MIDWAY AIRLINES CORP, 424B4, 1997-12-05

MIDWAY AIRLINES CORP
424B4, 1997-12-05
AIR TRANSPORTATION, SCHEDULED

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<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-37375
Registration No. 333-41527
PROSPECTUS
4,200,000 SHARES

[LOGO]

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

OF THE 4,200,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 2,350,000 SHARES
ARE BEING SOLD BY THE COMPANY AND 1,850,000 SHARES ARE BEING SOLD BY THE
SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY
WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES OF COMMON
STOCK BY THE SELLING STOCKHOLDERS. PRIOR TO THIS OFFERING, THERE HAS
BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE. JAMES H. GOODNIGHT,
PH.D., AND JOHN P. SALL, PRINCIPAL STOCKHOLDERS OF THE COMPANY,
HAVE SEPARATELY AGREED TO PURCHASE 235,577 AND 114,423 SHARES OF
COMMON STOCK IN THE OFFERING, RESPECTIVELY, AT THE INITIAL
PUBLIC OFFERING PRICE AND ON THE SAME TERMS AND CONDITIONS AS
ALL OTHER PURCHASERS. SEE "PRINCIPAL AND SELLING
STOCKHOLDERS."
---------------------

THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET
SYSTEM
UNDER THE SYMBOL "MDWY."
--------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------

PRICE $15 1/2 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........................... $15.50 $1.085 $14.415 $14.415
TOTAL (3)........................... $65,100,000 $4,557,000 $33,875,250 $26,667,750
</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, AS AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $850,000.
(3) THE COMPANY AND ONE OF THE SELLING STOCKHOLDERS HAVE GRANTED TO THE
UNDERWRITERS AN OPTION, EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO
PURCHASE UP TO AN AGGREGATE OF 630,000 ADDITIONAL SHARES AT THE PRICE TO
PUBLIC LESS UNDERWRITING DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF
COVERING OVERALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION
IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS,
PROCEEDS TO COMPANY AND PROCEEDS TO SELLING STOCKHOLDERS WILL BE
$74,865,000, $5,240,550, $38,910,698 AND $30,713,752, RESPECTIVELY. SEE
"UNDERWRITERS."

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

THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO THE 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 DECEMBER 10, 1997 AT THE
OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT
THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
-------------------

MORGAN STANLEY DEAN WITTER
THE ROBINSON-HUMPHREY COMPANY
DECEMBER 4, 1997
<PAGE>
(ROUTE MAP TO BE PROVIDED)

[Graphic of route map showing east coast of the United States and the cities
served by the Company]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT 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."
<PAGE>
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 OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE IN THE OFFERING SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------

UNTIL DECEMBER 29, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 10
The Company................................................................................................ 17
Use of Proceeds............................................................................................ 18
Dividend Policy............................................................................................ 18
Capitalization............................................................................................. 19
Dilution................................................................................................... 20
Selected Financial and Operating Data and Glossary......................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 24
Business................................................................................................... 33
Management................................................................................................. 44
Certain Transactions....................................................................................... 47
Principal and Selling Stockholders......................................................................... 48
Description of Capital Stock............................................................................... 49
Shares Eligible for Future Sale............................................................................ 51
Underwriters............................................................................................... 53
Legal Matters.............................................................................................. 55
Experts.................................................................................................... 55
Available Information...................................................................................... 56
Index to Audited Financial Statements...................................................................... F-1
</TABLE>

BRAND NAMES AND TRADEMARKS APPEARING IN THIS PROSPECTUS ARE THE PROPERTY OF
THEIR HOLDERS.

3
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE COMPANY'S FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS (I)
ASSUMES THAT THE UNDERWRITERS' OVERALLOTMENT OPTION IS NOT EXERCISED AND (II)
GIVES EFFECT TO A 682.9108392-FOR-1 SPLIT OF THE COMMON STOCK AND A CONVERSION
OF THE COMPANY'S SENIOR CONVERTIBLE PREFERRED STOCK TO BE EFFECTED PRIOR TO THE
OFFERING. UNLESS OTHERWISE INDICATED, REFERENCES TO "MIDWAY" OR THE "COMPANY"
MEAN MIDWAY AIRLINES CORPORATION. THE COMPANY PURCHASED THE MIDWAY NAME FROM
MIDWAY AIRLINES, INC., A CARRIER WHICH SOUGHT BANKRUPTCY PROTECTION IN 1991. THE
COMPANY IS OTHERWISE NOT AFFILIATED OR IN ANY WAY CONNECTED WITH MIDWAY
AIRLINES, INC.

CERTAIN INFORMATION CONTAINED IN THIS SUMMARY AND ELSEWHERE IN THIS
PROSPECTUS, INCLUDING INFORMATION WITH RESPECT TO THE COMPANY'S PLANS AND
STRATEGY FOR ITS BUSINESS, ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. FOR A DISCUSSION OF IMPORTANT FACTORS THAT WOULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN, SEE "RISK FACTORS."

THE COMPANY

Midway is a jet airline operator serving 13 destinations in eight eastern
states and Mexico from its hub at Raleigh-Durham International Airport ("RDU"),
where it currently carries more passengers and operates more flights than any
other airline. The Company has focused its operations to attract and retain
business travelers by (i) providing frequent non-stop service from RDU to major
business destinations, (ii) maintaining a high level of service and (iii)
offering American Airlines, Inc. ("American") AAdvantage-Registered Trademark-
frequent flyer miles. The Company currently operates the youngest all jet fleet
in the United States with 12 98-seat Fokker F-100 and one 148-seat Airbus A320
aircraft. To further serve its market niche, the Company recently reached
agreement to acquire ten new Canadair Regional Jet aircraft (the "CRJs"), with
deliveries to occur in the 13-month period beginning in December 1997. The
Company anticipates that the CRJs will expand the Company's capacity by up to
40%, and will be utilized (i) to serve existing Midway destinations with greater
frequency and (ii) to enter new routes, providing Midway's customers with more
non-stop jet destinations.

In March 1995, the Company moved its base of operations from Chicago to RDU
following American's reduction in service in the Raleigh-Durham market. A number
of factors make RDU an attractive base of operations for Midway, including
market growth (21% more local traffic in 1996 than in 1994), Midway's cost
structure and its ability to serve routes with regional jets. The Raleigh-Durham
area is rapidly expanding, with air travel having grown by an average of 8% per
year from 1991 to 1996, compared to 4% for the United States as a whole. The
area is home to three major universities, the state capital and Research
Triangle Park, a 6,850-acre business center with more than 130 high technology
and other research oriented companies. The Company believes that the area's
growing business community offers opportunities for expansion at RDU with
regional jets and yet does not generate sufficient passenger volume to attract
significant competition from low fare, low cost airlines. RDU offers modern
facilities with room for the Company to grow. The Company subleases or has
options to sublease 18 of the 26 gates at the newer of RDU's two terminals,
Terminal C. Of the remaining eight gates in Terminal C, American and Corporate
Express Airlines, Midway's code share commuter partner, use six and Midway is
currently in negotiations to sublease the remaining two. Substantially all of
the gates at RDU's other terminal are currently occupied.

The Company maintains a significant relationship with American. Part of this
relationship includes contractual arrangements with American that allow Midway
to offer AAdvantage-Registered Trademark- miles to, and accept
AAirpass-Registered Trademark- tickets and American first class upgrades from,
its passengers. Midway also contracts with American for important services,
including reservations, ground handling, fueling and yield management. Midway
believes the relationship benefits American as well, by building customer
loyalty through the use

4
<PAGE>
of AAdvantage-Registered Trademark- miles by Midway customers, by providing
sublease revenues to help offset American's lease payments at RDU and by
providing revenue through Midway's use of various American services.

On February 11, 1997, the Company completed a recapitalization (the
"Recapitalization"), resulting in a change in ownership and management. Robert
R. Ferguson III, former chief executive officer of Continental Airlines, Inc.,
was named Chairman of the Board, President and Chief Executive Officer of the
Company. The Company believes that the Recapitalization resulted in reductions
of approximately $12 million in annual expenses, including (i) a decrease in
aircraft rent expense, (ii) a decrease in facility rentals, (iii) a decrease in
the cost of certain services and (iv) a reduction of interest on long-term debt.
In addition to the Recapitalization, the Company had previously discontinued
certain unprofitable long-haul routes. Since the Recapitalization, the Company
has experienced a significant improvement in operating performance and financial
condition. The Company believes that its improved results are attributable to
the benefits realized from the Recapitalization, route restructuring, improved
yield management, increased passenger demand and a generally strong economic
environment. See "The Company--The Recapitalization."

OPERATING STRATEGY

The principal elements of the Company's operating strategy are:

- ATTRACT HIGH-YIELDING LOCAL BUSINESS TRAVELERS. Based on available 1997
data, the Company's yields are 50% to 100% higher than the yields of most
other jet operators. To attract high-yielding passengers, the Company has
designed its operations to serve the needs of business travelers flying to
and from Raleigh-Durham. The Company has developed strong relationships
with major corporations located in the Raleigh-Durham area and offers
these business travelers frequent non-stop jet service, as well as an
attractive, high quality in-flight product and
AAdvantage-Registered Trademark- frequent flyer miles. The Company
believes this focus on the needs of business travelers has produced a
loyal customer base and a higher percentage of business travelers than
other carriers. See "Selected Financial and Operating Data and
Glossary--Glossary" for the definition of "yield."

- MAINTAIN HIGH QUALITY OPERATIONS. Because the Company's business customers
require consistent, dependable performance, Midway is committed to meeting
the highest operational standards. Through October 1997, the Company's
year-to-date completion factor and on-time performance rate of 99.5% and
83.4%, respectively, are substantially higher than those of all of the ten
largest U.S. domestic airlines (the "major carriers"). The Company has
achieved these performance measures (i) by operating the youngest all jet
fleet in the United States, with an average age of 3.5 years, (ii) by
maintaining a spare aircraft to ensure a high completion factor and (iii)
through its commitment to high quality maintenance, including the use of
vendors such as American, affiliates of Rolls-Royce plc and a subsidiary
of Canadian Airlines Corporation.

- PROVIDE QUALITY CUSTOMER SERVICE. The Company seeks to generate a high
degree of loyalty and customer preference by providing high quality
in-flight amenities and customer service. The Company emphasizes customer
service from reservation to destination and offers tangible amenities such
as greater leg room, leather seating (on all aircraft except the Company's
single A320), gourmet coffee, quality snacks and a quiet, modern all jet
fleet.

- CONTINUE TO REDUCE OPERATING COSTS. Because of its focus on business
travelers and premium service, its small aircraft and its relatively short
stage lengths, the Company operates with yields and a cost per available
seat mile that are higher than industry averages. The Company is committed
to maintaining a competitive cost structure and has identified a number of
cost reduction opportunities. In addition to the cost savings resulting
from the Recapitalization, the Company has recently (i) entered into new
maintenance contracts, (ii) reduced dependence on third-party vendors for
flight reservation call handling and (iii) reduced certain insurance
costs. The Company is also implementing an automated voice-response flight
information system and engaging a new, lower

5
<PAGE>
cost credit card processing vendor. Although the introduction of regional
jet aircraft will shorten average stage length, the Company believes it
should result in additional cost benefits, including greater economies of
scale and more efficient utilization of facilities and personnel.

GROWTH STRATEGY

The Company believes that RDU is under-served with respect to non-stop
flights. To address this need and to better serve its core business customers,
the Company has ordered ten 50-seat CRJs. These new aircraft are scheduled for
delivery beginning December 1997 and continuing until December 1998. The Company
has options to acquire up to 20 additional CRJs over a two-year period with
delivery dates beginning in 1999.

The principal elements of the Company's growth strategy are:

- INCREASE FREQUENCIES TO CURRENT MARKETS. The Company's market share and
route profitability are greatest on routes where it offers the same or
better frequency and timing of flights compared to its competitors. The
Company's core customers are business travelers who generally pay higher
fares and select an airline primarily based on convenience of schedule.
Introduction of the new CRJs should enable the Company to increase
frequency and offer more convenient scheduling to current markets, without
necessarily increasing overall capacity in these markets.

- INCREASE NUMBER OF MARKETS SERVED. The Company has identified up to 20 new
market opportunities that it believes can support service primarily on an
"origination and destination" (i.e., local passenger) basis. The Company
intends to begin service from RDU to the five to ten most attractive of
these markets with the delivery of the CRJs. In addition, the Company
believes that existing demand on a number of routes currently served with
19-seat turboprop aircraft by Midway's code share commuter partner,
Corporate Express Airlines, can support 50-seat CRJ service. The Company
believes that most customers have a strong preference for jet service, and
will often pay a premium or choose a connecting flight to avoid flying on
turboprop aircraft. The Company anticipates attracting these customers
with the introduction of the CRJs.

6
<PAGE>
THE OFFERING

<TABLE>
<CAPTION>
Common Stock offered:
<S> <C>
By the Company............. 2,350,000 shares
By the Selling 1,850,000 shares
Stockholders...............
Total.................. 4,200,000 shares
Common Stock to be
outstanding after the
Offering(1)................ 8,209,375 shares

Use of proceeds.............. The net proceeds to the Company will be used in connection
with the acquisition of regional jet aircraft and for
general working capital purposes. The Company will not
receive any proceeds from the sale of Common Stock by the
Selling Stockholders in the Offering. See "Use of Proceeds."

Nasdaq National Market
Symbol..................... MDWY
</TABLE>

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

(1) Excludes 1,562,500 additional shares of Common Stock reserved for issuance
in connection with stock options granted or to be granted to certain
officers and employees of the Company and a warrant to purchase 390,625
shares of Common Stock issued to an investor. See "Management--Executive
Compensation," "--Employee Plans" and "Principal and Selling Stockholders."

RISK FACTORS

See "Risk Factors" beginning on page 10 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock offered
hereby.

7
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA

The following summary financial data are derived from the financial
statements of the Company. The operating data for the five months ended December
31, 1994 and the years ended December 31, 1995 and 1996 have been derived from
audited financial statements. The balance sheet data as of September 30, 1997
and the operating data for the nine months ended September 30, 1996 and 1997 are
derived from unaudited financial statements. The unaudited financial statements
for the nine-month periods include all adjustments, consisting only of normal
recurring accruals, that, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations of the Company
for those periods. Operating results for the nine months ended September 30,
1997 are not necessarily indicative of the operating results that may be
expected for the entire year ending December 31, 1997. The data should be read
in conjunction with "Selected Financial and Operating Data and Glossary",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED NINE MONTHS ENDED
ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------ -----------------
1994 1995 1996 1996 1997
------------ -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)

<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........................................ $ 15,875 $122,602 $180,034 $135,273 $138,139
Operating expenses:
Wages, salaries and related costs....................... 3,659 19,874 24,619 18,156 18,597
Aircraft fuel........................................... 3,514 16,782 27,300 20,836 16,145
Aircraft and engine rentals............................. 5,328 30,889 34,113 25,710 22,850
Commissions............................................. 1,205 9,382 13,728 10,232 10,321
Maintenance, materials and repairs...................... 1,383 13,551 17,930 13,937 12,401
Depreciation and amortization........................... 334 2,056 1,346 955 1,379
Other operating expenses................................ 9,308 55,693 66,643 52,738 43,172
Restructuring(1)........................................ 4,900 6,004 -- -- --
Impairment of long-lived assets(2)...................... -- -- 16,941 16,941 --
Recapitalization(3)..................................... -- -- -- -- 1,225
------------ -------- -------- -------- -------
Total operating expenses............................ 29,631 154,231 202,620 159,505 126,090
------------ -------- -------- -------- -------
Operating income (loss)................................... (13,756) (31,629) (22,586) (24,232) 12,049

Income (loss) before extraordinary gain................... (13,814) (32,264) (24,264) (25,326) 6,980
Extraordinary gain(4)..................................... -- -- -- -- 15,272
------------ -------- -------- -------- -------
Net income (loss)......................................... (13,814) (32,264) (24,264) (25,326) 22,252
Preferred dividends....................................... (600) (1,440) -- -- --
------------ -------- -------- -------- -------
Net income (loss) available for common stockholders....... $(14,414) $(33,704) $(24,264) $(25,326) $ 22,252
------------ -------- -------- -------- -------
------------ -------- -------- -------- -------
PER SHARE AMOUNTS(5):
Income per share before extraordinary gain................ $1.00
Net income per share...................................... 3.19
Weighted average number of common shares outstanding...... 6,985,610

OTHER FINANCIAL DATA:
EBITDA(6)................................................. $ (8,450) $(23,485) $(3,525) $(5,750) $ 14,709
EBITDAR(6)................................................ (3,122) 7,404 30,588 19,960 37,559
Cash flows provided by (used in):
Operating activities.................................... (14,323) (805) 5,784 (2,869) 4,961
Investing activities.................................... (354) (6,876) (2,614) (2,355) (21,378)
Financing activities.................................... 12,427 3,571 4,836 3,353 21,435
<CAPTION>

(FOOTNOTES ON NEXT PAGE)
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED SEPTEMBER
DECEMBER 31, 30,
---------------------------- ----------------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SELECTED OPERATING STATISTICS(7):
Available seat miles (000s)........................... 1,387,921 1,758,560 1,364,670 1,042,067
Revenue passenger miles (000s)........................ 692,681 998,959 761,236 652,955
Load factor........................................... 49.9% 56.8% 55.8% 62.7%
Break-even load factor(8)............................. 60.8% 59.2% 59.4% 56.4%
Yield................................................. 17.1 CENTS 17.4 CENTS 17.1 CENTS 20.4 CENTS
Cost per available seat mile(9)....................... 10.7 CENTS 10.7 CENTS 10.5 CENTS 12.0 CENTS
Aircraft (average during period)...................... 11.0 13.7 13.9 13.0
</TABLE>

<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997
--------------------
AS
ACTUAL ADJUSTED
--------- ---------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash and short-term investments........................ $ 31,793 $ 64,818
Working capital........................................................................... 5,436 38,461
Equipment and property, net............................................................... 12,459 12,459
Total assets.............................................................................. 73,952 106,977
Long-term debt and capital lease obligations (net of current maturities).................. 12,563 12,563
Stockholders' equity...................................................................... 9,468 42,493
</TABLE>

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

(1) The Company recorded restructuring charges (a) for the five months ended
December 31, 1994 of $4.9 million, related to the Company's decision to move
from Chicago to RDU and (b) in 1995 of $6.0 million related to the return of
four A320 aircraft and other related one-time charges.

(2) The Company recorded an impairment loss of $16.9 million from certain
long-lived assets, primarily intangible assets, that were determined by
Company management to be impaired in accordance with SFAS 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of."

(3) The Company recorded a one-time charge of $1.2 million in 1997 related to
the Recapitalization.

(4) Extraordinary gain includes one-time gains recognized in connection with the
Recapitalization. See Note 15 to Audited Financial Statements for the Six
Months ended June 30, 1997.

(5) Since the Company was recapitalized in February 1997 and all prior capital
stock was cancelled at that time, per share amounts prior to 1997 are not
meaningful and thus are not presented.

(6) EBITDA represents income before income taxes, dividends and extraordinary
item plus interest expense (net of capitalized interest), depreciation,
amortization, restructuring expense, impairment of long-lived assets and
recapitalization expense. EBITDAR represents income before income taxes,
dividends and extraordinary item plus interest expense (net of capitalized
interest), depreciation, amortization, restructuring expense, impairment of
long-lived assets, recapitalization expense and aircraft and engine rentals.
EBITDA and EBITDAR are presented because each is a widely accepted financial
indicator of a company's ability to incur and service debt. However, EBITDA
and EBITDAR should not be considered in isolation, as a substitute for net
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.

(7) For definitions of the airline operating terms used in this table, see
"Selected Financial and Operating Data and Glossary-- Glossary."

(8) Had restructuring, impairment of long-lived assets and recapitalization
expenses been included for the years ended December 31, 1995 and 1996 and
the nine months ended September 30, 1996 and 1997, the break-even load
factor would have been 63.3%, 64.8%, 66.6% and 60.0%, respectively.

(9) "Cost per available seat mile" represents total operating expenses plus
non-operating expenses/(income), excluding restructuring, impairment of
long-lived assets and recapitalization expenses, divided by available seat
miles. Had restructuring, impairment of long-lived assets and
recapitalization expenses been included for the years ended December 31,
1995 and 1996 and the nine months ended September 30, 1996 and 1997, cost
per available seat mile would have been 11.1 cents, 11.6 cents, 11.8 cents
and 12.1 cents, respectively.

9
<PAGE>
RISK FACTORS

INDUSTRY CONDITIONS AND COMPETITION

The airline industry is characterized by low gross profit margins and high
fixed costs. The expenses of each flight do not vary significantly with the
number of passengers carried and, therefore, a relatively small change in the
number of passengers, or in average fare or traffic mix (the ratio of typically
high-yielding business passengers to typically low-yielding leisure passengers),
could have a disproportionate effect on an airline's operating and financial
results. Accordingly, a minor shortfall from expected revenue levels could have
a material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The airline industry is highly competitive and is particularly susceptible
to price discounting because airlines incur only nominal costs to provide
service to passengers occupying otherwise unsold seats. The Company currently
competes on some routes with both major and regional carriers and with discount
carriers. Such carriers have greater financial resources than the Company, and
some of the Company's competitors have lower unit costs than the Company. In
addition, the industry has experienced and continues to experience substantial
restructuring as most established carriers have implemented varying strategies
in pursuit of profitability, including establishing lower cost airlines within
airlines, such as Shuttle by United, Delta Express and the recently introduced
US2 by US Airways, Inc. The introduction of deeply discounted fares by a major
U.S. airline or one of its low cost affiliates on routes served by the Company
could have an adverse impact upon the Company's financial condition and results
of operations.

SIGNIFICANT DEPENDENCE ON RALEIGH-DURHAM MARKET

The Company's growth has focused and will continue to focus on adding
flights to and from its Raleigh-Durham base of operations, established in March
1995. Because all of the Company's current flights have Raleigh-Durham as the
origin or destination, the Company remains highly dependent upon the
Raleigh-Durham market. The Company's growth strategy continues to emphasize the
Raleigh-Durham hub. A reduction in the Company's share of the Raleigh-Durham
market or reduced passenger traffic to or from Raleigh-Durham could have a
material adverse effect on the Company's financial condition and results of
operations. In addition, the Company's dependence on a single hub and on a route
network operating on the East Coast makes it more susceptible to adverse weather
conditions along the East Coast than some of its competitors that may be better
able to spread weather related risks over larger route systems. For example, in
September 1996, Hurricane Fran severely disrupted air travel in the Raleigh-
Durham area for one week and adversely affected the Company's operating results
for that month. See "Business."

CONCENTRATION OF ROUTES

The Company derives a substantial majority of its operating income from a
small number of its routes. Any circumstance causing a reduction in demand on
such routes or the introduction of increased competitive pressures on such
routes could have a material adverse effect on the Company's financial condition
and results of operations.

IMPLEMENTATION OF GROWTH STRATEGY

The Company's growth strategy involves increasing the frequency of flights
to markets the Company currently serves and increasing the number of markets
served. Establishing new markets involves a substantial commitment of Company
resources and, during the initial phases of implementing service in a new
market, the Company is more vulnerable to the effects of fare discounting in
that market by competitors already operating in that market or by new
competitors entering that market. The introduction of regional jet aircraft
increases the complexity of implementing the Company's strategy and requires a
Federal Aviation Administration (the "FA A") approved amendment to the Company's
operating

10
<PAGE>
specifications. In addition, in order to effect its growth strategy, the Company
may also need to obtain additional slots at certain destinations. See
"Business--Growth Strategy." There can be no assurance that the Company will be
able to identify and successfully establish new markets, that the Company will
be able to successfully integrate the regional jets into its operations or that
the Company will be able to obtain additional slots on a timely basis or at
commercially reasonable prices, if at all. The Company's failure to implement
its growth strategy could have a material adverse effect on the Company's
financial condition and results of operations.

HISTORY OF OPERATING LOSSES AND ACCESS TO ADDITIONAL CAPITAL

The Company commenced commercial flight operations in 1993 and incurred
substantial losses through September 30, 1996. The June 16, 1996 report of
independent public accountants with respect to the Company's financial
statements as of and for the year ended December 31, 1995 contained a going
concern qualification. See "Report of Independent Public Accountants" and Note 1
to Audited Financial Statements for the Year Ended December 31, 1995. Although
the Company's historical results reflect profitability on a quarterly basis for
the last four quarters, there can be no assurance that the Company's operations
will continue to be profitable in the future. The Company does not currently
have lines of credit or any other arrangements to provide liquidity. In the
event that current sources are not adequate, the Company will be required to
access external financing. There can be no assurance that such additional
financing will be available to the Company or, if available, that it can be
obtained on acceptable terms. In the absence of such financing, the Company
could be forced to dispose of assets under circumstances that might not be
favorable to realizing the highest price for such assets.

FUTURE LEVERAGE

The Company is scheduled to receive ten CRJs, with delivery commencing in
December 1997 and continuing through December 1998. See
"Business--Services--Fleet." The Company's acquisition of these aircraft is
valued at approximately $207 million, including induction costs related to pilot
and mechanic training and spare part provisioning. In order to finance the
acquisition of these aircraft, the Company expects to arrange a combination of
debt and leveraged lease or standby lease financing. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." To the extent that the Company
uses debt financing, its assets will increase to reflect the acquisition of the
CRJs and its liabilities will increase to reflect any debt incurred. If the
Company uses lease financing, no balance sheet effect is expected. While these
financings thus may or may not result in an increase in liabilities depending on
the financing method ultimately chosen, the Company's fixed costs will increase
significantly. Based on the current interest rate environment, the Company
estimates that its fixed charges will increase by approximately $14 million to
$17 million per year as a result of its acquisition or lease financing of the
ten CRJs. A 0.25% change in the applicable interest rate prior to the time such
permanent financing is in place would result in a change in such annual fixed
charges of approximately $300,000. These costs will be in addition to the
approximately $33.5 million in total rent expense incurred by the Company in
1996 under all non-cancelable aircraft operating leases. This increase could
materially adversely affect the Company's results of operations. Furthermore,
the terms of these financings will not be determined prior to the closing of the
Offering.

AGREEMENTS WITH AMERICAN AIRLINES

The Company, through an agreement with American, is able to offer frequent
flyer benefits on all of its current routes and on an additional 32 routes that
it does not now serve. However, routes that the Company selects as part of its
growth strategy may include routes that are not covered by this agreement. There
can be no assurance that the Company will be able to offer
AAdvantage-Registered Trademark- frequent flyer benefits to its customers after
the April 30, 2001 expiration of the Company's current contract with American.
Furthermore, American may terminate this agreement under several circumstances,
including

11
<PAGE>
(i) commencement by the Company of a new frequent flyer program or its
participation in another frequent flyer program, (ii) any person or group
becoming the owner of 20% or more of the outstanding voting securities of the
Company or any "Disqualified Investor" becoming the owner of 10% or more of the
outstanding voting securities of the Company, (iii) the Company making a
significant acquisition or (iv) the Company entering into any marketing-oriented
collaborative agreement with another airline which American reasonably believes
would likely materially adversely affect American's interests or objectives
under any of its or its affiliates' agreements with the Company. "Disqualified
Investor" is defined as (i) any other airline or airline-related services
company, (ii) any person or entity offering a frequent traveler program or (iii)
any person or entity that American believes would likely, by virtue of its
affiliation with the Company, materially adversely affect American's interests
or objectives under any of its or its affiliates' agreements with the Company.
In addition, American may terminate its sublease to the Company of the RDU
facility, and one other service agreement that Midway has with American if any
person or group acquires 30% or more of the voting securities of Midway.
Finally, if the Company pays any dividends or makes any other cash or asset
distribution to its stockholders without American's consent at any time prior to
the Company's payment in full of a certain promissory note to American, then
American may terminate the RDU facility sublease, the
AAdvantage-Registered Trademark- Participating Carrier Agreement, Midway's
license of the yield management system and one other service agreement that
Midway has with American. The Company believes that its participation in the
AAdvantage-Registered Trademark- program is a significant factor in its ability
to attract and retain passengers, and that the loss of
AAdvantage-Registered Trademark- program participation or the termination by
American of the Company's RDU sublease could have a material adverse effect on
the Company's results of operations. See "Business--Sales and Marketing--Pricing
and Yield Management" and "--American Relationship" and "Business--Facilities."

DEPENDENCE ON LEASED SLOTS

The Company leases 70% of its slots at New York's LaGuardia Airport and 75%
of its slots at Washington, D.C.'s National Airport from third party airlines
pursuant to leases that are currently scheduled to expire in April 1998.
Although the Company has leased slots for six-month intervals, consistent with
industry practice, at LaGuardia Airport continuously since November 1993, and at
National Airport continuously since March 1995, there can be no assurance that
the Company will be able to renew or replace these leases. The Company's routes
between RDU and LaGuardia Airport and National Airport are among its most
important, and, as a result, an inability to renew or replace these leases could
have a material adverse effect on the Company's financial condition and results
of operations. See "Business--Government Regulation--Slots."

