion from 6.604 billion, resulting in a
reduction in passenger load factor to 67.3% in 1996 from 70.8% in 1995. Yield on
scheduled service in 1996 increased 1.4% to 7.86 cents per RPM from 7.75 cents
per RPM in 1995. Scheduled service departures in 1996 increased 14.1% to 31,467
from 27,573 in 1995, while passengers boarded increased 7.5% over such period to
3,551,141, as compared to 3,304,369.

Commercial Charter Revenues. Total commercial charter revenues increased
1.1% to $310.6 million in 1996, as compared to $307.1 million in 1995.
Commercial charter revenue growth, prior to scheduled service restructuring in
late 1996, was constrained by the dedication of a significant portion of the
Company's fleet to scheduled service expansion, including the utilization of two
Lockheed L-1011 aircraft for scheduled services to Ireland and Northern Ireland
between May and September 1996.

The analysis of profitability by business unit which was performed by the
Company for the six quarters ended June 30, 1996, disclosed that commercial
charter components had produced consistent profits over the period studied. The
Company's Lockheed L-1011 fleet performed well in a commercial charter
environment based upon relatively low frequency of operation and high passenger
load factors, and the Boeing 727-200 worked well with certain tour operators.
The Company began to implement strategies to improve the financial performance
of commercial charter operations in the third and fourth quarters of 1996, and
commercial charter flying operations are expected to play a role of growing
significance in the Company's business operations.

47
<PAGE>
<PAGE>
The following table sets forth, for the periods indicated, certain key
operating and financial data for the commercial charter flying operations of the
Company.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
--------------------------------------------------
1995 1996 INC (DEC) % INC (DEC)
--------- --------- --------- -----------

<S> <C> <C> <C> <C>
Departures(b)................................................. 11,324 10,920 (404) (3.57)
Block Hours(c)................................................ 39,451 38,154 (1,297) (3.29)
RPMs (000s)(d)................................................ 3,550,527 3,470,450 (80,077) (2.26)
ASMs (000s)(e)................................................ 4,450,261 4,363,220 (87,041) (1.96)
Passengers Enplaned(g)........................................ 1,839,386 1,854,262 14,876 0.81
Revenue $(000s)............................................... 229,500 226,400 (3,100) (1.35)
RASM in cents(h).............................................. 5.16 5.19 0.03 0.58
</TABLE>

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

See footnotes (b) through (h) on page 23.

Commercial charter revenues derived from independent tour operators and
specialty charter decreased 1.4% to $226.4 million in 1996, as compared to
$229.5 million in 1995. Commercial charter revenues comprised 30.2% of
consolidated revenues in 1996, as compared to 32.1% of consolidated revenues in
1995. Commercial charter ASMs decreased 2.0% to 4.363 billion from 4.450
billion, and the RASM on tour operator revenues in 1996 increased 0.6% to 5.19
cents, as compared to 5.16 cents in 1995. Commercial charter passengers boarded
increased 0.8% to 1,854,262 in 1996, as compared to 1,839,386 in 1995, and
departures decreased 3.6% to 10,920 in 1996, as compared to 11,324 in 1995.

Military/Government Charter Revenues. The following table sets forth, for
the periods indicated, certain key operating and financial data for the military
flight business of the Company.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
--------------------------------------------------
1995 1996 INC (DEC) % INC (DEC)
--------- --------- --------- -----------

<S> <C> <C> <C> <C>
Departures(b)................................................. 3,713 3,414 (299) (8.05)
Block Hours(c)................................................ 12,377 12,294 (83) (0.67)
RPMs (000s)(d)................................................ 639,040 665,494 26,454 4.14
ASMs (000s)(e)................................................ 1,382,482 1,442,113 59,631 4.31
Passengers Enplaned(g)........................................ 198,711 185,575 (13,136) (6.61)
Revenue $(000s)............................................... 77,500 84,200 6,700 8.65
RASM in cents(h).............................................. 5.61 5.84 0.23 4.10
</TABLE>

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

See footnotes (b) through (h) on page 23.

Charter revenues derived from the U.S. military increased 8.7% to $84.2
million in 1996, as compared to $77.5 million in 1995. Military charter revenues
comprised 11.2% of consolidated revenues in 1996, as compared to 10.8% of
consolidated revenues in 1995. U.S. military ASMs increased 4.3% to 1.442
billion from 1.382 billion. The RASM on U.S. military revenues in 1996 increased
4.1% to 5.84 cents as compared to 5.61 cents in 1995. U.S. military passengers
boarded decreased 6.6% to 185,575 in 1996, as compared to 198,711 in 1995, and
departures decreased 8.1% to 3,414 in 1996, as compared to 3,713 in 1995.

Ground Package Revenues. Ground package revenues increased 9.3% to $22.3
million in 1996, as compared to $20.4 million in 1995.

In 1996, total packages sold increased 2.4% as compared to 1995, and the
average price of each ground package sold by Ambassadair increased 18.0% as
compared to the prior year.

During 1996, the number of ATA Vacations ground packages sold increased
21.8% as compared to 1995, but the average price of each ground package sold
decreased 16.9% as compared to the prior year.

The average price paid to the Company for a ground package sale is a
function of the mix of vacation destinations served, the quality and types of
ground accommodations offered, and general competitive conditions with other air
carriers offering similar products in the Company's markets. Some ATA Vacations
markets experienced price reductions in 1996 due to intense price competition.

48
<PAGE>
<PAGE>
Other Revenues. Other revenues increased 23.5% to $31.5 million in 1996, as
compared to $25.5 million in 1995. Approximately $3.8 million of the revenue
increase between years was attributable to an increase in the number of block
hours of substitute service provided by the Company to other airlines. The
remaining increase in other revenues between periods was primarily due to
revenue growth in several of the Company's affiliated businesses.

OPERATING EXPENSES

Salaries, Wages and Benefits. Salaries, wages and benefits expense for 1996
increased 16.2% to $164.0 million from $141.1 million in 1995. Approximately
$15.9 million of the increase in 1996 was attributable to the addition of
cockpit and cabin crews, reservations agents, base station staff and maintenance
staff to support the Company's growth in capacity between periods, and
approximately $3.6 million of the increase was attributable to the related
growth in employee benefits costs. Average Company full-time-equivalent
employees increased by 11.7% in 1996 as compared to the prior year, although the
reduction-in-force implemented in late 1996 resulted in approximately 6.1% fewer
full-time-equivalent employees in the fourth quarter of 1996, as compared to the
fourth quarter of 1995. The Company substantially completed this reduction in
force in the fourth quarter of 1996, and recorded $183,000 in related severance
costs in 1996.

Salaries, wages and benefits expense in 1996 was 1.23 cents per ASM, an
increase of 8.8% from a cost of 1.13 cents per ASM in 1995. The cost per ASM
increased partially as a result of a 3.4% increase in the average rate of pay
for the Company's employees as compared to the prior year. In addition, the
Company has increased employment in several maintenance and base station
locations in lieu of continuing the use of third-party contractors, as it
believes it can provide more reliable operations and better customer service at
a lower total cost by using its own employees in these selected locations. The
Company has experienced related savings in the expense lines of handling,
landing and navigation fees, and in aircraft maintenance, materials and repairs,
as further described in those following sections.

In December 1994, the Company implemented a four-year collective bargaining
agreement with its flight attendants, which was the first of the Company's labor
groups to elect union representation. An additional four-year collective
bargaining agreement was ratified by the Company's cockpit crews on September
23, 1996. The pay-related terms of the new cockpit crew agreement were
implemented retroactively to August 6, 1996, including, among other things, a
rate increase of approximately 7.5% to cockpit crew pay scales for the first
year of the new contract.

Fuel and Oil. Fuel and oil expense for 1996 increased 24.4% to $161.2
million from $129.6 million in 1995, due to an increase in fuel consumed to
operate the Company's expanded block hours of flying, an increase in the average
price paid per gallon of fuel consumed and the imposition of a 4.3-cent-per-
gallon excise tax on jet fuel consumed for domestic use effective October 1,
1995.

During 1996, the Company consumed 7.4% more gallons of jet fuel for flying
operations and flew 9.4% more block hours than in 1995, which accounted for
approximately $9.1 million in additional fuel and oil expense between years
(excluding price and tax changes). The growth in gallons of fuel consumed was
lower than the growth in block hours flown between years due to a change in the
mix of block hours flown by fleet type. Of greatest significance was the 4.1%
reduction of total block hours flown by the Lockheed L-1011 fleet between
periods, since the fuel burn per block hour for this wide-body aircraft is
approximately twice as high as the burn rates for the Company's other fleet
types.

During 1996, the Company's average price paid per gallon of fuel consumed
(excluding the excise tax described in the following paragraph) increased by
12.8%, as compared to 1995. Fuel price increases paid by the Company reflected
generally tighter supply conditions for aviation fuel, which persisted
throughout most of 1996 as compared to the prior year. The Company estimates
that the year-over-year increase in average price paid for jet fuel resulted in
approximately $16.1 million in additional fuel and oil expense between periods.

On October 1, 1995, the Company became subject to a 4.3-cent-per-gallon
excise tax on jet fuel consumed for domestic use by commercial air carriers. The
effect of this tax in the first three quarters of 1996, as compared to the first
three quarters of 1995, was to increase the Company's cost of jet fuel by
approximately $6.4 million.

49
<PAGE>
<PAGE>
Fuel and oil expense for 1996 was 1.21 cents per ASM, an increase of 17.5%,
as compared to 1.03 cents per ASM in 1995. The increase in the cost per ASM of
fuel and oil expense was primarily a result of higher prices and the new excise
tax, partially offset by the expanded use of the more-fuel- efficient
twin-engine Boeing 757-200 aircraft in the Company's fleet. During 1996, the
Company's Boeing 757-200 aircraft accounted for 29.4% of total block hours
flown, as compared to 27.8% of total block hours flown in 1995.

Handling, Landing and Navigation Fees. Handling, landing and navigation
fees decreased by 5.8% to $70.1 million in 1996, as compared to $74.4 million in
1995. During 1996, the average cost per system departure for third-party
aircraft handling declined 15.0% as compared to the prior year, and the average
cost of landing fees per system departure decreased 12.2% between the same
periods.

Because each airport served by the Company has a different schedule of
fees, including variable prices for different aircraft types, average handling
and landing fee costs are a function of the mix of airports served as well as
the fleet composition of departing aircraft. On average, these costs for narrow-
body aircraft are less than for wide-body aircraft, and the average costs at
domestic U.S. airports are less than the average costs at most foreign airports.
In 1996, 80.6% of the Company's departures were operated with narrow-body
aircraft, as compared to 77.6% in 1995, and 81.1% of the Company's departures
were from U.S. domestic locations, as compared to 79.6% in 1995.

Handling costs also vary from period to period according to decisions made
by the Company to use third-party handling services at some airports in lieu of
using the Company's own employees. During 1996, the Company implemented a policy
of 'self-handling' at four domestic U.S. airports with significant operations,
which had been substantially handled using third-party contractors in the prior
year. This change resulted in lower absolute third-party handling costs for
these locations and contributed to lower system average contract handling costs
per departure for 1996, as compared to 1995. The Company incurred higher
salaries, wages and benefits expense as a result of this policy change, as noted
in 'Salaries, Wages and Benefits.'

The cost per ASM for handling, landing and navigation fees decreased 10.2%
to 0.53 cents in 1996 from 0.59 cents in 1995.

Depreciation and Amortization. Depreciation and amortization expense for
1996 increased 10.6% to $61.7 million from $55.8 million in 1995.

Depreciation expense attributable to owned airframes and engines, and other
property and equipment owned by the Company, increased $2.9 million in 1996 as
compared to the prior year. The Company increased its year-over-year ownership
of engines and rotable aircraft components to support the expanding fleet, and
increased its investment in computer equipment and furniture and fixtures. The
Company also placed the west bay of the renovated Midway Hangar No. 2 into
service in mid-1996 and incurred increased debt issue costs between years
related to debt facility and aircraft lease negotiations completed in 1996.

Amortization of capitalized engine and airframe overhauls increased $1.9
million in 1996 as compared to the prior year, after including the offsetting
amortization of approximately $1.0 million in associated manufacturers' credits.
The increasing cost of overhaul amortization reflects the increase in the number
of aircraft added to the Company's fleet and the increase in cycles and block
hours flown between years.

The cost of engine overhauls that become worthless due to early engine
failures, and which cannot be economically repaired, is charged to depreciation
and amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these write-offs increased $1.1 million
between years.

Depreciation and amortization cost per ASM increased 2.2% to 0.46 cents in
1996, as compared to 0.45 cents in 1995.

Aircraft Rentals. Aircraft rentals expense for 1996 increased 17.4% to
$65.4 million from $55.7 million in 1995. This increase was attributable to
continued growth in the size of the Company's leased aircraft fleet, although
the Company significantly reduced the size of its Boeing 757-200 fleet in the
fourth quarter of 1996, as is more fully described in 'Disposal of Assets.'

50
<PAGE>
<PAGE>
The addition of three leased Boeing 757-200 aircraft in the first three
quarters of 1996 resulted in approximately $10.6 million of increased aircraft
rentals for that time period, as compared to the prior year. The subsequent
reduction of this fleet type by a net four units (after including two new
deliveries from the manufacturer in December 1996) resulted in a year-over-year
fourth quarter reduction of aircraft rent expense of approximately $3.6 million.
The reduction in the size of the Boeing 757-200 fleet was an integral component
of the Company's restructuring of scheduled service, based upon profitability
analysis which disclosed that for some uses of the Boeing 757-200 in the
Company's markets prior to restructuring, it was more profitable to substitute
other aircraft with lower ownership costs.

Several additional Boeing 727-200 and Lockheed L-1011 aircraft leased in
1996 contributed $2.8 million and $0.5 million, respectively, in incremental
aircraft rentals between years. Aircraft rentals expense was reduced by $0.6
million for the first four months of 1996, as compared to the prior year, due to
the purchase of four Pratt & Whitney spare engines in May 1995, which had been
previously leased. Due to the elimination of all Pratt & Whitney- powered Boeing
757-200 aircraft from the Company's fleet, the Company reclassified these owned
spare engines as 'Assets Held for Sale' in the accompanying balance sheet.

Aircraft rentals expense for 1996 was 0.49 cents per ASM, an increase of
11.4% from 0.44 cents per ASM in 1995. The period-over-period increase in the
size of the Boeing 757-200 fleet was a significant factor in this change, since
the rental cost of ASMs produced by this fleet type is significantly higher than
for the Company's other aircraft.

Aircraft Maintenance, Materials and Repairs. Aircraft maintenance,
materials and repairs expense decreased 0.4% to $55.2 million in 1996, as
compared to $55.4 million in 1995. The cost per ASM decreased by 4.5% to 0.42
cents in 1996, as compared to 0.44 cents in the prior year.

Although the cost of repairs for repairable and rotable components
increased $1.4 million between periods, the cost of expendable parts consumed
decreased $2.1 million, and the cost of parts loans and exchanges decreased $0.6
million. Aircraft maintenance, materials and repairs cost was also reduced by
$0.8 million in 1996, as compared to 1995, due to a planned reduction in the use
of third-party maintenance staff in favor of using more Company maintenance
employees for both base and line maintenance activities. The Company incurred
higher salaries, wages and benefits expense as a result of this policy change,
as noted in a preceding section.

The cost of the Company's maintenance, materials and repairs remained
essentially unchanged in 1996, as contrasted with the 6.2% increase in ASMs
between years, and the 9.4% increase in block hours. This favorable comparison
is partly due to the significant expansion of the Company's fleet during 1996.
When used aircraft are initially brought into the Company's fleet, the cost of
maintenance, materials and repairs required to bridge that aircraft into the
Company's maintenance program are capitalized. Such expenditures normally extend
the available flying hours for that aircraft before routine heavy maintenance,
materials and repairs expenses begin to be incurred, although those aircraft
begin producing both ASMs and block hours immediately upon acquisition. The more
favorable comparison to block hours between years is also indicative of the
faster growth in the Company's twin-engine Boeing 757-200 fleet, which is
composed of newer and more technologically advanced aircraft which require
relatively less routine maintenance than the Company's older three-engine
Lockheed L-1011 and Boeing 727-200 fleets. The Boeing 757-200 fleet accounted
for 29.4% of block hours in 1996, as compared to 27.8% in 1995.

Return condition expenses accrued in 1996 were $1.1 million more than in
1995. This increase was primarily due to changes in the mix of aircraft leases
and associated return conditions which became effective during 1996, offset by
both the extensive restructuring of the Boeing 757-200 fleet and the
sale/leaseback of six hushkitted Boeing 727-200 aircraft during 1996 under new
lease terms and conditions.

Crew and Other Employee Travel. The cost of crew and other employee travel
increased 14.0% to $35.9 million in 1996, as compared to $31.5 million in 1995.
During 1996, the Company increased its average full-time-equivalent crew
employment by 4.1% as compared to the prior year, even though departures
increased by 8.4% and block hours increased by 9.4% between periods. In the
first quarter of 1996, the Company experienced crew shortages, which were
exacerbated by severe winter weather,

51
<PAGE>
<PAGE>
causing significant flight delays, diversions and cancellations. The Company's
crew complement in the third quarter of 1996 was again insufficient to
effectively operate the flying schedule and resulted in more crew time being
spent away from base during that quarter.

The cost per ASM for crew and other employee travel increased 8.0% to 0.27
cents in 1996, as compared to 0.25 cents in the prior year. This increase in
unit cost was approximately equivalent to a 9.0% average increase in the cost
per crew member of hotel, positioning and per diem expenses between years.

Passenger Service. For 1996 and 1995, catering represented 80.3% and 84.9%,
respectively, of total passenger service expense. The cost of passenger service
decreased 6.0% in 1996 to $32.7 million, as compared to $34.8 million in 1995.
Although total passengers boarded increased by 5.8% to 5,680,496 in 1996, as
compared to 5,368,171 in 1995, the average cost to cater each passenger declined
19.1% between years due to a planned reduction in catering service levels in
select charter and scheduled service markets beginning in the second quarter of
1995. This cost reduction was partially offset by a 6.6% increase in military
passengers boarded between years, which are the most expensive passengers to
cater in the Company's business mix.

The cost of servicing passengers who were inconvenienced by flight delays
and cancellations increased by $1.4 million between years. Approximately $0.7
million of this increase was incurred in association with the severe winter
weather and consequent flight schedule disruptions which occurred in the first
quarter of 1996.

The cost per ASM of passenger service decreased 10.7% to 0.25 cents in
1996, as compared to 0.28 cents in the prior year. The lower cost per ASM was
primarily due to the lower cost of catering per passenger boarded, partially
offset by the higher cost per ASM of servicing inconvenienced passengers.

Commissions. Commissions expense increased 7.7% to $26.7 million in 1996,
as compared to $24.8 million in 1995. The primary reason for the increase
between years was the corresponding increase in scheduled service revenues
earned, approximately two-thirds of which was generated through travel agencies
which received a commission on such sales. The cost per ASM of commissions
expense was unchanged at 0.20 cents for both 1996 and 1995.

Ground Package Cost. Ground package cost increased 14.5% to $18.2 million
in 1996, as compared to $15.9 million in 1995. This increase in cost was
primarily due to the increase in the number of ground packages sold between
periods. In 1996, Ambassadair sold 2.4% more ground packages, and ATA Vacations
sold 21.8% more ground packages, than in 1995. The average cost of each ground
package sold by Ambassadair increased 19.9% between years, while the average
cost of each ground package sold by ATA Vacations decreased by 11.2% between
periods.

