KITTY HAWK INC, S-1/A, 1997-11-12

KITTY HAWK INC
S-1/A, 1997-11-12
AIR TRANSPORTATION, NONSCHEDULED

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997

REGISTRATION NO. 333-36125
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

AMENDMENT NO. 3

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------

KITTY HAWK, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 4731 75-2564006
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
M. TOM CHRISTOPHER
CHIEF EXECUTIVE OFFICER
1515 WEST 20TH STREET 1515 WEST 20TH STREET
P.O. BOX 612787 P.O. BOX 612787
DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TEXAS DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TEXAS
75261 75261
(972) 456-2200 (972) 456-2200
(Address, including zip code, and telephone (Name, address, including zip code, and telephone
number, including number,
area code, of registrant's principal executive including area code, of agent for service)
offices)
</TABLE>

---------------------
Copies of communications to:

<TABLE>
<S> <C>
MICHAEL M. BOONE JOEL S. KLAPERMAN
GREG R. SAMUEL JAMES S. SCOTT, SR.
HAYNES AND BOONE, LLP SHEARMAN & STERLING
3100 NATIONSBANK PLAZA 599 LEXINGTON AVENUE
901 MAIN STREET NEW YORK, NEW YORK 10022
DALLAS, TEXAS 75202-3789 (212) 848-4000
(214) 651-5000
</TABLE>

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

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 this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 delivery of the prospectus is to be made pursuant to Rule 434, please
check the following box. [ ]

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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2

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.

PROSPECTUS (Subject To Completion)

Issued November 12, 1997

4,100,000 Shares

[KITTY HAWK, INC. LOGO]
KITTY HAWK, INC.

COMMON STOCK

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

Of the 4,100,000 shares of Common Stock offered hereby (the "Common Stock
Offering"), 3,000,000 shares of Common Stock are being sold by the Company and
1,100,000 shares are being sold by stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the net proceeds from the sale of shares of Common Stock by the
Selling Stockholders. The Common Stock is quoted on the Nasdaq National Market
System under the symbol "KTTY." On November 5, 1997, the last reported sale
price of the Common Stock on the Nasdaq National Market System was $20 3/8 per
share.

Concurrently with the Common Stock Offering, the Company is offering
$340,000,000 aggregate principal amount of Senior Secured Notes (the "Notes") of
the Company due 2004 (the "Note Offering"). The closing of the Common Stock
Offering is subject to the concurrent consummation of the Merger and the Note
Offering and entering into the New Credit Facility and Term Loan. See "The
Merger," "Use of Proceeds" and "Description of Certain Indebtedness."

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

SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------

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

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

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities including liabilities under the
Securities Act of 1933. See "Underwriters."
(2) Before deducting expenses payable solely by the Company estimated to be
$ .
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 615,000
additional shares of Common Stock at the price to public, less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. See "Underwriters." If the Underwriters exercise
such option in full, the total price to public, underwriting discounts and
commissions and proceeds to Company will be $ , $ and
$ , respectively.
------------------------

The Shares are offered, subject to prior sale, when, as and if accepted by
the several Underwriters, subject to approval of certain legal matters by
Shearman & Sterling, counsel for the Underwriters. It is expected that delivery
of the Shares will be made on or about , 1997 at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
------------------------

MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
SCOTT & STRINGFELLOW, INC.
FIELDSTONE
FPCG SERVICES, L.P.
, 1997
<PAGE> 3

KEEPING BUSINESS IN MOTION

[This page contains a series of photographs of airplanes flying and being
loaded and unloaded and of Kitty Hawk's corporate headquarters. This page also
unfolds to display a route map of Kitty Hawk, including short-term, seasonal
passenger charter routes.]

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<PAGE> 4

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING STOCKHOLDER OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, ANY SECURITY OTHER THAN THE COMMON STOCK
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------

TABLE OF CONTENTS

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<CAPTION>
PAGE
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<S> <C>
Prospectus Summary...................... 4
Risk Factors............................ 13
The Merger.............................. 24
Use of Proceeds......................... 28
Price Range of Common Stock and Dividend
Policy................................ 29
Capitalization.......................... 30
Unaudited Pro Forma Combined Financial
Information........................... 31
Selected Financial and Operating Data... 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 42
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business................................ 64
Management.............................. 80
Certain Transactions.................... 87
Principal and Selling Stockholders...... 90
Description of Capital Stock............ 91
Description of Certain Indebtedness..... 94
Shares Eligible for Future Sale......... 95
Underwriters............................ 97
Legal Matters........................... 99
Experts................................. 99
Available Information................... 99
Index to Financial Statements........... F-1
</TABLE>

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING 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
AND MAY BID FOR, AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITERS."
---------------------

Industry statistics and projections presented herein were obtained from the
1996/97 World Air Cargo Forecast published by the Boeing Company (the "Boeing
Report") which the Company has not independently verified.
---------------------

FORWARD LOOKING STATEMENTS

STATEMENTS CONTAINED IN THIS PROSPECTUS REGARDING THE COMPANY'S
EXPECTATIONS WITH RESPECT TO THE INTEGRATION OF KITTY HAWK AND THE KALITTA
COMPANIES, INCLUDING THE SYNERGIES RELATED THERETO, FUTURE OPERATIONS AND OTHER
INFORMATION, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD LOOKING TERMINOLOGY,
SUCH AS "MAY," "WILL," "EXPECT," "COULD," "ANTICIPATE," "ESTIMATE" OR "CONTINUE"
OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY,
ARE FORWARD LOOKING STATEMENTS. SEE "RISK FACTORS" FOR CAUTIONARY STATEMENTS
IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD LOOKING STATEMENTS,
INCLUDING IMPORTANT RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM RESULTS REFERRED TO IN THE FORWARD LOOKING STATEMENTS.
THERE CAN BE NO ASSURANCE THAT THE COMPANY'S EXPECTATIONS REGARDING ANY OF THESE
MATTERS WILL BE FULFILLED.

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<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) and pro forma
financial information appearing elsewhere in this Prospectus. The closing of
this Common Stock Offering is conditioned on (i) the concurrent consummation of
the mergers (collectively, the "Merger") of American International Airways, Inc.
("AIA"), American International Travel, Inc. ("AIT"), Flight One Logistics, Inc.
("FOL"), Kalitta Flying Service, Inc. ("KFS") and O.K. Turbines, Inc. ("OK")
(collectively, the "Kalitta Companies") with and into separate subsidiaries of
Kitty Hawk pursuant to the Merger Agreement (as defined), (ii) the concurrent
consummation of the Note Offering and (iii) entering into the New Credit
Facility (as defined) and the Term Loan (as defined). This Common Stock
Offering, the Merger and the Note Offering are referred to herein collectively
as the "Transactions". Unless otherwise indicated or the context otherwise
requires, references in this Prospectus to (i) "Kitty Hawk" refer to Kitty Hawk,
Inc. and its consolidated subsidiaries prior to giving effect to the
consummation of the Transactions, (ii) the "Company" refer to Kitty Hawk and the
Kalitta Companies on a combined basis after giving effect to the consummation of
the Transactions, including the combination of the businesses conducted by Kitty
Hawk and the Kalitta Companies prior to the Merger and (iii) "Refinancings"
refer to the refinancing of all but approximately $10 million of the currently
outstanding indebtedness of Kitty Hawk and the Kalitta Companies with a portion
of the net proceeds of this Common Stock Offering, the Note Offering and the
Term Loan.

THE COMPANY

BUSINESS

The Company is a leading U.S. and international air freight carrier and a
leading provider of air freight charter logistics services in the U.S. The
Company also provides airframe and engine maintenance services for third parties
as well as for its own fleet. On a pro forma basis, after giving effect to the
Merger, the Company's total revenues for the twelve months ended December 31,
1996 and the nine months ended September 30, 1997 were $552 million and $422
million, respectively.

Air Freight Carrier Services. The Company is a leading provider of
scheduled and charter air freight carrier services. The Company's scheduled air
freight operations include an overnight freight service operating within a
network of 47 North American cities and a service between Los Angeles, the
Hawaiian Islands and several Pacific Rim countries. The Company's charter air
freight operations include (i) contractual charters under which the Company
generally supplies aircraft, crew, maintenance and insurance ("ACMI") and (ii)
on-demand charters. The Company also provides air passenger charter services on
a contractual and on-demand basis.

Air Freight Logistics Services. The Company is a leading provider of
same-day air freight charter logistics services in the U.S. The Company arranges
the delivery of time sensitive freight using aircraft of third party air freight
carriers as well as its own fleet. During 1996 the air logistics business
managed over 14,000 on-demand flights.

Aircraft Maintenance Services. The Company is one of the few dedicated air
freight carriers in the world that provides comprehensive aircraft maintenance
services, including airframe repair and engine overhaul (with the exception of
certain aircraft engine components), to other aircraft operators as well as for
its own fleet. This capability allows the Company to reduce its overall
maintenance costs, including reduced aircraft downtime. The Company has major
maintenance facilities in Oscoda and Ypsilanti, Michigan and Dallas, Texas.

FLEET

The Company operates a fleet of 119 aircraft, including (i) four Boeing
747s, six Lockheed L-1011s, 19 Douglas DC-8s, 31 Boeing 727s and five Douglas
DC-9-15Fs for its air freight carrier business, (ii) two Boeing 747s and two
Lockheed L-1011s for its air passenger charter business and (iii) 50 small jet
and prop
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aircraft (which include primarily Lear jets, Beechcraft and Convairs) in air
freight and/or air passenger charter service.

AIR FREIGHT MARKET

According to the Boeing Report, the world air cargo market grew at an
average rate of more than 8% per year from 1970 to 1995 as measured in revenue
ton kilometers, more than 2.5 times the growth rate of world Gross Domestic
Product. Also, according to the Boeing Report, the world air freight market is
expected to grow at 6.7% annually through 2015. Management believes this
projected growth in the world air freight market will be fueled by many factors,
including economic growth, relaxation of international trade barriers,
increasingly time-sensitive product delivery schedules, increased use of
"just-in-time" inventory management systems and increasing levels of Internet
commerce. In addition, according to the Boeing Report, there is a trend towards
shipping freight in dedicated freighter aircraft rather than in cargo space of
passenger aircraft.

COMPETITIVE STRENGTHS

The Company believes that the following factors are competitive strengths
and promote strong relationships with its diversified customer base.

- Established Market Position. The Company, including its predecessors, has
provided air freight carrier services for more than 30 years. The
Company's extensive fleet and the diversity of its air freight carrier
services (scheduled, contract charters and on-demand charters) have
enabled it to become a leading U.S. and international air freight
carrier. The Company has a diversified customer base, including (i)
freight forwarders such as Burlington Air Express, Eagle USA and Emery
Worldwide Airlines, (ii) U.S. government agencies such as the U.S. Postal
Service and the U.S. Military and (iii) businesses such as General Motors
and Boeing.

- Attractive Fleet Characteristics. The Company believes that it has been
successful in purchasing and modifying aircraft for its own fleet at
favorable costs. The aircraft in the Company's fleet range from Boeing
747s to prop aircraft, enabling the Company to provide its customers with
the aircraft type best suited to their particular transportation needs.
The size and diversity of its fleet also allows the Company to deploy
aircraft among its three air freight carrier service lines in a manner
which improves fleet utilization.

- Broad Service Capabilities. The Company believes that its air freight
carrier services are attractive to its customers for several reasons,
including (i) its history of providing reliable service, (ii) its ability
to provide time-definite air transportation of almost any type or size of
freight to most destinations worldwide upon short notice, (iii) its
ability to manage critical freight shipments in North America from
pick-up through delivery and (iv) its ability to provide its customers
with real time updates of aircraft location and progress. In addition,
the Company is able to coordinate its domestic and international
scheduled services to offer customers reliable freight delivery service
to and from North America and the Pacific Rim and Central and South
America. The Company's capabilities are enhanced by its management
information systems which enable the Company to continually monitor its
flight operations, thereby facilitating aircraft and flight crew
scheduling.

RATIONALE FOR THE MERGER

The combination of Kitty Hawk and the Kalitta Companies pursuant to the
Merger makes the Company one of the leading U.S. and international air freight
carriers as well as a leading provider of air freight charter logistics services
in the U.S. The Merger also permits the Company to achieve a number of strategic
and financial objectives, including:

- Increased Utilization of On-Demand Aircraft. Prior to the Merger, less
than 10% of the on-demand charters arranged by Kitty Hawk were flown on
Kitty Hawk's aircraft. With the addition of the Kalitta Companies'
aircraft, the Company will direct a larger percentage of its on-demand
charters to its own aircraft, rather than to third parties. Because
on-demand charters flown on the Company's aircraft
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generate a higher gross margin than charters subcontracted to third
parties, the Company believes this strategy will improve its
profitability over time.

- Opportunities for Cost Savings. The Company believes the Merger will
permit it to achieve annual cost savings by enabling it to increase the
Kalitta Companies' crew utilization, reduce Kitty Hawk's reliance on
third party maintenance, reduce parts inventory and consolidate
duplicative airport support bases as well as through other economies of
scale, including lower aircraft insurance premiums.

- Integration of Fleet Operations. The Company believes the Merger will
permit it to integrate the Kalitta Companies' scheduled air freight
operations with Kitty Hawk's air freight carrier services, resulting in
expanded customer services and increased revenues. The combined fleet
should also enhance operating efficiencies by better matching aircraft
size and operating capabilities with route systems and customer needs.
Finally, the Company believes the resultant combination of services and
fleet capabilities will provide new domestic and international marketing
opportunities.

GROWTH STRATEGIES

The Company's revenue has grown significantly over the last several years
and the Company believes it can continue to increase revenues through the
following opportunities:

- Expansion of ACMI Charter Business. The Company believes there are, and
will continue to be, opportunities to obtain ACMI contracts with
international air carriers due to the projected shortage of wide-body
aircraft needed to service those carrier's markets. The Company plans to
focus its expansion efforts in the European, South American and
Asia/Pacific markets and to connect route systems in those markets with
its scheduled North American route systems. The Company recently acquired
one used Boeing 747 which it is currently converting to freighter
configuration and has an option to acquire two additional used Boeing
747s (the "Optioned Boeing 747s") which it expects to convert to
freighter configuration in 1998.

- Expansion of On-Demand Charter Business. The Company believes there are
significant opportunities to grow its on-demand charter business because
of continuing demand for expedited air freight services, especially in
the case of "just-in-time" inventory systems and other time sensitive
shipments. In addition to improving the utilization of the Kalitta
Companies' aircraft, the Company anticipates purchasing additional
aircraft to capitalize on this expected growth.

- Expansion of Third Party Maintenance Services. The Company is one of the
few dedicated air freight carriers in the world capable of maintaining
and repairing aircraft which range in size from Boeing 747s to prop
aircraft. Although the Company currently provides aircraft maintenance
services to several customers, including Lufthansa, the Company intends
to significantly increase marketing of its third party maintenance
services. In particular, the Company intends to focus on marketing jet
engine overhauls and maintenance, for which management believes there is
a trend toward a limited number of service providers.

- Expansion of Scheduled Freight Business. Because of the growth in the
amount of freight shipped through its scheduled overnight freight hub in
Terre Haute, Indiana, the Company anticipates moving its hub from Terre
Haute to a new facility in Fort Wayne, Indiana in the spring of 1999.
This new facility is expected to have nearly twice the sorting capacity
of the Terre Haute, Indiana facility. In addition, the new facility is
designed to improve productivity by reducing the time to load and unload
aircraft and by decreasing sorting times.

- Strategic Acquisitions. The Company will, from time to time, pursue
acquisitions that enable it to (i) acquire complementary aircraft at
favorable costs, (ii) expand its operations in selected geographic areas
or (iii) achieve other strategic or operational benefits.

RECENT FINANCIAL PERFORMANCE OF THE KALITTA COMPANIES

The Kalitta Companies posted net losses in 1996 and for the first nine
months of 1997. In addition, for the first six months of 1997, the Kalitta
Companies sustained a negative gross profit of $7.5 million. The
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Kalitta Companies' management believes that the recent negative financial
performance can be attributed to a number of factors, including (i) the
incurrence of abnormally high engine overhaul expenses due to Federal Aviation
Administration Airworthiness Directives ("Directives"), (ii) the loss of revenue
resulting from the effective grounding of two Boeing 747s in January 1996 due to
a series of Directives, (iii) the incurrence principally in 1997 of start-up
costs associated with establishing the Kalitta Companies' wide-body passenger
charter business, (iv) the incurrence of costs to add and maintain flight crews
in anticipation of increased air freight carrier business which has not yet
materialized in part due to delays in acquiring aircraft and (v) lower revenues
from the U.S. Military which the Company believes will be mitigated if the
Company becomes eligible to operate passenger charters for the U.S. Military in
December 1997, as expected. Kitty Hawk has taken these factors into account in
evaluating the merits of the Merger and the Kalitta Companies' future financial
performance. Kitty Hawk has also considered that the Kalitta Companies'
management focused primarily on growing revenues and fleet size, rather than on
profitability. After the Merger, the Company's management will focus on meeting
profit objectives in day-to-day operations and believes the Kalitta Companies'
recent financial performance can be substantially improved following the Merger,
although there can be no assurance in this regard. See "The Merger -- Recent
Financial Performance of the Kalitta Companies and the Merger Rationale."

NEW CREDIT FACILITY AND TERM LOAN

Concurrently with the consummation of the Transactions, the Company will
enter into a new $100 million senior secured revolving credit facility (the "New
Credit Facility") and a new $45.9 million term loan (the "Term Loan") with Wells
Fargo Bank (Texas), National Association ("WFB"), individually and as agent for
other lenders. The New Credit Facility and Term Loan will be secured by accounts
receivable, all inventory (including rotables), intangibles and contract rights,
cash and 16 Boeing 727 aircraft and related engines acquired by Kitty Hawk from
the Kalitta Companies in September 1997.
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THE OFFERING

Common Stock offered:

Total Common Stock offered......... 4,100,000 shares

By the Company................ 3,000,000 shares

By the Selling Stockholders... 1,100,000 shares

Common Stock to be outstanding
after the offering................. 17,550,957 shares(1)(2)

Concurrent Transactions............ Concurrently with the Common Stock
Offering, the Company is conducting the
Note Offering under Rule 144A of the
Securities Act, consummating the Merger
and entering into the New Credit
Facility. The Common Stock Offering will
be closed concurrently with and is
conditioned upon, the consummation of the
Note Offering and the Merger and entering
into the New Credit Facility. See
"Description of Certain Indebtedness."

Use of proceeds.................... For (i) the repayment or refinancing of
substantially all of the indebtedness of
Kitty Hawk and the Kalitta Companies,
(ii) the acquisition and conversion to
freighter configuration of the Optioned
Boeing 747s, (iii) the payment of $20
million in cash pursuant to the Merger
Agreement, (iv) working capital purposes
and (v) the payment of approximately $2.2
million in miscellaneous expenses. See
"Use of Proceeds" and "Description of
Certain Indebtedness."

Nasdaq National Market Symbol...... KTTY
- ---------------
(1) Does not include (i) 300,000 shares of Common Stock available for issuance
under the Company's Amended and Restated Omnibus Securities Plan, (ii)
198,193 shares of Common Stock available for issuance under the Company's
Amended and Restated Annual Incentive Compensation Plan and (iii) 100,000
shares of Common Stock available for issuance under the Company's Amended
and Restated Employee Stock Purchase Plan. See "Management -- Employee
Compensation Plans and Arrangements."

(2) Includes the issuance of 4,099,150 shares of Common Stock pursuant to the
Merger Agreement. See "The Merger."

All information in this Prospectus assumes (i) a public offering price of
$20 3/8 per share for the shares offered hereby, which was the closing price of
the Common Stock as reported by the Nasdaq National Market on November 5, 1997,
(ii) no exercise of the Underwriters' over-allotment option and (iii) an
interest rate of 10% on the Notes and 8.8% on the Term Loan. Unless otherwise
indicated, the pro forma financial information in this Prospectus gives effect
to the Transactions and the Refinancings.

RISK FACTORS

Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific risk
factors set forth under "Risk Factors" for risks involved with an investment in
the Common Stock offered hereby.

GENERAL

The Company is a Delaware corporation. The Company's principal executive
offices are located at 1515 West 20th Street, Dallas/Fort Worth International
Airport, Texas 75261 and its telephone number at that address is (972) 456-2200.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

The following summary historical financial and operating data and pro forma
financial and operating data, giving effect to the Transactions and Refinancings
as if they occurred on January 1, 1996 and, in the case of balance sheet data,
as if they occurred on September 30, 1997, should be read in conjunction with
Kitty Hawk's Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus and the Kalitta Companies' Combined Financial
Statements and Notes thereto included elsewhere in this Prospectus as well as
the information appearing in "Unaudited Pro Forma Combined Financial
Information," "Selected Financial and Operating Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The pro forma results have not been adjusted to eliminate abnormally high
engine overhaul expenses associated with responding to certain Directives, costs
incurred to add and maintain flight crews in anticipation of increased air
freight carrier business which has not yet materialized in part due to delays in
acquiring aircraft and start-up costs associated with establishing the Kalitta
Companies' wide-body passenger charter business. In addition, although
approximately $56 million of the proceeds of the Note Offering are expected to
be used to purchase and modify the Optioned Boeing 747s, no adjustments have
been made to reflect revenues or operating costs expected to be generated by
these aircraft. The Company experiences its lowest quarterly revenue and
profitability during the first quarter of the calendar year. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------
HISTORICAL PRO FORMA
---------------------------- ------------------------
KALITTA
KITTY HAWK(1) COMPANIES ADJUSTMENTS COMBINED
-------------- --------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Air freight carrier................... $ 55,504 $388,193 $ (5,432) $438,265
Air logistics......................... 77,168 -- -- 77,168
Maintenance and other................. -- 36,348(2) -- 36,348
-------- -------- -------- --------
Total revenues.......................... 132,672 424,541 (5,432) 551,781
Gross profit (loss)..................... 23,874 44,395 (1,349) 66,920
Stock option grants to executives....... 4,231(3) -- -- 4,231
Operating income (loss)................. 9,457 21,495 (1,349) 29,603
Interest expense........................ (2,062) (21,632) (16,802) (40,496)(4)
Minority interest....................... -- (1,146) -- (1,146)
Income (loss) before income taxes....... 7,686 (17) (18,151) (10,482)
Net income (loss)....................... $ 4,648(3) $ (17)(5) $(15,113) $(10,482)
Net income (loss) per share............. $ 0.55(3) -- -- $ (0.67)
Weighted average common and common
equivalent shares outstanding......... 8,477 -- 7,099 15,576
OTHER FINANCIAL DATA:
Capital expenditures.................... $ 47,159 $ 53,413 $ -- $100,572
Adjusted EBITDA(6)...................... $ 22,372 $ 53,586 $ 3,771(7) $ 79,729
Ratio of adjusted EBITDA to total
interest expense...................... 10.8x 2.4x -- 2.0x
Ratio of earnings to fixed charges...... 4.5x 1.0x(8) -- --(8)
OPERATING DATA:
Aircraft owned (at end of period)....... 26 95 (2)(9) 119
Flight hours(10)........................ 21,587 91,690 -- 113,277
</TABLE>

9
<PAGE> 11

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------------
HISTORICAL PRO FORMA
------------------------ -----------------------
KALITTA
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Air freight carrier..................................... $ 55,789 $302,345 $(4,942) $353,192
Air logistics........................................... 45,878 -- -- 45,878
Maintenance and other................................... -- 23,299(2) -- 23,299
-------- -------- ------- --------
Total revenues............................................ 101,667 325,644 (4,942) 422,369
Gross profit.............................................. 21,554 10,441 11,844 43,839
Operating income (loss)................................... 12,843 (9,040) 11,844 15,647
Interest expense.......................................... (1,809) (19,740) (8,823) (30,372)(4)
Minority interest......................................... -- (1,859) -- (1,859)
Income (loss) before income taxes......................... 11,613 (30,742) 3,021 (16,108)
Net income (loss)......................................... $ 6,968 $(30,742)(5) $ 7,666 $(16,108)
Net income (loss) per share............................... $ 0.67 -- -- $ (0.92)
Weighted average common and common equivalent
shares outstanding...................................... 10,452 -- 7,099 17,551
OTHER FINANCIAL DATA:
Capital expenditures...................................... $ 99,575 $ 54,509 $ -- $154,084
Adjusted EBITDA(6)........................................ $ 21,039 $ 16,159 $15,629(7) $ 52,827
Ratio of adjusted EBITDA to total interest expense........ 11.6x --(11) 1.7x
Ratio of earnings to fixed charges........................ 5.3x --(8) --(8)
OPERATING DATA:
Aircraft owned (at end of period)......................... 42 84 (2)(9) 124
Flight hours(10).......................................... 21,912 70,721 92,633
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------------------------
HISTORICAL PRO FORMA
------------------------ ----------------------
KALITTA
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)............................... $ 103 $(233,073)(12) $354,814 $121,843
Total assets............................................... 176,801 400,476 135,475 712,752
Total debt................................................. 81,047 255,093 60,060 396,200
Stockholders' equity....................................... $ 65,241 $ 35,650 $ 82,082 $182,973
</TABLE>

- ---------------
(1) On December 4, 1996, Kitty Hawk changed its fiscal year end to December 31
from August 31. The financial and operating data presented above is based
on the unaudited twelve month period ended December 31, 1996.
(2) Includes revenues from related parties. See "Certain Transactions" and Note
8 of Notes to Combined Financial Statements of the Kalitta Companies.
(3) Includes nonrecurring grants of stock options to two executive officers
that resulted in a charge to earnings of approximately $4,231. Had these
grants of stock options not occurred, net income for the twelve months
ended December 31, 1996 would have been approximately $7,187 and net income
per share would have been $0.85. See "Management -- Stock Option Grants."
(4) Pro forma interest expense assumes a rate of 10% on the Notes and 8.8% on
the Term Loan. Each 1/4 percentage point change in the interest rate on the
Notes results in a change in interest expense of $850 for 1996 and $638 for
the nine months ended September 30, 1997. Each 1/4 percentage point change
in the interest rate on the Term Loan results in a change in interest
expense of $115 for 1996 and $86 for the nine months ended September 30,
1997.
(5) Prior to the Merger, the Kalitta Companies filed income tax returns under
Subchapter S of the U.S. Federal Income Tax Code. Therefore, all taxable
income or losses of each of the Kalitta Companies have passed through to
the sole shareholder of the Kalitta Companies.
(6) Adjusted EBITDA represents net income (loss) before income tax expense,
interest expense, depreciation, amortization (and, with respect to the
Kalitta Companies, minority interest) and certain items described below.
Kitty Hawk's adjusted EBITDA excludes approximately $4,231 from stock
options granted to executives in fiscal year 1996. The Kalitta Companies'
adjusted EBITDA excludes gains and losses from dispositions of aircraft
held for resale in each period presented (see "Selected Financial and
Operating Data -- The Kalitta Companies") and approximately $1,123 from a
gain from settlement of a contract dispute in 1996 and a gain on an
insurance settlement of approximately $542 for the nine months ended
September 30, 1997. Adjusted EBITDA is presented because it is a financial
indicator of the Company's ability to incur and service debt. However,
adjusted EBITDA is not calculated under generally accepted accounting
principles ("GAAP"), is not necessarily comparable to similarly titled
measures of other companies and should not be considered in isolation, as a
substitute for operating income, net income or cash flow data prepared in
accordance with GAAP, or as a measure of the Company's profitability or
liquidity.
(7) Includes the effect of conforming the Kalitta Companies' aircraft
maintenance policy to that of Kitty Hawk and decreased insurance costs for
the combined fleet.
(8) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) prior to income tax expense (benefit) (and, with respect to
the Kalitta Companies, minority interest) and fixed charges (less
capitalized interest). Fixed charges consist of capitalized interest,
interest expense, amortization of debt expense and one-third of rental
payments on operating leases (such factor having been deemed by the Company
to represent the interest portion of such payments). The Kalitta Companies'
historical earnings were not sufficient to cover fixed charges by
approximately $28,883 for the nine months ended September 30, 1997. On a
pro forma basis, the Company's earnings would not have been sufficient to
cover fixed charges by $9,898 for 1996 and $14,249 for the nine months
ended September 30, 1997.

(9) Includes the effect of the Hawker Sale (as defined) and the sale of one
Boeing 727-100 which the Company is currently negotiating to sell.

(10) As reported to the Federal Aviation Administration. Flight hours reported
are less than block hours, which also include the time an aircraft is
operating under its own power whether or not airborne. The Company
generally bills its customers on a block hour basis.
(11) For the nine months ended September 30, 1997, the Kalitta Companies'
adjusted EBITDA was $16,159 and interest expense was $19,740, resulting in
a failure to cover interest expense.
(12) Includes long-term debt and notes payable reclassified as current of
$160,058 at September 30, 1997.
10
<PAGE> 12

SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA OF KITTY HAWK

The summary historical financial and operating data below represents
financial information of Kitty Hawk and its subsidiaries for each of the fiscal
years indicated in the five year period ended August 31, 1996 and the nine
months ended September 30, 1996 and 1997, which information was derived from the
audited consolidated financial statements of Kitty Hawk for each of the fiscal
years indicated in the five year period ended August 31, 1996 and from the
unaudited condensed consolidated financial statements of Kitty Hawk for the nine
months ended September 30, 1996 and 1997. Operating results for the nine months
ended September 30, 1996 and 1997 are not necessarily indicative of results that
may be expected for a calendar year. In the opinion of management of Kitty Hawk,
the selected statement of operations data presented as of and for the nine
months ended September 30, 1996 and 1997, which are derived from Kitty Hawk's
unaudited Consolidated Financial Statements appearing elsewhere in this
Prospectus, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations for such periods. On December 4, 1996, Kitty Hawk changed
its fiscal year end from August 31 to December 31.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, SEPTEMBER 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Air freight carrier........................ $ 6,760 $12,939 $ 28,285 $ 41,117 $ 52,922 $39,615 $ 55,789
Air logistics.............................. 45,893 52,840 79,415 62,593 89,493 43,144 45,878
------- ------- -------- -------- -------- ------- --------
Total revenues............................... 52,653 65,779 107,700 103,710 142,415 82,759 101,667
Gross profit................................. 4,188 10,578 14,749 18,178 23,515 13,932 21,554
Stock option grants to executives(1)......... -- -- -- -- 4,231 4,231 --
Operating income............................. 1,258 5,934 8,004 9,345 9,034 2,377 12,843
Interest expense............................. (157) (134) (343) (1,185) (1,859) (1,530) (1,809)
Net income................................... 1,013 4,105 5,261 4,416 4,109 251 6,968
Net income per share......................... $ 0.12 $ 0.52 $ 0.66 $ 0.55 $ 0.52 $ 0.03 $ 0.67
Weighted average common and common equivalent
shares outstanding......................... 8,671 7,968 7,968 7,968 7,928 7,891 10,452
OTHER FINANCIAL DATA:
Capital expenditures......................... $ 3,019 $ 1,318 $ 13,876 $ 17,929 $ 33,538 $31,367 $ 99,575
Adjusted EBITDA(2)........................... $ 2,149 $ 7,104 $ 9,507 $ 12,839 $ 19,840 $10,582 $ 21,039
Ratio of adjusted EBITDA to interest
expense.................................... 13.7x 53.0x 27.7x 10.8x 10.7x 6.9x 11.6x
Ratio of earnings to fixed charges(3)........ 7.9x 33.6x 20.6x 6.9x 4.4x 1.3x 5.3x
OPERATING DATA:
Aircraft owned (at end of period)............ 11 10 15 21 22 22 42
Flight hours(4).............................. 3,567 7,030 11,795 15,183 20,237 15,628 21,912
Number of on-demand charters flown........... 292 752 1,182 1,238 1,918 1,182 911
Number of ACMI contract charters flown....... 655 1,314 1,734 2,601 3,514 2,818 3,883
Number of on-demand charters managed(5)...... 8,708 9,748 16,713 14,198 19,578 11,607 10,640
</TABLE>

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

(1) Results for fiscal year ended August 31, 1996 and nine months ended
September 30, 1996 lack comparability to other periods because such periods
include nonrecurring grants to two executive officers of stock options that
resulted in a charge to earnings of approximately $4,231. Had these grants
of stock options not occurred, net income for the fiscal year ended August
31, 1996 and the nine months ended September 30, 1996, would have been
approximately $6,648 and $2,790, respectively, and net income per share
would have been $0.84 and $0.35, respectively. See "Management -- Stock
Option Grants."

(2) Adjusted EBITDA represents net income before interest expense, income tax
expense, depreciation, amortization and certain items described below.
Adjusted EBITDA excludes approximately $4,231 from stock options granted to
executives in 1996 and approximately $725 and $1,178 in contract settlements
in fiscal 1993 and 1994, respectively. Adjusted EBITDA is presented because
it is a financial indicator of Kitty Hawk's ability to incur and service
debt. However, adjusted EBITDA is not calculated under GAAP, is not
necessarily comparable to similarly titled measures of other companies and
should not be considered in isolation, as a substitute for operating income,
net income or cash flow data prepared in accordance with GAAP or as a
measure of Kitty Hawk's profitability or liquidity.

(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income prior to income tax expense and fixed charges (less capitalized
interest.) Fixed charges consist of capitalized interest, interest expense,
amortization of debt expense and one-third of rental payments on operating
leases (such factor having been deemed by Kitty Hawk to represent the
interest portion of such payments).

(4) As reported by Kitty Hawk to the Federal Aviation Administration. Flight
hours reported are less than block hours, which also include the time an
aircraft is operating under its own power whether or not airborne. Kitty
Hawk generally bills its customers on a block hour basis.

(5) Includes on-demand charters flown by Kitty Hawk aircraft.
11
<PAGE> 13

SUMMARY HISTORICAL COMBINED FINANCIAL AND OPERATING DATA
OF THE KALITTA COMPANIES

The summary historical combined financial and operating data below
represents financial information of the Kalitta Companies for each of the fiscal
years indicated in the five year period ended December 31, 1996 and the nine
months ended September 30, 1996 and 1997 which information was derived from the
audited combined financial statements of the Kalitta Companies for each of the
fiscal years indicated in the five year period ended December 31, 1996 and from
the unaudited combined financial statements of the Kalitta Companies for the
nine months ended September 30, 1996 and 1997. The selected statement of
operations data for the nine months ended September 30, 1996 and 1997 have been
derived from the unaudited Combined Financial Statements of the Kalitta
Companies, which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information set forth therein. Operating results for the
nine months ended September 30, 1996 and 1997 are not necessarily indicative of
results that may be expected for a calendar year.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Air freight carrier.................... $95,144 $194,525 $298,081 $359,404 $388,193 $275,212 $302,345
Maintenance and other(1)............... 2,606 5,584 7,449 14,279 36,348 25,801 23,299
------- -------- -------- -------- -------- -------- --------
Total revenues........................... 97,750 200,109 305,530 373,683 424,541 301,013 325,644
Gross profit............................. 12,870 34,323 54,023 26,010 44,395 30,054 10,441
Operating income (loss).................. 7,081 23,222 38,519 2,471 21,495 12,314 (9,040)
Interest expense, net.................... (4,396) (6,745) (8,007) (14,749) (21,632) (15,755) (19,740)
Minority interest........................ (424) (1,458) (2,758) (3,092) (1,146) (908) (1,859)
Net income (loss)(2)..................... $ 5,161 $ 16,543 $ 30,593 $ 4,486 $ (17) $ (2,786) $(30,742)
UNAUDITED PRO FORMA DATA:
Unaudited pro forma net income
(loss)(3).............................. $ 3,200 $ 10,257 $ 18,968 $ 2,781 $ (17) $ (2,786) $(30,742)
OTHER FINANCIAL DATA:
Capital expenditures..................... $55,863 $ 20,468 $ 77,832 $153,719 $ 53,413 $ 43,598 $ 54,509
Adjusted EBITDA(4)....................... $16,080 $ 35,645 $ 52,328 $ 23,443 $ 53,586 $ 36,273 $ 16,159
Ratio of adjusted EBITDA to total
interest expense(5).................... 3.7x 5.3x 6.4x 1.6x 2.4x 2.3x --
Ratio of earnings to fixed charges (6)... 2.0x 2.4x 3.3x 1.2x 1.0x -- --
OPERATING DATA:
Aircraft owned (at end of period)........ 52 57 82 91 95 94 84
Flight hours(7).......................... 39,404 55,220 76,346 84,058 91,690 66,858 70,721
</TABLE>

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

(1) Includes revenues from related parties. See "Certain Transactions" and Note
8 of Notes to Combined Financial Statements of the Kalitta Companies.

(2) The Kalitta Companies filed income tax returns under Subchapter S of the
U.S. Federal Income Tax Code. Therefore, all taxable income or losses of the
Kalitta Companies have passed through to the sole shareholder of the Kalitta
Companies.

(3) Represents net income adjusted for approximate federal and state income
taxes (by applying statutory rates) assuming the Kalitta Companies had been
subject to tax as a C corporation. No tax benefit has been provided for 1996
and for the nine months ended September 30, 1996 and 1997 due to the
uncertainty of the Kalitta Companies' ability to recover such benefits.

(4) Adjusted EBITDA represents net income (loss) before minority interest,
interest expense (net of capitalized interest), depreciation, amortization
and certain items described below. Adjusted EBITDA excludes approximately
$8,148 and $542 from gains on insurance settlements in 1995 and the nine
months ended September 30, 1997, respectively, $1,123 from a gain from
settlement of a contract dispute in 1996 and the nine months ended September
30, 1996 and net gains from disposition of aircraft held for resale in each
period presented. Adjusted EBITDA is presented because it is a financial
indicator of the Kalitta Companies' ability to incur and service debt.
However, adjusted EBITDA is not calculated under GAAP, is not necessarily
comparable to similarly titled measures of other companies and should not be
considered in isolation, as a substitute for operating income, net income or
cash flow data prepared in accordance with GAAP or as a measure of the
Kalitta Companies' profitability or liquidity.

(5) For the nine months ended September 30, 1997, the Kalitta Companies'
adjusted EBITDA was $16,159 and interest expense was $19,740, resulting in a
failure to cover interest expense.

(6) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before minority interest and fixed charges (less capitalized
interest). Fixed charges consist of capitalized interest, interest expense,
amortization of debt expense and one-third of rental payments on operating
leases (such factor having been deemed by the Kalitta Companies to represent
the interest portion of such payments). Earnings were not sufficient to
cover fixed charges by approximately $2,412 and $28,883 for the nine months
ended September 30, 1996 and September 30, 1997, respectively.

(7) As reported to the Federal Aviation Administration. Flight hours reported
are less than block hours, which also include the time an aircraft is
operating under its own power whether or not airborne. The Kalitta Companies
generally bill customers on a block hour basis.
12
<PAGE> 14

RISK FACTORS

An investment in the Common Stock involves a high degree of risk. In
addition to the other information in this Prospectus, prospective investors
should carefully consider the following risk factors relating to the Company and
its Common Stock before making an investment. This Prospectus contains
forward-looking statements which involve risk and uncertainties. The discussions
set forth below constitute cautionary statements regarding important matters
that could cause actual results to differ significantly from the results
discussed in the forward-looking statements. If the Company should experience
the adverse effects of any of these risks, it could have a material adverse
effect on the Company and the value of the Common Stock.

COMPANY RELATED RISKS

RECENT FINANCIAL PERFORMANCE OF THE KALITTA COMPANIES

The Kalitta Companies' operations will constitute a majority of the
combined operations of the Company after the Merger is consummated. For 1996 and
the first nine months of 1997, the financial operating results of the Kalitta
Companies have shown a significant negative trend. For the first nine months of
1997, the Kalitta Companies sustained an operating loss of $9 million and a net
loss of $30.7 million. In addition, for the first six months of 1997, the
Kalitta Companies sustained a negative gross profit of $7.5 million. The Kalitta
Companies' operating losses for the nine months ended September 30, 1997 were
primarily the result of abnormally high engine overhaul expenses, the continued
grounding of certain aircraft, certain continuing start-up costs, low flight
crew utilization and lower U.S. military revenues. See "The Merger -- Recent
Financial Performance of the Kalitta Companies and the Merger Rationale" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- The Kalitta Companies." While the Company believes the Kalitta
Companies are taking steps necessary to improve their financial performance,
there can be no assurance that any such improvement will occur or that the
Kalitta Companies will become profitable. The failure to improve the financial
performance of the Kalitta Companies would have a material adverse effect on the
Company and the value of the Common Stock.

The Kalitta Companies have been and continue to be in default under certain
bank loan agreements, including defaults arising from failure to make certain
principal payments. The defaults entitle the affected lenders to accelerate
repayment of their loans and to foreclose on collateral securing these loans,
including aircraft. The outstanding indebtedness of the Kalitta Companies under
these loan agreements will be refinanced with the net proceeds of this Common
Stock Offering and the Note Offering. See " -- Substantial Leverage and Debt
Service" and "Use of Proceeds."

SUBSTANTIAL LEVERAGE AND DEBT SERVICE

The Company will incur substantial indebtedness through the issuance of the
Notes and will enter into the New Credit Facility, which will allow revolving
borrowings up to $100 million. In addition, Kitty Hawk will enter into the Term
Loan to refinance a $45.9 million loan which was incurred in September 1997 in
connection with the acquisition of 16 Boeing 727s from the Kalitta Companies.
See "Description of Certain Indebtedness." As of September 30, 1997, after
giving effect to the Transactions and Refinancings, on a pro forma basis, the
Company's total indebtedness would have been approximately $396 million
(substantially all of which would have been secured) and its stockholders'
equity would have been $183 million. On a pro forma basis, assuming the
Transactions and Refinancings had occurred at the beginning of each of the
following fiscal periods, earnings would not have been sufficient to cover fixed
charges by approximately $9.9 million and $14.2 million for 1996 and for the
nine months ended September 30, 1997, respectively. The Indenture under which
the Notes will be issued (the "Indenture") will permit the Company to incur
substantial amounts of additional indebtedness, including an unlimited amount to
acquire aircraft and aircraft-related assets. The Company's Term Loan and the
New Credit Facility will mature prior to the maturity date of the Notes.

The degree to which the Company is leveraged could have important
consequences to holders of Common Stock, including (i) the Company's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired in
the future; (ii) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of principal

13
<PAGE> 15

and interest on its indebtedness, thereby reducing funds available to the
Company for other purposes; and (iii) the Company's substantial leverage may
place the Company at a competitive disadvantage, hinder its ability to adjust
rapidly to changing market conditions and make it more vulnerable in the event
of a downturn in general economic conditions or its business or in the event of
a strike or other labor problems at one of its significant customers.

The Company's ability to make scheduled principal and interest payments, or
to refinance its indebtedness (including the Notes) will depend on its future
financial performance, which to a certain extent will be subject to economic,
financial, competitive and other factors beyond its control. Based upon the
Company's current operations and anticipated growth, management believes that
future cash flows from operations, together with the proceeds of this Common
Stock Offering and the Note Offering and available borrowings under the New
Credit Facility, will be adequate to meet its anticipated requirements for
working capital, capital expenditures and scheduled principal and interest
payments for at least the next twelve months. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." There can be no assurance, however, that the Company's
business will generate sufficient cash flow from operations to service its
indebtedness and make necessary capital expenditures. If unable to do so, the
Company may be required to refinance all or a portion of its indebtedness,
including the Notes, to sell assets or to obtain additional financing. There can
be no assurance that any such refinancing would be possible, that any assets
could be sold (or, if sold, of the timing of such sales and the amount of
proceeds realized therefrom) or that additional financing could be obtained, any
of which could have a material adverse effect on the Company and the value of
the Common Stock.

RISKS OF BUSINESS INTEGRATION

There can be no assurance that the Company will be able to integrate the
operations of Kitty Hawk and the Kalitta Companies successfully or achieve the
potential benefits of the Merger. The benefits of the Merger will require (i)
the integration of administrative, finance, purchasing, dispatching,
maintenance, sales and marketing organizations, (ii) the coordination of
aircraft operations and (iii) the implementation of appropriate operational,
financial and management systems and controls. This will require substantial
attention from the Company's management. The failure to successfully integrate
Kitty Hawk and the Kalitta Companies would have a material adverse effect on the
Company and the value of the Common Stock. Moreover, no assurance can be given
that the impact of integrating the Kalitta Companies as presented in such
Unaudited Pro Forma Combined Financial Information will be as presented. See
"Unaudited Pro Forma Combined Financial Information."

CONTROL BY MESSRS. CHRISTOPHER AND KALITTA

Immediately after completion of this Common Stock Offering, M. Tom
Christopher as Chairman and Chief Executive Officer will own 5,673,436 shares,
or approximately 32.3%, of the outstanding Common Stock, and Conrad A. Kalitta
as Vice Chairman will own 4,099,150 shares, or approximately 23.4%, of the
outstanding Common Stock, of which 650,000 shares will be held in escrow to
secure Mr. Kalitta's indemnification obligations under the Merger Agreement. As
a consequence, the success of the Company will depend, in some part, upon the
ability of Messrs. Christopher and Kalitta to work together. Prior to the
Merger, Messrs. Christopher and Kalitta were competitors and had disagreements,
one of which resulted in litigation between Kitty Hawk and the Kalitta
Companies. See "Business -- Legal Proceedings -- U.S. Postal Service Contract."
Disagreements between Messrs. Christopher and Kalitta in the future could delay
or disrupt the Company's operations and have a material adverse effect on the
Company and the value of the Common Stock. Messrs. Christopher and Kalitta will
enter into a voting agreement that, among other things, provides that for
thirty-six months after the Merger, Messrs. Christopher and Kalitta will vote
their shares of Common Stock in favor of director nominees selected by a
Nominating Committee or in certain cases, the Board of Directors. See "The
Merger -- Bylaw Amendments Concerning Governance of the Company and
Stockholders' Agreement."

14
<PAGE> 16

CYCLICALITY AND SEASONALITY

The Company's services are provided to numerous industries and customers
that experience significant fluctuations in demand based on economic conditions
and other factors beyond the control of the Company. The demand for the
Company's services could be materially adversely affected by downturns in the
businesses of the Company's customers. The Company believes a significant
percentage of its revenues will continue to be generated from services provided
to the U.S. automotive industry, which has historically been a cyclical
industry. A contraction in the U.S. automotive industry, a prolonged work
stoppage or other significant labor dispute involving that industry, or a
reduction in the use of air freight charters by that industry, could have a
material adverse effect on the Company and the value of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Certain customers of the Company engage in seasonal businesses, especially
the U.S. Postal Service, General Motors Corp. ("GM") and other customers in the
automotive industry. As a result, the Company's air carrier business and air
freight charter logistics business have historically experienced their highest
quarterly revenues and profitability during the fourth quarter of the calendar
year due to the peak Christmas season activity of the U.S. Postal Service and
during the period from June 1 to November 30 when production schedules of the
automotive industry typically increase. Consequently, the Company generally
experiences its lowest quarterly revenue and profitability during the first
quarter of the calendar year. In addition, the Company has provided charter
carrier services to the U.S. Military during periods of heightened military
activity, such as the Persian Gulf conflict, which has caused its results of
operations to fluctuate. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality" and "Business."

AVAILABILITY OF FACILITIES

The Company leases the majority of its facilities from third parties. If
the Company continues to grow, it must be able to expand its current facilities
or relocate to new ones.

The Company's scheduled air freight operations utilize a sorting space at
the Hulman Regional Airport in Terre Haute, Indiana. This sorting space is
licensed from Roadway Global Air for a term which expires in August 1998.
Because of the growth in the amount of freight sorted at this facility, the lack
of available expansion space and the limited airport facilities in Terre Haute,
the Company plans to move this sorting operation to Fort Wayne, Indiana in the
spring of 1999. The Company is currently negotiating a lease with the airport
authority in Fort Wayne and an interim lease for its current space in Terre
Haute. There can be no assurance that the Company will be able to complete
either of these negotiations or do so on favorable terms. Moreover, the move to
Fort Wayne is dependent on the issuance of bonds by the Fort-Wayne-Allen County
Airport Authority (the "Fort Wayne Authority"). There can be no assurance that
the Fort Wayne Authority will complete the bond issuance in a timely manner or
at all. The failure of the Company to successfully obtain sufficient space to
operate would have a material adverse effect on the Company and the value of the
Common Stock. See "Business -- Scheduled Freight Services" and
"Business -- Ground Facilities."

The Company also leases its Oscoda, Michigan maintenance facilities under
various subleases from the Oscoda-Wurtsmith Airport Authority (the "Wurtsmith
Authority"). These subleases vary in duration from month-to-month to long-term
(the last of which expires in December 2015) and are subject to earlier
termination upon termination of the prime lease between the U.S. Government and
the Wurtsmith Authority. The Company is highly dependent on its facilities in
Oscoda. There can be no assurance that the Company will be successful in
extending these subleases or do so on favorable terms or that the prime lease
will not terminate prior to its stated expiration. Failure to extend one or more
of the subleases or early termination of the prime lease would force the Company
either to reduce substantially its maintenance capabilities or relocate the
Oscoda maintenance operations, either of which could increase costs and reduce
revenues. If the Company were forced to relocate these maintenance operations,
there can be no assurance that the Company would be able to find alternative
space on acceptable terms. In addition, the cost to move to another site would
be significant. The occurrence of any of these events, or the failure in general
of the Company to obtain facilities to conduct efficiently any of its
operations, would have a material adverse effect on the Company and the value of
the Common Stock. See "Business -- Maintenance" and "Business -- Ground
Facilities."

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<PAGE> 17

DEPENDENCE ON AIRCRAFT AVAILABILITY

The Company's revenues are dependent on the availability of its aircraft.
In the event that one or more of the Company's aircraft are lost or out of
service for an extended period of time, the Company may be forced to lease or
purchase replacement aircraft or, if necessary, convert an aircraft from
passenger to freighter configuration. There can be no assurance that suitable
replacement aircraft could be located on acceptable terms. The Company does not
maintain business interruption insurance to cover this risk. Loss of revenue
resulting from any such business interruption or costs to replace aircraft could
have a material adverse effect on the Company and the value of the Common Stock.

DEPENDENCE ON KEY PERSONNEL

The Company believes that its continued success depends and will continue
to depend, on the services of Mr. Christopher, the founder of Kitty Hawk and
Chairman of the Board of Directors and Chief Executive Officer of the Company,
Mr. Kalitta, the Vice Chairman (upon consummation of the Merger), Tilmon J.
Reeves, the President of the Company and Richard R. Wadsworth, the Senior Vice
President -- Finance, Chief Financial Officer and Secretary. The loss of the
services of any of Messrs. Christopher, Kalitta, Reeves or Wadsworth,
particularly Mr. Christopher, could have a material adverse effect on the
Company and the value of the Common Stock. Each of Messrs. Christopher, Reeves
and Wadsworth have entered into employment agreements with the Company. Mr.
Kalitta will enter into an employment agreement with the Company upon
consummation of the Merger. See "Management -- Employment Agreements."

EMPLOYEE RELATIONS

The Company believes that it has good relations with its employees. One of
the Kalitta Companies is, and after the Merger will continue to be, subject to a
collective bargaining agreement (the "Collective Bargaining Agreement") with the
Airline Division of the International Brotherhood of Teamsters (the "Teamsters
Union") covering its employee pilots and flight engineers. The Collective
Bargaining Agreement became amendable on August 29, 1997, and the parties have
commenced "interest-based" bargaining for a successor agreement. Although the
parties have commenced "interest-based" bargaining, there can be no assurance
that a new collective bargaining agreement can be reached or that negotiations
will not result in work stoppages, a substantial increase in salaries or wages,
changes in work rules or other changes adverse to the Company. The cockpit crews
of Kitty Hawk are not unionized. There can be no assurance that upon
consummation of the Merger, Kitty Hawk's cockpit crews will remain
non-unionized. Unionization of Kitty Hawk's cockpit crews, work stoppages,
increased wages or other labor related matters could have a material adverse
effect on the Company and the value of the Common Stock. See
"Business -- Employees."

RISKS RELATED TO GROWTH THROUGH ACQUISITIONS

One of the Company's business strategies is to continue its growth by
pursuing the strategic acquisition of both domestic and international providers
of air freight carrier or logistics services. Growing through acquisitions
involves substantial risks, including overvaluing the acquired business and
inadequately or unsuccessfully integrating the acquired business. There can be
no assurance that suitable acquisition candidates will be available, that the
Company will be able to acquire, profitably manage or successfully integrate
such additional companies or that any such future acquisitions will produce
returns justifying the investment by the Company. In addition, the Company may
compete for acquisition candidates with its competitors or other companies that
have significantly greater resources than the Company. Additionally, the terms
of the New Credit Facility and Term Loan will restrict the Company's ability to
make certain acquisitions. Further, acquisitions can result in an increase in
goodwill on the Company's balance sheet, which would be amortized in subsequent
periods, reducing earnings per share. See "Business -- Growth Strategies" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

The Company may finance future acquisitions by issuing shares of Common
Stock. Any future issuance of Common Stock may result in substantial dilution to
purchasers of the shares of Common Stock offered

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<PAGE> 18

hereby. In addition, any acquisition could result in the Company increasing the
amount of goodwill reflected on its consolidated balance sheet, which will be
charged against net earnings in future periods as such goodwill is amortized.

DEPENDENCE ON COMPUTER SYSTEMS

The Company utilizes a number of computer systems to schedule flights and
personnel, track aircraft and freight, bill customers, pay expenses and monitor
a variety of its activities, ranging from safety compliance to financial
performance. The failure of the hardware or software that support these computer
systems, or the loss of data contained in any of them, could significantly
disrupt the Company's operations, which could have a material adverse effect on
the Company and the value of the Common Stock. See "Business -- Air Freight
Charter Logistics Services -- Database, Information Software and Tracking
Systems."

In addition, like most businesses which are highly dependent on their
computer systems, some of the Company's computer software may not correctly
record, manipulate and retrieve dates from the year 2000 and beyond.
Accordingly, the Company may be forced to expend significant sums to overcome
this problem. The failure of the Company to adequately address this problem
could have a material adverse effect on the Company and the value of the Common
Stock.

RESTRICTIVE COVENANTS

The Indenture restricts, among other things, the Company's ability to pay
dividends or make certain other restricted payments, to incur additional
indebtedness, to encumber or sell assets, to enter into transactions with
stockholders and affiliates, to guarantee indebtedness, to merge or consolidate
with any other entity and to transfer or lease all or substantially all of its
assets.

The Company's New Credit Facility and Term Loan also will contain
restricted financial and operating covenants with respect to liens,
indebtedness, capital expenditures, investments, prepayments of debt, dividends
and certain requirements to maintain financial ratios. See "Description of
Certain Indebtedness."

Immediately following the consummation of the Transactions and the
Refinancings, the Company will be in compliance with the financial and other
covenants in the New Credit Facility and Term Loan. The ability of the Company
to comply with such covenants, including financial maintenance covenants, in the
future will depend on the Company's future financial performance. The Company's
failure to comply with such covenants would constitute an event of default under
the New Credit Facility and Term Loan, which could result in (i) the
acceleration of debt maturities, including under the Notes, the New Credit
Facility and the Term Loan, (ii) the loss of the Company's borrowing capacity
and (iii) the foreclosure upon the Company's pledged assets securing such
indebtedness. The declaration of an event of default under the New Credit
Facility and Term Loan could result in a default by the Company under other loan
agreements or leases that contain cross-default or cross-acceleration
provisions. Under these circumstances, there can be no assurance that the
Company would have sufficient funds or other resources to satisfy all of its
obligations on a timely basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of Certain
Indebtedness."

POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S
CERTIFICATE OF INCORPORATION, BYLAWS AND AGREEMENTS

The Certificate of Incorporation and Bylaws of the Company include certain
provisions that have anti-takeover effects and may delay, defer or prevent a
takeover attempt that a stockholder of the Company might consider to be in the
best interests of the Company or its stockholders, including provisions which
(i) classify the Company's Board of Directors into three classes, each of which
serve for different three year periods, (ii) provide that only the Board of
Directors, the Chairman of the Board of Directors or the beneficial owners of
25% or more of the outstanding voting capital stock may call special
stockholders' meetings, (iii) require the vote of the holders of at least
two-thirds of the outstanding shares of each class of the Company's capital
stock then entitled to vote thereon to amend or repeal the Bylaws or certain
provisions of the Certificate of Incorporation, (iv) require the vote of at
least two-thirds of the members of the Board of

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<PAGE> 19

Directors to amend or repeal the Bylaws, (v) establish certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at stockholders' meetings, (vi) subject
the Company to a provision of Delaware law that restricts certain "business
combinations" involving a stockholder who owns 15% or more of the Company's
outstanding voting stock, (vii) limit the aggregate voting power of non-U.S.
persons to 22 1/2% of the votes voting on or consenting to any matter and (viii)
prohibit non-U.S. citizens from serving as directors or officers of the Company.
See "Description of Capital Stock -- Special Provisions of the Certificate of
Incorporation and Bylaws" and "Business -- Government Regulation." In addition,
the requirement that the vote of the holders of at least two-thirds of the
outstanding shares of each class of the Company's capital stock is necessary to
amend or repeal the Bylaws or certain provisions of the Certificate of
Incorporation may adversely affect the extent to which stockholders, other than
Messrs. Christopher and Kalitta acting together, exercise control over the
Company. In addition, holders of the Notes will have the right to require the
Company to repurchase the Notes upon a Change of Control (as defined in the
Indenture) and all indebtedness under the New Credit Facility and Term Loan must
be repaid on a Change of Control (as defined therein). Any of the foregoing
provisions could have a material adverse effect on the value of the Common
Stock.

ABILITY TO ISSUE PREFERRED STOCK

The authorized capital stock of the Company includes 1,000,000 shares of
preferred stock (the "Preferred Stock"). The Board of Directors, in its sole
discretion, may designate and issue one or more series of Preferred Stock from
the authorized and unissued shares of Preferred Stock. Subject to limitations
imposed by law or the Company's Certificate of Incorporation, the Board of
Directors is empowered to determine (i) the designation of and the number of
shares constituting each series of Preferred Stock, (ii) the dividend rate for
each series, (iii) the terms and conditions of any voting, conversion and
exchange rights for each series, (iv) the amounts payable on each series upon
redemption or the Company's liquidation, dissolution or winding-up, (v) the
provisions of any sinking fund for the redemption or purchase of shares of any
series and (vi) the preferences and the relative rights among the series of
Preferred Stock. At the discretion of the Board of Directors and subject to its
fiduciary duties, the Preferred Stock could be used to deter any takeover
attempt, by tender offer or otherwise. In addition, Preferred Stock could be
issued with voting and conversion rights that could adversely affect the voting
power of holders of Common Stock. The issuance of Preferred Stock could also
result in a series of securities outstanding that would have preferences over
the Common Stock with respect to dividends and in liquidation. Any of the
foregoing could have a material adverse effect on the value of the Common Stock.
The Board of Directors has no current intention to issue shares of Preferred
Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
this offering, or the market perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock. Upon completion
of this offering, 17,550,957 shares (18,165,957 shares if the Underwriters'
over-allotment option is exercised in full) of Common Stock will be outstanding.
The 4,100,000 shares (4,715,000 shares, if the Underwriters' over-allotment
option is exercised in full) offered hereby will be freely tradable by persons
who are not "affiliates" of the Company without restriction under the Securities
Act of 1933, as amended (the "Securities Act"). Pursuant to Rule 144 under the
Securities Act, upon completion of this Common Stock Offering, 9,929,150 shares
of Common Stock will be deemed "restricted securities" that may be resold to the
extent permitted under Rule 144 and Rule 701 of the Securities Act or under any
exemption under the Securities Act.

Under the terms of a Stockholders' Agreement to be entered into
contemporaneously with the Merger, Messrs. Christopher and Kalitta will have
registration rights for the ten-year period commencing with the Closing, subject
to customary cutback and exclusion provisions; provided, that the number of
shares proposed to be sold by either Mr. Christopher or Mr. Kalitta in any such
registration shall not be less than 50,000 shares.

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<PAGE> 20

The Company has filed registration statements under the Securities Act
covering 600,000 shares of Common Stock reserved for issuance under the
Company's Amended and Restated Omnibus Securities Plan, Amended and Restated
Annual Incentive Compensation Plan and Amended and Restated Employee Stock
Purchase Plan (collectively, the "Plans"). See "Management -- Employee
Compensation Plans and Arrangements." As of the date hereof, 1,807 shares had
been issued under these Plans. Shares registered under such registration
statements are available for sale in the open market when issued pursuant to the
Plans, subject to Rule 144 volume limitations applicable to affiliates and to
provisions of the Plans, including vesting.