GOVERNMENT REGULATION

The Company is subject to regulation by the U.S. Department of
Transportation (the "DOT"), the FA A and certain other governmental agencies.
The DOT principally regulates economic issues affecting air service such as air
carrier certification and fitness, insurance, consumer protection and
competitive practices. The FA A primarily regulates flight operations, in
particular matters affecting air safety, such as airworthiness requirements for
aircraft and pilot and flight attendant certification. The Company believes it
is in compliance with all requirements necessary to maintain in good standing
its operating authority granted by the DOT and its air carrier operating
certificate issued by the FA A. Additional laws and regulations have been
proposed from time to time that could significantly increase the cost of airline
operations by, for instance, imposing additional requirements or restrictions on
operations. There can be no assurance that the Company will continue to be able
to comply with all present and future rules and regulations or that the cost of
continued compliance will not have a material adverse effect on the Company's
results of operations.

12
<PAGE>
In September 1997, the Civil Aviation Security Division of the FA A
conducted an investigation of the Company's compliance with certain regulations
requiring the Company to verify the accuracy of background information provided
by its employees who have access to secure airport areas. The investigation will
likely result in the finding of violations of these regulations. While the
Company is unable to determine whether the FA A will pursue an assessment as a
result of the findings of this investigation, or what the amount of any such
assessment might be, an assessment could have a material adverse effect on the
Company's results of operations.

The FA A also has authority to issue maintenance directives and other
mandatory orders relating to, among other things, inspection of aircraft and
engines, fire retardant and smoke detection devices, increased security
precautions, collision and windshear avoidance systems, noise abatement and the
mandatory removal and replacement of aircraft parts that have failed or may fail
in the future. Depending upon the scope of the FA A's order, these requirements
may cause the Company to incur substantial, unanticipated expenses.

The Company is also subject to numerous other federal and state laws and
regulations relating to protection of the environment, radio communications,
labor relations, equal employment opportunity and other matters. See
"Business--Government Regulation."

DEPENDENCE ON SINGLE AIRCRAFT TYPE

The Company's existing fleet of 13 aircraft comprises 12 Fokker F-100
aircraft and one Airbus A320. This dependence on a single aircraft type for
substantially all of the Company's flights could result in a material adverse
effect on the Company in the event of a government directive prohibiting or
restricting the use of this aircraft type or in the case of adverse public
perception of this aircraft type. Although the Company's growth strategy
includes the addition of ten CRJs by the end of 1998, the Company will remain
dependent on the F-100 aircraft for a significant portion of its operations. See
"Business--Services-- Fleet."

MAINTENANCE OF DISCONTINUED AIRCRAFT

Twelve of the Company's current 13 aircraft are Fokker F-100s. Fokker
Aircraft B.V., a Dutch corporation ("Fokker"), entered into insolvency
proceedings in March 1996 and ceased operations. As a result, the Fokker F-100
is no longer being manufactured. The Company believes that the cost of
maintaining aircraft that are no longer manufactured generally exceeds the cost
of those that continue to be produced. Vendors and suppliers of key parts are
generally fewer in number and their products more expensive, and engineering is
not as readily available. An inability to obtain parts and servicing on a timely
and cost-effective basis could have a material adverse effect on the Company's
financial condition and results of operations. See "Business--Services--Fleet"
and "--Maintenance and Support."

LIMITED NUMBER OF AIRCRAFT

Midway has a fleet of 13 jet aircraft, all of which are leased. Each F-100
lessor is an affiliate or subsidiary of Daimler-Benz, A.G. and the lessor of the
Company's one Airbus A320 aircraft is KE Aircraft Leasing, a subsidiary of
Kawasaki Enterprises, Inc. The limited number of aircraft operated by the
Company involve financial risks not present for larger carriers that are able to
spread their operating costs over more equipment and routes. In addition, each
F-100 lessor has the right to terminate its lease on six months' prior notice
beginning September 15, 1998, provided that no lease can be terminated if it
would result in a fourth termination of any F-100 lease in any 12-month period,
including scheduled terminations. Finally, in the event aircraft are removed
from service for unscheduled maintenance, repairs or other reasons, any
resulting interruption in service could materially and adversely affect the
Company's service, reputation and profitability. See
"Business--Services--Fleet."

13
<PAGE>
AIRCRAFT FUEL

Because fuel costs constitute a significant portion of the Company's
operating costs (approximately 13.5% in 1996 and approximately 12.8% during the
nine months ended September 30, 1997), significant changes in fuel costs will
materially affect the Company's results of operations. The Company has not
entered into long-term fuel purchases to assure the supply of fuel or hedging
agreements to assure the price of fuel. Fuel prices continue to be susceptible
to political events and other factors that can affect the supply of fuel, and
the Company cannot predict near or long-term fuel prices. In the event of a fuel
supply shortage resulting from a disruption of oil imports or otherwise, higher
fuel prices or curtailment of scheduled service could result. A one cent
increase in the cost per gallon of fuel, based on the Company's fuel consumption
levels for the nine months ended September 30, 1997, increases operating
expenses by approximately $300,000 per year. There can be no assurance that
increases in the price of fuel can be offset by higher fares.

AIRCRAFT PURCHASE OBLIGATION

Pursuant to a March 1995 purchase agreement, Midway is obligated to purchase
four Airbus A320 aircraft with deliveries in 2005 and 2006. Midway also has an
agreement to acquire one spare engine for these A320 aircraft. See
"Business--Services--Fleet." Midway's current strategy does not anticipate the
use of this type of aircraft. Accordingly, Midway must either restructure or
sell its rights under this purchase agreement or accept delivery of the four
A320 aircraft. There can be no assurance that Midway will be able to restructure
or sell its rights under this purchase agreement. If Midway were required to
take delivery of these aircraft or if it incurred significant financial expense
in lieu of taking delivery, the financial position and results of operations of
Midway could be materially adversely affected. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."

DEPENDENCE ON KEY PERSONNEL

The Company's management and operations are dependent upon the efforts of
the Company's Chairman of the Board, President and Chief Executive Officer,
Robert R. Ferguson III, and a small number of management and operating
personnel. The Company does not maintain key-man life insurance on any executive
officer. The loss of the services of key members of management could have an
adverse impact on the Company. See "Management."

SEASONALITY AND CYCLICALITY

The Company's results are sensitive to seasonal variations in traffic. The
highest levels of traffic and revenue are generally realized in the second
quarter and the lowest levels of traffic and revenue are generally realized in
the third quarter. Given the Company's high fixed costs, such seasonality
affects the Company's profitability from quarter to quarter. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Quarterly Results of Operations."

14
<PAGE>
The following table sets forth certain unaudited quarterly financial data
for each of the past seven quarters ended September 30, 1997. Operating results
for any quarter are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
1996 1997
-------------------------------------------- ---------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
----------- --------- --------- --------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues.................... $ 49,441 $ 45,933 $ 39,899 $ 44,761 $ 47,843 $ 47,237 $ 43,059
Operating income (loss)(1)............ (6,719) 1,945 (2,517) 1,646 3,871 6,540 2,863
</TABLE>

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

(1) Excludes impairment of long-lived assets and recapitalization expenses.

In addition, the airline industry is highly sensitive to general economic
conditions. Because a substantial portion of airline travel (both business and
leisure) is discretionary, the industry tends to experience adverse financial
results during general economic downturns. Any general reduction in airline
passenger traffic may materially and adversely affect the Company, particularly
since current industry traffic patterns are based in part on substantial
stimulation of discretionary air travel.

LABOR RELATIONS

In October 1997, the National Mediation Board authorized an election to be
held on the application of the Air Line Pilots Association to represent Midway's
pilots. The ballots for such election were distributed on November 4, 1997, and
will be counted on December 8, 1997. In November 1997, the Company received
notice from the Association of Flight Attendants, AFL-CIO (the "AFA") that a
campaign has been initiated to select the AFA as the exclusive bargaining
representative for the Company's flight attendants. Although many employees in
the airline industry are represented by labor unions, no Company employees are
currently represented by any union. Union representation of any of the Company's
employees could result in employee compensation and working condition demands
that may increase the Company's operating expenses. See "Business--Employees."

CONTROL BY EXISTING STOCKHOLDERS

Upon completion of the Offering, James H. Goodnight, Ph.D., and John P. Sall
will own approximately 33.4% and 16.2%, respectively, of the then outstanding
shares of Common Stock of the Company, without giving effect to the shares that
may be issued upon the exercise of outstanding warrants and stock options, but
including 235,577 and 114,423 shares of such Common Stock, respectively, which
James H. Goodnight, Ph.D., and John P. Sall have agreed to purchase at the
initial public offering price and on the same terms and conditions as all other
purchasers. Although the Company is not aware of any arrangement or
understanding, contractual or otherwise, that obligates Dr. Goodnight and Mr.
Sall to act in concert with respect to the Company, such level of stock
ownership by Dr. Goodnight and Mr. Sall may be sufficient for such stockholders
to elect all of their designees to the Board of Directors and to control the
outcome of virtually all matters submitted for a vote of the stockholders of
Midway. The combined equity interests of Dr. Goodnight and Mr. Sall in Midway
may have the effect of making certain transactions more difficult or of
delaying, deferring or preventing a change in control of the Company.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
the Offering, or the perception that such sales may occur, could have an adverse
effect on prevailing market prices of the Common Stock. All of the shares of the
Company's currently outstanding Common Stock are eligible for

15
<PAGE>
sale pursuant to the exemption from registration pursuant to Rule 144 under the
Securities Act ("Rule 144"), subject to applicable holding periods, volume and
other limitations. In addition, certain holders of Common Stock and holders of
options and warrants to purchase Common Stock will have registration rights for
an aggregate of up to 1,676,550 shares of Common Stock (including 280,680 shares
of Common Stock subject to the Underwriters' overallotment option). However, the
officers, directors and certain other stockholders of the Company have agreed
with the Underwriters not to sell any of their shares for a period of 180 days
from the date of this Prospectus without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters. Such stockholders will
beneficially own an aggregate of approximately 5,140,625 shares of Common Stock
upon the completion of this Offering. Immediately after completion of this
Offering, a total of 4,200,000 shares of Common Stock (4,830,000 shares if the
Underwriters' overallotment option is exercised in full) will be eligible for
resale in the public market without restriction. In addition, 180 days after the
date of this Prospectus an additional 4,359,375 of the currently outstanding
shares of Common Stock will be eligible for resale in accordance with Rule 144.
See "Shares Eligible for Future Sale."

NO PRIOR PUBLIC MARKET; VOLATILITY OF COMMON STOCK PRICE

Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq National
Market, there can be no assurance that an active trading market for the Common
Stock will develop or continue after the Offering. The initial public offering
price was determined by negotiation between the Company and the Representatives
of the Underwriters, and may not be indicative of the market price for the
Common Stock after the Offering. See "Underwriters." From time to time after the
Offering, there may be significant volatility in the market price for the Common
Stock. Results of the Company's operations may fluctuate significantly from
quarter to quarter and will depend on numerous factors, primarily the
implementation of the Company's growth strategy. In addition, in recent years
the stock market has experienced extreme price and volume fluctuations. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to their operating performance.

DILUTION

Purchasers of the Common Stock offered hereby will experience immediate and
significant dilution (approximately $10.34 per share) in the net tangible book
value of their shares. See "Dilution."

16
<PAGE>
THE COMPANY

Midway is a jet airline operator serving 13 destinations in eight eastern
states and Mexico from its hub at RDU, where it currently carries more
passengers and operates more flights than any other airline. The Company has
focused its operations to attract and retain business travelers by (i) providing
frequent non-stop service from RDU to major business destinations, (ii)
maintaining a high level of service and (iii) offering American's
AAdvantage-Registered Trademark- frequent flyer miles. The Company currently
operates the youngest all jet fleet in the United States with 12 98-seat Fokker
F-100 and one 148-seat Airbus A320 aircraft. To further serve its market niche,
the Company recently reached agreement to acquire ten new CRJs, with deliveries
to occur in the 13-month period beginning in December 1997. The Company
anticipates that the CRJs will expand the Company's capacity by up to 40%, and
will be utilized (i) to serve existing Midway destinations with greater
frequency and (ii) to enter new routes, providing Midway's customers with more
non-stop jet destinations.

The Company originated in 1993 when Jet Express, Inc., a small carrier based
in Virginia, was reorganized from bankruptcy. The reorganized entity purchased
the Midway name from Midway Airlines, Inc., an unrelated air carrier which
sought bankruptcy protection in 1991. The Company began commercial operations as
Midway Airlines Corporation in November 1993 with a strategy of operating as a
high volume, discount, all coach carrier from its base at Chicago's Midway
Airport. On July 22, 1994, the Zell/ Chilmark Fund L.P. ("Zell/Chilmark")
acquired a 94% interest in the Company by purchasing certain preferred stock and
common stock of the Company for approximately $25 million. Concurrently with the
acquisition, the Company's senior management and board of directors were
replaced. In March 1995, the Company relocated its entire base of operations
from Chicago to RDU following American's reduction of services from the
Raleigh-Durham market, and changed its business strategy to operate as a premium
service, full fare airline focused on business travelers flying to and from
Raleigh-Durham.

THE RECAPITALIZATION

The following transactions were recorded as a result of the
Recapitalization:

i) All existing shares of capital stock were canceled. New shares of
capital stock were issued (a) to James H. Goodnight, Ph.D., for
consideration of $10.1 million in cash, (b) to John P. Sall for
consideration of $4.9 million in cash and (c) to Zell/Chilmark for
consideration of $7.0 million in cash. Additional shares of common stock and
a warrant to purchase common stock with an aggregate value of $3.1 million
were issued to the parent company of American Airlines, Inc., debis
AirFinance B.V. and Wings Aircraft Finance, Inc., which are key vendors to
the Company.

ii) Agreements were negotiated to allow for approximately $3.4 million
in aircraft lease deposits to be offset against amounts owed to the holders
of those deposits.

iii) Current debt, accrued lease expense, accrued prior year
restructuring costs and related accrued interest totaling approximately $6.7
million were settled for amounts substantially less than the carrying value
at December 31, 1996. An additional $1.6 million was accrued for expenses
associated with the Recapitalization.

17
<PAGE>
iv) Long-term debt and related interest of approximately $10.9 million
were forgiven and current maturities of approximately $14.9 million were
restructured to long-term debt.

The Company believes that the Recapitalization resulted in reductions of
approximately $12 million in annual expenses, including (i) a decrease in
aircraft rent expense, (ii) a decrease in facility rentals, (iii) a decrease in
the cost of certain services and (iv) a reduction of interest on long-term debt.
In addition to the Recapitalization, the Company had previously discontinued
certain unprofitable long-haul routes. Since the Recapitalization, the Company
has experienced a significant improvement in operating performance and financial
condition. The Company believes that its improved results are attributable to
the benefits realized from the Recapitalization, route restructuring, improved
yield management, increased passenger demand and a generally strong economic
environment.

The Company is a Delaware corporation with its corporate headquarters
located at 300 West Morgan Street, Suite 1200, Durham, North Carolina 27701, and
its telephone number is (919) 956-4800.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $33,025,000 (approximately $38,061,000 if the
Underwriters' overallotment option is exercised in full), after deducting
underwriting discounts and commissions and offering expenses payable by the
Company. The Company will use the net proceeds of the Offering in connection
with the acquisition of regional jet aircraft and for general working capital
purposes. The Company anticipates that it will expend approximately $20 to $25
million in down payments with respect to the regional jet aircraft that it
purchases, including approximately $1 million in related equipment, and
approximately $1 million to purchase spare parts (including engines) for support
of these aircraft. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Capital Expenditures" and "Business--
Services--Fleet" for information relating to the acquisition of the regional jet
aircraft and the anticipated financing thereof. One of the general working
capital purposes will include, to the extent an affiliate of one of the
Company's stockholders does not continue to assume such responsibility, the
posting of a letter of credit or other cash collateralization of an obligation
to the Company's credit card vendors at an estimated cost of $9 million. See
"Certain Transactions." Pending the application of the net proceeds from the
Offering, the Company will invest the net proceeds in investment-grade,
short-term, interest-bearing instruments. The Company will not receive any of
the proceeds from the sale of the Shares of Common Stock by the Selling
Stockholders.

DIVIDEND POLICY

The Company has not paid cash dividends since its formation and does not
anticipate that cash dividends will be paid in the foreseeable future since the
Company presently intends to retain any future earnings to finance the expansion
and continuing development of its business. In addition, certain of the
Company's debt instruments prohibit the payment of dividends until such debt has
been repaid. See "Description of Capital Stock--Authorized and Outstanding
Capital Stock--Certain Limitations." The declaration and payment in the future
of any cash dividends will be at the election of the Company's Board of
Directors and will depend upon the earnings, capital requirements and financial
position of the Company, future loan covenants, general economic conditions and
other pertinent factors.

18
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company at
September 30, 1997 after giving effect to the 682.9108392-for-1 stock split to
be effected prior to the Offering, and as adjusted to reflect (i) the conversion
to be effected prior to the consummation of the Offering of all of the
outstanding shares of Preferred Stock to Common Stock; (ii) the issuance of the
shares of Common Stock offered by the Company hereby, and (iii) the application
of the estimated net proceeds to the Company from the Offering as described in
"Use of Proceeds." The following table does not reflect financing for the ten
new CRJs to be delivered in the 13-month period beginning in December 1997. Such
financing may or may not result in an increase in liabilities depending on the
financing methods ultimately chosen. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." This table should be read in conjunction with the Financial
Statements of the Company, the notes thereto and the other financial data
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease obligations......... $ 1,171 $ 1,171
--------- -----------
Long-term debt and capital lease obligations, less current portion...... 12,563 12,563

Stockholders' equity:
Senior Convertible Preferred Stock, par value $.01 per share;
liquidation preference of $4.02 per share; 12,000,000 shares
authorized, 3,728,693 shares issued and outstanding at September 30,
1997................................................................ 37 --
Common Stock, par value $.01 per share, 25,000,000 shares authorized;
2,130,682 shares issued and outstanding (actual), 8,209,375 shares
outstanding (as adjusted) at September 30, 1997(1).................. 21 82
Warrant to purchase 390,625 shares of Common Stock, par value $.01 per
share, exercisable at $.0015 per share.............................. -- --
Additional paid-in capital............................................ 7,687 40,688
Retained earnings (since quasi-reorganization on June 30, 1997)....... 1,723 1,723
--------- -----------
Total stockholders' equity........................................ 9,468 42,493
--------- -----------
Total capitalization............................................ $ 23,202 $ 56,227
--------- -----------
--------- -----------
</TABLE>

19
<PAGE>
DILUTION

The Company's net tangible book value as of September 30, 1997 was
$9,347,000, or $1.60 per share of Common Stock. Net tangible book value per
share represents the amount of total tangible assets, less total liabilities,
divided by the number of shares of Common Stock outstanding. After giving effect
to the sale of shares of Common Stock offered by the Company hereby and receipt
of the estimated net proceeds therefrom, the net tangible book value of the
Company as of September 30, 1997 would have been $42,372,000, or $5.16 per
share, representing an immediate increase in net tangible book value of $3.56
per share to existing stockholders and an immediate dilution of $10.34 per share
to new investors purchasing shares in the Offering. The following table
illustrates the resulting per share dilution with respect to the shares of
Common Stock offered hereby:

<TABLE>
<S> <C> <C>
Initial public offering price per share...................... $ 15.50
Net tangible book value per share as of September 30,
1997..................................................... $ 1.60
Increase per share attributable to the Offering(1)......... 3.56
---------
Net tangible book value per share after the Offering......... 5.16
---------
Dilution per share to new investors in the Offering(2)....... $ 10.34
---------
---------
</TABLE>

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

(1) After deduction of underwriting discounts and commissions and estimated
offering expenses.

(2) Dilution is determined by subtracting the net tangible book value per share
after completion of the Offering from the initial public offering price per
share of the Common Stock.

The following table summarizes the differences, on a pro forma basis as of
September 30, 1997, between the existing stockholders and the new investors with
respect to the number of shares purchased from the Company, the total
consideration paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders..................... 5,859,375 71.4% $ 23,572,000 39.3% $ 4.02
New Investors............................. 2,350,000 28.6 36,425,000 60.7 15.50
---------- ----- ------------- -----
Total................................... 8,209,375 100.0% $ 59,997,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>

The tables assume no exercise of any outstanding options or warrant to
purchase Common Stock, and therefore exclude (i) 1,005,245 additional shares of
Common Stock reserved for issuance in connection with stock options granted to
certain officers and employees of the Company with an exercise price of $4.02
per share, (ii) 557,255 shares of Common Stock reserved for issuance in
connection with stock options to be granted to certain officers and employees of
the Company with an exercise price at the initial public offering price of
$15.50 per share and (iii) a warrant to purchase 390,625 shares of Common Stock
issued to an investor with an exercise price of $.0015 per share. To the extent
such options or warrants are exercised, the potential dilution per share to new
investors will be $10.08. See "Management--Executive Compensation," "--Employee
Plans" and "Principal and Selling Stockholders."

20
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA AND GLOSSARY

SELECTED FINANCIAL AND OPERATING DATA

The following selected financial data are derived from the financial
statements of the Company. The balance sheet data as of December 31, 1994, 1995
and 1996 and the operating data for the five months ended December 31, 1994 and
the years ended December 31, 1995 and 1996 have been derived from audited
financial statements. The balance sheet data as of September 30, 1996 and 1997
and the operating data for the nine months ended September 30, 1996 and 1997 are
derived from unaudited financial statements. The unaudited financial statements
for the nine-month periods include all adjustments, consisting only of normal
recurring accruals, that, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations of the Company
for those periods. Operating results for the nine months ended September 30,
1997 are not necessarily indicative of the operating results that may be
expected for the entire year ending December 31, 1997. The data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED NINE MONTHS ENDED
ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------ ----------------------
1994 1995 1996 1996 1997
------------ -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)

<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Passenger....................................... $ 14,662 $118,568 $173,541 $130,444 $132,900
Other........................................... 1,213 4,034 6,493 4,829 5,239
------------ -------- -------- ---------- ----------
Total operating revenues...................... 15,875 122,602 180,034 135,273 138,139
Operating expenses:
Wages, salaries and related costs............... 3,659 19,874 24,619 18,156 18,597
Aircraft fuel................................... 3,514 16,782 27,300 20,836 16,145
Aircraft and engine rentals..................... 5,328 30,889 34,113 25,710 22,850
Commissions..................................... 1,205 9,382 13,728 10,232 10,321
Maintenance, materials and repairs.............. 1,383 13,551 17,930 13,937 12,401
Depreciation and amortization................... 334 2,056 1,346 955 1,379
Other operating expenses........................ 9,308 55,693 66,643 52,738 43,172
Restructuring(1)................................ 4,900 6,004 -- -- --
Impairment of long-lived assets(2).............. -- -- 16,941 16,941 --
Special recapitalization change(3).............. -- -- -- -- 1,225
------------ -------- -------- ---------- ----------
Total operating expenses...................... 29,631 154,231 202,620 159,505 126,090
------------ -------- -------- ---------- ----------
Operating income (loss)........................... (13,756) (31,629) (22,586) (24,232) 12,049
Interest income (expense)......................... (29) (413) (1,841) (1,221) 89
Other income (expense)............................ (29) (222) 163 127 (143)
------------ -------- -------- ---------- ----------
Income (loss) before income taxes and
extraordinary gain.............................. (13,814) (32,264) (24,264) (25,326) 11,995
Income tax expense................................ -- -- -- -- 5,015
------------ -------- -------- ---------- ----------
Income (loss) before extraordinary gain........... (13,814) (32,264) (24,264) (25,326) 6,980
Extraordinary gain(4)............................. -- -- -- -- 15,272
------------ -------- -------- ---------- ----------
Net income (loss)................................. (13,814) (32,264) (24,264) (25,326) 22,252
Preferred dividends............................... (600) (1,440) -- -- --
------------ -------- -------- ---------- ----------
Net income (loss) available for common
stockholders.................................... $(14,414) $(33,704) $(24,264) $ (25,326) $ 22,252
------------ -------- -------- ---------- ----------
------------ -------- -------- ---------- ----------
PER SHARE AMOUNTS(5):
Income per share before extraordinary gain........ $1.00
Net income per share.............................. 3.19
Weighted average number of common shares
outstanding..................................... 6,985,610
OTHER FINANCIAL DATA:
EBITDA(6)......................................... $ (8,450) $(23,485) $(3,525) $(5,750) $ 14,709
EBITDAR(6)........................................ (3,122) 7,404 30,588 19,960 37,559
Cash flows provided by (used in):
Operating activities............................ (14,323) (805) 5,784 (2,869) 4,961
Investing activities............................ (354) (6,876) (2,614) (2,355) (21,378)
Financing activities............................ 12,427 3,571 4,836 3,353 21,435
</TABLE>

(FOOTNOTES ON NEXT PAGE)

21
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------------------
1995 1996 1996 1997
--------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SELECTED OPERATING STATISTICS(7):
Available seat miles (000s)........................... 1,387,921 1,758,560 1,364,670 1,042,067
Revenue passenger miles (000s)........................ 692,681 998,959 761,236 652,955
Load factor........................................... 49.9% 56.8% 55.8% 62.7%
Break-even load factor(8)............................. 60.8% 59.2% 59.4% 56.4%
Revenue per available seat mile....................... 8.8 CENTS 10.2 CENTS 9.9 CENTS 13.3 CENTS
Yield................................................. 17.1 CENTS 17.4 CENTS 17.1 CENTS 20.4 CENTS
Average fare.......................................... $89 $99 $99 $109
Cost per available seat mile(9)....................... 10.7 CENTS 10.7 CENTS 10.5 CENTS 12.0 CENTS
Onboard passengers.................................... 1,338,438 1,742,957 1,324,068 1,223,838
Average seats per departure........................... 108 104 105 101
Average stage length (miles).......................... 532 571 572 531
Aircraft (average during period)...................... 11.0 13.7 13.9 13.0
Aircraft utilization (hours per day).................. 9.9 9.8 9.8 9.0
Fuel price per gallon................................. 69.0 CENTS 80.6 CENTS 80.6 CENTS 73.2 CENTS
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
------- -------- -------- -------- -------

<CAPTION>
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash and short-term investments........ $ 6,909 $ 2,799 $ 12,805 $ 2,789 $31,793
Working capital........................................................... (2,745) (39,790) (40,871) (34,951) 5,436
Equipment and property, net............................................... 1,861 9,258 6,669 6,205 12,459
Total assets.............................................................. 35,982 58,312 40,686 35,459 73,952
Long-term debt and capital lease obligations (net of current maturities).. 2,018 7,307 11,704 18,068 12,563
Stockholders' equity (deficit)............................................ 16,586 (17,058) (39,242) (43,423) 9,468
</TABLE>

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

(1) The Company recorded restructuring charges for the five months ended
December 31, 1994 of $4.9 million, related to the Company's decision to move
from Chicago to RDU and in 1995 of $6.0 million related to the return of
four A320 aircraft and other related one-time charges.

(3) The Company recorded a one-time charge of $1.2 million in 1997 related to
the Recapitalization.

(4) Extraordinary gain includes one-time gains recognized in connection with the
Recapitalization. See Note 15 to Audited Financial Statements for the Six
Months ended June 30, 1997.

(5) Since the Company was recapitalized in February 1997 and all prior capital
stock was cancelled at that time, per share amounts prior to 1997 are not
meaningful and thus are not presented.

(7) For definitions of the airline operating terms used in this table, see
"--Glossary."

22
<PAGE>
GLOSSARY

Certain of the terms included in this section and elsewhere in this
Prospectus have the meanings indicated below:

<TABLE>
<S> <C>
Aircraft (average during The average number of aircraft owned or leased during the
period) period.

Aircraft utilization The average number of block hours operated in scheduled
service per day per aircraft for the total fleet of
aircraft.

Available seat miles (ASMs) The number of seats available for scheduled passengers
multiplied by the number of miles those seats were flown.

Average fare The average fare paid by a revenue passenger.

Average seats per departure The average number of available seats per departing
aircraft.

Average stage length The average number of miles flown per flight.

Break-even load factor The load factor at which scheduled passenger revenues would
have been equal to operating plus non-operating
expenses/(income) (holding yield constant).

Cost per available seat mile Operating expenses plus non-operating expenses/(income)
(CASM) divided by ASMs.

Fuel price per gallon The average price per gallon of jet fuel for the fleet
(including fueling charges).

Load factor RPMs divided by ASMs.

Onboard passengers The number of revenue passengers carried.

Revenue passenger miles (RPMs) The number of miles flown by revenue passengers.

Revenue per available seat
mile (RASM) Total operating revenues divided by ASMs.

