WORLD AIRWAYS INC /DE/, 10-K, 1996-03-29

WORLD AIRWAYS INC /DE/
10-K, 1996-03-29

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
______________

For the fiscal year ended: DECEMBER 31, 1995 Commission File Number 0-26582

WORLD AIRWAYS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 94-1358276
(State of incorporation) (I.R.S. Employer Identification Number)

13873 Park Center Road, Suite 490, Herndon, VA 22071
(Address of Principal Executive Offices)
(703) 834-9200
(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------

Common Stock par value $.001 per share Nasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------

State by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ].

The aggregate market value of the Common Stock held by non-affiliates of the
registrant on March 15, 1996, was approximately $21,750,000.

The number of shares of the registrant's Common Stock outstanding on March 15,
1995 was 12,000,064.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of World Airways, Inc.'s Notice of Annual Stockholder's Meeting and
Proxy Statement, to be filed within 120 days after the end of the registrant's
fiscal year, are incorporated into Part III of this Report.
<PAGE>

WORLD AIRWAYS, INC.

1995 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Page
----

PART I
- -------

Item 1. Business..........................................................3

Item 2. Properties........................................................9

Item 3. Legal Proceedings.................................................9

Item 4. Submission of Matters to a Vote of Security Holders...............9

PART II
- --------

Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters..........................................................10

Item 6. Selected Financial Data..........................................11

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................12

Item 8. Financial Statements and Supplementary Data......................25

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.........................................47

PART III
- ---------

Item 10. Directors and Executive Officers of the Registrant..............47

Item 11. Executive Compensation..........................................48

Item 12. Security Ownership of Certain Beneficial Owners and Management..48

Item 13. Certain Relationships and Related Transactions..................48

PART IV
- --------

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................49

2
<PAGE>

PART I

ITEM 1. BUSINESS
- -----------------

World Airways, Inc., a Delaware corporation ("World Airways" or the
"Company"), was organized in March 1948 and became a wholly owned subsidiary of
WorldCorp, Inc. ("WorldCorp") in a holding company reorganization in 1987. In
February 1994, pursuant to an October 1993 agreement, WorldCorp sold 24.9% of
its ownership in the Company to MHS Berhad ("MHS"), a Malaysian aviation
company. Effective December 31, 1994, WorldCorp increased its ownership in the
Company to 80.1% through the purchase of 5% of World Airways common stock held
by MHS. In October 1995, the Company completed an initial public offering in
which 2,000,000 shares of the Company's common stock were issued and sold by
the Company and 900,000 shares were sold by WorldCorp. WorldCorp and MHS
currently own 59.3% and 16.6%, respectively, of the outstanding common stock of
World Airways. The balance is publicly traded.

The principal executive offices of World Airways are located at Washington
Dulles International Airport in The Hallmark Building, 13873 Park Center Road,
Herndon, Virginia 22071. World Airways' telephone number is (703) 834-9200.

OVERVIEW

World Airways is a U.S. certificated air carrier, which operates in the air
transportation industry. Airline operations account for 100% of the Company's
operating revenue and operating income. World Airways is a leading provider of
long-range passenger and cargo air transportation, serving customers in four
distinct markets: (i) major international air carriers; (ii) the U.S.
Government; (iii) international tour operators in the leisure passenger market;
and (iv) small package shippers and freight forwarders. In addition, in 1995
the Company commenced operations in a fifth market: scheduled passenger/cargo
service (which, beginning in 1996 will include scheduled charters to leisure
passenger markets on a seasonal basis). With the exception of scheduled
passenger/cargo service, the Company's customers purchase the use of the entire
aircraft and sell either passenger seats or cargo space directly to their
customers and assume the risk of filling the aircraft.

In July 1995, World Airways commenced year-round scheduled passenger
service between New York and Tel Aviv. In scheduled passenger service
operations, the Company sells seats on an individual basis and, therefore,
assumes load factor risk. Recently, the Company received authority to provide
scheduled passenger and cargo service between the United States and points in
West Africa and South Africa beginning in the second quarter of 1996. In
addition, the Company has formed a strategic alliance with Continental Airlines
("Continental"), subject to definitive documentation. This agreement with
Continental includes codesharing, joint marketing, and participation in
Continental's computer reservation system and OnePass frequent flyer program.
See "Management's Discussion and Analysis Financial Condition and Results of
Operations - Growth Opportunities".

In scheduled charter operations, the Company has identified what it
believes is a significant opportunity to increase revenues and profits by
serving potentially profitable leisure passenger markets between the U.S. and
Europe on a seasonal basis. In the scheduled charter business, the Company
sells less-than-planeload blocks of seats to international tour operators and
markets the remaining seats to the public through computer reservation systems
(see "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Growth Opportunities"). For the 1996 leisure market season, the
Company has developed schedules and is marketing capacity to tour operators
with particular emphasis on the markets between the U.S. and Germany,
Switzerland, Ireland, and the United Kingdom.

World Airways operates a balanced fleet of passenger, cargo, and
passenger/cargo convertible aircraft, allowing it to serve the needs of its
diverse customer base, respond to market changes throughout the year, and
reduce seasonality. To strengthen its competitive position, particularly with
its Southeast Asian customers, the Company recently re-equipped its fleet with
new generation MD-11 aircraft, a state-of-the-art, wide-body aircraft which
provides superior range, payload, and operating economics compared to the
Company's older DC10 aircraft. In March 1996, the Company took delivery of two
new MD-11ER aircraft which have extended-range capabilities. World Airways'
fleet of nine MD-11 and six DC10-30 aircraft appeal to customers who desire
long-range, non-stop, international service.