Ground package cost per ASM increased by 7.7% to 0.14 cents in 1996, as
compared to 0.13 cents in 1995, reflecting the comparatively faster growth in
ground package sales produced by Ambassadair and ATA Vacations as compared to
the overall ASM growth of the Company between years.

Other Selling Expenses. Other selling expenses increased 18.1% to $17.6
million in 1996, as compared to $14.9 million in 1995. Approximately $1.1
million and $0.2 million, respectively, of this increase was attributable to
more credit card discounts and CRS fees incurred to support the growth in
scheduled service between years. Another $1.2 million of the increase was due to
higher usage of toll-free telephone service between periods, some of which was
associated with the accommodation of passengers onto other carriers' flights due
to the Company's reduction of scheduled service in the third and fourth quarters
of 1996. Other selling cost per ASM increased 8.3% to 0.13 cents in 1996, as
compared to 0.12 cents in 1995.

Advertising. Advertising expense increased 15.7% to $10.3 million in 1996,
as compared to $8.9 million in 1995. Advertising support for single-seat
scheduled service and ground package sales increased consistent with the growth
in associated revenues and the need to meet competitive actions in the Company's
markets. The cost per ASM of advertising increased 14.3% to 0.08 cents in 1996,
as compared to 0.07 cents in 1995.

Facilities and Other Rentals. The cost of facilities and other rentals
increased 29.7% to $9.6 million in 1996, as compared to $7.4 million in 1995.
The increase in expense noted for 1996 was partly

52
<PAGE>
<PAGE>
attributable to higher facility costs resulting from the Company becoming a
signatory carrier at Orlando International Airport, together with a
year-over-year increase in facility costs for Boston operations prior to the
elimination of scheduled service at Boston in the fourth quarter of 1996. The
increased facility costs at Orlando International Airport have associated
savings in lower handling and landing fees for the Company's flights at that
airport.

Also in 1996, the Company incurred higher facility rental expense in
association with the late 1995 sale/leaseback of the Indianapolis hangar to the
City of Indianapolis, for the Chicago-Midway Hangar No. 2 and for the new
Chicago reservations facility, which was first occupied in September 1995.

The cost per ASM for facility and other rents increased 16.7% to 0.07 cents
in 1996, as compared to 0.06 cents in 1995.

Disposal of Assets. During the third quarter of 1996, the Company committed
to a plan to dispose of up to seven Boeing 757-200 aircraft. A letter of intent
was signed with a major lessor on July 29, which included the cancellation of
operating leases on five aircraft and the return of those aircraft to the lessor
before the end of 1996. Negotiations also commenced with a major lessor during
the third quarter for the cancellation of operating leases on two additional
aircraft in 1996.

During the third quarter, the Company recorded an estimated loss on
disposal of the initial five aircraft according to the terms and conditions
negotiated and agreed in the letter of intent.These aircraft transactions were
all completed during the fourth quarter of 1996, at which time the estimated
loss on disposal was reduced by $0.2 million to an actual loss of $4.5 million.

The source of the loss on the termination of these aircraft leases was
primarily from the write-off of the unused net book value of the associated
airframe and engine overhauls. For several aircraft, the Company was required to
meet additional maintenance return conditions associated with airframes and
engines, the cost of which was charged to the loss on disposal. These costs were
partially offset by cash proceeds received from the lessor and by the
application of associated deferred aircraft rent credits and manufacturers'
credits.

In addition to these costs, the Company also owned four spare Pratt &
Whitney engines, together with consumable, repairable and rotable components
specific to the Pratt & Whitney-powered Boeing 757-200s. The net book value of
these engines and parts approximated $14.1 million as of December 31, 1996, and
were reclassified as Assets Held For Sale in the accompanying balance sheet.

Other Expenses. Other operating expenses increased 15.6% to $54.0 million
in 1996, as compared to $46.7 million in 1995. Significant components of the
year-over-year variance included increases in substitute service and passenger
reprotection costs, professional fees, data communications costs, insurance
costs and consulting fees in connection with the detailed route profitability
study.

Other operating cost per ASM increased 10.8% to 0.41 cents in 1996, as
compared to 0.37 cents in 1995.

INCOME TAX EXPENSE

In 1996, the Company recorded $12.9 million in tax credits applicable to
the loss before income taxes for that year, while income tax expense of $6.1
million was recognized pertaining to income before income taxes for 1995. The
effective tax rate applicable to tax credits in 1996 was 32.6%, and the
effective tax rate for income earned in 1995 was 41.8%. The Company's effective
income tax rates were unfavorably influenced by the permanent non-deductibility
from taxable income of 50% of crew per diem expenses incurred in both years. The
impact of this permanent difference on effective tax rates becomes more
pronounced as taxable income or loss approach zero.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows. The Company has historically financed its working capital and
capital expenditure requirements from cash flow from operations and long-term
borrowings from banks and other lenders. As described further below, in the
third quarter of 1997, the Company completed two separate financings designed to
lengthen the maturity of its long-term debt and diversify its credit sources,

53
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<PAGE>
including the issuance of unsecured notes and a revolving credit facility with
an extended maturity, lower interest rate and less restrictive covenants than
the former credit facility.

In the first quarters of 1997 and 1998, net cash provided by operating
activities was $20.6 million and $43.9 million, respectively. The increase in
cash provided by operating activities between quarters was attributable to such
factors as increased earnings, growth in scheduled service air traffic liability
associated with advanced ticket sales, and other factors.

Net cash used in investing activities was $26.0 million and $29.6 million,
respectively, for the first quarters of 1997 and 1998. Such amounts primarily
included capital expenditures totaling $20.4 million in the first quarter of
1997 and $26.9 million in the same period of 1998 for engine overhauls, airframe
improvements and the purchase of rotable parts.

Net cash used in financing activities was $2.1 million and $9.6 million,
respectively, for the first quarters of 1997 and 1998. Debt repayments in the
1998 period included $4.8 million to repay a short-term note issued in
connection with the purchase of a Boeing 727-200 aircraft in December 1997, plus
$4.8 million in other scheduled debt repayments.

For 1995, 1996 and 1997, net cash provided by operating activities was
$87.1 million, $32.2 million and $99.9 million, respectively. The increase in
cash provided by operating activities between 1996 and 1997 was attributable to
such factors as increased earnings, growth in scheduled service air traffic,
liability associated with advanced ticket sales, the liquidation of certain
assets held for sale, and other factors. The decrease in cash provided by
operating activities between 1995 and 1996 was due primarily to the lower
profitability between years, coupled with the reduction in air traffic liability
associated with the 1996 restructuring of scheduled service.

Net cash used in investing activities was $44.0 million, $63.2 million and
$76.1 million, respectively, for 1995, 1996 and 1997. Such amounts included cash
capital expenditures totaling $57.8 million in 1995, $69.9 million in 1996, and
$84.2 million in 1997 for engine overhauls, airframe improvements and the
purchase of rotable parts. Cash capital expenditures were supplemented with
other capital expenditures, financed directly with debt, totaling $31.7 million
in 1995, $0.0 million in 1996 and $35.4 million in 1997. The $35.4 million in
new debt issued in 1997 was to directly finance the purchase of one Boeing
757-200 aircraft and one Boeing 727-200 aircraft, both of which had previously
been subject to leases accounted for as operating leases.

Net cash provided by (used in) financing activities was ($12.1) million,
$11.6 million and $6.9 million, respectively, in 1995, 1996 and 1997. Debt
proceeds in the 1997 period included $100.0 million in proceeds from the
issuance of the 10 1/2% Notes and $34.0 million in proceeds from borrowing
against the Credit Facility. Debt proceeds in the 1996 period primarily included
the addition of $15.0 million in revolving credit facility availability for
financing the installation of hushkits on Boeing 727-200 aircraft. Payments on
long-term debt in the 1997 period primarily included the full repayment of the
former credit facility of $122.0 million.

Aircraft and Fleet Transactions. In November 1994, the Company signed a
purchase agreement for six new Boeing 757-200s which, as subsequently amended,
now provides for seven total aircraft to be delivered between late 1995 and late
1998. The Company accepted delivery of the first five aircraft under this
agreement in September and December 1995, November and December 1996, and
November 1997, all of which were financed under leases accounted for as
operating leases. The final two deliveries under this agreement are scheduled
for July 1998 and December 1998. Advanced payments totaling approximately $12.6
million ($6.3 million per aircraft) are required prior to delivery of the two
remaining aircraft, with the remaining purchase price payable at delivery. As of
March 31, 1997 and 1998 the Company had recorded $5.9 million and $11.0 million,
respectively, in advanced payments applicable to aircraft scheduled for future
delivery. The Company intends to finance the remaining two deliveries under this
agreement through sale/leaseback transactions accounted for as operating leases.
In conjunction with the Boeing purchase agreement, the Company entered into a
separate agreement with Rolls-Royce Commercial Aero Engines Limited for 15
RB211-535E4 engines to power the seven Boeing 757-200 aircraft and to provide
one spare engine. Under the Rolls-Royce agreement, which became effective
January 1, 1995, Rolls-Royce has provided the Company various spare parts
credits and engine overhaul cost guarantees. If the Company does not take
delivery of the engines, a prorated

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amount of the credits that have been used are required to be refunded to
Rolls-Royce. The aggregate purchase price under these two agreements is
approximately $50.0 million per aircraft, subject to escalation.

The Company purchased an additional Rolls-Royce-powered Boeing 757-200
aircraft from an aircraft lessor in September 1997, financing this purchase
through a payment of cash and the issuance of a $30.7 million note which, as
amended, matures on July 15, 1999. The note requires monthly payments of
$400,000 in principal and interest from October 15, 1997 through June 15, 1999,
with the balance due at maturity. The Company currently intends to sell this
aircraft and repay this note, subject to a short-term rental agreement under
which the aircraft would continue to be operated by the Company.

In the second quarter of 1996, the Company purchased a Boeing 727-200
aircraft which had been previously financed by the Company through a lease
accounted for as an operating lease. This aircraft was financed through a
separate bridge debt facility until the completion of a sale/leaseback
transaction during the third quarter of 1997. In the fourth quarter of 1997, the
Company purchased an additional Boeing 727-200 aircraft which had been
previously financed by the Company through a lease accounted for as an operating
lease, financing this purchase through the issuance of a short-term note and a
payment of cash. The Company currently expects to finance this aircraft through
a sale/leaseback transaction accounted for as an operating lease in 1998.

10 1/2% SENIOR NOTES DUE 2004

The following summary of the material provisions of the 10 1/2% Notes does
not purport to be complete, and is subject to, and qualified in its entirety by
reference to, the 10 1/2% Indenture (as defined) and the other applicable
documentation, copies of which are available from the Company upon request.

The 10 1/2% Notes were issued on July 24, 1997 in the aggregate principal
amount of $100.0 million and will mature on August 1, 2004. The 10 1/2% Notes
are unsecured senior obligations of the Company unconditionally guaranteed on an
unsecured basis by ATA and the Company's other operating subsidiaries.

The 10 1/2% Notes are redeemable, at the Company's option, in whole or in
part, at any time on or after August 1, 2002, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the 12-month period beginning on August 1 of the years indicated below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------ ----------

In addition, at any time prior to August 1, 2000, the Company may redeem up
to 35% of the original aggregate principal amount of the 10 1/2% Notes with the
proceeds of one or more sales of common stock, at any time or from time to time
in part, at a redemption price equal to 110.500% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
redemption, provided that at least $65 million of aggregate principal amount of
10 1/2% Notes remains outstanding immediately after such redemption.

Under the Indenture relating to the 10 1/2% Notes (the '10 1/2%
Indenture'), the Company is subject to covenants, including, among other things,
limitations on: (i) the incurrence of indebtedness (ii) the making of certain
restricted payments; (iii) the creation of restrictions on the payment by
certain subsidiaries of dividends and certain other payments; (iv) the issuance
and sale of capital stock by certain subsidiaries; (v) the issuance of
guarantees by certain subsidiaries; (vi) certain transactions with shareholders
and affiliates; (vii) the creation of liens on certain assets or properties;
(viii) certain types of sale/leaseback transactions (however the 10 1/2%
Indenture does not generally restrict the ability to enter into operating
leases); and (ix) certain asset sales. Additionally, the Company will have to
consummate an offer to purchase the outstanding 10 1/2% Notes at a price equal
to 101% of the principal amount thereof, plus accrued interest (if any), upon
the occurrence of a change in control (for purposes of the 10 1/2% Indenture, a
change of control will occur when a person or group acquires more than 35%

55
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<PAGE>
of total voting power of the voting stock of the Company and such ownership
represents a greater percentage of total voting power of the voting stock of the
Selling Shareholder and his affiliates and either (i) there is a downgrade or
potential downgrade of any of the Company's securities or (ii) individuals who
were directors of the Company on July 24, 1997 (or individuals whose nominations
by the directors for election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors in office on July 24, 1997) cease
to constitute a majority of directors then in office).

The 10 1/2% Indenture contains various events of default, including (i)
defaults in the payment of principal, premium or interest, (ii) defaults in the
compliance with certain covenants contained in the 10 1/2% Indenture, (iii) the
failure to pay at maturity or upon acceleration of more than $10 million in
aggregate of other indebtedness, (iv) failure to pay more than $10 million of
judgments that have not been stayed by appeal or otherwise and (v) certain
events including the bankruptcy of the Company or certain of its subsidiaries.

CREDIT FACILITIES

The following summary of the material provisions of the Credit Facility
does not purport to be complete, and is subject to, and qualified in its
entirety by reference to, the Credit Facility, a copy of which is available from
the Company upon request.

ATA is the borrower under the Credit Facility which is guaranteed by the
Company and each of the Company's other subsidiaries (including future
subsidiaries). The Credit Facility provides for a $50 million revolving line of
credit, including up to $25 million for stand-by letters of credit. The Credit
Facility will terminate, and all amounts borrowed thereunder will become due and
payable on April 1, 2001. Borrowings under the Credit Facility are secured by
certain Lockheed L-1011 aircraft and engines and such additional assets as may
be required to provide a loan to value ratio not in excess of 75%.

So long as no event of default (as defined in the Credit Facility) is
continuing, borrowings under the Credit Facility bear interest, at the option of
ATA, at either (i) LIBOR plus 1.50% to 2.50% (depending on certain financial
ratios) or (ii) the Agent Bank's prime rate plus 0% to 0.50% (depending on
certain financial ratios). ATA incurs a quarterly commitment fee ranging from
0.25% to 0.50% per annum on the average unused portion of the commitment
(depending on certain financial ratios).

The Credit Facility contains covenants which, absent the prior written
consent of the Required Banks (as defined in the Credit Facility), among other
things, limit the amount of debt that the Company, ATA or any of their
subsidiaries may incur, limit the placement of liens on the Company's, ATA's or
any of their subsidiaries' assets, restrict the ability of the Company, ATA or
any of their subsidiaries to make capital expenditures, restrict the payment of
dividends, distributions to stockholders and other similar payments, restrict
the ability of the Company, ATA or any of their subsidiaries to merge with or
into another person or sell or dispose of their assets and prevent the Company,
ATA or any of their subsidiaries from prepaying or redeeming indebtedness,
including the 10 1/2% Notes. Further, covenants require that, for specified
periods, ATA maintain a minimum tangible net worth of at least $50 million plus
50% of net profits as of the end of each fiscal quarter, certain specified
ratios of cash flow to interest expense and aircraft rentals, and total adjusted
liabilities to tangible net worth.

The Company has recently amended the Credit Facility such that, effective
on the closing of the Offering, events of default thereunder include, among
other things, (i) a reduction below 21% in J. George Mikelsons' or his heirs'
beneficial ownership of the Company's outstanding capital stock, or (ii) a
reduction below 51% in the Company's beneficial ownership of ATA's outstanding
capital stock.

The Company also maintains a $5.0 million revolving credit facility
available for its short-term borrowing needs and for securing the issuance of
letters of credit. Borrowings against this credit facility bear interest at the
lender's prime rate plus 0.25% per annum. There were no borrowings against this
facility as of March 31, 1997 or 1998; however, the Company did have outstanding
letters of credit secured by this facility aggregating $4.0 million and $3.5
million, respectively. No amounts had been drawn against letters of credit at
March 31, 1997 or 1998.

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<PAGE>
As of March 31, 1998, the Company had borrowed $30.0 million against its
existing Credit Facility, of which $30.0 million was repaid on April 1, 1998. As
of March 31, 1997, the Company had borrowed $115.0 million against its then
existing credit facility, of which $60.0 million was repaid April 1, 1997.

Assets Held for Sale. At March 31, 1998 the Company had classified $7.2
million in net book value of two spare Pratt & Whitney engines as Assets Held
for Sale in the accompanying balance sheet. In July 1997, the Company sold two
similar spare Pratt & Whitney engines, and during the first quarter of 1998 also
sold related Pratt & Whitney parts and materials, neither of which sale resulted
in a material gain or loss. The net book value of the two remaining spare
engines approximates fair market value, and the Company continues to market
these engines to users of the Pratt & Whitney power plants.

Stock Repurchase Program. In February 1994, the Board approved the
repurchase of up to 250,000 shares of the Company's common stock. Between 1994
and 1996, the Company repurchased 185,000 shares of common stock under this
program. No shares were repurchased during 1997 or the first quarter of 1998.

Subsequent Purchase Commitments and Options For Boeing 727-200 Aircraft.
The Company has signed purchase agreements to acquire 11 Boeing 727-200ADV
aircraft at agreed prices. Nine of these aircraft are currently leased by the
Company. The other two aircraft, currently on lease to another airline, may be
purchased in either February, August or October 1999, depending upon the
exercise of lease extension options available to the current lessee.

The Company currently intends to install engine hushkits on these Boeing
727-200 aircraft in order to meet Stage 3 noise requirements for its fleet.

YEAR 2000

The Year 2000 Project. In the fourth quarter of 1997 the Company initiated
a Year 2000 Project to address this issue. During the first quarter of 1998 the
Company inventoried its internal computer systems, facilities infrastructure,
aircraft components and other hardware, and completed a year 2000 risk
assessment for these items. The Company also began active participation on the
Year 2000 Committee of the Air Transport Association, an airline industry trade
association. This committee represents most major U.S. airlines and is
evaluating the year 2000 readiness of federal, state and local governments to
provide reliable operations for airports and air traffic control systems beyond
December 1999.

Renovation, testing and implementation of systems for year 2000 readiness
is now in progress and will be ongoing through the end of 1999. Renovation of
systems will include several different strategies such as the conversion,
replacement, upgrade or elimination of selected hardware platforms,
applications, operating systems, databases, purchased packages, utilities and
internal and external interfaces. The Company plans to use both internal and
external consulting resources to complete these modifications.

Computer Infrastructure. The Company currently uses approximately 650
separate computer infrastructure components to support various aspects of its
world-wide operations. Such components include major software packages (both
purchased and internally developed), operating systems for computers, computer
hardware and peripheral devices, and local and wide-area communications
networks. Based upon the Company's risk assessment completed in the first
quarter of 1998, it currently believes that over 50% of its computer
infrastructure components are fully compliant with year 2000 standards.
Approximately 170 projects have been identified to address components which are
not believed to be year 2000 compliant and to test those components believed to
be compliant. Although work on non-critical components will continue throughout
1999, the Company plans to ensure

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<PAGE>
compliance of all mission-critical components by July 1999, and all
forward-looking systems prior to the date when they might be impacted.