Messrs. Christopher, Kalitta, Reeves and Wadsworth, who collectively will
hold 9,929,150 shares of Common Stock in the aggregate after this Common Stock
Offering and the Merger, along with the Company and its other directors and
executive officers have agreed that, for a period of 90 days from the date of
this Prospectus, they will not, without the prior written consent of Morgan
Stanley & Co. Incorporated, 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 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, except for up to 10,000
shares issuable pursuant to the Plans. Such consent of Morgan Stanley & Co.
Incorporated may be provided without notice to purchasers of the Common Stock or
to officials of the Nasdaq National Market System. See "Management -- Employee
Compensation Plans and Arrangements."

INDUSTRY RELATED RISKS

GOVERNMENT REGULATION

General. The Company is subject to Title 49 of the United States Code
(formerly the Federal Aviation Act of 1958, as amended), under which the
Department of Transportation ("DOT") and the Federal Aviation Administration
("FAA") exercise regulatory authority over air carriers. The DOT is primarily
responsible for regulating economic issues affecting air service, including,
among other things, air carrier certification and fitness, insurance, consumer
protection, unfair competition and transportation of hazardous materials. The
FAA is primarily responsible for regulating air safety and flight operations,
including, among other things, airworthiness requirements for aircraft, pilot
and crew certification, aircraft maintenance and operational standards, noise
abatement, airport slots and other safety-related factors. Certain of the
Company's aircraft are subject to Directives which require modifications to the
affected aircraft. See "Business -- Fleet" and "Business -- Government
Regulation." In addition, the Company is subject to regulation by various other
federal, state, local and foreign authorities, including the Department of
Defense and the Environmental Protection Agency. The Company understands that
the Inspector General's office of the DOT is conducting an investigation of
certain FAA regional offices. The Company is not a subject of any such
investigation. However, the Company does not know the effect, if any, that any
such investigation could have on it.

The Company's international operations are governed by bilateral air
services agreements between the United States and foreign countries where the
Company operates. Under some of these bilateral air services agreements, traffic
rights in those countries are available to only a limited number of and in some
cases only one or two, U.S. carriers and are subject to approval by the DOT and
applicable foreign regulators, limiting growth opportunities in such countries.

The DOT and the FAA have the authority to modify, amend, suspend or revoke
the authority and licenses issued to the Company for failure to comply with the
provisions of law or applicable regulations. In addition, the DOT and the FAA
may impose civil or criminal penalties for violations of applicable rules and
regulations. Such actions by the FAA or the DOT, if taken, could have a material
adverse effect on the Company and the value of the Common Stock. The adoption of
new laws, policies or regulations or changes in the interpretation or
application of existing laws, policies or regulations, whether by the FAA, the
DOT, the U.S. government or any foreign, state or local government, could have a
material adverse effect on the Company and the value of the Common Stock.

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<PAGE> 21

with the DOT seeking temporary and permanent approval to transfer the Kalitta
Companies' foreign operating authority to Kitty Hawk. On November 6, 1997, the
DOT granted Kitty Hawk and the Kalitta Companies a temporary exemption from the
requirement to receive DOT approval prior to the de facto transfer. While the
Company believes it will receive permanent approval of the de facto transfer
from the DOT, there can be no assurance in this regard. In the event the Company
does not receive permanent DOT approval, the Company would be required, at its
option, either to relinquish the Kalitta Companies' foreign operating authority
or divest itself of the Kalitta Companies.

Safety, Training and Maintenance Regulations. The Company's operations are
subject to routine, and periodically more intensive, inspections and oversight
by the FAA. Following a review of safety procedures at ValuJet, Inc.
("ValuJet"), the FAA adopted changes to procedures concerning oversight of
contract maintenance and training. The Company believes it is currently in
compliance with such changes. It is possible that subsequent events, such as the
recent crash of a cargo aircraft owned by Fine Air Services Inc., ("Fine Air")
could result in additional Directives, which could have a material adverse
effect on the Company and the value of the Common Stock.

In 1984, a predecessor of one of the Kalitta Companies had its small
aircraft operating certificate suspended for a period of 90 days for failure to
maintain certain records and other violations of FAA regulations and, in
connection therewith, pled guilty to a misdemeanor charge. The Kalitta Companies
subsequently corrected the conditions which had resulted in the operating
certificate being suspended.

In September 1996, pursuant to the FAA's National Aviation Safety
Inspection Program, the Kalitta Companies underwent a broad inspection of all of
the Kalitta Companies' aircraft and maintenance operations. This inspection
resulted in a report from the FAA citing the Kalitta Companies with a number of
regulatory infractions, none of which were sufficiently serious to cause the FAA
to curtail or otherwise restrict any of the Kalitta Companies' operations. As a
consequence of the FAA's inspection, however, the FAA and the Kalitta Companies
entered into a Consent Order in January 1997 which required the Kalitta
Companies to revise certain internal policies and procedures to address the
regulatory violations noted in the inspection report as well as enforcement
actions that had been pending prior to the inspection. Without admitting any
fault, the Kalitta Companies agreed to pay a fine of $450,000, one-third of
which is suspended and will be forgiven if the Kalitta Companies comply with all
the terms of the Consent Order. At this time, the Kalitta Companies' management
believes the Kalitta Companies are in compliance with the Consent Order and
expects the FAA to conduct another inspection of similar scope in the fourth
quarter of 1997 to verify such compliance. The Consent Order also provides that
it is a full and conclusive settlement of any civil penalties the Kalitta
Companies could incur for regulatory violations occurring before January 1,
1997, but does not preclude the FAA from taking enforcement action to revoke the
Kalitta Companies' air carrier operating certificate, which could have a
material adverse effect on the Company and the value of the Common Stock.

Modification of Aircraft. The Company owns 37 aircraft and leases three
aircraft (not including aircraft held for sale) that do not meet FAA noise
abatement standards. All of these aircraft must be brought into compliance with
these standards by January 1, 2000. The Company may retire or terminate the
leases related to some of these aircraft instead of modifying them. If all 40
aircraft are brought into compliance, the Company estimates that the cost would
be approximately $95 million, not including aircraft downtime. There can be no
assurance regarding the actual cost or that the Company will have or be able to
raise the necessary funds. See "Business -- Government Regulation." In addition,
the Company expects to purchase the Optioned Boeing 747s and convert the
Optioned Boeing 747s and one recently acquired Boeing 747 to freighter
configuration so they can be placed into revenue service during 1998. However,
there can be no assurance as to when these aircraft will be purchased or how
quickly and at what cost they can be modified or placed in revenue service.

Aging Aircraft Regulations; Potential Compliance Costs. All of the
Company's aircraft are subject to Manufacturer's Service Bulletins ("Service
Bulletins") and Directives issued under the FAA's "Aging Aircraft" program or
issued on an ad hoc basis. These Service Bulletins or Directives could cause
certain of these aircraft to be subject to extensive aircraft examinations and
require certain of these aircraft to undergo structural inspections and
modifications to address problems of corrosion and structural fatigue at
specified

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times. It is possible that additional Service Bulletins or Directives applicable
to the types of aircraft included in the Company's fleet could be issued in the
future, particularly in light of recent aircraft crashes at ValuJet and Fine
Air. The cost of compliance with such Directives and Service Bulletins cannot
currently be estimated, but could be substantial.

COMPETITION

The market for air freight services is highly competitive. Because the
Company offers a broad range of air freight services, its competitors vary by
geographic market and type of service. The Company competes on the basis of size
and availability of aircraft with required performance characteristics, price
and reliability. The Company's air freight carrier services are also subject to
competition from other modes of transportation, including, but not limited to,
railroads and trucking. Additional demand for air freight carrier services over
the last few years has resulted in numerous new entrants in this business. The
Company believes there are limited barriers to entry into this business and that
increased demand may stimulate additional competition.

The Company's air freight business competes primarily with air freight
carriers, and from time to time, with integrated carriers such as Burlington Air
Express and Emery Air Freight. The Company also competes on a limited basis with
scheduled freight operations of passenger airlines and overnight delivery
services such as Airborne Express, Inc., DHL Airways, Inc., Federal Express and
United Parcel Service. Numerous competitors of the Company provide or coordinate
door-to-door air freight charters on an expedited basis. The Company also
competes with other dedicated air freight carriers such as Atlas Air, Cargolux,
Challenge Air Cargo, Emery Worldwide, Evergreen International Airlines, Gemini
Air Cargo, Polar Air Cargo and Southern Air Transport.

The market for air logistics also has been and is expected to remain highly
competitive. The Company's principal competitors for on-demand air logistics
services are other air logistics companies, air freight carriers which seek to
book charters directly with customers and air freight companies that offer
expedited service.

The Company's ability to attract and retain business also is affected by
whether and to what extent its customers decide to coordinate their own
transportation needs. For example, prior to 1990, GM conducted its air logistics
business in-house. GM and certain other customers maintain transportation
departments that could be expanded to manage charters in-house which could have
a material adverse effect on the Company and the value of the Common Stock. With
respect to the Company's ACMI contract charter business, the Company could be
adversely affected by the decision of certain of its certificated customers to
acquire additional aircraft or by its uncertificated customers to acquire and
operate their own aircraft. In this regard, many of the Company's competitors
and customers have substantially greater financial resources than the Company.

ENVIRONMENTAL MATTERS

The Company's operations must comply with numerous environmental laws
ordinances and regulations. Under current federal, state and local environmental
laws ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, the presence of
contamination from hazardous or toxic substances, or the failure to remediate
such contaminated property properly, may adversely affect the ability of the
owner of the property to use such property as collateral for a loan or to sell
such property. Environmental laws also may impose restrictions on the manner in
which a property may be used or transferred or in which businesses may be
operated and may impose remedial or compliance costs. The costs of defending
against claims of liability or remediating contaminated property and the cost of
complying with environmental laws could have a material adverse effect on the
Company and the value of the Common Stock. See "Business -- Environmental."

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the Company or the value of the Common Stock there can be no assurance in this
regard. Pursuant to the Merger Agreement, Mr. Kalitta has agreed, subject to
certain limitations, to indemnify the Company for a period of 42 months against
any losses arising with respect to environmental liabilities related to
contamination at any of the Kalitta Companies' facilities. See "The
Merger -- Indemnitees."

In part because of the highly industrialized nature of many of the
locations at which the Company operates, there can be no assurance that the
Company has discovered all environmental contamination for which it may be
responsible.

CAPITAL INTENSIVE NATURE OF AIRCRAFT OWNERSHIP AND OPERATION

Capital Investment. The Company's air carrier business is highly capital
intensive. In order to further expand the Company's air carrier business, the
Company intends to purchase used jet aircraft that typically require certain
modifications, including reconfiguring the aircraft from passenger to cargo use
and installing equipment to comply with noise abatement regulations. See
"Business -- Government Regulation -- Noise Abatement Regulations." The market
for used jet aircraft is volatile and can be negatively affected by limited
supply, increased demand and other market factors and recently has experienced
significant price increases. Therefore, there can be no assurance that the
Company will be able to purchase and modify additional aircraft at favorable
prices or that the Company will have or be able to obtain sufficient resources
with which to make such purchases and modifications. See "Business -- Growth
Strategies," "Business -- Government Regulation" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

Operating Costs. The operation of the Company's air freight and passenger
carrier business incurs considerable operational, maintenance, fuel and
personnel costs. The Company's financial results can be adversely affected by
unexpected engine or airframe repairs, compliance with maintenance directives
and regulations of the FAA and associated aircraft downtime. In addition, spare
or replacement parts and components may not be readily available in the
marketplace. Failure to obtain necessary parts or components in a timely manner
or at favorable prices could have a material adverse effect on the Company and
the value of the Common Stock.

Fuel is a significant cost of operating the Company's aircraft for
on-demand services and the aircraft of third party providers of charter
services. Both the cost and availability of fuel are subject to many economic
and political factors and events occurring throughout the world and recently the
cost of fuel has fluctuated markedly. The Company has no agreement with any fuel
supplier assuring the availability or price stability of fuel and such
agreements are generally not available in the industry. The Company generally
passes on fuel cost increases to its customers under ACMI charter contracts, but
under certain contracts and the Company's scheduled operations, the Company's
ability to pass on increased fuel costs is limited. Accordingly, the future cost
and availability of fuel to the Company cannot be predicted and substantial
price increases in, or the unavailability of adequate supplies of, fuel may have
a material adverse effect on the Company and the value of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Maintenance" and "Business -- Government Regulation."

VOLATILITY OF AIR FREIGHT SERVICES MARKET

The demand for air freight services is highly dependent on the strength of
both the domestic and global economy. Although the air freight services industry
has experienced strong growth over the last several years (see
"Business -- Industry Overview"), general economic downturns could have a
material adverse effect on the Company and the value of the Common Stock.

UTILIZATION OF AIRCRAFT

The Company's operating results are highly dependent on its ability to
effectively utilize its diverse fleet of aircraft. There can be no assurance,
however, that operation of any of the various types of aircraft in the Company's
fleet will prove to be profitable. The failure of the Company to keep its
aircraft in revenue service

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<PAGE> 24

or achieve an acceptable level of aircraft utilization could have a material
adverse effect on the Company and the value of the Common Stock.

RISK OF ACCIDENT; INSURANCE COVERAGE AND EXPENSES

The Company's operations involve risks of potential liability against the
Company in the event of aircraft accidents and, in the case of the Company's air
ambulance services, for medical malpractice. The Company is required by the DOT
to carry liability insurance on each of its aircraft. The Company also carries
medical liability insurance for its air ambulance business. Although the Company
believes its current insurance coverage is adequate and consistent with current
industry practice, there can be no assurance that the amount of such coverage
will not be changed or that the Company will not bear substantial losses and
lost revenues from accidents. Substantial claims resulting from an accident in
excess of related insurance coverage could have a material adverse effect on the
Company and the value of the Common Stock. In addition, any significant increase
in the Company's current insurance expense could have a material adverse effect
on the Company and the value of the Common Stock. Moreover, any aircraft
accident, even if fully insured, could cause a public perception that some of
the Company's aircraft are less safe or reliable than other aircraft, which
could have a material adverse effect on the Company and the value of the Common
Stock. During the last five years, the Kalitta Companies have had eight
accidents and several other safety related incidents involving its aircraft with
varying degrees of damage to the aircraft involved. In 1992, the pilot of one of
the Kalitta Companies' small aircraft was fatally injured in one of these
accidents. See "Business -- Insurance" and "Business -- Training and Safety."

INTERNATIONAL BUSINESS RISK

The Company expects to continue to derive a substantial portion of its
revenues from providing air freight carrier services to customers in South and
Central America and the Pacific Rim. The risks of doing business in foreign
countries include potential adverse changes in the diplomatic relations between
foreign countries and the U.S., hostility from local populations directed at a
U.S. flag carrier, government policies against foreign-owned businesses, adverse
effects of currency exchange controls, restrictions on the withdrawal of foreign
investment and earnings and the risk of insurrections that could result in
losses against which the Company is not insured. The Company's international
operations also are subject to economic uncertainties, including risks of
renegotiation or modification of existing agreements or arrangements with
exchange restrictions and changes in taxation. Any of these events could have a
material adverse effect on the Company and the value of the Common Stock.

Nearly all of the Company's revenue is denominated in U.S. dollars.
However, a meaningful portion of the Company's revenue is derived from customers
whose revenue is denominated in foreign currencies. Therefore, any significant
devaluation in such currencies relative to the U.S. dollar could have an adverse
effect on such customer's ability to pay the Company or to continue to use its
services, which could have a material adverse effect on the Company and the
value of the Common Stock.

CONTRABAND RISK

Although required to do so, customers may fail to inform the Company about
hazardous or illegal cargo. If the Company fails to discover any undisclosed
weapons, explosives, illegal drugs or other hazardous or illegal cargo or
mislabels or otherwise ships hazardous materials, it may suffer possible
aircraft damage or liability, as well as fines, penalties or flight bans,
imposed by both the country of origin and of destination. Any of these events
could have a material adverse effect on the Company and the value of the Common
Stock. The Company is a member of the U.S. Super Carrier Initiative. Members of
the U.S. Super Carrier Initiative work with representatives of the U.S. Customs
Service and the U.S. Drug Enforcement Agency to prevent the importation of
illegal drugs into the U.S.

23
<PAGE> 25

THE MERGER

THE MERGER AGREEMENT

On September 22, 1997, Kitty Hawk, Mr. Christopher, the Kalitta Companies
and Mr. Kalitta entered into an Agreement and Plan of Merger, which was
subsequently amended (as so amended, the "Merger Agreement"). Pursuant to the
Merger Agreement, upon the satisfaction of the conditions to the Merger, each of
the respective Kalitta Companies will be merged with and into separate
subsidiaries of Kitty Hawk, with each of the respective Kalitta Companies
surviving the Merger as a direct, wholly owned subsidiary of Kitty Hawk. At the
effective time ("Effective Time") of the Merger, the outstanding shares of
capital stock of four of the Kalitta Companies will be converted, in the
aggregate, into the right to receive 4,099,150 shares of Common Stock and the
outstanding shares of the remaining Kalitta Company will be converted into the
right to receive $20 million cash. Prior to the execution of the Merger
Agreement, the respective Boards of Directors of Kitty Hawk and the Kalitta
Companies and Mr. Kalitta, as the sole shareholder of each of the Kalitta
Companies, voted affirmatively to approve the Merger in accordance with the
terms of the Merger Agreement and applicable law. No other corporate action is
required for obtaining board of directors' and stockholders' approval of Kitty
Hawk or the Kalitta Companies for the Merger.

RECENT FINANCIAL PERFORMANCE OF THE KALITTA COMPANIES AND THE MERGER RATIONALE

In 1996, the Kalitta Companies reported a small net loss. During the first
nine months of 1997, the financial performance deteriorated substantially with
the Kalitta Companies sustaining an operating loss of $9 million and a net loss
of $30.7 million. In addition, for the first six months of 1997, the Kalitta
Companies sustained a negative gross profit of $7.5 million. Further, the
Kalitta Companies are heavily leveraged. Since 1995, the Kalitta Companies have
from time to time been in default under certain covenants of their loan
agreements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview of the Kalitta Companies." These financial
issues contributed to the Kalitta Companies (i) entering into an agreement on
July 31, 1997 to sell 16 Boeing 727s to Kitty Hawk in order to generate cash for
the acquisition and modification of wide-body aircraft and to provide working
capital and (ii) pursuing the Merger.

In evaluating the merits of the Merger, among other things, the management
teams of the two companies focused on the primary factors that have contributed
to the recent deterioration in the financial performance of the Kalitta
Companies and whether these factors would be expected to have a continuing
negative impact on the financial performance of the Kalitta Companies. Moreover,
they examined whether the combination of Kitty Hawk and the Kalitta Companies
would help eliminate, or at least mitigate, the effect of these factors. As a
result of their analysis, the management of the two companies expects the
financial performance of the Kalitta Companies to improve and significant
financial benefits to result following the consummation of the Merger.
Management's expectation is based on the following:

- Diminishing Impact of Recent Adverse Factors. The Kalitta Companies
believe that the following five factors have primarily accounted for the
decline in their financial performance since January 1, 1996 (i) the
incurrence of abnormally high jet engine overhaul expenses resulting from
the Kalitta Companies compliance with a series of Directives issued in
early 1996, (ii) beginning in January 1996, the loss of revenues
resulting from the effective grounding of two Boeing 747s pursuant to a
series of Directives, (iii) the incurrence principally in 1997 of
start-up costs associated with establishing the Kalitta Companies' large
aircraft passenger charter business, (iv) the incurrence of costs to add
and maintain flight crews in anticipation of increased air carrier
business which has not yet materialized in part due to delays in
acquiring aircraft and (v) a decline in revenues from the U.S. Military
resulting from a decrease in the air freight-only charter requirements of
the U.S. Military and an increase in competition for that business. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Overview of the Kalitta Companies."

The Kalitta Companies expect engine overhaul expense to return to
normalized levels in future periods and do not expect passenger charter
service start-up costs to recur. They also believe that crew

24
<PAGE> 26

and aircraft utilization can be improved because the Merger will afford
the Company opportunities to (i) direct more on-demand charters to the
Kalitta Companies' small aircraft, rather than to third parties and (ii)
direct on-demand charters to Boeing 727s used in the Company's scheduled
overnight freight operations which have been used infrequently for
on-demand charters in the past. After the Merger, the Company also
expects to increase its charter business with the U.S. Military because
the Kalitta Companies expect to become eligible to fly passenger charters
for the U.S. Military in December 1997. Management also expects to
partially mitigate the ongoing effects of the Directive that effectively
grounded the Boeing 747s by returning one of them to limited load service
in the latter half of 1998.

- Expense Reductions. Several means were identified for substantially
reducing the current levels of certain operating expenses of the Kalitta
Companies following the consummation of the Transactions. By insuring all
the aircraft of the combined companies under one hull and liability
policy, it is estimated that the Company's annual insurance premium costs
will be reduced by approximately $1.5 million during the first year
following the Merger. Management also expects that Kitty Hawk's
maintenance expense can be reduced by shifting previously outsourced
maintenance to the Kalitta Companies' maintenance facilities.
Furthermore, there are potential cost savings to be gained (i) from
purchasing in bulk certain supplies, including fuel and (ii) through
parts inventory reduction permitted by the scale of the combined
operations.

- Improved Capital Resources. The consummation of this Common Stock
Offering and the Note Offering and entering into the New Credit Facility
will enable the Company to refinance indebtedness of the Kalitta
Companies on more favorable terms and provide working capital. In
particular, the Company will have sufficient capital resources to enable
it to acquire and modify the Optioned Boeing 747s. Recently, the Kalitta
Companies have been hindered due to their liquidity problems and lack of
capital resources.

- Adoption of Kitty Hawk Management Discipline. Finally, in examining ways
for improving the financial performance of the Kalitta Companies, it was
recognized that Kitty Hawk's management has emphasized profitability, as
contrasted to the Kalitta Companies which have primarily focused on
growing revenues and fleet size. After the Merger, the Company intends to
apply the management discipline of Kitty Hawk to the day-to-day
operations of the Kalitta Companies.

There can be no assurance that the expectations described above for
improving the performance of the Kalitta Companies will be realized. The failure
to achieve the contemplated improvement of the financial performance of the
Kalitta Companies could have a material adverse effect on the Company and the
value of the Common Stock. For a description of important factors that could
cause actual results to differ materially from those referenced in the foregoing
forward looking statements, see "Risk Factors."

CONDITIONS TO THE MERGER

Pursuant to the Merger Agreement, the consummation of the Merger is subject
to the satisfaction or waiver of certain conditions to the closing of the
Merger, including (i) the respective representations and warranties set forth in
the Merger Agreement made by Kitty Hawk, Mr. Kalitta and the Kalitta Companies
shall be true and correct, (ii) Mr. Christopher, Kitty Hawk, Mr. Kalitta and the
Kalitta Companies shall have performed or complied with their respective
covenants and conditions set forth in the Merger Agreement, (iii) all required
regulatory approvals and consents of third parties shall have been obtained (See
"Risk Factors -- Government Regulation -- General"), (iv) there shall have been
no change in Kitty Hawk's or the Kalitta Companies' respective business, labor
relations, financial condition, properties, assets, liabilities or results of
operations (or the occurrence of any events which might reasonably be expected
to result in any such change), which in the respective judgment of Kalitta or
Kitty Hawk, made in good faith, has had or would reasonably be expected to have
a material adverse effect (as defined in the Merger Agreement) on Kitty Hawk or
the Kalitta Companies (as the case may be), (v) the last reported sale price of
a share of Common Stock on the Nasdaq National Market immediately preceding the
closing date of the Merger and the average of the last reported sales price of a
share of Common Stock on the Nasdaq National Market for the 20 consecutive
trading days ending on the trading day immediately preceding the closing date
shall be at least $12, (vi) the Note Offering shall have been consummated and
the net proceeds to the Company from the

25
<PAGE> 27

Common Stock Offering and the Note Offering shall be greater than or equal to
$380 million, (vii) Mr. Kalitta shall have been released from all of his
personal guaranties of the indebtedness of the Kalitta Companies to be repaid as
a consequence of the Refinancings, (viii) the fairness opinion rendered to the
Board of Directors of Kitty Hawk shall have not been withdrawn or materially and
adversely modified, (ix) certain aspects of the Merger as related to Mr. Kalitta
must qualify as a tax-free reorganization and (x) Kitty Hawk shall have obtained
certain confirmations from the Securities and Exchange Commission (the
"Commission") regarding future financial reporting requirements.

INDEMNITIES

Under the terms of the Merger Agreement, Mr. Kalitta has agreed to
indemnify Kitty Hawk and certain of its affiliates against any loss, damage,
deficiency, liability, judgment, claim or expense (collectively, the "Losses")
incurred by Kitty Hawk or such affiliates that arise out of (i) a breach or
alleged breach by Mr. Kalitta or any of the Kalitta Companies (other than KFS)
of the Merger Agreement or (ii) certain environmental matters relating to the
Kalitta Companies (other than KFS) as described in the Merger Agreement.
Separate indemnity is provided by Mr. Kalitta and KFS to Kitty Hawk and certain
of its affiliates for Losses that arise out of (i) a breach or alleged breach by
Mr. Kalitta or KFS of the Merger Agreement or (ii) certain environmental claims
relating to KFS. Under the terms of the Merger Agreement, Kitty Hawk has agreed
to indemnify Mr. Kalitta against any Losses incurred by Mr. Kalitta and certain
affiliates that arise out of (i) a breach or alleged breach of the Merger
Agreement by the Company or Mr. Christopher. No party has the right to any
indemnification until the aggregate amount of its indemnity claims exceeds $1
million. The indemnification obligations of Mr. Kalitta are limited generally to
the sum of (i) the fair market value from time to time of 1,150,000 shares of
Common Stock with respect to Losses, other than those relating to KFS, and (ii)
$6 million for certain Losses relating to KFS. Mr. Kalitta will place 650,000
shares of Common Stock and $3 million cash in escrow to secure these respective
indemnity obligations. The indemnification obligations of Kitty Hawk are limited
generally to $10 million. Generally, no claims for indemnification may be
brought by any party after 30 months from the date of the Merger, except that
Kitty Hawk and certain affiliates may make indemnity claims for certain
environmental matters for up to 42 months from the date of the Merger. In
addition, under the terms of the Merger Agreement, Kitty Hawk has agreed to
indemnify each person who is, has been or becomes prior to the Effective Time,
an officer, director, employee or agent of any of the Kalitta Companies against
any Losses related to such person's service, as of or prior to the Effective
Time, as an officer, director, employee or agent of any of the Kalitta
Companies.

The Company will at closing enter into indemnification agreements with each
person who serves as a director of Kitty Hawk on the date hereof or who will be
appointed to the Board of Directors on the closing date. Under the
indemnification agreements, the Company will indemnify and advance expenses, to
each such person to the fullest extent permitted by the Delaware General
Corporation Law and will name each such person as an insured in any policy of
directors' and officers' insurance maintained by the Company. Determinations as
to an indemnitee's right to indemnification under the indemnification agreements
are generally made, at the expense of the Company, by (i) a majority vote of
disinterested directors, (ii) special independent legal counsel, (iii) a
majority of disinterested stockholders or (iv) a final adjudication by a court
of competent jurisdiction. Notwithstanding the foregoing, after the occurrence
of a defined change of control, determinations as to eligibility for
indemnification under the indemnification agreements generally are required to
be made, at the expense of the Company, by a court of competent jurisdiction or
by independent legal counsel selected by the indemnitee. The rights to
indemnification granted under the indemnification agreements are not exclusive
of any other rights to indemnification that the indemnitee may have under the
Company's certificate of incorporation, bylaws, directors' and officers'
insurance or otherwise.

BYLAW AMENDMENTS CONCERNING GOVERNANCE OF THE COMPANY

Pursuant to the Merger Agreement, effective at or prior to the Effective
Time (i) the Bylaws of Kitty Hawk shall be amended to provide that the number of
directors comprising the full Board of Directors will be seven and (ii) such
persons named as directors under "Management" shall be the directors of the
Company to serve in the classes so indicated in "Management."

26
<PAGE> 28

Pursuant to the Merger Agreement, on or prior to the Effective Time, the
Bylaws of the Company also shall be amended to provide that (i) a joint
nominating committee (the "Joint Nominating Committee"), a Christopher
Nominating Committee (herein so called) and a Kalitta Nominating Committee
(herein so called) of the Board of Directors shall be created for a 36 month
period commencing with the Effective Time, (ii) such Joint Nominating Committee
shall consist of Messrs. Christopher and Kalitta for so long as each is a
director of the Company, (iii) the Christopher Nominating Committee shall
consist of Mr. Christopher for so long as he is a director of the Company and
(iv) the Kalitta Nominating Committee shall consist of Mr. Kalitta for so long
as he is a director of the Company. To the extent permitted by applicable law,
such Joint Nominating Committee shall have the exclusive power on behalf of the
Board of Directors to nominate persons for election as a director of the Company
as a Joint Designee and to fill any vacancy of the Joint Designee on the Board
of Directors. The Christopher Nominating Committee shall have the exclusive
power on behalf of the Board of Directors of Kitty Hawk to nominate Mr.
Christopher and persons for election as directors of Kitty Hawk as Christopher
designees and to fill vacancies on the Board of Directors vacated by Christopher
designees, and the Kalitta Nominating Committee shall have the exclusive power
on behalf of the Board of Directors to nominate Mr. Kalitta and persons for
election as directors of Kitty Hawk as Kalitta designees and to fill vacancies
on the Board of Directors vacated by the Kalitta designees. Messrs. Christopher
and Kalitta have agreed under the Merger Agreement and the Stockholders'
Agreement (described below) to (i) vote, and cause each of their respective
affiliates to vote (x) for the nominees of the Joint Nominating Committee (or
the nominee as a Joint Designee of the entire Board of Directors in accordance
with the Bylaws if the Joint Nominating Committee cannot agree within 10 days)
except for cause, (y) for Christopher and the nominees of the Christopher
Nominating Committee for election as a director of Kitty Hawk as a Christopher
designee and against removal except for cause and (z) for Kalitta and the
nominees of the Kalitta Nominating Committee for election as a director of Kitty
Hawk as a Kalitta designee and against removal except for cause and (ii) not
vote, nor permit any of their respective affiliates to vote, any shares of
Common Stock they beneficially own in favor of any person to serve as a director
of the Company unless such person has been so nominated. Each of the nominating
committees shall nominate the persons named in this Prospectus under
"Management" for re-election when their terms expire unless any such persons are
unable or unwilling to serve or if such persons have been removed for "cause"
within the meaning of the Certificate of Incorporation of the Company. However,
Mr. Christopher will have the right to fill any vacancy in the board seats of
Messrs. Coonfield or Reeves and Mr. Kalitta will have the right to fill any
vacancy in the board seats of Messrs. Kelsey or Sauder.

If the Joint Nominating Committee does not agree within 10 days upon a
nominee or a person to fill a vacancy, then either member may by written notice
require a meeting of the Board of Directors to resolve such disagreement. Any
individual selected to serve as a member of the Board of Directors, if the Joint
Nominating Committee is unable to agree upon a nominee or a person to fill a
vacancy, must (i) not be a Family Member (as defined in the Merger Agreement) of
either Messrs. Kalitta or Christopher, (ii) not be a former or current employee
of any Kalitta Company, AIC or Kitty Hawk, (iii) have within the preceding 60
months been a director, chief financial officer or chief executive officer of a
company whose capital stock is listed on the New York Stock Exchange or the
American Stock Exchange or quoted on the Nasdaq National Market System and (iv)
be a citizen of the United States. The rights and obligations of Messrs.
Christopher and Kalitta relating to the selection of directors and director
nominees shall terminate upon the earlier of (a) 36 months after the Effective
Time, (b) the death, Disability (as defined in the Merger Agreement) or
voluntary resignation as a director of Kitty Hawk of either Mr. Christopher or
Mr. Kalitta or (c) the sale of all shares beneficially owned by both Messrs.
Christopher and Kalitta; provided, that in the event of the voluntary
resignation as a director of Mr. Christopher or Mr. Kalitta, the resigning
director will remain subject to his obligations to vote the Common Stock and
other voting securities of the Company as provided above. If the Board is unable
to agree on a nominee or person to fill a vacancy, stockholders have a statutory
right to petition a Delaware court to resolve the deadlock or any other
deadlock.

The Bylaws of Kitty Hawk also shall be amended to provide that until the
first anniversary of the Effective Time, (a) the Chairman of the Board and Chief
Executive Officer shall be elected exclusively by the stockholders and shall
serve as the chief executive officer of Kitty Hawk and, subject to the
supervision of the Board of Directors, shall have the general management and
control of the Company and (b) the Vice

27
<PAGE> 29

Chairman shall be elected exclusively by the stockholders and shall serve as an
officer of Kitty Hawk. Pursuant to the Merger Agreement, Kitty Hawk has agreed
to cause the election of Mr. Kalitta as President of AIA until the first
anniversary of the Effective Time and Messrs. Christopher and Kalitta have
agreed to vote their Common Stock or other voting securities in favor of Mr.
Christopher as Chairman of the Board and Chief Executive Officer and Mr. Kalitta
as Vice Chairman until the first anniversary of the Effective Time.

The Bylaws of the Company also shall be amended to provide that the
provisions of the Bylaws concerning the number and classification of directors,
the powers and duties of the Joint Nominating Committee, the Christopher
Nominating Committee and the Kalitta Nominating Committee the provisions
concerning a deadlock of the Joint Nominating Committee and the offices of
Chairman of the Board and Chief Executive Officer and Vice Chairman and related
Bylaw provisions may be amended or repealed prior to the end of the 36 month
period commencing with the Effective Time only by the affirmative vote of 70% of
the members of the entire Board of Directors or the holders of 75% of the
outstanding Common Stock.

STOCKHOLDERS' AGREEMENT

Messrs. Christopher and Kalitta and the Company will, contemporaneously
with the Closing and pursuant to the terms of the Merger Agreement, enter into a
Stockholders' Agreement. Under the terms of the Stockholders' Agreement, Messrs.
Christopher and Kalitta will have incidental registration rights for the ten-
year period commencing with the Effective Time, subject to customary cutback and
exclusion provisions; provided, that the number of shares proposed to be sold by
Mr. Christopher or Mr. Kalitta in any such registration shall not be less than
50,000 shares. The expenses relating to such registrations will be paid by the
Company. In addition to the voting provisions described above, the Stockholders'
Agreement permits transfers to certain Affiliates that agree to be bound by the
terms of the Stockholders' Agreement.

THE NOTE OFFERING AND REFINANCINGS

Concurrently with this Common Stock Offering, the Company is offering $340
million aggregate principal amount of Senior Secured Notes. The consummation of
the Note Offering is conditioned upon (i) the consummation of the Merger and
this Common Stock Offering and (ii) entering into the New Credit Facility and
Term Loan. The Company intends to use the net proceeds of this Common Stock
Offering and the Note Offering, along with the new Term Loan, to accomplish the
Refinancings. The Company believes the Refinancings will provide the Company
with greater financial flexibility by, among other things, (i) extending
maturities of certain indebtedness, (ii) reducing the weighted average interest
rate of outstanding indebtedness and (iii) increasing operating flexibility. See
"Description of Certain Indebtedness."

To the extent the foregoing constitutes a summary of the material terms of
the Merger Agreement and the Stockholders' Agreement, it is qualified in its
entirety by reference to the agreements which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part.

USE OF PROCEEDS

This Common Stock Offering is conditioned on (i) the concurrent
consummation of the Merger and the Note Offering and (ii) entering into the New
Credit Facility and Term Loan. The net proceeds from this Common Stock Offering,
the Note Offering and the Term Loan, after deducting underwriting discounts,
placement fees and estimated offering expenses, are estimated to be
approximately $431.2 million ($443 million if the Underwriters' over-allotment
option is exercised in full). The estimated sources and uses of net proceeds to
the Company from this Common Stock Offering, the Note Offering and the Term Loan
are summarized as follows (dollars in millions):

<TABLE>
<S> <C>
SOURCES:
Note Offering, net of underwriting discounts and estimated
expenses.................................................. $329.1
Common Stock Offering, net of underwriting discounts and
estimated expenses........................................ 56.2
Term Loan(1)................................................ 45.9
------
Total............................................. $431.2
======
</TABLE>

28
<PAGE> 30
USES:
Refinancings(2)............................................. $328.8
Escrow for acquisition and conversion to freighter
configuration of the Optioned Boeing 747s................. 56.0
Working capital............................................. 24.2
Cash paid pursuant to the Merger Agreement.................. 20.0
Estimated expenses(3)....................................... 2.2
------
Total............................................. $431.2
======

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

(1) The Company anticipates contemporaneously borrowing a de minimis amount
under the New Credit Facility.

(2) The indebtedness being refinanced has interest rates ranging from 5.3% to
18% and maturity dates ranging from less than one year to September 2006.
This amount includes approximately $3 million of prepayment penalties
related to the Refinancings. For a description of the indebtedness being
refinanced, see "Description of Certain Indebtedness."

(3) Represents estimated expenses to be incurred in connection with the Merger,
the New Credit Facility and Term Loan.

The Company will not receive any proceeds from the sale of shares of Common
Stock offered by the Selling Stockholders.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock has traded on the Nasdaq National Market System
under the symbol "KTTY" since the Company's initial public offering on October
9, 1996. The following table sets forth the range of high and low sale prices of
the Common Stock for the periods shown below.

<TABLE>
<CAPTION>
PRICE RANGE
--------------------
HIGH LOW
---- ---
<S> <C> <C>
October 9, 1996 through November 30, 1996................... $14 3/4 $10
One Month Ended December 31, 1996........................... 13 1/2 8
Three Months Ended March 31, 1997........................... 12 3/4 10
Three Months Ended June 30, 1997............................ 17 1/4 11 7/8
Three Months Ended September 30, 1997....................... 20 3/4 13 3/8
Three Months Ending December 31, 1997 (through November 5,
1997)..................................................... $23 3/4 $18 7/8
</TABLE>

See the cover page of this Prospectus for a recent sale price of the Common
Stock on the Nasdaq National Market. At November 5, 1997, the Company had
approximately 1,300 holders of record and beneficial owners of the Company's
Common Stock.

Kitty Hawk has never declared or paid any cash dividends on the Common
Stock. The Company presently intends to retain earnings, if any, for development
and growth of its business and does not anticipate paying cash dividends on the
Common Stock in the foreseeable future. The New Credit Facility and the
Indenture contain significant limitations on the Company's ability to pay
dividends. See "Description of Certain Indebtedness." Payment of future
dividends, if any, will be at the discretion of the Company's Board of
Directors, after taking into account various factors, including the Company's
earnings, capital requirements and surplus, financial position, contractual
restrictions and other relevant business considerations and there can be no
assurance that dividends will be paid. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- the Company."

29
<PAGE> 31

CAPITALIZATION

The following table sets forth the capitalization of Kitty Hawk at
September 30, 1997 and the Company on a pro forma basis to give effect to the
consummation of (i) the Common Stock Offering and the Note Offering, (ii) the
Merger, including the issuance of 4,099,150 shares of Common Stock in connection
therewith, (iii) the Refinancings and (iv) the application of the estimated net
proceeds to be received by the Company from the Common Stock Offering and the
Note Offering as described in "Use of Proceeds."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------
KITTY THE
HAWK COMPANY
-------- ---------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt(1)..................... $ 8,373 $ 3,800
======== ========
Long-term debt:
New Credit Facility(2).................................... $ -- $ --
Term Loan................................................. -- 45,900
Notes..................................................... -- 340,000
Other long-term debt(1)(3)................................ 72,674 6,200
-------- --------
72,674 392,100
-------- --------
Stockholders' equity:
Preferred stock, $1 par value; 1,000,000 shares
authorized; no shares issued........................... -- --
Common stock, $0.01 par value; 25,000,000 shares
authorized; 10,669,517 shares issued and outstanding;
17,768,667 shares issued and outstanding pro
forma(4)............................................... 107 178
Paid-in capital........................................... 33,950 151,611
Retained earnings......................................... 33,260 33,260
Common stock in treasury -- 217,710 shares................ (2,076) (2,076)
-------- --------
Total stockholders' equity........................ 65,241 182,973
-------- --------
Total capitalization.............................. $137,915 $575,073
======== ========
</TABLE>

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

(1) Up to $10 million of current maturities of long-term debt and other
long-term debt (comprised of up to $2 million of Kitty Hawk's currently
outstanding indebtedness and up to $8 million of the Kalitta Companies'
currently outstanding indebtedness) will not be refinanced in connection
with the Refinancings.

(2) Approximately $100 million will be available for borrowing under the New
Credit Facility upon consummation of the Refinancings.

(3) Consists of indebtedness owed to WFB, Bank One Texas, N.A. ("BOT") and 1st
Source Bank.

(4) Does not include (i) 300,000 shares of Common Stock available for the future
grant under the Company's Amended and Restated Omnibus Securities Plan, (ii)
198,193 shares of Common Stock available for issuance under the Company's
Amended and Restated Annual Incentive Compensation Plan and (iii) 100,000
shares of Common Stock available for issuance under the Company's Amended
and Restated Employee Stock Purchase Plan. See "Management -- Employee
Compensation Plans and Arrangements."

30
<PAGE> 32

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following sets forth the Company's Unaudited Pro Forma Combined
Financial Information for 1996 and the nine months ended September 30, 1997, in
each case giving effect to the Transactions, the Refinancings and the sale of a
Hawker Siddeley HS-125 aircraft by the Kalitta Companies to Mr. Kalitta prior to
or immediately after the closing date (the "Hawker Sale"). The Company's
Unaudited Pro Forma Combined Statement of Operations Information gives effect to
the Transactions, the Refinancings and the Hawker Sale, as if they had been
consummated at the beginning of 1996. The Company's Unaudited Pro Forma Combined
Balance Sheet Information gives effect to the Transactions, the Refinancings and
the Hawker Sale as if they had been consummated on September 30, 1997.

The Unaudited Pro Forma Combined Financial Information of the Company is
presented for illustrative purposes only and does not purport to present the
financial position or results of operations of the Company had the Transactions,
the Refinancings and the Hawker Sale occurred on the dates indicated, nor are
they necessarily indicative of the results of operations which may be expected
to occur in the future. The Unaudited Pro Forma Combined Financial Information
should be read in conjunction with the separate historical financial statements
of Kitty Hawk and the Kalitta Companies appearing elsewhere in this Prospectus.
Certain amounts reported in the Kalitta Companies' historical combined financial
statements have been reclassified to conform with the Kitty Hawk presentations
in the Unaudited Pro Forma Combined Financial Information.

The accompanying Unaudited Pro Forma Combined Financial Information has
been prepared under guidelines established by Article 11 of Regulation S-X under
the Securities Act. Under those guidelines, there are limitations on the
adjustments that can be made in the presentation of pro forma financial
information. Accordingly, no pro forma adjustments have been applied to reflect
(i) revenues or operating costs expected to be generated from the Optioned
Boeing 747s expected to be purchased and modified with approximately $56 million
of the net proceeds from the Note Offering or the recent purchase of one Boeing
747 or (ii) operating efficiencies or cost savings (other than approximately
$1.5 million of insurance savings) expected to result from the Merger. In
addition, pro forma results have not been adjusted to eliminate abnormally high
engine overhaul expenses, costs incurred to add and maintain flight crews in
anticipation of increased air freight carrier business which has not yet
materialized in part due to delays in acquiring aircraft and start-up costs
associated with establishing the Kalitta Companies' wide-body passenger charter
business.

The historical balance sheet information for Kitty Hawk and the Kalitta
Companies has been derived from the unaudited September 30, 1997 balance sheets
of Kitty Hawk and the Kalitta Companies included elsewhere in this Prospectus.
The historical statement of operations data for 1996 has been derived from
unaudited information presented in Footnote 10 to Kitty Hawk's audited financial
statements included elsewhere in this Prospectus and from the audited combined
statements of operations of the Kalitta Companies for the year ended December
31, 1996 included elsewhere in this Prospectus. The historical statement of
operations data for Kitty Hawk and the Kalitta Companies for the nine months
ended September 30, 1997 has been derived from their respective unaudited
statements of operations for the nine months ended September 30, 1997 included
elsewhere in this Prospectus.

The pro forma adjustments relating to the purchase of the Kalitta Companies
represent the Company's preliminary determinations of these adjustments and are
based upon available information and certain assumptions the Company considers
reasonable under the circumstances. Final amounts could differ from those set
forth therein and those differences could be material. The Company will finalize
its purchase price allocation subsequent to the completion of these
Transactions. The unaudited interim financial statements of Kitty Hawk referred
to above include, in the opinion of management of Kitty Hawk, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of Kitty Hawk for the unaudited interim period. The
unaudited interim financial statements of the Kalitta Companies referred to
above include, in the opinion of management of the Kalitta Companies, all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the results of the Kalitta Companies for the unaudited
interim period.

31
<PAGE> 33

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

BALANCE SHEET
SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
KALITTA -----------------------
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents....................... $ 2,403 $ 3,282 $ 24,227 3a $ 29,912
Restricted cash................................. -- 14,037 56,000 3b 70,037
Trade accounts receivable....................... 21,645 64,909 -- 86,554
Accounts receivable -- related parties.......... -- 1,255 -- 1,255
Inventory and aircraft supplies................. 5,588 24,624 -- 30,212
Prepaid expenses and other current assets....... 6,808 19,773 (101)3c 26,480
-------- -------- --------- --------
Total current assets.................... 36,444 127,880 80,126 244,450
Property and equipment, net....................... 140,357 271,819 45,226 3d 457,402
Other assets...................................... -- 777 10,123 3e 10,900
-------- -------- --------- --------
Total assets............................ $176,801 $400,476 $ 135,475 $712,752
======== ======== ========= ========
Current Liabilities
Accounts payable and accrued expenses........... $ 27,968 $ 75,906 $ 14,933 3f $118,807
Deferred gain on sale of aircraft............... -- 30,255 (30,255)3g --
Notes payable to bank, classified as current.... -- 55,434 (55,434)3h --
Long-term debt, classified as current........... -- 196,364 (196,364)3h --
Note payable and bank line of credit............ -- 2,995 (2,995)3h --
Current maturities of long-term debt............ 8,373 -- (4,573)3h 3,800
-------- -------- --------- --------
Total current liabilities............... 36,341 360,954 (274,688) 122,607
Note payable...................................... -- 300 -- 300
Existing long-term debt........................... 72,674 -- (66,474)3h 6,200
Notes............................................. -- -- 340,000 3h 340,000
Term Loan......................................... -- -- 45,900 3h 45,900
Deferred income taxes............................. 2,545 -- 8,655 3i 11,200
Minority interest................................. -- 3,572 -- 3,572
Stockholders' equity, net......................... 65,241 35,650 82,082 4 182,973
-------- -------- --------- --------
Total liabilities and stockholders'
equity................................ $176,801 $400,476 $ 135,475 $712,752
======== ======== ========= ========
</TABLE>

See accompanying notes.

32
<PAGE> 34

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
KALITTA -----------------------
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Air freight carrier.............................. $ 55,504 $388,193 $ (5,432)2a $438,265
Air logistics.................................... 77,168 -- -- 77,168
Maintenance and other............................ -- 36,348 -- 36,348
-------- -------- -------- --------
Total revenues........................... 132,672 424,541 (5,432) 551,781
Cost of Revenues:
Air freight carrier.............................. 40,860 357,830 (4,083)2b 394,607
Air logistics.................................... 67,938 -- -- 67,938
Maintenance and other............................ -- 22,316 -- 22,316
-------- -------- -------- --------
Total costs of revenues.................. 108,798 380,146 (4,083) 484,861
-------- -------- -------- --------
Gross profit (loss)................................ 23,874 44,395 (1,349) 66,920
General and administrative expenses................ 8,943 22,900 -- 31,843
Non-qualified employee profit sharing.............. 1,243 -- -- 1,243
Stock option grants to executive................... 4,231 -- -- 4,231
-------- -------- -------- --------
Total operating expenses................. 14,417 22,900 -- 37,317
-------- -------- -------- --------
Operating income (loss)............................ 9,457 21,495 (1,349) 29,603
Other Income (expense):
Interest expense, net............................ (2,062) (21,632) (16,802)2c (40,496)
Other, net....................................... 291 1,266 -- 1,557
-------- -------- -------- --------
Income (loss) before income taxes and minority
interest......................................... 7,686 1,129 (18,151) (9,336)
Minority interest.................................. -- 1,146 -- 1,146
-------- -------- -------- --------
Income (loss) before income taxes.................. 7,686 (17) (18,151) (10,482)
Income taxes (benefit)............................. 3,038 -- (3,038)2d --
-------- -------- -------- --------
Net income (loss)........................ $ 4,648 $ (17) $(15,113) $(10,482)
======== ======== ======== ========
Net income (loss) per share........................ $ 0.55 $ (0.67)
======== ========
Weighted average common and common equivalent
shares outstanding............................... 8,477 7,099 15,576
======== ======== ========
</TABLE>

See accompanying notes.

33
<PAGE> 35

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA
KALITTA ------------------------
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Air freight carrier...................... $55,789 $302,345 $ (4,942)2a $353,192
Air logistics............................ 45,878 -- -- 45,878
Maintenance and other.................... -- 23,299 -- 23,299
------- -------- -------- --------
Total revenues................... 101,667 325,644 (4,942) 422,369
Cost of Revenues:
Air freight carrier...................... 38,076 297,968 (16,786)2b 319,258
Air logistics............................ 42,037 -- -- 42,037
Maintenance and other.................... -- 17,235 -- 17,235
------- -------- -------- --------
Total costs of revenues.......... 80,113 315,203 (16,786) 378,530
------- -------- -------- --------
Gross profit............................... 21,554 10,441 11,844 43,839
General and administrative expenses........ 7,550 19,481 -- 27,031
Non-qualified employee profit sharing...... 1,161 -- -- 1,161
------- -------- -------- --------
Total operating expenses......... 8,711 19,481 -- 28,192
------- -------- -------- --------
Operating income (loss).................... 12,843 (9,040) 11,844 15,647
Other Income (expense):
Interest expense, net.................... (1,809) (19,740) (8,823)2c (30,372)
Other, net............................... 579 (103) -- 476
------- -------- -------- --------
Income (loss) before income taxes and
minority
interest................................. 11,613 (28,883) 3,021 (14,249)
Minority interest.......................... -- (1,859) -- (1,859)
------- -------- -------- --------
Income (loss) before income taxes.......... 11,613 (30,742) 3,021 (16,108)
Income taxes (benefit)..................... 4,645 -- (4,645)2d --
------- -------- -------- --------
Net income (loss)................ $ 6,968 $(30,742) $ 7,666 $(16,108)
======= ======== ======== ========
Net income (loss) per share................ $ 0.67 $ (0.92)
======= ========
Weighted average common and common
equivalent shares outstanding............ 10,452 7,099 17,551
======= ======== ========
</TABLE>

See accompanying notes.

34
<PAGE> 36

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)

1. Allocation of Purchase Price -- Based upon the Kalitta Companies' September
30, 1997 unaudited balance sheet, the purchase price would have been
calculated and allocated as follows:

<TABLE>
<S> <C>
PURCHASE PRICE DETERMINATION:
Cash...................................................... $ 20,000
4,099,150 shares of Kitty Hawk common stock at an assumed
value of $15 per share................................. 61,487
Related expenses.......................................... 2,178
Plus fair value of liabilities assumed:
Accounts payable and accrued expenses (including
$14,933 maintenance accrual to conform to Kitty Hawk
accounting method).................................... 90,839
Notes payable, reclassified as current................. 58,429
Long-term debt, reclassified as current, including
approximately $3,000 in early payment penalties....... 199,364
Note payable........................................... 300
Deferred income taxes.................................. 8,655
Minority interest...................................... 3,572
---------
Total purchase price to allocate.................. $ 444,824
=========
PURCHASE PRICE ALLOCATION:
Current assets............................................ $ 127,779
Property and equipment, principally aircraft.............. 317,045
---------
$ 444,824
=========
</TABLE>

The foregoing purchase price determination and allocation are based on the
September 30, 1997 Kalitta Companies' balance sheet and preliminary estimates
of fair value of assets acquired and liabilities assumed. The final purchase
price allocation is contingent upon final assessment or appraisal of the fair
value of the net assets acquired and the final consideration given.

35
<PAGE> 37

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

2. Pro Forma Combined Statement of Operations -- The Company's Pro Forma
Combined Statement of Operations data for the year ended December 31, 1996
and the nine months ended September 30, 1997 includes the following
adjustments:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
a. Revenue:
- Elimination of intercompany revenue................... $ (4,914) $ (4,639)
- Elimination of revenue on aircraft to be purchased by
Mr. Kalitta........................................... (518) (303)
-------- ---------
(5,432) (4,942)
-------- ---------
b. Cost of revenues:
- Elimination of intercompany revenue................... (4,914) (4,639)
- Elimination of the cost of revenues associated with
the aircraft to be purchased by Mr. Kalitta........... (466) (273)
- Conforming the Kalitta Companies' aircraft maintenance
accounting policy to that of Kitty Hawk............... (2,323) (14,534)
- Decreasing insurance costs for the combined fleet..... (1,500) (1,125)
- Increase in depreciation expense from the step-up in
fair value of acquired property and equipment,
principally aircraft, and adjusting the useful lives
of the acquired aircraft.............................. 5,120 3,785
-------- ---------
(4,083) (16,786)
-------- ---------
c. Interest expense:
- Repaying existing Kalitta Company credit facilities... 20,912 19,200
- Repaying existing Kitty Hawk credit facilities........ 1,882 1,674
- The Notes............................................. (34,000) (25,500)
- Term Loan............................................. (4,039) (3,029)
- Amortizing deferred financing costs................... (1,557) (1,168)
-------- ---------
(16,802) (8,823)
d. Adjustments to reduce income tax expense by the amount
incurred by Kitty Hawk.................................. (3,038) (4,645)
-------- ---------
$(15,113) $ 7,666
======== =========
</TABLE>

The tax effects of the remaining pro forma net operating loss carryforward at
December 31, 1996 and at September 30, 1997 have not been reflected as an
income tax benefit in the pro forma statements of operations due the
uncertainty of future realization.

Interest expense on the Notes is calculated assuming an interest rate of 10%.
Each 1/4 percentage point change in the interest rate of the Notes results in
a change in interest expense of $850 and $638 for 1996 and the nine months
ended September 30, 1997, respectively. Interest expense on the Term Loan is
calculated assuming an interest rate of 8.8%. Interest on the Term Loan will
accrue initially at LIBOR plus 3% or the Base Rate plus 1.5%, subject to
reduction. See "Description of Certain Indebtedness." Each 1/4 percentage
point change in the interest rate of the Term Loan results in a change in
interest expense of $115 and $86 for 1996 and the nine months ended September
30, 1997, respectively.

36
<PAGE> 38

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

3. Pro Forma Balance Sheet -- For purposes of preparing the Unaudited Pro Forma
Combined Balance Sheet, the Kalitta Companies' assets and liabilities assumed
have been recorded at their estimated fair values, the final determination of
which has not yet been made. Accordingly, the purchase accounting adjustments
made in connection with the development of the unaudited pro forma financial
information reflect the Company's best estimate based upon currently
available information. However, such adjustments could change and such
changes may be material.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
--------------------
<S> <C> <C>
a. Cash:
- Issuing 3,000,000 shares of common stock at an assumed
price of $20 3/8 per share............................. $ 61,125
- Cash payment to Mr. Kalitta............................ (20,000)
- Proceeds of the Notes.................................. 340,000
- Repaying existing credit facilities including an early
payment penalties of approximately $3,000.............. (328,840)
- Restricted cash........................................ (56,000)
- Expenses of the Transactions and the Refinancings...... (17,958)
- Proceeds from the Term Loan............................ 45,900
---------
$24,227
b. Restricted Cash resulting from the proceeds from the Note
Offering used to fund the acquisition of the Optioned
Boeing 747s.............................................. 56,000
c. Other current assets..................................... (101)
d. Property and equipment................................... 45,226
e. Other assets, principally deferred debt costs............ 10,123
f. Adjusting accrued maintenance to conform the Kalitta
Companies' accounting policy to that of Kitty Hawk....... 14,933
g. Deferred gain on sale of aircraft........................ (30,255)
h. Adjusting debt outstanding for the following:
- The Note Offering...................................... 340,000
- Repayment of existing credit facilities................ (325,840)
- Term Loan.............................................. 45,900
---------
60,060
i. Recording deferred income taxes related to the book and
tax basis differences of the assets acquired and
liabilities assumed in the Merger........................ 8,655
</TABLE>

Up to $10 million of existing debt may not be refinanced in connection with
the Refinancings. This amount has been reflected on the pro forma balance
sheet as Current maturities of long-term debt and Existing long-term debt.

4. Stockholders' Equity -- Stockholders' equity has been adjusted to reflect the
issuance of 4,099,150 shares of Kitty Hawk's common stock in conjunction with
the Merger and the issuance of 3,000,000 shares at an assumed offering price
of $20 3/8 per share.

37
<PAGE> 39

SELECTED FINANCIAL AND OPERATING DATA

KITTY HAWK

The following table sets forth selected financial and operating data with
respect to Kitty Hawk for each of the fiscal years indicated, for the four
months ended December 31, 1995 and 1996 and for the nine months ended September
30, 1996 and 1997. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus. The selected statement of
operations and balance sheet data as of and for each of the fiscal years ended
August 31, 1992 through 1996 and for the four months ended December 31, 1996 has
been derived from audited Consolidated Financial Statements of Kitty Hawk
appearing elsewhere in this Prospectus. Operating results for the four months
ended December 31, 1995 and 1996 and for the nine months ended September 30,
1996 and 1997 are not necessarily indicative of results that may be expected for
a calendar year. In the opinion of management of Kitty Hawk, the selected
statement of operations and balance sheet data presented as of and for the four
months ended December 31, 1995 and for the nine months ended September 30, 1996
and 1997, which are derived from Kitty Hawk's unaudited Consolidated Financial
Statements appearing elsewhere in this Prospectus, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations for such
periods.