Yield The average scheduled passenger fare revenue for each mile a
scheduled revenue passenger is carried.
</TABLE>

23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company began commercial operations in November 1993, operating from its
base at Chicago's Midway Airport. Operations there were unprofitable, and
following American's announcement of its intention to reduce service from its
hub at RDU, Midway relocated its entire operations from Midway Airport to RDU in
March 1995. Midway entered into agreements with American to sublease certain of
American's gates and to participate in the AAdvantage-Registered Trademark-
program. At the time of the move, management expanded the fleet through the
addition of five Airbus A320s and four Fokker F-100s, to a total of five A320s
and 12 F-100s. A combination of factors, including inadequate capital resources,
increased fleet capacity, the lack of marketing presence and unusually bad
weather, resulted in significant losses during 1995 and 1996. Following
unsuccessful efforts to renegotiate lease terms, one of the Company's lessors
required the return of four A320s during the first four months of 1996. This
reduced the Company's fleet to its current level of 12 F-100s and one A320.

On February 11, 1997, the Company completed the Recapitalization, resulting
in a change in ownership and management. Robert R. Ferguson III was named
Chairman of the Board, President and Chief Executive Officer of the Company. The
Company believes that the Recapitalization resulted in reductions of
approximately $12 million in annual expenses, including (i) a decrease in
aircraft rent expense, (ii) a decrease in facility rentals, (iii) a decrease in
the cost of certain services and (iv) a reduction of interest on long-term debt.
In addition to the Recapitalization, the Company had previously discontinued
certain unprofitable long-haul routes. Since the Recapitalization, the Company
has experienced a significant improvement in operating performance and financial
condition. The Company believes that its improved results are attributable to
the benefits realized from the Recapitalization, route restructuring, improved
yield management, increased passenger demand and a generally strong economic
environment. See "The Company--The Recapitalization."

The Company's business plan is designed to result in premium yields. The
Company's operating strategy is focused on providing local business travelers
with consistently superior operational performance and high quality customer
service while continuing to reduce operating costs. The Company's growth
strategy involves increasing the frequency of flights to markets the Company
currently serves and increasing the number of markets served. To implement the
strategy, the Company recently reached agreement to acquire ten new CRJs, with
deliveries to occur in the 13-month period beginning in December 1997. The
Company believes its efforts to identify favorable markets and provide premium
non-stop service enable it to generate a high degree of loyalty among its
passengers and to attract a larger percentage of business travelers on its
flights than other carriers. Midway generally offers the same range of fares
that its competitors offer, with exceptions in particular markets where Midway
discounts certain categories of fares more than its competition to stimulate the
market or charges a premium where passengers are willing to pay slightly higher
fares because of the convenience of the Company's non-stop jet flights and its
superior service. The Company's revenues are a function of the Company's yield
(revenue per passenger mile), available seat miles and load factor (percent of
available seat miles utilized).

Because of its premium service, focus on business travelers, small aircraft
and shorter stage lengths, the Company's cost per available seat mile is higher
than the industry average. The Company recognizes the importance of a
competitive cost structure and expects to lower unit costs through growth and
the restructuring of various functions. In addition to the cost savings
resulting from the Recapitalization, the Company has recently (i) entered into
new maintenance contracts, (ii) reduced dependence on third-party vendors for
flight reservation call handling and (iii) reduced certain insurance costs. The
Company is also implementing an automated voice-response flight information
system and engaging a new, lower cost credit card processing vendor.

24
<PAGE>
Based on the current interest rate environment, the Company estimates that
its fixed charges will increase by approximately $14 million to $17 million per
year as a result of its acquisition or leveraged lease financing of the ten
CRJs. A 0.25% change in the applicable interest rate prior to the time such
permanent financing is in place would result in a change in such annual fixed
charges of approximately $300,000. Although the introduction of regional jet
aircraft will shorten average stage length, the Company believes it should
result in additional cost benefits, including greater economies of scale and
more efficient utilization of facilities and personnel.

SELECTED OPERATING DATA

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, PERCENT SEPTEMBER 30, PERCENT
---------------------------- CHANGE --------------------------- CHANGE
1995 1996 1995-1996 1996 1997 1996-1997
---------- ---------- ------- ---------- --------- -------
Available seat miles (000s)........... 1,387,921 1,758,560 26.7% 1,364,670 1,042,067 (23.6%)
Revenue passenger miles
(000s).............................. 692,681 998,959 44.2% 761,236 652,955 (14.2%)
Load factor........................... 49.9% 56.8% 13.8% 55.8% 62.7% 12.4%
Break-even load factor(1)............. 60.8% 59.2% (2.6%) 59.4% 56.4% (5.1%)
Total revenue per available seat
mile................................ 8.8 CENTS 10.2 CENTS 15.9% 9.9 CENTS 13.3 CENTS 34.3%
Yield................................. 17.1 CENTS 17.4 CENTS 1.8% 17.1 CENTS 20.4 CENTS 19.3%
Average fare.......................... $89 $99 11.2% $99 $109 10.1%
Cost per available seat mile(1)....... 10.7 CENTS 10.7 CENTS 0.0% 10.5 CENTS 12.0 CENTS 14.3%
Onboard passengers.................... 1,338,438 1,742,957 30.2% 1,324,068 1,223,838 (7.6%)
Average seats per departure........... 108 104 (3.7%) 105 101 (3.8%)
Average stage length.................. 532 571 7.3% 572 531 (7.2%)
Aircraft (average during
period)............................. 11.0 13.7 24.5% 13.9 13.0 (6.5%)
Aircraft utilization (hours per
day)................................ 9.9 9.8 (1.0%) 9.8 9.0 (8.2%)
Fuel price per gallon................. 69.0 CENTS 80.6 CENTS 16.8% 80.6 CENTS 73.2 CENTS (9.2%)
</TABLE>

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

(1) Excludes restructuring, impairment of long-lived assets and recapitalization
expenses.

RESULTS OF OPERATIONS

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

OPERATING REVENUES. The Company's operating revenues increased 2.1% to
$138.1 million for the nine months ended September 30, 1997 from $135.3 million
for the nine months ended September 30, 1996. The increase in revenues occurred
because of a combination of a 12.4% increase in load factor to 62.7% from 55.8%
and a 10.1% increase in average fare, mitigating a 23.6% decrease in available
seat miles ("ASMs").

ASMs decreased 23.6% due to (i) having on average 0.9 fewer aircraft during
the first nine months of 1997, (ii) the reduction of average seats per departure
to 101 from 105, (iii) the decrease in average stage length to 531 miles from
572, and (iv) an 8.2% decrease in aircraft utilization to 9.0 hours per day
compared to 9.8 hours per day as a result of the Company's discontinuance of
certain unprofitable long-haul routes.

Yield increased 19.3% to 20.4 cents from 17.1 cents due to the increase in
average fare and the 7.2% decrease in average stage length. Revenue per
available seat mile increased 34.3% to 13.3 cents from 9.9 cents due to the
increases in yield and load factor.

25
<PAGE>
OPERATING EXPENSES. The Company's operating expenses decreased 20.9% to
$126.1 million for the first nine months of 1997 from $159.5 million for the
first nine months of 1996 primarily because of the decrease in ASMs discussed
above. Total operating expense per ASM increased 3.5% to 12.1 cents from 11.7
cents. Excluding the one-time charges for the recognition of the impairment of
long-lived assets in 1996 discussed below and the Recapitalization in 1997,
operating expense per ASM increased 15.4% to 12.0 cents from 10.5 cents. Certain
substantial costs of the Company, such as landing and station related costs,
aircraft rentals, aircraft insurance, depreciation expense, and general and
administrative costs do not vary with production of ASMs. During the first nine
months of 1997, the Company produced fewer ASMs due to the factors cited above.
As the result of these factors, cost per ASM increased for the first nine months
of 1997.

During 1996, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS No. 121). In August 1994, Zell/Chilmark acquired
94% of the equity of Midway for $25 million. The Company subsequently adopted a
new business plan and, during 1995, added new routes and expanded its aircraft
fleet. Although losses were incurred in 1995, management believed no asset
impairment charges were considered necessary. In early 1996, the Company
obtained an additional $4 million investment from Zell/ Chilmark, which
management believed would provide the Company financial flexibility that would
permit the successful implementation of its business plan. However, by mid-1996,
management concluded that the Company's existing structure could not produce a
viable, long-term operation. In June and July 1996, the Company began to
formally seek a recapitalization or reorganization. Certain long-lived assets,
primarily intangible assets, were determined by Company management to be
impaired. The Company recorded an impairment loss of $16.9 million that
increased total cost per ASM by 1.2 cents for the first nine months of 1996.

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------
1996 1997
--------------------- ---------------------
PERCENT PERCENT
OF COST OF COST
OPERATING PER OPERATING PER
EXPENSES ASM EXPENSES ASM
------ ------ ------ ------
<S> <C> <C> <C> <C>
Wages, salaries and related costs........................... 11.4% 1.3 CENTS 14.7% 1.8 CENTS
Aircraft fuel............................................... 13.1 1.5 12.8 1.6
Aircraft and engine rentals................................. 16.1 1.9 18.1 2.2
Commissions................................................. 6.4 0.8 8.2 1.0
Maintenance, materials and repairs.......................... 8.7 1.0 9.8 1.2
Depreciation and amortization............................... 0.6 0.1 1.1 0.1
Other....................................................... 33.1 3.9 34.3 4.1
------ ------ ------ ------
Operating expenses before impairment of long-lived assets
and recapitalization expense............................ 89.4 10.5 99.0 12.0
------ ------ ------ ------
Impairment of long-lived assets............................. 10.6 1.2 0.0 0.0
Recapitalization............................................ 0.0 0.0 1.0 0.1
------ ------ ------ ------
Total operating expenses.............................. 100.0% 11.7 CENTS 100.0% 12.1 CENTS
------ ------ ------ ------
------ ------ ------ ------
</TABLE>

Wages, salaries and related costs increased 2.4% to $18.6 million for the
first nine months of 1997 from $18.2 million for the first nine months of 1996.
Wages, salaries and related costs per ASM increased 33.8% to 1.8 cents from 1.3
cents. This cost per ASM increase is attributable to the reductions in average
aircraft during the period, average seats per departure, average stage length
and aircraft utilization, the Company's decision not to furlough crews after
returning the four A320s in the first four months of 1996, and scheduled wage
increases for flight crews and hourly personnel.

Aircraft fuel expense decreased 22.5% to $16.1 million for the first nine
months of 1997 compared to $20.8 million for the first nine months of 1996.
Aircraft fuel expense per ASM increased 1.3% to 1.6 cents from 1.5 cents. The
increase in cost per ASM is attributable to the additional, relatively more fuel
efficient

26
<PAGE>
A320s in the fleet during the first four months of 1996 partially offset by a
9.2% decrease in the average fuel price per gallon to 73.2 cents from 80.6
cents.

Aircraft and engine rentals expense decreased 11.1% to $22.9 million for the
first nine months of 1997 from $25.7 million for the first nine months of 1996.
This decrease is attributable to (i) the additional A320 aircraft in the fleet
during the first four months of 1996 and (ii) the negotiated reduction of rent
on the 12 F-100 aircraft as part of the Recapitalization. Aircraft and engine
rentals expense per ASM increased 16.5% to 2.2 cents from 1.9 cents. This
increase in cost per ASM is attributable to the decreases in average stage
length, average seats per departure and daily aircraft utilization.

Commissions expense increased 0.9% to $10.3 million for the first nine
months of 1997 from $10.2 million for the first nine months of 1996. Commissions
expense per ASM increased 32.0% to 1.0 cents from 0.8 cents. The cost per ASM
increase is attributable to the 33.8% increase in revenue per available seat
mile to 13.3 cents from 9.9 cents, partially offset by the decrease of travel
agency revenue as a percent of passenger revenue to 69.9% from 72.5%.

Maintenance, materials and repairs expense decreased 11.0% to $12.4 million
for the first nine months of 1997 from $13.9 million for the first nine months
of 1996. This decrease is attributable to the smaller average fleet size, offset
in part by certain contractual maintenance rate increases. Maintenance,
materials and repairs expense per ASM increased 16.7% to 1.2 cents from 1.0
cents. This increase in cost per ASM is attributable to the decreases in average
stage length, average seats per departure and daily aircraft utilization.

Depreciation and amortization expense increased 44.4% to $1.4 million for
the first nine months of 1997 from $1.0 million for the first nine months of
1996. Depreciation and amortization expense per ASM increased 85.7% to 0.13
cents from 0.07 cents, as the result of the addition of fixed assets in 1996 and
the first nine months of 1997.

Other operating expense decreased 18.1% to $43.2 million for the first nine
months of 1997 from $52.7 million for the first nine months of 1996. Other
operating expenses consist primarily of landing fees and rentals, reservations,
ground handling, advertising, general and administrative and insurance. The
decrease in expense is attributable to the decrease in departures and
passengers, as well as a reduction in insurance rates. Other operating expense
per ASM increased 7.0% to 4.1 cents from 3.9 cents. This increase in cost per
ASM resulted primarily from the decrease in average stage length.

In February 1997, the Company was recapitalized. A one-time charge of $1.2
million was recorded for expenses related to the Recapitalization that increased
cost per ASM by 0.17 cents for the first nine months of 1997. See "The
Company--The Recapitalization." A one-time extraordinary gain of $15.3 million
was recorded primarily as the result of forgiveness of debt and related
interest. See Note 15 to the Audited Financial Statements--Six months ended June
30, 1997.

Income tax expense has been recorded for the first nine months of 1997 at an
effective tax rate of 41.8% of income before extraordinary gain.

As of December 31, 1996, the Company had net operating loss carryforwards
("NOLs") of approximately $51.4 million. The NOLs may be limited or eliminated
as a result of the Recapitalization.

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

OPERATING REVENUES. The Company's operating revenues increased 46.8% to
$180.0 million for the year ended December 31, 1996 from $122.6 million for the
year ended December 31, 1995. The increase is attributable to a 26.7% increase
in ASMs, a 13.8% increase in load factor to 56.8% from 49.9% and an 11.2%
increase in average fare. ASMs increased 26.7% due to having on average 2.7 more
aircraft and a 7.3% increase in average stage length to 571 miles from 532 miles
during the year ended December 31, 1996 mitigated slightly by the decrease in
average seats per departure to 104 from 108. Load factor

27
<PAGE>
increased 13.8% primarily due to the 30.2% increase in onboard passengers
partially offset by the increase in ASMs.

OPERATING EXPENSES. The Company's operating expenses increased 31.4% to
$202.6 million for the year ended December 31, 1996 from $154.2 million for the
year ended December 31, 1995. Total operating expense per ASM increased 3.6% to
11.6 cents from 11.1 cents. Excluding the one-time charges for the recognition
of the impairment of long-lived assets in 1996 in accordance with SFAS No. 121
and the 1995 restructuring, discussed below, operating expense per ASM decreased
1.2% to 10.6 cents from 10.7 cents. This decrease is attributable to (i) a 7.3%
increase in stage length to 571 miles from 532 miles and (ii) a 3.7% decrease in
average seats per departure to 104 from 108 as a result of having fewer 148-seat
A320 aircraft in the fleet.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1995 1996
------------------------ ------------------------
PERCENT OF PERCENT OF
OPERATING COST PER OPERATING COST PER
EXPENSES ASM EXPENSES ASM
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Wages, salaries and related costs........................... 12.9% 1.4 CENTS 12.2% 1.4 CENTS
Aircraft fuel............................................... 10.9 1.2 13.5 1.6
Aircraft and engine rentals................................. 20.0 2.2 16.8 1.9
Commissions................................................. 6.1 0.7 6.8 0.8
Maintenance, materials and repairs.......................... 8.8 1.0 8.8 1.0
Depreciation and amortization............................... 1.3 0.2 0.7 0.1
Other....................................................... 36.1 4.0 32.9 3.8
----- ----- ----- -----
Operating expenses before impairment of long-lived assets
and recapitalization expense............................ 96.1 10.7 91.7 10.6
----- ----- ----- -----
Impairment of long-lived assets............................. 0.0 0.0 8.3 1.0
Restructuring............................................... 3.9 0.4 0.0 0.0
----- ----- ----- -----
Total operating expenses.............................. 100.0% 11.1 CENTS 100.0% 11.6 CENTS
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

Wages, salaries and related costs increased 23.9% to $24.6 million for the
year ended December 31, 1996 from $19.9 million for the year ended December 31,
1995. The expense increase is attributable to increased staffing associated with
the addition of new routes, annual increases for line personnel and general
hiring to fill specific needs within the Company throughout 1996. Wages,
salaries and related costs expense per ASM remained unchanged at 1.4 cents.

Aircraft fuel expense increased 62.7% to $27.3 million for the year ended
December 31, 1996 from $16.8 million for the year ended December 31, 1995.
Aircraft fuel expense per ASM increased 28.1% to 1.6 cents from 1.2 cents
because of a 16.8% increase in the average fuel price per gallon to 80.6 cents
from 69.0 cents and the smaller number of relatively more fuel efficient A320s
in the fleet during the year ended December 31, 1995.

Aircraft and engine rentals expense increased 10.4% to $34.1 million for the
year ended December 31, 1996 from $30.9 million for the year ended December 31,
1995. The increase in expense is attributable to the increase of average
aircraft for the year ended December 31, 1996 to 13.7 from 11.0 and the lower
lease rates associated with the early months of the induction of the F-100s
during the year ended December 31, 1995. Aircraft and engine rentals expense per
ASM decreased 13.0% to 1.9 cents from 2.2 cents. The decrease in cost per ASM
resulted from the increase in average stage length to 571 miles from 532 miles.

Commissions expense increased 46.3% to $13.7 million for the year ended
December 31, 1996 from $9.4 million for the year ended December 31, 1995.
Commissions expense per ASM increased 14.7% to 0.8 cents from 0.7 cents. The
increase in cost per ASM is attributable to the increase of travel agency
revenue

28
<PAGE>
as a percent of passenger revenue to 71.4% from 70.4% and the 16.0% increase of
revenue per available seat mile to 10.2 cents from 8.8 cents.

Maintenance, materials and repairs expense increased 32.3% to $17.9 million
for the year ended December 31, 1996 from $13.6 million in the year ended
December 31, 1995. The expense increase is attributable to the 24.5% increase of
average aircraft during the period to 13.7 from 11.0 and certain contractual
maintenance rate increases. Maintenance, materials and repairs expense per ASM
remained unchanged at 1.0 cents.

Depreciation and amortization expense decreased 34.5% to $1.3 million for
the year ended December 31, 1996 from $2.1 million for the year ended December
31, 1995. Depreciation and amortization expense per ASM decreased 46.7% to 0.1
cents from 0.2 cents in the year ended December 31, 1995. The Company was
amortizing goodwill, slot costs and deferred debt costs in 1995 at a rate of
$0.7 million per year, all of which were written off during 1996 as impaired
assets under SFAS 121. Without the SFAS 121 adjustment, depreciation and
amortization expense in 1996 would have remained substantially unchanged at $2.0
million, including $0.7 million of such amortization charges.

Other operating expense increased 19.7% to $66.6 million for the year ended
December 31, 1996 from $55.7 million for the year ended December 31, 1995. Other
operating expenses consist primarily of landing fees and rentals, reservations,
ground handling, advertising, general and administrative and insurance. The
increase in expense is attributable to the increase in departures and
passengers, as well as expenses related to unusually bad weather in the winter
of 1996 and Hurricane Fran in September 1996. Other operating expense per ASM
decreased 5.5% to 3.8 cents from 4.0 cents. The decrease in cost per ASM is the
result of the increase in average stage length to 571 miles from 532 miles.

In accordance with SFAS No. 121, the Company recorded an impairment loss of
$16.9 million that increased cost per ASM by 1.0 cents during 1996.

For the year ended December 31, 1995, the Company incurred a restructuring
expense of $6.0 million related to the return of the four A320 aircraft and
other one-time costs that increased cost per ASM by 0.4 cents for the year ended
December 31, 1995.

SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS

As is common in its industry, the Company experiences seasonal factors
during certain periods of the year that have combined in the past to reduce the
Company's traffic, profitability and cash generation as compared to the
remainder of the year. The highest levels of traffic and revenue are generally
realized in the second quarter and the lowest levels of traffic and revenue are
generally realized in the third quarter. Given the Company's high fixed costs,
such seasonality affects the Company's profitability from quarter to quarter.
Specifically, the Company experiences the lowest demand for its services in
September. In

29
<PAGE>
addition, many of the Company's areas of operations experience adverse weather
during the winter, causing a greater percentage of the Company's flights to be
canceled and/or delayed than in other quarters.
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues........................... $49,441 $45,933 $39,899 $44,761
Operating income (loss) (1).................. (6,719 ) 1,945 (2,517) 1,646
Income (loss) before extraordinary gain...... (7,226 ) (15,608) (2,492) 1,062
Net income (loss)............................ (7,226 ) (15,608) (2,492) 1,062
ASMs (000s).................................. 566,384 405,335 392,951 393,890
RPMs (000s).................................. 316,841 230,950 213,445 237,723
Load factor.................................. 55.9% 57.0% 54.3% 60.4%
Break-even load factor (1)................... 64.4% 55.3% 57.8% 58.9%
Yield........................................ 15.0 CENTS 19.3 CENTS 18.0 CENTS 18.1CENTS
RASM......................................... 8.7 CENTS 11.3 CENTS 10.2 CENTS 11.4CENTS
CASM (1)..................................... 10.0 CENTS 11.0 CENTS 10.8 CENTS 11.1CENTS
Aircraft (average during
period).................................... 16.0 13.3 13.0 13.0

<CAPTION>
1997
---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30
--------- --------- ---------

<S> <C> <C> <C> <C>
Operating revenues........................... $47,843 $47,237 $43,059
Operating income (loss) (1).................. 3,871 6,540 2,863
Income (loss) before extraordinary gain...... 1,342 3,916 1,723
Net income (loss)............................ 16,614 3,916 1,723
ASMs (000s).................................. 366,944 343,933 331,190
RPMs (000s).................................. 221,157 219,355 212,443
Load factor.................................. 60.3% 63.8% 64.1%
Break-even load factor (1)................... 55.2% 54.8% 59.7%
Yield........................................ 20.8 CENTS 20.8 CENTS 19.4 CENTS
RASM......................................... 13.0 CENTS 13.7 CENTS 13.0 CENTS
CASM (1)..................................... 12.0 CENTS 11.8 CENTS 12.1 CENTS
Aircraft (average during
period).................................... 13.0 13.0 13.0
</TABLE>

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

(1) Excludes impairment of long-lived assets and recapitalization expenses.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

As a result of the Recapitalization, the Company's financial position
improved significantly from December 31, 1996 to September 30, 1997. See "The
Company--The Recapitalization." As of September 30, 1997, the Company had cash,
cash equivalents, restricted cash and short term investments of $31.8 million
and working capital of $5.4 million, compared to cash, cash equivalents,
restricted cash and short term investments of $12.8 million and a working
capital deficit of $40.9 million as of December 31, 1996. During the nine months
ended September 30, 1997, cash, cash equivalents, restricted cash and short-term
investments increased $19.0 million, reflecting net cash provided by operating
activities of $5.0 million, net cash used in investing activities of $8.4
million (excluding purchases and sales of short-term investments) and net cash
provided by financing activities of $21.4 million. During 1996, cash, cash
equivalents, restricted cash and short-term investments increased $8.0 million,
reflecting net cash provided by operations of $5.8 million, net cash used by
investing activities of $2.6 million and net cash provided by financing
activities of $4.8 million.

CASH FLOWS FROM OPERATIONS. Net cash provided by operating activities
increased $7.9 million to $5.0 million for the first nine months of 1997 from
negative $2.9 million for the first nine months of 1996. This increase is due
primarily to net income in 1997 as compared to a net loss in 1996. The 1997 net
income of $22.3 million was offset by a $15.3 million non-cash extraordinary
gain, combined with a $13.2 million increase in operating assets and an $8.6
million increase in operating liabilities, which required a net use of cash of
$4.6 million. The 1996 net loss of $25.3 million was primarily offset by a non-
cash impairment charge of $16.9 million and deferral of expense payments of $6.1
million, combined with a $0.3 million decrease in operating assets and $1.8
million decrease in operating liabilities, which required a net use of cash of
$1.5 million.

Net cash provided by operating activities increased $6.6 million to $5.8
million for the year ended 1996 from negative $.8 million in 1995. This increase
was due to a smaller net loss in 1996, offset by non-cash items including a
$16.9 million impairment charge and deferral of expense payments of $8.8
million, combined with a $5.6 million decrease in operating assets and $2.6
million decrease in operating liabilities,

30
<PAGE>
which provided a net cash source of $3.0 million. The 1995 net loss of $32.3
million was offset by non-cash deferred income of $5.8 million, combined with an
$18.8 million increase in operating assets and $42.4 million increase in
operating liabilities, which provided a net cash source of $23.6 million.

CASH FLOWS FROM INVESTING. Net cash used in investing activities increased
$19.0 million to $21.4 million for the first nine months of 1997 from $2.4
million for the first nine months of 1996. In the first nine months of 1997, net
purchases and sales of investments accounted for $12.9 million compared to no
investments in the same period in 1996. Capital expenditures were $7.1 million
as compared to $1.4 million. In 1997, the Company began purchasing its own
rotable parts in conjunction with certain aircraft exiting a maintenance
contract with American. Aircraft purchase deposits were $1.4 million compared to
$.9 million.

Net cash used in investing activities decreased $4.3 million to $2.6 million
in 1996 from $6.9 million in 1995. Capital expenditures were $1.7 million in
1996, compared to $6.9 million in 1995. The balance of cash used in investing
activities in 1996 was for aircraft purchase deposits.

CASH FLOWS FROM FINANCING. Net cash provided by financing activities
increased $18.0 million to $21.4 million for the first nine months of 1997 from
$3.4 million for the first nine months of 1996. In the first nine months of
1997, $22.0 million of cash was received for stock issued in the
Recapitalization, compared to no new stock issuances in the same period in 1996.
No long-term debt was issued in the 1997 period, compared to cash received from
issuing debt in the 1996 period of $5.8 million, comprised of $4.0 million in
subordinated debt from the stockholders and $1.8 million from a vendor.

Net cash provided by financing activities increased $1.2 million in 1996 to
$4.8 million from $3.6 million in 1995. The Company received $4.0 million in
cash from the issuance of subordinated debt in 1996, as well as receiving $4.8
from vendors. In 1995, $6.0 million of debt was issued to certain stockholders.
Repayment of debt in 1996 was $4.0 million compared to $2.4 million in 1995.

The Company had cash and cash equivalents of $2.8 million as of December 31,
1995, compared to $6.9 million as of December 31, 1994. The Company's working
capital deficit as of December 31, 1995 was $39.8 million, compared to $2.7
million as of December 31, 1994. During 1995, cash and cash equivalents
decreased $4.1 million, reflecting net cash used in operating activities of $0.8
million, net cash used in investing activities of $6.9 million and net cash
provided by financing activities of $3.6 million.

The Company has an agreement to purchase four newly manufactured Airbus
A320-200 aircraft currently scheduled to begin delivery in December 2005 and
ending in December 2006. The Company is not required to make progress payments
in amounts to be determined beginning in 2003. As Midway's current strategy does
not anticipate the use of this type of aircraft, Midway must either restructure
or sell its rights under this purchase agreement or accept delivery of the four
A320 aircraft. There can be no assurance that Midway will be able to restructure
or sell its rights under this purchase agreement.

CAPITAL RESOURCES

Since the February 1997 Recapitalization, the Company has been able to
generate sufficient funds from operations to meet its working capital
requirements and does not currently have any lines of credit. The Company
believes that, taking into account the proceeds of this Offering, the working
capital available to the Company is sufficient for its present requirements and
will be sufficient to meet its anticipated requirements for capital expenditures
and other cash requirements for the foreseeable future.

CAPITAL EXPENDITURES

The Company's net cash outflows for capital expenditures in 1995, 1996 and
the first nine months of 1997 were $6.9 million, $1.7 million and $7.1 million,
respectively.

31
<PAGE>
The Company recently agreed to acquire a $3.0 million spare engine for its
F-100 fleet, which will be purchase-financed over seven years. Midway plans to
fund the acquisition of $6 million of F-100 rotable parts through
internally-generated funds.

The Company expects to arrange in the fourth quarter of 1997 or the first
quarter of 1998 a combination of third party debt and leveraged lease financing
for the ten CRJs that are being delivered from December 1997 through December
1998. For each aircraft that is purchased (as opposed to leased), the Company
anticipates an initial cash outlay of approximately $5 million. Midway also
expects to arrange financing for two spare CRJ engines the Company has agreed to
acquire. The Company expects to spend less than $1 million on CRJ rotable and
expendable parts during 1998.

Midway has arranged standby lease financing for all ten aircraft on
reasonably acceptable terms. The terms of such financing would include a 16 year
term, semi-annual payments, a manufacturer-guaranteed residual value at the end
of the term and a cash security deposit payment by the Company. The Company
intends to use this financing in the event that it cannot arrange more
attractive financing from third party sources.

The Company's fixed costs will increase significantly with the induction of
the CRJs. Based on the current interest rate environment, the Company estimates
that its fixed charges will increase by approximately $14 million to $17 million
per year as a result of its acquisition or leveraged lease financing of the ten
CRJs. However, depending upon the financing method ultimately chosen, the
Company's balance sheet liabilities may or may not increase. See "Risk
Factors--Future Leverage."