3
<PAGE>

CUSTOMERS

The Company's business relies heavily on its contracts with Malaysian
Airlines, P.T. Garuda Indonesia ("Garuda") and the U.S. Air Force.

World Airways has provided wet lease service to Malaysian Airlines since
1981, operating aircraft in Malaysian Airlines' scheduled passenger and cargo
operations as well as transporting passengers for the annual Hadj pilgrimage.
MHS, which owns 16.6% of the Company as of December 31, 1995, also owns 32% of
Malaysian Airlines. In late 1994, the Company entered into a series of
multi-year contracts, with expiration dates ranging from 1997 to 2000, to
provide five aircraft to Malaysian Airlines (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Customers"). As a
result of these contracts, the Company expects that the percentage of its total
revenue generated from Malaysian Airlines in 1996 will continue to increase
over historical levels. In 1995, World Airways provided three aircraft for
Hadj operations and will provide three aircraft in 1996. The current Malaysian
Airlines Hadj contract, which was entered into in 1992, expires in 1996. The
Company is currently in negotiations with Malaysian Airlines regarding future
Hadj operations.

World Airways has provided wet lease services to Garuda since 1973
(operating under an annual Hadj contract since 1988). The Company operated five
aircraft in the 1995 Garuda Hadj and will operate seven aircraft in the 1996
Hadj.

The Company has provided international air transportation to the U.S. Air
Force since 1956. As compensation for pledges of aircraft to the Civil Reserve
Air Fleet ("CRAF") for use in times of national emergency, the U.S. Air Force
awards contracts to CRAF participants for peacetime transportation of personnel
and cargo. The U.S. Air Force awards points to air carriers acting alone or
through teaming arrangements in proportion to the number and type of aircraft
that the carriers make available to CRAF. As a result of the Company's
increasingly effective use of teaming arrangements, the Company's fixed awards
have grown in recent years and the Company has the largest U.S. Air Force fixed
award under the CRAF program for the U.S. Government's 1995-96 fiscal year. The
current annual contract commenced on October 1, 1995 and expires on September
30, 1996. These contracts provide for a fixed level of scheduled business from
the U.S. Air Force with opportunities for additional short-term expansion
business on an ad hoc basis as needs arise. The Company's fixed award for the
current contract is $55.4 million, compared to the $33.9 million for the prior
year. Due to the utilization of a significant number of the Company's aircraft
under multi-year contracts with Malaysian Airlines and other contractual
commitments, it is unlikely that the Company will be able to accept all of the
available expansion business. Although overall Defense Department spending is
being reduced, the level of U.S. Air Force contract awards has remained
relatively constant in recent years. World Airways, however, cannot determine
how future cuts in military spending may affect future operations with the U.S.
Air Force.

As a result of these and other contracts, the Company had an overall
contract backlog at December 31, 1995 of $462.0 million, compared to $285.9
million at December 31, 1994. Approximately $219.1 million of the backlog
relates to 1996 operations. The Company's backlog for each contract is
determined by multiplying the minimum number of block hours (defined as the
elapsed time computed from the moment the aircraft first moves under its own
power at the point of origin to the time it comes to rest at its destination)
guaranteed under the applicable contract by the specified hourly rate under
such contract. Approximately 74% of the backlog (including substantially all
of the backlog beginning in 1997) relates to multi-year contracts with
Malaysian Airlines. The loss of any of these contracts or a substantial
reduction in business from any of these key customers, if not replaced, would
have a material adverse effect on the Company's financial condition and results
of operations.

The information regarding major customers and foreign revenue is contained
in Note 12 "Major Customers" of the Company's "Notes to Financial Statements"
in Item 8.

Information concerning the classification of products within the air
transportation industry comprising 10% or more of the Company's operating
revenues is presented in the following table (in millions):

4
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Year Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
Flight Operations - Passenger $ 183.0 $ 134.6 $ 147.6
Flight Operations - Cargo 66.7 39.3 28.9

COMPETITION

The air transportation industry is highly competitive and susceptible to
price discounting. Certain of the passenger and cargo air carriers against
which the Company competes possess substantially greater financial resources
and more extensive facilities and equipment than those which are now, or will
in the foreseeable future become, available to the Company.

The Company's ability to provide service in certain foreign markets in the
future may depend in part on the willingness of the U.S. Department of
Transportation (the "DOT") to allocate limited traffic rights to the Company
rather than to competing U.S. airlines, including major scheduled passenger
carriers capable of carrying greater passenger traffic, and the approval of the
applicable foreign regulators. There can be no assurance that the Company will
be able to obtain the traffic rights it seeks in expanding its business.

The allocation of military air transportation contracts by the U.S. Air
Force is based upon the number and type of aircraft a carrier, alone or through
a teaming arrangement, makes available for use in times of national
emergencies. The formation of competing teaming arrangements that have larger
partners than those sponsored by the Company, an increase by other air carriers
in their commitment of aircraft to the emergency program, or the withdrawal of
the Company's current partners, could adversely affect the size of the U.S. Air
Force contracts, if any, which are awarded to the Company in future years.

In the passenger airline market, the Company generally competes on the
basis of price, quality of service, including on-time reliability and in-flight
service, and schedule convenience. Many of the Company's competitors in the
passenger airline market (both scheduled and non-scheduled passenger air
carriers) compete for passengers in a variety of ways. During periods of
dramatic fare cuts by the Company's competitors, the Company may be forced to
respond with reduced pricing, which could have a material adverse effect on the
Company's financial condition and results of operations. The Company also
competes directly against charter airlines, some of which are substantially
larger than it, and certain of which are affiliates of major scheduled airlines
or tour operators. As a result, in addition to greater access to financial
resources, these charter airlines may have greater distribution capabilities,
including exclusive or preferential relationships with affiliates that are tour
operators.