Properties and Facilities Infrastructure. The Company currently uses
approximately 40 computer-dependent systems in its properties and facilities for
such purposes as providing heat and light, electrical power and security. These
systems were inventoried during the first quarter of 1998, and all maintenance
contracts were also evaluated. The Company presently believes that there are no
significant issues for these systems which would prevent achieving year 2000
readiness by the end of 1999. A certification of compliance is being requested
from each supplier associated with these systems, and the Company has prepared
approximately 25 project plans to test the year 2000 readiness of these systems.

Aircraft Computer Components. The Company is dependent upon a number of
computer devices on board its aircraft which are used to support such activities
as radio communications, air navigation, and certain flight instruments and
controls, among other things. These devices are supplied by large third party
vendors such as aircraft manufacturers and avionics and aircraft parts
suppliers. The Company has completed a year 2000 assessment of these devices in
cooperation with the third party vendors, and currently believes that only a
small number of aircraft computer components are not presently year 2000
compliant. The Company is in the process of obtaining year 2000 compliance
certification from these vendors, as well as determining what corrective steps
will be needed to bring all such components into compliance with year 2000
standards.

Vendor and Supplier Readiness. The Company is dependent upon a number of
vendors and suppliers to provide essential goods and services to operate the
Company's flight schedule throughout the world. For example, the Company
consumed over 200 million gallons of jet fuel in 1997 which was supplied by
several dozen vendors at hundreds of delivery points throughout the world. Fuel
vendors are dependent upon a large number of computer devices in providing these
services to the Company, and the failure of such devices to operate correctly
during and after the year 2000 could result in the inability of such suppliers
to meet their fuel delivery commitments to the Company, in which case the
Company could suffer serious disruptions to its flight schedule due to lack of
fuel. The Company is therefore communicating with all such major vendors and
suppliers to ascertain what actions these vendors are taking to ensure their
readiness to provide essential goods and services to the Company after 1999. The
Company is requesting written certification of year 2000 readiness from all
essential suppliers, and will further take such steps as it believes are
necessary to validate such compliance.

Domestic and International Airports. The Company flies to over 400
individual airports world-wide each year. The smooth operation of many airports
used by the Company is highly dependent upon computer systems and hardware
devices. Such airports are typically operated by governmental or quasi-
governmental agencies, both foreign and domestic, who are primarily responsible
for the installation and operation of all computer devices at those airports.
Computers and software packages control such aspects of airport operations as
radar tracking of aircraft, instrument landing systems, air and ground
communications, runway lighting, baggage delivery, environmental controls such
as heat and lighting, passenger security screening, and arrivals and departures
data display.

Other governmental agencies use computers to provide essential services at
airports, such as customs and immigration screening and weather reporting. The
safe and efficient operation of the Company's aircraft in airspace between
airports is also highly dependent on computer systems and hardware which are
operated and maintained primarily by domestic and foreign governmental agencies.
In the United States, the Federal Aviation Administration has primary
responsibility for the operation of the domestic air traffic control system,
including regional air traffic control and radar systems.

As a member of the Air Transport Association Year 2000 Committee, the
Company is participating with other airlines to test and validate the year 2000
readiness of the air transportation infrastructure such as airports and air
traffic control systems. At present, no comprehensive inventory and risk
assessment of airport and air traffic control systems has been completed, and
therefore the Company cannot determine to what degree, if any, the air
transportation infrastructure is at risk of failing to meet year 2000 readiness
standards. In addition, the Company cannot presently estimate what cost, if any,
will be incurred by the Company to make modifications to its aircraft or other
systems or hardware to

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comply with requirements which may be imposed before the year 2000 by
governmental agencies as part of their efforts to prepare for operations in the
year 2000 and beyond.

Estimated Costs of Achieving Year 2000 Readiness. Based upon all data
currently available to the Company, it presently estimates that the total cost
of meeting year 2000 standards, including computer and facilities
infrastructure, aircraft and airports, will range between $6.0 and $8.0 million.
Such estimated cost includes approximately $4.0 million in expenditures to
acquire new software and hardware to replace non-compliant computer devices, as
well as from $2.0 to $4.0 million in labor and related expenses to perform all
year 2000 project work to insure the readiness of remaining computer devices for
operation after 1999. The range of labor cost estimates between $2.0 and $4.0
million is due to the different costs of internal and external labor needed to
perform this work, as well as the potential increase in all technology labor
costs due to year 2000-related skills shortages which may occur before the end
of 1999. Approximately 40% of the aforementioned capital and labor costs
represents the cost of already budgeted 1998 systems upgrade or replacement
projects which are being pursued for reasons other than year 2000 compliance,
however, year 2000 compliance will be one of the by-products. It is possible
that the Company will determine that additional costs beyond those estimated
above will be required to complete all year 2000 activities as testing and
implementation proceeds through the end of 1999. The Company expects to incur
most of these costs during 1998 and 1999, with no significant portion of these
costs having been incurred in 1997.

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BUSINESS

SCHEDULED SERVICE

The Company provides scheduled service through ATA to selected destinations
primarily from its gateways at Chicago-Midway, Indianapolis and Milwaukee and
also provides transpacific services between the western United States and
Hawaii. The Company focuses on routes where it believes it can be a leading
provider of non-stop service and targets leisure and value-oriented business
travelers. In the third quarter of 1997, according to the most recently
available DOT statistics, the Company was the leading carrier on over
70% of its non-stop scheduled service routes and one of the top two
carriers on over 90% of its non-stop scheduled service routes.

The Company believes that it has significant competitive advantages in each
of its primary markets:

Chicago-Midway, the Company's largest and fastest growing gateway,
represented approximately 44% of the Company's total scheduled service
capacity in 1997. The Company is the number one carrier in terms
of market share in 9 out of its 10 non-stop routes from Chicago-Midway.
The Company believes its service at this gateway would be difficult to
replicate because of limited available airport capacity and airport
restrictions which require higher performance aircraft on the majority of
the Company's routes. The Company's market position is also enhanced by
Chicago-Midway's proximity to downtown Chicago and a substantial
population within the metropolitan region, as well as the severe airspace
constraints at Chicago-O'Hare. The Company began service at Chicago-Midway
in December 1992.

Hawaii represented approximately 25% of the Company's total scheduled
service capacity in 1997. The Company believes it is the lowest
cost provider of scheduled service between the western United States and
Hawaii, which is critical in this price sensitive, predominantly
leisure-oriented market. Furthermore, approximately 80% of the Company's
capacity in the Hawaiian market is prepurchased by the nation's largest
independent Hawaiian tour operator, which assumes capacity, yield and fuel
risk. The Company has served the Hawaiian market since 1974 through its
commercial charter operations and since 1987 through its scheduled service
operations.

Indianapolis represented approximately 21% of the Company's total
scheduled service capacity in 1997. The Company began scheduled
service from Indianapolis in 1986 and believes that it benefits from being
perceived as the hometown airline. The Company is the number one provider
in terms of market share in 8 of its 9 non-stop routes from Indianapolis.
In Indianapolis, the Company operates Ambassadair, the nation's largest
travel club with approximately 35,000 individual or family memberships,
providing the Company with a local marketing advantage similar to a
frequent flier program.

Milwaukee represented approximately 6% of the Company's total scheduled
service capacity in 1997. The Company believes it enjoys a significant
cost advantage versus its competitor in this market and consequently
is able to offer what it believes to be the only low fare alternative
on most of the routes it serves from Milwaukee and therefore. The
Company has served Milwaukee since 1980 through its commercial charter
operations and since December 1993 through its scheduled service
operations.

COMMERCIAL CHARTER SERVICE

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aircraft fleet and worldwide operating capability. Management believes its
commercial charter services are a predictable source of revenues and operating
profits in part because its commercial charter contracts require tour operators
to assume capacity, yield and fuel price risk, and also because of the Company's
ability to readily re-deploy assets into favorable markets.

MILITARY/GOVERNMENT CHARTER SERVICE

STRATEGY

Participate in Markets Where it Can Be a Leader. The Company focuses
on markets where it can be a leading provider of airline services. In
scheduled service, the Company concentrates on routes where it can be the
number one or number two carrier. The Company achieves this result
principally through superior non-stop schedules, value-oriented service,
focused marketing efforts and certain airport and aircraft advantages. The
Company is the leading provider of commercial and military charter services
in large part because of its variety of aircraft types, superior
operational performance and its worldwide service capability combined with
a proven history of reliable service and long standing relationships with
its customers.

Maintain Low Cost Position. For 1997, the Company's operating cost per
ASM of 6.09[c] was the lowest among large U.S. passenger airlines. The
Company believes that its low cost structure provides a significant
competitive advantage, allowing it to operate profitably while pricing
competitively fare in the scheduled service and commercial and military
charter markets. The Company believes its low cost position is primarily
derived from its simplified product, route structure, low aircraft
ownership costs and low overhead costs.

Target Growth Opportunities. The Company intends to expand its
operations selectively in areas where it believes it can achieve attractive
financial returns. The Company will focus scheduled service growth
principally on Chicago-Midway, where the Company intends to increase
frequencies to certain existing destinations and add approximately 3 to 5
new markets (including New York-LaGuardia) over the next 18 months. To
support this expansion, the Company plans to acquire or lease up to 5
additional aircraft (up to 3 Boeing 757s and 2 Boeing 727s). In its
commercial and military charter service, the Company has a letter of
intent to purchase 5 Lockheed L-1011-500s which the Company expects will
provide a market advantage, enabling it to offer a low capital cost
long-range aircraft seating 307 passengers. This will allow the Company
to compete for business that it cannot now accommodate (e.g., non-stop
service to destinations in South America, Europe and Asia) and that most
competitors can only serve using a larger aircraft, such as the Boeing
747 or DC-10, which are often viewed as too large in both the commercial
and military charter markets. The Company believes the combined effect
of fleet additions and increased asset utilization will result in
approximately 10% and 15% ASM growth in 1998 and 1999, respectively.

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INDUSTRY OVERVIEW

SCHEDULED AIRLINE SERVICE

In the United States, the scheduled airline business is dominated by major
scheduled airlines, many of which have developed numerous hub-and-spoke route
systems where long-haul traffic is served via connections in one or more central
hub airports. As a result of this structure, many smaller cities or airports are
not served by direct or non-stop flights to leisure destinations and many
secondary leisure destinations do not receive direct or non-stop service from
more than a few major U.S. cities. Unlike most of the major scheduled airlines,
the Company, as well as certain other airlines, has focused on low frequency
non-stop or direct service from its principal gateways to leisure destinations
where there is little or no competing direct or non-stop service. The Company
intends to continue to pursue this strategy, and has recently announced the
expansion of non-stop service from Chicago-Midway to Denver, Dallas/Fort Worth,
San Juan and New York-LaGuardia.

COMMERCIAL CHARTER AND MILITARY AIRLINE SERVICE

In the United States, the passenger charter airline business involves both
the major scheduled airlines, as well as a number of U.S. and non-U.S. charter
airlines. Historically, charter airlines have supplemented the service provided
by scheduled airlines by providing specialized service at times of peak demand.
U.S. charter airlines have also provided service to the military both in times
of peak demand, such as the Persian Gulf War, and on a longer-term basis to
supplement the U.S. military's own aircraft fleet. Based on DOT statistics,
total charter flights by all U.S. airlines represented less than 2.5% of all
ASMs flown within the United States during the twelve months ended December 31,
1997.

In general, charter airlines have a lower cost than scheduled airlines.
Unlike most scheduled airlines, charter airlines do not invest heavily in
advertising and marketing, maintain a sizeable and complex reservations system
or maintain extensive airport support facilities in a large number of locations.
In addition, charter airlines generally operate with lower overall employment
costs and higher average load factors than scheduled airlines.

THE COMPANY'S AIRLINE OPERATIONS

SERVICES OFFERED

The Company generally provides its airline services to its customers in the
form of charter and scheduled service. The following table provides a summary of
the Company's major revenue sources for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)

<S> <C> <C> <C> <C> <C> <C> <C>
Scheduled service.................. $138.0 $240.7 $362.0 $386.5 $371.8 $ 82.0 $117.9
Commercial charter service......... 213.7 204.0 229.5 226.4 228.1 69.6 61.3
Military charter service........... 78.4 91.8 77.5 84.2 131.1 30.7 33.0
------ ------ ------ ------ ------ ------ ------
Total charter................. 292.1 295.8 307.0 310.6 359.2 100.3 94.3
Other.............................. 37.8 44.0 46.0 53.8 52.2 12.0 17.1
------ ------ ------ ------ ------ ------ ------
Total......................... $467.9 $580.5 $715.0 $750.9 $783.2 $194.3 $229.3
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
</TABLE>

SCHEDULED SERVICE SALES

The Company provides scheduled airline services on selected routes where it
believes that it can be one of the top three largest carriers, focusing
primarily on low cost non-stop or direct flights. In 1997, the Company's
revenues from scheduled service were $371.8 million, and during that period, the
Company was the largest carrier on over 70% of its non-stop scheduled service
routes and one of the top two carriers on over 90% of its non-stop scheduled
service routes. The Company currently provides scheduled service primarily from
its gateway cities of Chicago-Midway, Indianapolis and Milwaukee to

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popular vacation destinations such as Hawaii, Las Vegas, Florida, California,
Mexico and the Caribbean, as well as to New York's John F. Kennedy Airport,
Denver, Dallas/Ft. Worth, San Juan, and commencing in the third quarter of 1998
to New York-LaGuardia, from Chicago-Midway. The DOT awarded the Company five
slots at New York-LaGuardia, which when combined with an additional slot, will
allow the Company to fly three daily non-stops between Chicago-Midway and New
York-LaGuardia.

In October 1997, the Company expanded its Chicago Express Arrangement, by
adding the cities of Lansing and Madison to the flights it had already operated
out of Chicago-Midway on behalf of the Company to Indianapolis and Milwaukee
since October 1996 and to Des Moines, Dayton and Grand Rapids since April 1997.
Under the Chicago Express Arrangement, Chicago Express provides the aircraft and
crews, insurance and maintenance for such aircraft, and the Company provides all
other services, including marketing of seats, reservation services and fuel and
handling for flights. The Company receives all passenger and cargo related
revenues and pays Chicago Express a fixed fee on a per flight basis. The seats
purchased under the Chicago Express Arrangement are listed on major CRS systems
as ATA seats, even though the flights are operated by a separate airline.
Chicago Express uses 19-seat Jetstream 31 propeller aircraft, which the Company
determined were a more economic alternative to satisfying the demand in these
markets than the use of the Company's own larger jet aircraft.

Included in the Company's scheduled service sales for jet operations are
bulk sales agreements with tour operators. Under these arrangements, which are
very similar to charter sales, the tour operator may take up to 85% of an
aircraft as a bulk-seat purchase. The portion which the Company retains is sold
through its own scheduled service distribution network. The advantage for the
tour operators is that their product is available for sale in the CRSs and
through other scheduled service distribution channels. Under bulk sales
arrangements, the Company is obligated to provide transportation to the tour
operators' customers even in the event of non-payment to the Company by the tour
operator. To minimize its exposure under these arrangements, the Company
requires bonding or a security deposit for a significant portion of the contract
price. Bulk seat sales amounted to $67.3 million and $59.0 million in 1996 and
1997, respectively, which represented 9.0% and 7.5%, respectively, of the
Company's consolidated revenues for such periods.

COMMERCIAL CHARTER SALES

Commercial charter sales represented 30.2% of the Company's consolidated
revenues for 1996 and 29.1% for 1997. The Company's principal customers for
commercial charter sales are tour operators, sponsors of incentive travel
packages and specialty charter customers.

Tour Operator Programs. These leisure market programs are generally
contracted for repetitive, round-trip patterns, operating over varying periods
of time. In such an arrangement, the tour operator pays a fixed price for use of
the aircraft (which includes the services of the cockpit crew and flight
attendants, together with check-in, baggage handling, maintenance services,
catering and all necessary aircraft handling services) and assumes
responsibility and risk for the actual sale of the available aircraft seats.
Because the Company has a contract with its customers for each flight or series
of flights, it can, subject to competitive constraints, structure the terms of
each contract to reflect the costs of providing the specific service, together
with an acceptable return.

In connection with its sales to tour operators, the Company seeks to
minimize its exposure to unexpected changes in operating costs. Under its
contracts with tour operators, the Company is able to pass through most
increases in fuel costs from a contracted price. Under these contracts, if the
fuel increase causes the tour operator's fuel cost to rise in excess of 10%, the
tour operator has the option of canceling the contract. The Company is exposed
to increases in fuel costs that occur within 14 days of flight time, and to
increases affecting any contracts that do not include fuel cost escalation
provisions. See 'Risk Factors -- Aircraft Fuel.'

The Company believes that although price is the principal competitive
criterion for its tour operator program, product quality, reputation for
reliability and delivery of services which are customized to the specific needs
of its customers have become increasingly important to the buyer of

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this product. Accordingly, as the Company continues to emphasize the growth and
profitability of this business unit, it will seek to maintain its low-cost
pricing advantage, while differentiating itself from competitors through the
delivery of customized services and the maintenance of consistent and dependable
operations. In this manner, the Company believes that it will produce
significant value for its tour operator partners by delivering an attractively
priced product which exceeds the leisure traveler's expectations.

Although the Company serves tour operators on a worldwide basis, its
primary customers are U.S.-based and European-based tour operators. European
tour operators accounted for 2.3%, 2.4%, 4.6% and 3.4%, respectively of
consolidated revenues for 1994, 1995, 1996 and 1997. In addition, contracts with
most European tour operators establish prices payable to the Company in U.S.
dollars, thereby reducing the Company's recorded foreign currency risk. The
Company's five largest tour operator customers represented approximately 22% and
16%, respectively, of the Company's consolidated revenues for 1996 and 1997, and
the ten largest tour operator customers represented approximately 30% and 21% of
the Company's consolidated revenues for the same periods.

Incentive Travel Programs. Many corporations offer travel to leisure
destinations or special events as incentive awards for employees. The Company
has historically provided air travel for many corporate incentive programs.
Incentive travel customers range from national incentive marketing companies to
large corporations that handle their incentive travel programs on an in-house
basis. For 1997, Incentive Travel Programs represented less than 1% of total
operating revenues.

The Company believes that its flexibility, fleet diversity and attention to
detail have helped to establish it as one of the leaders in providing the air
portion of incentive travel airline charter services. Generally, incentive
travel operations are a demanding and highly customized part of the charter
airline business. Incentive travel operations can vary from a single round-trip
flight to an extensive overseas pattern involving thousands of employees and
their families.

Specialty Charters. The Company operates a significant number of specialty
charter flights. These programs are normally contracted on a single round-trip
basis and vary extensively in nature, from flying university alumni to a
football game, to transporting political candidates on campaign trips, to moving
the NASA space shuttle ground crew to an alternate landing site. These flights,
some of which are arranged on very short notice based on aircraft availability,
allow the Company to increase aircraft utilization during off-peak periods. For
1997, Specialty Charters represented approximately 4% of total operating
revenues.

The Company believes it is able to attract customers for specialty charter
due to its fleet size and diversity of aircraft. The size and geographic
dispersion of the Company's fleet reduces nonproductive ferry time for aircraft
and crews, resulting in more competitive pricing. The diversity of aircraft
types in its fleet also allows the Company to better match a customer's
particular needs with the type of aircraft best suited to satisfy those
requirements.