OTHER FINANCING

The Company has significant lease obligations for aircraft that are
classified as operating leases and therefore not reflected as liabilities on the
Company's balance sheet. The remaining terms of such leases range from
approximately one year to sixteen years. The Company's total rent expense in
1996 under all non-cancelable aircraft operating leases was approximately $33.5
million.

The Company's sublease of gate and operations facilities at RDU extends
through 2013 with annual lease and maintenance expense of approximately $2.0
million.

32
<PAGE>
BUSINESS

On February 11, 1997, the Company completed the Recapitalization, resulting
in a change in ownership and management. Robert R. Ferguson III, former chief
executive officer of Continental Airlines, Inc., was named Chairman of the
Board, President and Chief Executive Officer of the Company. The Company
believes that the Recapitalization resulted in an approximate $12 million
reduction in annual expenses, including (i) a decrease in aircraft rent expense,
(ii) a decrease in facility rentals, (iii) a decrease in the cost of certain
services and (iv) a reduction of interest on long-term debt. In addition to the
Recapitalization, the Company had previously discontinued certain unprofitable
long-haul routes. Since the Recapitalization, the Company has experienced a
significant improvement in operating performance and financial condition. The
Company believes that its improved results are attributable to the benefits
realized from the Recapitalization, route restructuring, improved yield
management, increased passenger demand and a generally strong economic
environment. See "The Company--The Recapitalization."

OPERATING STRATEGY

The principal elements of the Company's operating strategy are:

33
<PAGE>
- ATTRACT HIGH-YIELDING LOCAL BUSINESS TRAVELERS. Based on available 1997
data, the Company's yields are 50% to 100% higher than the yields of most
other jet operators. To attract high-yielding passengers, the Company has
designed its operations to serve the needs of business travelers flying to
and from Raleigh-Durham. The Company has developed strong relationships
with major corporations located in the Raleigh-Durham area, and offers
these business travelers frequent non-stop jet service, as well as an
attractive, high quality in-flight product and
AAdvantage-Registered Trademark- frequent flyer miles. The Company
believes this focus on the needs of business travelers has produced a
loyal customer base and a higher percentage of business travelers than
other carriers. See "Selected Financial and Operating Data and
Glossary--Glossary" for the definition of "yield."

- MAINTAIN HIGH QUALITY OPERATIONS. Because the Company's business customers
require consistent, dependable performance, Midway is committed to meeting
the highest operational standards. Through October 1997, the Company's
year-to-date completion factor (percent of scheduled flights actually
operated) and on-time performance rate (flights arriving within 15 minutes
of schedule) of 99.5% and 83.4%, respectively, are substantially higher
than those of all of the major carriers. The Company has achieved these
performance measures (i) by operating the youngest all jet fleet in the
United States, with an average age of 3.5 years, (ii) by maintaining a
spare aircraft to ensure a high completion factor and (iii) through its
commitment to high quality maintenance, including the use of vendors such
as American, affiliates of Rolls-Royce plc ("Rolls-Royce") and a
subsidiary of Canadian Airlines Corporation.

GROWTH STRATEGY

The principal elements of the Company's growth strategy are:

34
<PAGE>
should enable the Company to increase frequency and offer more convenient
scheduling to current markets, without necessarily increasing overall
capacity in these markets.

RALEIGH-DURHAM MARKET

The Company believes that it is well positioned to benefit from the rapidly
expanding Raleigh-Durham area. Raleigh-Durham's metropolitan population is
approximately 1.1 million. The area is home to three major universities, the
state capital and Research Triangle Park, a 6,850-acre business center with more
than 130 high technology and other research oriented companies, employing over
37,000 people. In 1996, the median household effective buying income in the
Raleigh-Durham metropolitan area was 8.4% higher than the national average. In
the first six months of 1997, the unemployment rate was 2.3%, compared with 5.2%
nationwide, the fourth lowest among standard metropolitan statistical areas in
the nation.

The Company currently carries more passengers and operates more flights at
RDU than any other airline. Air travel at RDU has grown by an average of 8% per
year from 1991 to 1996, compared to 4% for the United States as a whole.
Although ten other jet airline carriers currently serve RDU, these carriers
(other than US Airways, Inc. to New York's LaGuardia Airport and Washington,
D.C.'s National Airport) provide non-stop flights only between RDU and their
respective hubs. The Company believes that the area's growing business community
offers opportunities for expansion at RDU with regional jets. RDU offers modern
facilities with room for the Company to grow. The Company subleases or has
options to sublease 18 of the 26 gates at the newer of RDU's two terminals,
Terminal C, and is currently in negotiations to sublease two additional gates.
Substantially all of the gates at RDU's other terminal are currently occupied.

SERVICES

ROUTES AND SCHEDULE

The Company currently provides non-stop service from RDU to the following 13
cities: Atlanta, Georgia; Boston, Massachusetts; Cancun, Mexico; Ft. Lauderdale,
Florida; Hartford, Connecticut/Springfield, Massachusetts; Newark, New Jersey;
New York, New York; Orlando, Florida; Philadelphia, Pennsylvania;
Stewart/Newburgh, New York; Tampa, Florida; Washington, D.C.; and West Palm
Beach, Florida. The Company believes that business travelers select an airline
primarily based on convenience of schedule, with a strong preference for
frequent, non-stop service. Midway believes that three flights per day is the
minimum service pattern necessary to successfully serve its core business
customers, and therefore currently offers between three and five flights per day
in all but two of its markets. The introduction of the CRJs will allow the
Company to increase frequency in several markets without necessarily increasing
overall capacity in these markets.

HIGH QUALITY CUSTOMER SERVICE

The Company has consistently promoted, and been recognized by its customers
for, quality customer service that distinguishes Midway from other airlines.
Midway believes it has attained its superior level of

35
<PAGE>
customer service through the efforts of its professional and personable
employees and the provision of amenities such as greater leg room, leather
seating (on all aircraft except the Company's single A320), gourmet coffee,
quality snacks and a quiet, modern all jet fleet. Although the Company is not
required to report on-time statistics and baggage delivery performance, it
consistently ranks high relative to the nation's ten largest airlines which do
report these statistics to the DOT. For example, for the 12 months ended June
30, 1997, using DOT statistics and statistics compiled from its own reports,
Midway's on-time performance and baggage delivery performance exceeded that of
all major carriers.

CORPORATE EXPRESS CODE SHARE AGREEMENT

Midway has entered into a Memorandum of Understanding (the "MOU") with
Corporate Flight Management, Inc., d/b/a Corporate Express Airlines ("Corporate
Express"), which contemplates the creation of a code share agreement between
Midway and Corporate Express. The MOU sets forth the principal terms and
conditions that will be contained in such an agreement, including a 10-year
duration, the markets to be served, Midway's control of all pricing, scheduling
and yield management of all code share flights and the distribution of profits
and losses generated by the services provided under the contemplated agreement.
The terms of the MOU provide an incentive for Corporate Express to enter into
new markets, including markets that might not be profitable for it under a
traditional code share agreement. Through its relationship with Corporate
Express, the Company seeks to provide service to communities where there is the
opportunity to complement Midway's service by giving passengers on short-haul,
low density routes to RDU the ability to conveniently connect to Midway flights
without switching carrier systems. Under the MOU, Corporate Express currently
provides service to Baltimore, Maryland; Norfolk, Virginia; Charleston and
Myrtle Beach, South Carolina; Nashville, Tennessee; Savannah, Georgia;
Wilmington, North Carolina; Columbus, Ohio; and Jacksonville, Florida. Service
to Columbus, Ohio, and Jacksonville, Florida, however, will be discontinued
beginning January 5, 1998. The Company does not believe that the MOU or the
contemplated code share agreement will have a material effect on the Company's
results of operations.

FLEET

Midway operates a fleet of 12 Fokker F-100 and one Airbus A320 aircraft,
with an average age of 3.5 years. The F-100 aircraft are configured with eight
first class seats and 90 coach seats, while the A320 is configured with ten
first class seats and 138 coach seats. All of the aircraft meet Stage 3 noise
requirements imposed by federal law. With the delivery of the ten new CRJs, the
average age of Midway's fleet is expected to decrease to 2.8 years at December
1998. The Company believes that its young all jet fleet gives it a significant
advantage in attracting and retaining business travelers, and improves its
reliability statistics. Midway is seeking to terminate the lease of the A320
prior to its scheduled June 1999 expiration, and has begun negotiations in that
regard.

The Company recently executed an aircraft purchase agreement with
Bombardier, Inc. for the acquisition of ten newly manufactured CRJ-200ER
Canadair Regional Jet aircraft. These new aircraft are scheduled for delivery
beginning December 1997 and continuing through December 1998. The purchase
agreement also provides Midway with options to acquire up to 20 additional
CRJ-200ER aircraft over a two year period with delivery dates beginning in 1999.
Pursuant to an agreement with GE Aircraft Engines, a division of General
Electric International, Inc., the Company has agreed to purchase two CF34-381
spare engines to support the operation of the ten CRJ-200ER aircraft. This
agreement also provides for the purchase of an additional spare engine for each
five CRJ-200ER aircraft that Midway acquires.

Following the delivery of the CRJs, the mix of Midway's fleet between
98-seat F-100s and 50-seat CRJs should allow the Company to meet expected
passenger volumes while maintaining a competitive cost structure, and should
enhance the Company's ability to more efficiently match its aircraft to its
route network requirements. The relative uniformity of the fleet should also
minimize training and maintenance costs. The terms of the Company's F-100 leases
also provide the Company with significant fleet flexibility.

36
<PAGE>
The Company's 12 F-100 leases expire in groups of four during the following date
ranges: October 1998-May 1999, October 2003-January 2004, and January 2013. Each
F-100 lessor has the right to terminate its lease on six months' prior notice
beginning September 15, 1998, provided that no lease can be terminated if it
would result in a fourth termination of any F-100 lease in any 12-month period,
including scheduled terminations. This staggered schedule of lease expirations
combined with the Company's options to acquire up to 20 additional CRJs will
give the Company the ability to continue to evaluate and change the size and
composition of its fleet over time as necessary to take advantage of changing
market conditions. See "Risk Factors--Limited Number of Aircraft."

Pursuant to a March 1995 purchase agreement, Midway is obligated to purchase
four Airbus A320 aircraft with deliveries in 2005 and 2006. The Airbus purchase
agreement also gives Midway an option to purchase up to four additional Airbus
A320 or A319 aircraft with delivery dates in 2007. To support the operation of
the four A320 aircraft, the Company also agreed to purchase one IAE V2527-A5
spare engine scheduled for delivery in November 2005 from International Aero
Engines AG ("IAE"). The IAE engine purchase agreement gives Midway an option to
purchase one additional spare engine for delivery in November 2006. The purchase
of the A320s and the associated spare engine do not fit with the Company's
current strategy. The Company is looking at several alternatives with respect to
the A320s, including restructuring its agreement with Airbus or selling its
position. See "Risk Factors--Aircraft Purchase Obligation."

MAINTENANCE AND SUPPORT

The Company is dedicated to providing the highest level of maintenance
quality and reliability. The Company's emphasis on high quality maintenance is
evidenced by its experienced maintenance management (an average of more than 20
years' experience), extensive and recurrent mechanic training and selection of
high quality maintenance providers. The Company performs all low level checks
(below "C" Check) and non-routine maintenance at RDU or at its maintenance
facility in Orlando, Florida. Major inspections and overhauls of the airframes
and engines are conducted by contract vendors whose work and procedures are
closely monitored by Midway maintenance management personnel. The contract
vendors currently engaged by the Company to perform major inspections of the
airframe and to perform engine overhauls include American, Rolls-Royce and a
subsidiary of Canadian Airlines Corporation.

The Company operates 12 aircraft manufactured by Fokker. Fokker entered into
insolvency proceedings in March 1996. As a result, the Fokker F-100 aircraft is
no longer manufactured. The Company has entered into an agreement with Fokker
Services, Inc., a subsidiary of Stork N.V., a major Dutch manufacturing company,
to obtain spare parts and engineering support for the operation of its F-100
aircraft. The Company currently contracts with a subsidiary of Canadian Airlines
Corporation to perform C-checks on its F-100 aircraft. The Company has also
entered into agreements with Rolls-Royce to perform engine maintenance on all of
its F-100 aircraft engines through May 1999 for aircraft with lease termination
dates between October 1998 and May 1999 and through September 2002 for the
remainder of its F-100 fleet. Although there can be no assurance, the Company
believes that spare parts, engineering support and maintenance service for the
F-100 aircraft will continue to be available throughout the terms of the leases
covering the aircraft. See "Risk Factors--Maintenance of Discontinued Aircraft."

SALES AND MARKETING

PRICING AND YIELD MANAGEMENT

The Company's strategy is designed to result in premium yields. The Company
believes its efforts to identify favorable markets and provide premium non-stop
service enables it to generate a high degree of loyalty among its passengers and
to attract a large percentage of business travelers on its flights. Pursuant to
an agreement with American, the Company began implementing a version of
American's yield management system in 1996, and it became fully operational in
February 1997. The system is one of the

37
<PAGE>
most advanced yield management systems worldwide, and has enabled Midway to
significantly enhance its ability to maximize revenues. Midway's license to use
the system and to obtain system related services from American personnel
currently extends through August 2001, and may be extended thereafter at market
terms or may be perpetually licensed by Midway for a fixed price. See "Risk
Factors--Agreements with American Airlines."

DISTRIBUTION

Midway sells approximately 75% of its tickets through travel agents, a level
which the Company believes is comparable to the percentage of travel agency
sales made by many other airlines. Travel agents generally receive a commission
from airlines based on the price of the tickets they sell. In 1995, many
airlines began limiting the amount of commissions they would pay to agents for
certain higher priced tickets and since September 1997, several major carriers
have lowered the base commission rate from 10% to 8%. To date, due to the
importance of the business passenger to Midway and the high utilization of
travel agents by business travelers, the Company has determined not to limit or
lower travel agent commissions.

Midway also pays additional commissions, referred to as "overrides", to
selected travel agencies in connection with special revenue programs. The
Company believes these override programs result in incremental revenue to the
Company. Midway also offers these travel agencies significant opportunities to
participate in the development of specific corporate strategies and procedures,
through their attendance at quarterly forums with the Company's most senior
executives, including its President and Chief Executive Officer. Special
services developed through these or other programs include Midway's full time
staffing of the "Carolina Desk" within its sales department to answer questions
or otherwise attend to the needs of these important customers. The Company
believes that the combination of higher available commissions, the development
of relationships between these travel agents and senior management and the
devotion of resources to meet the needs of these agencies has resulted in strong
support of Midway by travel agencies.

CORPORATE RELATIONSHIPS

The Company believes that it receives a substantial share of travel from the
local Raleigh-Durham business community on the routes that it serves. The
Company believes that this success is in part a result of its significant
efforts to meet the demands of its core business customers, its established
relationships with many local, national and international corporations in the
Raleigh-Durham area and the support it receives as the "hometown" airline.
Discounts are offered to a limited number of corporations in exchange for a
premium share of their travel. Employees of some of these corporations may also
be offered discounts for leisure weekend travel on flights that would otherwise
operate with empty seats. This program, called "Midway Weekend Madness", has
helped build loyalty in the Raleigh-Durham market and is an important incentive
for corporations to do more business with Midway. Midway sales agents visit
customers on a regular basis to solicit their input and to answer questions.
Each sales manager is supported by a help desk staffed full time by employees
trained to meet these customers' needs. The Company's President and Chief
Executive Officer calls upon these important customers to ensure that Midway
understands and responds to their travel requirements.

AMERICAN RELATIONSHIP

38
<PAGE>
"Risk Factors--Agreements with American Airlines," "--Pricing and Yield
Management," "--Frequent Flyer Program" and "--Facilities."

FREQUENT FLYER PROGRAM

Midway has been a partner in American's AAdvantage-Registered Trademark-
frequent flyer program since March 1995. Upon its arrival at RDU, Midway's
participation in this program quickly facilitated its access to a large and
loyal group of AAdvantage-Registered Trademark- members in the Raleigh-Durham
area and along the East Coast. For payment of a per-mile fee, the Company is
able to offer its passengers the ability to obtain award mileage on every
current flight, and AAdvantage-Registered Trademark- award certificates can be
redeemed for travel on Midway. Midway's contract with American, which extends
through April 30, 2001, gives the Company the ability to offer
AAdvantage-Registered Trademark- miles on several additional routes, though the
Company may add new routes in the near future without having the ability to
offer AAdvantage-Registered Trademark- miles. The ability to offer
AAdvantage-Registered Trademark- miles on additional routes and the extension of
the term of the agreement are the subjects of ongoing discussions between the
Company and American. The Company believes its participation the
AAdvantage-Registered Trademark- program gives it access to a flexible and
extremely powerful marketing tool. However, due to the potential limitations of
the agreement (including the number of additional markets and the term of the
agreement), the Company may in the future choose to develop its own frequent
flyer program.

American may terminate this agreement under several circumstances, including
(i) commencement by the Company of a new frequent flyer program or its
participation in another frequent flyer program, (ii) any person or group
becoming the owner of 20% or more of the outstanding voting securities of the
Company or any "Disqualified Investor" becoming the owner of 10% or more of the
outstanding voting securities of the Company, (iii) the Company making a
significant acquisition or (iv) the Company entering into any marketing-oriented
collaborative agreement with another airline which American reasonably believes
would likely materially adversely affect American's interests or objectives
under any of its or its affiliates' agreements with the Company. "Disqualified
Investor" is defined as (i) any other airline or airline-related services
company, (ii) any person or entity offering a frequent traveler program or (iii)
any person or entity that American believes would likely, by virtue of its
affiliation with the Company, materially adversely affect American's interests
or objectives under any of its or its affiliates' agreements with the Company.
In addition, American may terminate its sublease to the Company of the RDU
facility, Midway's license of the yield management system and one other service
agreement that Midway has with American if any person or group acquires 30% or
more of the voting securities of Midway. Finally, if the Company pays any
dividends or makes any other cash or asset distribution to its stockholders
without American's consent at any time prior to the Company's payment in full of
a certain promissory note to American, then American may terminate the RDU
facility sublease, the AAdvantage-Registered Trademark- Participating Carrier
Agreement, Midway's license of the yield management system and one other service
agreement that Midway has with American. See "Risk Factors--Agreements with
American Airlines."

MARKETING

The Company markets its services through listings in computer reservations
systems and the Official Airline Guide; through advertising and promotions in
newspapers, magazines, billboards, radio and television; and through direct
contact with travel agencies, corporate travel departments, wholesalers and
consolidators. The Company maintains a nationwide toll-free telephone number for
use by passengers to make reservations and purchase tickets and has sales
representatives assigned to all regions where Midway operates. The service mark
"Feel Like Flying Again" was adopted in 1995 when the Company began RDU
operations to communicate a level of service that is reminiscent of flying when
airlines generally provided higher quality service than is perceived today.

39
<PAGE>
EMPLOYEES

As of September 30, 1997, the Company had 723 full-time equivalent employees
in the following departments:

<TABLE>
<S> <C>
Passenger Services.................................................... 195
Flight Operations..................................................... 170
In-flight............................................................. 129
Sales, Marketing and Reservations..................................... 105
Maintenance and Quality Assurance..................................... 60
Administrative........................................................ 46
Accounting and Finance................................................ 18
---
Total........................................................... 723
</TABLE>

LABOR RELATIONS

The Railway Labor Act ("RLA") governs the labor relations of employers and
employees engaged in the airline industry. Comprehensive provisions are set
forth in the RLA establishing the right of airline employees to organize and
bargain collectively along craft or class lines and imposing a duty upon air
carriers and their employees to exert every reasonable effort to make and
maintain collective bargaining agreements. The RLA contains detailed procedures
which must be exhausted before a lawful work stoppage can occur.

None of the Company's employees are represented by a labor union. In the
spring of 1996, a vote was held by the Company's dispatchers on the application
of the Transport Workers Union of America. The election resulted in the
dismissal of the application. In the fall of 1996, a vote was held among the
Company's fleet services (ramp) employees on the application of the
International Association of Machinists. The election resulted in the dismissal
of the application. In October 1997, the National Mediation Board authorized an
election to be held on the application of the Air Line Pilots Association to
represent Midway's pilots. The ballots for such election were distributed on
November 4, 1997, and will be counted on December 8, 1997. In November 1997, the
Company received notice from the Association of Flight Attendants, AFL-CIO (the
"AFA") that a campaign has been initiated to select the AFA as the exclusive
bargaining representative for the Company's flight attendants. The Company is
unable to predict whether an election will be held on any application the AFA
might make to represent the Company's flight attendants. See "Risk
Factors--Labor Relations."

The Company believes its management and employees have a good relationship.
Management, including the Company's President and Chief Executive Officer, meet
with pilots, flight attendants, customer service agents and other employees on a
routine basis to discuss Company objectives as well as more specific labor
related issues such as scheduling, compensation and work rules. Management
believes it has addressed pilot and other employee concerns in a timely and
responsive manner.

GOVERNMENT REGULATION

GENERAL

The Company is subject to the jurisdiction of and regulation by the DOT, the
FAA and certain other governmental agencies. The DOT principally regulates
economic issues affecting air service such as air carrier certification and
fitness, insurance, authorization of proposed scheduled and charter operations,
consumer protection and competitive practices. In 1993, the Company was granted
a Certificate of Public Convenience and Necessity pursuant to Section 401 of the
Federal Aviation Act authorizing it to engage in air transportation. The DOT has
authority to investigate and institute proceedings to enforce its economic

40
<PAGE>
regulations and may in certain circumstances assess civil penalties, revoke
operating authority and seek criminal sanctions.

The FAA primarily regulates flight operations, in particular matters
affecting air safety, such as airworthiness requirements for aircraft and pilot
and flight attendant certification. The FAA requires each carrier to obtain an
operating certificate and operations specifications authorizing the carrier to
operate to specific airports using specified equipment. All of the Company's
aircraft must have and maintain certificates of airworthiness issued by the FAA.
The Company holds an FAA air carrier operating certificate under Part 121 of the
Federal Aviation Regulations. The FAA has the authority to modify, suspend
temporarily or revoke permanently the authority of the Company or its licensed
personnel, after notice and a hearing, for failure to comply with regulations
promulgated by the FAA and to assess civil penalties for such failures. In
September 1997, the Civil Aviation Security Division of the FAA conducted an
investigation of the Company's compliance with certain regulations requiring the
Company to verify the accuracy of background information provided by its
employees who have access to secure airport areas. This investigation will
likely result in the finding of violations of these regulations. The Company
revised its background check procedures during the course of the FAA's
investigation and then obtained and verified the necessary background
information of those employees who had been identified by the FAA as having
insufficient background check documentation. While the Company is unable to
determine whether the FAA will pursue an assessment as a result of the findings
of this investigation, the Company believes that such an assessment would not
have a material effect on the Company. See "Risk Factors--Government
Regulation."

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

The FAA also has authority to issue maintenance directives and other
mandatory orders relating to, among other things, inspection of aircraft and
engines, fire retardant and smoke detection devices, increased security
precautions, collision and windshear avoidance systems, noise abatement and the
mandatory removal and replacement of aircraft parts that have failed or may fail
in the future.

The Company is regulated by the Environmental Protection Agency and state
and local agencies with respect to the protection of the environment and to the
discharge of materials into the environment. At its aircraft line maintenance
facilities, the Company uses materials that are regulated as hazardous under
federal and state law. The Company maintains programs to protect the safety of
its employees who use these materials and to manage and dispose of any waste
generated by the use of these materials, and believes that it is in substantial
compliance with all applicable laws and regulations. In addition, the
Immigration and Naturalization Service, the U.S. Customs Service, and the Animal
and Plant Health Inspection Service of the Department of Agriculture have
jurisdiction over inspection of the Company's aircraft, passengers and cargo to
ensure the Company's compliance with U.S. immigration, customs and import laws.

The Company is also subject to other federal and state laws and regulations
relating to protection of the environment, radio communications, labor
relations, equal employment opportunity and other matters.

SAFETY

The Company has never had an accident, and is dedicated to ensuring its
customers' safety. The FAA monitors the Company's compliance with maintenance,
flight operations and safety regulations, maintains representatives on-site and
performs frequent spot inspections, and the Company believes it has a strong and
open relationship with its regional FAA office. The Company believes it is in
compliance with all requirements necessary to maintain in good standing its
operating authority granted by the DOT and its air carrier operating certificate
issued by the FAA. A modification, suspension or revocation of any of the

41
<PAGE>
Company's DOT or FAA authorizations or certificates could have a material
adverse effect upon the Company.

SLOTS

The FAA's regulations currently limit the availability of, and permit the
buying, selling, trading and leasing of, certain airline slots at Chicago's
O'Hare, New York's LaGuardia and Kennedy International and Washington, D.C.'s
National airports. A slot is an authorization to take off or land at the
designated airport within a specified time window. Midway utilizes ten slots at
New York's LaGuardia Airport, three of which are owned and seven of which are
leased from a third party airline. Midway utilizes eight slots at Washington,
D.C.'s National Airport, two of which are owned and six of which are leased from
a different third party airline. Although the Company's slot leases are
currently scheduled to expire in April 1998, the Company believes it will be
able to renew those leases on terms that will be acceptable to the Company.

The FAA's slot regulations require the use of each slot at least 80% of the
time, measured on a bi-monthly basis. Failure to meet this utilization threshold
without a waiver from the FAA, which is granted only under exceptional
circumstances, subjects the slot to recall by the FAA. In addition, the slot
regulations provide that slots may be withdrawn by the FAA at any time without
compensation to the carrier holding or operating the slot to meet the DOT's
operational needs, such as providing slots for international or essential air
transportation.

FOREIGN OWNERSHIP

Pursuant to law and the regulation of the DOT, the Company must be
effectively controlled by United States citizens. In this regard, the Company's
President and at least two-thirds of the Company's Board of Directors must be
United States citizens and not more than 25% of the Company's voting stock may
be owned by foreign nationals (although subject to DOT approval the percent of
foreign economic ownership may be as high as 49%).

FUEL

The cost of fuel is a significant operating expense, constituting 13.5% of
operating costs in 1996 and 12.8% during the nine months ended September 30,
1997. Jet fuel costs may be subject to wide fluctuations as a result of sudden
disruptions in supply. Because of the effect of such events on price and
availability of oil, the cost and future availability of jet fuel cannot be
predicted with any degree of certainty. A one cent change in the cost per gallon
of fuel, based on the Company's fuel consumption levels for the nine months
ended September 30, 1997, increases or decreases operating expenses by
approximately $300,000 per year.

The Company's fuel requirements are met by approximately 11 different
suppliers. The Company contracts with these suppliers as fuel is needed, and the
terms vary as to price and quantity. The Company has not entered into any
agreement that fixes the price of fuel over any period of time.

FACILITIES

Of the 26 gates at the newer of RDU's two terminals, Terminal C, the Company
currently subleases 12 gates through February 2013 and has options expiring
August 1999 to sublease through February 2013 six additional gates. In addition,
the Company is currently in negotiations to sublease two additional gates. The
Company also subleases certain hangar facilities in Orlando, Florida where light
maintenance and aircraft cleaning are performed. This sublease expires at the
end of April 1998. The Company believes it will either extend this lease or find
suitable hangar facilities either at RDU or elsewhere. The Company's corporate
headquarters and reservations facility are located in Durham, where it subleases
approximately 30,000 square feet of space. The Durham facility sublease expires
on July 31, 1998. The Company has two, one-year extension options available on
this space. The Company believes it can find suitable replacement headquarters
and reservation center space if needed.

42
<PAGE>
In one of the cities Midway serves, the Company leases a gate at the airport
directly from the airport. For the remaining cities, Midway obtains the use of
gates as part of its third party ground handling contracts.

COMPETITION

The Company competes with other air carriers on many of its routes. Many of
the Company's competitors have elaborate route structures that transport
passengers to hub airports for transfer to many destinations, including those
served by Midway. Although ten other jet airline carriers currently serve RDU,
these carriers (other than US Airways, Inc. to New York's LaGuardia Airport and
Washington, D.C.'s National Airport) provide non-stop flights only between RDU
and their respective hubs. In some markets, Midway also competes against ground
transportation providers. See "Risk Factors--Industry Conditions and
Competition."

INSURANCE

In the opinion of management, the Company maintains insurance policies of
types customary in the industry and in amounts management believes are adequate
to meet DOT requirements and to protect the Company and its property against
material loss. The policies principally provide coverage for public liability,
passenger liability, baggage and cargo liability, property damage, including
coverage for loss or damage to its flight equipment, and worker's compensation
insurance. There can be no assurance, however, that the amount of insurance
carried by the Company will be sufficient to protect it from material loss.

LEGAL PROCEEDINGS

The Company is a party to routine litigation incidental to its business.
Management believes that none of this litigation is likely to have a material
adverse effect on the Company's consolidated financial position or results of
operations.