<TABLE>
<CAPTION>
FOUR MONTHS
ENDED NINE MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- ----------------- --------------------
1992 1993 1994 1995 1996 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Air freight carrier revenues.... $ 6,760 $12,939 $ 28,285 $ 41,117 $ 52,922 $17,994 $20,577 $39,615 $ 55,789
Air logistics revenues.......... 45,893 52,840 79,415 62,593 89,493 51,734 39,408 43,144 45,878
------- ------- -------- -------- -------- ------- ------- ------- --------
Total revenues.................. 52,653 65,779 107,700 103,710 142,415 69,728 59,985 82,759 101,667
Total costs of revenues......... 48,465 55,201 92,951 85,532 118,900 57,682 47,580 68,827 80,113
------- ------- -------- -------- -------- ------- ------- ------- --------
Gross profit.................... 4,188 10,578 14,749 18,178 23,515 12,046 12,405 13,932 21,554
General and administrative
expenses...................... 2,930 4,394 6,013 7,832 9,080 2,862 2,725 6,877 7,550
Non-qualified profit sharing
expense....................... -- 250 732 1,001 1,170 889 962 447 1,161
Stock option grants to
executives.................... -- -- -- -- 4,231(1) -- -- 4,231(1) --
------- ------- -------- -------- -------- ------- ------- ------- --------
Operating income................ 1,258 5,934 8,004 9,345 9,034 8,295 8,718 2,377 12,843
Interest expense................ (157) (134) (343) (1,185) (1,859) (482) (684) (1,530) (1,809)
Contract settlement income,
net(2)........................ -- 725 1,178 -- -- -- -- -- --
Loss on asset disposal.......... -- -- -- -- (589) -- -- (589) --
Other income (expense).......... 287 193 (432) (601) 291 38 626 262 579
------- ------- -------- -------- -------- ------- ------- ------- --------
Income before income taxes...... 1,388 6,718 8,407 7,559 6,877 7,851 8,660 520 11,613
Income taxes.................... 375 2,613 3,146 3,143 2,768 3,097 3,367 269 4,645
------- ------- -------- -------- -------- ------- ------- ------- --------
Net income...................... $ 1,013 $ 4,105 $ 5,261 $ 4,416 $ 4,109(1) $ 4,754 $ 5,293 $ 251(1) $ 6,968
======= ======= ======== ======== ======== ======= ======= ======= ========
Net income per share............ $ 0.12 $ 0.52 $ 0.66 $ 0.55 $ 0.52(1) $ 0.60 $ 0.55 $ 0.03(1) $ 0.67
======= ======= ======== ======== ======== ======= ======= ======= ========
Weighted average common and
common equivalent shares
outstanding................... 8,671 7,968 7,968 7,968 7,928 7,968 9,610 7,891 10,452
OTHER FINANCIAL DATA:
Capital expenditures............ $ 3,019 $ 1,318 $ 13,876 $ 17,929 $ 33,538 $ 175 $13,796 $31,367 $ 99,575
Adjusted EBITDA(3).............. $ 2,149 $ 7,104 $ 9,507 $ 12,839 $ 19,840 $10,014 $12,546 $10,582 $ 21,039
Ratio of adjusted EBITDA to
total interest expense........ 13.7x 53.0x 27.7x 10.8x 10.7x 20.8x 18.3x 6.9x 11.6x
Ratio of earnings to fixed
charges(4).................... 7.9x 33.6x 20.6x 6.9x 4.4x 15.9x 12.9x 1.3x 5.3x
OPERATING DATA:
Air freight carrier
Aircraft owned (at end of
period)....................... 11 10 15 21 22 21 26 22 42
Flight hours(5)................. 3,567 7,030 11,795 15,183 20,237 6,320 7,670 15,628 21,912
Number of on-demand charters
flown......................... 292 752 1,182 1,238 1,918 827 243 1,182 911
Number of ACMI contract charters
flown......................... 655 1,314 1,734 2,601 3,514 1,070 1,586 2,818 3,883
Air freight charter logistics
Number of on-demand charters
managed(6).................... 8,708 9,748 16,713 14,198 19,578 9,356 4,185 11,607 10,640
</TABLE>

38
<PAGE> 40

<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ------------------ ----------------------
1992 1993 1994 1995 1996 1995 1996 1996 1997
------ ------- ------- ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).... $ 895 $ 4,679 $ 4,223 $ 1,747 $(6,962)(7) $12,722 $ 33,519 $(7,231)(7) $ 103
Total assets................. 9,874 18,598 37,911 47,954 79,828 80,109 123,027 79,628 176,801
Total debt................... 2,367 976 9,145 16,981 36,912 21,695 24,768 36,049 81,047
Stockholders' equity......... $3,184 $ 7,289 $12,550 $16,966 $23,639 $21,721 $ 58,292 $24,536 $ 65,241
</TABLE>

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

(1) Results for the fiscal year ended August 31, 1996 and the nine months ended
September 30, 1996 lack comparability to other periods because such periods
include nonrecurring grants to two executive officers of stock options that
resulted in a charge to earnings of approximately $4,231. Had these grants
of stock options not occurred, net income for fiscal year ended August 31,
1996 and the nine months ended September 30, 1996 would have been
approximately $6,648 and $2,790, respectively, and net income per share
would have been $0.84 and $0.35, respectively. See "Management -- Stock
Option Grants."
(2) Reflects sums received in settlement of litigation. See "Legal
Proceedings -- Litigation and Arbitration Related to Postal Contract" and
Note 5 of Notes to Consolidated Financial Statements.
(3) Adjusted EBITDA represents net income before income tax expense, interest
expense, depreciation, amortization and certain items described below.
Adjusted EBITDA excludes approximately $4,231 from stock options granted to
executives in 1996 and approximately $725 and $1,178 in contract settlements
in fiscal 1993 and 1994, respectively. Adjusted EBITDA is presented because
it is a financial indicator of Kitty Hawk's ability to incur and service
debt. However, adjusted EBITDA is not calculated under GAAP, is not
necessarily comparable to similarly titled measures of other companies and
should not be considered in isolation, as a substitute for operating income,
net income or cash flow data prepared in accordance with GAAP or as a
measure of Kitty Hawk's profitability or liquidity.
(4) In calculating the ratio of earnings to fixed charges, earnings consist of
income prior to income tax expense and fixed charges (less capitalized
interest). Fixed charges consist of capitalized interest, interest expense,
amortization of debt expense and one-third of rental payments on operating
leases (such factor having been deemed by Kitty Hawk to represent the
interest portion of such payments).
(5) As reported by Kitty Hawk to the FAA. Flight hours reported are less than
block hours, which also include the time an aircraft is operating under its
own power whether or not airborne. Kitty Hawk generally bills its customers
on a block hour basis.
(6) Includes on-demand charters flown by Kitty Hawk aircraft.
(7) Working capital includes a $10 million Revolving Credit Facility classified
as a current liability that was subsequently repaid.

39
<PAGE> 41

THE KALITTA COMPANIES

The following table sets forth selected financial and operating data with
respect to the Kalitta Companies for each of the fiscal years indicated and for
the nine months ended September 30, 1996 and 1997. This information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Combined Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. The
selected statement of operations and balance sheet data as of and for each of
the fiscal years indicated in the five year period ended December 31, 1996 have
been derived from the audited Combined Financial Statements of the Kalitta
Companies. The selected statement of operations and balance sheet data for the
nine months ended September 30, 1996 and 1997 have been derived from the
unaudited Combined Financial Statements of the Kalitta Companies, which, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information set
forth therein. The information presented under the captions "Other Financial
Data" and "Aircraft Data" have not been derived from audited data for any
periods presented. The results of operations for the interim periods presented
are not necessarily indicative of the results which may be expected for the full
year.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Air freight carrier services..................... $ 95,144 $194,525 $298,081 $359,404 $388,193 $275,212 $302,345
Maintenance and other(1)......................... 2,606 5,584 7,449 14,279 36,348 25,801 23,299
-------- -------- -------- -------- -------- -------- --------
Total revenues..................................... 97,750 200,109 305,530 373,683 424,541 301,013 325,644
OPERATING COSTS AND EXPENSES(2):
Flight........................................... 37,259 62,877 115,614 168,775 150,256 107,006 126,208
Maintenance...................................... 22,114 51,933 64,722 103,389 115,082 81,561 107,432
Fuel............................................. 16,508 38,554 57,362 54,538 82,717 58,434 55,095
Depreciation..................................... 8,999 12,422 13,809 20,972 32,091 23,959 26,468
Selling, general and administrative.............. 4,232 9,554 13,273 21,676 21,889 15,353 17,848
Provision for doubtful accounts.................. 1,557 1,547 2,231 1,862 1,011 2,386 1,633
-------- -------- -------- -------- -------- -------- --------
Total operating costs and expenses................. 90,669 176,887 267,011 371,212 403,046 288,699 334,684
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations...................... 7,081 23,222 38,519 2,471 21,495 12,314 (9,040)
OTHER INCOME (EXPENSE):
Interest expense................................. (4,396) (6,781) (8,121) (15,064) (22,012) (16,043) (20,089)
Interest income.................................. -- 36 113 315 379 288 349
Gain on disposition of aircraft held for resale
and property and equipment, net................ 3,018 1,945 3,390 11,708 131 426 624
Gain on contract termination..................... -- -- -- -- 1,123 1,123 --
Gain on insurance settlement(3).................. -- -- -- 8,148 -- 542
Miscellaneous.................................... (118) (421) (550) -- 13 13 (1,269)(12)
-------- -------- -------- -------- -------- -------- --------
Total other income (expense)....................... (1,496) (5,221) (5,168) 5,107 (20,365) (14,193) (19,843)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority interest............. 5,585 18,001 33,351 7,578 1,129 (1,879) (28,883)
Minority interest(4)............................... (424) (1,458) (2,758) (3,092) (1,146) (908) (1,859)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)(5)............................... $ 5,161 $ 16,543 $ 30,593 $ 4,486 $ (17) $ (2,787) $(30,742)
======== ======== ======== ======== ======== ======== ========
UNAUDITED PRO FORMA DATA:
Unaudited pro forma net income (loss)(6)........... $ 3,200 $ 10,257 $ 18,968 $ 2,781 $ (17) $ (2,787) $(30,742)
OTHER FINANCIAL DATA:
Capital expenditures............................... $ 55,863 $ 20,468 $ 77,832 $153,719 $ 53,413 $ 43,598 $ 54,509
Adjusted EBITDA(7)................................. $ 16,080 $ 35,645 $ 52,328 $ 23,443 $ 53,586 $ 36,273 $ 16,159
Ratio of adjusted EBITDA to total interest
expense(8)....................................... 3.7x 5.3x 6.4x 1.6x 2.4x 2.3x --
Ratio of earnings to fixed charges(9).............. 2.0x 2.4x 3.3x 1.2x 1.0x -- --
</TABLE>

40
<PAGE> 42

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)(10)..................... $ (6,242) $ 4,299 $(12,037) $(19,700) $(195,413) $(194,251) $(233,073)
Total assets...................................... 123,773 163,925 272,461 377,597 380,103 364,650 400,476
Total debt........................................ 80,010 84,936 137,405 220,471 238,350 228,601 255,093
Stockholder's equity.............................. $ 31,043 $ 46,461 $ 77,099 $ 66,292 $ 67,085 $ 67,265 $ 35,650
OPERATING DATA:
Aircraft under operating leases................... 7 8 4 4 2 2 2
Aircraft owned.................................... 52 57 82 91 95 94 84
-------- -------- -------- -------- --------- --------- ---------
Total aircraft.................................... 59 65 86 95 97 96 86
======== ======== ======== ======== ========= ========= =========
Flight hours(11).................................. 39,404 55,220 76,346 84,058 91,690 66,858 70,721
</TABLE>

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

(1) Includes revenues from related parties. See "Certain Transactions" and Note
8 of Notes to Combined Financial Statements.
(2) Includes expenses to related parties. See "Certain Transactions" and Note 8
of Notes to Combined Financial Statements.
(3) The gain for the year ended December 31, 1995 represents the amount by
which the insurance settlement received by AIA by reason of damage to one
of its aircraft exceeded the actual costs incurred to repair the damage.
The difference occurred because AIA was able to effect the repair using its
own maintenance capability and obtain the replacement parts from an unused
airframe having no book value. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(4) American International Cargo is a general partnership in which AIA holds a
60% interest. See "Business -- Scheduled Cargo Services."
(5) The Kalitta Companies filed income tax returns under Subchapter S of the
U.S. Federal Income Tax Code. Therefore, all taxable income or losses of
the Kalitta Companies have passed through to the sole shareholder of the
Kalitta Companies.
(6) Represents net income adjusted for the approximate federal and state income
taxes (by applying statutory rates) assuming the Kalitta Companies had been
subject to tax as a C corporation. No tax benefit has been provided for the
year ended December 31, 1996 and for the nine months ended September 30,
1996 and 1997 due to the uncertainty of the Kalitta Companies' ability to
recover such benefits.
(7) Adjusted EBITDA represents net income (loss) before minority interest,
interest expense (net of capitalized interest), depreciation, amortization
and certain items described below. Adjusted EBITDA excludes approximately
$8,148 and $542 from gains on insurance settlements in 1995, and the nine
months ended September 30, 1997, respectively, $1,123 from a gain from
settlement of a contract dispute in 1996 and the nine months ended
September 30, 1996, and net gains from disposition of aircraft held for
resale in each period presented. Adjusted EBITDA is presented because it is
a financial indicator of the Kalitta Companies' ability to incur and
service debt. However, adjusted EBITDA is not calculated under GAAP, is not
necessarily comparable to similarly titled measures of other companies and
should not be considered in isolation, as a substitute for operating
income, net income or cash flow data prepared in accordance with GAAP or as
a measure of the Kalitta Companies' profitability or liquidity.
(8) For the nine months ended September 30, 1997, the Kalitta Companies'
adjusted EBITDA was $16,159 and interest expense was $19,740, resulting in
a failure to cover interest expense.
(9) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before minority interest and fixed charges (less capitalized
interest). Fixed charges consist of capitalized interest, interest expense,
amortization of debt expense and one-third of rental payments on operating
leases (such factor having been deemed by the Kalitta Companies to
represent the interest portion of such payments). Earnings were not
sufficient to cover fixed charges by approximately $2,412 and $28,883 for
the nine months ended September 30, 1996 and September 30, 1997,
respectively.
(10) Includes long-term debt and notes payable reclassified to current of
$203,016, $177,402 and $160,058 at December 31, 1996, September 30, 1996
and September 30, 1997, respectively.
(11) As reported to the FAA by the Kalitta Companies. Flight hours reported are
less than block hours, which also include the time an aircraft is operating
under its own power whether or not airborne. The Kalitta Companies
generally bill their customers on a block hour basis.
(12) Represents Merger-related costs for the nine months ended September 30,
1997.

41
<PAGE> 43

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW OF KITTY HAWK

Change of Fiscal Year. On December 4, 1996, Kitty Hawk changed its fiscal
year end from August 31 to December 31. The following discussion is of Kitty
Hawk's financial condition and results of operations (i) for the nine months
ended September 30, 1996 and 1997, (ii) for the four months ended December 31,
1995 and December 31, 1996 and (iii) for the fiscal years ended August 31, 1994,
1995 and 1996.

Revenues. Kitty Hawk's revenues are derived from two related businesses (i)
air freight carrier and (ii) air logistics. Air freight carrier revenues are
derived substantially from ACMI contract and on-demand charters flown with Kitty
Hawk's aircraft. Air logistics revenues are derived substantially from on-demand
air freight charters arranged by Kitty Hawk for its customers utilizing the
flight services of third party air freight carriers. With respect to on-demand
charters that are arranged by Kitty Hawk and flown with its own aircraft,
charges to the customer for air transportation are accounted for as air freight
carrier revenues and charges for ground handling and transportation are
accounted for as air logistics revenues.

The principal factors that have contributed to revenue growth over the past
several years have been increases in the size of Kitty Hawk's fleet (from 10
aircraft at December 31, 1993 to 42 aircraft at September 30, 1997), the general
U.S. economic expansion since 1992 and the increased global demand for time
sensitive air freight services.

Costs of Revenues. The principal components of the costs of revenues
attributable to the air freight carrier business consist of the costs for the
maintenance and operation of aircraft including the salaries of pilots and
maintenance personnel, charges for fuel, insurance and maintenance and
depreciation of engines and airframes. Generally, charges for fuel are only
applicable for the on-demand charters flown by the air freight carrier because
fuel for the ACMI contract charters is generally provided by the customer or
billed to the customer on a direct pass-through basis. The principal components
of the costs of revenues attributable to air logistics consist of sub-charter
costs paid to third party air freight carriers and costs paid for ground
handling and transportation. With respect to on-demand charters that are flown
on Kitty Hawk's aircraft, all related air transportation expenses are allocated
to the air freight carrier business and all related cargo ground handling and
transportation expenses are allocated to the air logistics business.

Under the Kitty Hawk Amended and Restated Annual Incentive Compensation
Plan, Kitty Hawk awards semiannual cash bonuses to its employees. The aggregate
amount of the bonuses for each of fiscal years 1994, 1995 and 1996, the
Transition Period and the nine months ended September 30, 1996 and 1997, have
equaled 8%, 11.7%, 9.5%, 10%, 8.6% and 9.1%, respectively, of Kitty Hawk's
income before the deduction of income taxes, stock option grants to executives
and the bonuses that were expensed under this plan.

Kitty Hawk's gross margins have been substantially higher in its air
freight carrier business (which uses Kitty Hawk aircraft) than in its air
logistics business (which principally uses third party aircraft). However, the
air freight carrier business provides a more predictable revenue base.
Accordingly, Kitty Hawk is shifting its aircraft from on-demand to ACMI
contracts. Of the 16 Boeing 727s acquired in September 1997, 14 operate under
ACMI contracts.

Significant Events Affecting Comparability of Results of Operations. Since
September 1, 1993, several events have affected the comparability of results of
operations for each of the last three fiscal years. In fiscal year 1996, Kitty
Hawk granted Messrs. Reeves and Wadsworth options to purchase 390,707 and
153,567 shares of Common Stock, respectively, for an exercise price of $0.01 per
share, that resulted in a charge to earnings of approximately $4,231,000. In
fiscal year 1995, Kitty Hawk expensed approximately $727,000 relating to its
attempted initial public offering. In fiscal year 1994, contract settlement
income amounted to approximately $1,178,000. See Note 5 of Notes to Consolidated
Financial Statements.

Post-Merger Results. Beginning in the fourth quarter of 1997, the Company's
results will be affected by the Transactions and the Refinancings. Expenses will
be increased by the amortization of the stepped up value

42
<PAGE> 44

of the Kalitta Companies' fleet (approximately $5.1 million of non-cash annual
expense), the amortization of deferred financing costs associated with the Note
Offering, the New Credit Facility and the Term Loan (approximately $1.6 million
of non-cash annual expense) and cash interest expense with respect to the Notes
(approximately $34 million of annual expense) and the Term Loan (approximately
$4 million of annual expense). After the Merger, the Company may incur
Merger-related integration costs in the fourth quarter of 1997. If incurred,
these costs are not expected to exceed approximately $2 million.

Reduced Dependence on Significant Customers. Historically, Kitty Hawk
derived a substantial amount of revenue from a limited number of customers. Upon
consummation of the Merger, the Company will be significantly less dependent on
revenues from these customers.

RESULTS OF OPERATIONS OF KITTY HAWK

The following table sets forth, on a comparative basis for the periods
indicated, the components of Kitty Hawk's gross profit (in thousands) and the
gross profit margin by revenue type:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
---------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
AIR FREIGHT CARRIER:
Revenues.................................................. $28,285 100.0% $41,117 100.0% $52,922 100.0%
Costs of revenues......................................... 19,550 69.1 28,104 68.4 38,760 73.2
------- ----- ------- ----- ------- -----
Gross profit.............................................. $ 8,735 30.9% $13,013 31.6% $14,162 26.8%
======= ===== ======= ===== ======= =====
AIR LOGISTICS:
Revenues.................................................. $79,415 100.0% $62,593 100.0% $89,493 100.0%
Costs of revenues......................................... 73,402 92.4 57,428 91.7 80,140 89.5
------- ----- ------- ----- ------- -----
Gross profit.............................................. $ 6,013 7.6% $ 5,165 8.3% $ 9,353 10.5%
======= ===== ======= ===== ======= =====
</TABLE>

<TABLE>
<CAPTION>
FOUR MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- ---------------------------------
1995 1996 1996 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AIR FREIGHT CARRIER:
Revenues..................................... $17,994 100.0% $20,577 100.0% $39,615 100.0% $55,789 100.0%
Costs of revenues............................ 11,685 64.9 13,784 67.0 29,688 74.9 38,076 68.3
------- ----- ------- ----- ------- ----- ------- -----
Gross profit................................. $ 6,309 35.1% $ 6,793 33.0% $ 9,927 25.1% $17,713 31.7%
======= ===== ======= ===== ======= ===== ======= =====
AIR LOGISTICS:
Revenues..................................... $51,734 100.0% $39,408 100.0% $43,144 100.0% $45,878 100.0%
Costs of revenues............................ 45,997 88.9 33,796 85.8 39,139 90.7 42,038 91.6
------- ----- ------- ----- ------- ----- ------- -----
Gross profit................................. $ 5,737 11.1% $ 5,612 14.2% $ 4,005 9.3% $ 3,840 8.4%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>

43
<PAGE> 45

The following table presents, for the periods indicated, consolidated
income statement data expressed as a percentage of total revenues:

<TABLE>
<CAPTION>
FISCAL YEAR FOUR MONTHS NINE MONTHS
ENDED ENDED ENDED
AUGUST 31, DECEMBER 31, SEPTEMBER 30,
----------------------- -------------- --------------
1994 1995 1996 1995 1996 1996 1997
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Air freight carrier.................................... 26.3% 39.6% 37.2% 25.8% 34.3% 47.9% 54.9%
Air logistics.......................................... 73.7 60.4 62.8 74.2 65.7 52.1 45.1
----- ----- ----- ----- ----- ----- -----
Total revenues........................................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Total costs of revenues.................................. 86.3 82.5 83.5 82.7 79.3 83.2 78.8
----- ----- ----- ----- ----- ----- -----
Gross profit............................................. 13.7 17.5 16.5 17.3 20.7 16.8 21.2
General and administrative expenses...................... 5.6 7.6 6.4 4.1 4.5 8.3 7.4
Non-qualified profit sharing expense..................... 0.7 0.9 0.8 1.3 1.6 0.5 1.2
Stock option grants to executives........................ -- -- 3.0 -- -- 5.1 --
----- ----- ----- ----- ----- ----- -----
Operating income (loss).................................. 7.4 9.0 6.3 11.9 14.6 2.9 12.6
Interest expense......................................... (0.3) (1.1) (1.3) (0.7) (1.2) (1.9) (1.8)
Contract settlement income, net.......................... 1.1 -- -- -- -- -- --
Loss on asset disposal................................... -- -- (0.4) -- -- (0.7) --
Other income (expense)................................... (0.4) (0.6) 0.2 0.1 1.0 0.3 0.6
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes........................ 7.8 7.3 4.8 11.3 14.4 0.6 11.4
Income taxes............................................. 2.9 3.0 1.9 4.4 5.6 0.3 4.6
----- ----- ----- ----- ----- ----- -----
Net income (loss)........................................ 4.9% 4.3% 2.9% 6.9% 8.8% 0.3% 6.8%
===== ===== ===== ===== ===== ===== =====
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996

Revenues -- Air Freight Carrier. Air freight carrier revenues increased to
$55.8 million, or 40.8%, from $39.6 million for the nine months ended September
30, 1997 as compared to the nine months ended September 30, 1996 principally due
to an increase in fleet size. Air freight carrier on-demand and ACMI contract
charter revenues were $12 million and $42.4 million, or 21.5% and 76.1%,
respectively, of total air freight carrier revenues for the nine months ended
September 30, 1997, as compared to $14.1 million and $24.2 million, or 35.5% and
61.1%, respectively, for the nine months ended September 30, 1996. Revenues from
on-demand charters flown by Company aircraft for the nine months ended September
30, 1997 decreased 14.5% from the comparable prior year period due to aircraft
being shifted from on-demand to ACMI contract charter service, which is
consistent with Kitty Hawk's strategy of using more of its fleet in ACMI
business which produces relatively stable revenues. Prices for the Company's
on-demand and ACMI contract charters remained relatively constant.

Revenues -- Air Logistics. Air logistics revenues increased $2.7 million,
or 6.3%, to $45.9 million in the nine months ended September 30, 1997, from
$43.1 million in the nine months ended September 30, 1996. This increase was
primarily due to increased demand in the first and third quarters for on-demand
charters generally and specifically for charters that require larger aircraft,
which generate greater revenues. Prices for the Company's air logistics services
remained relatively constant. The number of on-demand charters managed decreased
964 charters, or 8.3%, to 10,640 for the nine months ended September 30, 1997
from 11,607 for the nine months ended September 30, 1996. This was principally
due to a strike at GM during the fourth quarter of 1996 and in the first nine
months of 1997.

Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $8.4 million or 28.3% to $38.1 million in the nine months
ended September 30, 1997, from $29.7 million in the nine months ended September
30, 1996, reflecting increased costs associated with increased fleet size and
additional ACMI contract charters. The gross profit margin from the air freight
carrier increased to 31.7% in the nine months ended September 30, 1997, from
25.1% in the nine months ended September 30, 1996. This increase was primarily
the result of lower maintenance costs resulting from operational efficiencies
associated with increased fleet size and lower depreciation costs resulting from
the sale of eight JT8D-9A engines.

44
<PAGE> 46

As reported to the FAA, overall aircraft utilization increased to 21,912
flight hours for the nine months ended September 30, 1997, from 15,628 in the
nine months ended September 30, 1996, a 40.2% increase. This increase was
primarily due to increased fleet size and hours flown for ACMI contract
charters.

Costs of Revenues -- Air Logistics. Air logistics costs of revenues
increased $2.9 million, or 7.4%, to $42 million in the nine months ended
September 30, 1997, from $39.1 million in the nine months ended September 30,
1996, reflecting an increased volume of business. The gross profit margin from
air logistics decreased to 8.4% in the nine months ended September 30, 1997,
from 9.3% in the comparable prior year period, a decrease of 9.7%. This decrease
was primarily due to increased rates paid to third party air freight carriers
which could not be passed on to customers due to established tariffs which are
paid by GM.

General and Administrative Expenses. General and administrative expenses
increased $673,000, or 9.8%, to $7.6 million in the nine months ended September
30, 1997, from $6.9 million in the nine months ended September 30, 1996. This
increase was primarily due to an increase in support functions and
administrative costs associated with the growth in the aircraft fleet and the
increased volume of business of the air freight carrier in the nine months ended
September 30, 1997. As a percentage of total revenues, general and
administrative expenses decreased to 7.4% in the nine months ended September 30,
1997, from 8.3% in the nine months ended September 30, 1996.

Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased $714,000, or 159.8%, to $1.2 million in the nine months ended
September 30, 1997, from $447,000 in the nine months ended September 30, 1996,
reflecting the increase of net income before taxes in the nine months ended
September 30, 1997.

Stock Option Grants to Executives. There was no stock option grant expense
during the nine months ended September 30, 1997. During the nine month period
ended September 30, 1996, the Company granted two executive officers options to
purchase 544,274 shares of Common Stock that resulted in a charge to earnings of
approximately $4,231,000.

Operating Income. As a result of the above, operating income increased
$10.5 million, or 440.3%, to $12.8 million in the nine months ended September
30, 1997, from $2.4 million in the nine months ended September 30, 1996.
Operating income margin increased to 12.6% in the nine months ended September
30, 1997, from 2.9% in the nine months ended September 30, 1996.

Interest Expense. Interest expense increased to $1.8 million for the nine
months ended September 30, 1997, as compared to $1.5 million for the nine months
ended September 30, 1996 due to an increase in long term debt associated with
financing major aircraft maintenance costs and the acquisition of 16 Boeing 727
aircraft from the Kalitta Companies in September 1997.

Loss on Asset Disposal. Loss on asset disposal during the nine months ended
September 30, 1996 was $589,000, which resulted from write-downs associated with
equipment dispositions.

Other Income (Expense). Other income increased to $579,000 in the nine
months ended September 30, 1997, from $263,000 in the comparable prior year
period. The increase was primarily due to increased interest income in the nine
months ended September 30, 1997 from the investment of proceeds from the
Company's initial public offering.

Income Taxes. Income taxes as a percentage of income before income taxes
decreased to 40% for the nine months ended September 30, 1997, from 51.7% for
the comparable prior year period. The decrease was primarily due to decreased
state income taxes.

Net Income. As a result of the above, net income increased to $7 million in
the nine months ended September 30, 1997, compared to $251,000 in the nine
months ended September 30, 1996. Net income as a percentage of total revenues
increased to 6.8% in the nine months ended September 30, 1997, from 0.3% in the
comparable prior year period.

45
<PAGE> 47

FOUR MONTHS ENDED DECEMBER 31, 1996 COMPARED TO FOUR MONTHS ENDED DECEMBER 31,
1995

Revenues -- Air Freight Carrier. Air freight carrier revenues increased to
$20.6 million, or 14.4%, from $18 million for the four months ended December 31,
1996 compared to the four months ended December 31, 1995, principally from an
increase in fleet size from 21 aircraft to 26 aircraft during the comparable
periods. Air freight carrier on-demand and ACMI contract charter revenues were
$3 million and $16.9 million, or 14.5% and 82.3%, respectively, of total air
freight carrier revenues for the four months ended December 31, 1996, as
compared to $7.8 million and $9.2 million, or 43.2% and 51.3%, respectively, for
the four months ended December 31, 1995. Revenues from on-demand charters flown
by Kitty Hawk aircraft for the four months ended December 31, 1996 decreased
61.6% from the comparable prior year period primarily as the result of Kitty
Hawk's strategy to use as many aircraft as possible under ACMI contracts, which
provide more stable, predictable revenues. Prices for Kitty Hawk's on-demand and
ACMI contract charters remained relatively constant.

Revenues -- Air Logistics. Air logistics revenues decreased $12.3 million,
or 23.8%, to $39.4 million in the four months ended December 31, 1996, from
$51.7 million in the four months ended December 31, 1995. This decrease was
primarily due to decreased demand for on demand charters from the automobile
industry in the fourth quarter of calendar year 1996 and is partially offset by
an increase in the number of managed charters for the U.S. Postal Service during
December 1996. Prices for Kitty Hawk's air logistics services remained
relatively constant.

Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $2.1 million, or 18%, to $13.8 million in the four months
ended December 31, 1996, from $11.7 million in the four months ended December
31, 1995, reflecting the increased volume of business from Boeing 727-200 ACMI
contract charters. Gross profit margin from the air freight carrier decreased to
33% in the four months ended December 31, 1996, from 35.1% in the comparable
prior year period. This decrease reflects the increase in ACMI contract
charters, which produce lower gross margins than on-demand charters.

As reported to the FAA, overall aircraft utilization increased to 7,670
flight hours for the four months ended December 31, 1996, from 6,320 in the four
months ended December 31, 1995, a 21.4% increase. This increase was primarily
due to the increased hours flown for ACMI contract charters.

Costs of Revenues -- Air Logistics. Air logistics costs of revenues
decreased $12.2 million, or 26.5%, to $33.8 million in the four months ended
December 31, 1996, from $46 million in the four months ended December 31, 1995,
reflecting the decreased volume of business. The gross profit margin from air
logistics increased to 14.2% in the four months ended December 31, 1996, from
11.1% in the comparable prior year period, an increase of 27.9%. This increase
was primarily due to Kitty Hawk's additional revenues and increased gross profit
margin from the U.S. Postal Service Christmas contract in December 1996 and
Kitty Hawk's success in reducing its costs paid to third party air freight
carriers and ground service providers.

General and Administrative Expenses. General and administrative expenses
decreased $137,000, or 4.8%, to $2.7 million in the four months ended December
31, 1996, from $2.9 million in the four months ended December 31, 1995. This
decrease was primarily due to a reduction of professional fees and bank charges
in the four months ended December 31, 1996. As a percentage of total revenues,
general and administrative expenses increased to 4.5% in the four months ended
December 31, 1996, from 4.1% in the four months ended December 31, 1995.

Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased $73,000, or 8.2%, to $962,000 in the four months ended
December 31, 1996, from $889,000 in the four months ended December 31, 1995,
reflecting the increased profitability from operating activities of Kitty Hawk
in the four months ended December 31, 1996.

Operating Income. Operating income increased $423,000, or 5.1%, to $8.7
million in the four months ended December 31, 1996, from $8.3 million in the
four months ended December 31, 1995. Operating income margin increased to 14.6%
from 11.9%, for the four months ended December 31, 1996 and 1995, respectively.

46
<PAGE> 48

Interest Expense. Interest expense increased to $684,000 for the four
months ended December 31, 1996 from $482,000 in the four months ended December
31, 1995, a 42% increase. The increase was primarily the result of the
incurrence of additional long-term debt to finance the acquisition of Boeing
727-200 aircraft subsequent to December 31, 1995.

Other Income (Expense). Other income increased to $626,000 in the four
months ended December 31, 1996, from $38,000 in the comparable prior year
period. The increase was primarily due to the temporary investment of the net
proceeds of Kitty Hawk's initial public offering.

Income Taxes. Income taxes as a percentage of income before income taxes
decreased to 38.9% for the four months ended December 31, 1996, from 39.4% for
the comparable prior year period. The decrease was primarily due to decreased
state income taxes.

Net Income. As a result of the above, net income increased to $5.3 million
in the four months ended December 31, 1996, from $4.8 million in the four months
ended December 31, 1995, a 11.3% increase. Net income as a percentage of total
revenues increased to 8.8% in the four months ended December 31, 1996, from 6.9%
in the comparable prior year period.

FISCAL YEAR ENDED AUGUST 31, 1996 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1995

Revenues -- Air Freight Carrier. Air freight carrier revenues increased
$11.8 million or 28.7% from $41.1 million for fiscal year 1995 to $52.9 million
for fiscal year 1996. Air freight carrier on-demand and ACMI contract charter
revenues were $20.7 million and $30.1 million, or 39.2% and 56.8%, respectively,
of total air freight carrier revenues for fiscal year 1996, as compared to $18.1
million and $20.9 million, or 44.2% and 50.8%, respectively, for fiscal year
1995. Revenues from on-demand charters flown by Kitty Hawk aircraft for fiscal
year 1996 increased 14% from the prior year. The increase in ACMI revenues of
$9.2 million from 1995 to 1996 was principally due to Kitty Hawk's strategy to
increase its Boeing 727 fleet and dedicate more aircraft to ACMI contract
service. Prices for Kitty Hawk's on-demand and ACMI contract charters remained
relatively constant.

Revenues -- Air Logistics. Air logistics revenues increased $26.9 million,
or 43%, to $89.5 million in fiscal year 1996, from $62.6 million in fiscal year
1995. This increase was primarily due to increased demand for on demand charters
from the automobile industry in the fourth quarter of calendar year 1995 and a
substantial increase in the number of managed charters for the U.S. Postal
Service during December 1995. Prices for Kitty Hawk's air logistics services
remained relatively constant.

Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $10.7 million, or 37.9%, to $38.8 million in fiscal year
1996, from $28.1 million in fiscal year 1995, reflecting the increased volume of
business from Boeing 727-200 ACMI contract charters. Gross profit margin from
the air freight carrier decreased to 26.8% in fiscal year 1996, from 31.6% in
the comparable prior year period. This decrease reflects the increase in ACMI
contract charters, which produce lower gross margins than on-demand charters.

As reported to the FAA, overall aircraft utilization increased to 20,237
flight hours for fiscal year 1996, from 15,183 in fiscal year 1995, a 33.3%
increase. This increase was primarily due to the increased hours flown for ACMI
contract charters.

Costs of Revenues -- Air Logistics. Air logistics costs of revenues
increased $22.7 million, or 39.5%, to $80.1 million in fiscal year 1996, from
$57.4 million in fiscal year 1995, reflecting the increased volume of business.
The gross profit margin from air logistics increased to 10.5% in fiscal year
1996, from 8.3% in the comparable prior year period, a 26.5% increase. This
increase was primarily due to Kitty Hawk's success in reducing its costs paid to
third party air freight carriers and ground service providers and increased
gross profit margin from the U.S. Postal Service Christmas contract in December
1995.

General and Administrative Expenses. General and administrative expenses
increased $1.2 million, or 15.9%, to $9.1 million in fiscal year 1996, from $7.8
million in fiscal year 1995. This increase was primarily due to an increase in
support functions and administrative costs associated with the growth in the
aircraft fleet and

47
<PAGE> 49

the increased revenue volume for the air freight carrier in fiscal year 1996. As
a percentage of total revenues, general and administrative expenses decreased to
6.4% in fiscal year 1996, from 7.6% in fiscal year 1995.

Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased $169,000, or 16.9%, to $1.2 million in fiscal year 1996, from
$1 million in fiscal year 1995, reflecting the increased profitability from
operating activities of Kitty Hawk in fiscal year 1996.

Stock Option Grants to Executives. During fiscal year 1996, Kitty Hawk
granted two executive officers options to purchase 544,274 shares of Common
Stock that resulted in a charge to earnings of approximately $4,231,000.

Operating Income. Operating income decreased $311,000, or 3.3%, to $9
million in fiscal year 1996, from $9.3 million in fiscal year 1995. Operating
income margin decreased to 6.3% from 9%, for fiscal year 1996 and 1995,
respectively.

Interest Expense. Interest expense increased to $1.9 million for fiscal
year 1996 from $1.2 million in fiscal year 1995, a 56.9% increase. The increase
was primarily the result of the incurrence of additional long-term debt to
finance the acquisition of two Boeing 727-200 aircraft in the second half of
fiscal year 1995 and two additional Boeing 727-200 aircraft in fiscal year 1996.

Loss on Asset Disposal. Loss on asset disposal for fiscal year 1996 was
$589,000, which resulted from write-downs associated with equipment
dispositions. There were no losses on asset disposal in fiscal year 1995.

Other Income (Expense). Other income increased to $291,000 in fiscal year
1996, from an expense of $601,000 in the comparable prior year period. The
increase was primarily due to the write-off of costs associated with Kitty
Hawk's attempted initial public offering in fiscal year 1995 and increased
interest income in fiscal year 1996.

Income Taxes. Income taxes as a percentage of income before income taxes
decreased to 40.3% for fiscal year 1996, from 41.6% for the comparable prior
year period. The decrease was primarily due to decreased state income taxes.

Net Income. As a result of the above, net income decreased to $4.1 million
in fiscal year 1996, from $4.4 million in fiscal year 1995, a 7% decrease. Net
income as a percentage of total revenues decreased to 2.9% in fiscal year 1996,
from 4.3% in the comparable prior year period.

FISCAL YEAR ENDED AUGUST 31, 1995 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1994

Revenues -- Air Freight Carrier. Air freight carrier revenue increased
$12.8 million, or 45.4% from $28.3 million for fiscal year 1994 to $41.1 million
for fiscal year 1995, principally as a result of an increase in the fleet size
from 15 to 21 aircraft for the same period. Air freight carrier on-demand and
ACMI contract charter revenues were $18.1 million and $20.9 million, or 44.2%
and 50.8%, respectively, of total air freight carrier revenues for fiscal year
1995, as compared to $15.4 million and $10.6 million, or 54.5% and 37.4%,
respectively, for fiscal year 1994. The increase in on-demand and ACMI contract
charter revenues for fiscal year 1995 over fiscal year 1994, was 17.9% and
97.1%, respectively. The increase in ACMI revenues of $10.3 million from 1994 to
1995 was principally due to Kitty Hawk's strategy to increase its Boeing 727
fleet and dedicate more aircraft to ACMI contract service. Prices for Kitty
Hawk's ACMI contract charter services and U.S. Postal Service Christmas
contracts remained relatively constant.

Revenues -- Air Logistics. Air logistics revenues decreased $16.8 million,
or 21.2%, to $62.6 million in fiscal year 1995 from $79.4 million in fiscal year
1994 primarily due to the substantial decline in volume of on-demand charters
for the automobile industry in the first half of calendar 1995 as compared to
the same period in 1994. This decline was primarily the result of the temporary
decision by GM to significantly reduce use of expedited transportation,
including Kitty Hawk's air logistics services, as part of a cost containment
initiative. Prices for Kitty Hawk's on-demand charters decreased slightly due to
a rate reduction in the GM Agreement which took effect on May 1, 1994.

48
<PAGE> 50

Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $8.6 million, or 43.8%, to $28.1 million in fiscal year 1995
from $19.5 million in fiscal year 1994, reflecting the increased volume of
business from ACMI contract and on-demand charters flown by Kitty Hawk's jet
aircraft. Gross profit margin from the air freight carrier increased slightly to
31.6% in fiscal year 1995 from 30.9% in fiscal year 1994, a 2.3% increase. As
reported to the FAA, overall aircraft utilization increased to 15,183 flight
hours for fiscal year 1995 from 11,795 flight hours in fiscal year 1994, a 28.7%
increase. This increase was primarily the result of the inclusion of an
additional four Boeing 727-200s and two Douglas DC-9-15F aircraft into Kitty
Hawk's operations during fiscal year 1995.

Costs of Revenues -- Air Logistics. Air logistics costs of revenues
decreased $16 million, or 21.8%, to $57.4 million in fiscal year 1995 from $73.4
million in fiscal year 1994, reflecting the decrease in the volume of business.
The gross profit margin from air logistics increased to 8.3% in fiscal year 1995
from 7.6% in fiscal year 1994, a 9.2% increase. This increase was primarily due
to Kitty Hawk's success in reducing its costs paid to third party air freight
carriers and ground service providers in the second half of fiscal year 1995.

General and Administrative Expenses. General and administrative expenses
increased $1.8 million, or 30.3%, to $7.8 million in fiscal year 1995 from $6
million in fiscal year 1994. As a percentage of total revenues, general and
administrative expenses increased to 7.6% in fiscal year 1995 from 5.6% in
fiscal year 1994. This increase was primarily due to an increase in support
functions and number of personnel associated with the growth in the aircraft
fleet and the revenue volume for the air freight carrier in fiscal year 1995.

Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased to $1 million in fiscal year 1995 from $732,000 in fiscal year
1994, a 36.8% increase, reflecting the increased profitability from operating
activities of Kitty Hawk in fiscal year 1995.

Operating Income. Operating income increased $1.3 million, or 16.8%, to
$9.3 million in fiscal year 1995 from $8 million in fiscal year 1994. Operating
income margin increased to 9% from 7.4% for fiscal year 1995 and 1994,
respectively.

Interest Expense. Interest expense increased to $1.2 million for fiscal
year 1995 from $343,000 in fiscal year 1994, a 246% increase. The increase was
primarily the result of the incurrence of additional long-term debt to finance
the acquisition of two Boeing 727-200 aircraft in the second half of fiscal year
1994 and two Douglas DC-9-15F aircraft and two Boeing 727-200 aircraft in fiscal
year 1995.

Other Income (Expense). Other expense increased to $601,000 in fiscal year
1995 from $432,000 in fiscal year 1994, a 39.1% increase. This increase was
primarily due to the write off of costs associated with Kitty Hawk's attempted
initial public offering.

Income Taxes. Income taxes as a percentage of income before income taxes
increased to 41.6% for fiscal year 1995 from 37.4% in fiscal year 1994. The
increase was primarily due to higher state income taxes.

Net Income. As a result of the above, net income decreased to $4.4 million
for fiscal year 1995 from $5.3 million in fiscal year 1994, a 16% decrease. Net
income as a percentage of total revenues was 4.3% in fiscal year 1995 compared
to 4.9% for fiscal year 1994.

OVERVIEW OF THE KALITTA COMPANIES

Revenues. The Kalitta Companies derive their revenues primarily from two
types of services: air freight carrier services and third party maintenance.
During the past three years, the Kalitta Companies' revenues increased at a
compound annual rate of 29.5% to $424.5 million in 1996 from $200.1 million in
1993. The Kalitta Companies revenue growth has been substantially the result of
new scheduled freight contracts and an increase in aircraft capacity.

Revenues from air freight carrier services are derived from three sources
(i) scheduled cargo services, (ii) on-demand cargo charter services, and (iii)
passenger charter services.

Scheduled cargo services are generally utilized by other airlines and
freight forwarders. These services range in type from a commitment by the
Kalitta Companies to transport freight on its scheduled freight routes

49
<PAGE> 51

to the lease of the entire capacity of one or more aircraft with crew, also
known as a "wet-lease." Also included in scheduled cargo services is revenue
generated from the Kalitta Companies' overnight freight service operating within
a network of 45 North American cities, and from the Kalitta Companies'
consolidated 60% partnership interest in American International Cargo ("AIC"),
which flies scheduled routes from the West Coast of the United States to the
Pacific Rim.

On-demand cargo services are derived from single trip or short-term
airfreight customers. Customers may be charged in one of two ways, (i) an
"all-inclusive" flat fee on the basis of the aircraft type and number of miles
to be flown, or, (ii) the customer may charter the aircraft on an ACMI basis
where the customer pays a negotiated rate for each "block hour" during which the
aircraft is operating under its own power. This rate covers the cost to operate
the aircraft, including crew, the cost of scheduled maintenance, insurance and
ground support. Additional fees may be applicable for such costs as fuel,
handling and ramp fees, customs support and ground transport.

With both scheduled and contract services, operating costs such as fuel,
landing rights and cargo handling are either (i) paid directly by the customer
or (ii) included in the contract price and paid by the Kalitta Companies.

Revenues from passenger charter services consist principally of
arrangements with tour operators for the transport of leisure travelers to
domestic and international locations. The tour operators generally pay a fixed
price for the use of the aircraft and assume the risk for both the sale of seats
and any increase in fuel prices after a date fixed in the contract.

Revenues from third party maintenance services are generated from engine,
airframe and component repairs and overhauls provided to third parties.

Operating Expenses. Operating expenses consist of flight expenses,
maintenance, fuel, depreciation and selling, general and administrative ("SG&A")
expenses. Flight expenses are comprised principally of salaries and benefits for
crews and other flight related personnel, hull and liability insurance of
aircraft, aircraft and engine lease expense, crew travel and meal expenses, crew
training costs, navigational expenses and other expenses necessary to conduct
flight operations. Flight expenses attributable to crew salaries and benefits
are particularly sensitive to crew utilization. Crews are guaranteed a fixed
salary based upon 60 block hours per month. To the extent they actually fly less
than 60 hours, the expense attributable to the fixed portion of their salaries
is not offset by revenue. Crew utilization is measured by the actual hours flown
as a percentage of the crew member's 60-hour guaranty. Flight expenses also
include aircraft lease, or subcharter, expense incurred to lease or charter
aircraft from other airlines, as well as costs associated with the Kalitta
Companies' ground handling and flight planning operations.

Flight expenses associated with scheduled and charter services, such as
landing and parking fees and overflight fees are either paid directly by the
Kalitta Companies' customer or billed to the customer on a direct pass-through
basis. Pass-through expenses are offset by an equal amount of revenue derived
from inclusion of those expenses in the aggregate amount charged to the
customer.

Maintenance expenses are comprised principally of labor, parts and supplies
associated with the maintenance, repair and overhaul of the Kalitta Companies'
aircraft and engines and maintenance services provided by others. Costs
associated with major maintenance checks have been expensed when incurred. Kitty
Hawk capitalizes the costs of major maintenance checks and, after the Merger,
the Kalitta Companies' policies will be adjusted to conform with Kitty Hawk's
policies. Costs associated with the modification of aircraft from passenger to
freight capacity are capitalized when incurred and amortized over their expected
useful lives, ranging from 7 to 14 years, depending on the type of aircraft.
Maintenance expenses also include the cost of sales associated with third party
maintenance revenues.

Fuel expenses are comprised principally of fuel costs associated with the
Kalitta Companies' scheduled and chartered cargo and passenger services. Fuel
costs are either paid directly by the Kalitta Companies' customer or billed to
the customer on a direct pass-through basis and are offset by an equal amount of
revenue derived from inclusion of the fuel expense in the total price paid by
the customer.

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<PAGE> 52

Depreciation expenses are comprised principally of depreciation on
aircraft, aircraft components and ground equipment and the amortization of
capitalized airframe modifications and repairs.

SG&A expenses are comprised principally of salaries and benefits for sales,
administrative, accounting and information system personnel and corporate
executives. Also included in administrative expenses are commissions paid to
third party sales agents, advertising and marketing expenses and legal expenses.

RESULTS OF OPERATIONS OF THE KALITTA COMPANIES

The following table sets forth, on a comparative basis for the periods
indicated, the components of the Kalitta Companies' gross profit (in thousands)
and the gross profit margin by revenue type:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1995 1996
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Air freight carrier services:
Revenues........................ $298,081 100.0% $359,404 100.0% $388,193 100.0%
Costs of revenues............... 247,023 82.9 338,538 94.2 357,830 92.2
-------- ----- -------- ----- -------- -----
Gross profit.................... $ 51,058 17.1% $ 20,866 5.8% $ 30,363 7.8%
======== ===== ======== ===== ======== =====
Maintenance and other:
Revenues........................ $ 7,449 100.0% $ 14,279 100.0% $ 36,348 100.0%
Costs of revenues............... 4,484 60.2 9,135 64.0 22,316 61.4
-------- ----- -------- ----- -------- -----
Gross profit.................... $ 2,965 39.8% $ 5,144 36.0% $ 14,032 38.6%
======== ===== ======== ===== ======== =====
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
1996 1997
----------------- -----------------
<S> <C> <C> <C> <C>
Air freight carrier services:
Revenues............................................ $275,212 100.0% $302,345 100.0%
Costs of revenues................................... 256,232 93.1 297,968 98.6
-------- ----- -------- -----
Gross profit........................................ $ 18,980 6.9% $ 4,377 1.4%
======== ===== ======== =====
Maintenance and other:
Revenues............................................ $ 25,801 100.0% $ 23,299 100.0%
Costs of revenues................................... 14,727 57.1 17,235 74.0
-------- ----- -------- -----
Gross profit........................................ $ 11,074 42.9% $ 6,064 26.0%
======== ===== ======== =====
</TABLE>

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<PAGE> 53

The following table presents, for the periods indicated, consolidated
income statement data expressed as a percentage of total revenues:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
REVENUES:
Air freight carrier services...... 97.6% 96.2% 91.4% 91.4% 92.8%
Maintenance and other............. 2.4 3.8 8.6 8.6 7.2
----- ----- ----- ----- -----
Total revenues...................... 100.0 100.0 100.0 100.0 100.0
OPERATING EXPENSES:
Flight............................ 37.8 45.2 35.4 35.5 38.8
Maintenance....................... 21.2 27.7 27.1 27.1 33.0
Fuel.............................. 18.8 14.6 19.5 19.4 16.9
Depreciation...................... 4.5 5.6 7.6 8.0 8.1
Selling, general and
administrative................. 4.3 5.8 5.2 5.1 5.5
Provision for doubtful accounts... 0.7 0.5 0.2 0.8 0.5
----- ----- ----- ----- -----
Total operating expenses............ 87.3 99.4 95.0 95.9 102.8
----- ----- ----- ----- -----
Operating income (loss)............. 12.7 0.6 5.0 4.1 (2.8)
----- ----- ----- ----- -----
OTHER INCOME (EXPENSE):
Interest expense, net............. (2.6) (3.9) (5.1) (5.2) (6.1)
Other income net.................. 0.9 5.3 0.3 0.5 --
----- ----- ----- ----- -----
Total other income (expense)........ (1.7) 1.4 (4.8) (4.7) (6.1)
----- ----- ----- ----- -----
Income (loss) before minority
interest.......................... 11.0 2.0 0.2 (0.6) (8.9)
Minority interest................... (0.9) (0.8) (0.2) (0.3) (0.6)
----- ----- ----- ----- -----
Net income (loss)(1)................ 10.1% 1.2% 0.0% (0.9)% (9.5)%
===== ===== ===== ===== =====
</TABLE>

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

(1) Prior to the Merger, the Kalitta Companies filed income tax returns under
Subchapter S of the U.S. Federal Income Tax Code. Therefore, all taxable
income or losses of each of the Kalitta Companies have passed through to the
sole shareholder of the Kalitta Companies.

NINE MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996

Revenues. Revenues increased $24.6 million, or 8.2%, to $325.6 million in
the first nine months of 1997 as compared to $301 million in the first nine
months of 1996. This increase reflected the average number of aircraft available
to the Kalitta Companies in the first nine months of 1997, including two
Lockheed L-1011-200s (which were modified from passenger to freighter
configuration), one Boeing 727-200 freighter and one Douglas DC-8-50 freighter.

Air freight carrier service revenue increased $27.1 million, or 9.8%, to
$302.3 million in the first nine months of 1997 from $275.2 million in the first
nine months of 1996. This increase resulted from four factors. First, the
addition of a Lockheed L-1011-200 freighter in late 1996 on the Los
Angeles-Honolulu route for AIC. Second, the Kalitta Companies realized the full
period effect of contract charter flights into and out of Brazil and Columbia,
which commenced late in the second quarter of 1996 when the Kalitta Companies
were awarded operating authority for these countries. Third, the Kalitta
Companies recognized the full period effect of passenger revenues in 1997, which
commenced in the fourth quarter of 1996. Fourth, the Kalitta Companies
experienced an increase in the number of customers serviced in on-demand cargo
services.

Offsetting these increases, however, was (i) a decline in revenue generated
from flights operated for the U.S. Military, (ii) a reduction in the number of
aircraft operated by the Kalitta Companies for Burlington and (iii) a reduction
in the number of aircraft leased to DHL Airways, Inc. The decline in revenues
from the U.S. Military occurred because of increased competition for this
business, as well as an increase in contract

52
<PAGE> 54

awards to airlines able to provide both freight and passenger service, the
latter of which the Kalitta Companies were not qualified to provide to the U.S.
Military. The Kalitta Companies expect to become eligible to operate passenger
charters for the U.S. Military in December 1997.

Third party maintenance and other revenue decreased $2.5 million, or 9.7%,
to $23.3 million in the first nine months of 1997 from $25.8 million in the
first nine months of 1996. The Kalitta Companies increased third-party engine
maintenance work during the second half of 1996 as a result of new contracts
with Lufthansa and International Turbine which terminated in the first half of
1997.

Operating Expenses. Operating expenses increased by $46 million, or 15.9%,
to $334.7 million in the first nine months of 1997 from $288.7 million in the
same period in 1996. As a percent of revenues, operating expenses increased to
102.8% for the first nine months of 1997 from 95.9% in the same period in 1996.
Flight expenses increased $19.2 million, or 17.9%, to $126.2 million for the
first nine months of 1997 from $107 million in the same period in 1996. The
increase was due primarily to (i) an increase in crew labor and training costs,
(ii) increased subcharter expense and (iii) an increase in the overall level of
operating activity. Crew labor and training costs increased and average crew
utilization dropped to approximately 47% in the first nine months of 1997
compared to approximately 53% in the prior year period, primarily as a result of
an increased number of crews hired and trained in advance of anticipated
increased levels of flight activity which did not materialize in part due to
delays in acquiring aircraft. Expenses also increased because the Kalitta
Companies were forced to subcharter three aircraft from third parties in order
to meet service commitments during periods of unscheduled maintenance on their
aircraft.

Maintenance expenses increased $25.8 million, or 31.6%, to $107.4 million
in the first nine months of 1997 from $81.6 million in the first nine months of
1996. Maintenance expenses increased as a percentage of revenues to 33% from
27.1%. The increase was primarily attributable to (i) engine repairs beginning
in August 1996 relating to a Directive affecting the RB211 engines that power
Lockheed L-1011 aircraft and unanticipated repairs and overhauls on the JT3, JT8
and JT9 engines, (ii) start-up costs associated with the preparation of two
Lockheed L-1011 aircraft to initiate the Company's wide-body passenger charter
service, (iii) a substantial increase in the number of aircraft serviced at the
Oscoda maintenance facility and the related costs of components and aircraft
parts and (iv) the addition of personnel required to perform the increased
levels of aircraft maintenance and repair in the Kalitta Companies' facilities.

Fuel costs decreased $3.3 million, or 5.7%, to $55.1 million for the nine
months ended September 30, 1997 as compared to $58.4 million in the same period
in 1996. This decrease was attributable to a drop in the amount of charter
activity for the U.S. Military. The Kalitta Companies' contracts with the U.S.
Military include the cost of fuel in the contract price. Consequently, fuel
expense is directly offset by revenue attributable to the fuel cost portion of
the contract price.

Depreciation expense increased $2.5 million, or 10.4%, to $26.5 million for
the nine months ended September 30, 1997 from $24 million for the comparable
period in 1996, primarily as a result of the average number of aircraft in the
Kalitta Companies' fleet during the latter part of 1996 and in 1997.

Selling, general and administrative expenses increased $2.4 million, or
15.6%, to $17.8 million in the nine months ended September 30, 1997 from $15.4
million in the same period in 1996, primarily due to increased payroll related
costs. The expansion of maintenance operations and increases in overall activity
generated the need for increased support personnel in the areas of information
systems, human resources and sales and marketing. In addition, the Kalitta
Companies experienced an increase in fees associated with its indebtedness over
the latter part of 1996 and into the first nine months of 1997.

As a result of the above factors, the Kalitta Companies experienced an
operating loss of $9 million during the nine months ended September 30, 1997
compared to operating income of $12.3 million during the nine months ended
September 30, 1996.

Other Income (Expense). Net interest expense increased $3.9 million, or
24.7%, to $19.7 million in the nine months ended September 30, 1997 from $15.8
million in the nine months ended September 30, 1996. The increase was due to
increased borrowings relating to the acquisition of new aircraft and ground
support

53
<PAGE> 55

equipment, as well as increased borrowings under the Kalitta Companies'
revolving credit line. The average interest rate on the Kalitta Companies'
borrowings increased to 9.3% from 9.1% in the prior year period.

Gain on disposition of property and equipment, net, increased $0.2 million
to $0.6 million for the nine months ended September 30, 1997 as compared to $0.4
million for the first nine months of 1996. The increase resulted from the sale
of one Boeing 727-100 passenger aircraft in January 1997.

Gain on contract termination decreased $1.2 million for the nine months
ended September 30, 1997 as compared to the nine months ended September 30, 1996
due to the cancellation of an operating agreement between the Kalitta Companies
and a third party. Under the settlement agreement, rent was waived for the
Kalitta Companies through the end of the original lease term resulting in a gain
to the Kalitta Companies.

Gain on insurance reimbursement increased $0.5 million in the nine months
ended September 30, 1997 as compared to the nine months ended September 30, 1996
due to a Boeing 747-200 freighter aircraft sustaining damage from a hard
landing. The Kalitta Companies used its own maintenance capabilities to complete
the repairs to the aircraft and incurred costs less than originally anticipated.
Consequently, the excess of the insurance proceeds received resulted in a gain
in the nine months ended September 30, 1997.

Merger-related costs increased to $1.3 million for the nine months ended
September 30, 1997. These expenses represent legal and accounting fees incurred
in connection with the Transactions and the sale of 16 Boeing 727s to Kitty
Hawk.

Minority Interest. Minority interest represents the earnings attributable
to the 40% of AIC owned by a third party. Minority interest increased $1 million
to $1.9 million for the first nine months of 1997, as compared to $0.9 million
for the same period in 1996. The increase is attributable to higher earnings at
AIC resulting from the addition of a Lockheed L-1011 aircraft to the Los
Angeles-Honolulu route and the achievement of better yields in the inter-island
service in Hawaii.

YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenues. Revenues increased $50.8 million, or 13.6%, to $424.5 million in
1996 from $373.7 million in 1995. This was due to an increase in scheduled cargo
revenues and to an increase in the average number of aircraft available. In
1996, the Kalitta Companies added four Lockheed L-1011s, three Boeing 727s, one
DC-8-50 and three additional Hansa aircraft to their fleet.

Air freight carrier service revenues increased $28.8 million, or 8%, to
$388.2 million in 1996 from $359.4 million in 1995. This increase was due to
four factors. First, the Kalitta Companies increased the number of cities served
by its overnight cargo service and introduced a second-day product. Second, AIC
introduced inter-island flights in the Hawaiian Islands in December 1995, and
added a second Lockheed L-1011 to its Los Angeles-Honolulu route. Third, the
Kalitta Companies obtained new contract work for International Air Charter,
AeroFloral and Fast Air, as well as additional charter work for the U.S.
Military. Fourth, passenger charter revenues increased as a result of the
Kalitta Companies decision to enter the passenger charter market for leisure
travel in the fourth quarter of 1996.

Offsetting these increases was a decrease in revenues due to the loss of
the U.S. Postal Service (the "Postal Service") Christmas Network ("CNET")
contract. In 1995, the Kalitta Companies' revenues from CNET were approximately
$42.9 million, $4.1 million of which represented fuel and other charges passed-
through to the Postal Service and booked by the Kalitta Companies as an expense.

Third party maintenance revenue increased $22 million or 153.8%, to $36.3
million in 1996 from $14.3 million in 1995. This is due to engine maintenance
contracts with Lufthansa and Spirit Airlines which were executed in 1996, as
well as increased activity for the Kalitta Companies' small engine maintenance
division because of continuous expansion of its customer base and the business
failure of a competitor.

Operating Expenses. As a percentage of total revenues, operating expenses
decreased to 95% of revenues in 1996 from 99.4% in 1995. This decrease was
largely due to the costs to hire and train flight and maintenance crews in 1995
in anticipation of the expansion of the Kalitta Companies' fleet in 1995.

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Flight expenses decreased $18.5 million, or 11%, to $150.3 million in 1996
from $168.8 million in 1995. The operation of additional aircraft in the latter
part of 1995 with crews hired and trained in 1995 caused crew utilization in
1996 to increase to 52%, as compared to 44% in 1995. As a consequence, the
Kalitta Companies were able to better absorb labor and benefit costs associated
with these crews in 1996 than in 1995. Training costs associated with the
reduction in the average number of crews decreased $0.4 million in 1996, as
compared to 1995. Flight expenses also decreased because (i) the Kalitta
Companies lost the 1996 CNET contract to Kitty Hawk which eliminated costs
associated with the subcharter in 1995 of several aircraft required to fulfill
the contract, (ii) the Kalitta Companies purchased a Boeing 747 freighter in
June of 1996 that it had been leasing and (iii) subcharter expense for KFS
decreased $1.6 million in 1996 as compared to 1995 because of an increase in
available aircraft. These decreases were offset by increases in revenue related
costs such as parking, air navigation and landing fees and ground handling costs
resulting from increased flight activity in 1996 as compared to 1995.

Maintenance expense increased $11.7 million, or 11.3%, to $115.1 million in
1996 from $103.4 million in 1995. The increase was due to extensive engine
maintenance and overhaul costs incurred in 1996 as compared to 1995 and, in
part, as a consequence, an increase in employee-related maintenance costs. The
increase was partially offset by a decrease in both maintenance work performed
for the Kalitta Companies by outside parties and in the number of contract
laborers which had both been used in 1995 to complete significant maintenance
checks on a number of the Kalitta Companies' aircraft.