MILITARY/GOVERNMENT SALES

In 1996 and 1997 sales to the U.S. military and other governmental agencies
were approximately 11.2% and 16.8%, respectively, of the Company's consolidated
revenues. Traditionally, the Company's focus has been on short-term 'contract
expansion' business which is routinely awarded by the U.S. Government based on
price and availability of appropriate aircraft. The U.S. Government awards one
year contracts for its military charter business, and pre-negotiates contract
prices for each type of aircraft a carrier makes available. Such contracts are
awarded based upon the participating airlines' average costs. The short-term
expansion business is awarded pro rata to those carriers with aircraft
availability who have been awarded the most fixed-award business, and then to
any additional carrier that has aircraft available. The Company's contractor
teaming arrangement with four other cargo airlines significantly increases the
likelihood that the team will receive both fixed-award and contract expansion
business, and increases the Company's opportunity to provide the passenger
portion of such services because the Company represents all of the team's
passenger transport capacity. See ' -- Sales and Marketing.'

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Military and other government flight activity is expected to remain a
significant factor in the Company's business mix. Because this business is
generally less seasonal than leisure travel, it tends to have a stabilizing
impact on the Company's operations and earnings. The Company believes its fleet
of aircraft is well suited for the requirements of military passenger service.
Although the military is reducing its troop deployments at foreign bases, the
military still desires to maintain its schedule frequency to these bases.
Therefore, the military has a need for smaller capacity aircraft possessing
long-range capability, such as the Company's Boeing 757-200ER aircraft. In 1993,
the Company became the first North American carrier to receive FAA certification
to operate Boeing 757-200 aircraft with 180-minute ETOPS. This certification
permits specially equipped Boeing 757-200 aircraft to participate in long-range
missions over water in which the aircraft may fly up to three hours from the
nearest alternate airport. All of the Company's Boeing 757-200s are so equipped
and certified. The Company believes that this 180-minute ETOPS capability has
enhanced the Company's ability to obtain awards for certain long-range missions.
The Company also believes that its ability to serve the military will be
enhanced by the acquisition of additional Lockheed L-1011-500 aircraft, which
can provide even longer range service.

The Company is subject to biennial inspections by the military as a
condition of retaining its eligibility to perform military charter flights. The
last such inspection was completed in the fourth quarter of 1997. As a result of
the Company's military business, it has been required from time to time to meet
operational standards beyond those normally required by the DOT, FAA, and other
government agencies.

OTHER REVENUES

In addition to its core charter and scheduled service businesses, the
Company operates several other smaller businesses that complement its core
businesses. For example, the Company sells ground arrangements (hotels, car
rentals and attractions) through its Ambassadair and ATA Vacations subsidiaries;
provides airframe and powerplant mechanic training through American Trans Air
Training Corporation; and provides helicopter charter services through its
ExecuJet subsidiary. Additionally, the Company, through its subsidiary Amber Air
Freight, Inc., participates in a partnership that markets the unused cargo
capacity in the Company's scheduled and charter operations. In aggregate, these
businesses, together with incidental revenues associated with charter and
scheduled service businesses, accounted for 7.1% and 6.6, respectively, of
consolidated revenues in 1996 and 1997.

SALES AND MARKETING

SCHEDULED SERVICE

In scheduled service, the Company markets air travel, as well as packaged
leisure travel products, directly to its customers and through travel agencies
and bulk tour operators in selected markets. Approximately 71.2% and 74.8% of
the Company's scheduled services were sold by travel agents and bulk tour
operators in 1996 and 1997, respectively, often using computer reservation
systems that have been developed and are controlled by other airlines. Federal
regulations have been promulgated that are intended to diminish preferential
flight schedule displays and other practices with respect to the reservation
systems that could place the Company and other similar users at a competitive
marketing disadvantage as compared to the airlines controlling the systems.
Travel agents generally receive commissions based on the price of tickets sold.
Accordingly, airlines compete not only with respect to ticket price but also
with respect to the amount of commissions paid to appointed agents. Airlines
often pay additional commissions to appointed agents in connection with special
revenue programs. The Company believes that by concentrating its scheduled
service operations in a few selected markets, such as the Company's
Chicago-Midway gateway, its marketing and advertising expenditures will be much
more effective. The Company believes this strategy will continue to strengthen
its competitive position and improve both load factors and yields in its
scheduled service operations.

The Company's sales, marketing and business strategy for scheduled services
has continued to emphasize convenience and simplified pricing for the leisure
traveler. In the summer of 1997, an electronic ticketing option was implemented
which provides customers with the ability to purchase seats

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on scheduled flights using a credit card while eliminating the need to issue a
paper ticket. Also in 1997, the Company became only the fifth domestic U.S.
airline to offer fully interactive capabilities for customers to purchase
tickets electronically via the internet. In late 1996, the Company introduced
convenient coupon booklets which the customer can purchase in advance for use
throughout the Company's scheduled service system at guaranteed low fares.

COMMERCIAL CHARTER SERVICE

Tour Operator Programs. The Company markets its commercial charter services
to tour operators primarily through its own sales force. The charter sales
department's principal office is in Indianapolis, but it also has offices in
Orlando, New York, San Francisco, Seattle, Boston, Chicago, Detroit and London.
Through this sales force, the Company markets its commercial charter and
specialty products. While most of the Company's commercial charter and specialty
products are transacted directly with the end customer, the Company from time to
time will utilize independent brokers to acquire some contracts.

In general, tour operators either package the Company's flights with
traditional ground components (e.g., hotels, rental cars and attractions) or
sell only the airline passage ('airfare only'). Tickets on the Company's flights
contracted to tour operators are issued by the tour operator either directly to
passengers or through retail travel agencies. Under current DOT regulations with
respect to charter transportation originating in the United States, all charter
airline tickets must generally be paid for in cash and all funds received from
the sale of charter seats (and in some cases fund paid for land arrangements)
must be placed into escrow or must be protected by a surety bond satisfying
prescribed standards. Currently, the Company provides a third-party bond which
is unlimited in amount but restricted in use to the satisfaction of its
obligations under these regulations. Under the terms of its bonding arrangement,
the issuer of the bond has the right to terminate the bond at any time on 30
days' notice. The Company provides a $2.5 million letter of credit to secure its
potential obligations to the issuer of the bond. If the bond were to be
materially limited or canceled, the Company, like all other U.S. charter
airlines, would be required to escrow funds to comply with the DOT requirements
summarized above. Compliance with such requirements would reduce the Company's
liquidity and require it to fund higher levels of working capital ranging up to
$13.5 million based upon 1997's peak pre-paid bookings. See ' -- Regulation.'

In general, the Company enters into contracts with tour operators four to
nine months in advance of the commencement of flight services. Pursuant to these
contracts, tour operators, who may be thinly capitalized, generally are required
to pay a deposit to the Company at the time the contract is executed for as much
as one week's revenue due under the contract (in the case of recurring pattern
contracts), to 10% to 30% of the total charter payment (in the case of
nonrecurring pattern contracts). Tour operators are required to pay the
remaining balance of the contract in full at least two weeks prior to the flight
date. In the event the tour operator fails to make the remaining payment when
due, the Company must either cancel the flight at least ten days prior to the
flight date or, pursuant to DOT regulations, perform under the contract
notwithstanding the breach by the tour operator. In the event the tour operator
cancels or defaults under the contract with the Company or otherwise notifies
the Company that such tour operator no longer needs charter service, the Company
is entitled to keep contractually established cancellation fees, which may be
more or less than the deposit. Whether the Company elects to exercise this right
in a particular case will depend upon a number of factors, including the
Company's ability to redeploy the aircraft, the amount of money on deposit or
secured by a letter of credit, the relationship the Company has with the tour
operator and general market conditions existing at the time. The Company may
choose to renegotiate a contract with a tour operator from time to time based on
market conditions. As part of any such renegotiation a tour operator may seek to
reduce the per-seat price or the number of flights or seats per flight which the
tour operator is obligated to purchase.

MILITARY/GOVERNMENT SERVICE

Traditionally, the Company's focus has been on short-term contract
expansion business which is routinely awarded by the U.S. Government based on
price and availability of appropriate aircraft. The short-term expansion
business is awarded pro rata to the carriers with aircraft availability who have

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been awarded the most fixed-award business, and then to any additional carrier
that has aircraft available.

Pursuant to the military's fixed-award system, each participating airline
is given certain 'mobilization value points' based on the number and type of
aircraft then available from such airline. A participant may increase the number
of its mobilization value points by teaming up with one or more other airlines
to increase the total number of mobilization value points of the team.
Generally, a charter passenger airline will seek to team up with one or more
cargo airlines and vice versa. When the military determines its requirements for
a contract year, it determines how much of each particular type of service it
will need (e.g., narrow-body, passenger service). It will then award each type
of business to those carriers or teams that have committed to make available
that type of aircraft and service, with the carriers or teams with the highest
amount of mobilization value points given a preference. When an award is made to
a team, the charter passenger airline will generally perform the passenger part
of the award and a cargo airline will perform the cargo part of the award.

In 1992, the Company entered into a contractor teaming arrangement with
four other cargo airlines serving the U.S. military. The Company represents 100%
of the passenger portion of the contractor teaming arrangement. If the Company
used only its own mobilization value points, it would be entitled to a
fixed-award of approximately 1% of total awards under the system; however, when
all of the Company's team members are taken into account, their portion of the
fixed-award is approximately 34% of total awards under the system. As a result,
the contractor teaming arrangement significantly increases the likelihood that
the team will receive a fixed-award contract, and, to the extent the award
includes passenger transport, increases the Company's opportunity to provide
such service because the Company represents all of the passenger capacity of the
contractor teaming arrangement. In addition, since the expansion business awards
are correlated with the fixed-award system, the Company, through its contractor
teaming arrangement, should also receive a greater percentage of the short-term
expansion business. As part of its participation in this contract teaming
arrangement, the Company pays a utilization fee or commission to other team
members.

AIRCRAFT FLEET

As of March 31, 1998, the Company was certified to operate a fleet of 14
Lockheed L-1011s, 24 Boeing 727-200ADVs and 7 Boeing 757-200s. Jetstream 31
propeller aircraft operated by Chicago Express under a code share agreement are
not included on the Company's certificate.

Lockheed L-1011 Aircraft

The Company's 14 Lockheed L-1011 aircraft are wide-body aircraft, 11 of
which have a range of 2,971 nautical miles and 3 of which have a range of 3,425
nautical miles. These aircraft conform to the FAA's Stage 3 noise requirements
and have a low ownership cost relative to other wide-body aircraft types. See
'Environmental Matters.' As a result, the Company believes these aircraft
provide a competitive advantage when operated on long-range routes, such as on
transatlantic, Caribbean and West Coast-Hawaii routes. These aircraft have an
average age of approximately 23 years. As of December 31, 1997, 13 of these
aircraft were owned by the Company and one was under an operating lease that
expires in March 2001. In addition, the Company has signed a Letter of Intent
dated as of April 13, 1998, to purchase five additional L-1011-500 aircraft,
each of which has a range of up to 4,900 nautical miles. Certain of the Lockheed
L-1011 aircraft owned by the Company are subject to mortgages and other security
interests granted in favor of the Company's lenders under its bank credit
facility. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Credit Facilities.'

Boeing 727-200ADV Aircraft

The Company's 24 Boeing 727-200ADV aircraft are narrow-body aircraft
equipped with high thrust, JT8D-15/-15A/-17/-17A engines and have a range of
2,050 nautical miles. These aircraft, of which 15 conform to Stage 2 and 9
conform to Stage 3 noise requirements as of March 31, 1998, have an average age
of approximately 18 years. The Company leases 23 of these aircraft, with initial
lease terms

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that expire between March 1998 and September 2003, subject to the Company's
right to extend each lease for varying terms. The Company will be required prior
to December 31, 1999 to make expenditures for engine 'hushkits' or to acquire
replacement aircraft so that its entire fleet conforms to Stage 3 noise
requirements in accordance with FAA regulations. The Company currently plans to
install hushkits on six Stage 2 aircraft by the end of 1998, with the balance of
eight Stage 2 aircraft being converted to Stage 3 in 1999. On December 31, 1999,
the Company expects to return one aircraft to the lessor for which it has no
obligation to install a hushkit. The cost to hushkit a Boeing 727ADV aircraft is
approximately $2.5 million. See 'Environmental Matters.'

Boeing 757-200ADV Aircraft

The Company's 7 Boeing 757-200 aircraft are relatively new, narrow-body
aircraft, all of which have a range of 3,679 nautical miles. These aircraft, six
of which are leased, have an average age of approximately 3 years and meet Stage
3 noise requirements. The Company's Boeing 757-200s have higher ownership costs
than the Company's Lockheed L-1011 and Boeing 727-200ADV aircraft, but lower
operational costs. In addition, unlike most other aircraft of similar size, the
Boeing 757-200 has the capacity to operate on extended flights over water. The
leases for the Company's Boeing 757-200 aircraft have initial terms that expire
on various dates between May 2002 and December 2015, subject to the Company's
right to extend each lease for varying terms.

Although Lockheed L-1011 and Boeing 727-200ADV aircraft are subject to the
FAA's Aging Aircraft program, the Company does not currently expect that its
cost of compliance for these aircraft will be material. See ' -- Regulation.'

FLIGHT OPERATIONS

Worldwide flight operations are planned and controlled by the Company's
Flight Operations Group operating out of its facilities located in Indianapolis,
Indiana, which are staffed on a 24-hour basis, seven days a week. Logistical
support necessary for extended operations away from the Company's fixed bases
are coordinated through its global communications network. The Company has the
ability to dispatch maintenance and operational personnel and equipment as
necessary to support temporary operations around the world. The Company's
complex operating environment demands a high degree of skill and flexibility
from its Flight Operations Group.

In order to enhance the reliability of its service, the Company seeks to
maintain at least two spare Lockheed L-1011 and three spare Boeing 727-200
aircraft at all times. Spare aircraft can be dispatched on short notice to most
locations where a substitute aircraft is needed for mechanical or other reasons.
These spare aircraft allow the Company to provide to its customers a dispatch
reliability that is hard for an airline of comparable or smaller size to match.

MAINTENANCE AND SUPPORT

The Company's Maintenance and Engineering Center is located at Indianapolis
International Airport. This 120,000 square-foot facility was designed to meet
the maintenance needs of the Company's operations as well as to provide
supervision and control of purchased maintenance services. The Company performs
approximately 75% of its own maintenance work, excluding engine overhauls and
Lockheed L-1011 and Boeing 727-200 heavy airframe checks.

The Company currently maintains ten permanent maintenance facilities,
including its Indianapolis facility. In addition, the Company utilizes 'road
teams,' which are dispatched primarily as charter flight operations require to
arrange and supervise maintenance services at temporary locations. The Company
also uses road teams to supervise all maintenance not performed in-house.

The Maintenance and Engineering Center is an FAA-certificated repair
station and has the expertise to perform routine, as well as non-routine,
maintenance on Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft.
Capabilities of the Maintenance and Engineering Center include: (i)
airworthiness directive and service bulletin compliance; (ii) modular teardown
and buildup of Rolls-Royce RB211-22B engines; (iii) non-destructive testing,
including radiographics, x-ray, ultrasound,

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magnetic particle and eddy current; (iv) avionics component repair; (v) on-wing
engine testing; (vi) interior modification; (vii) repair and overhaul of
accessories and components, including hydraulic units and wheel and brake
assemblies; and (viii) sheet metal repair with hot bonding and composite
material capabilities. The Company contracts with third parties for certain
engine and airframe overhaul and other services if the Company does not have the
technical capability or facility capacity, or if such services can be obtained
on a more cost-effective basis from outside sources.

FUEL PRICE RISK MANAGEMENT

Most of the Company's contracts with independent tour operators include
fuel price reimbursement clauses. Such clauses generally state that if the
Company's cost of fuel per gallon to perform the contract meets or exceeds a
stated trigger price, fuel costs in excess of the trigger price are required to
be reimbursed to the Company by the tour operator. Protection under such fuel
escalation provisions is generally limited to those price increases which occur
14 or more days prior to flight date. Fuel price increases which occur during
the last 14 days prior to flight date are the responsibility of the Company. In
addition, if the fuel price increase exceeds 10% of the contractual trigger
price, the tour operator generally has the right to cancel the contract. Tour
operator revenues subject to such fuel price reimbursement clauses represented
approximately 30.2% and 29.1%, respectively, of consolidated revenues for 1996
and 1997.

The Company's contract with the U.S. military also includes a fuel price
guarantee, which is incorporated into the reimbursement rates by aircraft type
each contract year. If the actual cost of fuel consumed is less than the
guaranteed price, the Company is required to reimburse the U.S. military for the
excess revenues received. If the actual cost of fuel consumed is more than the
guaranteed price, the U.S. military reimburses the Company for the additional
costs incurred. In this manner, the Company is guaranteed to pay the actual cost
of fuel up to the maximum price guaranteed in the contract. This fuel price
guarantee is renegotiated each contract year. Military revenues subject to the
fuel price guarantee represented approximately 11.2% and 16.8%, respectively, of
consolidated revenues for 1996 and 1997.

Within the Company's scheduled service business unit are included bulk seat
sales to tour operators. Under these contracts, which are very similar to tour
operator agreements, the bulk seat contractor may purchase up to 85% of the
available seats on scheduled service flights. Most of these agreements also
provide for fuel escalation reimbursements to be made to the Company in a manner
similar to the tour operator agreements described above. Scheduled service bulk
seat revenues subject to such fuel price reimbursement clauses represented
approximately 9.0 and 7.5%, respectively, of consolidated revenues for 1996 and
1997.

As a result of the fuel reimbursement clauses and guarantees described
above, approximately 50.4% and 53.4%, respectively, of consolidated revenues in
1996 and 1997 were subject to such fuel price protection. The Company closely
monitors jet fuel spot prices and crude oil and heating oil futures markets to
provide early indications of potential shifts in jet fuel prices for timely
management review and action. The Company did not engage in any material fuel
hedging activities in 1997 or 1996, but has begun a hedging program in 1998.

COMPETITION

The Company's products and services face varying degrees of competition in
diverse markets.

COMPETITION FOR SCHEDULED SERVICES

In scheduled service, the Company competes both against the major U.S.
scheduled service airlines and, from time to time, against smaller regional or
start-up airlines. Competition is generally on the basis of price, frequency,
quality of service and convenience. All of the major U.S. scheduled airlines are
larger and have greater financial resources of the Company. Where the Company
seeks to expand its service by adding routes or frequency, competing airlines
may respond with intense price competition. In addition, when other airlines
seek to establish a presence in a market, they may engage in significant price
discounting. Because of its size relative to the major airlines, the Company is
less able to absorb losses from these activities than many of its competitors.

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COMPETITION FOR COMMERCIAL CHARTER SERVICES

COMPETITION FOR MILITARY/GOVERNMENT CHARTER SERVICES

PROPERTIES

The Company leases three adjacent office buildings in Indianapolis,
consisting of approximately 136,000 square feet. These buildings are located
approximately one mile from the Indianapolis International Airport terminal and
are used as principal business offices, operation center and for the
Indianapolis reservations center.

The Company's Maintenance and Engineering Center is also located at
Indianapolis International Airport. This 120,000 square-foot facility was
designed to meet the base maintenance needs of the Company's operations, as well
as to provide support services for other maintenance locations. The Indianapolis
Maintenance and Engineering Center is an FAA-certificated repair station and has
the capability to perform routine, as well as non-routine, maintenance on the
Company's aircraft.

In 1998, the Company expects to begin construction of 120,000 square foot
office building immediately adjacent to the Company's Indianapolis Maintenance
and Engineering Center. This facility will house the Company's Maintenance and
Engineering professional staff along with the airlines operational center.

In 1995, the Company completed the lease of Hangar No. 2 at Chicago's
Midway Airport for an initial lease term of ten years, subject to two five-year
renewal options. The Company is in the process of completing significant
improvements to this leased property, which is used to support line maintenance
for the Boeing 757-200 and Boeing 727-200 narrow-body fleets.