43
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table contains the name, age and position with the Company of
each executive officer and director as of September 30, 1997.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Robert R. Ferguson III............... 48 Chairman of the Board, President and Chief Executive Officer
Joanne Smith......................... 39 Senior Vice President--Sales & Marketing
Jonathan S. Waller................... 37 Senior Vice President, General Counsel and Secretary
Steven Westberg...................... 42 Senior Vice President and Chief Financial Officer
Martin F. Brueckner.................. 53 Vice President--Customer Service
Thomas Duffy, Jr..................... 41 Vice President--Maintenance
David Vance.......................... 63 Vice President--Operations
W. Greyson Quarles................... 56 Director
Gregory J. Robitaille................ 34 Director
Howard Wolf.......................... 62 Director
</TABLE>

INDIVIDUAL BACKGROUND INFORMATION

ROBERT R. FERGUSON III has served as Chairman of the Board, President and
Chief Executive Officer of the Company since February 1997. From October 1994 to
February 1997, Mr. Ferguson served as President of Belmont Aviation, L.L.C., an
aviation consulting firm. Prior to that, he held various executive positions at
Continental Airlines, Inc., last serving as Chief Executive Officer, President
and Director from August 1991 to October 1994. Mr. Ferguson also serves on the
Board of Directors of Capital Cargo International Airlines, Inc., an air freight
corporation ("Capital Cargo").

JOANNE SMITH has served as Senior Vice President--Sales and Marketing of the
Company since September 1994. Prior to that time, she served as Vice President
of Marketing and Field Services for Wings West Airlines from June 1987 to
September 1994.

JONATHAN S. WALLER has served as Senior Vice President, General Counsel and
Secretary of the Company since July 1995. From April 1989 to July 1995, Mr.
Waller was an attorney in private practice with the Chicago, Illinois law firm
of Rosenberg & Liebentritt, becoming a partner of the firm in January 1994.

STEVEN WESTBERG has served as Senior Vice President and Chief Financial
Officer of the Company since December 1995. Mr. Westberg held various positions
at Continental Airlines, Inc. from 1991 to February 1995, last serving as Vice
President of Corporate Planning. From February 1995 to December 1995, Mr.
Westberg served as Vice President of Belmont Aviation, L.L.C., an aviation
consulting firm. Mr. Westberg also serves on the Board of Directors of Capital
Cargo.

MARTIN F. BRUECKNER has served as Vice President--Customer Service of the
Company since August 1996. From April 1993 to August 1996, Mr. Brueckner served
as Area President for International Total Services, a company that provides
out-sourcing services to airlines.

THOMAS DUFFY, JR. has served as Vice President--Maintenance of the Company
since August 1995. Prior to that time, Mr. Duffy was Director of Maintenance
from August 1993. From May 1992 until August 1993, Mr. Duffy served as Manager
of Maintenance Sales with Triad International Maintenance Co.

DAVID VANCE has served as Vice President--Operations of the Company since
October 1994. Prior to that time, Mr. Vance served as Director of Operations
from August 1993 to October 1994. Mr. Vance was a captain with Reno Air from
April 1992 to August 1993.

44
<PAGE>
W. GREYSON QUARLES has served as Chief Financial Officer of SAS Institute,
Inc., a computer software corporation, since 1982 and has been a director of the
Company since February 1997.

GREGORY J. ROBITAILLE has been employed by Equity Group Investments, Inc.,
which is an affiliate of Zell/Chilmark since October 1995. From September 1991
to September 1995, he served as a Vice President of the Corporate Finance
Department of Rauscher Pierce Refsnes, Inc., an investment banking firm. Mr.
Robitaille has served as a Director of the Company since February 1997.

HOWARD WOLF has been a Senior Partner of the law firm of Fulbright &
Jaworski L.L.P. for more than the last five years and has served as a director
of the Company since February 1997. Mr. Wolf also serves on the Board of
Directors for Offshore Logistics, Inc., a company that operates helicopters
world-wide; Tuskar Resources plc, an oil and gas company; and International Tool
& Supply plc, an oil and gas service and supply company. Mr. Wolf serves as an
Advisory Director of Frost National Bank and as Chairman of the Board of
Trustees of The Institute for Rehabilitation and Research, a not-for-profit
hospital.

Prior to the Offering, the Company's Board of Directors will establish an
Audit Committee and a Compensation Committee.

The duties of the Audit Committee will be to recommend to the Board of
Directors the selection of independent public accountants to audit annually the
books and records of the Company, discuss with the independent auditors and
internal auditors the scope and results of audits, and approve and review any
nonaudit services performed by the Company's independent auditing firm.

The duties of the Compensation Committee will be to provide a general review
of the Company's compensation and benefit plans to ensure that they meet the
Company's objectives. In addition, the Compensation Committee will approve the
Chief Executive Officer's compensation and review the Chief Executive Officer's
recommendations on (i) the compensation of all other officers of the Company,
(ii) the grant of awards under the Company's then existing compensation and
benefit plans and (iii) the adoption of major Company compensation policies and
practices. The Compensation Committee will report its recommendations to the
Board of Directors for approval and authorization.

AGREEMENTS WITH NAMED EXECUTIVE OFFICERS

The Company has agreements with four of the named executive officers
(Messrs. Ferguson, Waller and Westberg and Ms. Smith) that provide that each
such officer is entitled to benefits if such officer's employment is ended by
the Company other than for reason of death or disability or for cause (as
defined in the agreements). In general, the benefits provided are: (a) a cash
termination payment equal to one year's annual compensation at the rate then in
effect or continuing salary payments of up to one year following the date of
termination; (b) payments allowing for the officer to obtain medical benefits
comparable to those received by the officer in the preceding fiscal year for up
to one year following termination; (c) outplacement services; (d) airline travel
privileges on Midway for the executive and his/her spouse for their lifetime and
their dependent children; and (e) household relocation assistance. Ms. Smith's
agreement terminates on December 31, 1997. Messrs. Ferguson, Waller and
Westberg's agreements have no certain termination date. Mr. Ferguson's agreement
does not provide him with the benefits described in clauses (b), (c), (d) and
(e) above.

EXECUTIVE COMPENSATION

Set forth in the following table is certain compensation information
concerning the current and former Chief Executive Officers and each of the
Company's most highly compensated executive officers as to whom the total annual
salary, bonus and other compensation for the fiscal year ended December 31, 1996
exceeded $100,000, or for the six months ended June 30, 1997 exceeded $50,000.

45
<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMMON STOCK
COMPENSATION UNDERLYING
------------------ OPTIONS ALL OTHER
SALARY BONUS (# OF COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) SHARES) ($)
- ------------------------------------------------------------------ ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert R. Ferguson III(1)......................................... 1996 -- -- -- --
Chairman of the Board, President and Chief Executive Officer 1997(2) $ 69,365 -- 781,250 --
John N. Selvaggio(3).............................................. 1996 246,642 -- -- --
President and Chief Executive Officer 1997(2) 28,192 $480,000(4) -- $282,923(5)
Steven Westberg................................................... 1996 170,103 -- -- --
Senior Vice President and Chief Financial Officer 1997(2) 79,288 247,500(4) 111,997 --
Jonathan S. Waller................................................ 1996 165,384 -- -- --
Senior Vice President, General Counsel and Secretary 1997(2) 76,288 247,500(4) 27,999 --
Joanne Smith...................................................... 1996 154,834 -- -- --
Senior Vice President, Sales and Marketing 1997(2) 78,388 247,500(4) 27,999 --
Brian J. Olds(6).................................................. 1996 -- -- -- 284,137(7)
Executive Vice President and Chief Operating Officer 1997(2) -- -- -- --
</TABLE>

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

(1) Mr. Ferguson became an executive officer of the Company in February 1997,
and is paid a base annual salary of $200,000.

(2) 1997 amounts reflect six months ended June 30, 1997.

(3) Mr. Selvaggio's employment with the Company ended in February 1997.

(4) Amount reflects bonus paid by Zell/Chilmark on behalf of the Company as a
result of negotiations in connection with the Recapitalization.

(5) Amount reflects severance payment to Mr. Selvaggio.

(6) Mr. Olds resigned from employment with the Company in February 1996.

(7) Amount reflects severance paid in connection with resignation of employment.

BOARD COMPENSATION

Non-employee directors of the Company are paid a fee of $1,500 for each
board meeting attended in person.

EMPLOYEE PLANS

Although the terms of the Stock Option Plan have not yet been determined,
the Company anticipates that not more than 557,255 shares of Common Stock will
be reserved for issuance to employees of the Company under the Stock Option
Plan. The Company expects that options to purchase substantially all of these
shares will be granted concurrently with the Offering to employees at an
exercise price per share equal to the offering price to the public. Such options
will vest in equal amounts over five years and will have a ten year term.

46
<PAGE>
In addition to the Stock Option Plan, the Company has granted options to
purchase an aggregate of 223,994 shares of Common Stock to certain members of
senior management at an exercise price per share equal to the valuation of the
Common Stock at the time of the Recapitalization. Such options vest in equal
amounts over five years and have a ten-year term.

The Company intends to adopt a Profit Sharing Plan (the "Profit Sharing
Plan") which will become effective for 1998 and will apply to all of its
employees who have completed six months of service with the Company and who are
not represented by a collective bargaining organization, unless inclusion in the
Profit Sharing Plan for such employees is achieved through the collective
bargaining process. Profit Sharing Plan payments, if any, will be based upon the
relative wages of the eligible employees during the relevant annual period. Half
of each payment will be made to each eligible employee in cash and half will be
made to the eligible employee's account under a tax-qualified defined
contribution plan maintained by the Company. The Company expects that the
payments to the investment accounts and associated earnings will vest in equal
amounts over five years.

CERTAIN TRANSACTIONS

In March 1995, the Company entered into a services agreement with Teletech
Teleservices, Inc., a Colorado corporation ("Teletech"), for the performance of
reservation call handling services by Teletech on behalf of Midway. At that
time, Teletech was an affiliate of Zell/Chilmark. Midway Airlines terminated
this agreement, effective May 15, 1997. The Company currently sublicenses a
reservation software program from Teletech. The Company believes the terms of
this software sublicense are no less favorable to Midway than could be obtained
from an unaffiliated party. The software sublicense terminates in August 1998.

In May 1995, the Company obtained an aggregate of $6,000,000 in subordinated
debt financing from a group of 18 shareholders. Of this amount, $5,217,000 was
provided by Zell/Chilmark at a rate of 12% per annum and with an April 1, 2002
maturity date. Warrants were issued to each of the debt holders at a rate which
gave each debt holder the right to purchase 750 shares of the Company's
previously existing Class C Common Stock at $.01 per share for each $1,000 of
financing provided. In January, February and August 1996, Zell/Chilmark provided
additional subordinated debt financing totalling $4,000,000 on substantially the
same terms as in May 1995. The Company believes all of the subordinated debt
financing that it received from these parties in 1995 and 1996 was received on
terms no less favorable to Midway than could have been obtained from an
unaffiliated party. All of this subordinated debt was redeemed or canceled in
February 1997 in connection with the Recapitalization and is no longer
outstanding, and the warrants were canceled.

In January 1997, the Company entered into an Agreement and Plan of Merger
with GoodAero, Inc., James H. Goodnight, Ph.D., John P. Sall and Zell/Chilmark.
The Agreement and Plan of Merger sets forth the terms and conditions under which
GoodAero, Inc. would be merged into the Company, which occurred on February 11,
1997. See "The Company--The Recapitalization."

Simultaneously with the closing of the Recapitalization and pursuant to the
Agreement and Plan of Merger, GoodAero, Inc. caused Wachovia Bank of North
Carolina to issue a $7,000,000 letter of credit for the benefit of the Company's
current credit card processing vendor as security for the Company's performance
of its obligations under its credit card processing agreement. This letter of
credit expires in February 1998. The current provider is not obligated to renew
the letter of credit. If it is not renewed, the Company may have to provide a
replacement letter of credit or cash collateralize or otherwise fund the credit
card holdback.

James H. Goodnight, Ph.D., and John P. Sall have separately agreed to
purchase 235,577 and 114,423 shares of Common Stock of the Company in the
Offering, respectively, at the initial public offering price and on the same
terms and conditions as all other purchasers.

47
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 31, 1997, and as adjusted to reflect
the sale of Common Stock in the Offering, by (i) each director of the Company,
(ii) each person known or believed by the Company to own beneficially 5% or more
of the Common Stock and (iii) all directors and executive officers as a group.
See note (1) below. Unless otherwise indicated, each person has sole voting and
dispositive power with respect to such shares. Except for Mr. Ferguson, none of
the named executive officers is a beneficial owner of any shares of Common Stock
as of October 31, 1997.

<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY BENEFICIALLY
OWNED(1) OWNED(1)
PRIOR TO OFFERING NUMBER OF AFTER THE OFFERING
NAME AND ADDRESS -------------------- SHARES BEING ------------------
OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
James H. Goodnight, Ph.D.(2)..................................... 2,509,697(3) 42.8% -- 2,745,274(4) 33.4%
Zell/Chilmark Fund L.P.(5)....................................... 1,740,056 29.7 1,459,376 280,680 3.4
John P. Sall(6).................................................. 1,218,995(3) 20.8 -- 1,333,418(7) 16.2
Robert R. Ferguson III(8)........................................ 390,625(9) 6.3 -- 390,625 4.5
AMR Corporation(10).............................................. 390,625(11) 6.3 -- 390,625 4.5
debis AirFinance B.V.(12)........................................ 260,189 4.4 260,189 -- --
Wings Aircraft Finance, Inc.(13)................................. 130,435 2.2 130,435 -- --
All Executive Officers and Directors
as a group (10 persons)........................................ 390,625(9) 6.3 -- 390,625 4.5
</TABLE>

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

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares of
Common Stock beneficially owned by a person, and the percentage of ownership
by that person, shares of Common Stock issuable pursuant to options and
warrants held by that person that are currently exercisable or exercisable
within 60 days of November 30, 1997 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.

(2) This stockholder's address is SAS Campus Drive, Cary, North Carolina 25712.

(3) Reflects the number of shares of Common Stock issuable upon conversion of
the Senior Convertible Preferred Stock.

(4) Includes 235,577 shares of Common Stock which Dr. Goodnight has agreed to
purchase in the Offering at the initial public offering price and on the
same terms and conditions as all other purchasers.

(5) This stockholder's address is T wo North Riverside Plaza, Nineteenth Floor,
Chicago, Illinois 60606. Zell/ Chilmark Fund L.P. is controlled by a general
partner, who is ultimately controlled by Samuel Zell, subject to removal of
such general partner by vote of the limited partners upon the occurrence of
certain events.

(6) This stockholder's address is SAS Campus Drive, Cary, North Carolina 25712.

(7) Includes 114,423 shares of Common Stock which Mr. Sall has agreed to
purchase in the Offering at the initial public offering price and on the
same terms and conditions as all other purchasers.

(8) Mr. Ferguson is the Chairman of the Board, President and Chief Executive
Officer of the Company and his address is 300 West Morgan Street, Suite
1200, Durham, North Carolina 27701.

(9) Includes 390,625 shares of Common Stock issuable pursuant to currently
exercisable options.

(10) AMR Corporation is the parent company of American and its address is 4333
Amon Carter Boulevard, Fort Worth, Texas 76155.

(11) Includes 390,625 shares of Common Stock issuable upon exercise of a
warrant.

(12) This stockholder is ultimately 45 percent controlled by Daimler-Benz, A.G.,
and the address of this stockholder is Triport 1, Ruimte 7140, Evert van de
Beekstraat 22, 1118 CL Luchthaven Schiphol, Amsterdam Airport Schiphol, The
Netherlands.

(13) This stockholder is ultimately controlled by Daimler-Benz, A.G., and the
address of this stockholder is 1199 N. Fairfax Street, Suite 500,
Alexandria, Virginia 22314.

48
<PAGE>
DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

As of the date hereof, the authorized capital stock of the Company consists
of 25,000,000 shares of Common Stock, par value $.01 per share ("Common Stock"),
and 12,000,000 shares of Preferred Stock of the Company, par value $.01 per
share ("Preferred Stock"). As of October 31, 1997, the outstanding shares of
Preferred Stock were owned of record by two stockholders, the outstanding shares
of Common Stock were owned of record by five stockholders and options and a
warrant to purchase an aggregate of 1,359,870 shares of Common Stock were
outstanding. The following summary is qualified in its entirety by reference to
the Company's Amended and Restated Certificate of Incorporation (the "Charter")
and Bylaws (the "Bylaws"), copies of which are included as exhibits to the
Registration Statement of which this Prospectus is a part. All outstanding
shares of Common Stock are fully paid and non-assessable.

COMMON STOCK. The holders of Common Stock are entitled to dividends in such
amounts and at such times as may be declared by the Board of Directors out of
funds legally available therefor. Holders of the Common Stock are entitled to
one vote per share for the election of directors and other corporate matters.
Such holders are not entitled to vote cumulatively for the election of directors
and are not able to act by written consent. In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock would be
entitled to share ratably in all assets of the Company available for
distribution to the holders of Common Stock. The Common Stock carries no
preemptive rights. All outstanding shares of Common Stock are, and the shares of
Common Stock to be sold by the Company in the Offering when issued will be, duly
authorized, validly issued, fully paid and non-assessable. See "Dividend
Policy."

PREFERRED STOCK. The Board of Directors is authorized to issue from time to
time, without stockholder authorization, in one or more designated series,
shares of preferred stock with such dividend, redemption, conversion and
exchange provisions as are provided in the particular series. The issuance of
Preferred Stock could have the effect of delaying or preventing a change in
control of the Company. The Board of Directors has no present plans to issue any
Preferred Stock.

CERTAIN LIMITATIONS. Each lessor of the Company's F-100 aircraft has the
right to terminate its lease if, prior to the Company's satisfaction of its
obligations under certain promissory notes issued to debis AirFrance B.V. or
DASA Aircraft Finance XVI B.V., the Company makes any redemption of, or any
dividend or distribution with respect to, any shares of the Company owned by any
holder of equity in the Company representing the right to vote 20% or more of
the voting stock of the Company on any matter presented for vote to the
stockholders of the Company. The lessor of the Company's one Airbus A320
aircraft has the right to terminate its lease if any single person or group of
persons acquire control of the Company without the prior written consent of such
lessor, such consent not to be unreasonably withheld. See "Risk Factors--Limited
Number of Aircraft."

American may terminate its AAdvantage-Registered Trademark- Participating
Carrier Agreement with the Company if, among other occurrences, any person or
group becomes the owner of 20% or more of the outstanding voting securities of
the Company or certain disqualified investors become the owner of 10% or more of
the outstanding voting securities of the Company. American may also terminate
its sublease to the Company of the RDU facility and two other service agreements
that Midway has with American if any person or group acquires 30% or more of the
voting securities of Midway. In addition, if the Company pays any dividends or
makes any other cash or asset distribution to its stockholders without
American's consent at any time prior to the Company's payment in full of a
certain promissory note to American, then American may terminate the RDU
facility sublease, the AAdvantage-Registered Trademark- Participating Carrier
Agreement and two other service agreements that Midway has with American. See
"Risk Factors--Agreements with American Airlines."

PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECT

CLASSIFIED BOARD OF DIRECTORS. The Charter provides that the Board of
Directors shall be divided into three classes, the members of which will serve
staggered three-year terms. The Company believes that a classified board of
directors could help to assure the continuity and stability of the Board's and
the

49
<PAGE>
Company's business strategies and policies as determined by the Board of
Directors. The classified board provision could have the effect of making the
removal of incumbent directors more time-consuming and, therefore, discouraging
a third party from making a tender offer or otherwise attempting to obtain
control of the Company, even though such an attempt might be beneficial to the
Company and its stockholders. Thus, the classified board provision could
increase the likelihood that incumbent directors would retain their positions.
In addition, the Amended and Restated Certificate of Incorporation provides that
directors may be removed from office only "for cause" (as defined therein).
Subject to rights of any holders of preferred stock, newly created directors and
vacancies on the Board of Directors will be filled solely by the remaining
directors then in office.

ADVANCE NOTICE PROVISIONS FOR CERTAIN STOCKHOLDER ACTIONS. The Bylaws
establish an advance notice procedure with regard to the nomination, other than
by or at the direction of the Board, of candidates for election as directors
(the "Nomination Procedure") and with regard to certain matters to be brought
before an annual meeting of stockholders of the Company (the "Business
Procedure").

Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the Bylaws. If the Chairman or other officer
presiding at a meeting determines that other business was not properly brought
before such meeting in accordance with the Business Procedure, such business
will not be conducted at the meeting.

The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board to the Secretary
of the Company. The requirements as to the form and timing of that notice are
specified in the Bylaws. If the election inspectors determine that a person was
not nominated in accordance with the Nomination Procedure, such person will not
be eligible for election as a director.

Although the Bylaws do not give the Board any power to approve or disapprove
stockholder nominations for the election of directors or of any other business
desired by stockholders to be conducted at an annual or any other meeting, the
Bylaws (i) may have the effect of precluding a nomination for the election of
directors or precluding the conduct of business at a particular annual meeting
if the proper procedures are not followed, or (ii) may discourage or deter a
third party from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company, even if the
conduct of such solicitation or such attempt might be beneficial to the Company
and its stockholders.

DELAWARE SECTION 203. Section 203 ("Section 203") of the General
Corporation Law of the State of Delaware (the "Delaware Act") restricts certain
transactions between a corporation organized under Delaware law (or its
majority-owned subsidiaries) and any person holding 15% or more of the
corporation's outstanding voting stock, together with the affiliates or
associates of such person (an "Interested Stockholder"). Section 203 generally
prohibits a publicly held Delaware corporation from engaging in the following
transactions with an Interested Stockholder for a period of three years from the
date the stockholder becomes an Interested Stockholder (unless certain
conditions, described below, are met): (a) all mergers or consolidations, (b)
sales, leases, exchanges or other transfers of 10% or more of the aggregate
assets of the corporation, (c) issuances or transfers by the corporation of any
stock of the corporation which would have the effect of increasing the
Interested Stockholder's proportionate share of the stock of any class or series
of the corporation, (d) any other transaction which has the effect of increasing
the proportionate share of the stock of any class or series of the corporation
which is owned by the Interested Stockholder, and (e) receipt by the Interested
Stockholder of the benefit (except proportionately as a stockholder) of loans,
advances, guarantees, pledges or other financial benefits provided by the
corporation.

The three-year ban does not apply if either the proposed transaction or the
transaction by which the Interested Stockholder became an Interested Stockholder
is approved by the board of directors of the corporation prior to the date such
stockholder becomes an Interested Stockholder. Additionally, an Interested
Stockholder may avoid the statutory restriction if, upon the consummation of the
transaction whereby such stockholder becomes an Interested Stockholder, the
stockholder owns at least 85% of the

50
<PAGE>
outstanding voting stock of the corporation without regard to those shares owned
by the corporation's officers and directors or certain employee stock plans.
Business combinations are also permitted within the three-year period if
approved by the board of directors and authorized at an annual or special
meeting of stockholders, by the holders of at least 66 2/3% of the outstanding
voting stock not owned by the Interested Stockholder. In addition, any
transaction is exempt from the statutory ban if it is proposed at a time when
the corporation has proposed, and a majority of certain continuing directors of
the corporation have approved, a transaction with a party which is not an
Interested Stockholder of the corporation (or who becomes such with board
approval) if the proposed transaction involves (a) certain mergers or
consolidations involving the corporation, (b) a sale or other transfer of over
50% of the aggregate assets of the corporation or (c) a tender or exchange offer
for 50% or more of the outstanding voting stock of the corporation.

Prior to the effective date of Section 203, a corporation by action of its
board of directors, had the option of electing to exclude itself from the
coverage of Section 203. Since the effective date of such section, a corporation
may, at its option, exclude itself from the coverage of Section 203 by amending
its Certificate of Incorporation or Bylaws by action of its stockholders to
exempt itself from coverage, provided that such charter or bylaw amendment shall
not become effective until 12 months after the date it is adopted. The Company
has not adopted such a charter or bylaw amendment.

The foregoing provisions of Section 203 could delay or frustrate the removal
of incumbent directors or the assumption of control by the holder of a large
block of Common Stock even if such removal or assumption would be beneficial, in
the short term, to stockholders of the Company. The provisions could also
discourage or make more difficult a merger, tender offer or proxy contest even
if such event would be favorable to the interests of stockholders.

LIMITATION ON DIRECTORS AND OFFICERS LIABILITY

The Delaware Act authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations authorized by such legislation,
directors are accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Although the Delaware Act does not change directors' duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Charter limits the liability of the Company's
directors to the Company or its stockholders to the fullest extent permitted by
the Delaware Act. Specifically, directors of the Company will not be personally
liable for monetary damages for breach by directors of their fiduciary duty as
directors, except for liability (i) for any breach of the director's 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 Delaware Act, or (iv) for any transaction
from which the director derived an improper personal benefit.

The inclusion of this provision in the Charter may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.

TRANSFER AGENT

The Transfer Agent for the Common Stock is First Union Corporate Trust
Group.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to completion of the Offering, there has been no public market for the
Common Stock. Sales of substantial amounts of Common Stock in the public market,
or the perception that such sales may occur, could have an adverse effect on the
price of the Common Stock.

51
<PAGE>
Upon completion of the Offering, there will be 8,209,375 shares of Common
Stock outstanding. All of the 4,200,000 shares purchased in this offering (and
any shares sold upon exercise of the Underwriters' overallotment option) will be
freely tradeable without restrictions or further registration under the
Securities Act, except for the 350,000 shares being purchased by James H.
Goodnight, Ph.D., and John P. Sall and any other shares purchased by
"affiliates" of the Company. All of the remaining 4,009,375 shares of Common
Stock outstanding are "restricted securities" as that term is defined in Rule
144 and are also subject to certain restrictions on disposition pursuant to
contractual lock-up agreements between the holders of such shares and the
Underwriters.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Common Stock for at least one year, including a person who may be deemed an
"affiliate," is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of one percent of the total number of
shares of the class of stock sold or the average weekly reported trading volume
of the class of stock being sold during the four calendar weeks preceding such
sale. A person who is not deemed an "affiliate" of the Company at any time
during the three months preceding a sale and who has beneficially owned shares
for at least two years is entitled to sell such shares under Rule 144 without
regard to the volume limitations 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, is controlled by, or is under common
control with, such issuer. The foregoing summary of Rule 144 is not intended to
be a complete description thereof.

The holders of 280,680 shares of Common Stock, which are subject to the
Underwriters' overallotment option, and the holders of options and a warrant to
purchase an aggregate of 1,395,870 shares of Common Stock have certain rights to
require the Company to register sales of such shares, or shares acquired
pursuant to such options or warrant, under the Securities Act, subject to
certain restrictions. If, subsequent to the consummation of this offering, the
Company proposes to register any of its securities under the Securities Act,
such holders are entitled to notice of such registration and to include their
shares in such registration with their expenses borne by the Company, subject to
the right of an underwriter participating in the offering to limit the number of
shares included in such registration. In addition, the holders of 280,680 shares
of Common Stock, which are subject to the Underwriters' overallotment option,
and the holder of a warrant to purchase 390,625 shares of Common Stock have the
right to demand, on two occasions, that the Company file a registration
statement covering sales of their respective shares, and the Company is
obligated to pay the expenses of such registrations.

The effect, if any, that future market sales of shares or the availability
of shares for sale will have on the prevailing market prices for the Common
Stock cannot be predicted. Nevertheless, sales of a substantial number of shares
in the public market, or the perception that such sales may occur, could
adversely affect prevailing market prices for the Common Stock.

In addition, the Company, the Selling Stockholders and the directors,
executive officers and all other stockholders of the Company have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period ending 180 days after the
date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer, lend or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other agreement 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 sale to the Underwriters of the shares of Common Stock offered
hereby, (y) the issuance by the Company of shares of Common Stock upon the
exercise of any options granted or shares of Common Stock issued pursuant to
existing benefit plans of the Company or (z) transactions of any person other
than the Company relating to shares of Common Stock or other securities acquired
in open market transactions after the completion of the Offering.

52
<PAGE>
UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Company and the
Selling Stockholders have agreed to sell 2,350,000 and 1,850,000 shares,
respectively, of the Company's Common Stock, and the Underwriters named below,
for whom Morgan Stanley & Co. Incorporated and The Robinson-Humphrey Company,
LLC are serving as Representatives, have severally agreed to purchase the
respective number of shares of Common Stock set forth opposite the names of such
Underwriters below:

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Morgan Stanley & Co. Incorporated.................................................... 1,530,000
The Robinson-Humphrey Company, LLC................................................... 1,530,000
Arnhold and S. Bleichroeder, Inc..................................................... 60,000
BT Alex. Brown Incorporated.......................................................... 120,000
A.G. Edwards & Sons, Inc............................................................. 120,000
Furman Selz LLC...................................................................... 120,000
Interstate/Johnson Lane Corporation.................................................. 60,000
Janney Montgomery Scott Inc.......................................................... 60,000
Edward D. Jones & Co., L.P........................................................... 60,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................................... 120,000
Morgan Keegan & Company, Inc......................................................... 60,000
Raymond James & Associates, Inc...................................................... 60,000
Redwine & Company, Inc............................................................... 60,000
SBC Warburg Dillon Read Inc.......................................................... 120,000
Scott & Stringfellow, Inc............................................................ 60,000
Wheat, First Securities, Inc......................................................... 60,000
-----------------
Total.......................................................................... 4,200,000
-----------------
-----------------
</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' overallotment option described below) if any such
shares are taken.