The Company believes that the most important bases for competition in the
air cargo business are the payload and cubic capacities of the aircraft, and
the price, flexibility, quality and reliability of the cargo transportation
service. Competitors in the cargo market include all-cargo carriers, such as
Atlas Air, Inc. and Polar Air Cargo, and scheduled and non-scheduled passenger
carriers which have substantial belly cargo capacity.

SEASONALITY

Historically, the Company's business has been significantly affected by
seasonal factors. During the first quarter, the Company typically experiences
lower levels of utilization and yields as demand for passenger and cargo
services is lower relative to other times of the year. The Company experiences
higher levels of utilization in the second quarter, principally due to peak
demand for commercial passenger services associated with the annual Hadj
pilgrimage. During 1995, the Company's flight operations associated with the
Hadj pilgrimage occurred from April 1 to June 8. Because the Hadj occurs
approximately 10 to 12 days earlier each year, revenues resulting from future
Hadj contracts will begin to shift from the second quarter to the first quarter
over the next several years. In recent years, soft demand and weakening yields
in worldwide passenger markets adversely affected the Company's results in the
third quarter. Fourth quarter utilization depends primarily on the demand for
air cargo services in connection with the shipment of merchandise in advance of
the U.S. holiday season. The Company believes that its recent multi-year
contracts with Malaysian Airline System Berhad ("Malaysian Airlines") and a
recent increase in peak European summer tourist travel occurring in the third
quarter should lessen the effect of these seasonal factors. The quarterly
financial data is contained in Note 15 "Unaudited Quarterly Results" of the
Company's "Notes to Financial Statements" in Item 8.

5
<PAGE>

NEW MD-11ER AIRCRAFT

World Airways has entered into two 24-year leases with McDonnell Douglas to
operate a new extended-range model of the McDonnell Douglas MD-11 (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Capital Commitments"). The
aircraft, known as the MD-11ER, is capable of flying nonstop between such
cities as Zurich and Santiago, New York and Johannesburg, and Los Angeles and
Shanghai. The jetliner's increased range is due to a combination of the
following: engineering innovations; aerodynamics improvements that minimize
aircraft drag; major reductions in the airframe weight; significantly increased
fuel capacity; and a higher allowable maximum takeoff weight that provides the
heavier fuel load without loss of payload. The Company will debut this
aircraft in its 1996 Hadj operations with flights from Indonesian cities to
Saudi Arabia.

AVIATION FUEL

The Company's source of aviation fuel is primarily from major oil
companies, under annual delivery contracts, at often frequented commercial
locations, and from United States military organizations at military bases.
The Company's current fuel purchasing policy consists of the purchase of fuel
within seven days in advance of all flights based on current prices set by
individual suppliers. More than one supplier is under contract at several
locations. The Company purchases no fuel under long-term contracts nor does
the Company enter into futures or fuel swap contracts.

The air transportation industry in general is affected by the price and
availability of aviation fuel. Both the cost and availability of aviation fuel
are subject to many economic and political factors and events occurring
throughout the world and remain subject to the various unpredictable economic
and market factors that affect the supply of all petroleum products.
Fluctuations in the price of fuel has not had a significant impact on the
Company's operations in recent years. The Company's exposure to fuel risk is
limited because (i) under the terms of the Company's basic contracts, the
customer is responsible for providing fuel, (ii) under the terms of its full
service contracts with the U.S. Government, the Company is reimbursed for the
cost of fuel it provides, and (iii) under the Company's charter contracts, the
Company is reimbursed for fuel price increases in excess of 5% of the price
agreed upon in the contract, subject to a 10% cap. However, a substantial
increase in the price or the unavailability of aviation fuel could have a
material adverse effect on the air transportation industry in general and the
financial condition and results of operations of the Company.

REGULATORY MATTERS

The Company is subject to government regulation and control under the U.S.
laws and the laws of the various countries which it serves. It is also
governed by bilateral services agreements between the U.S. and the countries to
which the Company provides airline service. Under bilateral air services
agreements between the U.S. and many foreign countries, traffic rights in those
countries are available to only a limited number of, and in some cases only one
or two, U.S. carriers and are subject to approval by the applicable foreign
regulators.

The Company is subject to Title 49 of the United States Code (the
"Transportation Code"), under which the DOT and the Federal Aviation
Administration (the "FAA") exercise regulatory authority. The Company is
subject to the jurisdiction of the FAA with respect to aircraft maintenance and
operations, including flight operations, equipment, aircraft noise, ground
facilities, dispatch, communications, training, weather observation, flight
time, crew qualifications, aircraft registration, and other matters affecting
air safety. The FAA has the authority to suspend temporarily or revoke
permanently the authority of the Company or its licensed personnel for failure
to comply with regulations promulgated by the FAA and to assess civil penalties
for such failures. The FAA also conducts safety audits and has the power to
impose fines and other sanctions for violations of airline safety regulations.
The DOT maintains authority over international aviation, subject to review by
the President of the United States, and has jurisdiction over unfair trade
practices and consumer protection policies on domestic and international routes
and fares. Additionally, foreign governments assert jurisdiction over air
routes and fares to and from the U.S., airport operation rights, and facilities
access.