Fuel costs increased $28.2 million, or 51.7%, to $82.7 million in 1996 from
$54.5 million in 1995 because of an increase in charter activity for the U.S.
Military, increased flight activity for on-demand charters, and fuel price
increases during the latter half of 1996. This increase, however, did not have
as significant an effect on the Kalitta Companies' results of operations because
the increased fuel costs were included in the charges to customers and booked as
revenues which offsets fuel expense.

Depreciation expense increased $11.1 million, or 53%, to $32.1 million in
1996, as compared to $21 million in 1995 due to an increase in the number of
aircraft brought into the Kalitta Companies' fleet during the latter part of
1995 and present during all of 1996.

Selling, general and administrative expenses increased $0.2 million, or 1%,
to $21.9 million in 1996 from $21.7 million in 1995. This increase was
attributable to increases in administrative payroll related costs during 1996
over 1995.

Other Income (Expense). Interest expense net increased $6.9 million, or
46.7%, to $21.6 million in 1996 from $14.7 million in 1995, due to an increase
in indebtedness relating to the acquisition of aircraft and ground support
equipment and to an increase in the Kalitta Companies' revolving credit line.
Gain on disposition of property and equipment, net, decreased to $0.1 million
for 1996 from $11.7 million for 1995. The net gain in 1995 mainly represents the
sale of an aircraft engine, four Boeing 727-200 freighter aircraft, one Beech
aircraft, one Boeing 727-200 passenger aircraft and one Douglas DC-8-50
freighter aircraft.

Minority Interest. Minority interest in AIC decreased $2 million, or 64.5%,
to $1.1 million in 1996 from $3.1 million in 1995. This decrease was due to
increased costs associated with additional aircraft service, the start-up of
inter-island service in Hawaii and an increase in cost for the use of aircraft.

YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO YEAR ENDED DECEMBER 31, 1994

Revenues. Revenues increased $68.2 million, or 22.3%, to $373.7 million in
1995 from $305.5 million in 1994. This was due to new contract cargo business
and additional aircraft capacity resulting from the completion of modification
from passenger to freighter configuration of 13 aircraft acquired by the Kalitta
Companies from late 1994 through the end of 1995, including one Lockheed
L-1011-200, one Douglas DC-8 and 11 Boeing 727-200s. KFS also added three
aircraft to its fleet in 1995.

Air freight carrier service revenues increased $61.3 million, or 20.6%, to
$359.4 million in 1995 from $298.1 million in 1994. This increase was due
primarily to three factors. First, an increase in the number of cities serviced
during 1995 over 1994 as well as an overall increase in lift capacity resulting
from both an increase in the average number of aircraft operated per night by
AIA and a change in the mix of the types of

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aircraft used by the Kalitta Companies. Second, the impact of the full year
effect of AIC's service to Australia which commenced in the third quarter of
1994 led to increased revenues along with the addition by AIC of a weekend round
trip between San Francisco and Honolulu in 1995. Third, six new contracts for
which a majority of the revenues were realized in 1995, as well as AIA's 1995
CNET contract for the Postal Service during the holiday season led to increased
revenues.

Offsetting these increases were decreases in revenues generated in 1995
from flights for the U.S. Military as compared to 1994.

Third party maintenance revenue increased $6.9 million or 93.2%, to $14.3
million in 1995 from $7.4 million in 1994. This was due to an increase in
maintenance work for third parties.

Operating Expenses. As a percentage of total revenues, operating expenses
increased to 99.4% of revenues in 1995 from 87.3% in 1994. Most of the increase
resulted from the cost to hire and train flight and maintenance crews in
connection with the expansion of the Kalitta Companies' fleet of aircraft with
Boeing 747-200, Lockheed L-1011 and Boeing 727-200 freighters. Also contributing
to the increased percentage of costs to revenue during 1995 was the one-time
cost associated with the relocation of hub operations from Ypsilanti, Michigan
to Terre Haute, Indiana in May 1995 at a cost of $2.6 million. The Kalitta
Companies made the move to overcome operating restrictions at Willow Run Airport
in Ypsilanti, Michigan relating to adverse weather conditions and inadequate
facilities.

Flight expenses increased $53.2 million, or 46%, to $168.8 million in 1995,
as compared to $115.6 million in 1994. In anticipation of the expansion of its
fleet, the Kalitta Companies increased its number of pilots by an average of 182
pilots, a 54% increase. Because not all of the new aircraft for which these
pilots had been hired had yet been acquired or were still in modification, crew
utilization for 1995 was approximately 44% as compared to approximately 53% in
1994. Additionally, travel and training costs associated with the new and
current crew members increased approximately $3.9 million. Aircraft lease
expense also increased 50.4% to $19.4 million in 1995 from $12.9 million in 1994
for three reasons. First, the Kalitta Companies leased a Boeing 747 aircraft to
fulfill its obligations while casualty damage to one of its own Boeing 747s was
being repaired. Second, the increase in the number of cities serviced forced the
Kalitta Companies to subcharter additional aircraft. Finally, flight expenses
were higher in 1995 than in 1994 because of an increase in revenue-related costs
such as landing, air navigation and parking fees and ground handling costs.

Maintenance expenses increased $38.7 million, or 59.8%, to $103.4 million
in 1995 from $64.7 million in 1994 due to (i) an increase in regular, recurring
maintenance on aircraft resulting from the growth in size of the fleet, (ii)
unusually high maintenance costs because of special maintenance on damaged
aircraft, (iii) a decision to perform "C-Check" level maintenance on all of its
Boeing 727-200s while they were undergoing modification to freighters and (iv)
additional maintenance required on the Boeing 727-200s to meet FAA "Aging
Aircraft" requirements. See "Business -- Regulation." In conjunction with these
costs, employee-related costs increased $12.4 million, or 49.6%, to $37.4
million in 1995, as compared to $25 million in 1994. In addition, costs for
aircraft parts increased $12.8 million, or 50.8%, to $38.3 million in 1995 from
$25.5 million in 1994. Finally, outside maintenance labor costs increased during
1995 to meet peak maintenance demands throughout the year.

Fuel costs decreased $2.9 million, or 5.1%, to $54.5 million in 1995 from
$57.4 million in 1994 because of a decrease in contract cargo service for
customers where the Kalitta Companies were directly responsible for the cost of
fuel.

Depreciation expense increased $7.2 million, or 52.2%, to $21 million in
1995 from $13.8 million in 1994. This increase was the result of the significant
number of aircraft which were modified to freighters and placed in revenue
service during the second half of 1994 and in 1995, including two Boeing
747-200s, ten Boeing 727-200s, three Douglas DC-8s and one Lockheed L-1011
aircraft. KFS also added three aircraft to its fleet during 1995.

Selling, general and administrative expenses increased $8.4 million, or
63.2%, to $21.7 million in 1995 from $13.3 million in 1994. The majority of this
increase resulted from the addition of administrative staff to

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support expansion. In addition, during 1995, the Kalitta Companies incurred $1.9
million in professional services primarily consisting of consulting costs
associated with improving its support systems.

Other Income (Expense). Interest expense net increased $6.7 million, or
83.8%, to $14.7 million in 1995 from $8 million in 1994 due to an increase in
indebtedness relating to the acquisition of aircraft, as well as the purchase of
related ground support equipment. Net gain on disposition of property and
equipment was $11.7 million in 1995, as compared to $3.4 million in 1994. The
gain in 1995 resulted from the sale of an aircraft engine, four Boeing 727-200
freighters, one Douglas DC-8 freighter, one Boeing 727-200 passenger aircraft
and one Beech aircraft.

In June 1995, one of the Kalitta Companies' Boeing 747 aircraft sustained
damage to the underside of its fuselage when wind shear conditions experienced
on approach to the Panama City airport caused the fuselage to drag over some
fixed landing lights and received an insurance award of $11.2 million (net of a
$250,000 deductible) as a result of the casualty. The Kalitta Companies were
able to use its own maintenance capability to complete repairs to the aircraft
and obtain spare parts from an owned airframe which had zero book value. The
cost incurred by the Kalitta Companies to complete the repair was approximately
$3.1 million. The excess insurance proceeds resulted in a gain. However, the
Kalitta Companies lost revenue during the 14 weeks while the aircraft was out of
service, incurred costs to maintain crews and maintenance personnel and
experienced the higher cost of increased use of a Boeing 747-200 freighter
dry-leased to meet obligations to third parties while the damaged aircraft was
in repair.

Minority Interest. Minority interest in AIC increased $0.3 million, or
10.7%, to $3.1 million in 1995, as compared to $2.8 million in 1994 due to
increased revenue activities.

LIQUIDITY AND CAPITAL RESOURCES

A discussion of the liquidity and capital resources of the Company after
the Transactions and Refinancings is set forth below under "The Company's
Liquidity and Capital Resources."

Kitty Hawk. Kitty Hawk's capital requirements have been primarily for the
acquisition and modification of aircraft and working capital. In addition, Kitty
Hawk has and will continue to have capital requirements for the requisite
periodic and major overhaul maintenance checks for its fleet and, subsequent to
the Note Offering, Kitty Hawk will have substantial debt service expenses. Kitty
Hawk's funding of its capital requirements historically has been primarily from
a combination of internally generated funds, bank borrowings and the proceeds of
its initial public offering. In addition to purchasing aircraft, Kitty Hawk has
leased aircraft and entered into a sale leaseback transaction to acquire
aircraft and may enter into similar transactions in the future.

Cash provided by operating activities was $18.4 million and $19.6 million
in the nine months ended September 30, 1997 and 1996, respectively. As of
September 30, 1997, Kitty Hawk had working capital of $0.1 million compared to
$33.5 million at December 31, 1996.

Cash provided/(used) by investing activities was $(33.5 million), $4.7
million and $(99.6 million) for the fiscal year ended August 31, 1996, the
Transition Period and the nine months ended September 30, 1997, respectively.
Cash provided/(used) by financing activities was $18.3 million, $17.2 million
and $56.3 million for the fiscal year ended August 31, 1996, the Transition
Period and the nine months ended September 30, 1997, respectively.

As of September 30, 1997, Kitty Hawk had approximately $80.7 million of
indebtedness with WFB, BOT and 1st Source Bank. In addition, in November 1996,
in connection with Kitty Hawk's acquisition of a one-third undivided interest in
four Falcon 20 jet aircraft, Kitty Hawk and the two other co-owners of such
aircraft entered into a five year, $4.3 million term loan. On September 30,
1997, the balance on this loan was $3.4 million. See "Description of Certain
Indebtedness."

Capital expenditures were $99.6 million and $31.4 million for the nine
months ended September 30, 1997 and 1996, respectively. Capital expenditures for
the nine months ended September 30, 1997 were primarily for the overhaul of
several JT8D-7 jet engines and the purchase of (i) 18 Boeing 727-200 aircraft,
(ii) cargo and

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noise abatement modifications for one Boeing 727-200 aircraft, (iii) noise
abatement equipment with respect to two DC-9-15F aircraft, (iv) ten
reconditioned JT8D jet engines, (v) leasehold improvements to Boeing 727-200
aircraft, (vi) the 40,000 square foot headquarters facility and related ground
sublease at Dallas/Fort Worth International Airport, (vii) major maintenance
checks and (viii) ground service equipment for use in the USPS Christmas 1997
Contract. Capital expenditures for the nine months ended September 30, 1996 were
primarily for the purchase of (i) three Boeing 727-200 aircraft and (ii) cargo
and noise abatement modifications for two Boeing 727-200 aircraft.

In October 1996, Kitty Hawk sold in an initial public offering 2,700,000
shares of Common Stock, raising net proceeds of approximately $29.3 million to
purchase and modify to cargo configuration five Boeing 727-200 aircraft. As of
November 10, 1997, Kitty Hawk has used all of the net proceeds of the initial
public offering to fund these costs. Kitty Hawk has purchased (i) one Boeing
727-200 freighter aircraft for $4.4 million, (ii) one Boeing 727-200 aircraft
for $2.3 million which was modified to cargo configuration for an additional
cost of approximately $3.3 million (including approximately $2.2 million for
noise abatement equipment), (iii) one Boeing 727-200 aircraft for $3.5 million
which was modified to cargo configuration for an additional cost of
approximately $5.2 million (including noise abatement equipment for
approximately $2.5 million), (iv) one Boeing 727-200 aircraft for $3.5 million
which was placed into revenue service as a leased passenger aircraft until its
next major maintenance check (approximately 3,000 flight hours) at which time
Kitty Hawk currently anticipates modifying the aircraft to cargo configuration
for an additional cost of approximately $5 million (including $2.5 million for
noise abatement equipment which has already been installed) and (v) $5 million
for partial payment on the 16 Boeing 727 aircraft acquired from the Kalitta
Companies.

In December 1996, Kitty Hawk amended its agreement with its supplier of
noise abatement equipment to increase the number of hushkits it has firmly
committed to purchase and to establish fixed prices. In connection with this new
agreement, Kitty Hawk paid the vendor an additional $350,000 in deposits on
future, firm orders valued between $13 and $17.5 million, depending on type
selected. In 1997, Kitty Hawk anticipates an aggregate capital expenditure of $8
million for noise abatement modifications. In 1998, Kitty Hawk anticipates an
aggregate capital expenditure ranging from $9 million to $11 million for noise
abatement modifications to aircraft currently owned. In 1998, Kitty Hawk
anticipates an aggregate capital expenditure ranging from $18 million to $20
million for noise abatement modifications to the Boeing 727 aircraft acquired
from the Kalitta Companies in September 1997. In the event Kitty Hawk acquires
more aircraft than currently proposed, Kitty Hawk's anticipated aggregate
capital expenditures for noise abatement modifications in 1998 could materially
increase.

As of September 30, 1997, Kitty Hawk's revenue fleet was comprised of 41
owned and 3 leased aircraft, which includes 32 Boeing 727 aircraft, 5 Douglas
DC-9-15F aircraft and 7 turbo-prop Convairs. Kitty Hawk anticipates converting
one passenger configured Boeing 727-200 aircraft to cargo configuration in 1998.
These aircraft do not include Kitty Hawk's undivided one-third interest in four
Falcon 20 jet aircraft leased to a third party operator. Service Bulletins and
Directives issued under the FAA's "Aging Aircraft" program or issued on an ad
hoc basis cause certain of these aircraft to be subject to extensive aircraft
examinations and require certain of these aircraft to undergo structural
inspections and modifications to address problems of corrosion and structural
fatigue at specified times. It is possible that additional Service Bulletins or
Directives applicable to the types of aircraft included in Kitty Hawk's fleet
could be issued in the future. The cost of compliance with such Directives and
Service Bulletins cannot currently be estimated, but could be substantial. See
"Risk Factors -- Government Regulation."

As of September 30, 1997, Kitty Hawk owned 29 and leased 3 Boeing 727
aircraft, 29 of which were previously converted from passenger configuration to
freighter configuration by the installation of a large cargo door and numerous
interior modifications related to the installation of cargo container handling
systems. The FAA has issued a proposed Directive, which if adopted, would limit
the cargo capacity of 28 of these Boeing 727s until certain modifications are
made. See "Business -- Aircraft Fleet."

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Kitty Hawk historically has followed and currently intends to follow, a
policy of retiring Convairs at the time of their next scheduled major overhaul
maintenance checks rather than expending the amounts necessary to complete such
checks. Two Convairs have been retired since December 31, 1996.

The Kalitta Companies. The Kalitta Companies' capital requirements have
been primarily for the acquisition and modification of aircraft and for the
expansion and improvement of maintenance and support facilities and
infrastructure. In addition, the Kalitta Companies had capital requirements for
the requisite and periodic routine overhaul maintenance on aircraft. The Kalitta
Companies also lease aircraft from time to time. Capital needs have historically
been funded with a combination of cash flow from operations, aircraft sales and
bank borrowings.

Cash used in operating activities was $13.1 million for the first nine
months of 1997 as compared to cash provided by operating activities of $27.7
million in the same period in 1996. As of September 30, 1997, the Kalitta
Companies had cash and cash equivalents of $3.3 million, as compared to $3.3
million as of September 30, 1996. The Kalitta Companies had a working capital
deficit of $233.1 million at September 30, 1997, compared to a deficit of $194.3
million at September 30, 1996. The decrease in cash flow from operating
activities was due primarily to the increase in net loss and a decrease in
accounts receivable for the first nine months of 1997 as compared to the first
nine months of 1996. Also contributing to the decrease was an increase in
restricted cash at September 30, 1997 compared to September 30, 1996. Net cash
provided by operating activities was $26.4 million, $49.5 million and $33.8
million in 1996, 1995 and 1994, respectively.

Net cash used in investing activities was $0.2 million for the nine months
ended September 30, 1997 as compared to net cash used in investing activities of
$33.4 million for the nine months ended September 30, 1996. Total capital
expenditures increased 25% to $54.5 million for the nine months ended September
30, 1997 from $43.6 million for the same period in 1996. Expenditures in the
nine months ended September 30, 1997 represented the purchase of additional
aircraft and capitalization of costs to modify the aircraft to freighter
configuration. In addition, the sale of 16 Boeing 727 aircraft to Kitty Hawk
resulted in proceeds of $51 million of which $21 million was used to purchase a
Boeing 747-200 aircraft, $9 million was used to purchase a Lockheed L-1011
freighter and $11 million was placed in escrow to pay for converting this Boeing
747-200 aircraft from passenger to freighter configuration. The Kalitta
Companies estimate these conversion costs will be approximately $8 million. Net
cash used in investing activities was $42.4 million, $120.9 million and $72.5
million in 1996, 1995 and 1994, respectively, and primarily represented
additional aircraft added to the fleet, flight equipment acquired and
capitalized airframe maintenance. Net cash used in investing activities in 1995
included costs of modification of the Kalitta Companies' Boeing 727-200 aircraft
to freighters as a majority of these aircraft were acquired in 1994 and were
placed in revenue service throughout 1995.

Net cash provided by financing activities was $14.2 million for the nine
months ended September 30, 1997 as compared to $8 million for the nine months
ended September 30, 1996. Net cash provided by financing activities was $17.2
million, $67.8 million and $42.3 million in 1996, 1995 and 1994, respectively.
Cash provided by financing activities for each year primarily represented
additional borrowings to fund the Kalitta Companies' acquisition of aircraft and
equipment and to fund operating activities during those years.

The Kalitta Companies' liquidity is affected by the seasonal nature of
their businesses. Primarily because of the increase in air freight during the
Christmas holiday season, a significant portion of the Kalitta Companies'
revenues are earned in the fourth calendar quarter. During the first quarter,
the Kalitta Companies typically experience lower levels of utilization and
yields as demand for air cargo charters is reduced relative to other times of
the year.

The Kalitta Companies have a revolving credit and term loan facility under
an Amended and Restated Credit Agreement, as amended (the "Kalitta Companies
Credit Agreement"), with Comerica Bank, Detroit, Michigan ("Comerica") and
Heller Financial, Inc. ("Heller"). Under the Kalitta Companies Credit Agreement,
the Kalitta Companies may borrow up to $55 million on a revolving credit basis,
subject to a borrowing base formula (the "Credit Facility"). In addition, the
Kalitta Companies may borrow up to an additional $5 million, subject to a
borrowing base formula (the "Second Credit Facility"). As of

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September 30, 1997, the outstanding principal balance on the Credit Facility was
$53.9 million and the outstanding principal balance of the Second Credit
Facility was approximately $4.7 million.

Amounts outstanding under the Credit Facility bear interest at a per annum
variable rate equal to Comerica's prime rate plus 1.25% (subject to certain
adjustments as set forth in the Kalitta Companies Credit Agreement), and the
Kalitta Companies are obligated to make monthly payments of accrued interest.
All of the indebtedness under the Credit Facility must be repaid by December 9,
1999.

In addition, pursuant to the Credit Agreement, Comerica has two loans to
the Kalitta Companies to finance aircraft acquisitions, one in the principal
amount of $12.6 million outstanding as of September 30, 1997 (the "Bridge
Loan"), and the other in the principal amount of $3.9 million outstanding on
September 30, 1997 (the "Mortgage Loan"). Both the Bridge Loan and the Mortgage
Loan are payable in monthly installments of principal and interest with interest
accruing at Comerica's prime rate, plus 2% and 1.75%, respectively. The Bridge
Loan is due on December 9, 1999, and the Mortgage Loan on May 19, 1999.

In addition, AIA has a term loan from Comerica (the "Comerica Term Loan")
under a separate term loan agreement (the "Comerica Term Loan Agreement") to
which Heller is not a party. AIA used the Comerica Term Loan to refinance
certain other indebtedness owed to Comerica. As of September 30, 1997, the
outstanding principal balance of the Comerica Term Loan was $13 million. The
principal balance accrues interest at a per annum variable rate equal to
Comerica's prime rate plus 2%, subject to certain adjustments. The Comerica Term
Loan is payable in equal monthly principal installments of approximately $0.3
million plus accrued interest until February 15, 2001, when the entire
outstanding principal amount and all accrued interest is due.

The loans under the Credit Agreement and the Comerica Term Loan Agreement
are secured by substantially all of the assets of AIA, KFS and FOL, except for
certain assets pledged to other lenders and for certain real estate. In
addition, the Credit Agreement contains restrictions on the ability of AIA, KFS
and FOL to pledge assets to their respective future lenders. AIA and Mr. Kalitta
have guaranteed all indebtedness owing to Heller and Comerica by KFS or FOL; and
Mr. Kalitta, KFS and FOL have guaranteed all indebtedness owed to Heller and
Comerica by AIA.

The Credit Agreement, Comerica Term Loan Agreement and related documents
contain a number of restrictive covenants, as well as affirmative covenants
requiring the maintenance of certain financial conditions. At December 31, 1996
and continuing in 1997, the Kalitta Companies were in violation of these
covenants, as well as other covenants contained in the Credit Agreement and the
related documents. See "Risk Factors -- Recent Financial Performance of the
Kalitta Companies."

The Kalitta Companies have generally financed the acquisition and, when
necessary, the modification of aircraft to freighter configuration, with the
proceeds of financings secured by airframes, engines and, in some cases, ground
handling equipment. Sources for this type of financing presently include
Comerica, FINOVA Capital Corporation ("Finova"), First National Bank of Ohio,
Sanwa Business Credit Corporation, NationsBank (formerly known as Boatmen's
National Bank of Saint Louis), 1st Source Bank, Fleet Credit Corporation,
General Electric Capital Corporation, First Security Bank National Association,
as trustee, Morgans Waterfall, BSI Nassau (Bahamas), Michigan National Bank and
Concord Capital Corporation.

As of September 30, 1997, total indebtedness of the Kalitta Companies
(excluding payables, accrued liabilities, minority interest and indebtedness
incurred under the Credit Facility and the Second Credit Facility) was
approximately $196.4 million, approximately $71.9 million of which was held by
Finova. Approximately $142.7 million of this indebtedness accrues interest at
fixed rates ranging from 5.3% to 18% per annum, while the remainder accrues
interest at variable rates ranging from one to four percent over a specified per
annum prime or other base rate. Maturities of term indebtedness range between
one and seven years, with current maturities at September 30, 1997 of
approximately $91.7 million.

The Kalitta Companies have been and continue to be in default on virtually
all of their indebtedness, including indebtedness with Comerica and Finova. The
defaults relate to non-compliance with certain financial, operating and other
covenants that restrict the activities of the Kalitta Companies. These covenants
restrict, among other things, the ability to grant liens, incur indebtedness,
make capital expenditures, make

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investments, prepay debt, pay dividends and redeem equity. Accordingly, this
long-term indebtedness has been classified as current. See "Risk
Factors -- Recent Financial Performance of the Kalitta Companies."

All but approximately $8 million of the indebtedness of the Kalitta
Companies will be retired with the net proceeds of this Common Stock Offering
and the Note Offering, subject to the payment of approximately $3 million in
prepayment penalties. See "Use of Proceeds."

THE COMPANY'S LIQUIDITY AND CAPITAL RESOURCES

The Company's capital requirements are expected to be primarily for the
acquisition and modification of aircraft, working capital and the expansion and
improvement of maintenance and support facilities. In addition, the Company has,
and will continue to have, capital requirements for the requisite periodic and
major overhaul maintenance checks for its fleet and for debt service. The
Company also has seasonal working capital needs, because it generates higher
revenue and cash flow in the fourth quarter and lower revenue and cash flow in
the first quarter. Funding of capital requirements has historically been through
internally generated funds, bank borrowings, aircraft sales and, in the case of
Kitty Hawk, its initial public offering. From time to time, the Company has
entered into sale/leaseback transactions to acquire aircraft and may continue to
do so in the future.

Upon consummation of the Transactions and the Refinancings, all but
approximately $10 million of the existing debt of Kitty Hawk and the Kalitta
Companies will be refinanced. The net proceeds of this Common Stock Offering,
the Note Offering and the Term Loan will be used to refinance this indebtedness.
See "Use of Proceeds" and "Descriptions of Certain Indebtedness."

The Term Loan will be incurred to refinance the indebtedness incurred in
September 1997 to finance the acquisition of 16 Boeing 727s from the Kalitta
Companies. The Term Loan will have an initial principal amount of $45.9 million,
will mature five years after issuance and will be payable in equal quarterly
principal installments of $2.25 million commencing in 1999 and ending in 2002,
with a balance of approximately $12.15 million due at maturity. Interest on the
Term Loan will accrue initially at LIBOR plus 3% or the Base Rate plus 1.5%,
subject to reduction. See "Description of Certain Indebtedness." The Term Loan
will be secured by accounts receivable, all inventory (including rotables),
intangibles and contract rights, cash and the 16 Boeing 727s and related engines
recently acquired from the Kalitta Companies.

In addition, to fund ongoing capital requirements, including possible
acquisitions, the Company will enter into the New Credit Facility with WFB,
individually and as agent for various lenders. The New Credit Facility will
provide the Company with up to $100 million in revolving loans to be secured by
the same collateral as the Term Loan. The facility will bear interest initially
at LIBOR plus 2.75% or a Base Rate plus 1.25%, subject to adjustment within the
same parameters as the Term Loan. The Base Rate is WFB's Prime Rate or the
Federal Funds Rate plus 5%. Borrowings under the New Credit Facility will be
subject to borrowing base limitations based on eligible inventory and accounts
receivable and will mature five years from execution of the New Credit Facility.

The Company currently estimates that capital expenditures in the fourth
quarter of 1997 and in 1998 will aggregate approximately $100 million and that
it will make substantial capital expenditures thereafter. However, the foregoing
forward-looking statement is only a current estimate and actual capital
expenditures could be substantially different. The amount of capital
expenditures will depend on the extent and timing of purchases of aircraft
(including the Optioned Boeing 747s), the cost and availability of parts to
modify aircraft to freighter configuration and the timing and content of Service
Bulletins and Directives, all of which are beyond the Company's control. See
"Risk Factors -- Capital Intensive Nature of Aircraft Ownership and Operation."

In September 1997, the Company acquired one Boeing 747 and expects to make
approximately $8 million of capital expenditures in the fourth quarter of 1997
to modify this Boeing 747 to freighter configuration. In the fourth quarter of
1997 and/or 1998 the Company expects to acquire the Optioned Boeing 747s for $40
million and to modify these aircraft to freighter configuration for
approximately $16 million. There can be no assurance that the costs to acquire
or modify these aircraft will not exceed these amounts.

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Additionally, the Company anticipates converting one Boeing 727 aircraft from
passenger to freighter configuration during 1998 at a cost of approximately $5
million.

During 1998, the Company anticipates capital expenditures ranging from $27
million to $32 million for noise abatement modifications to DC-9 and Boeing 727
aircraft currently owned. The Company's total capital expenditures for noise
abatement modifications for its existing fleet of owned and leased aircraft is
expected to be approximately $95 million. The entire fleet must be Stage III
compliant by the year 2000. In the event more aircraft are acquired, anticipated
capital expenditures for noise abatement modifications could materially
increase.

Service Bulletins and Directives issued under the FAA's "Aging Aircraft"
program or issued on an ad hoc basis cause certain of the Company's aircraft to
be subject to extensive aircraft examinations and require certain of the
Company's aircraft to undergo structural inspections and modifications to
address problems of corrosion and structural fatigue at specified times. It is
possible that additional Service Bulletins or Directives applicable to the
Company's fleet could be issued in the future. The cost of compliance with such
Directives and Service Bulletins cannot currently be estimated, but could be
substantial. See "Risk Factors -- Government Regulation."

The Company operates a fleet of 31 Boeing 727s, all of which were
previously converted from passenger configuration to freighter configuration by
the installation of a large cargo door and numerous interior modifications
related to the installation of cargo container handling systems. The FAA has
issued a proposed Directive, which if adopted, would limit the cargo capacity of
30 of these Boeing 727s until certain modifications are made. The cost to make
such modifications and the amount of revenue that could be lost cannot currently
be estimated. However, the Company believes this Directive will not have a
material adverse effect on the Company. See "Business -- Aircraft
Fleet -- Boeing 727 Cargo Door and Floor Modification Regulations."

The Company believes that available funds (including the New Credit
Facility), bank borrowings and cash flows expected to be generated by
operations, along with the net proceeds of this Common Stock Offering and the
Note Offering, will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. Thereafter, if
cash generated by operations is insufficient to satisfy the Company's liquidity
requirements, the Company may sell additional equity or debt securities or
obtain additional credit facilities. However, there can be no assurance that the
Company will be able to sell any additional equity or debt securities or obtain
any additional credit facilities.

SEASONALITY

Certain of the Company's customers engage in seasonal businesses,
especially the U.S. Postal Service and customers in the automotive industry. As
a result, the Company's air freight charter logistics business has historically
experienced its highest quarterly revenues and profitability during the fourth
quarter of the calendar year due to the peak Christmas season activity of the
U.S. Postal Service and during the period from June 1 to November 30 when
production schedules of the automotive industry typically increase.
Consequently, the Company experiences its lowest quarterly revenue and
profitability during the first quarter of the calendar year.

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<PAGE> 64

The following tables reflect certain selected quarterly operating results,
which have not been audited or reviewed. The information has been prepared on
the same basis as the Consolidated Financial Statements appearing elsewhere in
this Prospectus and includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the information
shown. The Company's results vary significantly from quarter to quarter and the
operating results for any quarter are not necessarily indicative of the results
that may be expected for any future period.

KITTY HAWK

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
NOVEMBER 30, FEBRUARY 29, MAY 31, AUGUST 31, NOVEMBER 30,
1995 1996 1996 1996 1996
------------ ------------ ------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Total revenues......... $36,045 $48,577 $22,504 $35,289 $25,414
Gross profit........... 5,936 8,190 3,265 6,124 5,118
Operating income....... 3,564 2,447 897 2,126 2,851
Net income............. 1,956 1,273 182 698 1,632
Net income per share... $ 0.25 $ 0.16 $ 0.02 $ 0.09 $ 0.18

<CAPTION>
ONE MONTH QUARTER ENDED
ENDED ------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997 1997
------------ --------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total revenues......... $34,572 $28,102 $32,366 $41,199
Gross profit........... 7,288 5,355 7,451 8,748
Operating income....... 5,868 2,571 4,679 5,593
Net income............. 3,661 1,414 2,561 2,993
Net income per share... $ 0.37 $ 0.14 $ 0.25 $ 0.29
</TABLE>

THE KALITTA COMPANIES

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues....................... $ 84,303 $106,292 $110,417 $123,529 $ 92,898 $103,943 $128,803
Gross profit (loss).................. (1,440) 16,573 14,921 14,341 (12,058) 4,583 17,916
Operating income (loss).............. (6,626) 10,233 8,707 9,180 (17,940) (1,503) 10,403
Net income (loss).................... $$(12,019) $ 6,461 $ 2,771 $ 2,770 $(22,786) $ (8,157) $ 201
</TABLE>

63
<PAGE> 65

BUSINESS

The description of the business of the Company that follows is the business
of Kitty Hawk and the Kalitta Companies on a combined basis as if the Merger had
been consummated. The closing of this Common Stock Offering is conditioned on
(i) the concurrent consummation of the Merger and the Note Offering and (ii)
entering into the New Credit Facility.

GENERAL

The Company is a leading U.S. and international air freight carrier and a
leading provider of air freight logistics services for the delivery of freight
on a highly-reliable, time sensitive basis. The Company also provides air
passenger charter services and aircraft maintenance services.

INDUSTRY OVERVIEW

Air Freight Carrier Services. The market for air freight services is served
by an industry which is composed of (i) "door-to-door" express package delivery
companies such as Federal Express and United Parcel Service, (ii)
"freight-forwarders" that contract for air freight carrier service, (iii) air
freight carriers that provide scheduled air freight delivery service and (iv)
air freight carriers that provide on-demand charter service. These participants
in the air freight services industry provide same-day, next-day and/or two-day
delivery services. A number of air freight carriers, including the Company,
provide a combination of these services.

The Company directly participates in the same-day service segment of this
industry by providing (i) regularly scheduled air freight service between
certain airports, (ii) contract charter services and (iii) on-demand charter
services. The Company also participates indirectly in the next-day and two-day
freight delivery business by providing primary and additional lift capacity
through contract charters for integrated air freight companies (such as
Burlington Air Express, Inc., DHL Airways, Inc. and Emery Worldwide Airlines,
Inc.) on designated routes for specified time periods. The Company has also
historically provided contract charters for mail delivery for the U.S. Postal
Service. The Company does not engage directly in the next-day or two-day
"door-to-door" delivery business and, therefore, does not compete directly with
its customers in this segment.

According to the Boeing Report, the world air cargo market grew at an
average rate of more than 8% per year from 1970 to 1995 as measured in revenue
ton kilometers, more than 2.5 times the growth rate of world Gross Domestic
Product. Also, according to the Boeing Report, the world air freight market is
expected to increase at 6.7% annually through 2015. Management believes this
projected growth in the world air freight market will be fueled by many factors,
including economic growth, relaxation of international trade barriers,
increasingly time-sensitive product delivery schedules and increased use of
"just-in-time" inventory management systems as well as a shift towards dedicated
air freight carriers and away from utilizing cargo space in commercial airlines
due to the higher levels of service and reliability. The foregoing projected
growth rate is only an estimate and there can be no assurance that such rate of
growth will be achieved. See "Risk Factors."

Air Freight Logistics Services. Demand for air freight charter logistics
services is driven by demand for same day delivery of time sensitive freight.
Factors which have contributed to the growth in demand for air logistics
services include (i) outsourcing -- an increasing number of companies requiring
same-day delivery of freight have decided to outsource air freight delivery
operations; (ii) "just-in-time" inventory management -- many manufacturers have
adopted just-in-time inventory management techniques which, while enhancing such
manufacturers' inventory turnover, increases the importance of just-in-time
delivery of needed component parts; and (iii) increased customer
expectations -- more companies are requiring suppliers to meet specified
delivery requirements in order to remain qualified as suppliers and such
suppliers will utilize same day air freight as necessary to meet these delivery
requirements.

In contrast to the market for next-day and two-day freight delivery
services, the Company believes that the market in North America for on-demand
charters is served by hundreds of air freight carriers, the vast

64
<PAGE> 66

majority of which are privately held, operate from only one location and do not
coordinate "door-to-door" charter delivery services to the extent of the
Company's air logistics business.

Other. The Company believes there is a substantial market for aircraft
maintenance services in the United States and a trend towards a limited number
of providers of all levels of maintenance checks on large and small jet engines.
Because of the Company's comprehensive engine and aircraft maintenance
capabilities, management believes it is well positioned to capitalize on this
trend.

The Company's passenger charter airline primarily caters to leisure
travelers booking scheduled trips through tour operators and does not generally
compete with scheduled passenger airlines. In addition, U.S. passenger charter
operators have traditionally provided service to the U.S. Military to supplement
its lift capacity, particularly during times of conflict.

COMPETITIVE STRENGTHS

The Company believes that the following factors are competitive strengths
and promote strong relationships with its diversified customer base.

GROWTH STRATEGIES

The Company's revenue has grown significantly over the last several years
and the Company believes it can continue to increase revenues through the
following opportunities:

- Expansion of ACMI Charter Business. The Company believes there are, and
will continue to be, opportunities to obtain ACMI contracts with
international air carriers due to the projected shortage of wide-body
aircraft needed to service those carrier's markets. The Company plans to
focus its expansion efforts in the European, South American and
Asia/Pacific markets and to connect route systems in those markets with
its scheduled North American route systems. The Company recently acquired
one used Boeing 747 which it is currently converting to freighter
configuration and has an option to acquire the Optioned Boeing 747s which
it expects to convert to freighter configuration.

65
<PAGE> 67

SERVICES
AIR CARRIER SERVICES

The Company uses a diversified fleet of four Boeing 747s, six Lockheed
L-1011s, 19 Douglas DC-8s, five Douglas DC-9s, 31 Boeing 727s and seven
turbo-prop Convairs to provide air freight services on (i) a regularly scheduled
basis between certain airports, (ii) a contract charter basis and (iii) an
on-demand charter basis.

Scheduled Freight Services

Domestic. The Company operates a scheduled airport-to-airport air freight
carrier service which provides overnight delivery to and from 47 cities in the
United States. Freight received each evening is delivered by 8:00 a.m. the next
day, Tuesday through Friday mornings, throughout the year. The majority of
overnight deliveries are routed through the Company's 90,000 square foot sorting
center located at the Hulman Regional Airport in Terre Haute, Indiana. In the
first nine months of 1997, an average of 1,147 shipments, totaling approximately
458 tons of freight, were processed during each nightly primary sorting
operation at the Hulman Regional Airport. The Company's right to use its space
at the Hulman Regional Airport expires in August 1998. The Company is currently
negotiating an extension of this lease through the spring of 1999, at which time
the Company anticipates relocating its sorting operations from the Hulman
Regional Airport to the Fort Wayne-Allen County Airport in Fort Wayne, Indiana
in the spring of 1999. This new facility is expected to permit the Company to
handle nearly twice the sorting capacity of the Terre Haute facility. In
addition, the facility is designed to improve productivity by reducing the time
to load and unload aircraft and decreasing sorting times. See "Risk
Factors -- Availability of Facilities" and "Business -- Ground Facilities."

The Company's overnight operation caters primarily to freight-forwarders
and other cargo airlines which either handle ground transport themselves or
contract with others to do so. The Company competes with certain of these
companies that ship large and odd-sized freight, including the United Parcel
Service, Emery Air Freight and Burlington Air Express, as well as commercial
passenger airlines which provide freight service on their scheduled flights.

66
<PAGE> 68

The Company's scheduled air freight service currently transports air
freight to and from airports located in 23 cities. In addition, the Company
contracts with third parties to transport freight between those 23 airports and
24 other airport locations at which the Company receives and delivers freight at
scheduled times. The following is a list of the current delivery locations for
the Company's scheduled operations:

<TABLE>
<CAPTION>
AIRPORT DELIVERY LOCATIONS TRUCK DELIVERY LOCATIONS
-------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Atlanta, GA El Paso, TX Newark, NJ Albany, NY Grand Rapids, MI Omaha, NE
Baltimore, MD Hartford, CT Orlando, FL Chicago, IL Indianapolis, IN Pittsburgh, PA
Boston, MA Houston, TX Philadelphia, PA Cincinnati, OH Jacksonville, FL San Diego, CA
Charlotte, NC Kansas City, KS San Francisco, CA Columbus, OH Joplin, MO South Bend, IN
Cleveland, OH Los Angeles, CA Seattle, WA Dayton, OH Louisville, KY Springfield, MO
Dallas/Fort Miami, FL Terre Haute, IN Detroit, MI Milwaukee, WI St. Louis, MO
Worth, TX Minneapolis, MN Toronto, Ontario (Canada) Washington, D.C. Nashville, TN Tampa, FL
Denver, CO Memphis, TN Ypsilanti, MI Fort Wayne, IN New York, NY Wichita, KS
</TABLE>

International. The Company provides scheduled international service through
American International Cargo, a general partnership in which the Company owns a
60% interest. AIC was formed in October 1992. The 40% interest in AIC which is
not owned by the Company is owned by Pacific Aviation Logistics, Inc., which
also serves as the managing partner of AIC.

AIC operates scheduled air freight service between Los Angeles and Honolulu
every Tuesday through Saturday and each Saturday, from Honolulu to the South
Pacific and Asia, including Pago Pago, Auckland, Melbourne, Singapore, Hong Kong
and Anchorage. AIC also operates scheduled air freight service five times per
week between Los Angeles and Honolulu and the Hawaiian Islands. AIC charters
from the Company under ACMI contracts a Boeing 747, a Lockheed L-1011 and a
Boeing 727 to provide these scheduled air freight services. The Company believes
the contracts for these services contain hourly rates that are below market
rates. However, the Company can adjust these rates at any time, other than the
hourly rate for the Boeing 747 which is fixed through the end of 1997. AIC is
responsible for the cost of fuel, landing fees and ground handling charges.

Contract Charter Freight Services

The Company provides air freight charter services on a contractual basis
for a variety of customers, including the U.S. Postal Service, the U.S. Military
and freight forwarders and other airlines including Burlington Air Express,
Emery Worldwide Air Freight Co., DHL Airways, Inc., Pacific East Asia Cargo
Airlines, Inc., Japan Airlines and AeroLineas Argentina S.A.

ACMI Domestic. The terms of the Company's ACMI contracts vary, but they
typically require the Company to supply aircraft, crew, maintenance and
insurance, while its customers are responsible for substantially all other
aircraft operating expenses, including fuel, fuel servicing, airport freight
handling, landing and parking fees, ground handling expenses and aircraft
push-back costs. These ACMI contracts also typically require the Company to
operate specific aircraft and/or provide minimum air freight capacity and
generally are terminable if the Company (i) fails to meet certain minimum
performance levels, (ii) otherwise breaches the contract or (iii) becomes
subject to other customary events of default. The Company is permitted under its
ACMI Contracts to utilize and, in fact often does utilize, its aircraft in
on-demand service in the periods between ACMI contract flights.

ACMI International. The Company operates ACMI contracts in foreign
countries as well as between the U.S. and foreign countries. The ACMI contracts
provide that the Company has exclusive operating control and direction of each
aircraft the Company operates and that certain foreign-based customers must
obtain any government authorizations and permits required to service the
designated routes. See "Risk Factors -- Government Regulation." Therefore, the
Company's route structure is limited to areas in which customers gain authority
from the relevant governments.

The Company currently supplies supplemental airlift capacity to the flag
carriers of five Central American countries, including Aviateca (Guatemala),
Taca International Airlines (El Salvador), Nica

67
<PAGE> 69

(Nicaragua), Copa (Panama) and Lacsa (Costa Rica). Because these airlines are
the national airlines of their respective countries, the Company receives
operating authority for each of those countries. The Company also has operating
authority for Brazil, Columbia and Ecuador. From its Miami location, the Company
currently operates four trips per week to Brazil pursuant to a contract with
International Air Charter and six trips per week to Cali and Medellin, Columbia
for AeroFloral for the shipment of fresh flowers. In addition, the Company
operates one Boeing 727 aircraft in ACMI service between countries in the
Pacific Rim.

U.S. Postal Service. The Company has historically performed a variety of
services for the U.S. Postal Service, ranging from regularly scheduled delivery
throughout the year to special contracts bid by the U.S. Postal Service to meet
increased demand during the Christmas holiday season. Similar to an ACMI
contract, the Company's contracts with the U.S. Postal Service generally allow
the Company to pass-through its fuel costs, landing charges and other variable
costs. Accordingly, the Company is not generally at risk of loss in the event
these variable costs increase during the term of these fixed-price arrangements.

Since 1993, the Company has been the prime contractor for the "Christmas
Network" established by the U.S. Postal Service to provide air transportation
and ground handling services primarily for second-day mail among a network of
domestic cities during the December holiday rush. The U.S. Postal Service awards
contracts periodically pursuant to a public bidding process that considers
quality of service and other factors, including to a lesser extent price.
Recently, the U.S. Postal Service notified the Company that it intends to renew
the Company's contract for the 1997 "Christmas Network." The Company is
currently making scheduled mail flights from Seattle to Anchorage for the U.S.
Postal Service six days per week. The Company's contract for this service runs
through February 1998 and is subject to annual renewal by either the Company or
the U.S. Postal Service. In general, the Company's contracts with the U.S.
Postal Service can be canceled by either party upon 30 days notice.

U.S. Military. The Company has historically provided air freight charter
services for the U.S. Military. The U.S. Military pays the Company's fuel costs,
landing fees and other variable charges. The Company expects to become eligible
to operate passenger charters for the U.S. Military in December 1997. The
Company believes that its ability to provide both air freight and air passenger
charter service to the U.S. Military will enhance its ability to obtain contract
charters for the U.S. Military.

On-Demand Charter Freight Services

The Company's aircraft are utilized to fly on-demand charters for customers
of the Company's air logistics business. Approximately 7.1%, 8.7%, 9.8% and 8.6%
of the on-demand charters managed by Kitty Hawk during fiscal years 1994, 1995
and 1996 and the nine months ended September 30, 1997, respectively, were flown
on Kitty Hawk's aircraft. With the addition of the Kalitta Companies aircraft
upon consummation of the Merger, the Company will direct a higher percentage of
on-demand charters to its fleet, rather than to third party carriers. On-demand
contract charters flown on the Company's aircraft generate a higher gross margin
to the Company than charters subcontracted to third party carriers. Another
on-demand service provided by the Company is medical air ambulance services.

Air Passenger Charters

The Company operates a fleet of 33 passenger configured aircraft, including
two Boeing 747s, two Lockheed L-1011s, 20 Lear jets and 9 other small aircraft.
The Company's principal customers for large aircraft air passenger charters are
independent tour operators, cruise lines, sponsors of incentive travel packages
and specialty charters and passenger airlines that "wet" lease aircraft. Sales
to tour operators represent the most significant portion of the Company's
passenger charter business. These leisure-market programs are generally
contracted for repetitive, round-trip patterns, operating during seasonal
periods. The tour operator pays a fixed price for use of the aircraft and
assumes responsibility and risk for the actual sale of the available aircraft
seats and fuel increases. The Company also operates on-demand passenger charter
flights using large and small aircraft.

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<PAGE> 70

AIR FREIGHT CHARTER LOGISTICS SERVICES

General. The Company is a leading provider of same-day air freight charter
logistics services in North America. The Company arranges the delivery of time
sensitive freight utilizing aircraft of third party air freight carriers as well
as its own fleet. On-demand air charters of freight generally are used when
"next-flight-out" delivery services of commercial airlines or the next-day
delivery services of air freight companies or other service providers cannot
meet the customer's delivery deadline. The Company's air freight logistics
services involve coordinating "door-to-door" transportation by arranging for
ground pick-up, loading, air transportation, unloading and ground delivery of
the freight. The Company has managed a broad variety of freight shipments
including military equipment, satellites, rescue/disaster recovery supplies and
exotic animals.

The customers of the Company's on-demand air freight charter logistics
services include companies that are engaged in industries such as automotive,
chemical, computer, mail and bulk package delivery, retail merchandising and oil
field service and equipment. Typically, the premium costs incurred in utilizing
on-demand charters to achieve expedited same-day delivery are justified by the
Company's customers on the basis that greater costs would otherwise be incurred
as a result of a work stoppage or having to maintain greater inventory levels.

For the nine months ended September 30, 1997, Kitty Hawk arranged an
average of approximately 39 on-demand charters per day and has arranged as many
as 208 charters in a single day. The Company believes it provides dependable
service on a cost-effective basis because of its computerized database,
information software and tracking systems, its training of account managers and
its standardized charter management procedures. The Company provides logistics
services 24 hours per day, 365 days per year.

Database, Information Software and Tracking Systems. The Company believes
that its database is critical to its ability to arrange on-demand air charters
in a timely and reliable manner. The Company maintains in its database a
detailed carrier profile for over 500 air freight carriers that provide
on-demand charter service and information concerning ground transportation and
aircraft loading companies in North America. The Company has implemented an
Internet system to provide its account managers with real-time updates on
available third party on-demand charter aircraft across North America. The
Company believes that this system enables it to meet customer demands more
efficiently and quickly. In addition, the Company anticipates marketing its
services to firms engaged in direct marketing over the Internet.

The Company's logistics system was developed in 1990 to automate access to
the Company's database and has been frequently revised and improved. This system
provides on-screen information regarding air carriers, aircraft type and
specifications, fuel suppliers, cargo handlers and surface carriers, along with
relevant cost information. In addition, the Company is an on-line subscriber to
Jeppesen's Flight Planning and Kavouras Meteorological services. The flight
planning services provided by Jeppesen integrate airport analyses (comprised of
runway lengths, altitudes, hours of operation and noise abatement procedures)
with current weather data and other information necessary to provide an
automated flight plan. This flight planning service then transmits
electronically the automated flight plan to the pilot and to the FAA
contemporaneously.

The Company operates a proprietary software system ("HawkEye"), which was
developed internally by its full time programming and computer support staff.
HawkEye allows account managers to track an aircraft's progress from origin to
destination on his or her computer screen and on the control room's main
projection board. Aircraft icons show each flight, its direction and information
about the flight including the type of aircraft, the flight number, its current
altitude, ground speed, distance to destination and times of departure and
estimated arrival. The data supporting HawkEye is a direct data feed obtained
from the FAA's Air Traffic Control computer system. The Company believes that
its computer systems are generally year 2000 compliant. The Company does not
know whether the computer systems of its customers, suppliers, vendors and air
logistics services providers are generally year 2000 compliant.

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<PAGE> 71

AIRCRAFT MAINTENANCE SERVICES

General. The Company is one of the few dedicated air freight carriers in
the world capable of maintaining and repairing its own aircraft fleet (with the
exception of certain aircraft engine components), which range in size from its
Boeing 747s to its small prop aircraft. As a result, the Company has the
capacity to provide aircraft maintenance services to other aircraft operators.
The Company's maintenance services to third parties include primarily engine
overhauls and air frame repairs. In the last year, the Company serviced the
aircraft of Lufthansa, Spirit Airlines and Aero California. The Company has
extensive maintenance facilities in Oscoda and Ypsilanti, Michigan and Dallas,
Texas. Maintenance services at these facilities operate twenty-four hours per
day, seven days per week. See "Business -- Ground Facilities" below.

Engine and Airframe Maintenance. The Company provides FAA-certified
inspection, maintenance, overhaul and repair services for large and small jet
engines and auxiliary power units (with the exception of certain aircraft engine
components) at both the Ypsilanti and Oscoda facilities, including all levels of
maintenance checks on large and small jet engines and auxiliary power units. The
Company also performs all levels of aircraft maintenance checks, as well as
modifying certain aircraft from passenger to freighter configuration. In
addition, the Company performs avionics maintenance, component overhaul, strip
and paint operations, sheet metal fabrications and repair and other related
services. The Company believes that it is one of a limited number of providers
of all levels of maintenance checks on large and small jet engines for third
parties.

Aircraft Components, Instruments and Accessories. The Company is certified
by the FAA to service the aircraft and engine accessories used in its fleet.
These accessories include hydraulic, pneumatic, electrical, mechanical and
electronic aircraft components. The Company also maintains an FAA-approved
station for repair of a wide variety of cockpit instrumentation. This portion of
the Company's business, operated as the Aerodata Aircraft Instrument Division,
services instrumentation, not only for the Company, but also for outside
customers, including the Pentastar Aviation Division of the Chrysler
Corporation, Reliant Airlines and American Trans Air, Inc.

AIRCRAFT FLEET

The Company currently owns 124 aircraft and leases 5 aircraft from third
parties, not including two aircraft held for sale and the Company's undivided
one-third interest in four Falcon 20C jet aircraft. Of these aircraft, the
Company operates 119 aircraft in revenue service. The following is a summary of
certain information on these aircraft:

Large Aircraft

<TABLE>
<CAPTION>
NUMBER
OPERATED
NUMBER NUMBER IN
MANUFACTURER OWNED BY LEASED BY REVENUE NUMBER STAGE III
AND MODEL SERIES(1) THE COMPANY THE COMPANY SERVICE CONFIGURATION MAXIMUM PAYLOAD(2) COMPLIANT(3)
- --------------- --------- ----------- ----------- -------- ------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Boeing 747 200 4 -- 2(4)(5) Freight 213,000-245,000 lbs. 4
Boeing 747 100 3 -- 2(5) Freight 218,000 lbs. 3
Boeing 747 100 2 -- 2 Passenger 476 passengers 2
Lockheed L-1011 200 6 -- 6 Freight 125,000 lbs. 6
Lockheed L-1011 200 2 -- 2 Passenger 354 passengers 2
Douglas DC-8 60 11 -- 11 Freight 80,000-112,000 lbs. 6
Douglas DC-8 50 9 -- 8(6) Freight 58,500-97,300 lbs. 0
Boeing 727 200 24 4 28 Freight 44,000-63,000 lbs. 10
Boeing 727 200 4 -- --(7) Passenger 160 passengers 1
Boeing 727 100 2 1 3 Freight 40,000-54,500 lbs. 0
Douglas DC-9 15F 5 -- 5 Freight 22,000-24,000 lbs. 3
-- --- -- --
Total 72 5 69 37
== === == ==
</TABLE>

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

(1) The series designation for certain models of aircraft shown varies within
the designation listed. The Company, for example, owns Douglas DC-8-60
series aircraft with sub-series designations of 61, 62 and 63.
(2) All figures are approximate and vary from aircraft to aircraft.

(continued on following page)

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<PAGE> 72

(3) This column indicates how many of the listed aircraft are now compliant with
the Stage III noise control standards. Aircraft not meeting this standard
must either be modified to do so or removed from domestic service before
January 1, 2000. See "Risk Factors -- Government Regulation" and
"Business -- Government Regulation."
(4) One of these Boeing 747s was recently acquired by the Company and is
currently being modified to freighter configuration. In addition, the
Company expects to purchase the Optioned Boeing 747s.
(5) One of these Boeing 747s is currently effectively grounded due to a series
of Directives restricting its payload. See "-- Boeing 747 Airworthiness
directives."
(6) One of these DC8s is currently leased to Trans Continental Airlines, Inc.
See "Certain Transactions."
(7) Two of these Boeing 727s are currently leased to third parties and two were
recently returned to the Company by a lessee.

The aircraft described above do not include one passenger configured Boeing
727-100 which the Company is currently negotiating to sell. This sale is
expected to be consummated before the end of 1997.

Small Aircraft

<TABLE>
<CAPTION>
PROPULSION
MANUFACTURER MODEL(1) NUMBER(2) CONFIGURATION(3) TYPE MAXIMUM PAYLOAD(4)
------------ -------- --------- ---------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Convair 640 2 Freight Turbo-prop 18,000 lbs.
Convair 600 5 Freight Turbo-prop 12,000-14,000 lbs.
Falcon(5) 20C 1 Freight Jet turbine 6,000 lbs
Lear L-36-A 1 Freight/Passenger/Ambulance Jet turbine 3,000 lbs./8 passengers
Lear L-35-A 1 Freight/Passenger/Ambulance Jet turbine 3,000 lbs./8 passengers
Lear L-25 8 Freight/Passenger/Ambulance Jet turbine 3,000 lbs./8 passengers
Lear L-24 6 Freight/Passenger/Ambulance Jet turbine 2,000 lbs./5 passengers
Lear L-23 4 Freight/Passenger/Ambulance Jet turbine 2,000 lbs./5 passengers
Hansa HFB-320 3 Freight Jet turbine 4,000 lbs.
Westwind 1124 1 Passenger Jet turbine 8 passengers
Mitsubishi MU-2B 2 Freight/Passenger Turbo-prop 1,500 lbs./6 passengers
Mitsubishi MU-2B 1 Freight/Passenger/Ambulance Turbo-prop 2,000 lbs./7 passengers
Beechcraft BE8T 12 Freight Turbo-prop 3,400 lbs.
Cessna C-152 2 Passenger Piston prop 4 passengers
Cessna C-172 1 Passenger Piston prop 4 passengers
Piper PA-32-300 2 Freight/Passenger Piston prop 1,200 lbs./6 passengers
--
Total 52
==
</TABLE>

- ---------------
(1) The series designation for each model of aircraft shown varies within the
designation listed. For example, Mitsubishi MU-2B aircraft have series
designations of 20, 25 and 35.
(2) Each of these aircraft is owned by the Company and operated by the Company
in revenue service, except the Westwind 1124 which is utilized solely to
transport Company personnel and the Falcon 20C which is currently being
modified from passenger to freighter configuration.
(3) Not all aircraft of a particular type are configured for each of the
multiple uses shown.
(4) All figures are approximate.
(5) This aircraft is currently being converted from passenger to freighter
configuration.

The aircraft described above do not include (i) the Company's undivided
one-third interest in four Falcon 20C jet aircraft presently leased to a third
party operator and (ii) one Hawker Siddeley HS-125 which the Kalitta Companies
anticipate selling to Mr. Kalitta prior to or immediately after closing. See
"Certain Transactions." The Company historically has followed, and currently
intends to follow, a policy of retiring Convairs at the time of their next
scheduled major overhaul maintenance checks rather than expending the amounts
necessary to complete such checks.

Boeing 747 Airworthiness Directives. In January 1996, the FAA issued a
series of Directives on certain Boeing 747 aircraft which were modified for
freight hauling by GATX-Airlog Company, a subsidiary of General American
Transportation Corp ("GATX"). The Directives, which became effective on January
30, 1996, were issued because of concerns relating to the integrity of the cargo
door and surrounding floor area in the event the aircraft were operated at their
maximum cargo capacity of approximately 220,000 pounds. In spite of the fact
that the aircraft affected by the Directives have flown over 83,000 hours
without incident, the Directives require certain modifications to be made to the
aircraft. Absent such modifications, the Directives limit the cargo capacity of
these aircraft to 120,000 lbs., a limit which significantly restricts the
Company's ability to profitably operate the aircraft.

One of each of the Kalitta Companies' Boeing 747-200 and Boeing 747-100
freighters are affected by these Directives and have been out of service since
January 1996. GATX has proposed a solution to the

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problem identified by one of the Directives which has been approved by the FAA.
An appropriate means to test the proposed solution, however, has not yet been
identified. Currently, the Company anticipates modifying the Boeing 747-100 to
be in compliance with a portion of the Directive for which the FAA has approved
a solution by the latter half of 1998, which will allow the Company to operate
it with a reduced cargo capacity of 160,000 lbs. The Company is awaiting
engineering solutions to address the remaining Directives. If the cost necessary
to implement fully these solutions and return both the Boeing 747-100 and -200
to maximum cargo capacity is uneconomical, the Company may either operate one or
both of the aircraft at limited load or use one or both of them for spare parts.
The Company is currently involved in litigation against GATX to recover the cost
to the repair these aircraft as well as revenues lost as a consequence of the
aircraft downtime. See "Business -- Litigation."

Acquisition of Optioned Boeing 747s. In September 1997, the Kalitta
Companies acquired one Boeing 747, its associated engines and one spare engine
for approximately $21 million. The Company is currently converting this Boeing
747 to freighter configuration for an estimated additional $8 million. In
October 1997, the Kalitta Companies entered into an option to purchase for $40
million (i) the Optioned Boeing 747s and associated engines, (ii) two additional
spare engines and (iii) certain other related spare parts and support equipment.
The Company expects to complete the purchase of the Optioned Boeing 747s by the
end of January 1998. In addition, the Company expects to spend an additional
approximately $16 million to convert the Optioned Boeing 747s from passenger to
freighter configuration. The Optioned Boeing 747s and the one recently acquired
Boeing 747 are not affected by the Directive related to Boeing 747s modified by
GATX. See "Use of Proceeds."

Adding the Optioned Boeing 747s and the recently acquired Boeing 747 to the
Company's operating fleet will substantially increase the Company's long-haul
lift capacity and enable expansion of its current ACMI operations in Central and
South America. The addition of these aircraft will also enable the Company to
expand its service in the Middle East market and to Asia where the need for
long-haul, heavy-lift air cargo service is expected to grow.

Boeing 727 Cargo Door and Floor Modifications Regulations. The Company
currently operates a fleet of 31 Boeing 727s, all of which were previously
converted from passenger configuration to freighter configuration by the
installation of a large cargo door and numerous interior modifications for cargo
container handling systems. The aircraft conversions were approved by the FAA
upon the issuance of supplemental type certificates ("STCs") to four firms that
engineered and designed the conversion hardware and aircraft modification
processes. Thirty of the Company's aircraft have been modified utilizing STCs
held by three of these four firms.

The FAA has reevaluated the engineering analysis which supported the
issuance of the Boeing 727 cargo modification STCs and has preliminarily
determined that the STC design features do not meet FAA certification criteria
in several respects. The FAA has issued a proposed Directive to address the
first of the FAA's concerns -- the structural strength of the aircraft floor
structure. Other areas of concern relate to the strength of various
cargo-handling system components of the Boeing 727 aircraft and are expected to
be addressed by the FAA in subsequently issued Directives.