The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the Price to Public set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $.66 per share under the public offering price. Any Underwriter may
allow, and such dealers may re-allow, a concession not in excess of $.10 per
share to other Underwriters or to certain dealers. After the initial offering of
the shares of Common Stock, the offering price and other selling terms may from
time to time be varied by the Representatives.

The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "MDWY."

At the request of the Company, the Underwriters have reserved up to 288,750
shares of Common Stock for sale at the initial public offering price to the
Company's employees, officers and directors and to other individuals having
relationships with the Company. The number of shares available for sale to the
general public will be reduced to the extent such individuals purchase such
reserved shares. Any reserved shares which are not so purchased will be offered
by the Underwriters to the general public on the same basis as the other shares
offered hereby. Reserved shares purchased by such individuals will, except as
restricted by applicable securities laws, be available for resale following this
offering.

53
<PAGE>
Pursuant to the Underwriting Agreement, the Company and one of the Selling
Stockholders have granted to the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 349,320 additional shares
and 280,680 additional shares, respectively, of Common Stock at the public
offering price set forth on the cover page hereof, less underwriting discounts
and commissions. The Underwriters may exercise such option to purchase solely
for the purpose of covering overallotments, if any, made in connection with the
offering of the shares of Common Stock offered hereby. 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 Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.

The Company, the Selling Stockholders and the directors, executive officers
and all other stockholders of the Company have agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 180 days after the date of
this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer, lend or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or (ii) enter into any swap
or other agreement 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 sale to the Underwriters of the shares of Common Stock offered hereby, (y)
the issuance by the Company of shares of Common Stock upon the exercise of any
options granted or shares of Common Stock issued pursuant to existing benefit
plans of the Company or (z) transactions of any person other than the Company
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Offering.

Pursuant to the Underwriting Agreement, each Underwriter has represented
that it has not offered or sold, and has agreed not to offer or sell, any
Shares, directly or indirectly, in any province or territory of Canada in
contravention of the securities laws thereof and has represented that any offer
or sale of Shares 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 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 in Canada will be
made only pursuant to an exemption 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.

Each of the Underwriters has represented and, during the period of six
months after the date hereof, agreed that (a) it has not offered or sold and
will not offer or sell any shares of Common Stock in the United Kingdom except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purpose of
their business or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations (1995) (the "Regulations"); (b) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Regulations with respect to anything done by it in
relation to the shares of Common Stock offered hereby in, from or otherwise
involving the United Kingdom; and (c) it has only issued or passed on and will
only

54
<PAGE>
issue or pass on to any person in the United Kingdom any document received by it
in connection with the issue of the shares of Common Stock if that person is of
a kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996, or is a person to whom such document
may otherwise lawfully be issued or passed on.

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

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

PRICING OF OFFERING

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price was determined by negotiations between the
Company and the Representatives. Among the factors considered in determining the
initial public offering price were the future prospects of the Company and its
industry in general, sales, earnings and certain other financial and operating
information of the Company in recent periods, and the price-earnings ratios,
other ratios, market prices of securities and certain financial and operating
information of companies engaged in activities similar to those of the Company.

LEGAL MATTERS

The validity of the Common Stock offered hereby and certain legal matters
will be passed upon for the Company by Jonathan S. Waller, Senior Vice President
and General Counsel of the Company and Fulbright & Jaworski L.L.P., Houston,
Texas. Howard Wolf, a member of the board of directors of the Company, is a
partner in the firm of Fulbright & Jaworski L.L.P. Certain legal matters will be
passed upon for the Underwriters by Shearman & Sterling, New York, New York.

EXPERTS

The financial statements of the Company at December 31, 1996 and June 30,
1997, and for the year ended December 31, 1996 and the six months ended June 30,
1997, appearing in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing. The financial statements of the Company at
December 31, 1994 and 1995, and for the five-month period ended December 31,
1994, and for the year ended December 31, 1995, included in this Prospectus and
elsewhere in the registration statement, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon authority of said firm as
experts in giving said report. Reference is made to said report dated June 16,
1996, which includes an explanatory paragraph relating to the Company's ability
to continue as a going concern discussed in Note 1 to the Financial Statements.

Prior to the Recapitalization, Arthur Andersen LLP served as the Company's
independent auditing firm. At the time of the Recapitalization, the Company's
new management dismissed Arthur Andersen

55
<PAGE>
LLP and appointed Ernst & Young LLP to serve as the Company's independent
auditor. Arthur Andersen LLP's reports on the financial statements of the
Company for the periods ended December 31, 1994 and 1995 did not contain an
adverse opinion or a disclaimer of opinion, nor were said reports qualified or
modified as to uncertainty, audit scope or accounting principles, except that
their report dated June 16, 1996 on the financial statements as of and for the
year ended December 31, 1995 includes an explanatory paragraph relating to the
Company's ability to continue as a going concern discussed in Note 1 to the
Financial Statements. During 1995, 1996 and the portion of 1997 prior to the
Recapitalization, the Company had no disagreements with Arthur Andersen LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which if not resolved to their
satisfaction would have been referred to in their audit report.

AVAILABLE INFORMATION

The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement (which term shall include any amendments thereto) on
Form S-1 under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement,
including exhibits and schedules thereto, copies of which may be examined
without charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the regional offices of the Commission located at 7
World Trade Center, New York, New York 10048 and 500 West Madison Street, 14th
Floor, Chicago, Illinois 60661. Copies of such materials may be obtained from
the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its public reference facilities in
New York, New York and Chicago, Illinois at prescribed rates, or on the Internet
at http:// www.sec.gov. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each statement being
qualified in all respects by such reference. Copies of materials filed with the
Commission may also be inspected at the offices of National Association of
Securities Dealers, Inc., 1801 K Street, N.W., 8th Floor, Washington, D.C.
20006.

56
<PAGE>
INDEX TO AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
<S> <C>

Report of Independent Auditors....................................................... F-2

Balance Sheets....................................................................... F-3

Statements of Operations............................................................. F-4

Statements of Stockholders' Equity (Deficit)......................................... F-5

Statements of Cash Flows............................................................. F-6

Notes to Financial Statements........................................................ F-7

YEAR ENDED DECEMBER 31, 1995 AND FIVE MONTHS ENDED DECEMBER 31, 1994
<S> <C>

Report of Independent Public Accountants............................................. F-20

Balance Sheets....................................................................... F-21

Statements of Operations............................................................. F-22

Statements of Stockholders' Equity (Deficit)......................................... F-23

Statements of Cash Flows............................................................. F-24

Notes to Financial Statements........................................................ F-25
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Midway Airlines Corporation

We have audited the accompanying balance sheets of Midway Airlines
Corporation as of June 30, 1997 and December 31, 1996 and the related statements
of operations, stockholders' equity (deficit) and cash flows for the six months
and year then ended, respectively. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Midway Airlines Corporation
as of June 30, 1997 and December 31, 1996, and the results of its operations and
its cash flows for the six months and year then ended, respectively, in
conformity with generally accepted accounting principles.

As discussed in Note 2 to the financial statements, in fiscal year 1996 the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "ACCOUNTING FOR IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF".

ERNST & YOUNG LLP

Raleigh, North Carolina
July 22, 1997

F-2
<PAGE>
MIDWAY AIRLINES CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------- ----------- SEPTEMBER 30,
1997
--------------
(UNAUDITED)
<S> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 10,805 $ 10,528 $ 15,823
Restricted cash...................................................................... 2,000 3,582 3,037
Short-term investments............................................................... -- 22,091 12,933
Accounts receivable:
Credit cards....................................................................... 1,920 1,555 2,716
Travel agencies.................................................................... 3,535 9,822 10,287
Other.............................................................................. 780 857 2,671
Inventories.......................................................................... 395 429 732
Prepaids and other................................................................... 6,230 7,061 8,665
------------- ----------- -------
Total current assets................................................................... 25,665 55,925 56,864

Equipment and property:
Flight............................................................................... 4,223 6,505 10,803
Other................................................................................ 5,150 5,523 5,666
Less accumulated depreciation........................................................ (2,704) (3,453) (4,010)
------------- ----------- -------
Total equipment and property, net...................................................... 6,669 8,575 12,459

Other noncurrent assets:
Equipment purchase deposits.......................................................... 1,846 -- 1,350
Aircraft lease deposits and other.................................................... 6,506 3,195 3,279
------------- ----------- -------
Total other noncurrent assets.......................................................... 8,352 3,195 4,629
------------- ----------- -------
Total assets........................................................................... $ 40,686 $ 67,695 $ 73,952
------------- ----------- -------
------------- ----------- -------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................................................................... $ 6,501 $ 7,614 $ 9,778
Accrued expenses..................................................................... 6,267 3,331 3,506
Accrued excise taxes................................................................. 6,624 3,139 3,237
Accrued income taxes................................................................. -- 3,458 3,507
Advance ticket sales................................................................. 19,151 24,425 26,615
Other current liabilities............................................................ 9,005 3,548 3,614
Current maturities of long-term debt and capital lease obligations................... 18,988 848 1,171
------------- ----------- -------
Total current liabilities.............................................................. 66,536 46,363 51,428

Noncurrent liabilities:
Long-term debt and capital lease obligations......................................... 11,704 13,061 12,563
Other................................................................................ 1,688 526 493
------------- ----------- -------
Total noncurrent liabilities........................................................... 13,392 13,587 13,056
------------- ----------- -------
Total liabilities...................................................................... 79,928 59,950 64,484
Stockholders' equity (deficit):
Preferred stock...................................................................... 11 37 37
Common stock......................................................................... 100 21 21
Additional paid-in-capital........................................................... 30,989 7,687 7,687
Accumulated earnings ($49.8 million of accumulated deficit eliminated in the quasi-
reorganization as of June 30, 1997)................................................ (70,342) -- 1,723
------------- ----------- -------
Total stockholders' equity (deficit)................................................... (39,242) 7,745 9,468
------------- ----------- -------
Total liabilities and stockholders' equity (deficit)................................... $ 40,686 $ 67,695 $ 73,952
------------- ----------- -------
------------- ----------- -------
</TABLE>

See accompanying notes.

F-3
<PAGE>
MIDWAY AIRLINES CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
DECEMBER 31, ----------------------- ------------------------
1996 1996 1997 1996 1997
------------ ----------- ---------- ---------- ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Passenger.................................... $ 173,541 $92,098 $91,689 $ 130,444 $132,900
Cargo........................................ 2,214 973 1,000 1,485 1,493
Contract and other........................... 4,279 2,303 2,391 3,344 3,746
------------ ----------- ---------- ---------- ------------
Total revenues................................. 180,034 95,374 95,080 135,273 138,139
Operating expenses:
Wages, salaries and related costs............ 24,619 12,167 12,389 18,156 18,597
Aircraft fuel................................ 27,300 14,494 11,238 20,836 16,145
Aircraft and engine rentals.................. 34,113 17,749 15,515 25,710 22,850
Commissions.................................. 13,728 7,329 7,121 10,232 10,321
Maintenance, materials and repairs........... 17,930 10,042 8,569 13,937 12,401
Other rentals and landing fees............... 12,711 6,573 5,013 9,633 7,406
Depreciation and amortization................ 1,346 618 767 955 1,379
Other........................................ 53,932 31,176 24,057 43,105 35,766
Impairment of long-lived assets.............. 16,941 16,941 -- 16,941 --
Special recapitalization charges............. -- -- 1,225 -- 1,225
------------ ----------- ---------- ---------- ------------
Total operating expenses....................... 202,620 117,089 85,894 159,505 126,090
------------ ----------- ---------- ---------- ------------
Operating (loss) income........................ (22,586 ) (21,715 ) 9,186 (24,232) 12,049
Other (expense) income:
Interest income.............................. 630 362 802 474 1,314
Interest expense............................. (2,471 ) (977 ) (777) (1,695) (1,225)
Miscellaneous................................ 163 (504 ) (87) 127 (143)
------------ ----------- ---------- ---------- ------------
Total other (expense) income................... (1,678 ) (1,119 ) (62) (1,094) (54)
------------ ----------- ---------- ---------- ------------
Income (loss) before income taxes and
extraordinary gain........................... (24,264 ) (22,834 ) 9,124 (25,326) 11,995
Income tax expense........................... -- -- 3,866 -- 5,015
------------ ----------- ---------- ---------- ------------
Income (loss) before extraordinary gain...... (24,264 ) (22,834 ) 5,258 (25,236) 6,980
Extraordinary gain........................... -- -- 15,272 -- 15,272
------------ ----------- ---------- ---------- ------------
Net (loss) income............................ $ (24,264 ) $ (22,834 ) $20,530 $ (25,326) $ 22,252
------------ ----------- ---------- ---------- ------------
------------ ----------- ---------- ---------- ------------
Per share:
Income before extraordinary gain............... $ .75 $1.00
---------- ------------
Extraordinary gain............................. 2.19 2.19
---------- ------------
Net income..................................... $2.94 $3.19
---------- ------------
---------- ------------
Shares used in computing net income per
share.......................................... 6,985,610 6,985,610
---------- ------------
---------- ------------
</TABLE>

See accompanying notes.

F-4
<PAGE>
MIDWAY AIRLINES CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL ACCUMULATED
------------------ ------------------- PAID-IN (DEFICIT)
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ----------- ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............... 1,080,000 $11 10,000,000 $100 $ 30,949 $(48,118) $(17,058)
Issuance of common stock warrants.......... -- -- -- -- 40 -- 40
Reversal of preferred stock dividends...... -- -- -- -- -- 2,040 2,040
Net loss................................... -- -- -- -- -- (24,264) (24,264)
---------- ------ ----------- ------ --------- ----------- --------
Balance at December 31, 1996............... 1,080,000 11 10,000,000 100 30,989 (70,342) (39,242)
Cancellation of prior stock in connection
with recapitalization.................... (1,080,000) (11) (10,000,000) (100) 111 -- --
Issuance of preferred stock................ 3,728,693 37 -- -- 14,963 -- 15,000
Issuance of common stock................... -- -- 2,130,682 21 8,551 -- 8,572
Issuance of common stock warrants in
connection with debt restructuring....... -- -- -- -- 1,571 -- 1,571
Contributed capital........................ -- -- -- -- 1,314 -- 1,314
Net income................................. -- -- -- -- -- 20,530 20,530
Reclassification of accumulated deficit
pursuant to quasi-reorganization......... -- -- -- -- (49,812) 49,812 --
---------- ------ ----------- ------ --------- ----------- --------
Balance at June 30, 1997................... 3,728,693 37 2,130,682 21 7,687 -- 7,745
Net income (Unaudited)..................... -- -- -- -- -- 1,723 1,723
---------- ------ ----------- ------ --------- ----------- --------
Balance at September 30, 1997
(Unaudited).............................. 3,728,693 $37 2,130,682 $21 $ 7,687 $1,723 $9,468
---------- ------ ----------- ------ --------- ----------- --------
---------- ------ ----------- ------ --------- ----------- --------
</TABLE>

See accompanying notes.

F-5
<PAGE>
MIDWAY AIRLINES CORPORATION

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
DECEMBER 31, ---------------------- --------------------
1996 1996 1997 1996 1997
------------- ----------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................................... $ (24,264) $ (22,834) $20,530 $ (25,326) $22,252
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of long-lived assets.................... 16,941 16,941 -- 16,941 --
Depreciation and amortization...................... 1,346 618 767 955 1,379
Deferral of expense payments....................... 8,762 6,060 -- 6,060 --
Special recapitalization charges................... -- -- 1,225 -- 1,225
Extraordinary gain................................. -- -- (15,272) -- (15,272)
Changes in operating assets and liabilities:
Restricted cash.................................. -- 94 (1,582) 139 (1,037)
Accounts receivable.............................. 9,172 (655 ) (5,940) 2,717 (9,380)
Inventories...................................... (99 ) 48 (34) (162) (337)
Prepaids and other............................... (2,331 ) (58 ) (531) (1,476) (2,137)
Aircraft lease deposits and other................ (1,126 ) (498 ) (209) (919) (294)
Accounts payable................................. (4,455 ) (2,342 ) (601) (3,187) 3,277
Accrued expenses................................. 3,366 208 135 1,561 309
Accrued excise taxes............................. 2,437 (2,446 ) (3,485) (2,662) (3,387)
Accrued income taxes............................. -- -- 3,458 -- 3,507
Advance ticket sales............................. 1,131 3,329 5,274 5,542 7,464
Other current liabilities........................ (6,795 ) (6,572 ) (2,567) (7,124) (2,514)
Other long-term liabilities...................... 1,699 3,915 (61) 4,072 (94)
------------- ----------- --------- --------- ---------
Net cash provided by (used in) operating activities.... 5,784 (4,192 ) 1,107 (2,869) 4,961

INVESTING ACTIVITIES
Purchase of short-term investments..................... -- -- (63,325) -- (73,758)
Sales of short-term investments........................ -- -- 41,234 -- 60,826
Purchase of property and equipment..................... (1,692 ) (1,100 ) (942) (1,433) (7,096)
Aircraft purchase deposits............................. (922 ) (922 ) -- (922) (1,350)
------------- ----------- --------- --------- ---------
Net cash used in investing activities.................. (2,614 ) (2,022 ) (23,033) (2,355) (21,378)

FINANCING ACTIVITIES
Issuance of common stock............................... -- -- 7,000 -- 7,000
Issuance of preferred stock............................ -- -- 15,000 -- 15,000
Proceeds from issuance of long-term debt............... 8,795 5,755 -- 5,755 --
Repayment of long-term debt............................ (3,959 ) (1,106 ) (962) (2,402) (1,570)
Capitalized interest on long-term debt................. -- -- 681 -- 1,114
Principal payments on capital lease.................... -- -- (70) -- (109)
------------- ----------- --------- --------- ---------
Net cash provided by financing activities.............. 4,836 4,649 21,649 3,353 21,435
Increase (decrease) in cash and cash equivalents....... 8,006 (1,565 ) (277) (1,871) 5,018
Cash and cash equivalents, beginning of period......... 2,799 2,799 10,805 2,799 10,805
------------- ----------- --------- --------- ---------
Cash and cash equivalents, end of period............... $ 10,805 $ 1,234 $ 10,528 $ 928 $ 15,823
------------- ----------- --------- --------- ---------
------------- ----------- --------- --------- ---------

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................................ $ 210 $ 82 $ 96 $ 163 $ 117

SCHEDULE OF NON-CASH ACTIVITIES
Issuance of debt in settlement of expenses........... 14,934 13,440 -- 13,446 --
Receivable offset against related liabilities........ -- -- (59) -- (59)
Issuance of long-term debt for assets................ 904 143 300 518 300
</TABLE>

See accompanying notes.

F-6
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Midway Airlines Corporation ("Midway" or the "Company"), a Delaware
corporation, is an air carrier providing primarily passenger service and to a
lesser extent, cargo and mail services. The Company began operations in November
1993 and flies primarily to East Coast locations from its hub at the Raleigh-
Durham International Airport ("Raleigh-Durham"), with additional service daily
to Cancun, Mexico, currently utilizing twelve Fokker F-100 and one Airbus A320
aircraft.

On July 22, 1994, Zell/Chilmark Fund LP ("Zell/Chilmark") acquired preferred
stock and approximately 90% of the Common Stock of the Company for approximately
$25 million (the "acquisition"). The acquisition was accounted for using the
purchase method of accounting. The excess of the purchase price over the fair
value of the net assets acquired was approximately $11.7 million at December 31,
1995.

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

QUASI-REORGANIZATION

As a result of the February 11, 1997 recapitalization, debt restructurings
and installation of a new chief executive officer, the Company's Board of
Directors approved a corporate readjustment of the Company's accounts in the
form of a quasi-reorganization which was effected on June 30, 1997.

A quasi-reorganization is an accounting procedure which results in
eliminating the accumulated deficit in retained earnings. This accounting
procedure is limited to a reclassification of accumulated deficit as a reduction
of paid-in capital. The Company believes the quasi-reorganization was
appropriate because on completion of the recapitalization, the debt
restructurings, and the installation of a new chief executive officer, the
Company had substantially reduced its outstanding indebtedness, had formulated
revised operating plans and as a result thereof was able to devote its resources
to its continuing operations. Because assets were stated at approximate fair
values, the quasi-reorganization had no effect on recorded assets.

STOCK SPLIT

On November 11, 1997, the Company's Board of Directors approved a
682.9108392-for-1 stock split of the Company's common stock. All common share,
convertible preferred share, option and warrant data after the February 11, 1997
recapitalization have been restated to reflect the split.

USE OF ESTIMATES AND ASSUMPTIONS

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 that
reporting period. Actual results could differ from those estimates.

JUNE 30, 1996 AND SEPTEMBER 30, 1996 AND 1997 INTERIM FINANCIAL INFORMATION
(UNAUDITED)

The statements of operations and cash flows for the six-month period ended
June 30, 1996 and for the nine-month periods ended September 30, 1996 and 1997
are unaudited and reflect all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair

F-7
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
presentation of results of operations and cash flows. All information related to
the six-month period ended June 30, 1996 and nine-month periods ended September
30, 1996 and 1997 is unaudited.

IMPAIRMENT OF LONG-LIVED ASSETS

During 1996, as a result of ongoing operating losses, the Company evaluated
the carrying value of its long-lived assets in accordance with SFAS No. 121.
SFAS No. 121 requires the evaluation of recoverability based on the relationship
of undiscounted cash flows to the carrying value of the long-lived assets. As a
result of this analysis, the Company determined that certain long-lived assets
were impaired. During 1996, the Company recorded an impairment loss of $11.1
million to write down the goodwill from the 1994 Zell/ Chilmark acquisition
(NOTE 1) and $5.8 million related to rotable aircraft parts and certain purchase
deposits. The impairment loss was determined by comparing the carrying value of
the Company's long-lived assets to the Company's estimates of fair values of the
assets.

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalents include investments with an original maturity of
three months or less. These investments are stated at cost, which approximates
market value. As of December 31, 1996, June 30, 1997 and September 30, 1997,
approximately $2 million, $3.6 million and $3 million, respectively, of cash and
cash equivalents are restricted as to withdrawal; serve as collateral to support
letters of credit; and are classified as restricted cash on the balance sheets.

SHORT-TERM INVESTMENTS

Short-term investments consist of highly liquid commercial paper, corporate
bonds, bankers' acceptances, certificates of deposits and eurodollar deposits,
all issued by banks. All mature within one year or less, or can be redeemed
without penalty within one year or less. These investments are carried at cost,
which approximates market value.

CONCENTRATIONS

Midway's accounts receivable are primarily receivables from major credit
card companies, travel agencies, and other air carriers related to ticket sales
for passenger transportation. The Company does not believe it is subject to any
significant concentration of credit risk. The Company establishes an allowance
for doubtful accounts based upon factors surrounding credit risk. At December
31, 1996, June 30, 1997 and September 30, 1997, the allowance for doubtful
accounts was approximately $58,000, $58,000 and $74,000, respectively.

Amounts charged by a related party vendor accounted for approximately 15%,
18%, 15%, and 15% of operating expenses for the year ended December 31, 1996,
for the six months ended June 30, 1997, and for the nine months ended September
30, 1996 and 1997, respectively. This vendor provided services related primarily
to maintenance, provision of passenger services and subleasing of airport
facilities rentals. The Company does not believe, however, there is a
significant risk associated with this vendor for the services provided, as
alternative sources are generally available at commercially reasonable prices.
Facilities are subleased from this vendor pursuant to lease agreements covering
various time periods (see Note 5).

INVENTORIES

Consumable spare parts, materials and supplies relating to flight equipment
are carried at the lower of cost or market and are expensed as used.

F-8
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
EQUIPMENT AND PROPERTY

Equipment and property consist primarily of rotable spare parts for
aircraft, leasehold improvements, and miscellaneous equipment used in aircraft
operations. Equipment and property are depreciated to estimated residual values
using the straight-line method over estimated useful lives ranging from 5 to 25
years for flight equipment and 3 to 5 years for other equipment. Depreciation
expense charged to operations was approximately $1.1 million, $700,000, $803,000
and $1.3 million, for the year ended December 31, 1996, for the six months ended
June 30, 1997, and for the nine months ended September 30, 1996 and 1997,
respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximate fair values at June 30, 1997. At December 31, 1996,
the debt, other liabilities and warrants were reflected at historical value. At
the end of 1996, the Company was involved in negotiations regarding
restructuring its debt with vendors and investors. Therefore it was impractical
to estimate fair values of its debt instruments at that time. In connection with
the February 11, 1997 recapitalization (Note 15), debt, other liabilities and
warrants with December 31, 1996 carrying values of $16.5 million were settled
for approximately $1.5 million.

AIRCRAFT AND ENGINE MAINTENANCE AND REPAIRS

Routine maintenance and repair costs for aircraft are charged to expense
when incurred, except for major airframe and engine maintenance. Depending on
the particular maintenance contract, these latter costs are either (i) expensed
on the basis of the number of hours flown or cycles incurred at contractual
rates or (ii) capitalized when incurred and amortized on a straight-line basis
over the period of time between overhauls. All other maintenance is charged to
operating expense as incurred.

MEDICAL SELF-INSURANCE

The Company provides certain health and medical benefits to eligible
employees, their spouses and dependents pursuant to a benefit plan funded by the
Company. Each participating employee contributes to the Company's costs
associated with such benefit plan. The Company's obligation to fund this benefit
plan and pay for these benefits itself is capped through its purchase of an
insurance policy from a third party insurer. The amount established as a reserve
is intended to recognize the Company's estimated obligations with respect to its
payment of claims and claims incurred but not yet reported under the benefit
plan. Management believes that the recorded liability for medical self-insurance
at December 31, 1996, June 30, 1997 and September 30, 1997 is adequate to cover
the losses and claims incurred, but these reserves are necessarily based on
estimates and the amount ultimately paid may be more or less than such
estimates. These estimates are based upon historical information along with
certain assumptions about future events, including increases in projected
medical costs.

REVENUE RECOGNITION AND ADVANCE TICKET SALES

Passenger revenues are recognized when transportation services are provided,
rather than when a ticket is sold. The amount of ticket sales not yet recognized
as revenue is reflected as a liability in the accompanying balance sheets as
"advance ticket sales". Commissions are recognized as expense when
transportation is provided and the related revenue is recognized. The amount of
commissions paid but not yet recognized as expense is included in "Prepaids and
other" in the accompanying balance sheets.

F-9
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
FREQUENT FLYER PROGRAM

Effective March 1995, the Company began participation in the American
Airlines AAdvantage-Registered Trademark- frequent flyer program. Under this
program, members can earn mileage credits and redeem awards at participating
AAdvantage companies. Midway is billed monthly for AAdvantage miles earned by
its passengers participating in the program who fly on Midway. The Company does
not accrue any liability for award travel it may be required to provide because
the incremental cost of redemptions have not been, and are not expected to be,
material.

ADVERTISING EXPENSE

The Company expenses advertising costs as incurred. The Company recognized
advertising expense of $5.7 million, $2.3 million, $4.2 million and $3.4 million
for the year ended December 31, 1996, for the six months ended June 30, 1997,
and for the nine months ended September 30, 1996 and 1997, respectively.

INCOME TAXES

The Company accounts for income taxes using the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities.

STOCK-BASED COMPENSATION

The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under the provisions of APB 25, no compensation expense is
recognized for stock or stock options issued at fair value.

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"), which provides an alternative to APB 25 in
accounting for stock-based compensation issued to employees. SFAS 123 provides
for a fair value based method of accounting for employee stock options and
similar equity instruments. However, for companies that continue to account for
stock-based compensation arrangements using APB 25, SFAS 123 requires disclosure
of the proforma effect on net income (loss) and earnings (loss) per share as if
the fair value based method provided by SFAS 123 had been applied. The Company
accounts for stock-based compensation arrangements using APB 25 and has adopted
the proforma disclosure requirements of SFAS 123 (Note 8).

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the FASB issued Statement No. 128, "Earnings Per Share,"
("SFAS 128") which requires public companies to report basic and diluted
earnings (loss) per share using the calculation methodologies set forth in the
statement. SFAS 128 is effective for years ended after December 15, 1997; thus
this pronouncement will be adopted by the Company for its fiscal year ended
December 31, 1997. Application of this pronouncement, and continuing the
application of SEC requirements as discussed in Note 9 is not expected to
materially change the per share amount for the periods presented.