Under the Airport Noise and Capacity Act of 1990 and related FAA
regulations, the Company's aircraft fleet must comply with certain Stage 3
noise restrictions by certain specified deadlines. All of the Company's
aircraft currently meet the Stage 3 noise reduction requirement, which is
currently the most stringent FAA noise requirement.

6
<PAGE>

FAA regulations require installation of the Traffic Alert and Collision
Avoidance System ("TCAS"), approved airborne windshear warning system and aging
aircraft regulations.

Additional laws and regulations have been proposed from time to time which
could significantly increase the cost of airline operations by imposing
additional requirements or restrictions on operations. Laws and regulations
have been considered from time to time that would prohibit or restrict the
ownership and transfer of airline routes or slots. There is no assurance that
laws and regulations currently enacted or enacted in the future will not
adversely affect the Company's ability to maintain its current level of
operating results.

Several aspects of airline operations are subject to regulation or
oversight by Federal agencies other than the DOT or FAA. For instance, labor
relations in the air transportation industry are generally regulated under the
Railway Labor Act, which vests in the National Mediation Board certain
regulatory powers with respect to disputes between airlines and labor unions
arising under collective bargaining agreements. In addition, the Company is
subject to the jurisdiction of other governmental entities, including (i) the
FCC regarding its use of radio facilities pursuant to the Federal
Communications Act of 1934, as amended, (ii) the Commerce Department, the
Customs Service, the Immigration and Naturalization Service, and the Animal and
Plant Health Inspection Service of the Department of Agriculture regarding the
Company's international operations, (iii) the Environmental Protection Agency
(the "EPA") regarding compliance with standards for aircraft exhaust emissions
and (iv) the Department of Justice regarding certain merger and acquisition
transactions. The EPA regulates operations, including air carrier operations,
which affect the quality of air in the U.S. The Company has made all necessary
modifications to its operating fleet to meet fuel-venting requirements and
smoke emissions standards issued by the EPA.

Pursuant to federal law, no more than 25% of the voting interest in the
Company may be owned or controlled by foreign citizens. In addition, under
existing precedent and policy, actual control must reside in U.S. citizens. As
a matter of regulatory policy, the DOT has stated that it would not permit
aggregate equity ownership of a domestic air carrier by foreign citizens in an
amount in excess of 49%. The Company fully complies as of the date hereof with
these U.S. citizen ownership requirements.

The Company believes it is in compliance in all material respects 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 Company also is subject to state and local laws and regulations at
locations where it operates and the regulations of various local authorities
which operate the airports it serves. Certain airport operations have adopted
local regulations which, among other things, impose curfews and noise abatement
regulations. While the Company believes it is currently in compliance in all
material respects with all appropriate standards and has all required licenses
and authorities, any material non-compliance by the Company therewith or the
revocation or suspension of licenses or authorities could have a material
adverse effect on the Company.

EMPLOYEES

As of February 29, 1996, the Company had 816 full time employees classified
as follows:

Number of
Classification Full-Time Employees
-------------------
Management................................. 11
Administrative and Operations.............. 308
Cockpit Crew (including pilots)............ 262
Flight Attendants.......................... 235
---
Total Employees........................ 816
===

The Company's cockpit crew members, who are represented by the
International Brotherhood of Teamsters (the "Teamsters"), are subject to a
four-year collective bargaining agreement that will become amendable in June
1998.

The Company's flight attendants are also represented by the Teamsters under
a collective bargaining agreement that became amendable in 1992.
7
<PAGE>

The parties exchanged their opening contract proposals in 1992 and have had
numerous contract negotiation sessions. In December 1994, the Company and the
Teamsters jointly requested the assistance of a federal mediator to facilitate
negotiations. After several mediated sessions, the National Mediation Board
(the "NMB") mediator recommended that the NMB release the parties to pursue
"direct" (i.e., non-mediated) negotiations with the flight attendants. The
Company and the Teamsters agreed and direct negotiations continue. The outcome
of the negotiations with the flight attendants cannot be determined at this
time. The inability to reach an agreement upon terms favorable to the Company
could have a material adverse effect on the Company. The Company's flight
attendants continue to challenge the use of foreign flight attendant crews on
the Company's flights for Malaysian Airlines and Garuda which has historically
been the Company's operating procedure. The Company is contractually obligated
to permit its Southeast Asian customers to deploy their own flight attendants.
While the Company intends to contest this matter vigorously in an upcoming
arbitration, an unfavorable ruling for the Company could have a material
adverse effect on the Company.

The Company's aircraft dispatchers are represented by the Transport Workers
Union (the "TWU"). This contract became amendable on June 30, 1993. In May
1995, the parties reached agreement with respect to a new four-year contract.
This contract was ratified on February 7, 1996. Fewer than 12 Company
employees are covered by this collective bargaining agreement.

The Company is unable to predict whether any of its employees not currently
represented by a labor union, such as the Company's maintenance personnel, will
elect to be represented by a labor union or collective bargaining unit. The
election of such employees for representation in such an organization could
result in employee compensation and working condition demands that could have a
material adverse effect on the financial results of the Company.