Also in 1995, the Company relocated and expanded its Chicago area
reservations unit to an 18,700 square-foot facility located near Chicago's
O'Hare Airport. This reservation facility primarily serves customers in the
greater Chicago metropolitan area in support of the Company's Chicago-Midway
scheduled service operation.

The Company also routinely leases various properties at airports around the
world for use by its passenger service, flight operations, crews and maintenance
staffs. Other properties are also leased for

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the use of sales office staff. These properties are used in support of both
scheduled and charter flight operations at such diverse locations as Baltimore,
Boston, Cancun, Chicago, Cleveland, Dallas/Ft. Worth, Detroit, Ft. Lauderdale,
Ft. Myers, Frankfurt, Honolulu, Indianapolis, Las Vegas, London Gatwick, Los
Angeles, Miami, Milwaukee, Minneapolis, New York, Orlando, Philadelphia,
Phoenix, St. Louis, St. Petersburg, San Francisco, San Juan and Sarasota.

INSURANCE

The Company carries types and amounts of insurance customary in the airline
industry, including coverage for public liability, passenger liability, property
damage, aircraft loss or damage, baggage and cargo liability and workers
compensation. Under the Company's current insurance policies, it will not be
covered by such insurance were it to fly, without the consent of its insurance
provider, to certain high risk countries. The Company does not consider the
inability to operate into or out of any of these countries to be a significant
limitation on its business. The Company will support certain U.S. government
operations in areas where its insurance policy does not provide coverage for
losses when the U.S. government provides replacement insurance coverage.

EMPLOYEES

As of December 31, 1997, the Company had 5,012 employees, approximately
1,900 of which were represented under collective bargaining agreements. The
Company's flight attendants are represented by the AFA and the Company's cockpit
crews are represented by the IBT. The current collective bargaining agreement
with the AFA expires in December 1998 and the current collective bargaining
agreement with the IBT expires in September 2000. The Company expects to begin
negotiations with the AFA in the third or fourth quarter concerning a new
collective bargaining agreement, but there can be no assurance that there will
not be work stoppages or other disruptions. The existence of a significant
dispute with any sizeable number of its employees could have a material adverse
effect on the Company's operations and financial condition.

REGULATION

The Company is subject to regulation by the DOT and the FAA. The DOT is
primarily responsible for regulating consumer protection and other economic
issues affecting air services and determining a carrier's fitness to engage in
air transportation. In 1981, the Company was granted by the DOT a Certificate of
Public Convenience and Necessity pursuant to Section 401 of the Federal Aviation
Act authorizing it to engage in air transportation. The Company is also subject
to the jurisdiction of the FAA with respect to its aircraft maintenance and
operations. The FAA requires each carrier to obtain an operating certificate and
operations specifications authorizing the carrier to fly to specific airports
using specified equipment. All of the Company's aircraft must also have and
maintain certificates of airworthiness issued by the FAA. The Company holds an
FAA air carrier operating certificate under Part 121 of the Federal Aviation
Regulations.

The Company believes it is in compliance with all requirements necessary to
maintain in good standing its operating authority granted by the DOT and its air
carrier operating certificate issued by the FAA. A modification, suspension or
revocation of any of the Company's DOT or FAA authorizations or certificates
could have a material adverse effect upon the Company.

The FAA has issued a series of Airworthiness Directives under its 'Aging
Aircraft' program which are applicable to the Company's Lockheed L-1011 and
Boeing 727-200 aircraft. The Company does not currently expect the future cost
of these directives to be material.

Several aspects of airline operations are subject to regulation or
oversight by Federal agencies other than the DOT and FAA. The United States
Postal Service has jurisdiction over certain aspects of the transportation of
mail and related services provided by the Company through its cargo affiliate.
Labor relations in the air transportation industry are generally regulated under
the Railway Labor Act, which vests in the National Mediation Board certain
regulatory powers with respect to disputes between airlines and labor unions
arising under collective bargaining agreements. The Company is subject to the
jurisdiction of the Federal Communications Commission regarding the utilization
of its radio facilities. In addition, the Immigration and Naturalization
Service, the U.S. Customs Service, and the Animal and Plant Health Inspection
Service of the Department of Agriculture have jurisdiction over inspection of

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the Company's aircraft, passengers and cargo to ensure the Company's compliance
with U.S. immigration, customs and import laws. The Commerce Department also
regulates the export and reexport of the Company's U.S.-manufactured aircraft
and equipment.

In addition to various federal regulations, local governments and
authorities in certain markets have adopted regulations governing various
aspects of aircraft operations, including noise abatement, curfews and use of
airport facilities. Many U.S. airports have adopted or are considering adopting
a 'Passenger Facility Charge' of up to $3.00 generally payable by each passenger
departing from the airport. (There is also legislation pending before the United
States Congress which would increase the ceiling for Passenger Facility Charges
to $4.00.) This charge must be collected from passengers by transporting air
carriers, such as the Company, and must be remitted to the applicable airport
authority. Airport operators must obtain approval of the FAA before they may
implement a Passenger Facility Charge.

Based upon bilateral aviation agreements between the U.S. and other
nations, and, in the absence of such agreements, comity and reciprocity
principles, the Company, as a charter carrier, is generally not restricted as to
the frequency of its flights to and from most destinations in Europe. However,
these agreements generally restrict the Company to the carriage of passengers
and cargo on flights which either originate in the U.S. and terminate in a
single European nation, or which originate in a single European nation and
terminate in the U.S.

Proposals for any additional charter service must generally be specifically
approved by the civil aeronautics authorities in the relevant countries.
Approval of such requests is typically based on considerations of comity and
reciprocity and cannot be guaranteed.

ENVIRONMENTAL MATTERS

Under the Airport Noise and Capacity Act of 1990 and related FAA
regulations, the Company's aircraft must comply with certain Stage 3 noise
restrictions by certain specified deadlines. These regulations require that the
Company achieve a 75% Stage 3 fleet by December 31, 1998. In general, the
Company would be prohibited from operating any Stage 2 aircraft after December
31, 1999. As of December 31, 1997, 67% of the Company's fleet met Stage 3
requirements. The Company expects to meet future Stage 3 fleet requirements
through Boeing 727-200 hushkit modifications, combined with additional future
deliveries of Stage 3 aircraft. Failure to meet the December 31, 1998 deadline
could require the Company to ground one or more Stage 2 aircraft in order to
meet the 75% threshold requirement.

In addition to the aircraft noise regulations administered by the FAA, the
EPA regulates operations, including air carrier operations, which affect the
quality of air in the United States. The Company believes it has made all
necessary modifications to its operating fleet to meet fuel-venting requirements
and smoke-emissions standards.

The Company maintains on its property in Indiana two underground storage
tanks which contain quantities of de-icing fluid and emergency generator fuel.
These tanks are subject to various EPA and State of Indiana regulations. The
Company believes it is in substantial compliance with applicable regulatory
requirements with respect to these storage facilities.

At its aircraft line maintenance facilities, the Company uses materials
which are regulated as hazardous under federal, state and local law. The Company
maintains programs to protect the safety of its employees who use these
materials and to manage and dispose of any waste generated by the use of these
materials, and believes that it is in substantial compliance with all applicable
laws and regulations.

LEGAL PROCEEDINGS

Various claims, contractual disputes and lawsuits against the Company arise
periodically involving complaints which are normal and reasonably foreseeable in
light of the nature of the Company's business. The majority of these suits are
covered by insurance. In the opinion of management, the resolution of these
claims will not have a material adverse effect on the business, operating
results or financial condition of the Company.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following serve as executive officers and directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -----------------------------------------------------
<S> <C> <C>
J. George Mikelsons....................... 60 Chairman of the Board of Directors
John P. Tague............................. 36 President, Chief Executive Officer and Director
James W. Hlavacek......................... 61 Executive Vice President, Chief Operating Officer and
Director
Kenneth K. Wolff.......................... 52 Executive Vice President, Chief Financial Officer and
Director
Dalen D. Thomas........................... 31 Senior Vice President, Marketing, Sales and Strategic
Planning and Director
Robert A. Abel............................ 45 Director
William P. Rogers, Jr..................... 48 Director
Andrejs P. Stipnieks...................... 57 Director
</TABLE>

J. George Mikelsons is the founder, Chairman of the Board and, prior to the
Company's initial public offering in May 1993, was the sole shareholder of the
Company. Mr. Mikelsons founded American Trans Air, Inc. and Ambassadair Travel
Club, Inc. in 1973. Mr. Mikelsons currently serves on the boards of directors of
IWC Resources Corporation (formerly the Indianapolis Water Company) and the
Indianapolis Convention and Visitors Association. Mr. Mikelsons has been an
airline Captain since 1966 and remains current on several jet aircraft.

John P. Tague, was named President and Chief Executive Officer of the
Company in July 1997. He had previously served as the Company's President and
Chief Operating Officer since October 1993 before resigning to form his own
aviation consulting company in 1995. Between August 1996 and June 1997, he
served as Chief Executive Officer, pursuant to a consulting agreement, of both
Vanguard Airlines, Inc. and Air South Airlines, Inc. Prior to October 1993, he
held several executive positions at the Company in the areas of marketing and
sales. From 1985 to 1991, Mr. Tague was employed at Midway Airlines in various
executive positions in the areas of marketing and planning. Prior to joining
Midway Airlines in 1985, Mr. Tague was a transportation consultant and held
various positions at a regional airline. Mr. Tague serves on the Board of
Directors of the Air Transport Association.

James W. Hlavacek was appointed Chief Operating Officer of the Company in
1995, where he continues to serve as Executive Vice President. He is also
President of ATA Training Corporation. From 1986 to 1989, he was Vice President
of Operations. Mr. Hlavacek has been a commercial airline pilot for more than 30
years and has held the rank of Captain for nearly 28 years. He was ATA's Chief
Pilot from 1985 to 1986. Mr. Hlavacek is a graduate of the University of
Illinois.

Kenneth K. Wolff was appointed Executive Vice President and Chief Financial
Officer of the Company in 1991 and from 1990 to 1991, he was Senior Vice
President and Chief Financial Officer. From 1989 to 1990, he was President and
Chief Executive Officer of First of America Bank Indianapolis. Prior to his
appointment as President and Chief Executive Officer, he held various positions
at the bank since 1969. He is a graduate of Purdue University with a B.S. Degree
in Industrial Management. Mr. Wolff also holds a Masters in Business
Administration from Indiana University, where he was a member of the faculty.

Dalen D. Thomas was appointed Senior Vice President, Marketing, Sales and
Strategic Planning, and was elected a Director, in August 1996. Mr. Thomas
worked at Bain & Company, Inc. for seven years. While at Bain, he worked on the
team that restructured Continental Airlines. He graduated and received a Masters
in Business Administration from Stanford University.

Robert A. Abel is a director in the public accounting firm of Blue & Co.,
LLC. Mr. Abel is a magna cum laude graduate of Indiana State University with a
B.S. Degree in Accounting. He is a certified public accountant with over 20
years of experience in the areas of auditing and corporate tax and has been
involved with aviation accounting and finance since 1976.

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William P. Rogers, Jr., is a partner in the New York law firm of Cravath,
Swaine & Moore. After graduating from Case Western Reserve University School of
Law in 1978, he served as a clerk in the United States Court of Appeals for the
Sixth Circuit based in Cincinnati. He joined the Cravath firm a year later and
became a partner in 1985. His practice includes a wide variety of corporate
matters, including public and private financings, mergers and acquisitions and
corporate restructurings.

Andrejs P. Stipnieks is a consultant on corporation and privatization of
government business enterprises. Until 1998, he was a Senior Government
Solicitor in the Office of Commercial Law in the Australian Government
Solicitor's Office. He graduated from the University of Adelaide, South
Australia, and is a Barrister and Solicitor of the Supreme Courts of South
Australia and the Australian Capital Territory and of the High Court of
Australia. He has specialized in transport law and practice, especially aviation
law and practice and represented Australia on the Legal Committee of the
International Civil Aviation Organization at Montreal in 1983.

PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDER

The following table sets forth, as of March 31, 1998, the number of
outstanding shares of Common Stock of the Company owned by any person known by
management to beneficially own more than 5% of such stock and by all directors
and executive officers of the Company as a group. The table also sets forth the
number of shares that will be beneficially owned by Mr. Mikelsons, the Selling
Shareholder, after the Offering:

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING(6)
-------------------- --------------------
NAME AND ADDRESS OF INDIVIDUAL/GROUP NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------------------------- --------- ------- --------- -------

<S> <C> <C> <C> <C>
J. George Mikelsons.................................................. 8,477,500 73.0 6,477,500 48.6
Heartland Advisors, Inc. ............................................ 600,000(2) 5.2 600,000 --(5)
790 N. Milwaukee Street
Milwaukee, WI 53202
Dimensional Fund Advisors Inc. ...................................... 627,400(3) 5.4 627,400 --(5)
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
All directors and executive officers as a group(1) 495,523(4) --(5) 495,523 --(5)
(excluding J. George Mikelsons)....................................
</TABLE>

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

(1) Group consists of eight persons (Messrs. Tague, Hlavacek, Wolff, Thomas,
Abel, Rogers, Pace and Stipnicks).

(2) Heartland Advisors, Inc. ('Heartland'), a registered investment advisor,
filed with the Commission its statement on Schedule 13G, for the quarter
ended December 31, 1997, to the effect that it has sole voting and sole
dispositive power over all these shares. Such statement of Heartland's
beneficial ownership, voting power, dispositive owner and percent of class
as stated herein, is based solely on information stated therein.

(3) Dimensional Fund Advisors Inc. ('Dimensional'), a registered investment
advisor, has filed with the Commission its statement on Schedule 13G, for
the quarter ended December 31, 1997, to the effect that it has sole voting
power over 413,400 shares, and sole dispositive power over 627,400 shares.
Such statement of Dimensional's beneficial ownership, voting power,
dispositive power and percent of class as stated herein, is based solely on
information stated therein.

(4) Includes (a) presently exercisable options to purchase 36,000 shares each
granted to Messrs. Wolff and Hlavacek on July 7, 1993, under the Company's
1993 Incentive Stock Plan for Key Employees; (b) presently exercisable
options to purchase 10,000 shares each granted to Messrs. Hlavacek and Wolff
on February 25, 1994, under said Plan; (c) presently exercisable options to
purchase 18,000 shares each granted to Messrs. Wolff and Hlavacek on
February 14, 1995, under said Plan; (d) presently exercisable options to
purchase 20,000 shares each granted to Messrs. Wolff and Hlavacek on March
21, 1996, under said Plan; (e) presently exercisable options to purchase
16,000 shares each granted to Messrs. Wolff and Hlavacek on May 13, 1997,
under said Plan; (f) presently exercisable options to purchase 225,000
shares granted to Mr. Thomas on August 9, 1996, under the Company's 1996
Incentive Stock Plan; and (g) presently exercisable options to purchase
3,500 shares each granted to Messrs. Abel, Rogers and Stipnicks under the
Company's Stock Option Plan for Non-Employee Directors.

(5) Represents less than 5% of the outstanding stock of the Company.

(6) Assumes no exercise of the Underwriter's over-allotment option.

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CERTAIN RELATED PARTY TRANSACTIONS

Mr. Mikelsons is the sole owner of Betaco, Inc., a Delaware corporation
('Betaco'). Betaco currently owns two airplanes (a Cessna Citation II and a Lear
Jet) and three helicopters (a Bell 206B Jet Ranger III, an Aerospatiale 355F2
Twin Star and a Bell 206L-3 LongRanger). The two airplanes and the Twin Star and
LongRanger helicopters, are leased to ATA. The Company believes that the current
terms of the leases with Betaco for this equipment are no less favorable to the
Company than those that could be obtained from third parties.

The lease for the Cessna Citation currently requires a monthly payment of
$37,500. The lease for the Lear Jet requires a monthly payment of $42,000. The
lease for the JetRanger III currently requires a monthly payment of $7,000. The
lease for the Aerospatiale 355F2 Twin Star requires a monthly lease payment of
$12,000 and the lease for the LongRanger requires a monthly payment of $11,200.

Mr. Rogers, Chairman of the Audit Committee, is a partner in the law firm
of Cravath, Swaine & Moore, which provides legal services to the Company. Mr.
Abel, Chairman of the Compensation Committee, is a partner in the accounting
firm of Blue & Co., LLC, which provides tax and accounting services to the
Company.

Pursuant to Mr. Thomas' employment arrangement with the Company, the
Company loaned Mr. Thomas $100,000 on May 7, 1997. Mr. Thomas delivered a
Promissory Note to the Company, the terms of which include a maturity date of
May 1, 1999, an interest rate of 8.75% per annum, and quarterly interest
payments.

Pursuant to a registration rights agreement between Mr. Mikelsons and the
Company (the 'Registration Agreement'), Mr. Mikelsons and certain transferees
(the 'Sellers') have the right to require that the Company register under the
Securities Act or qualify for sale (in either case, a 'demand registration') any
securities of the Company that they own, including shares of Common Stock, and
the Company is required to use reasonable efforts to cause such registration to
occur, subject to certain limitations and conditions, including that the Company
shall not be obligated to register or qualify such securities more than twice in
any 18 month period and then only if the request is to register at least 5% of
the total number of shares of Common Stock at the time issued and outstanding,
or in the case of a request to register debt securities, the principal amount of
such specified debt is at least $1,000,000. In addition, if the Company proposes
to register shares of Common Stock under the Securities Act, the Sellers have
the right to request the inclusion of their securities in such registration
statement, subject to certain limitations and conditions, among them the right
of the underwriters of such registered offering to exclude or limit the number
of their shares included in such offering. The Company will bear the entire cost
of the first three demand registrations and the Company and the Sellers will
each bear one-half of the costs of any subsequent demand registrations. These
costs include (legal fees and expenses of counsel for the Company) and certain
of the costs for the other Sellers. The Sellers will pay any underwriting
discounts and commissions associated with the sale of their securities and the
fees and expenses of their counsel.

The Company has agreed that in the event of any registration of shares of
securities pursuant to the Registration Agreement, it will indemnify the Sellers
and certain other related persons, against certain liabilities incurred in
connection with such registration, including liabilities under the Securities
Act. The Sellers will provide a similar indemnity for liabilities incurred as a
result of information jointly identified in writing by the Company and the
Sellers as concerning the Sellers and their security holdings in the Company and
as identified for use in such registration statement by the Sellers.

Subject to certain limitations and conditions, the registration rights held
by Mr. Mikelsons may be transferred with his securities. The Registration
Agreement also contains various covenants imposing certain obligations upon the
Company when performing pursuant to such agreement including, among other
things, furnishing copies of any prospectus to Mr. Mikelsons, qualifying such
securities, entering into an underwriting agreement, listing the securities as
requested and taking such other necessary actions.

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DESCRIPTION OF CAPITAL STOCK

The Company's Articles authorize 30 million shares of Common Stock, without
par value, and authorize 10 million shares of Preferred Stock, without par value
(the 'Preferred Stock' and, collectively, with the Common Stock, the 'Capital
Stock').

PREFERRED STOCK

The Company's Articles authorize the Board to provide for the issuance,
from time to time, of Preferred Stock in series, to establish the number of
shares to be included in any such series and to fix the designations, powers,
preferences and rights of the shares of each such series and any qualifications,
limitations or restrictions thereon. Because the Board has the power to
establish the preferences and rights of the shares of any such series of
Preferred Stock, it may afford holders of any Preferred Stock preferences,
powers and rights (including voting rights) senior to the rights of the holders
of Common Stock, which would adversely affect the rights of holders of Common
Stock.