If the proposed Directive is adopted, each operator of Boeing 727 freighter
aircraft modified by any of the four firms will be required to limit the weight
of each container (or pallet) position and to adopt other aircraft operating
restrictions depending on the configuration of the aircraft, until the operator
can demonstrate that the floor strength meets the FAA's certification criteria.
Under the proposed Directive, the Company would be required to limit the weight
per container/pallet position to approximately 4,000 pounds from a current
maximum of 8,000 pounds. After a period of 120 days from the date the Directive
becomes effective, the maximum per position weight will be fixed at
approximately 3,000 pounds, until the Company can demonstrate that the floor
strength meets the FAA's certification criteria. The Company believes this
Directive will not have a material adverse effect on the Company and value of
the Common Stock.

The Company is urging the FAA to allow additional time before requiring
operators to modify the aircraft to bring them into compliance. In addition, the
Company is working with the STC holders which are performing engineering
analysis to seek a cost effective solution. There can be no assurance as to the
terms of

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<PAGE> 74

the final Directive and whether a satisfactory solution can be engineered. If no
such solution is developed and approved by the FAA, the capacity of the
Company's Boeing 727 fleet will be reduced. The FAA's proposed Directive is
being opposed on its merits by a number of Boeing 727 operators. One of the
Company's Boeing 727 aircraft was converted to freighter configuration by Boeing
and is not subject to the foregoing proposed Directive.

TRAINING AND SAFETY

The Company's management believes that high quality personnel and intensive
training programs are key to the Company's success and the maintenance of a good
safety record. As a result, the Company hires experienced flight crews and
maintenance personnel and ensures that both receive ongoing training. The
Company maintains its own Douglas DC-8 simulator in Miami which it both uses to
train its own pilots and hires out for use by other airlines. The Company also
makes use of the training facilities of other airlines, including American
Airlines, Northwest Airlines, TWA and United Airlines.

The Company has an ongoing safety program that employs an industry standard
database to track safety performance. Open facsimile and phone lines are
available for crews to report safety problems which are entered into the
database and monitored for any re-occurrence. Direct communication between
flight crews and Company management is available at all times through the
Company's dispatch system. The Company also maintains on-line communications
with other airlines and agencies.

During the last five years, the Kalitta Companies had eight accidents and
several other safety related incidents involving its aircraft with varying
degrees of damage to the aircraft involved. In 1992, the pilot of one of the
Kalitta Companies' small aircraft was fatally injured in one of these accidents.
In September 1996, pursuant to the FAA's National Aviation Safety Inspection
Program, the Kalitta Companies underwent a broad but routine inspection of all
of the Kalitta Companies' aircraft and maintenance operations. As a consequence
of the FAA's inspection, the FAA and the Kalitta Companies entered into a
Consent Order in January 1997 which required the Kalitta Companies to revise
certain internal policies and procedures to address certain regulatory
violations noted in the inspection report. See "Risk Factors -- Government
Regulation" and "Business -- Government Regulation."

SALES AND MARKETING

The Company's marketing focus is on major users of air freight
transportation services and other logistics providers. In connection with the
Company's emphasis on developing and maintaining long-term relationships with
major customers, the Company employs 25 account managers who are dedicated to
major accounts. An account manager is responsible for educating the client about
the Company's service capabilities, ensuring quality service and determining how
the Company can best serve the customer. The marketing effort on behalf of the
air freight carrier business is primarily focused on selected freight forwarders
and integrators and existing customers. The Company also dedicates two
individuals to passenger air charter marketing and intends to increase its sales
efforts for third party maintenance services. The Company does not engage in
mass media advertising. The Company, however, does promote its business through
trade specific publications and trade shows as well as through its sponsorship
of drag and short-track racing.

The Company believes that retaining existing customers is equally as
important as generating new clients and is a direct result of customer
satisfaction. The Company will continue to upgrade its database, information
software and tracking systems to maintain high quality service. The Company has
developed a feature that enables customers to access the Company's aircraft
tracking system on a "real time" basis to monitor their own freight. This
feature contributes to customer satisfaction and allows account managers to be
more productive by reducing time spent updating customers on the status of
shipments.

MAINTENANCE

The Company's aircraft require considerable maintenance in order to remain
in compliance with FAA regulations. Any equipment being placed on the Company's
operating certificate is inspected and repaired prior to being utilized by the
Company for either on-demand or contract charters. The Company has extensive

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<PAGE> 75

maintenance facilities in Oscoda and Ypsilanti, Michigan and Dallas, Texas. The
Company also has significant maintenance capability in Los Angeles, Miami and
Terre Haute, Indiana. Maintenance services at Ypsilanti, Oscoda, Dallas, Los
Angeles and Miami operate twenty-four hours per day, seven days per week. See
"Business -- Services -- Aircraft Maintenance Services."

GROUND FACILITIES

General. The Company's facilities consist of office space, hangars,
maintenance facilities and warehouse and storage space. Some of the Company's
hangar facilities are constructed on property ground leased from airport owners.
Accordingly, the hangar improvements revert to the owner when the ground lease
expires. These leases expire on various dates through November 2021. The Company
also has various agreements with municipalities and governmental authorities
that own and operate airports throughout the United States. These agreements
generally relate to the Company's use of general airport facilities, but may
also include leases or licenses to use hangar and maintenance space.

The following is a summary of the Company's major facilities:

<TABLE>
<CAPTION>
LOCATION USE OF SPACE OWNED/LEASED/LICENSED
-------- ------------ ---------------------
<S> <C> <C>
1515 West 20th Street, Company headquarters Owned (1)
Dallas/Fort Worth International Airport, TX
1349 South Huron, Ypsilanti, MI Offices(2) Leased
Willow Run Airport, Ypsilanti, MI Office, hangar, maintenance, fuel farm & Leased
storage
N. I-94 Service Drive, Ypsilanti, MI Office, storage & maintenance Owned
Oscoda, MI Office, hangar, maintenance, housing, fuel Leased
farm & storage
Hulman Regional Airport, Terre Haute, IN Office, hangar and sorting space Licensed
Los Angeles International Airport Office, hangar & ramp Leased
Honolulu International Airport(3) Office & warehouse Leased
Miami International Airport Office, hangar, ramp & maintenance Leased
</TABLE>

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

(1) The Company owns the building and improvements and leases the land from the
Dallas/Fort Worth International Airport.
(2) The Kalitta Companies lease their headquarters building from a limited
liability company owned by Mr. Kalitta, his son Scott Kalitta and his nephew
Doug Kalitta. See "Certain Transactions."
(3) The Company has constructed a warehouse at the Honolulu International
Airport which it leases to AIC. See "Certain Transactions."

Proposed New Sorting Facility. The Company currently licenses its sorting
space at the Hulman Regional Airport in Terre Haute, Indiana from Roadway Global
Air for a term which will expire in August 1998. Because of the growth in the
volume of freight shipped in its domestic scheduled service, the lack of
available expansion space and the limited airport facilities in Terre Haute, the
Company plans to move this sorting center to Fort Wayne, Indiana in the spring
of 1999. As part of a proposed $33.1 million bond issue by the Fort Wayne
Authority, the Fort Wayne Authority would develop an air trade center with the
Company as its principal tenant. This center would be a foreign free trade zone
and have customs support for international operations. Other planned
improvements include the addition of a second runway to the airport's existing
11,000 foot runway and the expansion and improvement of associated ramp and
other facilities and infrastructure. Under a proposed 20 year lease from the
Fort Wayne Authority, the Company would occupy a sorting facility with 264,000
square feet of space (including office space), a 17,000 square foot operations
building, a 79,000 square foot maintenance hangar (large enough to
simultaneously accommodate a wide- and narrow-bodied aircraft) and a new fuel
facility. The Company has entered into discussions with the Hulman Regional
Airport Authority to obtain an interim lease of its current space in Terre Haute
until it is able to move to Fort Wayne. There is no assurance that the Company
will be able to extend the term of the sort space sublease. See "Risk
Factors -- Availability of Facilities."

Oscoda Base. The Company subleases its maintenance facility at the former
Wurtsmith Air Force Base in Oscoda, Michigan from the Oscoda-Wurtsmith Airport
Authority pursuant to a prime lease from the U.S. Government. These subleases
vary in duration from month-to-month to long-term (the last of which expires

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in December 2015) and are subject to earlier termination upon termination of the
prime lease between the U.S. Government and the Wurtsmith Authority. Under the
subleases, the Company has access to an 11,800 foot lighted runway equipped for
full instrument approach, as well as office, hangar, maintenance and storage
space. The hangar space includes seven hangars, two of which can completely
enclose a single wide-bodied aircraft or two narrow-bodied aircraft. This
ability to completely enclose aircraft is critical to meeting important FAA
maintenance requirements. Because the Oscoda facility is a former Air Force
base, it is also complete with living quarters and support buildings, which the
Company leases from Oscoda Township under leases of varying duration from
month-to-month to long-term, the last of which expires in August 2005. Until
2011, the Oscoda facility is part of a "renaissance" zone which means that the
Company does not pay real or personal property taxes on its facilities and
equipment in Oscoda.

EMPLOYEES

General. At September 30, 1997, on a pro forma basis assuming the Merger
had occurred prior to such time, the Company would have employed approximately
3,600 full-time personnel, of which approximately 200 would have been involved
in sales and administrative functions and approximately 3,400 in maintenance and
flight operations (including approximately 800 pilots). The Company considers
its relations with its employees to be satisfactory. The Company intends to
motivate certain employees through ownership of Common Stock and options to
purchase Common Stock and to encourage all employees to own Common Stock.

Collective Bargaining Agreement with Flight Crews of the Kalitta Companies.
Certain employee pilots and flight engineers of the Kalitta Companies are
members of the Teamsters Union and are employed pursuant to the Collective
Bargaining Agreement. The Collective Bargaining Agreement became amendable on
August 29, 1997, but remains in effect while the parties are in negotiation for
a successor collective bargaining agreement. Pilots and flight engineers subject
to the agreement are guaranteed pay based upon a minimum of 60 block hours per
month. The agreement requires that all flight crew personnel must meet minimum
qualifications and includes typical seniority, furlough, grievance, group health
insurance, sick leave and vacation provisions. The seniority provisions require
that the most senior flight crews have the opportunity to operate larger
aircraft or move to new crew positions as aircraft or crew positions become
available by reason of flight crew attrition or aircraft acquisitions. As a
consequence, the contract obligates the Company to incur costs to retrain crews
as they advance in seniority and progress to new aircraft or crew positions. In
addition, the Company may incur costs to train flight crews to fill positions
vacated by more senior flight crews. The collective bargaining agreement
provides that so long as it is in effect, the Teamsters Union will not authorize
a strike and the Kalitta Companies will not lockout union employees. Although
the Kalitta Companies and the Teamsters Union have commenced "interest-based"
bargaining, there can be no assurance that a new collective bargaining agreement
can be reached or that negotiations will not result in work stoppages, a
substantial increase in salaries or wages, changes in work rules or other
changes adverse to the Company.

ENVIRONMENTAL

The Company's operations must comply with numerous environmental laws
ordinances and regulations regarding air quality and other matters. Under
current federal, state and local environmental laws ordinances and regulations,
a current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of contamination from hazardous or
toxic substances, or the failure to remediate such contaminated property
properly, may adversely affect the ability of the owner of the property to use
such property as collateral for a loan or to sell such property. Environmental
laws also may impose restrictions on the manner in which a property may be used
or transferred or in which businesses may be operated and may impose remedial or
compliance costs. The costs of defending against claims of liability or
remediating contaminated property and the cost of complying with environmental
laws could have a material adverse effect on the Company and the value of the
Common Stock.

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The Company leases office space, hangar space, ramp space and unimproved
area at various airport locations throughout the U.S. See "Business -- Ground
Facilities." Most of these leases require the Company to indemnify the lessor
for any environmental contamination caused by the Company. In particular, the
Company leases an underground fuel storage facility from Wayne County, Michigan
at Willow Run Airport. If the soil or groundwater in the vicinity of this
underground facility is found to be contaminated by environmental regulators,
the Company will lose its right to continue to use the facility. Moreover, the
lease provides that the Company will be solely responsible for the costs to
remediate any such contamination. If such contamination occurs or is otherwise
discovered by governmental authorities during the term of the lease with Wayne
County, the Company may incur significant expense to effect either or both of
required relocation of operations or the required clean-up.

The Company is aware of the presence of environmental contamination on
properties that the Kalitta Companies lease or own. The Company does not believe
that the costs of responding to the known contamination should or will be borne
solely by the Company, if at all. While the Company does not believe that the
costs of responding to the presence of such contamination is likely to have a
material adverse effect on the Company or the value of the Common Stock there
can be no assurance in this regard. Pursuant to the Merger Agreement, Mr.
Kalitta has agreed, subject to certain limitations, to indemnify the Company for
a period of four years against any losses arising with respect to environmental
liabilities related to contamination at any of the Kalitta Companies'
facilities. See "The Merger -- Indemnitees."

GOVERNMENT REGULATION

General. The Company is subject to Title 49 of the United States Code
(formerly the Federal Aviation Act of 1958, as amended), under which the DOT and
the FAA exercise regulatory authority over air carriers. The DOT is primarily
responsible for regulating economic issues affecting air service, including,
among other things, air carrier certification and fitness, insurance, consumer
protection, unfair methods of competition and transportation of hazardous
materials. The FAA is primarily responsible for regulating air safety and flight
operations, including, among other things, airworthiness requirements for each
type of aircraft the Company operates, pilot and crew certification, aircraft
maintenance and operational standards, noise abatement, airport slots and other
safety-related factors. Certain of the Company's aircraft are subject to
Directives which require modifications to the affected aircraft. See "-- Fleet."
In addition, the Company is subject to regulation by various other federal,
state, local and foreign authorities, including the Department of Defense and
the Environmental Protection Agency.

The Company's international operations are governed by bilateral air
services agreements between the United States and foreign countries where the
Company operates. Under some of these bilateral air services agreements, traffic
rights in those countries are available to only a limited number of and in some
cases only one or two, U.S. carriers and are subject to approval by the
applicable foreign regulators, limiting growth opportunities in such countries.

The DOT views the Merger as a de facto transfer of the Kalitta Companies'
foreign operating authority, which requires prior DOT approval. Consequently,
Kitty Hawk and the Kalitta Companies filed an application with the DOT seeking
temporary and permanent approval to transfer the Kalitta Companies' foreign
operating authority to Kitty Hawk. On November 6, 1997, the DOT granted Kitty
Hawk and the Kalitta Companies a temporary exemption from the requirement to
receive DOT approval prior to the de facto transfer. While the Company believes
it will receive permanent approval of the de facto transfer from the DOT, there
can be no assurance in this regard. In the event the Company does not receive
permanent DOT approval, the Company

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would be required, at its option, either to relinquish the Kalitta Companies'
foreign operating authority or divest itself of the Kalitta Companies.

Safety, Training and Maintenance Regulations. The Company's operations are
subject to routine, and periodically more intensive, inspections and oversight
by the FAA. Following a review of safety procedures at ValuJet, the FAA adopted
changes to procedures concerning oversight of contract maintenance and training.
The Company believes it is currently in compliance with such changes. It is
possible that subsequent events, such as the recent crash of a cargo aircraft
owned by Fine Air could result in additional Directives, which could have a
material adverse effect on the value of the Common Stock.

In September 1996 pursuant to the FAA's National Aviation Safety Inspection
Program, the Kalitta Companies underwent a broad inspection of all of the
Kalitta Companies' aircraft and maintenance operations. This inspection resulted
in a report from the FAA citing the Kalitta Companies with a number of
regulatory infractions, none of which were sufficiently serious to cause the FAA
to curtail or otherwise restrict any of the Kalitta Companies' operations. As a
consequence of the FAA's inspection, however, the FAA and the Kalitta Companies
entered into a Consent Order in January 1997 which required the Kalitta
Companies to revise certain internal policies and procedures to address the
regulatory violations noted in the inspection report as well as enforcement
actions that had been pending prior to the inspection. Without admitting any
fault, the Kalitta Companies agreed to pay a fine of $450,000, one-third of
which is suspended and will be forgiven if the Kalitta Companies comply with all
the terms of the Consent Order. At this time, the Kalitta Companies' management
believes they are in compliance with the Consent Order and expects the FAA to
conduct another inspection of similar scope in the fourth quarter of 1997 to
verify such compliance. The Consent Order also provides that it is a full and
conclusive settlement of any civil penalties the Kalitta Companies could incur
for regulatory violations occurring before January 1, 1997, but does not
preclude the FAA from taking enforcement action to revoke Kalitta Companies' air
carrier operating certificate.

Aging Aircraft Regulations; Potential Compliance Costs. All of the
Company's aircraft are subject to Service Bulletins and Directives issued under
the FAA's "Aging Aircraft" program or issued on an ad hoc basis. These Service
Bulletins or Directives could cause certain of these aircraft to be subject to
extensive aircraft examinations and require certain of these aircraft to undergo
structural inspections and modifications to address problems of corrosion and
structural fatigue at specified times. It is possible that additional Service
Bulletins or Directives applicable to the types of aircraft included in the
Company's fleet could be issued in the future, particularly in light of recent
aircraft crashes at ValuJet and Fine Air. The cost of compliance with such
Directives and Service Bulletins cannot currently be estimated, but could be
substantial.

Noise Abatement Regulations. Airline operators must comply with FAA noise
standard regulations primarily promulgated under the Airport Noise and Capacity
Act of 1990 (the "Noise Regulations"). Currently, Kitty Hawk and the Kalitta
Companies are, and upon consummation of the Merger, the Company will be, in
compliance with the Noise Regulations. The Company owns 72 aircraft and leases 5
aircraft which are affected by the Noise Regulations, including nine Boeing 747s
(two of which are effectively grounded due to a series of Directives unrelated
to Noise Regulations), eight Lockheed L-1011s, 20 Douglas DC-8s, 35 Boeing 727s
(not including one aircraft held for sale) and five Douglas DC-9-15Fs
(collectively, the "Jet Fleet"). Of the aircraft in the Jet Fleet, 37 are
currently in compliance with Stage III noise control standards, including all of
the Company's Boeing 747s and Lockheed L-1011s. The Company must bring the Jet
Fleet into Stage III compliance by January 1, 2000. Any aircraft in the Jet
Fleet that is not in compliance with the Stage III noise control standards on
January 1, 2000 may not be operated in the U.S. until it complies with such
standards. There can be no assurance that the Company will have sufficient funds
or be able to obtain financing to cover the costs of modifying additional
aircraft to meet these deadlines. The failure to modify these aircraft could
have a material adverse effect on the Company's financial condition or results
of operations. In addition, certain airport operators have adopted local
regulations which, among other things,

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impose curfews and other noise abatement requirements. Finally, the Company's
international operations are affected by noise regulations in foreign countries
which may be stricter than those in effect in the U.S.

Only six of the Company's 20 Douglas DC-8 aircraft comply with the Stage
III noise control standards. The Company may elect not to modify the 14
remaining Douglas DC-8 aircraft to meet the Stage III noise control standards
because the anticipated cost of approximately $3.5 million per aircraft (not
including aircraft downtime) may exceed the economic benefits of such
modifications. If the Company cannot or does not modify these 14 Douglas DC-8
aircraft, the Company will have to remove these aircraft from service in the
United States before January 1, 2000 and may have to replace them with other
aircraft. In addition, 24 of the Company's Boeing 727 aircraft currently do not
comply with the Stage III noise control standards. The Company currently
anticipates modifying its Boeing 727 fleet (at an anticipated cost of
approximately $43 million, not including aircraft downtime) to be in compliance
with the Stage III noise control standards by the applicable deadlines. However,
there can be no assurance regarding the actual cost or that the Company will
have sufficient funds or be able to obtain financing to cover the costs of these
modifications or to replace such aircraft.

Hazardous Materials Regulations. The DOT exercises regulatory jurisdiction
over the transportation of hazardous materials. The Company may from time to
time transport articles that are subject to these regulations. Shippers of
hazardous materials share responsibility for compliance with these regulations
and are responsible for proper packaging and labeling. Substantial civil
monetary penalties can be imposed on both shippers and air carriers for
infractions of these regulations.

Foreign Operations Regulated. Certain of the Company's operations are
conducted between the U.S. and foreign countries, as well as wholly between two
or more points that are all located outside of the United States. As with the
certificates and licenses obtained from U.S. authorities, the Company must
comply with all applicable rules and regulations imposed by these foreign
aeronautical authorities or be subject to the suspension, amendment or
modification of its operating licenses issued by those authorities.

Stock Ownership by Non-U.S. Citizens. Under current federal aviation law,
the Company's air freight carriers could cease to be eligible to operate as air
freight carriers if more than 25% of the voting stock of the Company were owned
or controlled by non-U.S. citizens. Moreover, in order to hold an air freight
carrier certificate, the president and two-thirds of the directors and officers
of an air freight carrier must be U.S. citizens. All of the Company's directors
and officers are U.S. citizens. Furthermore, (i) the Certificate of
Incorporation limits the aggregate voting power of non-U.S. persons to 22 1/2%
of the votes voting on or consenting to any matter and (ii) the Bylaws do not
permit non-U.S. citizens to serve as directors or officers of the Company.

INSURANCE

The Company is vulnerable 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 involving injury to persons or
property. The Company is required by the DOT to carry liability insurance on
each of its aircraft and many of the Company's aircraft leases and contracts
also require the Company to carry such insurance. The Company also carries
medical liability insurance. Any extended interruption of the Company's
operations due to the loss of an aircraft could have a material adverse effect
on the Company and the value of the Common Stock. The Company currently
maintains public liability and property damage insurance and aircraft liability
insurance for each of the aircraft in the revenue fleet in amounts consistent
with industry standards. All-risk aircraft hull insurance is maintained for all
aircraft in the revenue fleet other than the Convairs and Beechcraft BE8Ts. The
Company maintains baggage and cargo liability insurance if not provided by its
customers under contracts. Although the Company believes that its insurance
coverage is adequate, there can be no assurance that the amount of such coverage
will not be changed upon renewal 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 Company and the value of the Common
Stock. The Company attempts to monitor the

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amount of liability insurance maintained by the third party carriers utilized in
its air logistics business through, among other things, the obtaining of
certificates of insurance.

LEGAL PROCEEDINGS

GATX Litigation. In January 1997, the Kalitta Companies filed suit against
GATX (the "GATX Litigation") to recover damages related to the January 1996
effective grounding of two of the Kalitta Companies' Boeing 747s pursuant to the
Directive affecting GATX-modified Boeing 747s. See "Business -- Aircraft
Fleet -- Boeing 747 Airworthiness Directive." Other defendants include Pemco
Aeroplex Co. (the successor to Hayes International, Inc.) which developed the
design for the STC relating to the modifications and Central Texas Airborne
Systems, Inc. (successor to Chrysler Technologies Airborne Systems, Inc.) which
modified the Kalitta Companies' Boeing 747s as a subcontractor for GATX. The
suit is pending in the Federal District Court for the Northern District of
California and covers a variety of claims.

In connection with the consummation of the Merger, the Company will enter
into an agreement with Mr. Kalitta that will provide that any amounts recovered
by the Company through the GATX Litigation shall be applied first to reimburse
the Company for its legal costs incurred in connection with the GATX Litigation
and then to correct the mechanical problems associated with the grounded Boeing
747s. Any additional amounts will be allocated 10% to the Company and 90% to Mr.
Kalitta. In the event the amounts recovered by the Company, if any, are
insufficient to reimburse the Company for its legal costs incurred in connection
with the GATX Litigation, Mr. Kalitta will reimburse the Company for the
unreimbursed portion of its legal costs related to the GATX Litigation incurred
after October 23, 1997.

U.S. Postal Service Contract. In September 1992, the U.S. Postal Service
awarded an air freight services contract to Kitty Hawk and one of the Kalitta
Companies, as co-bidders. Emery Worldwide Airlines, Inc. ("Emery") (the
incumbent) sued to enjoin the award. This litigation (the "ANET Litigation") was
settled in April 1993 by agreements under which the U.S. Postal Service
terminated the contract for convenience and awarded the contract to Emery. In
lieu of damages for the contract's termination, the U.S. Postal Service paid $10
million into an escrow account to be divided between Kitty Hawk and one of the
Kalitta Companies. Also under the settlement, Emery paid $2.7 million into the
escrow account and agreed to pay $162,500 into the escrow account each quarter
for up to 10 years, so long as the Emery contract remained in effect. Before
settling the ANET Litigation, Kitty Hawk, one of the Kalitta Companies and
Messrs. Christopher and Kalitta agreed, among other things, to hold the escrowed
funds in escrow until they had agreed upon an allocation and distribution, or
until the matter was resolved by binding arbitration. Subsequent disagreements
led to litigation and arbitration among Kitty Hawk, one of the Kalitta Companies
and Messrs. Christopher and Kalitta that were resolved pursuant to a
comprehensive settlement reached in August 1994. Under the comprehensive
settlement, Kitty Hawk received approximately $3.5 million in cash from the
escrowed funds and obtained a Boeing 727-200. Also under the comprehensive
settlement agreement, Mr. Christopher received rights to one-half of any future
contingent quarterly payments from Emery.

Routine Litigation. The Company from time to time is involved in various
routine legal proceedings incidental to the conduct of its business. As of the
date of this Prospectus, the Company was not engaged in any legal proceeding
expected to have a material adverse effect upon the Company and the value of the
Common Stock.

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<PAGE> 81

MANAGEMENT

The following table sets forth the executive officers and directors of the
Company, their ages and positions, immediately prior to the Merger. As of the
date hereof, there was one vacancy on the Board of Directors.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
M. Tom Christopher(1)................. 50 Chairman of the Board of Directors and
Chief Executive Officer
Tilmon J. Reeves...................... 58 President, Chief Operating Officer and
Director
Richard R. Wadsworth.................. 50 Senior Vice President -- Finance,
Chief Financial Officer, Secretary and
Director
Ted J. Coonfield(1)(2)................ 49 Director
James R. Craig........................ 59 Director
Lewis S. White(1)(2).................. 57 Director
</TABLE>

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

(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

Concurrently with the consummation of the Merger, Messrs. Craig and
Wadsworth will resign from the Board of Directors and Mr. Reeves will resign as
Chief Operating Officer of the Company, but will continue to serve as the
President of Kitty Hawk. Pursuant to the Merger Agreement, the vacancies in the
Board of Directors will be filled with Messrs. Kalitta, George W. Kelsey and
Philip J. Sauder. Immediately after the effectiveness of the Merger, the
executive officers and directors of the Company, their ages and positions will
be as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
M. Tom Christopher(1)................. 50 Chairman of the Board of Directors and
Chief Executive Officer
Conrad A. Kalitta..................... 59 Vice Chairman and Director
Tilmon J. Reeves...................... 58 President and Director
Richard R. Wadsworth.................. 50 Senior Vice President -- Finance,
Chief Financial Officer and Secretary
Ted J. Coonfield...................... 49 Director
George W. Kelsey...................... 57 Director
Philip J. Sauder(1)(2)................ 44 Director
Lewis S. White(1)(2).................. 57 Director
</TABLE>

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

(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

Immediately after effectiveness of the Merger, the members of the Company's
Board of Directors will be classified as follows:

Class I -- Serves until the 1998 Annual Meeting of Stockholders

Ted J. Coonfield
George W. Kelsey

Class II -- Serves until the 1999 Annual Meeting of Stockholders

Tilmon J. Reeves
Philip J. Sauder

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<PAGE> 82

Class III -- Serves until the 2000 Annual Meeting of Stockholders
M. Tom Christopher
Conrad A. Kalitta
Lewis S. White

M. TOM CHRISTOPHER has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since its inception in 1985 and after
effectiveness of the Merger, will serve in the class of directors whose terms
expire at the 2000 annual meeting of stockholders. He has over 20 years of
experience in the air freight industry.

CONRAD A. KALITTA. Upon consummation of the Merger, Mr. Kalitta will serve
as Vice Chairman of the Company and will serve in the class of directors whose
terms expire at the 2000 annual meeting of stockholders. Mr. Kalitta founded
each of the Kalitta Companies and has been the Chief Executive Officer of each
of the Kalitta Companies since that time. He also founded several other aircraft
service companies, some of which are now part of the Company. Mr. Kalitta is
also a professional drag racer in the "top-fuel" class and has won three
national championships.

TILMON J. REEVES has served as President and Chief Operating Officer of the
Company since May 1993 and has over 30 years of aviation experience.
Concurrently with the consummation of the Merger, Mr. Reeves will resign as the
Chief Operating Officer of the Company, but will continue to serve as the
President of Kitty Hawk. Prior to assuming his current positions, he served as
Vice President of the Company's air freight carrier from March 1992 to May 1993.
Mr. Reeves became a director in October 1994 and after effectiveness of the
Merger, will serve in the class of directors whose terms expire at the 1999
annual meeting of stockholders.

RICHARD R. WADSWORTH has served as Senior Vice President -- Finance since
October 1992, Chief Financial Officer since September 1994 and Secretary since
October 1994. Mr. Wadsworth became a director in October 1994 and pursuant to
the Merger Agreement will resign from the Board of Directors concurrently with
the consummation of the Merger.

TED J. COONFIELD became a director of the Company in October 1994 and after
effectiveness of the Merger, will serve in the class of directors whose terms
expire at the 1998 annual meeting of stockholders. Since October 1997, Mr.
Coonfield has been in private consulting practice. From April 1996 to October
1997, Mr. Coonfield has been a consultant with Performance Consulting Group, a
firm specializing in change management consulting primarily in the banking and
insurance industry. From January 1993 to April 1996, Mr. Coonfield was a
consultant with the Richard-Rogers Group, a consulting firm specializing in
total quality issues, where he primarily engaged in consulting for firms in the
transportation industry. Since 1985, Mr. Coonfield has been the President of
Oregon Wine Designs, Inc., a wine production and marketing firm.

JAMES R. CRAIG became a director of the Company in October 1994 and
pursuant to the Merger Agreement will resign from the Board of Directors
concurrently with the consummation of the Merger. Mr. Craig is an attorney who
has served of counsel to Burke, Wright & Keiffer, P.C. since 1990. Prior to his
affiliation with Burke, Wright & Keiffer, P.C., Mr. Craig was in private law
practice in Dallas since 1971 and in 1989 served as President of Whitehall
Development Company, a real estate development firm, of which he is now a
director.

GEORGE W. KELSEY. Upon consummation of the Merger, Mr. Kelsey will become a
director of the Company and will serve in the class of directors whose terms
expire at the 1998 annual meeting of stockholders. Mr. Kelsey has served as a
director of AIA since July 1995. Mr. Kelsey is currently the owner of Kelsey Law
Offices, P.C., a law firm located in Ann Arbor, Michigan. Mr. Kelsey has
practiced law in Michigan for 27 years, and has been the principal outside
counsel for the Kalitta Companies. Mr. Kelsey currently specializes in
commercial transactions and commercial litigation with emphasis in aviation law.

PHILIP J. SAUDER. Upon consummation of the Merger, Mr. Sauder will become a
director of the Company and will serve in the class of directors whose terms
expire at the 1999 annual meeting of stockholders. Mr. Sauder has served as a
director of AIA since July 1995. Mr. Sauder is currently a limited partner of
Carlisle Enterprises, L.P. which acquires manufacturers of engineered products
and the Chairman

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<PAGE> 83

and Chief Executive Officer of Alpha Technologies, U.S., L.P., which
manufactures high tech instrumentation for the polymer and rubber industries. He
participates in locating and evaluating acquisition targets. From 1989 through
1994, Mr. Sauder was employed by Abex, Inc., first as the general manager of its
Cleveland Pneumatic Division and then as the group vice president of its
Aerospace Division.

LEWIS S. WHITE became a director of the Company in October 1994 and after
effectiveness of the Merger, will serve in the class of directors whose terms
expire at the 2000 annual meeting of stockholders. Since 1988, Mr. White has
been President of L. S. White & Co., a firm engaged in business planning and
corporate finance. Prior to 1988, he held senior management positions with
Paramount Communications Inc. and Union Carbide Corporation. Mr. White is also a
director of Whitehall Corporation, a company principally involved in aircraft
maintenance.

DIRECTOR COMPENSATION

Pursuant to the Company's Bylaws, the members of the Board of Directors may
be compensated in a manner and at a rate determined from time to time by the
Board of Directors. Directors who are employees of the Company do not receive
additional compensation for service as a director. Under the Company's Omnibus
Securities Plan, directors who are not employees of the Company shall receive
shares of Common Stock in an amount equal to their net annual retainer (which is
currently approximately $14,000).

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to Kitty Hawk's October 1996 initial public offering (the "IPO"), Mr.
Christopher determined executive officer compensation. Subsequent to the IPO and
prior to November 6, 1996, Messrs. Robert F. Grammer (a former director of the
Company), Craig and Coonfield comprised the Company's Compensation Committee and
determined executive officer compensation. Subsequent to November 6, 1996,
Messrs. Coonfield and White comprised the Company's Compensation Committee and
determined executive officer compensation. After the effectiveness of the
Merger, Messrs. Sauder and White will comprise the Company's Compensation
Committee and determine executive officer compensation. None of the foregoing
individuals serving on the Compensation Committee are or have been officers or
employees of the Company or its subsidiaries.

Mr. Craig, a director of the Company, is of counsel to Burke, Wright &
Keiffer, P.C., counsel to the Company. During fiscal years 1994, 1995 and 1996
and the four months ended December 31, 1996, the Company paid an aggregate of
approximately $650,000 to Burke, Wright & Keiffer, P.C. for legal services
rendered.

During fiscal years 1994 and 1995, Martinaire East, Inc. ("Martinaire"), a
corporation 50% owned by Mr. Christopher, leased a Lear jet, 50% owned by Mr.
Christopher, from the Company and provided the Company with on-demand charter
services utilizing the Lear jet. During fiscal years 1994 and 1995, the Company
paid Martinaire $1 million and $232,000, respectively, for use of the Lear jet,
which amounts the Company believes represented market rates. The Company's
charges to Martinaire for leasing the Lear jet and related operating expenses
(at costs the Company believes represented market rates) went largely unpaid
until October 1994. At fiscal year end 1994, the balance owed to Kitty Hawk for
the Lear jet lease and related operating expenses was $481,297. No interest was
accrued on this amount. On October 24, 1994, the owners of the Lear jet,
including Mr. Christopher, agreed to sell the Lear jet. In connection with this
sale, Martinaire repaid the Company all unpaid amounts owed to the Company at
that date for the Lear jet lease and related operating expenses.

In August 1996, Kitty Hawk acquired an undivided one-third interest in four
Falcon 20 jet aircraft with two co-owners (the "Co-Owners") who are unaffiliated
with the Company and who each hold a one-third interest in such aircraft. An
interim acquisition note in the amount of $1,700,000, covering the purchase
price and necessary maintenance, was executed by Mr. Christopher and one of the
Co-Owners. In November 1996, Kitty Hawk and the Co-Owners each acquired an
undivided one-third interest in two additional Falcon 20 jet aircraft using the
proceeds of a new five-year, $4.3 million term loan that also repaid the interim
loan on the first two aircraft.

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<PAGE> 84

The Company and the Co-Owners entered into a co-ownership and contribution
agreement (the "Co-Ownership Agreement") which requires the parties to
contribute equally to the payment of all amounts due under the term loan and
under which the parties leased the four Falcon 20 jet aircraft to Ameristar Jet
Charters, Inc. ("Ameristar"), an air carrier affiliated with one of the
Co-Owners, for operation in cargo charter service. The lease calls for monthly
lease payments which exceed the installments on the term loan and requires
Ameristar to maintain the aircraft and to carry appropriate hull insurance on
the aircraft and liability insurance of at least $50 million combined single
limit coverage, with the Company and the Co-Owners named as loss payees and
additional insureds.

The Company believes that the terms of each transaction discussed above
were as favorable to Kitty Hawk as would have been obtainable from unaffiliated
parties under similar circumstances.

Under the terms of the settlement allocating the benefits of the ANET
Litigation, Mr. Christopher received rights to certain contingent future
payments. See "Business -- Legal Proceedings."

COMPENSATION

The table below sets forth information concerning the annual and long-term
compensation for services in all capacities to Kitty Hawk for fiscal years 1994,
1995 and 1996 and during the four months ended December 31, 1996, with respect
to those persons who were during the four months ended December 31, 1996 (i) the
Chief Executive Officer and (ii) the other two most highly compensated executive
officers of Kitty Hawk (collectively, with the Chief Executive Officer, the
"Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- ------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
---------------------------- ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
M. Tom Christopher 1996(1) $ 80,000 $ -- $ -- -- $ 81,250(2)
Chairman of the Board of 1996 195,500 719,419 -- -- 369,720(3)
Directors and Chief Executive 1995 120,000 898,731 -- -- 352,163(4)
Officer 1994 120,000 512,000 -- -- 25,022(5)
Tilmon J. Reeves 1996(1) 41,667 15,000 -- -- --
President and Chief 1996 125,000 85,000 3,726,182(6) 390,707 2,375(7)
Operating Officer 1995 125,000 108,335 -- 245,708(8) 2,310(7)
1994 101,000 225,000 -- -- 2,982(7)
Richard R. Wadsworth 1996(1) 36,664 15,000 -- -- 583(7)
Senior Vice President 1996 110,000 70,000 1,464,572(6) 153,567 2,375(7)
Finance, Chief Financial 1995 110,000 70,000 -- 92,140(8) 2,262(7)
Officer and Secretary 1994 $110,000 $ 96,000 $ -- -- $ 1,675(7)
</TABLE>

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

(1) Represents the four months ended December 31, 1996.
(2) Consists of contingent payments received by Mr. Christopher under the ANET
Litigation settlement during the four months ended December 31, 1996.
(3) Consists of (i) contingent payments in the amount of $325,000 received by
Mr. Christopher under the ANET Litigation settlement during fiscal year
1996, (ii) life insurance premiums of $41,645 paid on Mr. Christopher's
behalf and (iii) matching contributions of $3,075 to the Company's 401(k)
Savings Plan for Mr. Christopher.
(4) Consists of (i) contingent payments in the amount of $325,000 received by
Mr. Christopher under the ANET Litigation settlement during fiscal year
1995, (ii) life insurance premiums of $25,500 paid on Mr. Christopher's
behalf and (iii) matching contributions of $1,663 to the Company's 401(k)
Savings Plan for Mr. Christopher.
(5) Consists of (i) matching contributions of $2,975 to the Company's 401(k)
Savings Plan for Mr. Christopher and (ii) life insurance premiums of $22,047
paid on Mr. Christopher's behalf. Does not include any contingent payments
to Mr. Christopher under the ANET Litigation settlement made subsequent to
fiscal year 1994.
(6) Represents the difference between the exercise price and the fair market
value of the Common Stock underlying the stock options on June 26, 1996, the
date of exercise, of the stock options granted in fiscal year 1996. See
"Management -- Stock Option Exercises."
(7) Consists of matching contributions to the Company's 401(k) Savings Plan.
(8) The option covering these shares was rescinded on June 12, 1996.

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<PAGE> 85

STOCK OPTION GRANTS

The following table sets forth certain information concerning options
granted in fiscal year 1996 to the Company's Named Executive Officers. Messrs.
Reeves and Wadsworth fully exercised these options on June 26, 1996. The Company
did not grant any options to the Company's Named Executive Officers in the four
months ended December 31, 1996 or the nine months ended September 30, 1997. No
options for the purchase of Common Stock are currently outstanding. The Company
has no outstanding stock appreciation rights and granted no stock appreciation
rights during fiscal year 1996, the four months ended December 31, 1996 or the
nine months ended September 30, 1997.

OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>

INDIVIDUAL GRANTS
---------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS FAIR VALUE ON
UNDERLYING GRANTED TO EXERCISE OR DATE OF
OPTIONS EMPLOYEES IN BASE PRICE GRANT
NAME GRANTED FISCAL YEAR ($/SH) ($/SH) EXPIRATION DATE
---- ---------- ------------ ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Tilmon J. Reeves...... 390,707 71.8% $0.01 $7.45 December 31, 2005
Richard R.
Wadsworth........... 153,567 28.2% $0.01 $8.63 December 31, 2015

<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
------------------------------------

NAME 5%($) 10%($) 0%($)
---- ---------- ---------- ----------
<S> <C> <C> <C>
Tilmon J. Reeves...... $4,737,426 $7,545,873 $2,910,665
Richard R.
Wadsworth........... $2,157,211 $3,435,907 $1,325,732
</TABLE>

STOCK OPTION EXERCISES

The following table sets forth certain information concerning options
exercised in fiscal year 1996 by certain of the Company's Named Executive
Officers. Messrs. Reeves and Wadsworth fully exercised these options on June 26,
1996.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED
---- --------------- ----------
<S> <C> <C>
Tilmon J. Reeves....................................... 390,707(1) $3,726,182
Richard R. Wadsworth................................... 153,567(2) $1,464,572
</TABLE>

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

(1) The Company withheld 156,283 of these shares in satisfaction of its
withholding obligations with respect to the exercise of these options.
(2) The Company withheld 61,427 of these shares in satisfaction of its
withholding obligations with respect to the exercise of these options.

EMPLOYEE COMPENSATION PLANS AND ARRANGEMENTS

Omnibus Securities Plan. The Company's Amended and Restated Omnibus
Securities Plan (the "Omnibus Plan") provides for stock based and non-stock
based compensation to Omnibus Plan participants, including nonqualified stock
options, incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, tandem and independent stock
appreciation rights, other derivative securities, stock bonuses, restricted
stock, awards denominated in stock units, securities convertible into stock,
phantom stock, dividend equivalent rights and performance awards that are
contingent upon the Company's performance or the performance of the Omnibus Plan
participant. The number of shares of Common Stock reserved for issuance under
the Omnibus Plan is 300,000 shares. The Omnibus Plan is administered by the
Compensation Committee of the Board of Directors. Awards under the Omnibus Plan
may contain provisions that, if a change in control of the Company occurs, give
the Compensation Committee discretion to offer to purchase awards from Omnibus
Plan participants and make adjustments or modifications to outstanding awards to
protect and maintain the rights and interests of the Omnibus Plan participants
or take any other action the award agreements may authorize. A change in control
of the Company is deemed to occur upon any of the following events (i) a
consolidation or merger in which the Company does not survive, unless the

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<PAGE> 86

Company's stockholders retain the same proportionate common stock ownership in
the surviving company after the merger, (ii) a sale of all or substantially all
of the Company's assets, (iii) the approval by the Company's stockholders of a
plan to dissolve or liquidate the Company, (iv) a third party acquires 20% or
more of the Company's voting securities or (v) during any two-year period,
persons who constituted a majority of the Company's Board of Directors at the
beginning of such period cease to serve as directors for any reason other than
death, unless each new director was approved by at least two-thirds of the
directors then still in office who were directors at the beginning of the
two-year period.

Annual Incentive Compensation Plan. Under the Company's Amended and
Restated Annual Incentive Compensation Plan (the "Annual Incentive Compensation
Plan"), the Compensation Committee may award semiannual bonuses to employees of
the Company. The aggregate amount of bonuses available for award by the
Compensation Committee is limited to 10% of the Company's income before the
deduction of income taxes and the bonuses that may be paid under the Annual
Incentive Compensation Plan. The Company may elect under the Annual Incentive
Compensation Plan to pay up to the full amount of the bonuses in Common Stock.
Up to an additional 198,193 shares may be awarded as bonuses under the Annual
Incentive Compensation Plan.

Employee Stock Purchase Plan. Recently, the Company implemented an Employee
Stock Purchase Plan ("Stock Purchase Plan") which permits employees of the
Company to purchase up to an aggregate of 100,000 shares of Common Stock under
Section 423 of the Internal Revenue Code of 1986, as amended, at a price equal
to 85% of the market value of the Common Stock on certain specified dates. As of
the date hereof, no shares had been issued under the Stock Purchase Plan. Kitty
Hawk has adopted its employee compensation plans and arrangements to motivate
certain employees through ownership of Common Stock and options to purchase
Common Stock and to encourage all employees to own Common Stock.

Option Grants. On October 5, 1994, the Company granted Mr. Reeves and Mr.
Wadsworth nonqualified options to purchase an aggregate of 245,708 shares and
92,140 shares, respectively, of Common Stock. These options had a term of 10
years, an exercise price of $7.81 per share and vested in five equal annual
increments commencing on August 31, 1995.

During the fiscal year ended August 31, 1996, the Company granted Mr.
Reeves an option to purchase 390,707 shares of Common Stock and on June 12,
1996, rescinded all options earlier granted to Mr. Reeves. The option would have
terminated upon the earliest of (i) the date at which all optioned shares had
been delivered, (ii) December 31, 2005 or (iii) the date 12 months after Mr.
Reeves' death. The option was fully vested and had an exercise price of $0.01
per share.

During the fiscal year ended August 31, 1996, the Company granted Mr.
Wadsworth an option to purchase 153,567 shares of Common Stock and rescinded all
options earlier granted to Mr. Wadsworth. The option would have terminated upon
the earliest of (i) the date at which all optioned shares had been delivered,
(ii) December 31, 2015, or (iii) the date 12 months after Mr. Wadsworth's death.
The option was fully vested and had an exercise price of $0.01 per share.

On June 26, 1996, Messrs. Reeves and Wadsworth fully exercised their
options. In order to satisfy any income tax withholding obligations arising by
virtue of the exercise of their options, at the election of each of Messrs.
Reeves and Wadsworth pursuant to the terms of their respective options, the
Company withheld from the shares to be delivered to Mr. Reeves, 156,283 shares
and Mr. Wadsworth, 61,427 shares, the fair market value of which was anticipated
to equal to the Company's tax withholding obligation with respect thereto.
Pursuant to their respective option agreements, Messrs. Reeves and Wadsworth
have the right to have the Company register shares received upon exercise of
their options in at least the same ratio of ownership as the number of Mr.
Christopher's common shares included in a registration of the Company's shares.

Death and Disability Benefits. The Company also has entered into
split-dollar life insurance agreements with a trust for the benefit of Mr.
Christopher and his wife to provide the trust with death benefits of an
aggregate of $5 million under life insurance policies. Under the split-dollar
agreements, the Company pays the premiums under the insurance policies. Upon Mr.
Christopher's death or the termination of the agreements,

85
<PAGE> 87

the Company is entitled to reimbursement of premiums it has paid to the extent
of the death benefits paid or the cash surrender value of the policies, as
applicable.

Pursuant to a salary continuation agreement, in the event that the Board of
Directors determines that Mr. Christopher has become disabled, the Company has
agreed to continue to pay Mr. Christopher the average monthly compensation he
received during the two years prior to the date of his disability until he dies
or is no longer disabled.

EMPLOYMENT AGREEMENTS

Mr. Christopher. Mr. Christopher has an employment agreement with Kitty
Hawk that provides for an initial annual base salary of at least $125,000 and
bonuses determined by the Compensation Committee pursuant to the Company's
Annual Incentive Compensation Plan and otherwise. Mr. Christopher's employment
agreement contains (i) a confidentiality provision that prohibits disclosure of
the Company's proprietary information and (ii) a covenant not to compete that
provides upon Mr. Christopher's termination of employment with the Company for
any reason, Mr. Christopher shall not engage, directly or indirectly, in the air
logistics, charter brokerage, on-demand or scheduled carriage business under an
FAR Part 121 (now Part 119) or Part 135 certificate for five years following
such termination. The employment agreement may be terminated by either party
with or without cause. If the employment agreement is terminated by the Company
without a material breach by Mr. Christopher, he is entitled to six months of
compensation at his then-current salary.

Mr. Kalitta. Concurrently with the consummation of the Merger, the Company
will enter into an employment agreement with Mr. Kalitta that provides for an
initial annual base salary of at least $600,000 and bonuses determined by the
Compensation Committee pursuant to the Company's Annual Incentive Compensation
Plan and otherwise. Mr. Kalitta's employment agreement contains (i) a
confidentiality provision that prohibits disclosure of the Company's proprietary
information and (ii) a covenant not to compete that provides upon Mr. Kalitta's
termination of employment with the Company for any reason, Mr. Kalitta shall not
engage, directly or indirectly, in the air logistics, charter brokerage,
on-demand, or scheduled carriage business under an FAR Part 121 (now Part 119)
or Part 135 certificate for five years following such termination. The
employment agreement may be terminated by either party with or without cause. If
the employment agreement is terminated by the Company without a material breach
by Mr. Kalitta, he is entitled to three years of compensation at his
then-current salary.

Messrs. Reeves and Wadsworth. Messrs. Reeves and Wadsworth have employment
agreements with Kitty Hawk that provide for an initial annual base salary of at
least $115,000 and $110,000, respectively and annual bonuses determined by the
Compensation Committee pursuant to the Company's Annual Incentive Compensation
Plan and otherwise. These employment agreements provide that Mr. Reeves and Mr.
Wadsworth are prohibited from engaging in the air logistics, charter brokerage,
on-demand or scheduled carriage business under an FAR Part 121 (now Part 119) or
Part 135 certificate for three and two years, respectively, following
termination of employment. These employment agreements also contain a
confidentiality provision that prohibits disclosure of the Company's proprietary
information. These employment agreements may be terminated by either party
thereto with or without cause. Mr. Reeves' employment agreement provides that if
he is terminated by the Company without material breach by Mr. Reeves, he shall
be entitled to 100% of his then-current salary in the year following termination
and 50% of such annual compensation in both the second and third year following
termination and all rights under the stock options and other benefits described
above. Mr. Wadsworth's employment agreement provides that if he is terminated by
the Company without material breach by Mr. Wadsworth, he shall be entitled to
100% of his then-current salary in the year following termination and 50% of
such annual compensation in the second and third year following termination and
all rights under the stock options and other benefits described above.

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<PAGE> 88

CERTAIN TRANSACTIONS

PURCHASE OF AIRCRAFT FROM THE KALITTA COMPANIES

In September 1997, the Kalitta Companies sold to Kitty Hawk for $51 million
16 Boeing 727 aircraft, comprising 15 aircraft in freighter configuration and
one aircraft in passenger configuration. As part of the transaction, the Kalitta
Companies assigned to Kitty Hawk all of their customer contracts relating to the
aircraft sold. The agreement pursuant to which the sale took place includes an
option in favor of the Kalitta Companies to repurchase 13 of the aircraft on or
before March 31, 1998 at a price equal to $37 million plus any costs incurred by
Kitty Hawk to maintain the aircraft to be repurchased, including compliance with
Directives and noise reduction standards. The agreement also includes an option
in favor of Kitty Hawk to put 13 aircraft back to the Kalitta Companies on or
before December 31, 1997 at the same price as applies to the repurchase option.
Should either party elect to exercise its option, the Kalitta Companies would be
obligated to operate the repurchased aircraft to meet any contractual
obligations of Kitty Hawk relating thereto. In connection with the sale of these
Boeing 727 aircraft, Kitty Hawk entered into a three year ACMI contract with the
Kalitta Companies to furnish six Boeing 727s to the Kalitta Companies and one
Boeing 727 to AIC.

PURCHASE OF SERVICES FROM AFFILIATES OF MR. KALITTA

Mr. Kalitta is the sole stockholder of AIT, OK and FOL, each of which
provided services to the other Kalitta Companies. AIT is a certified travel
agency that makes business travel arrangements for the employees of the Kalitta
Companies, particularly flight crews. OK repairs aircraft turbine engines for
small aircraft and leases and sells aircraft engine parts, but does not compete
with the aircraft maintenance operations of the other Kalitta Companies. OK does
business with KFS and over the three year period ended December 31, 1996, KFS
received parts and services from OK having fair market values of approximately
$151,000 in 1994, $150,000 in 1995 and $560,000 in 1996. No payments were made
to OK by KFS for these parts and services. During 1996, OK began leasing two
Hansa jets from KFS to provide cargo service for United Parcel Service. The fair
market value of the lease charges for that year was approximately $768,000. No
payments were made to KFS by OK for these lease amounts.

FOL is a charter manager for a variety of customers, including,
particularly, the Delco Electronics division of GM ("Delco") and provides
logistics services for Delco. FOL has used KFS to provide charter aircraft for
Delco. Over the two-year period ended December 31, 1996, FOL incurred KFS
charter fees with a fair market value of approximately $547,000 in 1995 and
$159,000 in 1996.

KFS has historically provided charter services and auxiliary power unit
maintenance for AIA. AIA has chartered KFS to ferry AIA flight and maintenance
crews and other AIA personnel, as well as airframe and engine parts. During the
three year ended December 31, 1996, the total charges of KFS to AIA were
approximately $605,000 in 1994, $1.3 million in 1995 and $1.5 million in 1996.

Mr. Kalitta is the sole shareholder of ConWes, Inc., which is a 50% joint
venture partner with National Aircraft Service, Inc. ("NAS"). NAS holds an STC
to replace a portion of the turbo-compressor in Douglas DC-8 aircraft for the
purpose of improving its heating, cooling and pressurization systems. NAS has
made these modifications to the Kalitta Companies' Douglas DC-8 aircraft for
which the joint venture was paid approximately $368,000 in 1996 and $96,000 in
1995.

TRANSACTIONS WITH A RELATIVE OF MR. KALITTA

One of the Kalitta Companies currently dry leases one Douglas DC-8-50
aircraft to Trans Continental Airlines, Inc. ("Trans Continental"), a
corporation owned solely by Scott Kalitta, Mr. Kalitta's son. The lease rate is
$1,000 per flight hour for the first 80 hours per month and $800 for each flight
hour per month thereafter, which the Company believes is representative of
market rates. The lease expires on December 31, 1998. In addition to providing
services to unrelated third parties, Trans Continental flies subcharter flights
for the Kalitta Companies and is part of the Kalitta Companies' "contractor
team" for U.S. Miliary charters. Beginning in December 1994, the Kalitta
Companies leased three Douglas DC-8 aircraft to Trans Continental at rates the
management of the Kalitta Companies believes represent fair market rates. In
December 1995,

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the Kalitta Companies sold Trans Continental a Douglas DC-8-62 for a purchase
price of $5.1 million. In March 1996, the Kalitta Companies sold Trans
Continental a Douglas DC-8-50 for a purchase price of $750,000 after Trans
Continental had completed a heavy maintenance check on this aircraft at its
cost. The management of the Kalitta Companies believes that it sold both of
these aircraft to Trans Continental at market rates.

The Kalitta Companies also have three service contracts with Trans
Continental, including an airframe maintenance agreement, an engine maintenance
agreement and a parts exchange agreement pursuant to which the Kalitta Companies
repair and replace parts for Trans Continental at the Kalitta Companies' cost
plus 10%. The Kalitta Companies believe that the labor rates provided for in
these agreements are more favorable than market rates. The Kalitta Companies and
Trans Continental also have a parts master lease agreement pursuant to which
Trans Continental leases aircraft parts from the Company at favorable rates.
Other than the engine maintenance agreement which expires on December 31, 1998,
either party may terminate any of these agreements at any time upon 30 days'
notice to the other. During the three years ended December 31, 1996, Trans
Continental paid the Kalitta Companies approximately $353,000 in 1994, $11.6
million in 1995 and $5.2 million in 1996 for aircraft and parts leases,
maintenance and parts.

LEASE OF FACILITIES FROM KALITTA AFFILIATES

The headquarters building of the Kalitta Companies is owned by Kalitta,
L.L.C., a Michigan limited liability company that is 20% owned by Mr. Kalitta.
The remaining 80% of Kalitta, L.L.C. is separately owned in equal shares by Mr.
Kalitta's son, Scott Kalitta, and Mr. Kalitta's nephew, Doug Kalitta. The
Kalitta Companies have a 10 year "net" lease for the facility which expires on
May 14, 2007 and which obligates the Kalitta Companies to pay annual rent of
approximately $712,800, as well as all costs associated with the facility,
including taxes, insurance, capital repair and replacement and other operating
expenses. Kalitta, L.L.C., however, assumed the cost of all leasehold
improvements and provides all of the furniture and fixtures for the building as
part of the lease rate. The limited liability company purchased the building in
December 1996 for approximately $2.3 million. The Company believes that this
rental rate may be greater than the fair market rent for the building. Pursuant
to the Merger Agreement, Kitty Hawk will obtain an appraisal of the fair market
rental for the building and Kalitta, L.L.C. must then either terminate the lease
or modify the lease to reflect the appraised fair market rent.

LOAN TO AND GUARANTY OF INDEBTEDNESS OF KALITTA COMPANIES

In 1997, Mr. Kalitta has made a number of advances to the Kalitta Companies
to cover cash shortfalls. As of September 30, 1997, the total amount of such
advances was $300,462. Interest does not accrue on the amount advanced. Under
the Merger Agreement, the Kalitta Companies are obligated to repay these
advances prior to consummation of the Merger. In addition, essentially all of
the indebtedness of the Kalitta Companies is personally guaranteed by Mr.
Kalitta. As of September 30, 1997, the total principal amount of the
indebtedness so guaranteed was approximately $255 million.

PROMOTIONAL ACTIVITIES

The Kalitta Companies have historically sponsored and generally provide all
of the financial support for the racing activities of Mr. Kalitta, his son Scott
Kalitta, and his nephew, Doug Kalitta, including the costs to build, maintain
and transport the race cars. Over the three years ended December 31, 1996, the
total payments made by the Kalitta Companies to support these activities were
approximately $2.6 million in 1994, $3.6 million in 1995 and $3.1 million in
1996. In return, the Kalitta Companies have received promotional benefits
including placement of the names of the Kalitta Companies on the vehicles and
relating promotional items, as well as the opportunity to entertain customers at
racing events. Pursuant to the Merger Agreement, Mr. Kalitta will form a new
entity to purchase the racing related assets now owned by the Kalitta Companies
for $350,000 on or before the consummation of the Merger. The Company will have
no ownership interest in this entity. The Company has agreed, however, to
sponsor the racing activities of the new entity for a period of three years in
an amount of up to $2 million per year. Consequently, the Company will have the
same promotional opportunities as those previously used by the Kalitta
Companies.

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LEGAL FEES

Mr. Kelsey, a future director of the Company, is currently the owner of
Kelsey Law Offices, P.C. For 1994, 1995 and 1996, the Kalitta Companies paid
Kelsey Law Offices, P.C. an aggregate of approximately $3.1 million in legal
fees. Mr. Kelsey will be paid additional amounts for 1997, including in
connection with the Transactions. For a description of legal fees paid to other
firms associated with related parties, see "Management -- Compensation Committee
Interlocks and Insider Participation."

GATX LITIGATION

PURCHASE OF AIRCRAFT

Prior to or immediately after closing, the Kalitta Companies anticipate
selling a Hawker Siddeley HS-125 aircraft to Mr. Kalitta at the aircraft's
appraised value.

CONSULTING ARRANGEMENTS

Following the consummation of the Merger, the Company intends to employ Mr.
Coonfield as a management consultant in connection with the integration of Kitty
Hawk and the Kalitta Companies. The Company anticipates Mr. Coonfield will
receive consulting fees in excess of $60,000 for these services.

TAX DISTRIBUTION TO MR. KALITTA

Prior to closing, the Kalitta Companies will distribute $750,000 to Mr.
Kalitta in payment of a portion of Mr. Kalitta's liability for taxable income of
the Kalitta Companies under Subchapter S of the U.S. Federal Income Tax Code.

OTHER TRANSACTIONS

For a description of other transactions with related parties, see
"Management -- Compensation Committee Interlocks and Insider Participation."

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock as of November 5, 1997
(except as noted) by (i) each person known by the Company to own beneficially
more than 5% of the Company's Common Stock, (ii) each director of the Company,
(iii) each executive officer of the Company and (iv) all of the directors and
executive officers of the Company as a group. Except as noted, all shares shown
in the table below are held with sole voting and investment power, subject to
community property laws.