8
<PAGE>

ITEM 2. PROPERTIES
- -------------------

FLIGHT EQUIPMENT

At December 31, 1995, the Company's aggregate operating fleet consisted of
eleven leased aircraft as follows (see Note 9 "Long-Term Obligations" of the
Company's "Notes to Financial Statements" in Item 8):

Capacity
-----------------------------------
Aircraft (a) Passenger (seats)(b) Cargo (Tons) Total (c)(d)
- ------------------------- -------------------- ------------ ------------
McDonnell Douglas MD-11CF 410 90 2
McDonnell Douglas MD-11F -- 95 1
McDonnell Douglas MD-11 410 -- 4
McDonnell Douglas DC10-30CF 380 65 1
McDonnell Douglas DC10-30 350 -- 3
---

Total 11
===

Notes
-----
(a) "F" aircraft are freighters, "CF" are convertible freighters and may
operate in either passenger or freight configurations. Aircraft with
no letter designation are passenger-only aircraft.
(b) Based on standard operating configurations. Other configurations are
occasionally used.
(c) Lease terms expire between 1997 and 2010 (assuming exercise of all
lease extensions).
(d) Subsequent to December 31, 1995, World Airways took delivery of two
leased McDonnell Douglas MD-11ER (extended range) aircraft and two
leased McDonnell Douglas DC10-30 passenger aircraft.

GROUND FACILITIES

The Company leases office space located near Washington Dulles
International Airport which houses its corporate headquarters and substantially
all of the administrative employees of the Company. In addition, the Company
leases additional office and warehouse space in Wilmington, Delaware;
Philadelphia, Pennsylvania; Miami, Florida; Los Angeles, California; Kuala
Lumpur, Malaysia; Tel Aviv, Israel; Yakota, Japan; and Frankfurt, Germany.
Additional small offices and maintenance material storage space are leased at
often frequented airports to provide administrative and maintenance support for
commercial and military contracts.

ITEM 3. LEGAL PROCEEDINGS
- --------------------------

For a description of the Company's current legal proceedings, see Note 14,
"Commitments and Contingencies" of the Company's "Notes to Financial
Statements" in Item 8.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------

No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
9
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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK & RELATED SECURITY HOLDER MATTERS
- -------------------------------------------------------------------------------

The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock MarketSM under the symbol: WLDA. The high and low closing sales
prices of the Company's common stock, as reported on the Nasdaq National
Market, for the quarter following the Company's October 1995 initial public
offering are as follows:

Common Stock
-----------------
1995 High Low
---- ---

Fourth Quarter 12 9 1/2
Third Quarter N/A N/A
Second Quarter N/A N/A
First Quarter N/A N/A

The Company has not declared or paid any cash dividends or distributions on
its Common Stock since the payment of a distribution to WorldCorp in 1992. Any
future decision concerning the payment of dividends on the Common Stock will
depend upon the results of operations, financial condition and capital
expenditure plans of the Company, as well as such other factors as the Board of
Directors, in its sole discretion, may consider relevant (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Dividend Policy").

The approximate number of shareholders of record at March 15, 1996 is 39,
and does not include those shareholders who hold shares in street name
accounts.

10
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------

WORLD AIRWAYS, INC.
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
- ----------------------

Operating revenues $259,482 $180,715 $178,736 $180,293 $215,129
Operating expenses 249,140 185,916 (1) 186,065 (2) 173,028 199,883
Operating income (loss) 10,342 (5,201) (7,329) 7,265 (3) 15,246
Earnings (loss) before income
taxes and change in
accounting principle 9,192 (9,027) (8,985) 8,654 21,329 (4)
Earnings (loss) before change
in accounting principle 8,896 (9,001) (9,048) 8,418 20,481
Cumulative effect of change in
accounting principle -- -- -- (1,973) --
Net earnings (loss) 8,896 (9,001) (9,048) 6,445 20,481
Weighted average common stock and
common equivalent shares
outstanding(5) 10,572 9,939 9,000 9,000 9,000
Primary and fully diluted earnings
(loss) per common share:
Continuing operations $ 0.84 $ (0.91) $ (1.01) $ 0.94 $ 2.28
Change in accounting principle -- -- -- (0.22) --
Net earnings (loss) 0.84 (0.91) (1.01) 0.72 2.28
Cash dividends -- -- -- 2.16 --

FINANCIAL POSITION:
- -------------------

Cash and resricted short-term
investments $ 26,180 $ 4,722 $ 11,746 $12,958 $20,192
Total assets 130,695 78,051 88,512 66,486 74,725
Notes payable and long-term
obligations including current
maturities 36,579 33,826 42,256 13,076 6,530
Common stockholders' equity (deficit) 30,340 (1,367) (7,756) 1,292 (14,292)
Dividends -- -- -- 19,445 --
</TABLE>

(1) Operating expenses in 1994 include a $4.2 million reversal of excess accrued
maintenance reserves associated with the expiration of three DC10-30
aircraft leases during 1994.
(2) Operating expenses in 1993 include $2.3 million of termination fees related
to the early return of three DC10-30 aircraft.
(3) Operating income in 1992 includes $4.1 million related to settlement of
contract claims with the U.S. Government related to Operation Desert
Shield/Desert Storm.
(4) Other income in 1991 includes a $5.5 million gain as a result of settling
litigation with the State of California Franchise Tax Board.
(5) All share and per share data for the periods presented have been restated to
reflect the 1-for-88,737 stock split which was effectuated in February 1994.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------

Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of World Airways, Inc.
("World Airways" or "the Company") as reflected in its financial statements.
World Airways was organized in March 1948 and became a wholly owned subsidiary
of WorldCorp, Inc. ("WorldCorp") in a holding company reorganization in 1987. In
February 1994, pursuant to an October 1993 agreement, WorldCorp sold 24.9% of
its ownership to MHS Berhad ("MHS"), a Malaysian aviation company. Effective
December 31, 1994, WorldCorp increased its ownership in the Company to 80.1%
through the purchase of 5% of World Airways common stock held by MHS. In October
1995, the Company completed an initial public offering in which 2,000,000 shares
were issued and sold by the Company and 900,000 shares were sold by WorldCorp.
WorldCorp and MHS Berhad ("MHS") currently own 59.3% and 16.6%, respectively, of
the outstanding common stock of World Airways. The balance is publicly traded.