COMMON STOCK

Holders of shares of Common Stock have no preemptive or other rights to
subscribe for additional shares of voting securities of the Company. Subject to
the preferential rights, if any, of any outstanding Preferred Stock, upon the
liquidation, dissolution or winding up of the affairs of the Company, the assets
legally available for distribution to shareholders would be distributable among
the holders of the shares of Common Stock at the time outstanding. The Common
Stock will not be subject to redemption or call except as provided in the
Indiana Control Share Act (as defined herein), which does not currently apply to
the Company, and to the extent necessary to prevent the loss of any governmental
license and to comply with any governmental regulations. Shares of Common Stock
issued pursuant to this Offering will be fully paid and nonassessable shares of
capital stock of the Company. No holder of Common Stock will have any liability
for further calls or assessments respecting such shares. Shareholders of the
Company do not have cumulative voting rights.

National City Bank, N.A. will act as transfer agent and registrar for the
Common Stock.

DIVIDENDS

Subject to the preferential rights of any Preferred Stock, holders of
Common Stock are entitled to receive any dividends, including stock dividends,
if any, in such amounts and at such rates as may be declared by the Board out of
funds legally available therefor.

CONTROL

After the completion of the Offering made hereby, Mr. Mikelsons will
control approximately 48.6% of the issued and outstanding shares of Common Stock
( % if the Underwriters' over-allotment option is exercised in full).
Accordingly, Mr. Mikelsons will exert great influence on (i) the election of all
the Company's directors, (ii) any amendment of the Articles or effectuation of a
merger, sale of assets, or other major corporate transaction, (iii) any
nonnegotiated takeover attempt, (iv) determining the amount and timing of
dividends paid to himself and other holders of Common Stock and (v) the
management and operations of the Company and the outcome of all matters
submitted for a shareholder vote. In addition, there are various measures
included in the Articles which may make nonnegotiated takeover attempts of the
Company more difficult and expensive.

CERTAIN PROVISIONS OF INDIANA LAW

The Company's By-laws provide that the Company is not subject to the
Indiana Control Share Act. Such By-laws may be amended by the Board without a
shareholder vote.

Indiana Code 'SS' 23-1-43 (the 'Business Combination Act') prohibits a
person who acquires beneficial ownership of 10% or more of certain corporations'
shares (an 'Interested Shareholder'), or any affiliate or associate of an
Interested Shareholder, from effecting a merger or other business

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combination with the corporation for a period of five years from the date on
which the person became an Interested Shareholder, unless the transaction in
which the person became an Interested Shareholder was approved in advance by the
corporation's board of directors. Following the five-year period, a merger or
other business combination may be effected with an Interested Shareholder only
if (i) the business combination is approved by the corporation's shareholders,
excluding the Interested Shareholder and any of its affiliates or associates, or
(ii) the consideration to be received by shareholders in the business
combination is at least equal to the highest price paid by the Interested
Shareholder in acquiring its interest in the corporation, with certain
adjustments, and certain other requirements are met. The Business Combination
Act broadly defines the term 'business combination' to include mergers, sales or
leases of assets, transfers of shares of the corporation, proposals for
liquidation and the receipt by an Interested Shareholder of any financial
assistance or tax advantage from the corporation, except proportionately as a
shareholder of the corporation. The Business Combination Act does not apply to
any business combination with Mr. Mikelsons, who acquired his Common Stock prior
to January 7, 1986.

Indiana Code SS 23-1-42 (the 'Control Share Act'), which does not currently
apply to the Company, provides that any person or group of persons that acquires
the power to vote more than one-fifth of certain corporations' shares shall not
have the right to vote such shares unless granted voting rights by the holders
of a majority of the outstanding shares of the corporation and by the holders of
a majority of the outstanding shares excluding 'interested shares.' Interested
shares are those shares held by the acquiring person, officers of the
corporation and employees of the corporation who are also directors of the
corporation. If the approval of voting power for the shares is obtained,
additional shareholder approvals are required when a shareholder acquires the
power to vote more than one-third and more than a majority of the voting power
of the corporation's shares. In the absence of such approval, the additional
shares acquired by the shareholder may not be voted.

The Control Share Act also provides that if the shareholders grant voting
rights to the shares after a shareholder has acquired more than a majority of
the voting power, all shareholders of the corporation are entitled to exercise
statutory dissenters' rights and to demand the value of the shares in cash from
the corporation. If voting rights are not accorded to the shares, the
corporation may have the right to redeem them. The provisions of the Control
Share Act do not apply to acquisitions of voting power pursuant to a merger or
share exchange agreement to which the corporation is a party.

The overall effect of the above provisions may be to render more difficult
or to discourage a merger, a tender offer, a proxy contest, the assumption of
control of the Company by a holder of a large block of the Company's stock or
other person, or the removal of incumbent management, even if such actions may
be beneficial to the Company's shareholders generally.

CERTAIN PROVISIONS OF THE RESTATED ARTICLES OF INCORPORATION AND BY-LAWS

CERTAIN ANTI-TAKEOVER PROVISIONS

Insofar as Mr. Mikelsons will retain effective control of the Company after
the Offering through his ownership of approximately 48.6% of the outstanding
Common Stock ( % if the Underwriters' over-allotment is exercised in full),
the Company will not be under most circumstances vulnerable to a takeover
without the approval of Mr. Mikelsons.

Following the Offering, Mr. Mikelsons will own less than 50% of the
combined voting power of the outstanding stock of the Company, and, as a result,
certain provisions of the Articles and By-laws of the Company will become
effective that may discourage an unsolicited takeover of the Company that the
Board determines would not be in the best interests of the Company and its
shareholders. These provisions therefore, could potentially discourage certain
attempts to acquire the Company or to remove incumbent management even if some
or a majority of the Company's shareholders deemed such an attempt to be in
their best interests.

The Articles provide, among other things, that, following the Offering, the
Board will be divided into three classes serving staggered three-year terms and
that directors will only be removable from office for 'cause' (as such term is
used in the Articles) and only by the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of voting stock,
voting together as a

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single class. The Articles further provide that following the Offering, in the
case of certain mergers, sales of assets, issuances of securities, liquidations
or dissolutions, or reclassifications or recapitalizations involving 'interested
shareholders' (as such term is used in the Articles), such transactions must be
approved by (i) 80% of the voting power of the then outstanding voting stock of
the Company and (ii) a majority of the then outstanding voting stock of the
Company held by 'disinterested stockholders' (as such term is used in the
Articles), in each case voting together as a single class, unless, in the case
of certain such transactions, the transaction is approved by the 'disinterested
directors' (as such term is used in the Articles) or unless certain minimum
price, form of consideration and procedural requirements are satisfied as
provided by the Articles.

DIRECTORS' LIABILITY

The Articles provide that, to the fullest extent permitted by the Indiana
Business Corporation Law, a director of the Company is not liable for any action
taken as a director, or any failure to take any action, unless the director has
breached or failed to perform his or her duties in compliance with such law and
such breach or failure to perform constitutes willful misconduct or
recklessness. This provision is effective at all times, both before and after
the commencement of the Effective Time (as defined in the Articles).

Under the Indiana Business Corporation Law, directors are required to
discharge their duties; (i) in good faith; (ii) with the care an ordinarily
prudent person in a like position would exercise under similar circumstances;
and (iii) in a manner the directors reasonably believe to be in the best
interests of the corporation. However, the Indiana Business Corporation Law
exonerates directors from liability for breach of these standards of conduct
unless the breach constitutes willful misconduct or recklessness. This
exoneration from liability may not affect the availability of equitable relief,
including injunctions. Furthermore, the exoneration from liability under Indiana
law does not affect the liability of directors for violations of the federal
securities laws.

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UNDERWRITERS

Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, (the 'Underwriting Agreement') the Underwriters
named below, for whom Morgan Stanley & Co. Incorporated and Smith Barney Inc.
are acting as Representatives, have severally agreed to purchase, and the
Company and the Selling Shareholder have agreed to sell to them severally, the
respective number of shares of Common Stock set forth opposite the name of such
Underwriter below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------

<S> <C>
Morgan Stanley & Co. Incorporated.................................................
Smith Barney Inc..................................................................

Total........................................................................
---------
---------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the Underwriters' over-allotment
option described below) if any such shares are taken.

The Underwriters, initially propose to offer part of the Common Stock
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain dealers. After the
initial offering of the Common Stock, the offering price and other selling terms
may from time to time be varied by the Underwriters. The Representatives of the
Underwriters have advised the Company and the Selling Shareholder that the
Underwriters do not intend to confirm any shares to any accounts over which they
exercise discretionary authority.

Pursuant to the Underwriting Agreement, the Company and the Selling
Shareholder have granted to the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to an aggregate of 525,000
additional shares of Common Stock at the price to public set forth on the cover
page of this Prospectus less underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the Offering of the Common Stock.
To the extent such option is exercised, each Underwriter will be obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares as the number of shares set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
offered by the Underwriters' hereby.

The Company, the Selling Shareholder and certain directors and officers of
the Company have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, they will not during
the period ending 90 days after the date of this Prospectus (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, lend
or otherwise transfer, or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of the Common Stock or such other
securities, in cash or otherwise, except under certain limited

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circumstances.

In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing
shares of Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.

The Company, the Selling Shareholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

From time to time, the Representatives and their affiliates have provided
and will continue to provide investment banking services to the Company.

LEGAL MATTERS

Certain legal matters with respect to the issuance of the Common Stock in
connection with the Offering are being passed upon for the Company by Cravath,
Swaine & Moore, New York, New York and for the Underwriters by Cleary, Gottlieb,
Steen & Hamilton, New York, New York. Cravath, Swaine & Moore and Cleary,
Gottlieb, Steen & Hamilton will rely as to matters of Indiana law upon the
opinion of Brian T. Hunt, General Counsel of the Company. The validity of the
issuance of the Common Stock offered hereby will be passed upon by Brian Hunt,
Esq. The Company is also being advised on regulatory and aviation matters by
Squire, Sanders & Dempsey, Washington, D.C. William P. Rogers, Jr., a partner at
Cravath, Swaine & Moore, is a director of the Company, and beneficially owns
8,000 shares of Common Stock of the Company and options to purchase 4,000 shares
of such Common Stock.

EXPERTS

The consolidated financial statements of the Company at December 31, 1997
and 1996, and for each of the three years in the period ended December 31, 1997,
appearing in this Prospectus and the Registration Statement have been audited by
Ernst & Young LLP, independent auditors as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. The Company has agreed to file with the Commission the annual
reports and the information, documents and other reports otherwise required
pursuant to Section 13 of the Exchange Act. All such information may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and the website (http://www.sec.gov) maintained by the Commission and
at the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549.

The Common Stock of the Company is traded on Nasdaq and such reports, proxy
statements and other information concerning the Company also can be inspected at
the offices of Nasdaq National Market, 1735 K Street, N.W., Washington D.C.
20006.

This Prospectus constitutes a part of a registration statement on Form S-2
(the 'Registration Statement') filed by the Company with the Commission under
the Securities Act with respect to the

80
<PAGE>
<PAGE>
Common Stock offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information contained in
the Registration Statement and the exhibits and schedules thereto and reference
is hereby made to the Registration Statement and the exhibits and schedules
thereto for further information with respect to the Company and the securities
offered hereby. Statements contained herein concerning the provisions of any
documents filed as an exhibit to the Registration Statement or otherwise filed
with the Commission are not necessarily complete, and in each instance reference
is made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference.

81
<PAGE>
<PAGE>
AMTRAN, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----

<S> <C>
Audited Financial Statements:
Report of Independent Auditors........................................................................ F-2
Consolidated Balance Sheets at December 31, 1997 and 1996............................................. F-3
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995............ F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1997, 1996
and 1995............................................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995............ F-6
Notes to Consolidated Financial Statements............................................................ F-7
Unaudited Interim Financial Statements:
Consolidated Balance Sheets at March 31, 1998 and 1997................................................ F-17
Consolidated Statements of Operations for the Three Months Ended March 31, 1998 and 1997.............. F-18
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997.............. F-19
Notes to Consolidated Financial Statements............................................................ F-20
</TABLE>

F-1
<PAGE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
AMTRAN, INC.

We have audited the accompanying consolidated balance sheets of Amtran,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. 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 consolidated financial position of Amtran, Inc.
and subsidiaries at December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.

Indianapolis, Indiana
February 4, 1998

F-2
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------

<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 104,196 $ 73,382
Receivables, net of allowance for doubtful accounts (1997 -- $1,682;
1996 -- $1,274)................................................................... 23,266 20,239
Inventories, net................................................................... 14,488 13,888
Assets held for sale............................................................... -- 14,112
Prepaid expenses and other current assets.......................................... 20,892 14,571
--------- ---------
Total current assets.......................................................... 162,842 136,192

Property and equipment:
Flight equipment................................................................... 463,576 381,186
Facilities and ground equipment.................................................... 54,933 51,874
--------- ---------
518,309 433,060
Accumulated depreciation........................................................... (250,828) (208,520)
--------- ---------
267,681 224,540
Assets held for sale.................................................................... 8,691 --
Deposits and other assets............................................................... 11,643 8,869
--------- ---------
Total assets............................................................. $ 450,857 $ 369,601
--------- ---------
--------- ---------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................................... $ 8,975 $ 30,271
Accounts payable................................................................... 10,511 13,671
Air traffic liabilities............................................................ 68,554 49,899
Accrued expenses................................................................... 80,312 64,813
--------- ---------
Total current liabilities..................................................... 168,352 158,654

Long-term debt, less current maturities................................................. 182,829 119,100
Deferred income taxes................................................................... 31,460 20,216
Other deferred items.................................................................... 11,226 16,887

Commitments and contingencies

Shareholders' equity:
Preferred stock; authorized 10,000,000 shares; none issued......................... -- --
Common stock, without par value; authorized 30,000,000 shares; issued
11,829,230 -- 1997; 11,799,852 -- 1996............................................ 38,760 38,341
Treasury stock: 185,000 shares..................................................... (1,760) (1,760)
Additional paid-in-capital......................................................... 15,340 15,618
Retained earnings.................................................................. 6,250 4,678
Deferred compensation -- ESOP...................................................... (1,600) (2,133)
--------- ---------
56,990 54,744
--------- ---------
Total liabilities and shareholders' equity............................... $ 450,857 $ 369,601
--------- ---------
--------- ---------
</TABLE>

See accompanying notes.

F-3
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------

<S> <C> <C> <C>
Operating revenues:
Scheduled service.............................................. $ 371,762 $ 386,488 $ 361,967
Charter........................................................ 359,177 310,569 307,091
Ground package................................................. 22,317 22,302 20,421
Other.......................................................... 29,937 31,492 25,530
----------- ----------- -----------
Total operating revenues.................................. 783,193 750,851 715,009
----------- ----------- -----------
Operating expenses:
Salaries, wages and benefits................................... 172,499 163,990 141,072
Fuel and oil................................................... 153,701 161,226 129,636
Handling, landing and navigation fees.......................... 69,383 70,122 74,400
Depreciation and amortization.................................. 62,468 61,661 55,827
Aircraft rentals............................................... 54,441 65,427 55,738
Aircraft maintenance, materials and repairs.................... 51,465 55,175 55,423
Crew and other employee travel................................. 36,596 35,855 31,466
Passenger service.............................................. 32,812 32,745 34,831
Commissions.................................................... 26,102 26,677 24,837
Ground package cost............................................ 19,230 18,246 15,926
Other selling expenses......................................... 15,462 17,563 14,934
Advertising.................................................... 12,658 10,320 8,852
Facilities and other rentals................................... 8,557 9,625 7,414
Disposal of assets............................................. -- 4,475 --
Other.......................................................... 54,335 53,800 46,717
----------- ----------- -----------
Total operating expenses.................................. 769,709 786,907 697,073
----------- ----------- -----------
Operating income (loss)............................................. 13,484 (36,056) 17,936

Other income (expense):
Interest income................................................ 1,584 617 410
Interest (expense)............................................. (9,454) (4,465) (4,163)
Other.......................................................... 413 323 470
----------- ----------- -----------
Other expenses............................................ (7,457) (3,525) (3,283)
----------- ----------- -----------
Income (loss) before income taxes................................... 6,027 (39,581) 14,653
Income taxes (credits).............................................. 4,455 (12,907) 6,129
----------- ----------- -----------
Net income (loss)................................................... $ 1,572 $ (26,674) $ 8,524
----------- ----------- -----------
----------- ----------- -----------

Basic earnings per common share:
Average shares outstanding.......................................... 11,577,727 11,535,425 11,481,861
Net income (loss) per share......................................... $ 0.14 $ (2.31) $ 0.74
----------- ----------- -----------
----------- ----------- -----------

Diluted earnings per common share:
Average shares outstanding.......................................... 11,673,330 11,535,425 11,519,232
Net income (loss) per share......................................... $ 0.13 $ (2.31) $ 0.74
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See accompanying notes.

F-4
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL DEFERRED
COMMON TREASURY PAID-IN RETAINED COMPENSATION
STOCK STOCK CAPITAL EARNINGS ESOP
------- -------- ---------- --------- ------------

<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994.......................... $37,941 $ (1,091) $ 16,008 $ 22,828 $ (2,933)
Net income..................................... -- -- -- 8,524 --
Issuance of common stock for ESOP.............. -- -- (111) -- 267
Restricted stock grants........................ 152 -- (19) -- --
Stock options exercised........................ 166 -- (57) -- --
Purchase 54,000 shares of treasury stock....... -- (490) -- -- --
------- -------- ---------- --------- ------------
Balance, December 31, 1995.......................... 38,259 (1,581) 15,821 31,352 (2,666)
Net loss....................................... -- -- -- (26,674) --
Issuance of common stock for ESOP.............. -- -- (173) -- 533
Restricted stock grants........................ 32 -- (7) -- --
Stock options exercised........................ 50 -- (23) -- --
Purchase of 16,000 shares of treasury stock.... -- (179) -- -- --
------- -------- ---------- --------- ------------
Balance, December 31, 1996.......................... 38,341 (1,760) 15,618 4,678 (2,133)
Net income..................................... -- -- -- 1,572 --
Issuance of common stock for ESOP.............. -- -- (214) -- 533
Restricted stock grants........................ 419 -- (185) -- --
Executive stock options expired................ -- -- 121 -- --
------- -------- ---------- --------- ------------
Balance, December 31, 1997.......................... $38,760 $ (1,760) $ 15,340 $ 6,250 $ (1,600)
------- -------- ---------- --------- ------------
------- -------- ---------- --------- ------------
</TABLE>

See accompanying notes.