In 1997, the FASB issued Statements No. 130, "Reporting Comprehensive
Income" ("SFAS 130") and No. 131, "Disclosures About Segments of an Enterprise
and Related Information" ("SFAS 131"). SFAS 130 addresses reporting amounts of
other comprehensive income and SFAS 131 addresses reporting segment information.
The Company does not believe that the adoption of these new standards will have
a material impact on the its financial statements.

F-10
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
------------- ----------- -------------
<S> <C> <C> <C>
Maintenance..................................................... $ 289 $ 560 $ 659
Restructuring................................................... 3,855 -- --
Landing fees.................................................... 321 296 510
Other........................................................... 4,540 2,692 2,445
------ ----------- ------
$ 9,005 $ 3,548 $ 3,614
------ ----------- ------
------ ----------- ------
</TABLE>

4. LONG-TERM DEBT

The Company's long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
------------ --------- -------------
<S> <C> <C> <C>
8% secured notes payable, principal payments commencing
February, 1998, due January, 2004 (net of debt discount of
$1,483 and $1,427 as of June 30 and September 30, 1997,
respectively) (a)............................................ $ -- $ 8,286 $ 8,539
8% unsecured notes payable, principal payments commencing
February, 1998, due January, 2004 (net of debt discount of
$1,483 and $1,427 as of June 30 and September 30, 1997,
respectively) (b)............................................ -- 4,602 4,781
Miscellaneous notes payable due by December 2001 with interest
rates varying from 5 to 15%.................................. 1,120 583 6
7.5% secured note payable, principal payments commencing
November, 1995, due October, 2003 (c)........................ 1,173 -- --
12% unsecured subordinated notes payable, due April 2002 (net
of debt discount of $100) (d)................................ 9,900 -- --
Unsecured note payable, noninterest bearing, due upon
conversion or redemption of junior preferred stock, as
defined (e).................................................. 245 -- --
10% secured note payable, due December 31, 1996 (f)............ 9,000 -- --
Other notes payable at various interest rates, due December 31,
1996 (g)..................................................... 8,746 -- --
------------ --------- -------------
30,184 13,471 13,326
Less--amounts due within one year.............................. 18,860 719 1,035
------------ --------- -------------
$ 11,324 $ 12,752 $ 12,291
------------ --------- -------------
------------ --------- -------------
</TABLE>

- ------------------------
a) As a part of the recapitalization on February 11, 1997, the note payable of
$9 million, plus accrued interest of $450,000 was converted into a note
payable, collateralized by first and second security interests in most of
the Company's assets. The note accrues interest until February, 1998, when
principal plus interest payments begin.

b) As a part of the recapitalization on February 11, 1997, the notes payable
were restructured into long-term notes payable, accruing interest until
February, 1998 when principal plus interest payments

F-11
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. LONG-TERM DEBT (CONTINUED)
begin. Certain lease deposits were applied against the prior balances due to
reduce the principal amount from that shown at December 31, 1996.

AS A RESULT OF THE FEBRUARY 11, 1997 RECAPITALIZATION (NOTE 15), THE
FOLLOWING ITEMS WERE EITHER EXTINGUISHED OR RESTRUCTURED:

c) Pursuant to Midway's agreement to lease certain aircraft, the aircraft
manufacturer agreed to provide financing for certain support equipment. The
note payable was settled in connection with the recapitalization.

d) In May 1995, in return for $6 million cash, the Company issued subordinated
notes with a face value of $6 million due in April 2002. In January and
February 1996, in return for $4 million cash, the Company issued additional
subordinated notes with a face value of $4 million due in March, 2003. The
subordinated debt was forgiven in connection with the recapitalization.

e) The Company issued a noninterest-bearing note payable to a vendor with a
face amount of $500,000, which had been discounted using a rate of 11%. The
note payable was settled in connection with the recapitalization.

f) Throughout 1996, a vendor advanced working capital to the Company and
accepted delayed payments on certain trade payables. Those obligations were
converted into short-term debt which was due on December 31, 1996. The
outstanding debt was restructured in connection with the recapitalization.

g) Throughout 1996, certain aircraft lessors allowed the Company to delay
payment on certain aircraft leases. These obligations were converted into
short-term debt which was due on December 31, 1996. As part of the
recapitalization, aircraft lease deposits of $3.4 million were offset
against the outstanding debt and the remaining debt was restructured.

The aggregate principal maturities, less interest to be accreted through
February, 1998, are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED:
- -----------------------------------------------------------------------------------
<S> <C>
June 30, 1998...................................................................... $ 719
1999............................................................................... 2,012
2000............................................................................... 2,134
2001............................................................................... 2,353
2002............................................................................... 2,545
Thereafter......................................................................... 4,463
---------
14,226
Less: interest to be accreted through February 28, 1998............................ 755
---------
Principal balance outstanding at June 30, 1997..................................... $ 13,471
---------
---------
</TABLE>

Interest charged to expense was $2.5 million, $777,000, $1.7 million and
$1.2 million for the year ended December 31, 1996, for the six months ended June
30, 1997 and for the nine months ended September 30, 1996 and 1997,
respectively. Included in interest expense during the respective periods,
interest of $19,000, $681,000, $15,000 and $1.1 million was accreted as
principal of long-term debt.

5. LEASES

As of June 30 and September 30, 1997, the Company operated twelve Fokker
F-100 aircraft and one Airbus Industries ("Airbus") A320 aircraft under
operating leases with original terms ranging from 4 to 18 years. The Company
returned four Airbus A320 aircraft in early 1996 to the lessor.

F-12
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. LEASES (CONTINUED)
The Company leases or subleases gates at various airports including
subleases for 12 gates at Raleigh-Durham Airport which expire at various times
throughout 2013. The Company also leases 70% of its slots at New York's
LaGuardia Airport and 75% of its slots at Washington, D.C.'s National Airport
from third party airlines. The slot leases are currently scheduled to expire in
April 1998. Although the Company has leased slots for six-month intervals,
consistent with industry practice, at LaGuardia Airport continuously since
November 1993, and at National Airport continuously since March 1995, there can
be no assurance that the Company will be able to renew or replace these leases.
The Company's routes between RDU and LaGuardia Airport and National Airport are
among its most important, and, as a result, an inability to renew or replace
these leases could have a material adverse effect on the Company's financial
condition and results of operations.

The Company leases certain furniture, machinery and equipment under
capitalized lease agreements that expire through 2001.

Amortization expense of $109,000, $71,000, $87,000 and $110,000 is included
in depreciation and amortization expense in the statements of operations for the
year ended December 31, 1996, for the six-months ended June 30, 1997, and for
the nine-months ended September 30, 1996 and 1997, respectively.

Property and equipment includes the following amounts for capital leases (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
--------------- ----------- ---------------
<S> <C> <C> <C>
Office equipment................................................ $ 669 $ 669 669
Less accumulated amortization................................... (161) (232) (271)
----- ----- -----
$ 508 $ 437 $ 398
----- ----- -----
----- ----- -----
</TABLE>

At June 30, 1997, the future minimum lease payments required under capital
leases and operating leases that have initial or remaining noncancelable lease
terms in excess of one year are as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING
---------------------
CAPITAL AIRCRAFT OTHER TOTAL
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED:
- ---------------------------------------------------------------------
June 30, 1998........................................................ $ 174 $ 28,560 $ 2,172 $ 30,906
1999................................................................. 165 23,975 1,250 25,390
2000................................................................. 165 16,800 1,241 18,206
2001................................................................. 22 16,800 1,265 18,087
2002................................................................. -- 16,800 1,291 18,091
Thereafter........................................................... -- 104,650 16,832 121,482
----- ---------- --------- ----------
Total minimum lease payments......................................... 526 $ 207,585 $ 24,051 $ 232,162
---------- --------- ----------
---------- --------- ----------
Amounts representing interest........................................ (89)
-----
$ 437
-----
-----
</TABLE>

F-13
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. LEASES (CONTINUED)
Rent expense is recorded on a straight-line basis over the term of the
lease. Lease and rent expense charged to operations was approximately $41.4
million, $16.7 million, $29.9 million, and $24.9 million for the year ended
December 31, 1996, for the six months ended June 30, 1997, and for the nine
months ended September 30, 1996 and 1997, respectively.

Under the terms of the aircraft leases, the Company also made a deposit on
each aircraft, generally equal to approximately three months' rent. Security
deposits related to leased aircraft totaled approximately $6.3 million, $3.1
million and $4.5 million at December 31, 1996, June 30, 1997 and September 30,
1997, respectively. At February 11, 1997, as a result of the restructuring of
debt, certain of the aircraft lease deposits were applied against principal due
to aircraft lessors. The aircraft leases also require the Company to make
deposits for maintenance based on block hours and cycles. The Company incurred
expenses of $3.3 million, $1.6 million, $2.6 million and $2.5 million related to
these payments for the year ended December 31, 1996, for the six months ended
June 30, 1997, and for the nine months ended September 30, 1996 and 1997,
respectively.

The Company currently leases 12 Fokker F-100 aircraft. Pursuant to the terms
of the leases, the lessor has the right to terminate its lease on six months
prior notice beginning September 15, 1998 provided that no lease can be
terminated if it would result in a fourth lease termination in any 12 month
period, including scheduled terminations.

6. OTHER NON-CURRENT LIABILITIES

Other non-current liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
------------- ----------- ---------------
<S> <C> <C> <C>
Deferred aircraft rent.......................................... $ 1,441 $ 352 $ 330
Miscellaneous................................................... 247 174 163
------ ----- -----
$ 1,688 $ 526 $ 493
------ ----- -----
------ ----- -----
</TABLE>

7. STOCKHOLDERS' EQUITY (DEFICIT)

Effective with the recapitalization on February 11, 1997, the following
equity structure was established:

Up to 12 million shares of $.01 par value senior convertible preferred stock
with a $4.02 stated liquidation value per share were authorized, of which
3,728,693 shares are issued and outstanding (aggregate liquidation
preference of $15,000,000). Senior convertible preferred stockholders
("preferred stockholders") are entitled to dividends if any dividends are
declared or paid on the common stock. Preferred stockholders are entitled to
70% of all votes in the aggregate. Senior convertible preferred stock may be
converted at any time at the election of the stockholder, on a basis of one
share of senior convertible preferred stock for one share of common stock.

Up to 25 million shares of $.01 par value common stock were authorized, of
which 2,130,682 shares are issued and outstanding. Common stockholders are
entitled to one vote per share of stock held. Common stockholders' rights
are subordinate to those of preferred stockholders.

F-14
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Warrants were issued for the purchase of 390,625 shares of $.01 par value
common stock for $.0015 per share. The warrants were valued at $4.02 per
share, or $1.57 million, and expire on February 11, 2002. The warrants may
be exercised in the whole or in part at any time prior to expiration.

In connection with the February 11, 1997 recapitalization, all of the
following series of stockholders' equity instruments were canceled and
replaced with the new equity structure (NOTE 15):

In connection with the 1994 acquisition by Zell/Chilmark, the previous
shareholders were granted junior preferred stock and approximately 10% of
the Company's outstanding common stock in return for their prior ownership
interests. Zell/Chilmark received 480,000 shares of $.01 par value prior
preferred stock, with $50 per share stated liquidation value and 1 million
shares authorized, and approximately 90% of the Company's outstanding common
stock for an investment of $25 million. At December 31, 1996, there were 1
million shares of prior preferred stock, $.01 par value, authorized and
480,000 shares issued and outstanding. The Company's common stock consisted
of Class A, Class B, and Class C series, $.01 par value, common stock with 9
million, 2 million, and 25 million shares authorized, respectively. At
December 31, 1996, there were 8,872,200, 0, and 1,127,800 shares of Class A,
Class B, and Class C issued and outstanding, respectively.

Prior preferred stockholders were entitled to cumulative dividends, which
accrued at $3 per share per year. At December 31, 1995, the Company had
accrued $2,040,000 of cumulative dividends. At December 31, 1996, the
Company reduced this accrual to $0 because the dividends were forgiven in
connection with the February 11, 1997 recapitalization.

Junior preferred stockholders were entitled to cumulative dividends, only
after the redemption of significantly all of the prior preferred stock, at a
rate of $.60 per share per year. At December 31, 1996, 600,000 shares of
junior preferred stock were authorized, issued and outstanding with $.01 par
value and $10 stated liquidation value. The junior preferred stock was
canceled in connection with the recapitalization.

Common stockholders rights were subordinate to those of preferred
stockholders. The Class A, Class B and Class C common stock was canceled in
connection with the recapitalization.

In conjunction with the subordinated debt offerings (NOTE 4), the Company
issued warrants to purchase 7.5 million shares of the Company's Class C
common stock at an initial exercise price of $.01 per share. These warrants
were canceled in connection with the recapitalization.

The following table presents each class of the Company's issued and
outstanding capital stock for the period prior to the February 1997
Recapitalization:

<TABLE>
<CAPTION>
DECEMBER 31,
1996
---------------------
SHARES AMOUNT
---------- ---------
<S> <C> <C>
Prior preferred stock, $.01 par value, $50 stated liquidation value, 1,000,000 shares
authorized.............................................................................. 480,000 $ 4,800
Junior preferred stock, $.01 par value, $10 stated liquidation value, 600,000 shares
authorized.............................................................................. 600,000 6,000
Class A common stock, $.01 par value, 9,000,000 shares authorized......................... 8,872,200 88,722
Class C common stock, $.01 par value, 25,000,000 shares authorized........................ 1,127,800 11,278
</TABLE>

F-15
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following table presents each class of the Company's issued and
outstanding capital stock for the period subsequent to the February 1997
Recapitalization, including the pro forma effect of the conversion of the
preferred stock upon the Company's planned initial public offering (dollars in
thousands):

<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1997 1997
----------------------- ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Senior convertible preferred stock, $.01 par
value, $4.02 stated liquidation value,
12,000,000 shares authorized................ 3,728,693 $37 3,728,693 $37 -- $--
Common stock, $.01 par value, 25,000,000
shares authorized........................... 2,130,682 21 2,130,682 21 5,859,375 59
</TABLE>

8. STOCK OPTIONS

In connection with the February, 1997 recapitalization, the Company granted
incentive stock options to acquire shares of common stock to key employees of
the Company at prices not less than the fair value at the date of grant. In
connection with the option grants, the Company reserved up to 557,255 shares of
common stock for a future stock option plan. The options granted have seven to
ten year terms with some options vesting fifty percent immediately and
twenty-five percent per year over the two years subsequent to the grant date and
others vesting twenty percent per year over five years.

The following table summarizes common stock options granted at $4.02 per
share in connection with the Company's 1997 option plan:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
SHARES EXERCISE
AVAILABLE OPTIONS PRICE PER
FOR GRANT OUTSTANDING EXERCISABLE SHARE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares reserved for grant.................................... 1,562,500 -- -- $ --
Granted.................................................... (1,005,245) 1,005,245 -- 4.02
Became exercisable......................................... -- -- 390,625 4.02
Exercised.................................................. -- -- -- --
----------- ----------- ----------- -----
Balance at June 30, 1997..................................... 557,255 1,005,245 390,625 4.02
Granted...................................................... -- -- -- --
Became exercisable........................................... -- -- -- --
Exercised.................................................... -- -- -- --
----------- ----------- ----------- -----
Balance at September 30, 1997................................ 557,255 1,005,245 390,625 $ 4.02
----------- ----------- ----------- -----
----------- ----------- ----------- -----
</TABLE>

Proforma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options using the fair value method provided by that
Statement. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997: risk-free interest rate of 6%; dividend yield of 0%;
volatility factor of the expected market price of the Company's common stock of
50%; and an average expected life of the options of six years. The weighted
average contractual lives of the options is seven years.

F-16
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTIONS (CONTINUED)
For purposes of proforma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.

The Company's pro forma information follows (in thousands except per share
amounts):

<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS
ENDED JUNE 30, ENDED SEPTEMBER 30,
1997 1997
-------------- -------------------
<S> <C> <C>
Net income:
As reported............................................ $ 20,530 $ 22,252
Pro forma.............................................. 19,021 20,332
Net income per common share and common share equivalent:
As reported............................................ $2.94 $3.19
Pro forma.............................................. 2.72 2.91
</TABLE>

The effects on net income for 1997 are not likely to be representative of
the effects on reported net income for future years since the June 30 and
September 30, 1997 information reflects expense only for the five and eight
month periods from February through June and February through September,
respectively.

9. NET INCOME PER SHARE OF COMMON STOCK

Net income per share of common stock presented in accordance with Accounting
Principles Board Opinion No. 15, "Earnings Per Share" ("APB 15") is computed
using the weighted average number of shares of common stock and the dilutive
effect of common stock equivalents outstanding.

In accordance with Securities and Exchange Commission requirements, all
issuances of the Company's convertible preferred stock, common stock options,
warrants and other potentially dilutive securities, at prices below the expected
initial public offering price during the twelve month period preceding the
planned offering, have been included in the calculations as common stock
equivalents as if they had been issued at the Company's inception (using the
treasury stock method and the estimated initial public offering price). Since
the Company was recapitalized in February 1997 and all prior capital stock was
cancelled at that time, per share amounts prior to 1997 are not meaningful and
thus are not presented.

10. INCOME TAXES

Differences between tax expense computed by applying the statutory federal
income tax rate to (loss) income before income taxes and reported tax expense
are as follows (dollars in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
-------------------- -------------------- --------------------
$ % $ % $ %
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Computed tax expense............. $ (7,899) (34.0) $ 3,198 34.0 $ 4,079 34.0
State taxes, net of federal
benefit........................ -- -- 668 7.1 936 7.1
Valuation allowance for deferred
tax assets..................... 7,899 34.0 -- -- -- --
--------- --------- --------- --- --------- ---
Reported tax expense............. $ -- -- $ 3,866 41.1 $ 5,015 41.1
--------- --------- --------- --- --------- ---
--------- --------- --------- --- --------- ---
</TABLE>

F-17
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. INCOME TAXES (CONTINUED)
The components of the Company's deferred tax assets are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
------------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets--noncurrent
Restructuring reserve................................ $ 5,701 $ -- $ --
Other miscellaneous.................................. 903 2,145 2,145
Valuation allowance.................................. (6,604) (2,145) (2,145)
------ ----------- ------
Net deferred tax asset............................... $ -- $ -- $ --
------ ----------- ------
------ ----------- ------
</TABLE>

As of December 31, 1996, the Company had net operating loss carryforwards
("NOL's") of approximately $51.4 million. The NOL's may be limited or eliminated
as a result of the February 11, 1997 recapitalization.

11. COMMITMENTS AND CONTINGENCIES

The Company has been named as a defendant in certain pending litigation. The
outcome of these matters cannot be predicted, but it is management's belief that
whatever the outcome, the results will not, either individually or in the
aggregate have a material adverse effect on the Company's financial position,
results of operations or cash flows.

As a part of the recapitalization on February 11, 1997, management elected
to effectuate the early termination of an unfavorable contract. A liability of
$500,000 has been recorded to cover costs associated with exiting the contract.

In March 1995, Midway reached an agreement with Airbus for the acquisition
of four firm Airbus A320 and four option A319 or A320 aircraft with deliveries
beginning in 1998.

Pursuant to the recapitalization, the delivery dates of these aircraft have
been moved to 2005 and later. The Company is required to make deposits on the
four firm aircraft in amounts to be determined beginning in 2003. The Company is
looking at several alternatives with respect to the A320s, including
restructuring its agreement with Airbus or selling its position.

12. SAVINGS PLAN

Effective August 1995, the Company established a savings plan (the "Plan")
pursuant to Section 401(k) of the Internal Revenue Code. All employees are
eligible for enrollment in the Plan after six months of employment. The Company,
at its discretion, may match up to 50% of employee contributions up to a maximum
of $1,000 in any given calendar year. The Company made no contributions to the
Plan for the year ended December 31, 1996, for the six months ended June 30,
1997, or the nine months ended September 30, 1997.

13. RESTRUCTURING CHARGES

In December 1994, the Company reached a decision to relocate its main base
of operations from Chicago to Raleigh-Durham. The Company began operations at
Raleigh-Durham in March 1995. In conjunction with the decision to move, the
Company recorded a restructuring charge of $4.9 million for estimated exit costs
related to its Chicago Midway Airport headquarters. The remaining liability of
$3.9

F-18
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

13. RESTRUCTURING CHARGES (CONTINUED)
million at December 31, 1996 is included in other current liabilities in the
accompanying balance sheet. This liability was settled for $1.2 million in the
February 11, 1997 recapitalization, which resulted in an extraordinary gain of
$2.7 million.

14. TRANSACTIONS WITH RELATED PARTIES

In August of 1996, Zell/Chilmark executed a guaranty and pledge agreement in
favor of a credit card intermediary (the "Intermediary"). The execution of this
guaranty and pledge agreement, and Zell/ Chilmark's deposit of $7 million with
the Intermediary, allowed the Intermediary to release $7 million of cash to
Midway out of the credit card holdback account maintained by the Intermediary in
connection with its processing of Midway's credit card sales. Midway executed a
Subordinated Demand Note to Zell/ Chilmark in the event the Intermediary
exercised its rights under the guaranty and pledge agreement with respect to
Zell/Chilmark's $7.0 million cash collateral. Zell/Chilmark's guaranty and
pledge agreement was terminated, and Midway's note to Zell/Chilmark was canceled
in connection with the recapitalization on February 11, 1997 (Note 15). The
Zell/Chilmark guaranty was replaced by a letter of credit from the Company's new
majority shareholder.

Until the contract was canceled effective May 15, 1997, the Company
purchased certain reservation services from a related party. The expenses
incurred were approximately $2.1 million, $800,000, $1.6 million and $800,000
for the year ended December 31, 1996, for the six months ended June 30, 1997,
and for the nine months ended September 30, 1996 and 1997, respectively.

15. RECAPITALIZATION

On February 11, 1997, the Company was recapitalized. Through the
recapitalization, debt was either extinguished or restructured; all of the
existing stock was canceled and new stock was issued; new terms for aircraft
leases and rent reductions for facilities were negotiated; and agreements
reflecting revised maintenance arrangements were implemented. The
recapitalization resulted in an extraordinary gain of $15.3 million and
recapitalization charges of $1.2 million, which the Company recognized in the
first quarter of 1997.

The following transactions were recorded as a result of the
recapitalization:

(a) All existing shares of capital stock were canceled. New shares of
capital stock were issued (a) to James H. Goodnight, Ph.D, for consideration
of $10.1 million in cash, (b) to John P. Sall for consideration of $4.9
million in cash and (c) to Zell/Chilmark for consideration of $7.0 million
in cash. Additional shares of common stock and a warrant to purchase common
stock with an aggregate value of $3.1 million were issued to certain key
vendors. Additionally, current assets were reduced to settle various
liabilities for amounts substantially less than the carrying value at
February 11, 1997.

(b) Agreements were negotiated to allow for approximately $3.4 million
in aircraft lease deposits to be offset against amounts owed to the holders
of those deposits. Equipment purchase deposits of $1.8 million were offset
against related current liabilities.

(c) Current debt, accrued lease expense, accrued prior restructuring
costs (NOTE 13) and related accrued interest totaling approximately $6.7
million were settled for amounts substantially less than the carrying value
at December 31, 1996. Additionally $1.2 million was accrued for expenses
associated with the recapitalization.

F-19
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

15. RECAPITALIZATION (CONTINUED)
(d) Long-term debt and related interest expense of approximately $10.9
million were forgiven and current maturities of approximately $14.9 million
were restructured to long-term debt.

16. SUBSEQUENT EVENTS (UNAUDITED)

AIRCRAFT PURCHASE AGREEMENT

In September 1997, the Company executed an aircraft purchase agreement with
Bombardier, Inc. for the purchase of ten newly manufactured CRJ-200ER Canadair
Regional jet aircraft. These aircraft are scheduled for delivery beginning
November 1997, and continuing until December 1998. The purchase agreement also
gives Midway the option to purchase up to 20 additional CRJ-200ER aircraft with
delivery dates throughout 1999 and 2000. In order to finance these aircraft, the
Company expects to arrange a combination of debt and leveraged lease financing.

COMPLIANCE WITH FAA REGULATIONS

In September 1997, the Civil Aviation Security Division of the FAA conducted
an investigation of the Company's compliance with certain regulations requiring
the Company to verify the accuracy of background information provided by its
employees who have access to secure airport areas. The Company revised its
background check procedures during the course of the FAA's investigation and
then obtained and verified the necessary background information of those
employees who had been identified by the FAA as having insufficient background
check documentation. This investigation will likely result in the finding of
violations of these regulations. While the Company is unable to determine
whether the FAA will pursue an assessment as a result of the findings of this
investigation, or what the amount of any such assessment might be, an assessment
could have a material adverse effect on the Company's results of operations.

CODE SHARE AGREEMENT WITH COMMUTER AIRLINE

In July 1997, the Company entered into a Memorandum of Understanding (MOU)
with a commuter airline partner which contemplates the creation of a definitive
contractual code share agreement between the Company and the commuter airline.
The MOU sets forth the principal terms expected to be incorporated into the
definitive agreement including the distribution of profits and/or losses in the
markets served and including an equity ownership position to be taken by the
Company in the commuter airline. Since the signing of the MOU in July, the
Company and the commuter airline have been operating under the terms of the MOU
for the routes currently being flown by the commuter partner.

F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Midway Airlines Corporation:

We have audited the accompanying balance sheets of Midway Airlines
Corporation (a Delaware corporation) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the period from August 1, 1994 to December 31, 1994 and for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based upon our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Midway Airlines Corporation
as of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the period from August 1, 1994 to December 31, 1994 and for the year
ended December 31, 1995, in conformity with generally accepted accounting
principles.

The accompanying financial statements as of December 31, 1995 and for the
year then ended have been prepared assuming the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the Company has
suffered recurring losses from operations and has a net working capital and
total stockholders' equity deficit. In addition, the Company has significant
obligations which mature primarily in September and October 1996. These factors
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Arthur Andersen LLP

Raleigh, North Carolina
June 16, 1996

F-21
<PAGE>
MIDWAY AIRLINES CORPORATION

BALANCE SHEETS

(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
ASSETS 1994 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 6,909 $ 2,799
Accounts receivable, net.............................................. 4,689 14,878
Other receivables..................................................... 1,148 529
Prepayments and other................................................. 1,484 3,897
--------- ---------
Total current assets............................................ 14,230 22,103
--------- ---------
EQUIPMENT AND PROPERTY:
Flight................................................................ 1,830 7,140
Other................................................................. 95 3,518
Less--Accumulated depreciation........................................ 64 1,400
--------- ---------
1,861 9,258
--------- ---------
AIRCRAFT DEPOSITS....................................................... 1,721 7,749
--------- ---------
INTANGIBLE AND OTHER ASSETS, net........................................ 18,170 19,202
--------- ---------
$ 35,982 $ 58,312
--------- ---------
--------- ---------

<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt.................................. $ 949 $ 1,062
Accounts payable...................................................... 778 10,956
Accrued liabilities (Note 4).......................................... 10,025 31,855
Advance ticket sales.................................................. 5,223 18,020
--------- ---------
Total current liabilities....................................... 16,975 61,893
--------- ---------
LONG-TERM DEBT.......................................................... 2,018 7,307
--------- ---------
OTHER NONCURRENT LIABILITIES (Note 7)................................... 403 387
--------- ---------
DEFERRED INCOME (Note 8)................................................ 0 5,783
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 1, 6, 9, 11 and 15)

STOCKHOLDERS' EQUITY (DEFICIT):
Prior preferred stock, $.01 par value, $50 stated liquidation value,
1,000,000 shares authorized, 480,000 shares issued and
outstanding......................................................... 5 5
Junior preferred stock, $.01 par value, $10 stated liquidation value,
600,000 shares authorized, issued and outstanding................... 6 6
Class A common stock, $.01 par value, 9,000,000 shares authorized,
8,872,200 shares issued and outstanding............................. 89 89
Class C common stock, $.01 par value, 25,000,000 shares authorized,
1,127,800 shares issued and outstanding............................. 11 11
Additional paid-in capital............................................ 30,889 30,949
Accumulated deficit................................................... (14,414) (48,118)
--------- ---------
Total stockholders' equity (deficit)............................ 16,586 (17,058)
--------- ---------
$ 35,982 $ 58,312
--------- ---------
--------- ---------
</TABLE>

The accompanying notes to financial statements are an integral part of these
balance sheets.