The managements of WorldCorp and World Airways are currently exploring ways
to maximize value for the shareholders of each company, including actively
exploring the feasibility of employee initiatives to purchase a substantial
portion of WorldCorp's ownership position in World Airways. In addition to
employee initiatives, WorldCorp is evaluating the feasibility of a spinoff of
its interest in World Airways or a disposition to a third party. There can be no
assurances, however, that any such transactions will ultimately be consumated.

The Private Securities Litigation Reform Act of 1995 (the "Act") was
recently passed by Congress. The Company desires to take advantage of the new
"safe harbor" provisions of the Act. Therefore, the Company wishes to caution
readers that the following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual results and could
cause the Company's actual results for 1996 and beyond to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company.

OVERVIEW

GENERAL

The Company earns revenue primarily from four distinct markets within the
air transportation industry: passenger and cargo services to major
international air carriers; passenger and cargo services, on a scheduled and ad
hoc basis, to the U.S. Government; passenger services in seasonal charter
markets; and cargo services to small package shippers and freight forwarders.
In addition, in 1995 the Company commenced operations in a fifth market:
scheduled passenger/cargo service (which, beginning in 1996, will include
scheduled charters to leisure passenger markets on a seasonal basis).

With the exception of scheduled passenger/cargo service, the Company
generally charges customers on a block hour basis rather than a per seat or per
pound basis. A "block hour" is defined as the elapsed time computed from the
moment the aircraft first moves under its own power at the point of origin to
the time it comes to rest at its final destination. The Company provides most
services under two types of contracts: basic contracts and full service
contracts. Under basic contracts, the Company provides the aircraft, cockpit
crew, maintenance and insurance and the customer provides all other operating
services and bears all other operating expenses, including fuel and fuel
servicing, marketing costs associated with obtaining passengers and/or cargo,
airport passenger and cargo handling fees, landing fees, cabin crews, catering,
ground handling and aircraft push-back and de-icing services. Under full
service contracts, the Company provides fuel, catering, ground handling, cabin
crew and all related support services as well. Accordingly, the Company
generally charges a lower rate per block hour for basic contracts than full
service contracts, although it does not necessarily earn a lower profit.
Because of shifts in the mix between full service contracts and basic
contracts, fluctuations in revenues are not necessarily indicative of volume
trends or profitability. It is important, therefore, to measure the Company's
business volume by block hours flown and to measure profitability by operating
income per block hour.

As is common in the air transportation industry, the Company has relatively
high fixed aircraft costs. While the Company believes that the lease rates on
its MD-11 aircraft are favorable relative to lease rates of other MD-11
operators, the Company's MD-11 aircraft have higher lease costs (although lower
operating costs) than its DC10-30 aircraft. Therefore, achieving high average
daily utilization of its aircraft (particularly its MD-11 aircraft) at
attractive yields are two of the most critical factors to the Company's
financial results. In addition to fixed aircraft costs, a portion of the
Company's labor costs are fixed due to monthly minimum guarantees to cockpit
crewmembers and flight attendants.

CUSTOMERS

The Company's business relies heavily on its contracts with Malaysian
Airline System Berhad ("Malaysian Airlines"), P.T. Garuda Indonesia ("Garuda")
and the U.S. Air Force's Air Mobility Command ("AMC"). These

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customers provided approximately 39%, 10%, and 20%, respectively, of the
Company's revenues and 46%, 10%, and 13%, respectively, of the total block
hours during 1995. These customers provided approximately 18%, 18% and 22%,
respectively, of the Company's revenues and 23%, 20%, and 14%, respectively, of
total block hours in 1994.

World Airways has provided service to Malaysian Airlines since 1981,
providing wet lease services for Malaysian Airlines' scheduled passenger and
cargo operations as well as transporting passengers for the annual Hadj
pilgrimage. In 1995, World Airways provided three aircraft for Hadj operations
and will provide three aircraft in 1996. The current five-year Hadj contract
with Malaysian Airlines expires after the 1996 Hadj. The Company is currently
in negotiations with Malaysian Airlines regarding future Hadj operations.

As a means of improving aircraft utilization, the Company has recently
sought multi-year contracts with high utilization guarantees. In late 1994,
the Company entered into a series of multi-year contracts, with expiration
dates running from 1997 through 2000, to provide basic services to Malaysian
Airlines. One contract provides for the Company's operation of three MD-11
freighter aircraft for a five-year period for a combined guaranteed minimum of
1,200 hours per month (except when an aircraft is in scheduled maintenance).
The lease for one of the aircraft commenced in June 1994, and the leases for
the other two aircraft commenced in June and July 1995. A second contract
provides for each of two of the Company's MD-11 passenger aircraft to operate a
guaranteed minimum of 320 hours per month from October 1994 through March 1997.
For fiscal years 1995 and 1994, 29% and 9%, respectively, of the Company's
revenues and 37% and 14%, respectively, of the Company's block hours flown
resulted from these new multi-year contracts with Malaysian Airlines. As a
result of these contracts, the Company expects that the percentage of its total
revenue generated from Malaysian Airlines in 1996 will continue to increase
over historical levels.