<TABLE>
<CAPTION>
SHARES OWNED SHARES SHARES OWNED
BENEFICIALLY BEING BENEFICIALLY
BEFORE THE OFFERING SOLD AFTER THE TRANSACTIONS
------------------- --------- ----------------------
NAME AND ADDRESS NUMBER PERCENT NUMBER NUMBER PERCENT
---------------- --------- ------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
M. Tom Christopher(1)......................... 6,673,436 63.8% 1,000,000 5,673,436 32.3%
Conrad Kalitta(1)(2)(3)....................... 0 -- 0 4,099,150 23.4%
Tilmon J. Reeves(1)........................... 184,424 1.8% 75,000 109,424 (4)
Richard R. Wadsworth(1)(5).................... 72,140 (4) 25,000 47,140 (4)
DIRECTORS:
Ted J. Coonfield(1)........................... 600 (4) 0 600 (4)
James R. Craig(1)(5).......................... 0 -- 0 0 --
George W. Kelsey(1)(3)........................ 0 -- 0 0 --
Philip J. Sauder(1)(3)........................ 0 -- 0 0 --
Lewis S. White(1)............................. 0 -- 0 0 --
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP (7 PERSONS)........................... 6,930,600 66.3% 1,100,000 9,929,750 56.6%
RCM Capital Management, L.L.C.(6)............. 953,800 9.1% 0 953,800 5.4%
Four Embarcadero Center, Suite 2900
San Francisco, California 94111
Skyline Asset Management, L.P.(7)............. 536,100 5.1% 0 536,100 3.1%
311 S. Wacker Drive, Suite 4500
Chicago, IL 60606
</TABLE>

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

(1) The address for this stockholder is 1515 West 20th Street, Dallas/Fort Worth
International Airport, Texas 75261.
(2) Mr. Kalitta will receive 4,099,150 shares of Common Stock upon consummation
of the Merger, of which 650,000 will be held in escrow for 42 months to
satisfy Mr. Kalitta's indemnification obligations, if any, under the Merger
Agreement. Mr. Kalitta will retain the right to vote such shares while they
are being held in escrow.
(3) Pursuant to the Merger Agreement, Messrs. Kalitta, Kelsey and Sauder will be
appointed to the Board of Directors.
(4) Less than 1%.
(5) Concurrently with the consummation of the Merger, Messrs. Craig and
Wadsworth will resign from the Board of Directors.
(6) Based upon a Schedule 13F filed with the Commission by such beneficial owner
for the quarter ended June 30, 1997. RCM Capital Management, L.L.C. ("RCM
Capital"), an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, is the beneficial owner of such shares. RCM
Limited, L.P. ("RCM Limited") is the managing agent of RCM Capital and has
beneficial ownership of such shares only to the extent it may be deemed to
beneficially own such shares. RCM General Corporation is the general partner
of RCM Limited and has beneficial ownership of such shares only to the
extent it may be deemed to beneficially own such shares. RCM Capital is a
wholly owned subsidiary of Dresdner Bank AG ("Dresdner"), an international
banking organization headquartered in Frankfurt, Germany. Dresdner has
beneficial ownership of such shares only to the extent it may be deemed to
beneficially own such shares.
(7) Based upon a Schedule 13F filed with the Commission by such beneficial owner
for the quarter ended June 30, 1997.

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DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of Kitty Hawk consists of (i) 25,000,000
shares of Common Stock and (ii) 1,000,000 shares of Preferred Stock. At November
5, 1997, the Company had approximately 1,300 holders of record and beneficial
owners of Common Stock with 10,451,807 shares outstanding and no shares of
Preferred Stock outstanding.

COMMON STOCK

Holders of shares of Common Stock are entitled to share ratably in such
dividends as may be declared by the Board of Directors and paid by the Company
out of funds legally available therefor, subject to prior rights of any
outstanding shares of any preferred stock. See "Price Range of Common Stock and
Dividend Policy." In the event of any dissolution, liquidation or winding up of
the Company, holders of shares of Common Stock are entitled to share ratably in
assets remaining after payment of all liabilities and liquidation preferences,
if any.

Except as otherwise required by law or the Certificate of Incorporation,
the holders of Common Stock are entitled to one vote per share on all matters
voted on by stockholders, including the election of directors. The Certificate
of Incorporation limits the aggregate voting power of non-U.S. persons to
22 1/2% of the votes voting on or consenting to any matter. See
"Business -- Government Regulation."

Holders of shares of Common Stock have no preemptive, cumulative voting,
subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of Common Stock are subject to the rights, preferences and
privileges granted to the holders of any series of preferred stock which the
Company may issue in the future.

PREFERRED STOCK

The Board of Directors may, without further action by the Company's
stockholders, from time to time, direct the issuance of fully authorized shares
of preferred stock in classes or series and may, at the time of issuance,
determine the powers, rights, preferences and limitations of each class or
series. Satisfaction of any dividend preferences on outstanding shares of
preferred stock would reduce the amount of funds available for the payment of
dividends on Common Stock. Also, holders of preferred stock would be entitled to
receive a preference payment in the event of any liquidation, dissolution or
winding up of the Company before any payment is made to the holders of Common
Stock. Under certain circumstances, the issuance of such preferred stock may
render more difficult or tend to discourage a merger, tender offer, or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management.

SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS

General. The Certificate of Incorporation and Bylaws of Kitty Hawk include
certain provisions that could have anti-takeover effects. The provisions are
intended to enhance the likelihood of continuity and stability in the
composition of and in the policies formulated by, the Board of Directors. These
provisions also are intended to help ensure that the Board of Directors, if
confronted by a surprise proposal from a third party that has acquired a block
of Common Stock of the Company, will have sufficient time to review the
proposal, to develop appropriate alternatives to the proposal and to act in what
the Board of Directors believes to be the best interests of the Company and its
stockholders. These provisions of the Certificate of Incorporation may not be
amended or repealed by the stockholders of the Company except upon the vote of
the holders of at least two-thirds of the outstanding shares of each class of
the Company's capital stock then entitled to vote thereon.

The following is a summary of the provisions contained in the Company's
Certificate of Incorporation and Bylaws and is qualified in its entirety by
reference to such documents in the respective forms filed as exhibits to the
Registration Statement of which this Prospectus forms a part. In addition,
pursuant to the Merger Agreement, the Company's Bylaws will be amended to add
certain other provisions. See "The Merger -- Bylaw Amendments Concerning
Governance of the Company and Stockholders' Agreement."

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Amendment of Bylaw Provisions. The Certificate of Incorporation provides
that Bylaw provisions may be adopted, altered, amended, or repealed only by the
affirmative vote of (i) at least two-thirds of the members of the Board of
Directors who are elected by the holders of Common Stock or (ii) the holders of
at least two-thirds of the outstanding shares of each class of the Company's
capital stock then entitled to vote thereon.

Classified Board of Directors. The Certificate of Incorporation provides
for a Board of Directors divided into three classes of directors serving
staggered three-year terms. The classification of directors has the effect of
making it more difficult for stockholders to change the composition of the Board
of Directors in a short period of time. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors.

Number of Directors; Removal. The Certificate of Incorporation provides
that the Board of Directors will fix the number of members of the Board of
Directors to consist of at least one member (plus such number of directors as
may be elected from time to time pursuant to the terms of any series of
preferred stock that may be issued and outstanding from time to time).

Under the Delaware General Corporation Law (the "DGCL"), in the case of a
corporation having a classified board, stockholders may remove a director only
for cause (unless the certificate of incorporation provides otherwise). The
Company's Certificate of Incorporation provides that a director may only be
removed for cause. "Cause" is defined in the Certificate of Incorporation to
mean that a director (i) has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal, (ii) has
missed 12 consecutive meetings of the Board of Directors or (iii) has been
adjudged by a court of competent jurisdiction to be liable for gross negligence
or misconduct in the performance of his duties to the corporation in a matter of
substantial importance to the corporation and such adjudication has become final
and non-appealable. These provisions will preclude a stockholder from
simultaneously removing incumbent directors without cause and gaining control of
the Board of Directors by filling the vacancies created by such removal with its
own nominees.

Special Meetings. The Bylaws and Certificate of Incorporation provide that
special meetings of stockholders may be called by a majority of the Board of
Directors, the Chairman of the Board of Directors, or by any holder or holders
of at least 25% of any class of the Company's outstanding capital stock then
entitled to vote at the meeting.

Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Bylaws establish an advance notice procedure with regard to
business proposed to be submitted by a stockholder at any annual or special
meeting of stockholders of the Company, including the nomination of candidates
for election as directors. The procedure provides that a written notice of
proposed stockholder business at any annual meeting must be received by the
Secretary of the Company not more than 180 days nor less than 120 days before
the first anniversary of the prior year's annual meeting or, in the event of a
special meeting, not more than 10 days after the notice of the special meeting.

Notice to Kitty Hawk from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934 (the "Exchange Act"),
including such person's written consent to being named in a proxy statement as a
nominee and to serving as a director if elected.

The chairman of a meeting of stockholders may determine that a person is
not nominated in accordance with the nominating procedure, in which case such
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business has not been properly brought before
such meeting in accordance with the Bylaw procedures, such business will not be
conducted at the meeting. Nothing in the nomination procedure or the business
will preclude discussion by any stockholder of any nomination or business
properly made or brought before the annual or any other meeting in accordance
with the foregoing procedures.

Limitations on Directors' Liability. The Company's Certificate of
Incorporation provides that, to the fullest extent permitted by Delaware law, no
director shall be liable to the Company or its stockholders for

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monetary damages for breach of fiduciary duty as a director. The effect of this
provision is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of fiduciary duty as a director
(including breaches resulting from gross negligence), except for liability (i)
for any breach of his duty of loyalty to the Company or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the DGCL (unlawful
payments of dividends or unlawful stock repurchases or redemptions) or (iv) for
any transaction from which the director derived an improper personal benefit.
This provision also will not limit the liability of directors under federal
securities laws for violations not involving a breach of fiduciary duty. This
elimination of liability for monetary damages permitted by Delaware law does not
alter the standard of conduct with which directors must comply nor does it
affect the availability of equitable relief to the Company and its stockholders.

Restrictions on Foreign Directors, Officers and Voting. The Company's
Certificate of Incorporation limits the aggregate voting power of non-U.S.
persons to 22 1/2% of the votes voting on or consenting to any matter.
Furthermore, the Bylaws do not permit non-U.S. citizens to serve as directors or
officers of the Company.

DELAWARE STATUTE

The Certificate of Incorporation of Kitty Hawk provides for the Company to
be subject to Section 203 of the DGCL ("Section 203"). Under Section 203,
certain transactions and business combinations between a corporation and an
"interested stockholder" owning 15% or more of the corporation's outstanding
voting stock are restricted, for a period of three years from the date the
stockholder becomes an interested stockholder. Generally, Section 203 prohibits
significant business transactions such as a merger with, disposition of assets
to or receipt of disproportionate financial benefits by, the interested
stockholder, or any other transaction that would increase the interested
stockholder's proportionate ownership of any class or series of the Company's
capital stock unless (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, has been approved by the
Board of Directors before the person becomes an interested stockholder; (ii) the
interested stockholder acquires 85% or more of the outstanding voting stock of
the Company in the same transaction that makes it an interested stockholder; or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the Board of Directors and by the holders of
at least two-thirds of the Company's outstanding voting stock at an annual or
special meeting, excluding shares owned by the interested stockholder.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

The following is a summary of material terms of certain indebtedness of the
Company and is qualified in its entirety by reference to the related underlying
documents, copies of which are filed as an exhibit to the Registration Statement
of which this Prospectus is a part.

PRE-TRANSACTION DEBT

During August 1996, Kitty Hawk entered into a Credit Agreement with WFB and
BOT. This Credit Agreement relates to a $15 million Revolving Credit Facility,
an approximate $12 million Term Loans A Facility, an approximate $11.2 million
Term Loans B Facility and a $10 million Term Loans C Facility (collectively, the
"Commitments"). As of September 30, 1997, approximately $7.7 million was
outstanding under the Revolving Credit Facility, approximately $10.1 million was
outstanding under Terms Loans A, approximately $9.6 million was outstanding
under Term Loans B and approximately $5.4 million was outstanding under Term
Loans C. These Commitments bear interest at WFB's prime rate, or at Kitty Hawk's
option, the Eurodollar rate plus 1.5% to 2%, based upon a debt-to-cash flow
ratio of Kitty Hawk. In connection with consummation of this Common Stock
Offering and the Note Offering, the Company intends to repay all outstanding
borrowings under the Commitments.

Kitty Hawk also has two loans with 1st Source Bank. As of September 30,
1997, the outstanding balance of the first loan was approximately $791,000. The
loan bears interest at 9.75%, is secured by a DC-9-15F and matures in May 2000.
As of September 30, 1997, the outstanding balance of the second loan was
approximately $1.2 million. The loan bears interest at 8.5%, is secured by a
DC-9-15F and matures in July 2002. The 1st Source loans contain certain aircraft
maintenance covenants and provides that a change in Kitty Hawk's business is an
event of default upon which 1st Source may declare all or any part of the
remaining unpaid principal due and payable. This debt will remain outstanding
following consummation of this Common Stock Offering and the Note Offering.

In November 1996, in connection with Kitty Hawk's acquisition of a
one-third undivided interest in four Falcon 20 jet aircraft, Kitty Hawk and the
two other co-owners of such aircraft entered into a five year, $4.3 million term
loan. The loan bears interest at a floating prime rate, is secured by the four
Falcon 20 jet aircraft and requires monthly payments of principal and interest.
Kitty Hawk's liability under such loan is limited to $2 million. This debt will
remain outstanding following consummation of this Common Stock Offering and the
Note Offering.

In September 1997, Kitty Hawk purchased 16 Boeing 727 aircraft from the
Kalitta Companies for an aggregate cash consideration of approximately $51
million. The purchase of these aircraft was financed by a $45.9 million term
loan with WFB. This loan bears interest at the applicable rate under the Credit
Agreement, plus 1% from January 1 through December 31, 1999 and 1.5% beginning
January 1, 2000 and matures on June 30, 2001. Interest only is payable through
March 31, 1998. The term loan begins to amortize on June 30, 1998 with equal
quarterly installments of principal and interest until maturity. This debt will
be refinanced in connection with the Refinancings. See "-- New Credit Facility
and Term Loan."

As of September 30, 1997, total indebtedness of the Kalitta Companies for
money borrowed was approximately $255 million. Approximately $142.7 million of
this indebtedness accrues interest at fixed rates ranging from 5.3% to 18% per
annum, while the remainder accrues interest at variable rates ranging from one
percent to four percent over a specified per annum prime or other base rate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- The Kalitta Companies."
Substantially all of this indebtedness has been reclassified as current. All but
approximately $8 million of this indebtedness will be retired with the net
proceeds of this Common Stock Offering and the Note Offering, subject to payment
of approximately $3 million in prepayment penalties. See "Use of Proceeds."

NEW CREDIT FACILITY AND TERM LOAN

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ending in 2002, with a balance of approximately $12.15 million due at maturity.
Interest on the Term Loan will accrue initially at LIBOR plus 3% or the Base
Rate plus 1.5%, subject to reduction. See "Description of Certain Indebtedness."
The Base Rate is WFB's Prime Rate or the Federal Funds Rate plus .5%. The Term
Loan will be secured by accounts receivable, all inventory (including rotables),
intangibles and contract rights, cash and the 16 Boeing 727s and related engines
recently acquired from the Kalitta Companies.

The Company will enter into the New Credit Facility with WFB, individually
and as agent for various lenders, which will provide the Company with up to $100
million in revolving loans to be secured by the same collateral as the Term
Loan. The facility will bear interest initially at LIBOR plus 2.75% or the Base
Rate plus 1.25%, subject to adjustment within the same parameters as the Term
Loan. Borrowings under the New Credit Facility will be subject to a Borrowing
Base (as defined) and will mature five years from execution of the New Credit
Facility.

The New Credit Facility and the Term Loan contain certain financial and
other covenants customary to similar financings including, without limitation, a
prohibition on changes in the Company's business, a prohibition on sales of all
or substantially all the Company's assets, limitations on mergers, certain
acquisitions, reorganizations and liens, restrictions on debt incurrence,
dividends and distributions, and various financial ratios. In addition, the New
Credit Facility and Term Loan subject the Company to limits on capital
expenditures in excess of $92 million for fiscal year 1998. Finally, the New
Credit Facility and Term Loan contain events of default customary in similar
financings.

SENIOR SECURED NOTES

Consummation of the Common Stock Offering is conditioned upon consummation
of the Note Offering and the Merger. The Notes will mature seven years after
issuance and will be issued in an aggregate principal amount of approximately
$340 million. The Notes are expected to bear interest at a rate of approximately
10% per annum, payable in cash semiannually. The Notes will be secured by
certain of the Company's aircraft and the Optioned Boeing 747s. The Notes will
be guaranteed on a senior secured basis by substantially all of the Company's
subsidiaries, other than AIC. The Notes will be redeemable at the Company's
option, beginning in 2002, at a premium. Up to 35% of the Notes will also be
redeemable at the Company's option, until 2000, with proceeds from public equity
offerings. The Notes will be initially issued under Rule 144A, but will be
required to be exchanged for Notes of substantially identical terms registered
under the Securities Act.

The Indenture will contain the following restrictive covenants, among
others: limitation on indebtedness; limitation on restricted payments (including
dividends); limitation on dividend restrictions of subsidiaries; limitation on
capital stock of subsidiaries; limitation on transactions with affiliates;
limitation on liens; limitation on sale-leaseback transactions; limitation on
asset sales; and limitation on mergers and similar transactions. In addition,
the Notes will be redeemable, at the holder's option, upon a change of control
of the Company.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Common Stock Offering, 17,550,957 shares
(18,165,957 shares if the Underwriters' over-allotment option is exercised in
full) of Common Stock will be outstanding. The 4,100,000 shares (4,715,000
shares if the Underwriters' over-allotment option is exercised in full) of
Common Stock sold in this offering will be freely tradable without restriction
or further registration under the Securities Act, unless acquired by
"affiliates" of the Company. Pursuant to Rule 144 under the Securities Act, upon
completion of this Common Stock Offering, 9,929,150 shares of Common Stock will
be deemed "restricted securities" within the meaning of Rule 144 under the
Securities Act (the "Restricted Shares") and may be resold to the extent
permitted under Rule 144 and Rule 701 of the Securities Act or under any
exemption under the Securities Act.

Under the terms of a Stockholders' Agreement to be entered into
contemporaneously with the Merger, Messrs. Christopher and Kalitta will have
incidental registration rights for the ten-year period commencing with the
Closing, subject to customary cutback and exclusion provisions; provided that
the number of shares

95
<PAGE> 97

proposed to be sold by either Mr. Christopher or Mr. Kalitta in any such
registration shall not be less than 50,000 shares.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an "affiliate," who has beneficially
owned his or her shares for at least one year from the later of the date such
Restricted Shares were acquired from the Company or (if applicable) the date
they were acquired from an "affiliate," is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume of the then outstanding shares during the four calendar weeks
preceding each such sale. Sales under Rule 144 also are subject to certain
manner of sale restrictions and notice requirements and to the availability of
current public information concerning the Company. A person (or persons whose
shares are aggregated) who is not deemed an "affiliate" of the Company and has
not been an affiliate of the Company for at least the prior three months and who
has owned shares for at least two years (including the holding period of any
prior owner except an affiliate), is entitled to sell such shares under Rule 144
without regard to the volume limitations and the other conditions described
above. As defined in Rule 144, an "affiliate" of an issuer is a person that
directly or indirectly, through the use of one or more intermediaries, controls,
or is controlled by, or is under the common control with, such issuer.

Any employee, officer, or director of Kitty Hawk who purchases his or her
shares pursuant to a written compensatory plan or contract is entitled to rely
on the resale provisions of Rule 701 under the Securities Act, which permits
non-affiliates, subject to the limitations and requirements of Rule 701, to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitations, or notice provisions of Rule 144 and permits
affiliates, subject to the limitations and restrictions of Rule 701, to sell
their Rule 701 shares without having to comply with Rule 144's holding period
restrictions, in each case commencing 90 days from the date of this Prospectus.

The Company has filed registration statements under the Securities Act
covering 600,000 shares of Common Stock reserved for issuance under the Plans.
See "Management -- Employee Compensation Plans and Arrangements." As of the date
hereof, 1,807 shares had been issued under the Plans. Shares registered under
such registration statements are available for sale in the open market when
issued pursuant to the Plans, subject to Rule 144 volume limitations applicable
to affiliates and provisions of the Plans, including vesting.

Messrs. Christopher, Kalitta, Reeves and Wadsworth, who collectively will
hold 9,929,150 shares of Common Stock in the aggregate after this Common Stock
Offering, along with the Company and its other directors and executive officers
have agreed that, for a period of 90 days from the date of this Prospectus, they
will not, without the prior written consent of Morgan Stanley & Co.
Incorporated, 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 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, except for up to 10,000 shares issuable pursuant
to the Plans. Such consent of Morgan Stanley & Co. Incorporated may be provided
without notice to purchasers of the Common Stock or to officials of the Nasdaq
National Market System. See "Management -- Employee Compensation Plans and
Arrangements."

96
<PAGE> 98

UNDERWRITERS

Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, BT Alex. Brown
Incorporated, Scott & Stringfellow, Inc. and Fieldstone FPCG Services, L.P. are
acting as Representatives, have severally agreed to purchase, and the Company
and the Selling Stockholders have agreed to sell to them, severally, the
respective number of shares of Common Stock set forth opposite the name of such
Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
BT Alex. Brown Incorporated.................................
Scott & Stringfellow, Inc. .................................
Fieldstone FPCG Services, L.P. .............................

---------
Total............................................. 4,100,000
=========
</TABLE>

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

Each Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of the Company's Common Stock being sold
in this Common Stock Offering, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of shares of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer or sale is made. Each
Underwriter has further agreed to send to any dealer who purchases from it any
of the shares of Common Stock a notice stating in substance that, by purchasing
such shares, such dealer represents and agrees that it has not offered or sold,
and will not offer or sell, directly or indirectly, any of such shares in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and that any offer or sale of shares of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer or sale is made, and
that such dealer will deliver to any other dealer to whom it sells any of such
shares a notice containing substantially the same statement as is contained in
this sentence.

The Underwriters initially propose to offer the shares of 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 that represents a concession not
in excess of $ a share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the public offering price and
other selling terms may from time to time be varied by the Representatives.

97
<PAGE> 99

Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days after the date of this
Prospectus, to purchase up to an aggregate of 615,000 additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as the number set forth next to such Underwriter's name
in the preceding table bears to the total number of shares of Common Stock
offered by the Underwriters hereby.

The Company and each director and executive officer has agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period ending 90 days after the
date of this Prospectus, (i) register for sale, issue, 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 (other than shares of Common Stock acquired in the open market
after the date of this Prospectus) 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 Common
Stock or such other securities, in cash or otherwise, other than (x) the shares
of Common Stock to be sold hereunder, and (y) 10,000 shares issuable pursuant to
the Plans.

In order to facilitate this Common Stock Offering, 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 this Common Stock 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 Underwriters may reclaim selling
concessions allowed to an Underwriter or a dealer for distributing the Common
Stock in this Common Stock Offering, if the Underwriters repurchase 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 Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Securities and Exchange Commission. In general, a passive
market maker may not bid for, or purchase, the Common Stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the Common Stock during the specified two month prior period,
or 200 shares, whichever is greater. A passive market maker must identify
passive market making bids as such on the Nasdaq electronic inter-dealer
reporting system. Passive market making may stabilize or maintain the market
price of the Common Stock above independent market levels. Underwriters and
dealers are not required to engage in passive market making and may end passive
market making activities at any time.

BT Alex. Brown Incorporated, one of the Underwriters, rendered a fairness
opinion to the Company in connection with the Merger and received customary fees
for rendering such opinion. Fieldstone FPCG Services, L.P., one of the
Underwriters, and its affiliates have provided investment banking services to
the Company from time to time, for which it has received customary fees,
including acting as financial advisor and placement agent in connection with the
Company's issuance of senior secured debt and as financial advisor to Kitty Hawk
and the Kalitta Companies in connection with the Merger.

98
<PAGE> 100

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby and certain other
legal matters will be passed upon for the Company and the Selling Stockholders
by Haynes and Boone, LLP, Dallas, Texas. Certain legal matters in connection
with this offering will be passed upon for the Underwriters by Shearman &
Sterling, New York, New York.

EXPERTS

The consolidated financial statements of Kitty Hawk, Inc., at August 31,
1995 and 1996 and at December 31, 1996 and for each of the three years in the
period ended August 31, 1996 and for the four month period ended December 31,
1996, appearing in this Prospectus and 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.

The combined financial statements of American International Airways, Inc.
and related companies as of December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996, included in this Prospectus and the
related financial statement schedule included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere (which report expresses
an unqualified opinion and includes an explanatory paragraph which indicates
that there are matters that raise substantial doubt about the ability of
American International Airways, Inc. and related companies to continue as a
going concern), and have been so included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act. In accordance with the Exchange Act, the Company files reports, proxy and
information statements and other information with the Commission. The reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities that the Commission maintains at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies
of these materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at the principal offices of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Such documents may also be obtained at the
Web site maintained by the Commission (http://www.sec.gov). In addition, copies
of documents relating indebtedness of Kitty Hawk and the Kalitta Companies
existing prior to the Refinancings may be obtained from the Company at 1515 West
20th Street, Dallas/Fort Worth International Airport, Texas 75261, (972)
456-2200. The Company's Common Stock is quoted on the Nasdaq National Market and
such reports, proxy and information statements and other information may be
inspected at the National Association of Securities Dealers, Inc., 1735 K.
Street N.W., Washington, D.C. 20006.

The Company has filed with the Commission a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to the
Common Stock. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements made in the Prospectus concerning the contents of any
documents referred to herein are not necessarily complete. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description and
each such statement shall be deemed qualified in its entirety by such reference.

99
<PAGE> 101

INDEX TO FINANCIAL STATEMENTS

KITTY HAWK, INC. AND SUBSIDIARIES

<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of August 31, 1995 and 1996
and December 31, 1996..................................... F-3
Consolidated Statements of Income for the years ended August
31, 1994, 1995 and 1996 and for the four months ended
December 31, 1995 (unaudited) and 1996.................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended August 31, 1994, 1995 and 1996 and for the
four months ended December 31, 1996....................... F-5
Consolidated Statements of Cash Flows for the years ended
August 31, 1994, 1995 and 1996 and for the four months
ended December 31, 1995 (unaudited) and 1996.............. F-6
Notes to Consolidated Financial Statements.................. F-7
Condensed Consolidated Balance Sheet as of September 30,
1997 (unaudited).......................................... F-17
Condensed Consolidated Statements of Operations for the nine
month periods ended September 30, 1996 and 1997
(unaudited)............................................... F-18
Condensed Consolidated Statement of Stockholders' Equity for
the nine months ended September 30, 1997 (unaudited)...... F-19
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1996 and 1997
(unaudited)............................................... F-20
Notes to Condensed Consolidated Financial Statements........ F-21

THE KALITTA COMPANIES (AMERICAN INTERNATIONAL AIRWAYS, INC. AND
RELATED COMPANIES)
Independent Auditors' Report................................ F-24
Combined Balance Sheets at December 31, 1995 and 1996 and
September 30, 1997 (unaudited)............................ F-25
Combined Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the nine month
periods ended September 30, 1996 and 1997 (unaudited)..... F-26
Combined Statements of Stockholder's Equity for the years
ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1997 (unaudited)...................... F-27
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the nine month
periods ended September 30, 1996 and 1997 (unaudited)..... F-28
Notes to Combined Financial Statements...................... F-30
</TABLE>

F-1
<PAGE> 102

REPORT OF INDEPENDENT AUDITORS

Stockholders
Kitty Hawk, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Kitty Hawk,
Inc. and subsidiaries as of August 31, 1995 and 1996 and December 31, 1996 and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended August 31, 1996 and for
the four months ended December 31, 1996. 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 Kitty Hawk,
Inc. and subsidiaries at August 31, 1995 and 1996 and December 31, 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1996 and for the four months ended
December 31, 1996, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Dallas, Texas
February 7, 1997

F-2
<PAGE> 103

KITTY HAWK, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ------------ ------------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents....................... $ 3,801,378 $ 5,763,904 $ 27,320,402
Trade accounts receivable....................... 12,967,734 14,195,990 37,828,018
Income tax receivable........................... -- 765,395 --
Deferred income taxes........................... 50,410 156,562 107,564
Inventory and aircraft supplies................. 98,386 1,713,812 2,789,982
Prepaid expenses and other assets............... 797,825 918,929 1,143,989
Deposits on aircraft............................ -- -- 5,438,628
----------- ------------ ------------
Total current assets.................... 17,715,733 23,514,592 74,628,583
Property and equipment
Aircraft........................................ 36,179,455 53,695,320 53,140,853
Aircraft work-in-progress....................... -- 13,476,355 6,732,878
Machinery and equipment......................... 1,425,272 1,776,319 2,680,692
Leasehold improvements.......................... -- 75,313 778,879
Furniture and fixtures.......................... 251,349 166,057 166,057
Transportation equipment........................ 176,057 236,708 289,499
----------- ------------ ------------
38,032,133 69,426,072 63,788,858
Less: accumulated depreciation and
amortization................................. (7,794,332) (13,112,786) (15,390,015)
----------- ------------ ------------
Net property and equipment.............. 30,237,801 56,313,286 48,398,843
----------- ------------ ------------
Total assets...................................... $47,953,534 $ 79,827,878 $123,027,426
=========== ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................ $ 9,327,109 $ 12,952,180 $ 8,853,292
Accrued expenses................................ 1,336,696 1,580,465 23,668,609
Income taxes payable -- -- 2,526,737
Accrued maintenance reserves.................... 2,026,255 2,323,466 2,373,157
Revolving Credit Facility for aircraft
acquisitions expected to be refinanced....... -- 10,000,000 --
Current maturities of long-term debt............ 3,278,553 3,620,240 3,687,888
----------- ------------ ------------
Total current liabilities............... 15,968,613 30,476,351 41,109,683
Long-term debt.................................... 13,702,652 23,291,302 21,080,452
Deferred income taxes............................. 1,316,365 2,421,480 2,544,900
Commitments and contingencies
Stockholders' equity
Preferred stock, $1 par value: Authorized
shares -- 1,000,000, none issued............. -- -- --
Common stock, $.01 par value: Authorized
shares -- 25,000,000; issued and
outstanding -- 7,423,436 and 7,967,710 at
August 31, 1995 and 1996, respectively and
10,669,517 at December 31, 1996.............. 74,234 79,677 106,695
Additional paid-in capital...................... -- 4,635,524 33,968,700
Retained earnings............................... 16,891,670 20,999,846 26,293,298
Less common stock in treasury, 217,710 shares at
August 31, 1996 and December 31, 1996........ -- (2,076,302) (2,076,302)
----------- ------------ ------------
Total stockholders' equity.............. 16,965,904 23,638,745 58,292,391
----------- ------------ ------------
Total liabilities and stockholders' equity........ $47,953,534 $ 79,827,878 $123,027,426
=========== ============ ============
</TABLE>

See accompanying notes.

F-3
<PAGE> 104

KITTY HAWK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
------------------------------------------ -------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Air freight carrier... $ 28,284,894 $ 41,117,564 $ 52,921,762 $17,994,371 $20,577,072
Air logistics......... 79,414,952 62,592,819 89,492,974 51,733,438 39,408,484
------------ ------------ ------------ ----------- -----------
Total
revenues.... 107,699,846 103,710,383 142,414,736 69,727,809 59,985,556
------------ ------------ ------------ ----------- -----------
Costs of revenues:
Air freight carrier... 19,549,833 28,104,280 38,760,430 11,684,882 13,784,331
Air logistics......... 73,401,606 57,428,344 80,139,570 45,996,786 33,795,567
------------ ------------ ------------ ----------- -----------
Total costs of
revenues.... 92,951,439 85,532,624 118,900,000 57,681,668 47,579,898
------------ ------------ ------------ ----------- -----------
Gross profit............ 14,748,407 18,177,759 23,514,736 12,046,141 12,405,658
General and
administrative
expenses.............. 6,012,975 7,832,167 9,079,891 2,861,518 2,724,763
Non-qualified employee
profit sharing
expense............... 731,862 1,000,957 1,169,880 889,046 962,263
Stock option grants to
executives......... -- -- 4,230,954 -- --
------------ ------------ ------------ ----------- -----------
Operating income........ 8,003,570 9,344,635 9,034,011 8,295,577 8,718,632
Other income (expense):
Interest expense...... (342,502) (1,184,921) (1,859,284) (481,670) (684,173)
Contract settlement
income, net........ 1,177,742 -- -- -- --
Loss on asset
disposal........... -- -- (589,049) -- --
Other, net............ (431,957) (600,667) 291,255 37,507 625,910
------------ ------------ ------------ ----------- -----------
Income before income
taxes................. 8,406,853 7,559,047 6,876,933 7,851,414 8,660,369
Income taxes............ 3,146,157 3,142,653 2,767,744 3,096,769 3,366,917
------------ ------------ ------------ ----------- -----------
Net income.............. $ 5,260,696 $ 4,416,394 $ 4,109,189 $ 4,754,645 $ 5,293,452
============ ============ ============ =========== ===========
Net income per share.... $ 0.66 $ 0.55 $ 0.52 $ 0.60 $ 0.55
============ ============ ============ =========== ===========
Weighted average common
and common equivalent
shares outstanding.... 7,967,710 7,967,710 7,927,856 7,967,710 9,609,920
============ ============ ============ =========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE> 105

KITTY HAWK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK TOTAL
----------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1993.............. 10,604,908 $106,048 $ -- $ 7,243,766 $ (61,000) $ 7,288,814
Retirement of treasury stock in
connection with the Kitty Hawk, Inc.
merger.............................. (3,181,472) (31,814) -- (29,186) 61,000 --
Net income............................ -- -- -- 5,260,696 -- 5,260,696
----------- -------- ----------- ----------- ----------- -----------
Balance at August 31, 1994.............. 7,423,436 74,234 -- 12,475,276 -- 12,549,510
Net income............................ -- -- -- 4,416,394 -- 4,416,394
----------- -------- ----------- ----------- ----------- -----------
Balance at August 31, 1995.............. 7,423,436 74,234 -- 16,891,670 -- 16,965,904
Stock option grants to
executives.......................... -- -- 4,230,954 -- -- 4,230,954
Exercise of employee stock options
(See Note 1)........................ 544,274 5,443 -- (1,013) -- 4,430
Purchase of treasury stock, 217,710
shares, at cost..................... -- -- -- -- (2,076,302) (2,076,302)
Tax benefit of stock option grants to
executives.......................... -- -- 404,570 -- -- 404,570
Net income............................ -- -- -- 4,109,189 -- 4,109,189
----------- -------- ----------- ----------- ----------- -----------
Balance at August 31, 1996.............. 7,967,710 79,677 4,635,524 20,999,846 (2,076,302) 23,638,745
Shares sold in initial public
offering.............................. 2,700,000 27,000 29,311,510 -- -- 29,338,510
Shares issued to employees under the
Annual Incentive Compensation Plan.... 1,807 18 21,666 -- -- 21,684
Net income for the four months ended
December 31, 1996..................... -- -- -- 5,293,452 -- 5,293,452
----------- -------- ----------- ----------- ----------- -----------
Balance at December 31, 1996............ 10,669,517 $106,695 $33,968,700 $26,293,298 $(2,076,302) $58,292,391
=========== ======== =========== =========== =========== ===========
</TABLE>

See accompanying notes.

F-5
<PAGE> 106

KITTY HAWK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
------------------------------------------ ---------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income......................... $ 5,260,696 $ 4,416,394 $ 4,109,189 $ 4,754,645 $ 5,293,452
Adjustments to reconcile net income
net cash provided by operating
activities:
Depreciation and amortization.... 1,935,348 4,095,156 6,873,033 1,681,489 3,201,903
Loss on disposal of property and
equipment...................... 62,251 -- 589,049 -- --
Aircraft received in contract
settlement..................... (750,000) -- -- -- --
Deferred income taxes............ (638,568) 732,795 998,963 -- 172,418
Stock option grants to
executives..................... -- -- 4,230,954 -- --
Changes in operating assets and
liabilities:
Trade accounts receivable...... (8,036,613) 2,673,139 (1,228,256) (27,954,848) (23,632,028)
Contract settlement
receivable.................. 3,500,000 -- -- -- --
Receivables from affiliates.... (53,035) 481,297 -- -- --
Income taxes receivable........ -- -- (765,395) -- 765,395
Inventory and aircraft
supplies.................... (19,778) 23,285 (1,615,426) (298,872) (1,076,170)
Prepaid expenses and other..... 283,342 (532,693) (121,104) (5,854,576) (5,663,688)
Accounts payable and accrued
expenses.................... 4,063,034 (2,379,510) 3,868,840 19,622,927 17,989,256
Accrued maintenance reserves... 379,535 1,429,886 297,211 281,184 49,691
Income taxes payable........... 1,614,521 (1,883,898) -- 2,782,766 2,526,737
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities............... 7,600,733 9,055,851 17,237,058 (4,985,285) (373,034)
Investing activities:
Proceeds from sale of assets....... -- -- -- -- 18,508,431
Capital expenditures............... (13,875,983) (17,929,106) (33,537,567) (174,697) (13,795,891)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities............... (13,875,983) (17,929,106) (33,537,567) (174,697) 4,712,540
Financing activities:
Proceeds from issuance of common
stock............................ -- -- 4,430 -- 29,338,510
Proceeds from issuance of long-term
debt............................. 10,916,656 9,911,240 23,117,000 5,725,000 1,500,000
Repayments of long-term debt....... (2,747,533) (2,074,970) (3,186,663) (1,011,103) (13,643,202)
Acquisition of treasury shares..... -- -- (2,076,302) -- --
Shares issued under Annual
Incentive Compensation Plan...... -- -- -- -- 21,684
Tax benefit of stock option grant
to executives.................... -- -- 404,570 -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities......................... 8,169,123 7,836,270 18,263,035 4,713,897 17,216,992
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents................... 1,893,873 (1,036,985) 1,962,526 (446,085) 21,556,498
Cash and cash equivalents at
beginning of period................ 2,944,490 4,838,363 3,801,378 3,801,378 5,763,904
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period............................. $ 4,838,363 $ 3,801,378 $ 5,763,904 $ 3,355,293 $ 27,320,402
============ ============ ============ ============ ============
</TABLE>

See accompanying notes.

F-6
<PAGE> 107

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Kitty Hawk, Inc. and its subsidiaries (the "Company") provide air freight
services through two related businesses (i) an air freight carrier and (ii) an
air logistics service provider, all primarily in North America. The Company
provided air logistics services to one customer which accounted for
approximately 63%, 47%, 41% and 16% of its total revenues in fiscal years 1994,
1995, 1996 and for the four months ended December 31, 1996, respectively.
Related accounts receivable from this customer at August 31, 1995 and 1996 and
December 31, 1996, were approximately $5,089,000, $4,915,000 and $2,156,000,
respectively. The contract for these services is effective through May 31, 1997;
however, such contract may be canceled by either party with 30 days notice.
Another customer accounted for approximately 10%, 10%, 15% and 44% of the
Company's total revenues in fiscal years 1994, 1995, 1996 and for the four
months ended December 31, 1996, respectively. Related accounts receivable from
this customer at August 31, 1995 and 1996 and December 31, 1996 were
approximately $22,000, $0 and $27,086,000, respectively. The Company generally
sells on open accounts with 30-day terms and does not require collateral for
credit sales.

On December 4, 1996, the Company elected to change its fiscal year end to
December 31. Operating results for the four month period ended December 31, 1996
are not necessarily indicative of the results that may be expected for a
calendar year. Operating results for the four month period ended December 31,
1995 (unaudited) include all adjustments management believes are necessary for a
fair presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line and accelerated methods over estimated useful lives ranging
from three to ten years. Convair and DC-9 airframes are fully depreciated over
the period remaining to the next major airframe overhaul since the Company does
not expect to perform major airframe overhauls on these aircraft. Boeing 727-200
airframes are fully depreciated over an estimated useful life of ten years.

Costs relating to major airframe overhauls are capitalized as incurred and
amortized over the estimated number of flight hours until the next overhaul (the
deferral method). No major airframe overhauls have been performed on the
Company's aircraft since their respective dates of acquisition.

With respect to aircraft engines, the useful life is the estimated number
of flight hours remaining until the next required engine overhaul.

Income Taxes

Income taxes have been provided using the liability method in accordance
with the Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes.

Revenue Recognition

Revenues are recognized as services are provided.

F-7
<PAGE> 108

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net Income Per Share

Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. The effect of options to purchase 390,707 and 153,567 shares of the
Company's common stock at $0.01 granted to certain executives in December 1995
and June 1996, respectively, have been included in the calculation of weighted
average common and common equivalent shares for the years ended August 31, 1994,
1995 and 1996.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and held in banks, money market funds and other investments with
original maturities of three months or less.

Inventory

Inventory consists of aircraft parts and supplies and is stated at the
lower of average cost or market.

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 these estimates.

Stock-Based Compensation

The Company accounts for stock-based compensation utilizing Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). Under the provisions of SFAS No. 123, the Company
has elected to continue to apply the provisions of APB Opinion No. 25 to its
stock-based compensation arrangements and provide supplementary financial
statement disclosures as required under SFAS No. 123.

Reorganization

In October 1994, Kitty Hawk, Inc. was organized as a wholly-owned
subsidiary of Kitty Hawk Group, Inc. ("Group"). Group subsequently merged with
Kitty Hawk, Inc. with Kitty Hawk, Inc. being the surviving entity. In connection
therewith, each outstanding share of Group common stock was exchanged for
106,049 shares of Kitty Hawk, Inc. common stock. Additionally, Group stock held
in treasury was retired. The accompanying consolidated financial statements
present the effects of the merger on a retroactive basis.

Reclassifications

Certain amounts from prior years have been reclassified to conform to
current year presentation.

Stock Split

On June 28, 1996 the Company approved a 1.2285391-for-1 stock split
effected as a stock dividend. All references to common stock and per share data
have been restated to give effect to the split.

F-8
<PAGE> 109

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ----------- ------------
<S> <C> <C> <C>
(1) Note payable, bearing interest at prime
plus 1.75% payable in 48 monthly
installments of $25,021 plus interest,
with a maturity date of December 1996... $ 350,291 $ 50,042 $ --
(2) Note payable, bearing interest at 9.75%
payable in 18 monthly installments of
interest only and 42 monthly
installments of $28,212 including
interest beginning December 1996, with a
maturity date of May 2000; secured by a
Douglas DC-9 aircraft, with a carrying
value of approximately $940,000 at
December 31, 1996....................... 1,000,500 1,000,500 980,417
(3) Note payable, bearing interest at an
adjusted Eurodollar rate plus 1.50% to
2.00% based upon a fixed charge coverage
ratio of the Company (7.125% at December
31, 1996), payable in 28 quarterly
installments plus interest beginning
September 1996, with a maturity date of
June 2003; secured by two Boeing 727-200
aircraft, with a carrying value of
approximately $11,036,000 at December
31, 1996................................ -- 11,225,000 10,605,923
(4) Note payable, bearing interest at an
adjusted Eurodollar rate plus 1.50% to
2.00% based upon a fixed charge coverage
ratio of the Company (7.125% at December
31, 1996), payable in 23 quarterly
installments of $531,000 plus interest
beginning September 1996, with a
maturity date of June 2002; secured by
four Douglas DC-9 aircraft and four
Boeing 727-200 aircraft, with a net
carrying value of approximately
$17,918,000 at December 31, 1996........ -- 12,744,000 11,682,000
(5) Note payable, bearing interest at an
adjusted Eurodollar rate plus 2.25%
payable in 21 quarterly installments of
$153,354 plus interest, with a maturity
date of September 1999. (See (4)
above.)................................. 2,607,021 -- --
(6) Note payable, bearing interest at an
adjusted Eurodollar rate plus 2.25%
payable in 71 monthly installments of
$76,891 plus interest, with a maturity
date of October 2000. (See (4)
above.)................................. 4,767,245 -- --
(7) Note payable, bearing interest at an
adjusted Eurodollar rate plus 2.00%
payable in 72 monthly installments of
$60,517 plus interest, with a maturity
date of March 2001. (See (4) above.).... 4,054,641 -- --
</TABLE>

F-9

F-10
<PAGE> 110

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ----------- ------------
<S> <C> <C> <C>
(8) Note payable, bearing interest at an
adjusted Eurodollar rate plus 2.00%
payable in 72 monthly installments of
$59,077 plus interest, with a maturity
date of July 2001. (See (4) above.)..... 4,201,507 -- --
(9) Revolving Credit Facility for general
corporate purposes...................... -- 1,892,000 1,500,000
----------- ----------- -----------
16,981,205 26,911,542 24,768,340
Less current portion........................ 3,278,553 3,620,240 3,687,888
----------- ----------- -----------
$13,702,652 $23,291,302 $21,080,452
=========== =========== ===========
</TABLE>

Maturities of long-term debt at December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997........................................................ $ 3,687,888
1998........................................................ 5,317,534
1999........................................................ 3,958,056
2000........................................................ 3,911,104
2001........................................................ 3,900,557
Thereafter.................................................. 3,993,201
-----------
$24,768,340
===========
</TABLE>

During August 1996, the Company entered into a new Credit Agreement (notes
(3), (4) and (9) above) with a bank and refinanced a portion of the existing
notes payable. Proceeds of note (4) in the amount of $12,744,000 were used to
pay down the outstanding balances of the existing notes payable (notes (5), (6),
(7) and (8)).

The Credit Agreement subjects the Company to financial covenants, including
fixed charge coverage, cash flow and leverage ratios. In addition, the Credit
Agreement prohibits redemption of Company securities, certain investments
outside the Company's line of business, transactions with affiliates and
additional indebtedness without prior consent of the Bank. The Credit Agreement
also limits the ability of the Company to change its line of business and limits
the payment of dividends.

At December 31, 1996 the Company has outstanding two interest rate swap
agreements with the commercial bank to whom note (3) is payable, having a total
notional principal amount of $11,225,000. These swap agreements effectively
change the interest rate exposure on note (3) to a fixed 7.75 percent. The
notional principal amounts of the interest rate swaps reduce in proportion to
required principal reductions on the related note. The Company is exposed to
credit loss in the event of nonperformance by the other party in the interest
rate swap agreements. However, the Company does not anticipate nonperformance by
the counterparty. Based on a quote provided by the bank, these swap agreements
could have been terminated at December 31, 1996 in exchange for a payment to the
Company of $106,059.

Under the Credit Agreement, the Company also has a $15 million Revolving
Credit Facility available, of which $10 million is restricted for interim
financing of up to $6.5 million per aircraft for aircraft acquisitions by the
Company; the remaining $5 million is for general corporate purposes, including
interim financing for acquired aircraft that exceeds the limits that apply to
the restricted portion. Any advance under the portion that is restricted to
interim financing for aircraft acquisition ($0 at December 31, 1996) must be
repaid in full within 150 days of first advance for the acquired aircraft. The
outstanding balance of the Revolving Credit Facility results from borrowings in
connection with working capital requirements. The Revolving Credit

F-11
<PAGE> 111

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Facility bears interest at an adjusted Eurodollar rate plus 1.50% to 2.00% based
upon a fixed charge coverage ratio of the Company or at prime (8.25% at December
31, 1996). The Revolving Credit Facility expires on December 31, 1998 and $13.5
million was available to be borrowed by the Company at December 31, 1996.

Under the Credit Agreement, the Company also has a $10 million facility
available to finance the purchase of one DC-9-15F hushkit and up to seven major
maintenance checks for jet aircraft. The funds will be available to the Company
until April 29, 1998 and any borrowings under this facility mature March 31,
2003. At December 31, 1996, the entire $10 million was available to the Company.
At December 31, 1996, the Company had approximately $1,400,000 in standby
letters of credit outstanding.

All amounts outstanding under the Credit Agreement are cross-collateralized
and are secured by certain aircraft owned by the Company, all aircraft acquired
under the restricted portion of the Revolving Credit Facility while those
advances are outstanding, certain leases of aircraft and engines, accounts,
chattel paper, general intangibles and other personal property.

Based upon the variable interest rates provided for in the substantial
majority of the Company's long-term debt, management believes the fair value of
its long-term debt approximates its carrying value at December 31, 1996.

In connection with the Company's recent acquisition of a one-third
undivided interest in four Falcon 20 jet aircraft, the co-owners of the aircraft
entered into a five year, $4.3 million term loan, bearing interest at a floating
prime rate, which is secured by all four Falcon 20 aircraft and requires monthly
payments of principal and interest. The co-owners leased the aircraft to an air
carrier affiliated with one of the co-owners. The lease calls for monthly lease
payments which exceed the installments on the term loan. The Company's liability
under this term loan is limited to $2 million.

The Company made cash interest payments of $280,754, $1,088,928, $1,765,523
and $664,164 during fiscal years ended 1994, 1995, 1996 and for the four months
ended December 31, 1996, respectively.

3. INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
------------------------------------ ------------
1994 1995 1996 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Current income tax:
Federal........................... $3,434,725 $1,829,723 $1,352,390 $ 2,768,672
State............................. 350,000 580,135 416,391 425,827
---------- ---------- ---------- ------------
Total current income
tax..................... 3,784,725 2,409,858 1,768,781 3,194,499
---------- ---------- ---------- ------------
Deferred income tax:
Federal........................... (608,460) 627,993 758,138 141,169
State............................. (30,108) 104,802 240,825 31,249
---------- ---------- ---------- ------------
Total deferred income
tax..................... (638,568) 732,795 998,963 172,418
---------- ---------- ---------- ------------
$3,146,157 $3,142,653 $2,767,744 $ 3,366,917
========== ========== ========== ============
</TABLE>

F-12
<PAGE> 112

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to income before
income taxes are as follows:

<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED AUGUST 31, ENDED
------------------------------------ DECEMBER 31,
1994 1995 1996 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Income tax computed at statutory
rate.............................. $2,858,330 $2,570,076 $2,338,157 $3,031,129
State income taxes, net of federal
benefit........................... 211,129 452,058 433,763 297,928
Other, net.......................... 76,698 120,519 (4,176) 37,860
---------- ---------- ---------- ----------
Total..................... $3,146,157 $3,142,653 $2,767,744 $3,366,917
========== ========== ========== ==========
</TABLE>

The components of the net deferred tax liabilities recognized on the
accompanying balance sheets are as follows:

<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation................................ $(2,071,971) $(3,318,803) $ (3,461,603)
Prepaid expenses............................ (117,440) (17,229) (66,228)
----------- ----------- ------------
Total deferred tax liabilities...... (2,189,411) (3,336,032) (3,527,831)
----------- ----------- ------------
Deferred tax assets:
Nondeductible accruals...................... 167,850 173,790 173,790
Airframe reserves........................... 755,606 897,324 916,705
----------- ----------- ------------
Total deferred tax assets........... 923,456 1,071,114 1,090,495
----------- ----------- ------------
Net deferred tax liability.................... $(1,265,955) $(2,264,918) $ (2,437,336)
=========== =========== ============
</TABLE>

The Company made cash income tax payments of $2,170,203, $4,552,371,
$2,078,673 and $571,420 during fiscal years 1994, 1995, 1996 and for the four
months ended December 31, 1996, respectively.

4. COMMITMENTS

The Company leases its primary office and maintenance space under a
non-cancelable operating lease which expires in fiscal year 1998 from a party
who, effective October 1994, became a member of the Company's Board of
Directors. Rent expense under this lease was $260,970, $252,595, $254,934 and
$84,305 for fiscal years 1994, 1995, 1996 and for the four months ended December
31, 1996, respectively. Under the lease agreement, the Company has the option to
purchase the office facilities and the landlord's interest in the associated
ground lease at any time prior to March 1, 1997 for consideration of $2,200,000
less $5,000 for each monthly rental payment made after March 1, 1993. Based upon
an agreement with the lessor of the facility, the Company expects to close the
purchase of the facility for approximately $1.76 million in February 1997.

The Company leases its secondary maintenance space under a cancelable
operating lease which expires in May 1999. The lease can be canceled by either
party with 60 days notice. Rent expense under this lease was $59,853, $163,500
and $54,500 in fiscal years 1995, 1996 and for the four months ended December
31, 1996, respectively.

In December 1996, the Company sold at cost two recently acquired and
modified Boeing 727-200 aircraft to a third party and entered into an operating
lease agreement for such aircraft commencing January 1, 1997, ending December
31, 1997, with monthly lease payments of approximately $252,000, with five
successive one year renewal options. The Company has an option to purchase the
aircraft at the end of each year and guarantees to the lessor certain minimum
sale values if the Company elects not to renew the lease or exercise

F-13
<PAGE> 113

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

its purchase option. The funds from the sale were partially used to pay
indebtedness incurred to acquire, convert to cargo configuration, perform
maintenance updates and hushkit the aircraft.

In November 1996, the Company acquired a Boeing 727-200 aircraft in
passenger configuration under a seven year operating lease at a monthly rate of
$50,000. The aircraft is being modified to cargo configuration and is undergoing
maintenance updates at the Company's cost.

Minimum annual rentals at December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997........................................................ $3,793,476
1998........................................................ 763,500
1999........................................................ 668,125
2000........................................................ 600,000
2001........................................................ 600,000
Thereafter.................................................. 1,200,000
----------
$7,625,101
==========
</TABLE>

During December 1996, the Company entered into firm purchase commitments to
acquire hushkits for seven of its Boeing 727-200 aircraft for a total purchase
price of up to $17,500,000.

5. CONTRACT SETTLEMENT

In September 1992, the Company was awarded a contract by the United States
Postal Service (the "USPS"). An unaffiliated air freight carrier (the
"associated bidder") was associated with the Company in the successful bid.
Prior to the commencement of the contract, competing bidders filed suit against
the USPS seeking to set aside the award.

In April 1993, to avoid the expense and uncertainty of continued
litigation, the Company accepted a settlement. Under the settlement, the
contract was terminated for convenience and re-awarded to the incumbent.
Additionally, the Company received $12.7 million and the right to receive up to
a total of $6.5 million over ten years in installments of $162,500 per quarter,
contingent on the re-awarded contract remaining in effect. Appropriate releases
were exchanged.

At August 31, 1993, the Company and the associated bidder had not agreed
upon the division of the settlement proceeds, which were held in escrow; but the
Company reasonably estimated its share of the proceeds, exclusive of the $6.5
million to be paid in installments over ten years, to be at least $3.5 million.
The Company therefore recorded the $3.5 million as a receivable and, net of
contract-related expense, settlement income of $724,683 for fiscal year 1993.

During fiscal year 1994, the Company and the associated bidder agreed to a
division of the settlement proceeds and resolution of all their related claims.
Under that agreement, the Company received from escrow approximately $3.5
million cash, obtained title to a Boeing 727-200 aircraft, independently valued
and recorded by the Company at $750,000 and was relieved of $1.2 million of
previously accrued transportation costs. Additionally, one-half of the
contingent future quarterly installment payments were allocated to the Company's
majority stockholder. As a result of this settlement, for fiscal year 1994, the
Company recorded additional contract settlement income of $1,177,742, which is
net of approximately $730,000 in additional settlement costs, principally legal
fees. This amount also included both income and an offsetting expense of
$677,239, representing the estimated fair value of the future quarterly
installment payments that will be paid directly to the Company's majority
stockholder.

F-14
<PAGE> 114

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LITIGATION

The Company filed suit against Express One International, Inc. ("Express
One") in July 1992 in Dallas County, Texas, claiming that Express One breached
an aircraft charter agreement and seeking actual damages of approximately
$60,000. Express One counterclaimed, asserting that the Company wrongfully
repudiated the lease agreement and seeking damages of $356,718 for services
performed, $1,140,000 for additional fees it would have received under the
contract, punitive damages and its attorney's fees and costs.

In February 1995, a jury verdict in the case granted the Company $25,000 in
damages plus its attorneys fees and denied Express One's claims. The court
entered judgment in favor of the Company for $25,000 in damages, for $148,115 in
attorneys fees through trial and for additional attorneys fees if Express One
appeals. Before expiration of the time for appeal, Express One filed a petition
under Chapter 11 of the U.S. Bankruptcy Code. There is a dispute about whether
Express One has preserved a right to appeal and whether the judgment has become
final. Therefore, the judgment awarded to the Company has not been recorded in
the financial statements. The Company does not expect the outcome to have a
material adverse effect upon the Company's financial condition or results of
operations.

The USPS selected the Company's air freight carrier in September 1992 as
the successful bidder on a contract for a multi-city network of air
transportation services supporting the USPS Express Mail system. Two
unsuccessful bidders sued the USPS to enjoin the award. The Company intervened.
This litigation (the "ANET Litigation") was settled in April 1993 by agreements
under which the USPS terminated the Company's contract for convenience and
awarded the contract to the incumbent contractor, Emery Worldwide Airlines, Inc.
("Emery").

In March 1995, the Company was served with a complaint in a qui tam lawsuit
filed on behalf of the U.S. Government by a third party plaintiff seeking to
share a recovery under the Federal False Claims Act (the "Act"). The suit, filed
in May 1994, was filed under seal in accordance with the Act, to enable the U.S.
Government to review the claim before its disclosure to the defendants. The U.S.
Government declined to pursue the claim, but the third party plaintiff chose to
continue. The suit claimed that the Company and another defendant fraudulently
failed to disclose to the USPS, both in the Company's successful bid and in the
settlement of the ANET litigation, that some of the aircraft the Company
proposed to purchase and use to perform the contract were aging aircraft with
high use and claimed that the Company and Emery similarly fraudulently conspired
in connection with the settlement of the ANET litigation. The suit sought to
recover treble the $10 million settlement payment made by the USPS in settling
the ANET litigation, plus the third party plaintiff's costs and fees.

The Company moved to dismiss the suit with prejudice on grounds that it was
barred by the Act. The Company also sought to recover its attorneys' fees from
the plaintiff and to obtain sanctions against the plaintiff's attorneys. The
Company believes the suit was clearly frivolous because, among other things, the
Company in the ANET bid identified each aircraft by serial number, age, hours
and cycles and made available use and maintenance records for each aircraft as
required by the request for proposal and that the USPS reviewed and inspected
the aircraft, data and records and found them acceptable. In May 1996, the court
dismissed the suit and awarded the Company its attorneys' fees and costs. The
plaintiff has asked the court to reconsider its ruling. The Company does not
expect the outcome to have a material adverse effect upon the Company's
financial condition or results of operations.

Additionally, in the normal course of business, the Company is a party to
matters of litigation, none of which, in the opinion of management, will have a
material adverse effect on the Company's financial condition or the results of
operations.

F-15
<PAGE> 115

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. STOCK OPTIONS

In October 1994 the Company granted non-qualified options to two executives
to purchase a total of 337,848 shares of common stock at $7.81 per share.

During the fiscal year ended August 31, 1996, the Company canceled 245,708
of the options outstanding and granted to an executive a nonqualified option to
purchase 390,707 shares of common stock at $0.01 per share. The new option had a
term of nine years and was fully vested. In June 1996, the Company canceled the
remaining 92,140 options outstanding and granted to another executive a
non-qualified option to purchase 153,567 shares of common stock at $0.01 per
share. The new option had a term of nine years and was fully vested. On June 26,
1996, the executives fully exercised their options. No options remain
outstanding at December 31, 1996. Based on an independent appraisal commissioned
by the Company, the fair value of the options of $4,230,954 is reflected as a
charge to earnings in the accompanying statement of income for the year ended
August 31, 1996, under APB Opinion No. 25 and represents the fair value which
would have been charged under SFAS 123. Accordingly, no supplemental disclosures
under SFAS No. 123 are necessary.

8. RELATED PARTY TRANSACTIONS

The Company provided maintenance and other services as well as cash
advances to Martinaire East, Inc. ("Martinaire"), a company in which a minority
interest was owned by the Company's majority stockholder. Total sales to
Martinaire for fuel and services were approximately, $235,000 and $22,000 in
fiscal years 1994 and 1995, respectively. Martinaire also flies charter service
for the Company. During fiscal years 1994 and 1995, Martinaire provided the
Company services in the amount of approximately $982,000 and $232,000,
respectively. At December 31, 1996, Martinaire is no longer considered to be a
related party.

9. EMPLOYEE COMPENSATION PLANS AND ARRANGEMENTS

The Company has a retirement savings plan under Section 401(k) of the
Internal Revenue Code which covers substantially all employees meeting minimum
service requirements. Under the plan, voluntary contributions are made by
employees and the Company provides matching contributions based upon the
employees' contribution. The Company incurred $80,812, $121,217, $159,967 and
$56,378 in matching contributions related to this plan during fiscal years 1994,
1995, 1996 and for the four months ended December 31, 1996, respectively.

The Company has adopted:

- An Omnibus Securities Plan (the Plan) under which 300,000 shares of its
common stock are reserved for issuance to its employees. The Plan is
administered by the Company's Compensation Committee which may grant
stock based and nonstock based compensation to the Plan participants. No
awards have been granted under the Plan as of December 31, 1996.

- An Annual Incentive Compensation Plan (the Compensation Plan) under which
the Compensation Committee awards semiannual bonuses to employees of the
Company. The aggregate amount of bonuses available for award is limited
to 10% of the Company's income before income taxes and the bonuses to be
paid under the Compensation Plan. The Company may elect to pay the full
amount of the bonuses in common stock, which is limited to total stock
distributions of 200,000 shares of common stock. As of December 31, 1996,
198,193 shares were available for distribution.