F-5
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- -------- --------

<S> <C> <C> <C>
Operating activities:
Net income (loss)............................................................ $ 1,572 $(26,674) $ 8,524
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization........................................... 62,468 61,661 55,827
Deferred income taxes (credits)......................................... 11,244 (13,246) 4,025
Other non-cash items.................................................... (666) 28,185 9,699
Changes in operating assets and liabilities:
Receivables............................................................. (3,027) 3,919 (6,768)
Inventories............................................................. (1,637) (948) 2,739
Assets held for sale.................................................... 5,356 (14,112) --
Prepaid expenses........................................................ (6,321) 6,081 (4,061)
Accounts payable........................................................ (3,160) 2,519 (166)
Air traffic liabilities................................................. 18,655 (6,632) 10,466
Accrued expenses........................................................ 15,452 (8,582) 6,793
--------- -------- --------
Net cash provided by operating activities.................................... 99,936 32,171 87,078
--------- -------- --------
Investing activities:
Proceeds from sales of property and equipment........................... 8,005 529 21,564
Capital expenditures.................................................... (84,233) (69,884) (57,835)
Reductions of (additions to) other assets............................... 173 6,194 (7,761)
--------- -------- --------
Net cash used in investing activities........................................ (76,055) (63,161) (44,032)
--------- -------- --------
Financing activities:
Proceeds from long-term debt............................................ 134,000 21,390 6,000
Payments on long-term debt.............................................. (127,067) (9,580) (17,567)
Purchase of treasury stock.............................................. -- (179) (490)
--------- -------- --------
Net cash provided by (used in) financing activities.......................... 6,933 11,631 (12,057)
--------- -------- --------
Increase (decrease) in cash and cash equivalents............................. 30,814 (19,359) 30,989
Cash and cash equivalents, beginning of period............................... 73,382 92,741 61,752
--------- -------- --------
Cash and cash equivalents, end of period..................................... $ 104,196 $ 73,382 $ 92,741
--------- -------- --------
--------- -------- --------

Supplemental disclosures:
Cash payments for:
Interest........................................................... $ 6,197 $ 3,823 $ 4,515
Income taxes (refunds)............................................. (311) 515 1,069

Financing and investing activities not affecting cash:
Issuance of long-term debt directly for capital expenditures............ $ 30,650 $ -- $ 31,708
Issuance of short-term debt directly for capital expenditures........... 4,750 -- --
</TABLE>

See accompanying notes.

F-6
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND BUSINESS DESCRIPTION

The consolidated financial statements include the accounts of Amtran, Inc.
(the 'Company') and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

The Company operates principally in one business segment through American
Trans Air, Inc. ('ATA'), its principal subsidiary, which accounts for
approximately 95% of the Company's operating revenues. ATA is a
U.S.-certificated air carrier providing domestic and international charter and
scheduled passenger services. Approximately 48% of the Company's 1997 operating
revenues were generated through scheduled services to such destinations as
Hawaii, Las Vegas, Florida, California, Mexico and the Caribbean, while
approximately 46% of 1997 operating revenues were derived from charter
operations with independent tour operators and the U.S. military to numerous
destinations throughout the world.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

CASH EQUIVALENTS

Cash equivalents are carried at cost and are primarily comprised of
investments in U.S. Treasury bills, commercial paper and time deposits which are
purchased with original maturities of three months or less (see Note 2).

ASSETS HELD FOR SALE

Assets held for sale are carried at the lower of net book value or
estimated net realizable value.

INVENTORIES

Inventories consist primarily of expendable aircraft spare parts, fuel and
other supplies. Aircraft parts inventories are stated at cost and are reduced by
an allowance for obsolescence. The obsolescence allowance is provided by
amortizing the cost of the aircraft parts inventory, net of an estimated
residual value, over its estimated useful service life. The obsolescence
allowance at December 31, 1997 and 1996, was $7.6 million and $6.6 million,
respectively. Inventories are charged to expense when consumed.

REVENUE RECOGNITION

Revenues are recognized when the transportation is provided. Customer
flight deposits and unused passenger tickets sold are included in air traffic
liability. As is customary within the industry, the Company performs periodic
evaluations of this estimated liability, and any adjustments resulting
therefrom, which can be significant, are included in the results of operations
for the periods in which the evaluations are completed.

PASSENGER TRAFFIC COMMISSIONS

Passenger traffic commissions are recognized as expense when the
transportation is provided and the related revenue is recognized. The amount of
passenger traffic commissions paid but not yet recognized as expense is included
in prepaid expenses and other current assets in the accompanying consolidated
balance sheets.

F-7
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost and is depreciated to residual
value over its estimated useful service life using the straight-line method.
Advanced payments for future aircraft purchases are recorded at cost. As of
December 31, 1997 and 1996, the Company had made advanced payments for future
aircraft deliveries totaling $6.0 million and $2.7 million, respectively. The
estimated useful service lives for the principal depreciable asset
classifications are as follows:

<TABLE>
<CAPTION>
ASSET ESTIMATED USEFUL SERVICE LIFE
- ---------------------------------------------------------- --------------------------------------

<S> <C>
Aircraft and related equipment:
Lockheed L-1011...................................... 16 years
Boeing 757-200....................................... 20 years
Boeing 727-200....................................... 11 years
Major rotable parts, avionics and assemblies.............. Life of equipment to which applicable
(Generally ranging from 10-16 years)
Improvements to leased flight equipment................... Period of benefit or term of lease
Other property and equipment.............................. 3-7 years
</TABLE>

The costs of major airframe and engine overhauls are capitalized and
amortized over their estimated useful lives based upon usage (or to earlier
fleet common retirement dates) for both owned and leased aircraft.

FINANCIAL INSTRUMENTS

The carrying amounts of cash equivalents, receivables and both
variable-rate and fixed-rate debt (see Note 5) approximate fair value. The fair
value of fixed-rate debt, including current maturities, is estimated using
discounted cash flow analysis based on the Company's current incremental rates
for similar types of borrowing arrangements.

INCOME (LOSS) PER SHARE

In 1997, the Company adopted Financial Accounting Standards Board ('FASB')
Statement 128, 'Earnings per Share,' which establishes new standards for the
calculation and disclosure of earnings per share. All prior period earnings per
share amounts disclosed in the financial statements have been restated to
conform to the new standards under Statement 128 (see Note 10).

2. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- -------
(IN THOUSANDS)

<S> <C> <C>
Cash............................................................................. $ 25,406 $18,523
Commercial paper................................................................. 34,817 --
U.S. Treasury repurchase agreements.............................................. 43,973 54,859
-------- -------
$104,196 $73,382
-------- -------
-------- -------
</TABLE>

Cash equivalents of $0.0 and $6.3 million at December 31, 1997 and December
31, 1996, respectively, were pledged to collateralize amounts which could become
due under letters of credit. At December 31, 1997 and 1996, there were no
amounts drawn against letters of credit (see Note 4).

F-8
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT

The Company's property and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)

<S> <C> <C>
Flight equipment, including airframes, engines and other........................ $463,576 $381,186
Less accumulated depreciation................................................... 219,590 182,392
-------- --------
243,986 198,794
-------- --------
Facilities and ground equipment................................................. 54,933 51,874
Less accumulated depreciation................................................... 31,238 26,128
-------- --------
23,695 25,746
-------- --------
$267,681 $224,540
-------- --------
-------- --------
</TABLE>

4. SHORT-TERM BORROWINGS

The Company maintains a $5.0 million revolving credit facility available
for its short-term borrowing needs and for issuance of letters of credit. The
credit facility is available until June 1998 and is collateralized by certain
aircraft engines. Borrowings against the facility bear interest at the bank's
prime rate plus .25%. There were no borrowings against this credit facility at
December 31, 1997 or 1996. At December 31, 1997 and 1996, the Company had
outstanding letters of credit aggregating $3.5 million and $4.1 million,
respectively, under such facility.

5. LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)

<S> <C> <C>
Unsecured Senior Notes, fixed rate of 10.5% payable on
August 1, 2004................................................................ $100,000 $ --
Note payable to bank; prime to prime plus 0.5% (8.5% and 9.0% at December 31,
1997), payable on or before April 2001........................................ 34,000 123,246
Note payable to institutional lender; fixed rate of 7.80% payable in varying
installments through September 2003........................................... 7,045 8,420
Note payable to institutional lender; fixed rate of 7.08% payable in varying
installments through January 1999............................................. 29,982 --
City of Indianapolis advance, payable in December 2000.......................... 10,000 10,000
City of Chicago variable rate special facility revenue bonds
(4.29% on December 31, 1997), payable in December 2020........................ 6,000 6,000
Other........................................................................... 4,777 1,705
-------- --------
191,804 149,371
Less current maturities......................................................... 8,975 30,271
-------- --------
$182,829 $119,100
-------- --------
-------- --------
</TABLE>

On July 24, 1997, the Company completed two separate financings designed to
lengthen the maturity of the Company's long-term debt and diversify its credit
sources. On that date, the Company (i) sold $100.0 million principal amount of
unsecured seven-year notes in a private offering under Rule 144A, and (ii)
entered into a new secured revolving credit facility.

F-9
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The unsecured senior notes mature on August 1, 2004. Each note bears
interest at the annual rate of 10.5%, payable on February 1 and August 1 of each
year beginning February 1, 1998. The Company may redeem the notes, in whole or
in part, at any time on or after August 1, 2002, initially at 105.25% of their
principal amount plus accrued interest, declining ratably to 100.0% of their
principal amount plus accrued interest at maturity. At any time prior to August
1, 2000, the Company may redeem up to 35.0% of the original aggregate principal
amount of the notes with the proceeds of sales of common stock, at a redemption
price of 110.5% of their principal amount (plus accrued interest), provided that
at least $65.0 million in aggregate principal amount of the notes remains
outstanding after such redemption.

The net proceeds of the unsecured notes were approximately $96.9 million,
after application of costs and fees of issuance. The Company used a portion of
the net proceeds to repay in full the Company's prior bank facility and used the
balance of the proceeds for general corporate purposes.

Concurrently with the issuance of the unsecured notes, the Company entered
into a new $50.0 million revolving credit facility that includes up to $25.0
million for stand-by letters of credit. ATA is the borrower under the new credit
facility, which is guaranteed by the Company and each of the Company's other
active subsidiaries. The principal amount of the new facility matures on April
1, 2001, and borrowings are secured by certain Lockheed L-1011 aircraft and
engines. The loan-to-value ratio for collateral securing the new facility may
not exceed 75% at any time. Borrowings under the new facility bear interest, at
the option of ATA, at either LIBOR plus 1.50% to 2.50% or the agent bank's prime
rate.

The Company's former credit facility had initially provided a maximum of
$125.0 million, including $25.0 million for stand-by letters of credit, subject
to the maintenance of certain collateral value, including certain owned Lockheed
L-1011 aircraft, certain receivables, and certain rotables and spare parts.
Loans under the former credit facility were subject to interest, at the
Company's option, at either prime to prime plus 0.75%, or the Eurodollar rate
plus 1.50% to 2.75%. The former facility was scheduled to mature on April 1,
1999.

The notes and credit facility are subject to restrictive covenants,
including, among other things, limitations on: the incurrence of additional
indebtedness; the payment of dividends; certain transactions with shareholders
and affiliates; or the creation of liens on or other transactions involving
certain assets. In addition, certain covenants require certain financial ratios
to be maintained.

In December 1995, the Company entered into a sale/lease transaction with
the City of Indianapolis on its maintenance facility at the Indianapolis
International Airport which resulted in the advance of $10.0 million in cash to
the Company, as secured by the maintenance facility. The Company is obligated to
pay $0.6 million per year to the City of Indianapolis for five years, which
represents interest on the City's associated outstanding debt obligation. As of
December 2000, the advance of $10.0 million must be repaid to the City of
Indianapolis. The Company may elect to repay the balance using special facility
bonds underwritten by the City's Airport Authority, or by using the Company's
own funds.

The Company has made voluntary prepayments of long-term debt which has had
the effect of reducing interest expense by approximately $3.4 million and $5.9
million during 1997 and 1996, respectively.

F-10
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)

<S> <C>
1998.................................................. $ 8,975
1999.................................................. 28,626
2000.................................................. 11,382
2001.................................................. 35,374
2002.................................................. 1,192
Thereafter............................................ 106,255
-----------------
$ 191,804
-----------------
-----------------
</TABLE>

Interest capitalized in connection with long-term asset purchase agreements
was $0.7 million and $1.4 million in 1997 and 1996, respectively.

In December 1997, the Company purchased a Boeing 727-200 and issued a $4.7
million note payable which is classified in current maturities of long-term
debt. The note payable is due in the first quarter of 1998, and is secured by
$4.7 million in cash held in escrow. This restricted cash is classified as cash
and cash equivalents at December 31, 1997. The note was repaid in January 1998.

6. LEASE COMMITMENTS

At December 31, 1997, the Company had aircraft leases on one Lockheed
L-1011, 23 Boeing 727-200s, and six Boeing 757-200s. The Lockheed L-1011 has an
initial term of 60 months which expires in 2002. The Boeing 757-200s have
initial lease terms that expire from 2002 through 2015. The Boeing 727-200s have
initial terms of three to seven years and expire between 1998 and 2003. The
Company also leases nine engines for use on the Lockheed L-1011s through 2001.

The Company is responsible for all maintenance costs on these aircraft and
must meet specified airframe and engine return conditions.

As of December 31, 1997, the Company had other long-term leases related to
certain ground facilities, including terminal space and maintenance facilities,
with original lease terms that vary from 3 to 40 years and expire at various
dates through 2035. The lease agreements relating to the ground facilities,
which are primarily owned by governmental units or authorities, generally do not
provide for transfer of ownership nor do they contain options to purchase.

In December 1995, the Company sold its option to purchase its headquarters
facility to the City of Indianapolis for $2.9 million, and thereafter entered
into a capital lease agreement with the City relating to the continued use of
the headquarters and maintenance facility. A gain on the sale of the option
equal to $1.3 million was recognized in income in 1995, with the remainder of
the gain to be amortized to income during the periods the headquarters
facilities are used. The headquarters agreement has an initial term of four
years, with two options to extend of three and five years, respectively, and is
cancelable after two years with advance notice. The Company is responsible for
maintenance, taxes, insurance and other expenses incidental to the operation of
the facilities.

F-11
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease payments at December 31, 1997, for noncancelable
operating leases with initial terms of more than one year are as follows:

<TABLE>
<CAPTION>
FACILITIES
FLIGHT AND GROUND
EQUIPMENT EQUIPMENT TOTAL
--------- ---------- --------
(IN THOUSANDS)

<S> <C> <C> <C>
1998................................................... $ 48,380 $ 6,458 $ 54,838
1999................................................... 46,842 5,825 52,667
2000................................................... 37,150 5,230 42,380
2001................................................... 37,451 3,877 41,328
2002................................................... 31,412 3,754 35,166
Thereafter............................................. 229,946 22,941 252,887
--------- ---------- --------
$431,181 $ 48,085 $479,266
--------- ---------- --------
--------- ---------- --------
</TABLE>

Rental expense for all operating leases in 1997, 1996 and 1995 was $63.0
million, $75.0 million and $63.0 million, respectively.

7. INCOME TAXES

The provision for income tax expense (credit) consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996 1995
------ -------- ------
(IN THOUSANDS)

<S> <C> <C> <C>
Federal:
Current................................................... $ 173 $ -- $1,280
Deferred.................................................. 3,706 (11,798) 4,399
------ -------- ------
3,879 (11,798) 5,679
State:
Current................................................... 163 161 107
Deferred.................................................. 413 (1,270) 343
------ -------- ------
576 (1,109) 450
------ -------- ------
Income tax expense (credit)............................... $4,455 $(12,907) $6,129
------ -------- ------
------ -------- ------
</TABLE>

The provision for income taxes differed from the amount obtained by
applying the statutory federal income tax rate to income before income taxes as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996 1995
------ -------- ------
(IN THOUSANDS)

<S> <C> <C> <C>
Federal income taxes at statutory rate (credit)................ $2,049 $(13,457) $4,982
State income taxes (credit), net of federal benefit............ 367 (732) 535
Non-deductible expenses........................................ 1,947 1,282 998
Benefit of change in estimate of state income
tax rate..................................................... -- -- (258)
Benefit of tax reserve adjustments............................. -- -- (203)
Other, net..................................................... 92 -- 75
------ -------- ------
Income tax expense (credit).................................... $4,455 $(12,907) $6,129
------ -------- ------
------ -------- ------
</TABLE>

Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. The principal temporary differences

F-12
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

relate to the use of accelerated methods of depreciation and amortization for
tax purposes. Deferred income tax liability components are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(IN THOUSANDS)

<S> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of book depreciation.................... $61,117 $56,885
Other taxable temporary differences................................ 597 476
------- -------
Deferred tax liabilities...................................... $61,714 $57,361
------- -------
Deferred tax assets:
Tax benefit of net operating loss carryforwards.................... $28,744 $29,852
Investment and other tax credit carryforwards...................... 3,032 4,720
Vacation pay accrual............................................... 2,595 2,044
Amortization of lease credits...................................... 1,979 --
Other deductible temporary differences............................. 3,660 4,928
------- -------
Deferred tax assets........................................... $40,010 $41,544
------- -------
Deferred taxes classified as:
Current asset........................................................... $ 9,756 $ 4,399
------- -------
------- -------
Non-current liability................................................... $31,460 $20,216
------- -------
------- -------
</TABLE>

At December 31, 1997, for federal tax reporting purposes, the Company had
approximately $78.6 million of net operating loss carryforwards available to
offset future federal taxable income and $3.0 million of investment and other
tax credit carryforwards available to offset future federal tax liabilities. The
net operating loss carryforwards expire as follows: 2002, $10.2 million; 2003,
$8.1 million; 2004, $9.0 million; 2005, $3.5 million; 2009, $14.7 million; 2011,
$33.1 million. Investment tax credit carryforwards of $1.6 million expire
principally in 2000, and other tax credit carryforwards of $1.4 million have no
expiration dates.

8. RETIREMENT PLAN

The Company has a defined contribution 401(k) savings plan which provides
for participation by substantially all the Company's employees who have
completed one year of service. The Company has elected to contribute an amount
equal to 35% in 1997, and 30% in 1996 and 1995, of the amount contributed by
each participant up to the first six percent of eligible compensation. Company
matching contributions expensed in 1997, 1996 and 1995 were $1.8 million, $1.3
million and $1.2 million, respectively.

In 1993, the Company added an Employee Stock Ownership Plan ('ESOP')
feature to its existing 401(k) savings plan. The ESOP used the proceeds of a
$3.2 million loan from the Company to purchase 200,000 shares of the Company's
common stock. The selling shareholder was the Company's principal shareholder.
The Company recognized $0.3 million, $0.3 million, and $0.4 million in 1997,
1996 and 1995, respectively, as compensation expense related to the ESOP. Shares
of common stock held by the ESOP will be allocated to participating employees
annually as part of the Company's 401(k) savings plan contribution. The fair
value of the shares allocated during the year is recognized as compensation
expense.

9. SHAREHOLDERS' EQUITY

In the first quarter of 1994, the Board of Directors approved the
repurchase of up to 250,000 shares of the Company's common stock. As of December
31, 1997, the Company had repurchased 185,000 shares at a total cost of $1.8
million.

F-13
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's 1993 Incentive Stock Plan for Key Employees (1993 Plan)
authorizes the grant of options for up to 900,000 shares of the Company's common
stock. The Company's 1996 Incentive Stock Plan for Key Employees (1996 Plan)
authorizes the grant of options for up to 3,000,000 shares of the Company's
common stock. Options granted have 5 to 10-year terms and generally vest and
become fully exercisable over specified periods up to three years of continued
employment.