F-22
<PAGE>
MIDWAY AIRLINES CORPORATION

STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
OPERATING REVENUES:
Passenger.......................................................................... $ 14,662 $ 118,568
Cargo.............................................................................. 33 1,168
Contract and other................................................................. 1,180 2,866
------------ ------------
Total revenues................................................................... 15,875 122,602
------------ ------------

OPERATING EXPENSES:
Wages, salaries and related costs.................................................. 3,659 19,874
Aircraft fuel...................................................................... 3,514 16,782
Aircraft and engine rentals........................................................ 5,328 30,889
Commissions........................................................................ 1,205 9,382
Maintenance, materials and repairs................................................. 1,383 13,551
Other rentals and landing fees..................................................... 1,760 11,924
Depreciation and amortization...................................................... 334 2,056
Other.............................................................................. 7,548 43,769
Restructuring...................................................................... 4,900 6,004
------------ ------------
Total operating expenses......................................................... 29,631 154,231
------------ ------------
OPERATING LOSS....................................................................... (13,756) (31,629)
Interest income...................................................................... 101 348
INTEREST EXPENSE..................................................................... (130) (761)
OTHER................................................................................ (29) (222)
------------ ------------
NET LOSS............................................................................. (13,814) (32,264)
PREFERRED STOCK DIVIDENDS............................................................ (600) (1,440)
------------ ------------
NET LOSS AVAILABLE FOR COMMON STOCKHOLDERS........................................... $ (14,414) $ (33,704)
------------ ------------
------------ ------------
Net loss per share................................................................... $ (1.44) $ (3.37)
------------ ------------
------------ ------------
Shares used in computing net loss per share.......................................... 10 million 10 million
------------ ------------
------------ ------------
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-23
<PAGE>
MIDWAY AIRLINES CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRIOR PREFERRED JUNIOR PREFERRED CLASS A COMMON CLASS C COMMON
STOCK STOCK STOCK STOCK
------------------------ ------------------------ ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------- --------- ------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
August 1, 1994.......... 480,000 $ 5 600,000 $ 6 8,872,200 $ 89 1,127,800 $ 11
Net loss available for
common stockholders... -- -- -- -- -- -- -- --
-- --
--------- --------- --------- --- --------- ---
BALANCE,
December 31, 1994....... 480,000 $ 5 600,000 $ 6 8,872,200 $ 89 1,127,800 $ 11
Common stock warrants... -- -- -- -- -- -- -- --
Net loss available for
common stockholders... -- -- -- -- -- -- -- --
-- --
--------- --------- --------- --- --------- ---
BALANCE,
December 31, 1995....... 480,000 $ 5 600,000 $ 6 8,872,200 $ 89 1,127,800 $ 11
-- --
-- --
--------- --------- --------- --- --------- ---
--------- --------- --------- --- --------- ---

ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
----------- ------------ ---------
<S> <C> <C> <C>
BALANCE,
August 1, 1994.......... $ 30,889 $ -- $ 31,000
Net loss available for
common stockholders... -- (14,414) (14,414)

----------- ------------ ---------
BALANCE,
December 31, 1994....... $ 30,889 $ (14,414) $ 16,586
Common stock warrants... 60 -- 60
Net loss available for
common stockholders... -- (33,704) (33,704)

----------- ------------ ---------
BALANCE,
December 31, 1995....... $ 30,949 $ (48,118) $ (17,058)

----------- ------------ ---------
----------- ------------ ---------
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-24
<PAGE>
MIDWAY AIRLINES CORPORATION

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................... $ (13,814) $ (32,264)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization.......................................... 334 2,056
Restructuring charge................................................... 4,900 --
Deferred income........................................................ -- 6,000
Amortization of deferred income........................................ -- (217)
Deferred rent expense.................................................. 349 --
Accretion of debt discount............................................. -- 42
Change in other operating assets and liabilities:
Increase in receivables.............................................. (974) (9,569)
Increase in prepayments and other.................................... (543) (2,413)
Increase in aircraft deposits........................................ (1,321) (5,105)
Increase in other assets............................................. (700) (1,752)
Increase (decrease) in accounts payable.............................. (1,362) 10,178
Increase (decrease) in accrued liabilities........................... (1,476) 19,658
Increase in advance ticket sales..................................... 660 12,796
Other, net........................................................... (376) (215)
-------- --------
Net cash used in operating activities.............................. (14,323) (805)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES--Purchase of equipment and property... (354) (6,876)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collection of subscription receivable.................................... 12,500 --
Proceeds from issuance of debt........................................... -- 6,012
Repayment of debt........................................................ (73) (2,441)
-------- --------
Net cash provided by financing activities.......................... 12,427 3,571
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS...................................... (2,250) (4,110)
CASH AND CASH EQUIVALENTS, beginning of period............................. 9,159 6,909
-------- --------
CASH AND CASH EQUIVALENTS, end of period................................... $ 6,909 $ 2,799
-------- --------
-------- --------
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-25
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION:

Midway Airlines Corporation (Midway or the Company), a Delaware corporation,
is an air carrier providing passenger, cargo and mail services. The Company
began jet operations in November 1993. The Company services primarily East Coast
locations from its hub at Raleigh-Durham International Airport (Raleigh-Durham),
with additional service to Cancun, Mexico, and Las Vegas, Nevada, utilizing
Fokker F-100 and Airbus A320 aircraft.

On July 22, 1994 Zell/Chilmark Fund LP (Zell/Chilmark) acquired prior
preferred stock and approximately 90% of the common stock of the Company for
approximately $25 million (the Acquisition). The Acquisition was accounted for
using the purchase method of accounting. This method requires that all of the
assets acquired and liabilities assumed be adjusted from their historical cost
basis to their fair market value as of the effective date of the acquisition,
August 1, 1994. The historical cost basis of the assets acquired and liabilities
assumed approximated their fair value at August 1, 1994. In connection with the
acquisition, Fokker Aircraft, B.V. (Fokker) agreed to restructure the Company's
outstanding debt balances in return for a cash payment of approximately $800,000
and the issuance of new debt (see Note 5). The excess of the purchase price over
the fair values of the net assets acquired was approximately $11,740,000.

The accompanying financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and satisfaction of
liabilities and commitments in the normal course of business. As reflected in
the accompanying financial statements, the Company incurred a net loss before
preferred stock dividends for the year ended December 31, 1995 and for the five
months ended December 31, 1994, of $32,264,000 and $13,814,000, respectively,
and as of December 31, 1995 and 1994, had an accumulated deficit of $48,118,000
and $14,414,000, respectively. In addition, the Company has deferred certain
vendor payables from 1995 and incurred additional short-term financing in 1996,
totaling approximately $8 million. The Company's cash and cash equivalents at
December 31, 1995, and its projected 1996 operating cash flows will not be
sufficient to allow the Company to satisfy these obligations which mature
primarily in September and October 1996.

Management recognizes that the Company must obtain additional funds to
enable it to meet its obligations. Management's plans include the sale of
additional equity securities under appropriate market conditions or other
business transactions or vendor concessions which would generate sufficient
funds to enable the Company to repay its obligations.

The Company has retained investment banking counsel to advise it on the
possible sale of equity securities. Management expects that this effort will
result in obtaining additional capital. However, no assurance can be given that
the Company will be successful in these efforts.

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS:

USE OF ESTIMATES

F-26
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS: (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENT

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement
establishes accounting standards for the impairment of long-lived assets and
intangible assets to be held and used and for long-lived assets and intangible
assets to be disposed of. The Company will adopt the provisions of this
statement in fiscal 1996. Management has not yet determined the impact of SFAS
No. 121.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of highly liquid investments with an
original maturity of three months or less. At December 31, 1995 and 1994,
approximately $2 million and $700,000, respectively, of cash and cash
equivalents is restricted as to withdrawal for operating purposes to support
letters of credit and claims remaining from the Jet Express, Inc. bankruptcy
(Note 7) and is included in intangibles and other assets in the accompanying
balance sheets.

ACCOUNTS RECEIVABLE AND CREDIT RISK

Midway's accounts receivable are primarily receivables from major credit
card companies and other airline carriers generated primarily from ticket sales
for passenger transportation. The Company does not believe it is subject to any
significant concentration of credit risk. The Company establishes an allowance
for doubtful accounts based upon factors surrounding credit risk. At December
31, 1995 and 1994, the allowance for doubtful accounts was approximately
$75,000.

One vendor accounted for approximately 12% and 10% of operating expenses for
the year ended December 31, 1995 and five months ended December 31, 1994,
respectively, primarily related to maintenance, passenger services and airport
facilities rentals. However, the Company does not believe there is a significant
risk associated with this vendor or these services, as alternative sources are
available.

INVENTORIES

Consumable spare parts, materials and supplies relating to flight equipment
are carried at the lower of cost or market and are expensed as used. Inventories
are included in prepayments and other in the accompanying balance sheets.

EQUIPMENT AND PROPERTY

Equipment and property consist primarily of rotable spare parts for
aircraft, leasehold improvements and miscellaneous equipment used in aircraft
operations. Equipment and property are depreciated to estimated residual values
using the straight-line method over estimated useful lives ranging from 5 to 25
years for flight equipment and 3 to 5 years for other equipment. Depreciation
expense charged to operations was approximately $1.3 million and $64,000 for the
year ended December 31, 1995 and five months ended December 31, 1994,
respectively.

F-27
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS: (CONTINUED)
AIRCRAFT AND ENGINE MAINTENANCE AND REPAIRS

The cost of routine maintenance of aircraft and engines is charged to
operating expense on a per hour or per landing basis as incurred.

INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist primarily of cost in excess of net
assets acquired related to the Zell/ Chilmark acquisition (Note 1), landing slot
rights and restricted cash. The cost in excess of net assets acquired and the
landing slot rights are amortized over 25 years. Amortization expense recognized
for the year ended December 31, 1995 and the five months ended December 31,
1994, was approximately $709,000 and $270,000, respectively. The Company
periodically reviews the values assigned to its intangible assets to determine
whether current events and circumstances warrant adjustment to the carrying
values or amortization periods.

Intangible and other assets consist of the following at December 31 (in
thousands):

<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Cost in excess of net assets acquired, net.............................. $ 11,570 $ 11,101
Landing slot rights, net................................................ 5,900 5,660
Restricted cash......................................................... 700 2,000
Other................................................................... 0 441
--------- ---------
$ 18,170 $ 19,202
--------- ---------
--------- ---------
</TABLE>

INSURANCE

The Company is self-insured for losses arising from medical claims arising
from certain of its group medical plans. Such losses, however, are limited to a
maximum amount through insurance coverage in excess of the self-insured
retention. Reserves are established to recognize the estimated liability for
reported claims and claims incurred but not yet reported. Management believes
that the reserve for losses at December 31, 1995 and 1994, is adequate to cover
the ultimate cost of losses and claims to date, but the reserve is necessarily
based on estimates and the amount ultimately paid may be more or less than such
estimates. These estimates are based upon historical information along with
certain assumptions about future events, including increases in projected
medical costs.

REVENUE RECOGNITION AND ADVANCE TICKET SALES

Passenger revenues are recognized when transportation services are provided,
rather than when a ticket is sold. The amount of passenger sales not yet
recognized as revenue is reflected in the accompanying balance sheets as advance
ticket sales. Commissions are recognized as expense when transportation is
provided and the related revenue is recognized. The amount of commissions paid
but not yet recognized as expense is reflected in prepayments and other in the
accompanying balance sheets.

FREQUENT FLYER PROGRAM

Effective March 1995, the Company began participation in the American
Airlines (American) AAdvantage frequent flyer program. Under this program,
members can earn mileage credits and redeem

F-28
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS: (CONTINUED)
awards at participating AAdvantage companies. Midway is billed monthly for
AAdvantage miles earned by its passengers participating in the program that fly
on Midway and bills American for award travel flown on Midway.

In connection with the decision to participate in the AAdvantage program,
the Company decided to discontinue awarding mileage credits under its
company-sponsored program. All travel under the company-sponsored program must
be completed by September 1996. The Company's liability related to its program,
which is included in accrued liabilities in the accompanying balance sheets, was
not significant at December 31, 1995 and 1994.

RESTRUCTURING CHARGES

Restructuring charges are established based upon management's estimate of
the incremental costs required to exit activities which will provide no future
economic benefit to the Company. These estimates are based upon current
information available to management and the amount ultimately paid may be more
or less than such estimates. See Note 13.

CASH FLOW INFORMATION

Cash paid for interest for the year ended December 31, 1995, was
approximately $550,000 and $129,000 for the five months ended December 31, 1994.
In 1995, the Company acquired equipment and property of approximately $1,858,000
in exchange for notes payable.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:

Cash and cash equivalents--The carrying amount reported approximates
fair value.

Debt--The fair value of the Company's fixed rate debt was estimated
using discounted cash flow analyses based on current rates for similar types
of borrowing arrangements. The fair value of the Company's variable rate
debt approximates its carrying value.

Warrants--The fair value of the warrants was estimated by the value
assigned to similar warrants issued in January 1996 (Note 15).

The carrying amounts and fair values of the Company's financial instruments
at December 31, were as follows (in thousands):

<TABLE>
<CAPTION>
1994 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
Cash and cash equivalents............................ $ 6,909 $ 6,909 $ 2,799 $ 2,799
Debt................................................. 2,967 2,967 8,369 8,263
Warrants............................................. 0 0 60 60
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>

F-29
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS: (CONTINUED)
EARNINGS (LOSS) PER SHARE OF COMMON STOCK

Earnings (loss) per share of common stock are computed based on the weighted
average number of shares of common stock outstanding of 10,000,000 for the year
ended December 31, 1995 and for the five months ended December 31, 1994. Common
stock equivalents were antidilutive for each period.

3. OTHER RECEIVABLES:

At December 31, 1995, other receivables consist primarily of amounts due for
cargo and mail services, expenses incurred by the Company to be reimbursed by
Midway Connection and other miscellaneous receivables.

In July 1995, the Company entered into a code-sharing agreement with an
unrelated commuter airline operating under the name Midway Connection. Under the
provisions of this agreement, Midway provides certain services, including
reservation, scheduling and revenue accounting services to Midway Connection.
Passenger fares are settled in accordance with the operating agreement.

At December 31, 1994, the Company had recorded a receivable of approximately
$702,000 due from an airport authority related to a service agreement for
scheduled air transportation provided in 1994 and federal excise taxes refunded
in 1995 of approximately $391,000. These amounts were collected in 1995.
Revenues of $820,000 related to the airport authority service agreement have
been included in contract and other revenues in the accompanying statement of
operations for the five months ended December 31, 1994.

At August 1, 1994, the Company had recorded a subscription receivable from
Zell/Chilmark of $12,500,000 related to the purchase of prior preferred stock
and Class A common stock. This amount was collected in October and November
1994.

4. ACCRUED LIABILITIES:

Accrued liabilities at December 31, consist of the following (in thousands):

<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Compensation and benefits............................................... $ 1,000 $ 1,734
Taxes................................................................... 793 6,494
Airport and passenger services.......................................... 333 3,397
Maintenance............................................................. 268 3,748
Prior preferred dividends............................................... 600 2,040
Aircraft and facilities rentals......................................... 435 1,621
Restructuring (Note 13)................................................. 4,900 7,412
Other................................................................... 1,696 5,409
--------- ---------
$ 10,025 $ 31,855
--------- ---------
--------- ---------
</TABLE>

F-30
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT:

The Company's long-term debt as of December 31, consists of the following
(in thousands):

<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
7.5% secured note payable, principal payments commencing $ 1,284 $ 1,264
November 1995, due October 2003(a).................................................
12% unsecured subordinated notes payable to stockholders, 0 5,940
due April 2002(b)..................................................................
Secured note payable to aircraft parts vendor, noninterest bearing, payable in 0 510
monthly installments of approximately $47,000, due December 1996...................
10% secured note payable to aircraft parts vendor, due February 1996................. 0 417
Unsecured note payable, noninterest bearing, due upon conversion or redemption of 184 226
junior preferred stock, as defined, or 2003(c).....................................
Variable rate secured notes payable to bank repaid in 1995(d)........................ 1,499 0
Other................................................................................ 0 12
--------- ---------
2,967 8,369
Less--Amounts due within one year.................................................... 949 1,062
--------- ---------
Amount due after one year............................................................ $ 2,018 $ 7,307
--------- ---------
--------- ---------
</TABLE>

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

(a) Pursuant to Midway's agreement to acquire Fokker aircraft, Fokker agreed to
provide financing for certain new support equipment for the aircraft. Such
equipment serves as collateral for this financing. Principal and interest
payments began in November 1995 and are scheduled to continue in equal
monthly installments of approximately $17,800 through October 2003.

(b) In May 1995, the Company issued subordinated debt to certain of its
stockholders with a face value of $6 million due in April 2002. The debt may
be prepaid at any time without penalty. Each holder of $1,000 of
subordinated debt received warrants for the purchase of 750 shares of Class
C common stock at a defined exercise price (Note 9). In connection with the
issuance of these warrants, the Company recorded a debt discount of $60,000
and a corresponding increase to additional paid-in capital.

(c) The Company issued a noninterest-bearing note payable to Fokker with a face
amount of $500,000, which has been discounted using a rate of 11%. Interest
accrued related to this discounting was approximately $42,000 and $8,000 for
the year ended December 31, 1995 and the five months ended December 31,
1994, respectively. This note is redeemable upon the conversion of the
junior preferred stock to Class C common stock, the redemption of the junior
preferred stock or 2003, whichever is earliest. Interest is payable
semiannually at 6% per year on the face amount of the note payable
commencing on the date on which the Company accrues dividends with respect
to the junior preferred stock. As of December 31, 1995 and 1994, no
dividends were paid or accrued related to the junior preferred stock.

(d) In June 1995, the notes payable to bank were repaid from proceeds of a
long-term license agreement (Note 8).

F-31
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT: (CONTINUED)
The aggregate principal maturities of debt at December 31, 1995, are as
follows (in thousands):

<TABLE>
<S> <C>
Year ending December 31--
1996............................................ $ 1,062
1997............................................ 133
1998............................................ 143
1999............................................ 154
2000............................................ 166
Thereafter...................................... 6,711
---------
$ 8,369
---------
---------
</TABLE>

6. LEASES:

As of December 31, 1995, the Company operated 12 Fokker F-100 aircraft and 5
Airbus A320 aircraft under operating leases with original terms ranging from 4
to 18 years. As of December 31, 1995, management determined that it would return
4 of the Airbus A320 aircraft in early 1996 and evaluate the future utilization
of A320 aircraft in its operations (Note 13).

At December 31, 1995, the future minimum lease payments required under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year at December 31, 1995, are (in thousands):

<TABLE>
<S> <C>
Year ending December 31--
1996.......................................... $ 30,900
1997.......................................... 35,100
1998.......................................... 33,800
1999.......................................... 24,100
2000.......................................... 20,500
Thereafter.................................... 164,200
---------
$ 308,600
---------
---------
</TABLE>

The amounts above include aircraft, airport, office and other rentals, but
exclude amounts due for the Company's previous headquarters facilities at Midway
Airport which have been included in the restructuring liability (Note 13), lease
payments related to the Airbus A320 aircraft to be returned (Note 13) and
landing fees. Rent expense is recorded on a straight-line basis over the term of
the lease. Lease and rent expense charged to operations for the year ended
December 31, 1995 and five months ended December 31, 1994, was approximately
$38,488,000 and $6,402,000, respectively.

The Company is also required to make a lease deposit on each aircraft,
generally equal to approximately three months' rent. Deposits related to leased
aircraft totaled approximately $5,058,000 and $1,721,000 at December 31, 1995
and 1994, respectively.

In December 1995, the Company entered into negotiations with the lessors of
its Fokker F-100 aircraft and received deferrals on certain aircraft lease
payments over a four-month period. These deferrals will be repaid over the
shorter of 48 months or the remaining lease term beginning in April and May
1996.

F-32
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. OTHER NONCURRENT LIABILITIES:

Other noncurrent liabilities consist of bankruptcy obligations of Jet
Express, Inc. (Jet Express) which operated as a commuter airline under Chapter
11 of the Federal Bankruptcy Code.

Upon emergence from bankruptcy in November 1993, Jet Express merged with
Midway Air Transportation Company to form Midway. As a result, Midway assumed
certain liabilities and acquired certain operating assets of Jet Express. The
bankruptcy obligations are being repaid over five years as defined by the
reorganization plan. In July 1995, the bankruptcy court issued a final decree
and closed the case.

8. DEFERRED INCOME:

Deferred income consists of income from a long-term license of certain
intangible assets. The licensing agreement, for which the Company received a
one-time payment of $6 million in 1995, is for a fifteen-year period. Revenue is
recognized ratably over the term of the license on a straight-line basis. For
the year ended December 31, 1995, the Company recognized approximately $217,000
of income. A portion of the proceeds were used to repay notes payable to a bank
(Note 5).

9. STOCKHOLDERS' EQUITY:

In connection with the acquisition by Zell/Chilmark, the previous ownership
was granted junior preferred stock and approximately 10% of the Company's
outstanding common stock in return for their previous ownership interests.
Zell/Chilmark received prior preferred stock and approximately 90% of the
Company's outstanding common stock for approximately $25 million.

Prior preferred stockholders are entitled to cumulative dividends, which
accrue at $3 per share per year. At December 31, 1995 and 1994, the Company had
accrued $2,040,000 and $600,000, respectively, of cumulative dividends. No
dividends may be paid on any class of stock if any dividends are in arrears on
the prior preferred stock. These shares of stock do not have any voting rights
and are redeemable at any time by the Company. The liquidation rights of the
prior preferred stockholders are senior to any other stockholder. The
liquidation value of the prior preferred stock is approximately $24 million plus
any unpaid cumulative dividends.

Junior preferred stockholders are entitled to cumulative dividends, only
after the redemption of significantly all of the prior preferred stock, at a
rate of $.60 per share per year. No dividends may be paid on shares of common
stock if any dividends are in arrears, as defined. At December 31, 1995 and
1994, no dividends were required to be accrued. These shares of stock do not
have any voting rights. The junior preferred shares may only be redeemed if the
prior preferred shares have been redeemed. The junior preferred stock is
mandatorily redeemable three years after the first date upon which dividends
begin to accumulate. The liquidation rights of the junior preferred stockholders
are second to the prior preferred stockholders. The liquidation value of the
junior preferred stock is approximately $6 million plus accrued and unpaid
dividends. The Company has the option to convert the junior preferred shares to
Class C common shares based upon certain factors, as defined.

Class A common stockholders are entitled to 10 votes per share of stock
held. Each share of Class A common stock may be converted, at the option of the
holder, to a share of Class C common stock. Holders of the Class C common stock
are entitled to one vote per share of stock held. Common stockholders rights are
subordinate to those of preferred stockholders.

F-33
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. STOCKHOLDERS' EQUITY: (CONTINUED)
One million shares of $.01 par value preference stock other than the prior
preferred and junior preferred have been authorized. No shares have been issued.
The Company may establish voting rights, participation rights and other rights,
as defined, to these shares. Additionally, 2,000,000 shares of $.01 par value
Class B common stock have been authorized. No shares have been issued.

In conjunction with the subordinated debt offering (Note 5), the Company
issued warrants to purchase 4.5 million shares of the Company's Class C common
stock at an initial exercise price of $.01 per share. These warrants expire
April 2002. As of December 31, 1995, no warrants had been exercised.

10. INCOME TAXES:

Income taxes are calculated in accordance with SFAS No. 109, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company's financial
statements or tax returns. Deferred income taxes arise from temporary
differences between the income tax basis and financial reporting basis of assets
and liabilities.

The components of the Company's deferred tax assets at December 31, are as
follows (in thousands):

<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Deferred tax assets--
Current:
Operating loss carryforwards........................................ $ 6,871 $ 12,020
Restructuring reserve............................................... 1,698 3,192
Liabilities not currently deductible for tax purposes............... 296 1,542
Noncurrent:
Deferred income..................................................... 0 1,966
Other............................................................... 0 243
Valuation allowance................................................... (8,865) (18,963)
--------- ----------
Net deferred tax asset................................................ $ 0 $ 0
--------- ----------
--------- ----------
</TABLE>

The valuation allowance of $18,963,000 and $8,865,000 at December 31, 1995
and 1994, respectively, was provided because, in the Company's assessment, it is
uncertain whether the net deferred tax assets will be realized due to the
limited operating history of the Company.

As of December 31, 1995, the Company had approximately $35.4 million of
available net operating loss carryforwards (NOLs) to offset future taxable
income of the Company. The NOLs expire by 2011 if not used. Under Section 382 of
the Internal Revenue Code, as amended, the Company's ability to utilize certain
loss carryforwards in any one year, which were generated prior to a change in
ownership, is limited. To the extent that the Company is unable to utilize any
of the net operating loss, that year's annual limitation may be carried forward
to increase the subsequent year's limitation. As discussed in Note 1, the
Company had an ownership change during 1994. The available NOLs have been
adjusted to reflect restrictions resulting from the change in ownership.

11. COMMITMENTS:

At December 31, 1994, Midway had commitments for the delivery of two Fokker
F100s during 1995. These aircraft were delivered in April and June 1995.

F-34
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. COMMITMENTS: (CONTINUED)
In February 1995, Midway reached an agreement with Airbus Industries
(Airbus), for the acquisition of four firm and four option Airbus A320 aircraft
with deliveries beginning in late 1998. The total cost of the firm aircraft
order is approximately $200 million. Financing will be through either a lease,
bank financing or internally generated funds. The final financing decision will
be made closer to the delivery date of the aircraft, based upon the Company's
financial position. The option aircraft may be converted to firm orders no later
than 24 months prior to delivery and may be converted to Airbus 319 aircraft at
the time of conversion to firm orders.

As of December 31, 1995, the Company had made deposits of $2,691,000 and is
required to make additional deposits on the firm aircraft as follows (in
thousands):

<TABLE>
<S> <C>
Year ending December 31--
1996........................................... $ 737
1997........................................... 19,196
1998........................................... 17,265
1999........................................... 1,117
---------
$ 38,315
---------
---------
</TABLE>

In March 1996, the Company converted a past due deposit from December 1995
of approximately $848,000 to a short-term note payable due October 1996.

The Company is involved in legal proceedings arising in the normal course of
business. It is the opinion of management that these matters will have no
significant impact on the financial position or results of operations of the
Company.

12. RETIREMENT PLAN:

Effective August 1995, the Company established a retirement plan (the Plan)
organized under Section 401(k) of the Internal Revenue Code. All employees are
eligible for enrollment in the Plan after six months of employment. The Company,
at its discretion, may match up to 50% of employee contributions up to a maximum
of $1,000. The Company made no contributions to the Plan for the year ended
December 31, 1995.

13. RESTRUCTURING CHARGES:

In December 1995, the Company recorded a restructuring charge of $5.6
million, primarily related to the Company's decision to exit certain leisure
markets, resulting in the termination of four of its Airbus A320 aircraft
operating leases. In connection with this decision, management is evaluating
whether to continue its Airbus A320 program. This $5.6 million charge is
comprised of $2 million related to lease commitment fees, $1.7 million related
to additional major overhaul costs due to the early return of aircraft and $1.9
million related to the write-off of certain related fixed asset and capitalized
preoperating costs. The remaining liability of $3,537,000 is included in accrued
liabilities in the accompanying balance sheet at December 31, 1995 (Note 4).

In December 1994, the Company reached a decision to relocate its main base
of operations from Chicago's Midway Airport to Raleigh-Durham. The Company began
operations at Raleigh-Durham in March 1995. In conjunction with the decision,
the Company recorded a restructuring charge of $4.9 million

F-35
<PAGE>
MIDWAY AIRLINES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

13. RESTRUCTURING CHARGES: (CONTINUED)
for estimated exit costs related to its Chicago Midway Airport headquarters. As
of December 31, 1995, the Company has charged approximately $1,025,000 against
the restructuring accrual. The remaining liability of $3,875,000 is included in
accrued liabilities in the accompanying balance sheet at December 31, 1995 (Note
4).

14. TRANSACTIONS WITH RELATED PARTIES:

The Company purchases certain reservation services at market rates from a
related party. Expense charged for the year ended December 31, 1995, was
approximately $1.2 million and is included in other operating expenses in the
accompanying statement of operations. Subsequent to year-end, the Company was
granted extended terms on certain amounts due at December 31, 1995.

15. SUBSEQUENT EVENTS:

In January and February 1996, the majority stockholder made a $4 million
loan to the Company in the form of subordinated debt due March 2003, with
interest payable semi-annually at 12%. Interest payments are subordinate to the
deferrals on the Fokker aircraft lease payments (Note 6). Warrants to purchase 3
million shares of the Company's Class C common stock were issued in connection
with this subordinated debt issuance. These warrants have similar features as
described in Note 9.

In March 1996, Fokker Aircraft B.V. (Fokker) entered into the Netherlands
equivalent of bankruptcy proceedings. Midway has received a proposal from Fokker
Services Inc., an entity that ultimately may or may not be related to Fokker, to
provide parts and engineering for a fee for Fokker aircraft operated by Midway.
The Company's operating leases are not with any of the bankrupt entities as
lessor. Management does not believe that Fokker's bankruptcy proceedings will
adversely affect its operations or that any impairment has occurred related to
its aircraft deposits related to its Fokker operating leases (Note 6).

In April 1996, the Company converted approximately $3 million of outstanding
payables due for certain maintenance and other services as of December 31, 1995,
to a short-term note payable due September 1996 and received an additional line
of credit for up to $3 million, maturing in September 1996. These notes are
collateralized by substantially all of the Company's assets. Interest accrues at
10% on the note payable and the line of credit.

In April 1996, the Company entered into short-term sublease agreements with
another air carrier to provide certain flight personnel and flight management
for two aircraft. The Company will receive payment based upon block hours flown.

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