- An Employee Stock Purchase Plan covering up to 100,000 shares of the
Company's common stock.

F-16
<PAGE> 116

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. CALENDAR YEAR INCOME STATEMENT (UNAUDITED)

As described above, the Company has changed its year end to December 31.
The following table presents certain historical information recast on a calendar
basis for 1996.

INFORMATION FOR THE CALENDAR YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Revenues:
Air freight carrier....................................... $ 55,504
Air logistics............................................. 77,168
--------
Total revenues.................................... 132,672
--------
Costs of revenues:
Air freight carrier....................................... 40,860
Air logistics............................................. 67,938
--------
Total costs of revenues........................... 108,798
--------
Gross profit................................................ 23,874
General and administrative expenses......................... 8,943
Non-qualified employee profit sharing expense............... 1,243
Stock option grants to executives........................... 4,231
--------
Operating income............................................ 9,457
Other income (expense):
Interest expense.......................................... (2,062)
Loss on asset disposal.................................... (589)
Other, net................................................ 880
--------
Income (loss) before income taxes........................... 7,686
Income taxes (benefit)...................................... 3,038
--------
Net income (loss)........................................... $ 4,648
========
Net income (loss) per share................................. $ 0.55
========
Net income, adjusted for non-recurring items................ $ 8,278
========
Net income per share, adjusted for non-recurring items...... $ 0.98
========
Weighted average common and common equivalent shares
outstanding............................................... 8,477
========
</TABLE>

F-17
<PAGE> 117

KITTY HAWK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Current assets
Cash and cash equivalents................................. $ 2,403,480
Trade accounts receivable................................. 21,644,727
Deferred income taxes..................................... 107,564
Inventory and aircraft supplies........................... 5,587,548
Prepaid expenses and other assets......................... 2,825,072
Deposits on aircraft...................................... 3,875,316
------------
Total current assets.............................. 36,443,707
------------
Property and equipment
Aircraft.................................................. 144,649,024
Aircraft work-in-progress................................. 8,178,161
Machinery and equipment................................... 5,122,368
Leasehold improvements.................................... 3,053,624
Building.................................................. 1,770,000
Furniture and fixtures.................................... 173,899
Transportation equipment.................................. 417,247
------------
163,364,323
Less: accumulated depreciation and amortization........... (23,007,382)
------------
Net property and equipment........................ 140,356,941
------------
Total assets...................................... $176,800,648
============
Current liabilities
Accounts payable.......................................... $ 8,522,412
Accrued expenses.......................................... 13,226,661
Income taxes payable...................................... 2,892,856
Accrued maintenance reserves.............................. 3,326,009
Current maturities of long-term debt...................... 8,373,261
------------
Total current liabilities......................... 36,341,199
Long-term debt.............................................. 72,673,469
Deferred income taxes....................................... 2,544,900
Commitments and contingencies
Stockholders' equity
Preferred stock, $1 par value: Authorized
shares -- 1,000,000, none issued....................... --
Common stock, $.01 par value: Authorized
shares -- 25,000,000; issued and
outstanding -- 10,669,517.............................. 106,695
Additional paid-in capital............................. 33,949,825
Retained earnings...................................... 33,260,862
Less common stock in treasury, -- 217,710 shares at
September 30, 1997 and December 31, 1996.............. (2,076,302)
------------
Total stockholders' equity........................ 65,241,080
------------
Total liabilities and stockholders' equity........ $176,800,648
============
</TABLE>

See accompanying notes.

F-18
<PAGE> 118

KITTY HAWK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1997
------------ -----------
<S> <C> <C>
Revenues:
Air freight carrier....................................... $ 39,615,267 $55,789,112
Air logistics............................................. 43,144,127 45,878,185
------------ -----------
Total revenues.................................... 82,759,394 101,667,297
------------ -----------
Costs of revenues:
Air freight carrier....................................... 29,688,049 38,075,855
Air logistics............................................. 39,139,436 42,037,740
------------ -----------
Total costs of revenues........................... 68,827,485 80,113,595
------------ -----------
Gross profit................................................ 13,931,909 21,553,702
General and administrative expenses......................... 6,877,198 7,550,059
Non-qualified employee profit sharing expense............... 446,928 1,161,261
Stock option grants to executives........................... 4,230,954 --
------------ -----------
Operating income............................................ 2,376,829 12,842,382
Other income (expense):
Interest expense.......................................... (1,530,003) (1,809,076)
Loss on asset disposal.................................... (589,049) --
Other, net................................................ 262,584 579,300
------------ -----------
Income before income taxes.................................. 520,361 11,612,606
Income taxes................................................ 268,912 4,645,042
------------ -----------
Net income.................................................. $ 251,449 $ 6,967,564
============ ===========
Net income per share........................................ $ 0.03 $ 0.67
============ ===========
Weighted average common and common equivalent shares
outstanding............................................... 7,891,431 10,451,807
============ ===========
</TABLE>

See accompanying notes.

F-19
<PAGE> 119

KITTY HAWK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)

See accompanying notes.

F-20
<PAGE> 120

KITTY HAWK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Operating activities:
Net income................................................ $ 251,449 $ 6,967,564
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 4,301,437 7,617,367
Deferred income taxes..................................... 998,963 --
Stock option grants to executives......................... 4,230,954 --
Changes in operating assets and liabilities:
Trade accounts receivable................................. 26,916,983 16,183,291
Inventory and aircraft supplies........................... (2,074,509) (2,797,566)
Prepaid expenses and other................................ 3,761,048 (1,681,083)
Deposits on aircraft...................................... -- 1,563,312
Accounts payable and accrued expenses..................... (16,862,704) (10,772,828)
Accrued maintenance reserves.............................. (2,017,806) 366,119
Income taxes payable...................................... 125,059 952,852
------------ ------------
Net cash provided by operating activities................... 19,630,874 18,399,028
Investing activities:
Capital expenditures........................................ (31,367,208) (99,575,465)
------------ ------------
Financing activities:
Proceeds from issuance of long-term debt.................... 17,392,032 59,104,130
Repayments of long-term debt................................ (3,038,212) (2,825,740)
Additional costs relating to initial public offering........ -- (18,875)
Tax benefit of stock option grants to executives............ 404,570 --
Acquisition of treasury shares.............................. (2,076,302) --
Proceeds from issuance of common stock...................... 4,430 --
------------ ------------
Net cash provided by financing activities................... 12,686,518 56,259,515
------------ ------------
Net increase (decrease) in cash and cash equivalents........ 950,184 (24,916,922)
Cash and cash equivalents at beginning of period............ 3,355,293 27,320,402
------------ ------------
Cash and cash equivalents at end of period.................. $ 4,305,477 $ 2,403,480
============ ============
</TABLE>

See accompanying notes.

F-21
<PAGE> 121

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements, which should
be read in conjunction with the consolidated financial statements and footnotes
appearing elsewhere herein are unaudited, but have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included.

Operating results for the nine month period ended September 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997.

Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. The effect of options to purchase 390,707 and 153,567 shares of the
Company's common stock at $0.01 granted to certain executives in 1996 have been
included in the calculation of weighted average common and common equivalent
shares through their date of exercise for the nine month period ended September
30, 1996.

2. REGISTRATION OF STOCK OFFERING

In October 1996, the Company sold in an initial public offering 2,700,000
shares of Common Stock.

3. LITIGATION

In February 1995, a jury awarded the Company $25,000 in damages plus its
attorneys' fees and denied Express One's counterclaims. The court entered
judgment in favor of the Company for $25,000 in damages, for $148,115 in
attorney's fees through trial and for additional attorneys fees if Express One
appeals. Before expiration of the time for appeal, Express One filed a petition
under Chapter 11 of the U.S. Bankruptcy Code. There is a dispute about whether
Express One has preserved a right to appeal and whether the judgment has become
final. Therefore, the judgment awarded to the Company has not been recorded in
the financial statements. The Company does not expect the outcome of this matter
to have a material adverse effect on the Company's financial condition or
results of operations.

The U.S. Postal Service ("USPS") selected the Company's air freight carrier
in September 1992 as the successful bidder on a contract for a multi-city
network of air transportation services supporting the USPS Express Mail system.
Two unsuccessful bidders sued the USPS to enjoin the award. The Company
intervened.

This litigation (the "ANET Litigation") was settled in April 1993 by
agreements under which the USPS terminated the Company's contract for
convenience and awarded the contract to the incumbent contractor, Emery
Worldwide Airlines, Inc. ("Emery").

F-22
<PAGE> 122

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

pursue the claim, but the third party plaintiff chose to continue. The suit
claimed that the Company and another defendant fraudulently failed to disclose
to the USPS, both in the Company's successful bid and in the settlement of the
ANET litigation, that certain of the aircraft the Company proposed to purchase
and use to perform the contract were aging aircraft with high use and claimed
that the Company and Emery similarly fraudulently conspired in connection with
the settlement of the ANET litigation. The suit sought to recover treble the $10
million settlement payment made by the USPS in settling the ANET litigation,
plus the third party plaintiff's costs and fees. In May 1996, the court
dismissed the suit and awarded the Company its attorneys' fees and costs. The
plaintiff has asked the court to reconsider its ruling. The Company does not
expect the outcome of this matter to have a material adverse effect on the
Company's financial condition or results of operations.

4. EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. Early adoption of the new standard is not permitted. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. The new standard eliminates primary
and fully diluted earnings per share and requires presentation of basic and
diluted earnings per share together with disclosure of how the per share amounts
were computed. Because the application of SAB No. 83, in calculation of per
share amounts under FAS 128 is presently uncertain, the Company is unable to
determine the effect of this new standard on per share amounts prior to 1997.
The effect on 1997 per share amounts is not expected to be material.

5. ACQUISITION OF AIRCRAFT AND MERGER

On September 22, 1997, the Company, the sole stockholder of the Kalitta
Companies, and the Kalitta Companies entered into a merger agreement, under
which each of the respective Kalitta Companies will be merged with separate
subsidiaries of Kitty Hawk, with each of the Kalitta Companies surviving the
merger as a direct, wholly owned subsidiary of Kitty Hawk. At the effective time
of the proposed Merger, the outstanding shares of capital stock of four Kalitta
Companies (AIA, AIT, FOL and O.K.) will be converted, into the right to receive
their prorata portion of 4,099,150 shares of Kitty Hawk common stock. The
outstanding shares of capital stock of KFS will be converted into the right to
receive $20,000,000.

Concurrent with the consummation of the merger agreement will be the
closing of a proposed 4,100,000 share common stock offering (of which Kitty Hawk
will sell 3,000,000 shares, not including up to 615,000 additional shares for
which Kitty Hawk has granted the underwriters a 30 day option to purchase) and
the consummation of a proposed note offering under Rule 144A of the Securities
Act for $340,000,000 aggregate principal amount of senior secured notes of Kitty
Hawk. The proceeds of the notes and a portion of the proceeds of the sale of
shares will be used to pay the cash portion of the acquisition of the Kalitta
Companies and to refinance and restructure substantially all of the outstanding
debt of the Kalitta Companies and Kitty Hawk.

As an interim step toward the merger, on September 17, 1997, the Company
purchased sixteen Boeing 727-200 aircraft constituting the Kalitta Companies'
727-200 fleet for approximately $51 million. As part of the transaction, the
Kalitta Companies assigned to Kitty Hawk all of its customer contracts relating
to the aircraft sold. The purchase agreement provides the Kalitta Companies the
option to repurchase, no later than March 31, 1998, all except three of the
727-200 aircraft from Kitty Hawk at Kitty Hawk's purchase price, less $14
million for the three aircraft not subject to the option, plus any costs
incurred by Kitty Hawk to maintain the repurchased aircraft. Similarly, Kitty
Hawk has the option to require the Kalitta Companies to repurchase, no later
than December 31, 1997, all except three of the 727-200 aircraft at Kitty Hawk's
purchase price less $14 million for the three aircraft not subject to the
option, plus any costs incurred by Kitty

F-23
<PAGE> 123

KITTY HAWK, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Hawk to maintain the repurchased aircraft. Of the purchase price, $45.9 million
was financed through an amendment of the Company's existing Credit Agreement
providing for such loan. The loan bears interest at a Eurodollar rate plus 1.5%
to 2% based upon a debt-to-cash flow ratio of the Company plus an additional 1%
beginning in 1999 and 1.5% beginning in 2000, with maturity on June 30, 2001.

F-24
<PAGE> 124

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder of
American International Airways, Inc. and Related Companies
Ypsilanti, Michigan

We have audited the accompanying combined balance sheets of American
International Airways, Inc. and related companies as of December 31, 1996 and
1995, and the related combined statements of operations, stockholder's equity
and cash flows for each of the three years in the period ended December 31,
1996. The combined financial statements include the accounts of American
International Airways, Inc. and its 60% owned partnership, American
International Cargo; and related companies Kalitta Flying Services, Inc., O.K.
Turbines, Inc., American International Travel, Inc. and Flight One Logistics,
Inc. (collectively, the "Companies"). These Companies are under common ownership
and common management. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of American International Airways,
Inc. and related companies as of December 31, 1996 and 1995, and the results of
their combined operations and cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
Companies will continue as a going concern. As discussed in Note 11 to the
financial statements, the Companies (1) are experiencing difficulty in
generating sufficient cash flows to meet their obligations and sustain their
operations, (2) failed to make certain principal payments and are not in
compliance with certain covenants of their long-term debt agreements (3) have
negative working capital and (4) have incurred substantial losses subsequent to
December 31, 1996, which raises substantial doubt about their ability to
continue as a going concern. Management's plans concerning these matters are
described in Note 11. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

DELOITTE & TOUCHE LLP

Ann Arbor, Michigan
October 16, 1997

F-25
<PAGE> 125

AMERICAN INTERNATIONAL AIRWAYS, INC. AND RELATED COMPANIES

COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 1,091,960 $ 2,324,353 $ 3,282,142
Restricted cash........................................... 795,030 14,036,924
Accounts receivable, net (Notes 1 and 3).................. 88,273,823 67,081,125 64,908,684
Accounts receivable -- related parties.................... 4,390,261 2,960,778 1,254,798
Expendable parts and supplies............................. 12,330,854 20,742,140 24,624,354
Aircraft held for resale (Note 4)......................... 6,593,069 6,117,266 5,346,453
Deposits, prepaid expenses and other assets............... 4,914,056 8,018,273 7,326,008
Prepaid fuel.............................................. 4,080,373 5,828,047 6,999,565
Notes receivable, current................................. 186,085 186,085 100,804
------------ ------------ ------------
Total current assets.................................... 121,860,481 114,053,097 127,879,732
PROPERTY AND EQUIPMENT:
Land and improvements..................................... 228,678 228,678 228,678
Building and leasehold improvements (Note 4).............. 9,347,825 12,752,356 14,363,228
Rotable parts (Note 3).................................... 14,560,287 16,779,386 17,661,392
Equipment (Note 3)........................................ 19,685,442 23,677,640 26,317,512
Aircraft (Note 3)......................................... 264,266,383 320,276,140 303,778,995
------------ ------------ ------------
Total............................................... 308,088,615 373,714,200 362,349,805
Less accumulated depreciation............................. 81,246,881 109,707,512 113,883,560
------------ ------------ ------------
Net................................................. 226,841,734 264,006,688 248,466,245
Aircraft in modification (Note 3)......................... 25,557,078 988,541 21,925,586
Construction in progress.................................. 3,152,560 923,150 1,427,361
------------ ------------ ------------
Total property and equipment, net................... 255,551,372 265,918,379 271,819,192
NOTES RECEIVABLE, LESS CURRENT PORTION...................... 184,968 131,805 --
RECEIVABLE FROM AFFILIATED COMPANY.......................... -- -- 777,284
------------ ------------ ------------
TOTAL ASSETS (Notes 3 and 4)................................ $377,596,821 $380,103,281 $400,476,208
============ ============ ============

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade (Note 1).......................................... $ 62,125,228 $ 46,070,230 $ 49,898,805
Related parties......................................... 4,421,143 77,450 121
Accrued liabilities....................................... 20,342,988 24,172,883 22,969,507
Deferred gain on sale of aircraft (Note 11)............... -- -- 30,255,291
Deferred revenue.......................................... -- 795,030 3,036,924
Notes payable to bank, reclassified as current (Note 3)... -- 47,105,413 55,434,351
Long term debt, reclassified as current (Note 4).......... -- 155,910,954 104,623,812
Notes payable to bank (Note 3)............................ 12,226,496 1,024,035 2,994,849
Current maturities of long-term debt (Note 4)............. 42,444,612 34,310,440 91,739,507
------------ ------------ ------------
Total current liabilities........................... 141,560,467 309,466,435 360,953,167
NOTES PAYABLE, NONCURRENT (Note 3).......................... 34,983,000 -- --
LONG-TERM DEBT, LESS CURRENT PORTION (Note 4)............... 130,717,485 -- --
NOTE PAYABLE TO STOCKHOLDER (Note 8)........................ 100,000 -- 300,462
------------ ------------ ------------
Total liabilities................................... 307,360,952 309,466,435 361,253,629
COMMITMENTS AND CONTINGENCIES
(Notes 6 and 9)
MINORITY INTEREST IN AMERICAN INTERNATIONAL CARGO........... 3,944,070 3,551,735 3,572,437
STOCKHOLDER'S EQUITY (Note 5):
Common stock, par value $1 per share, authorized 275,000
shares in 1995, 1996 and 1997, issued and outstanding
53,000 shares in 1995, 1996 and 1997.................... 53,000 53,000 53,000
Additional paid-in capital.................................. 14,062,669 17,839,157 17,839,157
Retained earnings........................................... 52,176,130 49,192,954 17,757,985
------------ ------------ ------------
Total stockholder's equity.......................... 66,291,799 67,085,111 35,650,142
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $377,596,821 $380,103,281 $400,476,208
============ ============ ============
</TABLE>

See notes to combined financial statements.

F-26
<PAGE> 126

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Note 9):
Air transportation services..... $298,080,850 $359,404,248 $388,192,479 $275,211,481 $302,344,768
Maintenance and other........... 7,448,982 14,278,793 36,348,245 25,801,347 23,299,368
------------ ------------ ------------ ------------ ------------
Total revenues........... 305,529,832 373,683,041 424,540,724 301,012,828 325,644,136
Operating Costs and Expenses:
Flight.......................... 115,613,706 168,774,779 150,255,587 107,006,096 126,207,639
Maintenance..................... 64,722,079 103,388,710 115,081,955 81,561,290 107,432,257
Fuel............................ 57,361,888 54,538,321 82,717,539 58,433,493 55,094,783
Depreciation.................... 13,809,281 20,971,405 32,091,119 23,958,549 26,467,600
Selling, general and
administrative................ 13,272,361 21,676,079 21,889,355 15,353,022 17,847,884
Provision for doubtful
accounts...................... 2,231,485 1,862,283 1,010,663 2,386,059 1,633,958
------------ ------------ ------------ ------------ ------------
Total cost and
expenses............... 267,010,800 371,211,577 403,046,218 288,698,509 334,684,121
------------ ------------ ------------ ------------ ------------
Income (Loss) from Operations..... 38,519,032 2,471,464 21,494,506 12,314,319 (9,039,985)
Other Income (Expense):
Interest expense, net........... (8,007,389) (14,748,611) (21,632,389) (15,755,315) (19,740,204)
Gain on disposition of property
and equipment, net............ 3,389,881 11,707,673 130,934 425,742 624,395
Gain on contract settlement..... -- -- 1,123,200 1,123,200 --
Gain on insurance
reimbursement................. -- 8,147,878 -- -- 542,302
Merger related costs............ -- -- -- -- (1,269,100)
Net, miscellaneous.............. (550,000) (110) 13,116 13,214 --
------------ ------------ ------------ ------------ ------------
Total other (expense)
income................. (5,167,508) 5,106,830 (20,365,139) (14,193,159) (19,842,607)
------------ ------------ ------------ ------------ ------------
Income (Loss) Before Minority
Interest in American
International Cargo............. 33,351,524 7,578,294 1,129,367 (1,878,840) (28,882,592)
Minority Interest in American
International Cargo............. (2,758,372) (3,092,513) (1,146,019) (907,730) (1,858,958)
------------ ------------ ------------ ------------ ------------
Net Income (Loss)................. $ 30,593,152 $ 4,485,781 $ (16,652) $ (2,786,570) $(30,741,550)
============ ============ ============ ============ ============

Unaudited Pro forma Data (Note 1):
Income (loss) before provision
for income taxes.............. $ 30,593,152 $ 4,485,781 $ (16,652) $ (2,786,570) $(30,741,550)
Provision for income taxes...... 11,625,398 1,704,597 -- -- --
------------ ------------ ------------ ------------ ------------
Pro forma net income (loss)....... $ 18,967,754 $ 2,781,184 $ (16,652) $ (2,786,570) $(30,741,550)
============ ============ ============ ============ ============
</TABLE>

See notes to combined financial statements.

F-27
<PAGE> 127

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
AMERICAN KALITTA AMERICAN FLIGHT
INTERNATIONAL FLYING O.K. GRAND INTERNATIONAL ONE
AIRWAYS SERVICES, TURBINES, HOLDINGS, TRAVEL, LOGISTICS
INC. INC. INC. INC. INC. INC. TOTAL
------------- --------- --------- --------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993..... $25,000 $25,000 $1,000 $ -- $ -- $ -- $51,000
Acquisition of Grand
Holdings, Inc. (Note 2).... -- -- -- 100 -- -- 100
Distributions to
stockholder................ -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, December 31, 1994..... 25,000 25,000 1,000 100 -- -- 51,100
Issuance of common stock..... -- -- -- -- 1,000 1,000 2,000
Disposal of Grand Holdings,
Inc. (Note 2).............. -- -- -- (100) -- -- (100)
Contributions by stockholder
(Note 2)................... -- -- -- -- -- -- --
Distributions to
stockholder................ -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, December 31, 1995..... 25,000 25,000 1,000 -- 1,000 1,000 53,000
Contributions by
stockholder................ -- -- -- -- -- -- --
Distributions to
stockholder................ -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, December 31, 1996..... 25,000 25,000 1,000 -- 1,000 1,000 53,000
Distributions to stockholder
(unaudited)................ -- -- -- -- -- -- --
Net loss (unaudited)......... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, September 30, 1997
(Unaudited).................. $25,000 $25,000 $1,000 $ -- $1,000 $1,000 $53,000
======= ======= ====== ===== ====== ====== =======

ADDITIONAL
PAID-IN RETAINED
CAPITAL EARNINGS
----------- ------------
<S> <C> <C>
Balance, December 31, 1993..... $ 7,054,995 $ 39,354,622
Acquisition of Grand
Holdings, Inc. (Note 2).... 8,875,000 --
Distributions to
stockholder................ -- (8,830,125)
Net income................... -- 30,593,152
----------- ------------
Balance, December 31, 1994..... 15,929,995 61,117,649
Issuance of common stock..... -- --
Disposal of Grand Holdings,
Inc. (Note 2).............. (8,875,000) 303,411
Contributions by stockholder
(Note 2)................... 7,007,674 --
Distributions to
stockholder................ -- (13,730,711)
Net income................... -- 4,485,781
----------- ------------
Balance, December 31, 1995..... 14,062,669 52,176,130
Contributions by
stockholder................ 3,776,488 --
Distributions to
stockholder................ -- (2,966,524)
Net loss..................... -- (16,652)
----------- ------------
Balance, December 31, 1996..... 17,839,157 49,192,954
Distributions to stockholder
(unaudited)................ -- (693,419)
Net loss (unaudited)......... -- (30,741,550)
----------- ------------
Balance, September 30, 1997
(Unaudited).................. $17,839,157 $ 17,757,985
=========== ============
</TABLE>

See notes to combined financial statements.

F-28
<PAGE> 128

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 30,593,152 $ 4,485,781 $ (16,652) $ (2,786,570) $(30,741,550)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................. 13,809,281 20,971,405 32,091,119 23,958,549 26,467,600
Provision for doubtful accounts.............. 2,231,485 1,862,283 1,010,663 2,386,059 1,633,958
Gain (loss) on disposition of property and
equipment.................................. (3,389,881) (11,707,673) (130,934) (425,742) (624,395)
Minority interest in American International
Cargo...................................... 2,758,372 3,093,262 1,143,637 907,730 1,858,958
Changes in assets and liabilities which
provided (used) cash:
Restricted cash............................ -- -- -- -- (11,000,000)
Accounts receivable........................ (20,725,807) (17,819,263) 21,611,518 33,008,115 2,819,463
Expendable parts and supplies.............. (4,454,286) (3,470,152) (7,034,678) (3,987,431) (4,118,881)
Deposits, prepaid expenses and other
assets................................... (1,845,978) (3,740,088) (3,972,997) (3,327,352) (1,466,394)
Aircraft held for resale................... (6,975,000) 21,754,521 (1,702,354) (440,061) (1,261,293)
Accounts payable........................... 17,099,346 26,128,641 (20,398,691) (21,757,622) 4,543,332
Accrued liabilities........................ 4,742,342 7,956,796 3,829,895 140,188 (1,203,376)
------------ ------------ ------------ ------------ ------------
Total adjustments........................ 3,249,874 45,029,732 26,447,178 30,462,433 17,648,972
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities............................. 33,843,026 49,515,513 26,430,526 27,675,863 (13,092,578)
Cash flows from investing activities:
Purchase of property and equipment............. (77,831,613) (153,719,347) (53,413,262) (43,597,858) (54,508,576)
Proceeds from disposition of property and
equipment.................................... 5,250,000 33,603,329 11,008,725 10,145,798 55,127,500
Collections on note receivable................. 139,620 119,324 53,163 53,163 --
Issuance of notes receivable to affiliated
company...................................... -- -- -- -- (777,284)
Disposal of Grand Holdings, Inc., net of
cash......................................... -- (948,818) -- -- --
Acquisition of Grand-Holdings, Inc. net of cash
acquired..................................... (97,077) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities............................. (72,539,070) (120,945,512) (42,351,374) (33,398,897) (158,360)
Cash flows from financing activities:
Repayments of notes and long-term debt......... (21,997,617) (36,899,953) (52,117,964) (53,307,078) (63,198,575)
Borrowings under notes and long-term debt
agreements................................... 74,466,207 119,952,548 70,097,213 61,295,530 79,640,259
Net (repayments) borrowings under note payable
to stockholder............................... -- 14,000 (100,000) 340,462 300,462
Issuance of common stock....................... -- 2,000 -- -- --
Contribution of capital by stockholder......... -- 554,102 3,776,488 3,759,903 --
Distributions to American International Cargo
minority stockholder......................... (1,367,328) (2,106,000) (1,535,972) (1,540,000) (1,840,000)
Distributions to stockholder................... (8,830,125) (13,730,711) (2,966,524) (2,580,655) (693,419)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities............................. 42,271,137 67,785,986 17,153,241 7,968,162 14,208,727
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash...................... 3,575,093 (3,644,013) 1,232,393 2,245,128 957,789
Cash, beginning of period........................ 1,160,880 4,735,973 1,091,960 1,091,960 2,324,353
------------ ------------ ------------ ------------ ------------
Cash, end of period.............................. $ 4,735,973 $ 1,091,960 $ 2,324,353 $ 3,337,088 $ 3,282,142
============ ============ ============ ============ ============
Supplemental disclosure of cash flow
information -- Cash paid during the period for
interest....................................... $ 7,677,452 $ 16,334,750 $ 21,806,688 $ 13,688,820 $ 18,916,308
============ ============ ============ ============ ============
</TABLE>

F-29
<PAGE> 129

Noncash operating and investing activities:

In 1994, the Companies transferred assets with a net book value of $738,094
from property and equipment to aircraft held for resale.

In 1995, the sole stockholder sold 80% of Grand Holdings, Inc. The nonmonetary
combining effect on the Companies was $8,193,747.

In 1995, the Companies refinanced $680,000 of notes payable to a bank on a
long-term basis.

In 1995, the sole stockholder of the Companies contributed property and
equipment of $6,453,572.

In 1996, the Companies transferred assets with a net book value of $1,436,000
from aircraft held for resale to property and equipment.

In 1996, the Companies transferred assets with a net book value of $1,376,608
from property and equipment to inventory.

In 1996, the Companies received $795,030 in restricted cash from customers for
deposit.

In 1996, the Companies deferred a $878,894 loss on the sale-leaseback of an
aircraft held for resale.

In 1997 (unaudited), the Companies sold certain assets held for resale for
$1,150,000 in exchange for accounts receivable and reduction of outstanding
liabilities.

In 1997 (unaudited), the Companies received $2,241,894 in restricted cash from
customers for deposit.

In 1997 (unaudited), the Companies transferred assets with a net book value of
$137,000 from inventory to property and equipment.

In 1997 (unaudited), the Companies transferred assets with a net book value of
$635,774 from property and equipment to assets held for resale.

In 1997 (unaudited), the Companies netted $217,086 due under notes receivable
with outstanding liabilities.

In 1997 (unaudited), the Companies deferred a gain of $30,255,291 on the sale
of 16 Boeing 727 aircraft to Kitty Hawk.

See notes to combined financial statements.

F-30
<PAGE> 130

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Description -- American International Airways, Inc. and its
related companies (the "Companies") provide worldwide scheduled air cargo and
charter services. The scheduled air cargo delivery business includes an
overnight freight service operating within a network of North American cities.
By integrating their scheduled and charter freight business and scheduled air
cargo from the United States to the Far East, the Companies are able to provide
air express delivery of virtually any type of air freight throughout the world.
The Companies also provide a wide variety of aviation services, including ground
handling support and airframe and engine maintenance and overhaul for their own
aircraft and for other aircraft operators, travel services for the Companies'
flight crews and maintenance personnel, and air charter management and services
for the Companies.

Significant Accounting Policies:

Principles of Combined Financial Statements -- The combined financial
statements include the accounts of American International Airways, Inc. and its
60% owned partnership, American International Cargo ("AIA"); and related
companies Kalitta Flying Services, Inc. ("KFS"), O.K. Turbines, Inc. ("O.K."),
American International Travel, Inc. ("AIT") and Flight One Logistics, Inc.
("FOL") (collectively referred to as the "Companies"). Combined financial
statements are presented because AIA and the related companies are owned by the
same individual and are operated by common management. All significant
intercompany accounts and transactions have been eliminated.

Interim Financial Statements -- The combined financial statements as of and
for the nine months ended September 30, 1996 and 1997 reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations for such
periods.

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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Financial Instruments of the Companies consist principally of accounts
receivable, accounts payable, notes payable to stockholder, debt and letters of
credit. The recorded value of financial instruments included in the financial
statements approximates fair value.

Restricted Cash represents passenger customer deposits held in escrow with
a corresponding credit to deferred revenue until the charter services are
provided. In addition, at September 30, 1997, $11 million was held in escrow for
the modification of a Boeing 747 aircraft (unaudited).

Accounts Receivable are net of an allowance of $2,062,000 and $2,389,000
for the years ended December 31, 1995 and 1996 and $3,381,000 for the nine
months ended September 30, 1997 (unaudited), respectively.

Expendable Parts and Supplies are carried at the lower of cost (using the
first-in, first-out method or average cost convention) or market.

Aircraft Held for Resale -- The Companies may periodically purchase
aircraft for resale. These aircraft are carried at the lower of cost or net
realizable value. The long-term portion of debt associated with these aircraft
is classified as current (Note 4). The sale of such assets is expected within
twelve months.

F-31
<PAGE> 131

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Property and Equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:

<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Building and leasehold improvements......................... 5 - 40
Aircraft.................................................... 5 - 14
Equipment................................................... 3 - 10
Rotable parts............................................... 3 - 7
</TABLE>

During 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to these assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS 121 is required to be adopted for the
Companies' 1996 fiscal year. The Companies have completed the process of
evaluating the impact on the combined financial statements that will result from
adopting SFAS 121 and does not believe the effect to be material.

Rotable Parts are net of an allowance of $1,016,667 and $816,667 for the
years ended December 31, 1995 and 1996 and $1,016,667 for the nine months ended
September 30, 1997 (unaudited), respectively.

Aircraft In Modification includes aircraft in the process of being
converted from passenger to freighter configuration.

Accounts Payable Trade includes bank overdrafts of $4,954,225 and
$4,812,147 at December 31, 1995 and 1996 and $5,430,166 at September 30, 1997
(unaudited), respectively.

Revenue Recognition -- Revenue from scheduled and chartered services
represent charges for movement of air cargo and passengers and is recognized
when movement is complete. Revenue for maintenance, overhaul and repair services
is recognized when services are rendered.

Export Sales -- The Companies consider sales of services to unaffiliated
customers in foreign countries as export sales.

Taxes on Income -- The Companies have elected to be taxed as S Corporations
under the Internal Revenue Code. As S Corporations, the income of the Companies
is taxable to the sole stockholder and, accordingly, these combined financial
statements do not include a provision for corporate income taxes.

Approximately $3,390,000 of the Companies' retained earnings at December
31, 1996 was earned prior to the S Corporation elections and would be taxed to
the sole stockholder in the event of distribution.

The unaudited pro forma provision for income taxes reported on the combined
statements of operations shows the approximate federal and state income taxes
(by applying statutory rates) that would have been incurred if the Companies had
been subject to tax as a C Corporation. No tax benefit has been provided for the
year ended December 31, 1996 and for the nine months ended September 30, 1996
and 1997 due to the uncertainty of the Companies' ability to recover such
benefits.

Interest Costs -- Interest on funds used to finance the acquisition and
modification of aircraft up to the date the asset is placed in service is
capitalized and included in the cost of the asset. Interest capitalized during
the years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1996 was $668,000, $1,692,000, $562,000 and $533,000,
respectively. No interest cost was capitalized for the nine months ended
September 30, 1997 (unaudited).

F-32
<PAGE> 132

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Foreign Transactions -- All significant monetary transactions of the
Companies are denominated in U.S. currency.

Reclassifications -- Certain reclassifications were made to the 1994, 1995
and 1996 financial statements to conform with the classifications used in 1997.

2. ACQUISITION AND DISPOSAL OF RELATED COMPANY

On December 31, 1994, the sole stockholder of the Companies acquired all
outstanding shares of Grand Holdings, Inc. ("GHI") for $8,875,100 in cash and
notes. GHI operated a charter passenger service. The acquisition was accounted
for under the purchase method of accounting and, accordingly, the purchase price
was allocated to the fair value of assets acquired and liabilities assumed. The
primary assets acquired from the transaction were three aircraft.

On June 30, 1995, the sole stockholder of the Companies sold 80% of his
share in Grand Holdings, Inc. ("GHI"). Prior to June 30, 1995, the aircraft of
GHI were distributed to the sole stockholder and in turn contributed to AIA.

3. NOTES PAYABLE TO BANK

Notes payable to banks consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Outstanding borrowings on a bridge loan with a bank
(Note 10), at the bank's prime rate plus 2%
(10.25% effective rate at December 31, 1996),
expires December 9, 1999. Under the terms of the
bridge loan, the Companies may borrow up to
$14,250,000 to cover the purchase and
modification of certain aircraft until permanent
financing is obtained. The principal collateral
for the bridge loan is the related aircraft. The
loan is also secured by all assets of KFS and the
assignment of a life insurance policy on the
stockholder and the guaranty of the
stockholder...................................... $ 9,456,496 $ -- $ --
Outstanding borrowings on a $3,000,000 revolving
credit agreement with a bank under which the
Companies may borrow up to 75% on eligible
accounts receivable. The agreement calls for
interest at the bank's prime rate plus .5% (8.75%
effective rate at December 31, 1996). Security
consists of accounts receivable and the guaranty
of the stockholder and the minority interest
holder of American International Cargo........... 2,770,000 1,024,035 2,994,849
----------- ----------- -----------
Total....................................... $12,226,496 $ 1,024,035 $ 2,994,849
=========== =========== ===========
</TABLE>

F-33
<PAGE> 133

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Long-term, reclassified as current:
Outstanding borrowings on a $60,000,000 revolving
credit agreement with a bank under which the
Companies may borrow on eligible accounts
receivable, a percentage of eligible rotable and
consumable parts and 50% of the fair value of
eligible aircraft. The agreement calls for
interest at the bank's prime rate plus 1.25%
(9.5% effective at December 31, 1996). The
agreement expires December 9, 1999 at which time
the entire amount outstanding is due. At December
31, 1996 and September 30, 1997 (unaudited), the
credit available was $4,521,537 and $1,410,137,
respectively. Security consists of accounts
receivable and aircraft spare parts as well as an
assignment of life insurance policy on the
stockholder. Also secured by all assets of KFS
and guaranteed by the stockholder................ $ -- $47,105,413 $55,434,351
=========== =========== ===========
Long-Term:
Outstanding borrowings on a $40,000,000 revolving
credit agreement with a bank under which the
Companies may borrow on eligible accounts
receivable. The agreement calls for interest at
the bank's prime rate plus .5% (9% effective at
December 31, 1995). The agreement expires June 1,
1997 at which time the entire amount outstanding
is due. Security consists of accounts receivable
and aircraft spare parts as well as an assignment
of life insurance policy on the stockholder. The
note is also secured by all assets of KFS and
guaranteed by the stockholder.................... $34,983,000 $ -- $ --
=========== =========== ===========
</TABLE>

These credit agreements include certain restrictive covenants. At December
31, 1996, the Companies were in violation of the following covenants: (1)
maintaining a combined fixed charge ratio of 1 to 1 and (2) certain cross
collateralization covenants. As a result of these and other non-financial loan
covenant violations, all debt has been classified as current.

At September 30, 1997 (unaudited), the Companies had failed to make certain
principal payments and were in violation of the following covenants: (1)
maintaining a minimum tangible net worth of not less than $60 million; (2)
maintaining a minimum debt to net worth ratio of not more than 5 to 1 and (3)
certain cross collateralization covenants. As a result of these and other
non-financial loan covenant violations, all debt has been classified as current.

F-34
<PAGE> 134

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Various notes payable with interest rates ranging
from 7.49% to 12%. Certain interest rates are at
prime plus 1% to 2.5% (9.25% to 10.75% effective
rates at December 31, 1996). The notes are
secured by property and equipment with a net book
value of $231,792,981. Certain notes are also
secured by substantially all of the Companies'
assets, and the personal guaranty of the
stockholder...................................... $173,162,097 $190,221,394 $196,363,319
Less:
Current maturities of long-term debt............. 37,608,059 31,568,769 88,072,920
Outstanding debt on aircraft held for resale..... 4,836,553 2,741,671 3,666,587
------------ ------------ ------------
Total.................................... 42,444,612 34,310,440 91,739,507
------------ ------------ ------------
Net long-term debt, reclassified as current........ -- 155,910,954 104,623,812
------------ ------------ ------------
Net long-term debt................................. $130,717,485 $ -- $ --
============ ============ ============
</TABLE>

Without regard to the lenders exercising their right to demand payment, the
aggregate amount of required payments on long-term debt and notes payable to
bank (Note 3) as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997................................................... $ 35,334,475
1998................................................... 69,298,498
1999................................................... 75,547,575
2000................................................... 23,925,286
2001................................................... 19,417,825
Thereafter............................................. 14,827,183
------------
Total........................................ $238,350,842
============
</TABLE>

These credit agreements include certain restrictive covenants. At December
31, 1996, the Companies were in violation of the following covenants: (1)
maintaining a minimum net worth of not less than $78 million; (2) maintaining a
debt service coverage ratio of not less than 1.2 to 1; (3) maintaining a maximum
debt to net worth ratio of not more than 4 to 1; (4) maintaining an EBITDA ratio
of not less than 1.1 to 1; and (5) certain cross collateralization covenants. As
a result of these and other non-financial loan covenant violations, all debt has
been classified as current.

At September 30, 1997 (unaudited), the Companies had failed to make certain
principal payments on indebtedness and were in violation of the following
covenants: (1) ratio of earnings to fixed charges; (2) ratio of cash flow to
fixed charges; (3) cash flow to coverage; (4) minimum net income; (5) current
ratio; (6) tangible net worth; (7) shareholder's equity; (8) debt service
coverage; (9) fixed charge coverage; (10) debt to net worth ratios; (11) certain
cross collateralization covenants as well as restrictions relating to
encumbering their assets. As a result of these and other non-financial loan
covenant violations, all debt has been classified as current.

F-35
<PAGE> 135

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Effective in July and August 1997, the Companies entered into agreements
with certain lenders for the deferment of principal payments for a period of one
to eight months. The aggregate monthly deferrals range from $693,000 to
$2,824,000. The Companies are to make interest payments only during this period.
At the end of the deferral periods, the Companies will resume principal payments
in accordance with the terms of the loan agreement.

5. COMMON STOCK

Common stock of the Companies is as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
American International Airways, Inc., $1 par value;
25,000 shares authorized, 25,000 shares issued and
outstanding....................................... $25,000 $25,000 $25,000
Kalitta Flying Services, Inc., $1 par value; 100,000
shares authorized, 25,000 shares issued and
outstanding....................................... 25,000 25,000 25,000
O.K. Turbines, Inc., $1 par value; 50,000 shares
authorized, 1,000 shares issued and outstanding... 1,000 1,000 1,000
American International Travel, Inc., $1 par value;
50,000 shares authorized, 1,000 shares issued and
outstanding....................................... 1,000 1,000 1,000
Flight One Logistics, Inc., $1 par value; 50,000
shares authorized, 1,000 shares issued and
outstanding....................................... 1,000 1,000 1,000
------- ------- -------
Total..................................... $53,000 $53,000 $53,000
======= ======= =======
</TABLE>

6. OPERATING LEASES

The Companies lease office building, hangars, cargo storage, and related
facilities under noncancelable operating leases which expire on various dates
through 2011. In addition, the Companies periodically lease aircraft and other
equipment under month-to-month lease agreements. Lease expense for all operating
leases was $15,659,000, $24,095,000, $10,815,000, $7,576,000 and $6,094,000, for
the years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1996 and 1997 (unaudited), respectively.

Aggregate future minimum rental payments required under noncancelable
operating leases at December 31, 1996 are as follows:

<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Years Ending December 31:
1997.................................................. $ 3,177,000
1998.................................................. 1,950,000
1999.................................................. 1,620,000
2000.................................................. 1,006,000
2001.................................................. 789,000
Thereafter............................................ 5,685,000
-----------
Total minimum rental payments................. $14,227,000
===========
</TABLE>

F-36
<PAGE> 136

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

7. EMPLOYEE SAVINGS PLAN

The Companies have three separate 401(k) employee savings plans, covering
substantially all employees. The Companies' contributions to the plans are
discretionary and were $133,000, $158,000, $353,000, $4,430 and $91,771, for the
years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1996 and 1997 (unaudited), respectively.

8. RELATED PARTY TRANSACTIONS

The Companies lease certain aircraft to a company owned and operated by a
relative of the sole stockholder of the Companies. In addition to providing
services to unrelated third parties, the related company flies subcharter
flights for the Companies and also provides lift capacity for the Companies'
overnight scheduled cargo service. The Companies perform ground handling for the
related company in certain locations. The related company also reimburses the
Companies for certain applicable fuel, parking and landing and ground handling
paid on the related company's behalf.

The Companies also have certain transactions with an affiliated company
that is partially owned by the Companies' sole stockholder. The remaining
ownership of this affiliated company are relatives of the sole stockholder of
the Companies. The Companies lease an office facility from this affiliated
company for an annual rent of approximately $713,000. The lease expires May 14,
2007.

Transactions and balances with related parties were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Transactions and balances
with sole stockholder:
Note payable, noninterest
bearing................ $ -- $ 100,000 $ -- $ -- $ 300,462
Contribution of cash...... -- 473,972 2,266,630 -- --
Contribution of aircraft
and equipment.......... -- 6,453,572 -- -- --
Transactions with a company
owned by a relative of the
sole stockholder:
Revenues.................. 352,800 11,582,257 5,176,150 5,043,643 916,849
Cost of revenues.......... 2,366,288 6,097,447 28,727 28,646 121,511
Sale of DC8............... -- 5,200,000 -- -- --
Transactions and balances
with an affiliated
company:
Receivable from affiliated
company................... -- -- -- -- 777,284
Rental expense............ -- -- -- -- 266,342
Transactions with GHI --
Purchase of three DC8
engines................... -- 1,950,000 -- -- --
Transactions with sole
stockholder and relatives
of the sole stockholder --
Promotional revenues...... 830,616 1,257,771 1,206,529 898,209 315,934
Promotional expenses...... 2,602,038 3,643,611 3,096,724 2,128,292 2,344,562
</TABLE>

F-37
<PAGE> 137

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES

Purchase Commitments -- In March 1997, the Companies committed to purchase
three Boeing 747-200 aircraft and associated engines, four additional spare
engines and certain other related spare parts for approximately $63,000,000. In
connection with these purchase commitments, the Companies intend to modify these
aircraft for approximately $24,000,000. The Companies took delivery of one of
the aircraft and a spare engine on September 26, 1997, for $21 million and
negotiated a revised agreement to purchase the remaining two aircraft and
related spare parts for $42 million which includes a $1 million non-refundable
deposit and a $1 million option purchase price which the seller can retain if
the Companies fail to complete the purchase by February 16, 1998.

In July 1997, the Companies purchased two L1011 aircraft for a total
purchase price of $7,000,000. In connection with this purchase, the Companies
have a commitment for the modification of these aircraft for $11,400,000.

In addition, the Companies have a nonrefundable deposit of $320,000 with
respect to a purchase commitment of $1,400,000. The realization of this deposit
is dependent upon the Companies' ability to fulfill this purchase commitment.

Letters of Credit -- The Companies' banks have issued to various airports
and suppliers letters of credit totaling $5,071,000, $3,088,000, and $3,155,512,
at December 31, 1995 and 1996 and September 30, 1997, respectively, against
which accounts receivable are pledged as collateral. The last of the letters of
credit expires in 1998.

Legal Proceedings, Claims and Other -- The Companies are subject to legal
proceedings and claims which have arisen in the ordinary course of business.
Management intends to vigorously defend against these legal proceedings and
believes, based upon the advice of legal counsel, that the outcome will not have
a materially adverse effect on the Companies' financial position, results of
operations, or cash flows.

In January 1996, the FAA issued a series of Directives on certain Boeing
747 aircraft which were modified for freight hauling by GATX-Airlog Company, a
subsidiary of General American Transportation Corp ("GATX"). The Directives,
which became effective on January 30, 1996, were issued because of concerns
relating to the integrity of the cargo door and surrounding floor area in the
event the aircraft were operated at their maximum cargo capacity of
approximately 220,000 pounds. In spite of the fact that the aircraft affected by
the Directives have flown over 83,000 hours without incident, the Directives
require certain modifications to be made to the aircraft. Absent such
modifications, the Directives limit the cargo capacity of these aircraft to
120,000 lbs., a limit which restricts the Companies' ability to profitably
operate the aircraft.

One of each of the Companies' Boeing 747-200 and Boeing 747-100 freighters
are affected by these Directives and have been out of service since January
1996. GATX has proposed a solution to the problem identified by one of the
Directives which has been approved by the FAA. An appropriate means to test the
proposed solution, however, has not yet been identified. Currently, the
Companies anticipate modifying the Boeing 747-100 to be in compliance with a
portion of the Directive for which the FAA has approved a solution by the latter
half of 1998, which will allow the Companies to operate it with a reduced cargo
capacity of 160,000 lbs. The Companies are awaiting engineering solutions to
address the remaining Directives. If the cost necessary to fully implement these
solutions and return both the Boeing 747-100 and -200 to maximum cargo capacity
is uneconomical, the Companies may either operate one or both of the aircraft at
limited load or use one or both for spare parts. The Companies are currently
involved in litigation against GATX to recover the cost to repair these aircraft
as well as revenues lost as a consequence of the aircraft downtime.

In September 1996 pursuant to the FAA's National Aviation Safety Inspection
Program, the Companies underwent a broad but routine inspection of all of the
Companies' aircraft and maintenance operations. This

F-38
<PAGE> 138

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

inspection resulted in a report from the FAA citing the Companies with a number
of regulatory infractions, none of which were sufficiently serious to cause the
FAA to curtail or otherwise restrict any of the Companies' operations. As a
consequence of the FAA's inspection, however, the FAA and the Companies entered
into a Consent Order in January 1997 which required the Companies to revise
certain internal policies and procedures to address the regulatory violations
noted in the inspection report as well as enforcement actions that had been
pending prior to the inspection. Without admitting any fault, the Companies
agreed to pay a fine of $450,000, one-third of which is suspended and will be
forgiven if the Companies comply with all the terms of the Consent Order. At
this time, management believes the Companies are in compliance with the Consent
Order and expect the FAA to conduct another inspection of similar scope in the
fourth quarter of 1997 to verify such compliance. The Consent Order also
provides that it is a full and conclusive settlement of any civil penalties the
Companies could incur for regulatory violations occurring before January 1,
1997, but does not preclude the FAA from taking enforcement action to revoke the
Companies' air carrier operating certificate.

Only six of the Companies' twenty Douglas DC-8 aircraft comply with the FAA
Stage III noise control standards. The Companies may elect not to modify the
fourteen remaining Douglas DC-8 aircraft to meet the Stage III noise control
standards because the anticipated cost of approximately $3.5 million per
aircraft (not including aircraft downtime) may exceed the economic benefits of
such modifications. If the Companies cannot or do not modify these fourteen
Douglas DC-8 aircraft, the Companies will have to remove these aircraft from
service in the United States before January 1, 2000 and may have to replace them
with other aircraft. In addition, thirteen of the Companies' Boeing 727 aircraft
currently do not comply with the Stage III noise control standards. The
Companies currently anticipate modifying their Boeing 727 fleet (at an
anticipated cost of approximately $24 million) to be in compliance with the
Stage III noise control standards by the applicable deadlines. However, there
can be no assurance that the Companies will have sufficient funds or be able to
obtain financing to cover the costs of these modifications or to replace such
aircraft.

10. MAJOR CUSTOMERS

The Companies had sales to two major customers which are entities of the
United States Government, representing approximately 28%, 17%, 21%, 15% and 7%
of combined revenues for the years ended December 31, 1994, 1995, 1996 and for
the nine months ended September 30, 1996 and 1997 (unaudited), respectively.
Accounts receivable from these customers were approximately $45,118,000,
$12,024,000 and $3,997,000 at December 31, 1995, 1996 and September 30, 1997
(unaudited), respectively.

11. MANAGEMENT'S PLANS -- SALE OF AIRCRAFT AND PLANNED MERGER

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Companies (1) are experiencing
difficulty in generating sufficient cash flows to meet their obligations and
sustain their operations, (2) failed to make certain principal payments and are
not in compliance with certain covenants of their long-term debt agreements (3)
have negative working capital and (4) have incurred substantial losses
subsequent to December 31, 1996. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Companies be unable to continue as a going concern. The Companies'
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet their obligations on a timely basis, to comply with
the terms and covenants of their financing agreements, to obtain additional
financing or refinancing as may be required, and ultimately to attain successful
operations. Management is continuing its efforts to obtain additional funds so
that the Company can meet its obligations and sustain operations from sources
that are described below.

F-39
<PAGE> 139

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

On September 22, 1997, the Companies, the sole stockholder of the
Companies, and Kitty Hawk, Inc. ("Kitty Hawk") entered into a merger agreement,
under which each of the respective Companies will be merged with separate
subsidiaries of Kitty Hawk, with each of the Companies surviving the merger as a
direct, wholly owned subsidiary of Kitty Hawk. On October 23, 1997, the merger
agreement was amended so that at the effective time of the merger, the
outstanding shares of capital stock of four Companies (AIA, AIT, FOL and O.K.)
will be converted, into the right to receive their prorata portion of 4,099,150
shares of Kitty Hawk common stock (unaudited). The outstanding shares of capital
stock of KFS will be converted into the right to receive $20,000,000.

Concurrent with the consummation of the merger agreement will be the
closing of a proposed 4,100,000 share common stock offering (of which Kitty Hawk
will sell 3,000,000 shares, not including up to 615,000 additional shares for
which Kitty Hawk has granted the underwriters a 30 day option to purchase) and
the consummation of a proposed note offering under Rule 144A of the Securities
Act for $340,000,000 aggregate principal amount of senior secured notes of Kitty
Hawk. The proceeds of the notes and a portion of the proceeds of the sale of
shares will be used to pay the cash portion of the acquisition of the Companies
and to refinance and restructure the outstanding debt of the Companies and Kitty
Hawk.

As an interim step toward the merger, on September 17, 1997, the Companies
sold to Kitty Hawk sixteen Boeing 727-200 aircraft constituting the Companies'
727-200 fleet for approximately $51 million. This interim transaction was deemed
necessary in order to generate cash to be used to pay for the acquisition of a
Boeing 747 aircraft from an unrelated third party (see Note 9), to acquire an
L-1011 aircraft and provide the Companies with working capital. As part of the
transaction, the Companies assigned to Kitty Hawk all of its customer contracts
relating to the aircraft sold. The purchase agreement provides the Companies the
option to repurchase, no later than March 31, 1998, all except three of the
727-200 aircraft from Kitty Hawk at Kitty Hawk's purchase price, less $14
million for the three aircraft not subject to the option, plus any costs
incurred by Kitty Hawk to maintain the repurchased aircraft. Similarly, Kitty
Hawk has the option to require the Companies to repurchase, no later than
December 31, 1997, all except three of the 727-200 aircraft at Kitty Hawk's
purchase price less $14 million for the three aircraft not subject to the
option, plus any costs incurred by Kitty Hawk to maintain the repurchased
aircraft. At September 30, 1997, the Companies deferred a gain of approximately
$30 million (unaudited) in connection with this transaction. This gain will be
recognized if the merger is not finalized and the put and call options are not
exercised.

F-40
<PAGE> 140

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Estimated expenses payable solely by the Company in connection with the
issuance and distribution of the securities to be registered, other than
underwriting discounts and expenses, are as follows:

<TABLE>
<S> <C>
SEC registration fee........................................ $ 26,000
NASD filing fee............................................. 9,100
Nasdaq application fee...................................... 17,500
Printing and engraving expenses............................. 175,000
Legal fees and expenses..................................... 375,000
Accounting fees and expenses................................ 750,000
Blue sky fees and expenses.................................. 10,000
Transfer agent and registrar fees........................... 5,000
Miscellaneous expenses...................................... 50,000
----------
Total............................................. $1,417,600
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or any of its stockholders for
monetary damages arising from the director's breach of fiduciary duty as a
director. However, this does not apply with respect to any action in which the
director would be liable under Section 174 of the General Corporation Law of the
State of Delaware ("Delaware Code") nor does it apply with respect to any
liability in which the director (i) breached his duty of loyalty to the Company
or its stockholders; (ii) did not act in good faith or, in failing to act, did
not act in good faith; (iii) acted in a manner involving intentional misconduct
or a knowing violation of law or, in failing to act, shall have acted in a
manner involving intentional misconduct or a knowing violation of law; or (iv)
derived an improper personal benefit.

The Certificate of Incorporation of the Company provides that the Company
shall indemnify its directors and officers and former directors and officers to
the fullest extent permitted by the Delaware Code. Pursuant to the provisions of
Section 145 of the Delaware Code, the Company has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, employee, or agent of the Company, against any and all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit, or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to the
best interest, of the Company and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

The power to indemnify applies to actions brought by or in the right of the
Company as well, but only to the extent of defense and settlement expenses and
not to any satisfaction of a judgment or settlement of the claim itself and with
the further limitation that in such actions no indemnification shall be made in
the event of any adjudication of negligence or misconduct unless the court, in
its discretion, believes that in light of all the circumstances indemnification
should apply.

The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.

Pursuant to the Merger Agreement, Kitty Hawk has agreed to indemnify each
person who is, has been or becomes prior to the Effective Time, an officer,
director, employee or agent of any of the Kalitta Companies

II-1
<PAGE> 141

against any Losses related to such person's service, as of or prior to the
Effective Time, as an officer, director, employee or agent of any of the Kalitta
Companies.

The Company will at closing enter into indemnification agreements with each
person who serves as a director of Kitty Hawk on the date hereof or who will be
appointed to the Board of Directors on the closing date. Under the
indemnification agreements, the Company will indemnify and advance expenses to
each such person as an insured in any policy of directors' and officers'
insurance maintained by the Company. Determinations as to an indemnitee's right
to indemnification under the indemnification agreements are generally made, at
the expense of the Company, by (i) a majority vote of disinterested directors,
(ii) special independent legal counsel, (iii) a majority of disinterested
stockholders or (iv) a final adjudication by a court of competent jurisdiction.
Notwithstanding the foregoing, after the occurrence of a defined change of
control, determinations as to eligibility for indemnification under the
indemnification agreements generally are required to be made, at the expense of
the Company, by a court of competent jurisdiction or by independent legal
counsel selected by the indemnitee. The rights to indemnification granted under
the indemnification agreements are not exclusive of any other rights to
indemnification that the indemnitee may have under the Company's certificate of
incorporation, bylaws, directors' and officers' insurance or otherwise.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The Company granted certain options to Messrs. Reeves and Wadsworth in
December 1995 and June 1996, respectively. See "Management -- Employee
Compensation Plans and Arrangements." All such options were issued in connection
with employment or consulting services rendered pursuant to Rule 701 and/or
Section 4(2) of the Securities Act and were exercised on June 27, 1996. In
connection with the consummation of the Merger, the Company will issue 4,099,150
shares of Common Stock to Messrs. Kalitta, Kelsey, and two other individuals.
All of the shares issued in connection with the Merger will be issued pursuant
to Section 4(2) of the Securities Act and/or Regulation D promulgated pursuant
to the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

<TABLE>
<CAPTION>
<C> <S>
1.1*** -- Form of Underwriting Agreement.
2.1*** -- Agreement and Plan of Merger, dated September 22, 1997
(the "Merger Agreement"), by and among Kitty Hawk and
certain of its subsidiaries, M. Tom Christopher, AIA,
AIT, FOL, KFS, OK and Conrad A. Kalitta.
2.2*** -- Amendment No. 1 to the Merger Agreement, dated October
23, 1997, by and among Kitty Hawk and certain of its
subsidiaries, M. Tom Christopher, AIA, AIT, FOL, KFS, OK
and Conrad A. Kalitta.
2.3*** -- Amendment No. 2 to the Merger Agreement, dated October
29, 1997, by and among Kitty Hawk and certain of its
subsidiaries, M. Tom Christopher, AIA, AIT, FOL, KFS, OK
and Conrad Kalitta.
3.1 -- Certificate of Incorporation of Kitty Hawk, Inc. (the
"Company"), filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
</TABLE>

II-2
<PAGE> 142

<TABLE>
<CAPTION>
<C> <S>
3.2 -- Amendment No. 1 to the Certificate of Incorporation of
the Company, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
3.3 -- Bylaws of Kitty Hawk, filed as an Exhibit to the
Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 33-85698) dated as of October 1996,
which exhibit is incorporated herein by reference.
3.4 -- Amendment No. 1 to Bylaws of Kitty Hawk, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of
October 1996, which exhibit is incorporated herein by
reference.
4.1 -- Specimen Common Stock Certificate, filed as an Exhibit to
the Registrant's previously filed Registration Statement
on Form S-1 (Reg. No. 333-8307) dated as of October 1996,
which exhibit is incorporated herein by reference.
4.2*** -- Form of Stockholders' Agreement to be entered into among
the Company, M. Tom Christopher and Conrad A. Kalitta.
5.1*** -- Opinion of Haynes and Boone, LLP, regarding legality of
the Common Stock being issued.
10.1 -- Settlement Agreement dated as of August 22, 1994 by and
between the Company, Aircargo, Leasing, M. Tom
Christopher, American International Airways, Inc. and
Conrad Kalitta, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.2 -- Salary Continuation Agreement dated as of June 15, 1993
by and between the Company and M. Tom Christopher, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
10.3 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
10.4 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
10.5 -- Kitty Hawk, Inc. Amended and Restated Omnibus Securities
Plan, dated as of September 3, 1996, filed as an Exhibit
to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of
October 1996, which exhibit is incorporated herein by
reference.
10.6 -- Kitty Hawk, Inc. Amended and Restated Employee Stock
Purchase Plan, dated as of September 3, 1996, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of
October 1996, which exhibit is incorporated herein by
reference.
10.7 -- Kitty Hawk, Inc. Amended and Restated Annual Incentive
Compensation Plan, dated as of September 3, 1996, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
10.8 -- Kitty Hawk, Inc. 401(k) Savings Plan, filed as an Exhibit
to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by
reference.
</TABLE>

II-3
<PAGE> 143
<TABLE>
<CAPTION>
<C> <S>
10.9 -- Employment Agreement dated as of October 27, 1994 by and
between the Company and M. Tom Christopher, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by
reference.
10.10 -- Amended and Restated Employment Agreement dated as of
June 12, 1996 by and between the Company and Richard R.
Wadsworth, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.11 -- Amended and Restated Employment Agreement dated as of
December 31, 1995 by and between the Company and Tilmon
J. Reeves, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.12 -- Purchase Agreement between Federal Express Corporation
and Postal Air, Inc. (predecessor to the Company) dated
as of October 22, 1992 (the "FEASI Agreement"), filed as
an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
10.13 -- Amendment No. 1 dated November 17, 1992 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.14 -- Amendment No. 2 dated February 1993 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.15 -- Amendment No. 3 dated June 11, 1993 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.16 -- Amendment No. 4 dated May 10, 1994 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.17 -- Amendment No. 5 dated September 29, 1995 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.18 -- Amendment No. 6 dated December 6, 1996 to the FEASI
Agreement, filed as an Exhibit to the Company's Form 10-Q
for the quarter ended November 30, 1996, which exhibit is
incorporated herein by reference.
10.19 -- Amended and Restated Credit Agreement (the "Credit
Agreement"), dated as of August 14, 1996, by and among
the Company, Wells Fargo Bank (Texas), National
Association ("WFB") and Bank One, Texas, N.A. ("BOT"),
filed as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
</TABLE>

II-4
<PAGE> 144

<TABLE>
<CAPTION>
<C> <S>
10.20*** -- Agreement, dated July 20, 1995, between American
International Airways, Inc. and the Pilots, Co-Pilots and
Flight Engineers in the service of American International
Airways, Inc., as represented by The International
Brotherhood of Teamsters -- Airline Division.
10.21* -- Form of Employment Agreement to be entered into by and
between Conrad A. Kalitta and AIA.
10.22* -- Amended and Restated Consulting Agreement by and between
Conrad A. Kalitta and AIA.
10.23*** -- First Amendment to the Credit Agreement, dated September
17, 1997, by and among the Company, WFB and BOT.
10.24* -- License Agreement (the "License Agreement"), dated May
15, 1995, by and between Roadway Global Air, Inc. ("RGA")
and American International Freight ("AIF"), a division of
AIA.
10.25* -- Amendment to License Agreement, dated August 14, 1997, by
and between RGA and AIF.
12.1* -- Statement of Computation of ratio of earnings to fixed
charges.
21.1 -- Subsidiaries of the Registrant, filed as an Exhibit to
the Registrant's previously filed Registration Statement
on Form S-1 (Reg. No. 333-8307) dated as of October 1996,
which exhibit is incorporated herein by reference.
23.1* -- Consent of Ernst & Young LLP.
23.2* -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Haynes and Boone, LLP (contained in legal
opinion).
24.1*** -- The power of attorney of officers and directors of the
Company.
</TABLE>

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

* Filed herewith.