The Company has provided international air transportation to the U.S. Air
Force since 1956. As compensation for pledges of aircraft to the Civil Reserve
Air Fleet ("CRAF") for use in times of national emergency, the U.S. Air Force
awards contracts to CRAF participants for peacetime transportation of personnel
and cargo. The U.S. Air Force awards points to air carriers acting alone or
through teaming arrangements in proportion to the number and type of aircraft
that the carriers make available to CRAF. As a result of the Company's
increasingly effective use of teaming arrangements, the Company's fixed awards
have grown in recent years and the Company has the largest U.S. Air Force fixed
award under the CRAF program for the U.S. Government's 1995-96 fiscal year. The
current annual contract commenced on October 1, 1995 and expires on September
30, 1996. These contracts provide for a fixed level of scheduled business from
the U.S. Air Force with opportunities for additional short-term expansion
business on an ad hoc basis as needs arise. The Company's fixed award for the
current contract is $55.4 million compared to the $33.9 million fixed award for
the prior contract. Due to the utilization of a significant number of the
Company's aircraft under multi-year contracts with Malaysian Airlines and other
contractual commitments, it is unlikely that the Company will be able to accept
all of the available expansion business. Although overall Defense Department
spending is being reduced, the level of U.S. Air Force contract awards has
remained relatively constant in recent years. World Airways, however, cannot
determine how future cuts in military spending may affect future operations with
the U.S. Air Force.

As a result of these and other contracts, the Company had an overall
contract backlog at December 31, 1995 of $462.0 million, compared to $285.9
million at December 31, 1994. The Company's backlog for each contract is
determined by multiplying the minimum number of block hours guaranteed under
the applicable contract by the specified hourly rate under such contract.
Approximately 74% of the backlog (including substantially all of the backlog
beginning in 1997) relates to the multi-year contracts with Malaysian Airlines.
The loss of any of these contracts or a substantial reduction in business from
any of these key customers, if not replaced, would have a material adverse
effect on the Company's financial condition and results of operations.

The information regarding major customers and foreign revenue is contained
in Note 12 "Major Customers" of the Company's "Notes to Financial Statements"
in Item 8.

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COMPETITION

CYCLICAL NATURE OF AIR CARRIER BUSINESS

The Company operates in a challenging business environment. The air
transportation industry is highly sensitive to general economic conditions.
Since a substantial portion of passenger airline travel (both business and
personal) is discretionary, the industry tends to experience severe adverse
financial results during general economic downturns. The airline industry may
also be adversely affected by unexpected global political developments. This is
an important factor to bear in mind since the Company flies to and from such
places as Northern Ireland, Israel, and South Africa. The financial results of
air cargo carriers are also adversely affected by general economic downturns due
to the reduced demand for air cargo transportation. In 1993 and 1994, the
combination of a generally weak global economy and the depressed state of the
air transportation industry has adversely affected the Company's operating
performance. Although the Company has experienced a growth in demand, such that
the Company has increased block hours flown by 41% in 1995 over 1994 and 13% in
1994 over 1993, there can be no assurance that this growth will continue.

SEASONALITY

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<PAGE>

in the third quarter. Fourth quarter utilization depends primarily on the
demand for air cargo services in connection with the shipment of merchandise in
advance of the U.S. holiday season. The Company believes that its new
multi-year contracts with Malaysian Airlines and an increase in peak European
summer tourist travel occurring in the third quarter should lessen the effect
of these seasonal factors. The quarterly financial data is contained in Note
15 "Unaudited Quarterly Results" of the Company's "Notes to Financial
Statements" in Item 8.

OPERATING LOSSES

While the Company was profitable each year from 1987 through 1992 and in
1995, the Company sustained operating losses in 1993 and 1994 of $7.3 million
and $5.2 million, respectively, and net losses of $9.0 million in each of these
two years. There can be no assurance that the Company will be able to sustain
its current profitability. See "Selected Financial Data" and "Results of
Operations".

MAINTENANCE

The Company outsources major airframe maintenance and power plant work to
several suppliers. The Company has a 10-year contract ending in August 2003
with United Technologies Corporation's Pratt & Whitney Group ("Pratt and
Whitney") for all off-wing maintenance on the PW 4462 engines that power its
MD-11 aircraft. Under this contract, the manufacturer agreed to provide such
maintenance services at a cost not to exceed a specified rate per hour during
the term of the contract. The specified rate per hour is subject to annual
escalation, and increases substantially in 1998. Accordingly, while the
Company believes the terms of this agreement will result in lower engine
maintenance costs than it otherwise would incur during the first five years of
the agreement, these costs will increase substantially during the last seven
years of the agreement. The Company has contracted with Caledonian Airmotive
Limited for off-wing maintenance on the CF6-50C2 engines that power its DC10-30
aircraft. The Company believes these contracts provide high quality power
plant services at competitive costs.

The Company's maintenance costs associated with the MD-11 aircraft and PW
4462 engines have been significantly reduced due in part to manufacturer
guarantees and warranties, which guarantees and warranties began to expire in
1995 and will fully expire by 1998. Therefore, the Company expects that
maintenance expense will increase as these guarantees and warranties expire.

The Company's material services group acquires and manages the inventory of
spare parts and consumable materials required to support line maintenance,
scheduled airframe maintenance and power plant maintenance. The Company has
established an inventory management facility in Wilmington, Delaware, to
support this activity. As part of this activity, the material services group
tracks the inventory status of the spare parts kits carried aboard each of the
Company's aircraft. Each of the Company's aircraft carries spare parts and
support kits, which consist of approximately $1.5 to $3.5 million in parts and
special equipment. In addition, a highly-trained maintenance representative is
on board all flights to destinations where the Company does not have on-site
maintenance facilities.