A summary of common stock option changes follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
(IN DOLLARS)

<S> <C> <C>
Outstanding at December 31, 1994.............................. 313,050 $13.73
Granted....................................................... 190,000 $ 8.71
Exercised..................................................... 10,417 $10.56
Canceled...................................................... 97,333 $11.73
---------
Outstanding at December 31, 1995.............................. 395,300 $11.92
---------
Granted....................................................... 1,302,400 $ 7.87
Exercised..................................................... 3,100 $ 8.94
Canceled...................................................... 64,700 $10.87
---------
Outstanding at December 31, 1996.............................. 1,629,900 $ 8.74
---------
Granted....................................................... 1,588,500 $ 8.49
Exercised..................................................... -- --
Canceled...................................................... 706,000 $ 7.14
---------
Outstanding at December 31, 1997.............................. 2,512,400 $ 9.39
---------
---------
Options exercisable at December 31, 1996...................... 497,015 $ 9.99
---------
---------
Options exercisable at December 31, 1997...................... 390,232 $12.02
---------
---------
</TABLE>

During 1996, the Company adopted FASB Statement No. 123 'Accounting for
Stock-Based Compensation' (FAS 123) with respect to its stock options. As
permitted by FAS 123, the Company has elected to continue to account for
employee stock options following Accounting Principles Board Opinion No. 25,
'Accounting for Stock Issued to Employees' (APB 25) and related Interpretations.
Under APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

The weighted-average fair value of options granted during 1997 and 1996 is
estimated at $5.28 and $4.49 per share, respectively, on the grant date. These
estimates were made using the Black-Scholes option pricing model with the
following weighted-average assumptions for 1997 and 1996: risk-free interest
rate of 6%; expected market price volatility of .40 and .48; weighted-average
expected option life equal to the contractual term; estimated forfeitures of 5%;
and no dividends.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models use highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of its employees' stock options.

For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period (1 to 3 years).
Therefore, because FAS 123 is applicable only to

F-14
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

options granted subsequent to December 31, 1994, its pro forma effect will not
be fully reflected until 1998. The Company's pro forma information follows:

<TABLE>
<CAPTION>
1997 1996 1995
------ -------- ------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)

<S> <C> <C> <C>
Net income (loss) as reported...................................... $1,572 $(26,674) $8,524
Net income (loss) pro forma........................................ 89 (28,864) 8,456
Diluted income (loss) per share as reported........................ .13 (2.31) .74
Diluted income (loss) per share pro forma.......................... .01 (2.50) .74
</TABLE>

Options outstanding at December 31, 1997, expire from August 2003 to
February 2007. A total of 1,387,600 shares are reserved for future grants as of
December 31, 1997, under the 1993 and 1996 Plans. The following table summarizes
information concerning outstanding and exercisable options at December 31, 1997:

<TABLE>
<S> <C> <C>
Range of Exercise Prices................................................ $7-11 $12-16
Options outstanding:
Weighted-Average Remaining Contractual Life........................ 8.8 years 7.3 years
Weighted-Average Exercise Price.................................... $8.50 $14.30
Number............................................................. 2,226,200 286,200
Options exercisable:
Weighted-Average Exercise Price.................................... $9.19 $15.11
Number............................................................. 203,791 186,441
</TABLE>

10. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARES
AND PER SHARE DATA)

<S> <C> <C> <C>
Numerator:
Net income (loss)........................................ $ 1,572 $ (26,674) $ 8,524
Denominator:
Denominator for basic earnings per share -- weighted
average shares......................................... 11,577,727 11,535,425 11,481,861
Effect of dilutive securities:
Employee stock options................................... 64,725 -- 37,371
Restricted shares........................................ 30,878 -- --
---------- ---------- ----------
Dilutive potential common shares.............................. 95,603 -- 37,371
---------- ---------- ----------
Denominator for diluted earnings per share -- adjusted
weighted average shares..................................... 11,673,330 11,535,425 11,519,232
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per share...................................... $ 0.14 $ (2.31) $ 0.74
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings per share.................................... $ 0.13 $ (2.31) $ 0.74
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

Potentially dilutive securities were not included in the computation of
1996 diluted earnings per share because the year resulted in a net loss and,
therefore, their effect would be antidilutive.

11. MAJOR CUSTOMER

The United States government is the only customer that accounted for more
than 10% of consolidated revenues. U.S. government revenues accounted for 16.8%,
11.2% and 10.8% of consolidated revenues for 1997, 1996 and 1995, respectively.

F-15
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. COMMITMENTS AND CONTINGENCIES

In November 1994, the Company signed a purchase agreement for six new
Boeing 757-200s, which, as subsequently amended, now provides for the delivery
of seven total aircraft. The amended agreement provides for deliveries of
aircraft between 1995 and 1998. As of December 31, 1997, the Company had taken
delivery of five Boeing 757-200s under this purchase agreement and financed
those aircraft using leases accounted for as operating leases. The two remaining
aircraft have an aggregate purchase price of approximately $50.0 million per
aircraft, subject to escalation. Advance payments totaling approximately $12.6
million ($6.3 million per aircraft) are required to be made for the remaining
two undelivered aircraft, with the balance of the purchase price due upon
delivery. As of December 31, 1997 and 1996, the Company had made $6.0 million
and $2.7 million in advanced payments, respectively, pertaining to future
aircraft deliveries.

The Company has signed purchase agreements to acquire 11 Boeing 727-200ADV
aircraft at agreed prices. Nine of the aircraft to be purchased are currently
leased by the Company. The remaining two aircraft, currently on lease to another
airline, may be purchased in either February, August or October 1999, depending
upon the exercise of lease extension options available to the current lessee.

F-16
<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MARCH 31,
--------------------
1998 1997
-------- --------
(UNAUDITED)

<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $108,897 $ 65,953
-------- --------
Receivables, net of allowance for doubtful accounts (1998 -- $2,142;
1997 -- $1,342)..................................................................... 23,640 21,591
Inventories, net..................................................................... 15,201 14,350
Assets held for sale................................................................. -- 13,703
Prepaid expenses and other current assets............................................ 19,869 16,897
-------- --------
Total current assets............................................................ 167,607 132,494

Property and equipment:
Flight equipment..................................................................... 482,848 399,126
Facilities and ground equipment...................................................... 57,115 52,257
-------- --------
539,963 451,383
Accumulated depreciation............................................................. (263,708) (220,217)
-------- --------
276,255 231,166
Assets held for sale...................................................................... 7,176 --
Deposits and other assets................................................................. 15,183 11,417
-------- --------
Total assets.................................................................... $466,221 $375,077
-------- --------
-------- --------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................................................. $ 4,279 $ 33,851
Accounts payable..................................................................... 8,132 9,775
Air traffic liabilities.............................................................. 79,433 57,942
Accrued expenses..................................................................... 78,467 64,554
-------- --------
Total current liabilities................................................................. 170,311 166,122

Long-term debt, less current maturities................................................... 177,980 114,140
Deferred income taxes..................................................................... 37,233 23,001
Other deferred items...................................................................... 10,893 13,386

Commitments and contingencies

Shareholders' equity:
Preferred stock: authorized 10,000,000 shares; none issued........................... -- --
Common stock, without par value: authorized 30,000,000 shares; issued
11,837,630 -- 1998; 11,798,852 -- 1997.............................................. 39,017 38,348
Additional paid-in capital........................................................... 14,964 15,541
Deferred compensation -- ESOP........................................................ (1,066) (1,600)
Treasury stock: 185,000 shares....................................................... (1,760) (1,760)
Retained earnings.................................................................... 18,649 7,899
-------- --------
69,804 58,428
-------- --------
Total liabilities and shareholders' equity...................................... $466,221 $375,077
-------- --------
-------- --------
</TABLE>

See accompanying notes.

F-17
<PAGE>

<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------
1998 1997
---------------------------- -------------------------
(UNAUDITED)

<S> <C> <C>
Operating revenues:
Scheduled service........ $ 117,889 $ 82,004
Charter.................. 94,322 100,346
Ground package........... 6,437 5,854
Other.................... 10,657 6,080
------------ -----------
Total operating
revenues.......... 229,305 194,284
------------ -----------

Operating expenses:
Salaries, wages and
benefits............... 49,746 40,490
Fuel and oil............. 36,778 40,671
Depreciation and
amortization........... 18,158 14,140
Handling, landing and
navigation fees........ 17,505 17,248
Aircraft rentals......... 12,926 14,147
Aircraft maintenance,
materials and
repairs................ 12,815 11,085
Crew and other employee
travel................. 9,391 7,920
Passenger service........ 8,203 8,186
Commissions.............. 7,213 5,934
Other selling expenses... 5,607 3,199
Ground package cost...... 5,547 5,215
Advertising.............. 4,214 3,514
Facilities and other
rentals................ 2,371 2,119
Other.................... 15,422 12,688
------------ -----------

Total operating
expenses.......... 205,896 186,556
------------ -----------

Operating income ............. 23,409 7,728
Other income (expense):
Interest income.......... 1,042 146
Interest (expense)....... (3,254) (1,612)
Other.................... 74 55
------------ -----------

Other expense................. (2,138) (1,411)
------------ -----------

Income before income taxes.... 21,271 6,317
Income tax expense............ 8,872 3,095
------------ -----------

Net income.................... $ 12,399 $ 3,222
------------ -----------
------------ -----------

Basic earnings per common
share:
Average shares
outstanding............ 11,565,419 11,571,847
Net income per share..... $ 1.07 $ 0.28
------------ -----------
------------ -----------

Diluted earnings per common
share:
Average shares
outstanding............ 12,103,580 11,796,911
Net income per share..... $ 1.02 $ 0.27
------------ -----------
------------ -----------

</TABLE>

See accompanying notes.

F-18

<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------
1998 1997
---------------------------- -------------------------
(UNAUDITED)

<S> <C> <C>
Operating activities:
Net income............... $ 12,399 $ 3,222
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization...... 18,158 14,140
Deferred income
taxes............. 5,773 2,785
Other non-cash
items............. (165) 43
Changes in operating assets
and liabilities:
Receivables.............. (374) (1,352)
Inventories.............. 559 (364)
Assets held for sale..... -- 409
Prepaid expenses......... 1,023 (2,225)
Accounts payable......... (2,379) (3,896)
Air traffic
liabilities............ 10,879 8,043
Accrued expenses......... (2,005) (217)
----------- ----------
Net cash
provided by
operating
activities... 43,868 20,588
----------- ----------
Investing activities:
Proceeds from sales of
property and
equipment.............. 1,030 268
Capital expenditures..... (26,862) (20,356)
Additions to other
assets................. (3,765) (5,863)
----------- ----------
Net cash used
in investing
activities... (29,597) (25,951)
----------- ----------
Financing activities:
Payments on short-term
debt................... (4,750) --
Payments on long-term
debt................... (4,820) (2,066)
----------- ----------
Net cash used
in financing
activities... (9,570) (2,066)
----------- ----------
Increase (decrease) in cash
and cash equivalents........ 4,701 (7,429)
Cash and cash equivalents,
beginning of period......... 104,196 73,382
----------- ----------
Cash and cash equivalents, end
of period................... $108,897 $65,953
----------- ----------
----------- ----------
Supplemental disclosures:
Cash payments for:
Interest............ $ 6,210 $ 2,051
Income taxes
(refunds)......... (1,766) 312
</TABLE>

See accompanying notes.

F-19

<PAGE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying consolidated financial statements of Amtran, Inc. and
subsidiaries (the 'Company') have been prepared in accordance with instructions
for reporting interim financial information on Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles.

The consolidated financial statements for the quarters ended March 31, 1998
and 1997 reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for such periods. Results for the
three months ended March 31, 1998, are not necessarily indicative of results to
be expected for the full fiscal year ending December 31, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.

2. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARES AND
PER SHARE DATA)

<S> <C> <C>
Numerator:
Net income.......................................................... $ 12,399 $ 3,222
Denominator:
Denominator for basic earnings per share -- weighted average
shares............................................................ 11,565,419 11,571,847
Effect of dilutive securities:
Employee stock options.............................................. 536,661 223,564
Restricted shares................................................... 1,500 1,500
----------- -----------
Dilutive potential common shares......................................... 538,161 225,064
----------- -----------
Denominator for diluted earnings per share -- adjusted weighted average
shares................................................................. 12,103,580 11,796,911
----------- -----------
----------- -----------
Basic earnings per share................................................. $ 1.07 $ .28
----------- -----------
----------- -----------
Diluted earnings per share............................................... $ 1.02 $ .27
----------- -----------
----------- -----------
</TABLE>

F-20
<PAGE>
<PAGE>

[The inside back cover will have a picture of an airplane.]

[Logo]
<PAGE>
<PAGE>
PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth an itemized estimate of fees and expenses
payable by the registrant in connection with the offering described in this
registration statement, other than underwriting discounts and commissions:

<TABLE>
<S> <C>
SEC registration fee............................................................ $24,341.19
NASD filing fee................................................................. 8,751.25
Nasdaq additional listing fee................................................... 'D'
Counsel fees and expenses....................................................... 'D'
Accounting fees and expenses.................................................... 'D'
Printing expenses............................................................... 'D'
Transfer agent and registrar fees............................................... 'D'
Miscellaneous................................................................... 'D'
----------
Total...................................................................... 'D'
----------
----------
</TABLE>

All of the above expenses will be paid by the registrant.

'D' To be filed by amendment.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Information relating to indemnification of directors and officers is
incorporated by reference herein from Item 14 of the Company's Registration
Statement on Form S-1 (No. 33-59630).

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------------------------------
<C> <S>
'D'1.1 -- Underwriting Agreement, dated June , 1998, between the Company, Morgan Stanley & Co. Incorporated and
Smith Barney Inc.
*4.1 -- Restated Articles of Incorporation of the Company.
*4.2 -- By-laws of the Company.
'D'5.1 -- Opinion of Brian T. Hunt, General Counsel of the Company.
**10.1 -- Credit Agreement, dated July 24, 1997, among ATA, the Company, NBD Bank, N.A., as agent, and the banks
party thereto.
**10.2 -- Guarantee Agreement, dated July 24, 1997, among the Company, Ambassadair Travel Club, Inc., ATA
Vacations, Inc., Amber Travel, Inc., Inc., American Trans Air Training Corporation, American Tans Air
ExecuJet, Inc., Amber Air Freight Corporation and the lenders party thereto.
**10.3 -- Security Agreement, dated July 24, 1997, between ATA and NBD Bank, N.A., as agent.
**10.4 -- Indenture, dated as of July 24, 1997, between the Company, the Guarantors and First Security Bank,
N.A., as trustee.
**10.5 -- Placement Agreement, dated July 17, 1997, between the Company, the Guarantors and Morgan Stanley & Co.
Incorporated and Salomon Brothers Inc.
**10.6 -- Registration Rights Agreement, dated July 24, 1997, between the Company, the Guarantors and Morgan
Stanley & Co. Incorporated and Salomon Brothers Inc.
'D'10.7 -- Amendment dated May , 1998 to Credit Agreement, dated July 24, 1997, among ATA, the Company, NBD
Bank, N.A., as agent, and the banks party thereto.
23.1 -- Consent of Ernst & Young LLP.
'D'23.2 -- Consent of Brian T. Hunt, General Counsel of the Company (included in Exhibit 5.1).
24.1 -- Powers of Attorney (contained on signature page).
</TABLE>

(footnotes on next page)

II-1
<PAGE>
<PAGE>
(footnotes from previus page)

* Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 33-59630), and incorporated by reference herein.

** Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (File No. 333-37283), and incorporated by reference herein.

'D' To be filed by amendment.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes that:

(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

(2) For purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(3) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-2
<PAGE>
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Indianapolis, State of Indiana, on this 14th day of
May, 1998.

AMTRAN, INC.

By /s/ J. GEORGE MIKELSONS
...................................
J. GEORGE MIKELSONS
CHAIRMAN OF THE BOARD OF DIRECTORS

II-3
<PAGE>
<PAGE>
Each person whose signature appears below constitutes and appoints J.
George Mikelsons, John P. Tague, and Kenneth K. Wolff, his or her true and
lawful attorney-in-fact and agent, each acting alone, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all Amendments (including
post-effective Amendments) to this Registration Statement and any subsequent
registration statement filed by the Company pursuant to Rule 462(b) of the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone, or
his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLES DATES
- ------------------------------------------ -------------------------------------------- -------------------

<C> <S> <C>
/S/ J. GEORGE MIKELSONS Chairman of the Board of Directors May 14, 1998
.........................................
(J. GEORGE MIKELSONS)

/S/ JOHN P. TAGUE President and Chief Executive Officer and May 14, 1998
......................................... Director (Principal Executive Officer)
(JOHN P. TAGUE)

/S/ JAMES W. HLAVACEK Executive Vice President and Chief Operating May 14, 1998
......................................... Officer and Director
(JAMES W. HLAVACEK)

/S/ KENNETH K. WOLFF Executive Vice President and Chief Financial May 14, 1998
......................................... Officer and Director (Principal Financial
(KENNETH K. WOLFF) and Accounting Officer)

/S/ DALEN D. THOMAS Senior Vice President, Sales, Marketing and May 14, 1998
......................................... Strategic Planning and Director
(DALEN D. THOMAS)

/S/ ROBERT A. ABEL Director May 14, 1998
.........................................
(ROBERT A. ABEL)

/S/ WILLIAM P. ROGERS, JR. Director May 14, 1998
.........................................
(WILLIAM P. ROGERS, JR.)

/S/ ANDREJS P. STIPNIEKS Director May 14, 1998
.........................................
(ANDREJS P. STIPNIEKS)
</TABLE>

II-4
<PAGE>

<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------------------------------ ----

<C> <S> <C>
'D'1.1 -- Underwriting Agreement, dated June , 1998, between the Company, Morgan Stanley & Co.
Incorporated and Smith Barney, Inc..
*4.1 -- Restated Articles of Incorporation of the Company.
*4.2 -- By-laws of the Company.
'D'5.1 -- Opinion of Brian T. Hunt, General Counsel of the Company.
**10.1 -- Credit Agreement, dated July 24, 1997, among ATA, the Company, NBD Bank, N.A., as agent, and
the banks party thereto.
**10.2 -- Guarantee Agreement, dated July 24, 1997, among the Company, Ambassadair Travel Club, Inc.,
ATA Vacations, Inc., Amber Travel, Inc., Inc., American Trans Air Training Corporation,
American Tans Air ExecuJet, Inc., Amber Air Freight Corporation and the lenders party thereto.
**10.3 -- Security Agreement, dated July 24, 1997, between ATA and NBD Bank, N.A., as agent.
**10.4 -- Indenture, dated as of July 24, 1997, between the Company, the Guarantors and First Security
Bank, N.A., as trustee.
**10.5 -- Placement Agreement, dated July 17, 1997, between the Company, the Guarantors and Morgan
Stanley & Co. Incorporated and Salomon Brothers Inc.
**10.6 -- Registration Rights Agreement, dated July 24, 1997, between the Company, the Guarantors and
Morgan Stanley & Co. Incorporated and Salomon Brothers Inc.
'D'10.7 -- Amendment dated May , 1998 to Credit Agreement, dated July 24, 1997, among ATA, the
Company, NBD Bank, N.A., as agent, and the banks party thereto.
23.1 -- Consent of Ernst & Young LLP.
'D'23.2 -- Consent of Brian T. Hunt, General Counsel of the Company (included in Exhibit 5.1).
24.1 -- Powers of Attorney (contained on signature page).
</TABLE>

* Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 33-59630), and incorporated by reference herein.

** Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (File No. 333-37283), and incorporated by reference herein.

'D' To be filed by amendment.

STATEMENT OF DIFFERENCES

The section symbol shall be expressed as.............'SS'
The dagger symbol shall be expressed as..............'D'
The cent symbol shall be expressed as................[c]

<PAGE>

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions 'Summary
Consolidated Financial and Operating Data,' 'Selected Consolidated Financial
Data,' and 'Experts' and to the use of our report dated February 4, 1998 in the
Registration Statement (Form S-2) and the related Prospectus of Amtran, Inc. for
the registration of its common stock and to the incorporation by reference
therein of our report dated February 4, 1998, with respect to the financial
statements and schedule of Amtran, Inc. included in its Annual Report
(Form 10-K) for the year ended December 31, 1997, filed with the Securities
and Exchange Commission.

/s/ ERNST & YOUNG LLP

Indianapolis, Indiana
May 13, 1998