** To be filed by amendment.

*** Previously filed.

(b) Financial Statement Schedule and Auditors' Report on Schedule:

Schedules filed

The Kalitta Companies -- Schedule II Valuation and Qualifying Accounts

No other financial statement schedules are filed as part of this
Registration Statement since the required information is included in the
financial statements, including the notes thereto, or circumstances requiring
the inclusion of such schedules are not present.

ITEM 17. UNDERTAKINGS

The undersigned Company hereby undertakes that:

(1) For purposes 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 Company 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.

(2) 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-5
<PAGE> 145

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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 Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

II-6
<PAGE> 146

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 12th day of November, 1997.

KITTY HAWK, INC.

By: /s/ RICHARD R. WADSWORTH

----------------------------------
Richard R. Wadsworth
Senior Vice President -- Finance,
Chief
Financial Officer and Secretary

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on the 12th day of November, 1997.

<TABLE>
<CAPTION>
NAME CAPACITIES
---- ----------
<C> <S>

/s/ M. TOM CHRISTOPHER* Chairman of the Board of Directors and
- ----------------------------------------------------- Chief Executive Officer
M. Tom Christopher

/s/ TILMON J. REEVES* President, Chief Operating Officer and
- ----------------------------------------------------- Director
Tilmon J. Reeves

/s/ RICHARD R. WADSWORTH Senior Vice President -- Finance, Chief
- ----------------------------------------------------- Financial Officer, Secretary and
Richard R. Wadsworth Director and Principal Financial and
Accounting Officer

/s/ TED J. COONFIELD* Director
- -----------------------------------------------------
Ted J. Coonfield

/s/ JAMES R. CRAIG* Director
- -----------------------------------------------------
James R. Craig

/s/ LEWIS S. WHITE* Director
- -----------------------------------------------------
Lewis S. White

*/s/ RICHARD R. WADSWORTH
- -----------------------------------------------------
Richard R. Wadsworth
(As Attorney-in-Fact for each
person indicated)
</TABLE>

II-7
<PAGE> 147

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder of
American International Airways, Inc. and Related Companies
Ypsilanti, Michigan

We have audited the combined financial statements of American International
Airways, Inc. and related companies (collectively, the "Companies") as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, and have issued our report thereon dated October 16, 1997
(which report expresses an unqualified opinion and includes an explanatory
paragraph which indicates that there are matters that raise substantial doubt
about the Companies' ability to continue as a going concern); such financial
statements and report are included elsewhere in this Form S-1. Our audits also
included the financial statement schedule of the Companies, listed in Item 16.
This financial statement schedule is the responsibility of the Companies'
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic combined financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

Ann Arbor, Michigan
October 16, 1997 DELOITTE & TOUCHE LLP

S-1
<PAGE> 148

AMERICAN INTERNATIONAL AIRWAYS, INC. AND RELATED COMPANIES

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
--------------------------
CHARGED DEDUCTIONS-
CHARGED TO TO OTHER WRITE-OFFS
BALANCE COSTS AND ACCOUNTS- AND BALANCE
JANUARY 1 EXPENSES ACQUISITIONS DISPOSALS DECEMBER 31
--------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
DOUBTFUL ACCOUNTS RESERVES
For the Year Ended December 31,
1996............................ $2,062 $1,011 $ (684) $2,389
1995............................ 1,950 1,862 (1,750) 2,062
1994............................ 1,363 2,231 (1,644) 1,950
</TABLE>

S-2
<PAGE> 149

[This page contains a series of pictures of airplanes being loaded and unloaded
and of the control room of Kitty Hawk.]
<PAGE> 150

[KITTY HAWK, INC. LOGO]
KITTY HAWK, INC.
<PAGE> 151

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
1.1*** -- Form of Underwriting Agreement.
2.1*** -- Agreement and Plan of Merger, dated September 22, 1997
(the "Merger Agreement"), by and among Kitty Hawk and
certain of its subsidiaries, M. Tom Christopher, AIA,
AIT, FOL, KFS, OK and Conrad A. Kalitta.
2.2*** -- Amendment No. 1 to the Merger Agreement, dated October
23, 1997, by and among Kitty Hawk and certain of its
subsidiaries, M. Tom Christopher, AIA, AIT, FOL, KFS, OK
and Conrad A. Kalitta.
2.3*** -- Amendment No. 2 to the Merger Agreement, dated October
29, 1997, by and among Kitty Hawk and certain of its
subsidiaries, M. Tom Christopher, AIA, AIT, FOL, KFS, OK
and Conrad Kalitta.
3.1 -- Certificate of Incorporation of Kitty Hawk, Inc. (the
"Company"), filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
3.2 -- Amendment No. 1 to the Certificate of Incorporation of
the Company, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
3.3 -- Bylaws of Kitty Hawk, filed as an Exhibit to the
Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 33-85698) dated as of October 1996,
which exhibit is incorporated herein by reference.
3.4 -- Amendment No. 1 to Bylaws of Kitty Hawk, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of
October 1996, which exhibit is incorporated herein by
reference.
4.1 -- Specimen Common Stock Certificate, filed as an Exhibit to
the Registrant's previously filed Registration Statement
on Form S-1 (Reg. No. 333-8307) dated as of October 1996,
which exhibit is incorporated herein by reference.
4.2*** -- Form of Stockholders' Agreement to be entered into among
the Company, M. Tom Christopher and Conrad A. Kalitta.
5.1*** -- Opinion of Haynes and Boone, LLP, regarding legality of
the Common Stock being issued.
10.1 -- Settlement Agreement dated as of August 22, 1994 by and
between the Company, Aircargo, Leasing, M. Tom
Christopher, American International Airways, Inc. and
Conrad Kalitta, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.2 -- Salary Continuation Agreement dated as of June 15, 1993
by and between the Company and M. Tom Christopher, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
10.3 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
</TABLE>

<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
10.4 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
10.5 -- Kitty Hawk, Inc. Amended and Restated Omnibus Securities
Plan, dated as of September 3, 1996, filed as an Exhibit
to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of
October 1996, which exhibit is incorporated herein by
reference.
10.6 -- Kitty Hawk, Inc. Amended and Restated Employee Stock
Purchase Plan, dated as of September 3, 1996, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of
October 1996, which exhibit is incorporated herein by
reference.
10.7 -- Kitty Hawk, Inc. Amended and Restated Annual Incentive
Compensation Plan, dated as of September 3, 1996, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
10.8 -- Kitty Hawk, Inc. 401(k) Savings Plan, filed as an Exhibit
to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by
reference.
10.9 -- Employment Agreement dated as of October 27, 1994 by and
between the Company and M. Tom Christopher, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by
reference.
10.10 -- Amended and Restated Employment Agreement dated as of
June 12, 1996 by and between the Company and Richard R.
Wadsworth, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.11 -- Amended and Restated Employment Agreement dated as of
December 31, 1995 by and between the Company and Tilmon
J. Reeves, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.12 -- Purchase Agreement between Federal Express Corporation
and Postal Air, Inc. (predecessor to the Company) dated
as of October 22, 1992 (the "FEASI Agreement"), filed as
an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
10.13 -- Amendment No. 1 dated November 17, 1992 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.14 -- Amendment No. 2 dated February 1993 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
</TABLE>
<PAGE> 153

<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
10.15 -- Amendment No. 3 dated June 11, 1993 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.16 -- Amendment No. 4 dated May 10, 1994 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.17 -- Amendment No. 5 dated September 29, 1995 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.18 -- Amendment No. 6 dated December 6, 1996 to the FEASI
Agreement, filed as an Exhibit to the Company's Form 10-Q
for the quarter ended November 30, 1996, which exhibit is
incorporated herein by reference.
10.19 -- Amended and Restated Credit Agreement (the "Credit
Agreement"), dated as of August 14, 1996, by and among
the Company, Wells Fargo Bank (Texas), National
Association ("WFB") and Bank One, Texas, N.A. ("BOT"),
filed as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
10.20*** -- Agreement, dated July 20, 1995, between American
International Airways, Inc. and the Pilots, Co-Pilots and
Flight Engineers in the service of American International
Airways, Inc., as represented by The International
Brotherhood of Teamsters -- Airline Division.
10.21* -- Form of Employment Agreement to be entered into by and
between Conrad A. Kalitta and AIA.
10.22* -- Amended and Restated Consulting Agreement by and between
Conrad A. Kalitta and AIA.
10.23*** -- First Amendment to the Credit Agreement, dated September
17, 1997, by and among the Company, WFB and BOT.
10.24* -- License Agreement (the "License Agreement"), dated May
15, 1995, by and between Roadway Global Air, Inc. ("RGA")
and American International Freight ("AIF"), a division of
AIA.
10.25* -- Amendment to License Agreement, dated August 14, 1997, by
and between RGA and AIF.
12.1* -- Statement of Computation of ratio of earnings to fixed
charges.
21.1 -- Subsidiaries of the Registrant, filed as an Exhibit to
the Registrant's previously filed Registration Statement
on Form S-1 (Reg. No. 333-8307) dated as of October 1996,
which exhibit is incorporated herein by reference.
23.1* -- Consent of Ernst & Young LLP.
23.2* -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Haynes and Boone, LLP (contained in legal
opinion).
24.1*** -- The power of attorney of officers and directors of the
Company.
</TABLE>

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

* Filed herewith.

** To be filed by amendment.

*** Previously filed.

<PAGE> 1
EXHIBIT 10.21

FORM OF EMPLOYMENT AGREEMENT

1.0 PARTIES AND DATE

1.1 PARTIES. The parties to this Employment Agreement are American
International Airways, Inc. ("AIA") and Conrad Kalitta ("Employee").

1.2 DATE. This Agreement is dated and effective September ____, 1997.

2.0 TERMS OF EMPLOYMENT

2.1 CURRENT EMPLOYMENT STATUS. Employee is currently employed by
American International Airways, Inc. ("AIA") as its Chief Executive Officer.
Employee's current employment status has been as an employee at the will of AIA
and his employment has been terminable with or without cause. Similarly,
Employee has enjoyed the right to terminate his employment, at his will at any
time, with or without cause.

2.2 PURPOSE OF THIS AGREEMENT. AIA wishes to continue to employ
Employee as its Chief Executive Officer. Given the position of responsibility
occupied by Employee at AIA, it is the opinion of AIA that Employee is entitled
to an increased degree of financial security with regard to his employment.
While the status of Employee's employment is still at the will of AIA and is
still terminable with or without cause, this Agreement is intended to: (a)
relieve Employee of some of the concerns relating to the potential termination
of his employment which are inherent in his position; (b) allow for compensation
if Employee's employment is involuntarily terminated; and (c) demonstrate AIA's
confidence that it will continue to be satisfied with Employee's performance.

2.3 EMPLOYEE'S DUTIES AND RESPONSIBILITIES. AIA shall continue to
employ Employee as its Chief Executive Officer until termination of his
employment Agreement under Paragraph 2.09 or 2.10. Employee shall be granted the
authority and responsibility to perform those functions which are encompassed by
the position of Chief Executive Officer, subject to modification, from time to
time, by the Board of Directors of AIA or the Board of Directors of any
corporate parent of AIA. Both employee and AIA expect Employee's responsibility,
authority and compensation to be dynamic, and to be adjusted from time to time
as determined by AIA's Board of Directors, or the Board of Directors of any
corporate parent of AIA.

2.4 COMPENSATION. Employee's initial basic annual compensation ("basic
annual compensation") under this Agreement shall not be less than $600,000.00,
payable in equal bi-weekly installments, but his basic annual compensation may
be adjusted from time to time but shall in no event be less than $600,000.00 per
annum. Employee will be entitled to the benefits of any existing available
Annual Incentive Compensation Plan as is in effect from time to time, and he may
be paid other bonus compensation from time to time based upon his performance
and the success of AIA, all as determined by AIA's Board of Directors, or the
Board of Directors of any corporate parent of AIA.

2.5 EMPLOYEE STOCK PURCHASE PLAN. In further consideration of
Employee's promises and employment under this Agreement, Employee shall, as part
of his compensation, be entitled to the benefits of any Employee Stock Purchase
Plan as may exist at any time in the corporation.

2.6 FRINGE BENEFITS. Employee shall receive long-term disability
insurance and any

<PAGE> 2

other employee fringe benefits that are generally available to
all AIA employees, subject to any eligibility requirements of such plan(s), and
such other fringe benefits as may be determined from time to time by the AIA's
Board of Directors, or the Board of Directors of any corporate parent of AIA.

2.7 PROPRIETARY INFORMATION.

A. Employee has had and will have extensive access to and use
of, and has played and will play a material role in
developing the confidential business and proprietary
information of AIA and its customers, and AIA's confidential
business practices and procedures and may have access to the
confidential business practices and procedures of AIA's
affiliated companies (collectively, "AIA's proprietary
information"). AIA's proprietary information includes but is
not limited to dynamic data bases concerning air cargo
aircraft in charter service and suppliers of ground handling
and delivery services, customer lists and agreements, vendor
lists, employee data, competitor data, price and tariffs
lists, bids and quotations, aircraft use and maintenance
scheduling procedures, phone lists, computer programs,
documents, letters, memoranda, financial information,
commission arrangements and other specialized and
confidential business arrangements and practices. AIA relies
upon its proprietary information for competitive advantage
in their markets. Unauthorized disclosure, copying,
destruction or removal of AIA's proprietary information, or
its use for the benefit of AIA's competitors, could severely
and irreparably damage AIA and its affiliates.

B. Employee shall, while in AIA's employ, diligently safeguard
AIA's proprietary information; and when leaving AIA's
employment for whatever reason, shall surrender to AIA all
written or recorded evidence of AIA's proprietary
information in Employee's possession.

C. After leaving AIA's employment for whatever reason, Employee
shall never disclose AIA's proprietary information unless
AIA's then-current chief executive officer expressly
authorizes the disclosure in writing.

2.8 COVENANT NOT TO COMPETE. To further protect AIA's proprietary
information, Employee agrees that upon termination of his employment with AIA
for whatever reason, Employee shall not engage in the air cargo charter
management, or charter brokerage business, or in the business of ad hoc or
scheduled carriage of air freight under FAA Part 121 or Part 135 certificate,
within the United States for three years following such termination, either
directly or indirectly, whether as an employee, agent, consultant, broker,
partner, principal or otherwise. Employee further waives and releases any future
claim against AIA for attempting to enforce Employee's covenant not to compete
if AIA does so in the good faith belief that the covenant is enforceable and
that Employee has breached or contemplates breaching it. However, Employee may
engage in the business of purchasing, selling and/or leasing of aircraft.
Employee is the owner of a company known as ConWes, Inc. which is in partnership
with a company known as National Aircraft Services, Inc. which owns an STC. The
STC involves the removal of turbo compressors and replaces them with a control
valve system. Employee may continue to be engaged in the marketing and
manufacture of his current interest in this STC, and Employee may continue or
institute the development of any other STC of whatever application, whether for
ConWes or for another entity.

<PAGE> 3

2.9 TERMINATION. Either Employee or AIA may terminate Employee's
employment immediately at the terminating party's pleasure, and AIA shall pay to
Employee all compensation due through the pay period during which such
termination occurs. Upon the termination of Employee's employment, whether at
his own election or at the election of AIA, Employee shall promptly return to
AIA all company property, including, but not limited to, company credit cards,
documents, customer lists, telephones, pagers, computers, computer disks and
office equipment.

2.10 DEATH OR DISABILITY. Employee's employment shall terminate
immediately upon Employee's death or disability. Termination due to Employee's
death or disability shall be deemed an involuntary severance and entitle
employee to the benefits described in Paragraph 3.4 hereof. For the purposes of
this Agreement, disability shall mean physical or mental illness resulting in
Employee's incapacity to render full-time services to the Corporation for a
total of nine (9) months in any period of twelve (12) consecutive months or
less. If Employee's termination occurs upon his death, AIA will continue to
maintain (at AIA's expense), for a period of six months pursuant to COBRA
provisions, all insurances on behalf of Employee's spouse and dependents as were
in effect on the date of Employee's death. If Employee's termination occurs upon
his disability, AIA will continue to maintain (at AIA's expense) for a period of
six (6) months all insurances pursuant to COBRA provisions on Employee's behalf
and on behalf of his spouse and his dependents as were in effect on the date of
Employee's termination due to disability. Thereafter, AIA shall have no further
obligation hereunder with regard to maintenance of insurance policies unless
applicable law otherwise so provides.

3.0 SEVERANCE

3.1 In the event Employee's employment with AIA is severed, voluntarily
or involuntarily, and Employee agrees to sign (unless Employee's termination is
due to death or disability) a Release and Severance Agreement in a form prepared
by AIA, provided that such Severance Agreement does not contradict the terms
contained herein and provided that such Severance Agreement places upon Employee
no additional material burden. Employee shall then be entitled to certain
severance payments (as set forth below) as compensation for his Release of any
and all claims he may have against AIA, its employees, officers, directors,
shareholders and assigns. In return for such compensation as is set forth (as
applicable) below, Employee (by his signature hereto) agrees to sign all
releases and confidentiality agreements that AIA may request prior to Employee's
receipt of such funds.

3.2 RELEASE AND SEVERANCE AGREEMENT. The Release and Severance
Agreement to be executed by Employee at the time his employment with AIA is
severed must include the release and waiver of all claims against AIA for any
cause of action whether founded on contract, tort, Federal, state or local
statute or regulations including, but not limited to, any claims under the
Elliott-Larsen Civil Rights Act, the Michigan Handicappers Civil Rights Act, the
Occupational Safety and Health Act, the Americans with Disabilities Act, the Age
Discrimination in Employment Act, the Older Worker's Benefit Protection Act,
Title VII of the Civil Rights Act of 1964, and any discrimination on the basis
of national origin, hostile work environment, sex, race, religion, age,
handicap, marital status, height, weight, or wrongful discharge.

3.3 SEVERANCE - VOLUNTARY. In the event Employee chooses to terminate
his employment with AIA and executes all releases and confidentiality agreements
which AIA may request, Employee shall be eligible to receive severance
compensation equivalent to one (1) month's pay.

Both AIA and Employee acknowledge that Employee is not otherwise entitled to the
such compensation and that such severance compensation is in consideration of
Employee's voluntary and willing execution

<PAGE> 4

of any and all releases and confidentiality agreements which AIA may request in
furtherance of the requirements set forth herein.

3.4 SEVERANCE - INVOLUNTARY. If AIA terminates his employment against the wishes
of Employee, Employee shall be entitled, as his exclusive remedy for such
termination, to three (3) years of the basic annual compensation he would have
received, payable when it would have been paid in the absence of termination on
a bi-weekly basis. Both Employee and AIA acknowledge that the severance
compensation set forth above in this paragraph 3.4 is intended to and does
reflect liquidated damages which Employee may incur by virtue of the involuntary
loss of his employment. By his signature hereto, Employee agrees to release, to
the greatest extent allowable by applicable law, any claim against AIA or their
respective officers and directors (or any corporate affiliate of AIA or their
respective officers and directors) relating to his employment or the termination
thereof. Both AIA and Employee acknowledge that Employee is not otherwise
entitled to the such compensation and that such severance compensation is in
consideration of Employee's voluntary and willing execution of any and all
releases and confidentiality agreements which AIA may request prior to
Employee's receipt of such funds.

4.0 GENERAL PROVISIONS

4.1 CONSTRUCTION. This Agreement is made and performable in Washtenaw
County, Michigan. Michigan law and the Federal Arbitration Act shall govern its
effect and construction. No rule of construction resolving ambiguity against a
drafting party shall apply. This Agreement binds and benefits the parties and
their respective heirs, personal representatives, successors and assigns. All
previous oral and written agreements, including, without limitation, any
previous employment agreement concerning Employee's employment and compensation
by AIA or any of AIA's subsidiaries are no longer effective, because they are
merged into and replaced by this Agreement. Employee agrees that his obligations
under this Agreement to protect AIA's proprietary information are in addition to
Employee's implied obligations under Michigan law, and that all of those
obligations may be enforced by equitable remedies, such as injunction, as well
as by damages resulting from their breach.

4.2 SEVERABILITY, MODIFICATION, ENTIRE AGREEMENT. Whenever possible,
each provision of this Agreement shall be interpreted in such a way as to be
effective and valid under applicable law. If a provision is prohibited by or
invalid under applicable law, it shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. This Agreement sets forth the
entire agreement of the parties with respect to Employee's employment by AIA,
and supersedes all prior agreements, promises, covenants, arrangements,
communications representations, or warranties whether oral or written, by any
representative of either AIA or by Employee.

4.3 AMENDMENTS. To amend this Agreement, AIA and Employee must sign a
written amendment that identifies by paragraph number the provision that it
purports to amend. No noncomplying course of dealing or waiver shall be
construed to amend this Agreement.

4.4 BINDING AGREEMENT TO ARBITRATE DISPUTES. All disputes under or
relating to this Agreement shall be resolved exclusively by binding arbitration
under the Commercial Arbitration Rules of the American Arbitration Association
(the "AAA") in effect at the time the arbitration proceeding commences; except
that: (i) Paragraphs 4.1 and 4.2 will govern the effect and construction of this
agreement; (ii) the locale of any arbitration shall be Ann Arbor, Michigan,
unless otherwise mutually agreed in writing; (iii) any dispute or claim shall be
deemed waived unless arbitration is demanded within ninety (90) days of the
occurrence giving rise to the dispute or claim; (iv) the arbitrator or
arbitrators

<PAGE> 5

shall with any award supply written findings of fact and conclusions of law; (v)
a party may seek preliminary injunctive or other equitable relief from any court
of competent jurisdiction to preserve the status quo pending selection of an
arbitrator; (vi) an arbitrator may by interim or final award grant declarative
and injunctive and other equitable relief (the parties acknowledge that remedies
at law may be adequate to protect against or remedy breach of this agreement);
(vii) the decision of the arbitrator shall be final and binding and the
exclusive remedy for any alleged breach of the employment relationship; (viii)
the arbitrator shall have no authority to change any provision of this
Agreement; and (ix) a prevailing party in litigation to require arbitration or
to obtain preliminary relief pending establishment of an arbitration panel, in
arbitration, or in litigation to confirm or enforce an arbitration award will be
entitled to recover its reasonable attorneys' fees and costs. An arbitration
award will be final and binding on all parties, and judgment upon such
arbitration award may be entered in any court of competent jurisdiction.

4.5 SUCCESSORS OR ASSIGNS: This Agreement shall be binding upon all
successors and assigns of AIA, any assigns of all or substantially all of its
business, and any other corporation into which AIA may be merged or with which
it may be consolidated. This Agreement, and any rights Employee may have to
receive payments, may not be assigned or pledged by him in any manner
whatsoever.

4.6 APPLICABLE LAW. This Agreement has been executed in the State of
Michigan. This Agreement shall be governed and controlled in all respects by the
laws of the State of Michigan, including as to interpretation, enforceability,
validity, and construction (but without regard to principles of choice of law or
conflicts).

4.7 INDEMNIFICATION. AIA shall indemnify Employee, to the maximum
extent permitted by Michigan law, during and after the termination of his
employment, against all judgments, settlement payments, costs, attorney fees,
and other reasonable expenses incurred by Employee in connection with the
defense of any action, suit, or proceeding, arising from event before or during
the term of Employee's employment to which Employee has been made a party
because of the good-faith performance of his duties under this Agreement. This
right of indemnification shall be in addition to any rights that Employee may
otherwise be entitled to under the bylaws of the Corporation or otherwise.

4.8 NO SET-OFF OR COUNTERCLAIM. Employee's right to payment afforded
hereunder shall be absolute and unconditional and shall not be subject to any
right of set-off, counterclaim, defense, abatement, suspension, deferment,
diminution, reduction, recoupment or other right which AIA may have against
Employee or any other person for any reason whatsoever.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE> 6

SO AGREED:

AMERICAN INTERNATIONAL AIRWAYS, INC. EMPLOYEE

- --------------------------------- ---------------------------------
Michael F. Maraone Conrad A. Kalitta
Vice President and C.F.O.

Dated: Dated:
--------------------------- ---------------------------

<PAGE> 1
EXHIBIT 10.22

AMENDED AND RESTATED CONSULTING AGREEMENT

BY AND BETWEEN

AMERICAN INTERNATIONAL AIRWAYS, INC.
AND
CONRAD A. KALITTA

WHEREAS, American International Airways, Inc., is currently involved in a
litigation in the United States District Court for the Northern District of
California captioned American International Airways, Inc. v. GATX Capital
Corporation, et al, No. C 97-0378 WHO ("GATX litigation");

WHEREAS, the prosecution of this lawsuit will be enhanced by the participation
of Conrad A. Kalitta ("Kalitta"), with regard to technical assistance,
preparation for, and the execution of the lawsuit;

IT IS AGREED:

1. Kalitta shall assist American International Airways, Inc., and any
successor corporation to American International Airways, Inc., ("AIA") in
the preparation for the GATX litigation when such assistance is reasonably
requested.

2. Kalitta's costs (apart from legal fees) incurred in rendering such
assistance shall be reimbursed to Kalitta.

3. Kalitta shall bear the ultimate responsibility (regardless of the outcome
of the litigation) for the payment of legal fees incurred in this
litigation from the date of this Amended Agreement forward, subject to the
provisions of Paragraph 4 below. However, AIA shall continue to pay such
legal fees until final resolution of the litigation. Such payment of legal
fees incurred from the date of this Amended Agreement forward shall be
considered an interest-free loan to Kalitta, which shall be repaid in full
within 60 days of the final resolution of the GATX litigation. For the
purposes of this Amended Agreement, the final resolution of the GATX
litigation shall occur either (a) when a final judgment has been entered in
the matter and all appeal periods have expired, or (b) when the matter has
been settled by all of the parties thereto, and either a judgment or a
dismissal with prejudice has been entered in the matter pursuant to such
settlement.

4. Any proceeds which AIA obtains from the GATX litigation, whether by virtue
of judgment, settlement, or some other form of payment, shall be divided as
follows:

FIRST: Proceeds shall be applied to reimburse AIA for any legal fees and
costs incurred by AIA in prosecuting the GATX litigation;

<PAGE> 2

SECOND: Any remaining proceeds shall be applied to the cost of any
necessary correction of mechanical problems attributable to the cargo
conversion of those Boeing 747 aircraft currently known as N701CK and
N706CK which may be required by the Federal Aviation Administration ("FAA")
(in part, the subject matter of the GATX litigation) to remove restrictions
imposed by the FAA on GATX-converted Boeing 747 aircraft due to the GATX
conversion;

and

THIRD: Any Remaining Proceeds shall be divided between AIA and Kalitta,
with Kalitta entitled to receive 90% of the Remaining Proceeds and AIA
entitled to receive 10% of the Remaining Proceeds. The Remaining Proceeds
include any amount received by AIA in excess of the fair market value of
the aircraft at such time, assuming that the GATX-conversion problems have
been remedied and special restrictions on use of the Aircraft have been
removed, if the settlement or resolution includes transferring the aircraft
to another party.

5. Regardless of the date of execution of this Agreement, the term of this
Agreement shall be from the 24-October-1997, and shall continue until the
distribution of all funds pursuant to Paragraph (4) above is complete.

6. This Agreement shall be governed and controlled in all respects by the laws
of the State of Michigan, including as to interpretation, enforceability,
validity and construction.

7. Whenever possible, each provision of this Agreement shall be interpreted in
such a way as to be effective and valid under applicable law. If a
provision is prohibited by or invalid under applicable law, it shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.

8. The terms of this Agreement may not be varied or modified in any manner,
except in a subsequent writing executed by an authorized representative of
both parties. This Agreement constitutes the entire understanding between
the parties with respect to the payment of Kalitta for consulting services
and supersedes any prior discussions, negotiations, agreements and
understandings.

9. Any controversy or claim arising out of or related to this Agreement shall
be settled by binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and the
arbitration award may be entered as a final judgment in any court of
competent jurisdiction. Such arbitration shall be conducted utilizing a
single arbitrator, and such arbitration shall be conducted in Ann Arbor,
Michigan unless the parties otherwise agree in writing.

10. All notices and other communications required or permitted under this
Agreement shall

<PAGE> 3

be in writing and shall be deemed given when delivered personally or by
registered or certified mail, return receipt requested, addressed as
follows:

If to AIA: American International Airways, Inc.
2701 N. I-94 Service Dr.
Ypsilanti, MI 48198
Attn.: Chief Financial Officer

If to Kalitta: American International Airways, Inc.
1349 S. Huron Street
Ypsilanti, MI 48197
Attn: Conrad Kalitta

11. This Agreement shall be binding upon any successor corporation or other
entity to AIA. The terms of this Agreement may not be varied or modified in
any manner except in a subsequent writing executed by an authorized
representative of both parties.

12. In the event of a breach by Kalitta of this Agreement, AIA shall notify
Kalitta of such breach and shall allow Kalitta thirty days to cure such
breach, or such longer time as may be required provided that Kalitta begins
to endeavor to cure such breach within 30 days.

SO AGREED:

AMERICAN INTERNATIONAL AIRWAYS, INC. CONRAD A. KALITTA

- ------------------------------------- ------------------------------------
Print: Conrad A. Kalitta
-------------------------------
Its: Dated:
------------------------------- ------------------------------
Dated:
-------------------------------

<PAGE> 1

EXHIBIT 10.24

LICENSE AGREEMENT

THIS LICENSE AGREEMENT ("the License") is made as of the 15th day of
May, 1995, by and between Roadway Global Air, Inc., a Delaware corporation
(hereinafter referred to as "RGA"), and American International Freight, a
division of American International Airways, Inc., a Michigan corporation
hereinafter referred to as "AIF").

WITNESSETH:

WHEREAS, RGA and AIF have previously entered into an agreement dated
March 27, 1995 (the "Services Agreement"); and

WHEREAS, the Services Agreement provides for RGA to license to AIF
certain portions of RGA's Terre Haute, Indiana hub facility (the "Hub"); now

THEREFORE, in consideration of the fees and covenants contained herein
and other good and valuable consideration the receipt and sufficiency of which
is hereby acknowledged by the parties, RGA and AIF hereby agree as follows:

1. TERMS AND POSSESSION

1.1 TERM: The term of this License shall be coterminous
with the Services Agreement.

1.2 ACCESS AND USE: RGA will permit AIF to have access to
and use of the Licensed Space, as described in Section 2, on or before May 1,
1995. If the RGA, for any reason whatsoever, does not permit access and use of
the Licensed Space by the AIF at the commencement of the term hereof, this
License shall not be void or voidable, nor shall RGA be liable to AIF for any
loss or damage resulting therefrom, nor shall the expiration date of the term
of the License be in any way extended, but in that event, all fees shall be
abated during the period between the commencement of said term and the time
when RGA permits access and use.

2. LICENSED SPACE:

RGA hereby grants to All the non-exclusive right to use, on the terms
and conditions set forth herein, those portions of RGA's Hub as described
below, and as shown outlined in red on the site plan attached hereto as Exhibit
A and made a part hereof (hereinafter referred to as the "Licensed Space"):

<PAGE> 2
<TABLE>
<S> <C>
Sort Facility: 33,000 sq. ft.
U.S. Mail Facility: 6,000 sq. ft.
Office Space: 3,900
</TABLE>

Notwithstanding anything in this Section 2 to the contrary, RGA
reserves unto itself the right to go onto and occupy such portion of the
Licensed Space as it deems necessary, for such periods as it deems necessary,
in order to install and maintain monitoring wells and/or other devices or
equipment in order to test for, monitor or remediate any possible environmental
contamination on the Licensed Space. AIF agrees that it shall have no right to
any reduction or abatement of fees due to any such activities of RGA, nor shall
RGA be liable to AIF for any damages arising from or in connection with such
activities, except injuries to or death of persons, or property damage, to the
extent arising from the negligent acts of RGA, or its agents or employees.
Subject to the foregoing, RGA agrees to use reasonable efforts to avoid
unnecessary interruptions of the business activities conducted upon the
Licensed Space by AIF due to such environmental testing or remediation
activities, and AIF agrees to cooperate with RGA in its performance of such
activities.

3. FEES: AIF covenants and agrees to pay to RGA, without demand,
and without any deduction or set-off whatsoever, fees for the use of the
Licensed Space in accordance with the following Schedule, payable on or before
the first of each month.

<TABLE>
<S> <C>
Sort Facility: 33,000 sq. ft. at $7/sq. ft/yr. = $231,000/year
= $ 19,250/month

U.S. Mail Facility: 6,000 sq. ft. at $2/sq. ft/yr = $ 12,000/year
= $ 1,000/month
Office Space: 5,100 sq. ft. at $11/sq/ft/yr / 400
sq. ft. at $9/sq/ft/yr / 900 sq. ft. at
$5.50/sq/ft/yr
$64,650/year
= $ 5,387.50 month
</TABLE>

RGA and AIF acknowledge and agree that said amount includes AIF's
proportionate share of annual real estate taxes and assessments. AIF shall
reimburse to RGA, within thirty (30) days after receipt of an invoice, its
proportionate share of the utilities for RGA's entire HUB. The proration shall
be based on the total square footage of all interim areas in the Licensed
Space, in relation to the square footage of all interior areas on RGA's entire
HUB. In the event any installment of

2
<PAGE> 3
monthly fees, or utilities reimbursement, is not received by RGA within five
(5) days after the date it is due, then, in order to reimburse RGA for lost
interest and its administrative expenses in connection therewith, AIF shall, as
additional fees, pay to RGA a late fee equal to ten percent (10%) of the
installment of fees that is late.

No payment by AIF or receipt by RGA of a lesser amount than any
installment or payment of fees due shall be deemed to be other than on account
of the amount due, and no endorsement or statement on any check or payment of
fees shall be deemed an accord and satisfaction. RGA may accept such check or
payment without prejudice to RGA's right to recover the balance of such
installment or payment of fees, or pursue any other remedies available to RGA.

In the event that this License should commence on other than the first
day of a month, the fees payment for said first partial month shall be prorated
based upon the number of days occupied in relation to the number of days in
that particular month, and the fees payment for such first partial month shall
be paid on or before the commencement date of this License.

4. CONDITION OF LICENSED SPACE/ALTERATION:

4.1 CONDITION OF LICENSED SPACE: AIF has, prior to
executing this License, thoroughly inspected the Licensed Space, and represents
to RGA that it is qualified to do so or has retained engineers that are
qualified to do so, and agrees to accept possession of the Licensed Space from
RGA in their "as is" condition and state of repair.

Not later than ten (10) days following the execution of this License
by both parties, RGA and AIF shall cause their representatives to make a joint
inspection of the Licensed Space the results of which shall be reduced to a
written memorandum, which memorandum shall be approved and signed by each
party, attached hereto and made a part of this License as Exhibit B. At the
end of the term of this License, AIF shall surrender possession of the Licensed
Space to RGA in as good a condition and state of repair as at the commencement
of the term of this License, ordinary wear and tear, and the action of the
elements, damage by fire or other insured casualty (in accordance with the
provisions of Section 9); and a taking by eminent domain or upon settlement
under the threat of the exercise thereof (in accordance with the provisions of
Section 12), only, excepted.

In the event AIF's should fail to remove its trade fixtures and other
personal property (the "Personalty"), within fifteen (15) days after any such
expiration or termination of the License or recovery of possession of the
Licensed Space by RGA, then all of AIF's Personalty then remaining upon the
Licensed Space shall be deemed abandoned, and title therefore shall at RGA's
option vest exclusively in RGA. AIF shall at all times remain liable for all
storage, transportation and other costs

3
<PAGE> 4
associated with the handling and disposition of AIF's Personalty. RGA may,
thereafter, remove, dispute of, liquidate or sell said Personalty, at public or
private sale, as RGA may deem proper in its sole and absolute discretion,
without obligation to notify AIF; provided, however, the proceeds of any such
sale or liquidation of such Personalty shall be applied to reduce any sums owed
by AIF to RGA, including costs and fees, including, without limitation, all
attorney and other fees, incurred by RGA and resulting from such disposition
for all of which AIF shall be liable. AIF hereby waives and agrees to
indemnify and hold RGA harmless from any claim for loss or damage resulting
from RGA's dealing with, or disposition of, AIF's Personalty, pursuant to the
terms of this section except to the extent arising from the negligence or
intentional acts of RGA, or its agents or employees.

4.2 ALTERATIONS AND IMPROVEMENTS BY AIF: AIF shall not
make any improvements or alterations to the Licensed Space of any kind
whatsoever without the prior written consent of RGA, and any permitted
alterations or improvements shall be made at AIF's sole cost and expense and
shall remain for the benefit of RGA at the termination of this License. Any
permitted alterations or improvements to the Licensed Space shall be performed
in a good and workmanlike manner and in conformity with all applicable
building, zoning and other code requirements. Provided that AIF is not in
default, all equipment, machinery and other trade fixtures of AIF placed in and
upon the Licensed Space by AIF shall be and remain the personal property of AIF
and, at the expiration or sooner termination of this License, AIF shall have
the right to remove such personal property from the Licensed Space, provided,
AIF restores and repairs, at its sole cost and expense, any damages to the
Licensed Space caused by the removal of such items of personal property.

5. MAINTENANCE AND REPAIRS BY RGA: Subject to the provisions of
Section 6, RGA agrees to keep and maintain the roofs and roof membranes, walls,
floors (but not floor coverings), foundations, supports, windows, skylights,
roof vents, below grade piping, sewers and drains and downspouts of the
Licensed Space in a good condition and state of repair, and to replace, any
major component of the mechanical or utility systems if such component cannot
reasonably be repaired, unless the need for such replacement arose from AIF's
failure to maintain such component, or the system in which it is a part, in
accordance with its obligations under Section 6 below, unless such maintenance
or repair is the Hulman Regional Airport Authority's (the "Fee Owner")
obligation under its lease with RGA, in which event RGA's sole responsibility
shall be to use reasonable efforts to cause the Fee Owner to perform its
obligations. AIF agrees to promptly notify RGA in writing of the need for
repairs which are RGA's responsibility under this Section 5. The provisions of
this Section 5 shall not apply in the case of damage or destruction by fire or
other casualty or in the case of a taking by eminent domain, in which events
the obligations of RGA and AIF shall be controlled by Section 9 or Section 12,
respectively, of this License, as the case may be.

4
<PAGE> 5
6. MAINTENANCE AND REPAIRS BY AIF: Except for the maintenance and
repairs to be performed by RGA, or where applicable, the fee owner under
Section 5 hereof, AIF shall be responsible for performing at is sole cost and
expense, all maintenance and repair of the Licensed Space, including, but not
limited to floors and floor coverings, electrical wiring, all mechanical and
utility systems (e.g. HVAC, plumbing and sewer), all material handling systems
and equipment, light fixtures, and overhead doors within the Licensed Space as
necessary to keep the same in a good condition and state of repair, including,
but not limited to, changing fan belts, filters, light bulbs, washers, gaskets,
replacing window glass, replacing or repairing light fixtures, patching and
filling of pot holes in yard areas and similar functions related to routine
maintenance and repair. Subject only to the specific obligations of the fee
owner set forth in Section 5, AIF shall at all times keep and maintain the
Licensed Space (including the office and any restroom facilities therein) in a
good, clean, sanitary, orderly and sightly condition including but not limited
to the removal of all graffiti, trash or debris. AIF further covenants, at its
sole cost and expense, to repair or, if necessary, replace any and all portions
of the Licensed Space damaged by the negligent or intentional acts or omissions
of AIF, its employees, agents, invitees, or contractors.

7. UTILITIES: During the term of this License, AIF shall pay for
its own telephone and trash removal services.

8. INDEMNIFICATION AND INSURANCE:

8.1 INDEMNIFICATION:

(A) AIA agrees to indemnify, defend and hold
harmless RGA, including its officers, directors and employees, from and against
any and all fines, penalties, claims, demands, causes of actions, loss, damage,
liabilities, assessments, clean-up charges, judgments, costs and expenses
(including reasonable attorneys fees and court costs) of every kind or
character known or unknown, fixed or contingent, arising out of the negligence
or willful misconduct of AIA, or its agents or employees, in connection with
its operations at the Terre Haute Airport in connection with this agreement.

(B) RGA agrees to indemnify, defend and hold
harmless AIA, including its officers, directors and employees, from and against
any and all fines, penalties, claims, demands, causes of action, loss, damage,
liabilities, assessments, clean-up charges, judgments, costs and expenses
(including reasonable attorneys fees and court costs) of every kind or
character, known or unknown, fixed or contingent, arising out of the negligence
or willful misconduct of RGA, or its agents or employees, in connection with
its operations at the Terre Haute Airport in connection with this agreement.

5
<PAGE> 6
8.2 INSURANCE: At all times during the term of this
Agreement, AIA and RGA each agree to maintain in effect with underwriters
and/or companies licensed to issue policies in the State of Indiana, such
policies of insurance as are described below, with limits of liability no less
than those listed below:

(A) Comprehensive General Liability (including,
without limitation, airport premises liability, contractual liability,
liability for the use of licensed automobiles operated on airport premises).
Minimum limits of liability shall be Twenty Thousand And 00/100 Dollars
($20,000.00). The policy obtained by each party to this Agreement shall
include the other as an additional insured.

(B) Worker's Compensation and Employer's
Liability:

(1) Coverage A - Statutory Limits
Indiana;

(2) Coverage B - Employer's Liability -
No less than $1,000,000 per employee
per occurrence/per disease.

(C) Property Insurance (including if applicable
aircraft, real and business personal property, and mobile equipment). Each
party will obtain a policy or policies of insurance insuring their referenced
property against "all risks" of loss or damage. Each policy obtained by the
parties shall contain a waiver of subrogation in favor of the other party. It
is agreed that any loss or damage which is not recoverable due to the
application of a deductible shall not be recoverable against the other party.

(D) Each party will provide the other with
Certificates of Insurance confirming the coverages required herein. These
Certificates shall specifically list each coverage the limits of liability,
confirm the additional insureds and waivers of subrogation, and provide no less
than thirty (30) days prior written notice of cancellation, termination or
material change adverse to the interests of the parties.

9. CASUALTY DAMAGE AND INSURANCE: Throughout the term of this
License, RGA agrees to use reasonable efforts to cause the fee owner of the Hub
to perform its obligation to maintain fire and extended coverage insurance on
the Licensed Space in the amount of the full replacement cost thereof.

Throughout the term of this License, AIF agrees to maintain fire-legal
liability insurance coverage on the Licensed Space in the amount of $50,000.
Prior to the commencement of this License, AIF shall present RGA with a
certificate of insurance evidencing such coverage. Said certificate shall
provide that said policy shall not be canceled or the limits of coverage
reduced below the aforementioned minimum requirements without thirty (30) days
prior written notice to RGA. If RGA for any reason requests a copy of the
AIF's fire-legal liability policy, AIF shall promptly provide RGA with a copy
thereof.

6
<PAGE> 7
In the event that the Licensed Space are damaged by fire or other
casualty, AIF shall immediately notify RGA in writing of such damage and RGA
shall thereupon cause the damage to be repaired with the proceeds of insurance
secured by the fee owner and AIF pursuant to this Section 9, unless this
License is terminated as herein provided. The foregoing notwithstanding, in
the event that the Licensed Space are damaged to the extent of more than fifty
percent (50%) of this replacement cost thereof, either AIF or RGA may elect to
terminate this License within sixty (60) days from the date of such damage by
giving written notice of termination to the other, and thereupon this License
shall immediately terminate.

10. RGA'S RIGHT OF ENTRY: RGA, or its employees or agents, may so
often as it desires, enter upon the Licensed space during the term of this
License for the purpose of inspecting same or for performing its maintenance
obligations under this License, or for showing the same to prospective future
licensees, provided that this is done at reasonable hours and in a reasonable
and proper manner and does not unduly or unnecessarily interfere with AIF's
legitimate business operations.

11. USE OF THE LICENSED SPACE AND COMPLIANCE WITH LAWS: AIF shall
use the Licensed Space for the purpose of sorting air freight and a tendant
offices and any additional necessary related services, and for no other purpose
or purposes without obtaining RGA's prior written approval.

AIF covenants and agrees that it shall use and occupy the Licensed
Space in accordance with and in compliance with all applicable federal, state
and local governmental laws, ordinances, rules and regulations, including, but
without limitation, environmental laws, ordinances, rules and regulations. In
this respect, AIF covenants and agrees that it will not conduct unauthorized,
illegal or hazardous activities or operations on or about the Licensed Space or
the HUB or store (other than in the ordinary course of the permitted business)
hazardous substances or hazardous waste materials, toxic pollutants or other
materials hazardous to human health or to the environment on or about the
Licensed Space, nor discharge or spill such materials into the air, water or
ground, or into any well or sewer system, nor shall AIF conduct vehicle washing
operations on the HUB site or dispose of waste solvents, oil, fuel, antifreeze,
paint, grease or any other mixture, substance or compound on or at the Licensed
Space or HUB which is or might be classified as a hazardous or solid waste or
substance under any local, state or federal law, statute, ordinance, regulation
or rule.

12. CONDEMNATION: In the event that, in either party's judgment,
all or such portion of the Licensed Space as shall render said Licensed Space
untenantable or substantially inadequate for AIF's purpose, is acquired by the
exercise of the power

7
<PAGE> 8
of eminent domain or upon settlement under the threat of the exercise thereof,
during the term of this License, either AIF or RGA shall have the right to
terminate this License as of the date that possession of the affected Licensed
Space must be surrendered to the condemning authority. AIF shall not be
entitled to any benefits accruing to RGA under any condemnation or eminent
domain proceedings or settlement in lieu thereof.

13. RGA'S REMEDIES FOR DEFAULT BY AIF: If AIF shall default in the
payment of any fees, additional fees, or other sums herein provided to be paid
by AIF upon the date the same become due and payable, and such failure shall
continue for a period of ten (10) days after the giving of notice to AIF
thereof, or if AIF shall default in the observance of any of the covenants of
this License to be kept and performed by AIF, and such failure shall continue
for a period of fifteen (15) days after the giving of notice to AIF thereof, or
if a petition, either voluntary or involuntary, is filed by or against AIF
under any Chapter of the Bankruptcy Act, or if AIF shall be declared bankrupt
or insolvent according to law, or if any assignment of AIF's property shall be
made for the benefit of AIF's creditors, or if AIF shall vacate the Licensed
Space for a continuous period of thirty (30) days, then, any of said events,
RGA may, upon ten (10) days' prior written notice, terminate this License and
without further notice or demand, which is hereby expressly waived by AIF,
re-enter the Licensed Space and expel, remove and put out AIF or AIF's
representatives, and any other person or persons occupying any or all of the
Licensed Space, and in so doing, may use such force as may be necessary
therefor and again repossess and enjoy the Licensed Space as of its first and
former estate. The above rights and remedies are in addition to any other
rights and remedies available to RGA at law or in equity.

14. TAXES: AIF agrees to pay any and all (1) personal property
taxes levied or assessed against all personal property owned by AIF on the
Licensed Space. RGA agrees to pay all real estate taxes and general and
special assessments levied and assessed against the Licensed Space during the
term of this License.

15. METHOD OF NOTIFICATION AND PAYMENT OF FEES: Except as
otherwise specifically provided for in this License, any notices to be given by
either party to the other, pursuant to the provisions of this License or of
law, present of future, shall be deemed given when delivered in person or when
mailed by U.S. certified mail, postage prepaid, return receipt requested,
addressed to the party to be charged with notice at the below-recited
addresses, to wit:

RGA
c/o Roadway Services, Inc.
ATTN: Real Estate Department
1077 Gorge Boulevard
Akron, Ohio 44309

8
<PAGE> 9
AIF
2701 North I-94 Service Drive
Ypsilanti, Michigan 48198

with a copy to:

George W. Kelsey, Esq.
3150 Packard
Ypsilanti, Michigan 48197

Either party may, upon written notice to the other, and from time to
time, designate a different notification address for such party; provided,
however, no change of address notification shall be deemed given until actually
received by the party being notified.

16. ASSIGNMENT OR SUBLICENSING: Any assignment of this License or
sublicensing of the whole or any portion of the Licensed Space without the
prior written consent of RGA shall be null and void. Absent the express
written consent of the RGA, no consented to assignment of this License or
consented to sublicensing of the Licensed Space, shall relieve AIF of primary
liability for the payment of all the fees called for under the terms of this
License and for the performance of all the terms, covenants, and conditions
herein to be performed by AIF.

17. DISPUTE RESOLUTION: Any controversy arising out of or relating
to this License shall be resolved in accordance with Section 12 of the Services
Agreement.

18. ENTIRE CONTRACT: All understandings and agreements heretofore
had between the parties hereto are merged in this License, which alone fully
and completely expresses the parties' agreement; and the parties agree that
this License is entered into after full investigation, neither party relying
upon any statement or representation, not embodied in this License, made by the
other. RGA has not made, and does not make, any representations as to the
physical condition, expenses, operation, value, adequacy or fitness for any
particular use or purposes of the Licensed Space, or the legal uses to which
the Licensed Space may be put, zoning, or any other matter or thing affecting
or related to the Licensed Space or this transaction, except as herein
specifically set forth, and AIF hereby expressly acknowledges and agrees that
no such representations have been made. AIF agrees that RGA is not liable or
bound in any manner by any express or implied warranties, guarantees, promises,
statements, representations or information pertaining to the Licensed Space,
made or furnished by any real estate broker, agent, employee, servant or other
person representing or purporting to represent RGA, unless such warranties,
guarantees, promises, statements, representations or information are expressly
and specifically set forth herein.

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<PAGE> 10
19. SECTION HEADINGS: The section headings of this License are
intended for convenience purposes only and shall not be used to construe or
interpret this License.

20. INVALID PROVISIONS: If any provision of this License is held
to be illegal, invalid, or unenforceable under present or future laws, such
provision shall be fully severable; this License shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this License; and the remaining provisions of this License
shall remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance from this License.

21. NON-WAIVER: The failure of either party to insist upon strict
performance of any of the terms, conditions and covenants herein shall not be
deemed a waiver by such party of any rights or remedies against any subsequent
breach or default in the terms, conditions and covenants herein contained.
This License may not be modified except by written agreement signed by both
parties.

22. BINDING EFFECT: This License and all the covenants, provisions
and conditions herein contained shall inure to the benefit of, and be binding
upon, the parties hereto and their respective heirs, personal representatives,
fiduciaries, successors and assigns, as the case may be and shall survive the
termination of this License to the extent necessary to ensure enforceability.

23. CONTROLLING LAWS: This License shall be construed in
accordance with the laws of the State of Indiana, except those pertaining to
conflicts of laws.

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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this License as
of the date first hereinabove written.

RGA:
ROADWAY GLOBAL AIR, INC.

BY:
---------------------------------
NAME:
---------------------------------
TITLE:
---------------------------------

AIF:
AMERICAN INTERNATIONAL FREIGHT, a
division of AMERICAN INTERNATIONAL
AIRWAYS, INC.

BY:
---------------------------------
NAME:
---------------------------------
TITLE:
---------------------------------

<PAGE> 1
EXHIBIT 10.25

AMENDMENT TO LICENSE AGREEMENT

This Amendment to license Agreement is made this 14th day of August, 1997,
by and between Roadway Global Air, Inc., a Delaware corporation (hereinafter
referred to as "RGA") and American International Freight, a division of
American International Airways, Inc., a Michigan corporation (hereinafter
referred to as "AIF").

W I T N E S S E T H:

WHEREAS, AIF entered into a certain License Agreement dated May 23, 1996
(hereinafter referred to as the "License") for certain premises in Terre Haute,
Indiana (the "Hub"); and

WHEREAS, AIF desires to expand its Licensed Space as defined hereinbelow
at a modified rental.

NOW, THEREFORE, RGA and AIF agree to a modification of the License
Agreement upon the following terms and conditions:

1. All terms used herein shall be as defined in the License unless otherwise
defined herein or as the context otherwise requires.

2. The Licensed Space shall now be expanded to include the additional areas
shown on Exhibit A attached hereto and made a part hereof (hereinafter
referred to as the "Expanded Licensed Space").

3. AIF agrees to license the Expanded Licensed Space AS-IS on a month-to-month
rental basis effective August 15, 1997.

4. AIF agrees to pay as additional rental for the Expanded Licensed Space
effective August 15, 1997 the amount of One Thousand Dollars ($1,000) per
month.

5. AIF acknowledges certain portions of the Expanded Licensed Space do not meet
building and/or fire code and will make no claim against RGA due to said
building defects. AIF will cooperate in any temporary inconvenience or
disruption arising from any work requirements needed to bring the Expanded
Licensed Space up to code.

6. AIF agrees to pay RGA, prior to occupancy, $2,000 for the destruction of
RGA's Tarmac Ramp/Stairs.

7. Upon execution of this agreement, AIF agrees to pay RGA $6,500 for concrete
bumper system installed to protect the "Sort Area".

8. Except as modified by this Amendment to License Agreement, the terms and
conditions of the License are hereby ratified and confirmed. This Amendment
to License Agreement shall inure to the benefit of and be binding upon the
parties hereto and their heirs, legal representatives, successors and
assigns.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
License Agreement on the day and year first above written.

RGA: ROADWAY GLOBAL AIR, INC.

BY: /s/ JAMES M. MAXWELL
---------------------------
James M. Maxwell
President

AIF: AMERICAN INTERNATIONAL
FREIGHT, a division of AMERICAN
INTERNATIONAL AIRWAYS, INC.

BY: [ILLEGIBLE]
---------------------------
ITS: VICE PRESIDENT AND GENERAL MANAGER

<PAGE> 1

EXHIBIT 12.1

KITTY HAWK, INC.

CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ IN THOUSANDS)

<TABLE>
<CAPTION>
12 MONTHS FOUR MONTHS
ENDED ENDED
FISCAL YEAR ENDED AUGUST 31, DECEMBER 31, DECEMBER 31,
---------------------------------------------- ------------ ----------------
1992 1993 1994 1995 1996 1996 1995 1996
------ ------ ------ ------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings
Income before income
taxes..................... $1,388 $6,718 $8,407 $7,559 $6,877 $7,686 $7,851 $8,660
Add: Fixed charges.......... 202 206 430 1,289 1,998 2,201 528 730
------ ------ ------ ------ ------ ------ ------ ------
Total................. $1,590 $6,924 $8,837 $8,848 $8,875 $9,887 $8,379 $9,390
====== ====== ====== ====== ====== ====== ====== ======
Fixed charges
Interest expense............ $ 157 $ 134 $ 343 $1,185 $1,859 $2,062 $ 482 $ 684
Add: Interest factor of
operating lease expense... 45 72 87 104 139 139 46 46
------ ------ ------ ------ ------ ------ ------ ------
Total................. $ 202 $ 206 $ 430 $1,289 $1,998 $2,201 $ 528 $ 730
====== ====== ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed
charges..................... 7.9x 33.6x 20.6x 6.9x 4.4x 4.5x 15.9x 12.9x
====== ====== ====== ====== ====== ====== ====== ======

<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------------
1996 1997
------- -------
<S> <C> <C>
Earnings
Income before income
taxes..................... $ 520 $11,613
Add: Fixed charges.......... 1,634 2,713
------- -------
Total................. $ 2,154 $14,326
======= =======
Fixed charges
Interest expense............ $ 1,530 $ 1,809
Add: Interest factor of
operating lease expense... 104 904
------- -------
Total................. $ 1,634 $ 2,713
======= =======
Ratio of earnings to fixed
charges..................... 1.3x 5.3x
======= =======
</TABLE>

THE KALITTA COMPANIES

CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Income (loss) before minority interest......... $ 5,585 $18,001 $33,351 $ 7,578 $ 1,129 $(1,879) $(28,883)
Add: Fixed charges............................. 5,688 12,485 14,009 24,788 26,179 19,101 22,120
Less: Capitalized interest..................... -- -- (668) (1,692) (562) (533) --
------- ------- ------- ------- ------- ------- --------
Total.................................... $11,273 $30,486 $46,692 $30,674 $26,743 $16,689 $ (6,763)
======= ======= ======= ======= ======= ======= ========
Fixed charges
Interest expense............................... 4,396 6,781 8,121 15,064 22,012 $16,043 $ 20,089
Add: Interest factor of operating lease
expense...................................... 1,292 5,704 5,220 8,032 3,605 2,525 2,031
Add: Capitalized interest...................... -- -- 668 1,692 562 533 --
------- ------- ------- ------- ------- ------- --------
Total.................................... $ 5,688 $12,485 $14,009 $24,788 $26,179 $19,101 $ 22,120
======= ======= ======= ======= ======= ======= ========
Ratio of earnings to fixed charges............... 2.0x 2.4x 3.3x 1.2x 1.0x --(1) --(1)
======= ======= ======= ======= ======= ======= ========
</TABLE>

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

(1) Earnings of The Kalitta Companies were not sufficient to cover fixed charges
by approximately $2,412 and $28,883 for the nine months ended September 30,
1996 and 1997, respectively.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 7, 1997 in Amendment No. 3 to the
Registration Statement (Form S-1 No. 333-36125) and related Prospectus of Kitty
Hawk, Inc. dated November 12, 1997.

/s/ ERNST & YOUNG LLP

Dallas, Texas
November 7, 1997

<PAGE> 1

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 3 to Registration Statement No.
333-36125 of Kitty Hawk, Inc. on Form S-1 of our report relating to the combined
financial statements of American International Airways, Inc. and related
companies (collectively the "Companies") dated October 16, 1997 (which report
expresses an unqualified opinion and includes an explanatory paragraph which
indicates that there are matters that raise substantial doubt about the
Companies' ability to continue as a going concern) appearing in the Prospectus,
which is part of this Registration Statement, and of our report dated October
16, 1997 relating to the financial statement schedule of the Companies appearing
elsewhere in this Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ DELOITTE & TOUCHE LLP

Ann Arbor, Michigan
November 10, 1997