GROWTH OPPORTUNITIES

In the scheduled charter market, the Company has identified what it
believes is a significant opportunity to increase revenues and profits by
serving potentially profitable leisure passenger markets between the U.S. and
Europe. In the scheduled charter business, the Company sells
less-than-planeload blocks of seats to international tour operators and markets
remaining seats through computer reservations systems. Based on the successful
experience of European carriers, the Company believes serving the seasonal
passenger markets on a scheduled charter basis will have several benefits which
the Company believes outweigh the potential increased load and yield risk
associated with serving this market. First, it should be possible to achieve
greater revenue per block hour because tour operators will pay higher prices in
exchange for not bearing the risk of filling an entire aircraft. Second, the
Company expects to increase the hourly utilization of its aircraft deployed in
this market because the Company will set the schedules rather than a tour
operator that, in the case of a full-planeload charter, has contracted for the
entire aircraft and controls scheduling. This strategy gives the Company more
control within the charter distribution channel and a stronger commercial
position in this market than it would have in the full-load charter business.
For the 1996 leisure market season, the Company has developed schedules and is
marketing capacity to tour operators with particular emphasis on the markets
between the U.S. and Germany, Switzerland, Ireland, and the United Kingdom.
Although the Company believes that scheduled charters may improve utilization
and yields in the leisure passenger market for the reasons described above, the
Company has no prior experience operating scheduled charters and can, therefore,
provide no assurances that it will be able to operate scheduled charters
profitably.

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<PAGE>

In the scheduled passenger business, the Company will consider entering
only those markets that it believes (i) are well suited to the competitive
advantages of the Company's long-range, wide-body aircraft, (ii) have prospects
for rapid growth, and (iii) have barriers to entry. After determining that the
market between New York and Tel Aviv met these criteria, the Company commenced
scheduled passenger service in this market in July 1995 with three weekly round
trips. In March 1996, the Company reduced its weekly frequencies from three to
two until the summer peak tourist season. In addition, the Company recently
received regulatory authority to provide scheduled passenger and cargo service
between the United States and points in West Africa and South Africa beginning
in the second quarter of 1996.

While the Company has achieved a 72% cumulative load factor on the Tel Aviv
route as of February 1996, yields have been significantly lower than expected
due to price sensitive, high commission traffic originating in the New York area
and the lack of a marketing relationship with a major U.S. carrier to feed the
Company's New York departures. As a result of these factors, the Company has
sustained operating losses on this route since commencing scheduled service to
Tel Aviv in July 1995. In response to these issues, the Company has taken steps
to improve its yield and load factor performance. First, as discussed above, the
Company has reduced its weekly frequencies to Tel Aviv from three to two until
this summer's peak tourist season. Second, and more importantly, the Company has
formed, subject to definitive documentation, a strategic alliance with
Continental Airlines ("Continental"). This agreement with Continental includes
codesharing, joint marketing, and participation in Continental's computer
reservation system and OnePass frequent flyer program. The Company's
international passengers will connect through Continental's Newark International
Airport ("Newark") hub to major U.S. cities as well as Canada and Mexico.
Continental's passengers will connect directly on the Company's international
destinations including Israel, Ireland, and South Africa. In conjunction with
this alliance, the Company will begin flying from Newark in June 1996. Although
the Company hopes that its strategic alliance with Continental will improve
financial results on the Company's scheduled passenger routes, including but not
limited to the Company's Tel Aviv route, no assurances can be given that the
Company will be able to operate its scheduled passenger routes profitably even
with the Continental alliance.

ABILITY TO MANAGE GROWTH

As described above, the Company is currently experiencing rapid growth in
its existing operations and intends to enter new markets. For example, the
Company's fleet size increased 38% from 1994 to 1995, and total block hours
increased 41% over the comparable period. In the first quarter of 1996, the
Company's fleet size was further enhanced with the delivery of two MD-11ER
aircraft and two additional DC10-30 aircraft. If the Company's management is
unable to manage this growth, the Company's financial performance and results of
operations may be adversely affected. Additionally, the Company's entrance into
new markets requires more skilled personnel and distribution capability. An
inability to hire skilled personnel or to develop its distribution capability
may also adversely affect the Company's ability to operate profitably in its new
markets.

CONTROL BY WORLDCORP; POTENTIAL CONFLICTS OF INTEREST

As of December 31, 1995, WorldCorp owns approximately 59.3% of the
Company's outstanding common stock. WorldCorp is a holding company that owns
majority positions in two companies: US Order, Inc. ("US Order") and the
Company. WorldCorp is highly leveraged and therefore requires substantial
funds to cover debt service each year. As a holding company, all of
WorldCorp's funds are generated through its subsidiaries, neither of which is
expected to pay dividends in the foreseeable future. As a result of
WorldCorp's cash requirements, it may be required to sell additional shares of
the Company's common stock from time to time, and such sales, or the threat of
such sales, could have a material adverse affect on the market price on the
Company's common stock. Except as limited by contractual arrangements with
MHS, WorldCorp also is in a position to control the outcome of substantially
all issues submitted to the Company's stockholders, including the election of
all of the Company's Board of Directors, adoption of amendments to the
Company's Certificate of Incorporation, and approval of mergers. Under
Delaware law, WorldCorp may approve certain actions by written consent without
a meeting of the stockholders of the Company. In addition, the Company's Board
of Directors has eight members, one of whom, T. Coleman Andrews, III, is
President, Chief Executive Officer and a director of WorldCorp.

The managements of WorldCorp and World Airways are currently exploring ways
to maximize value for the shareholders of each company, including actively
exploring the feasibility of employee initiatives to purchase a substantial
portion of WorldCorp's ownership position in World Airways. In addition to
employee initiatives, WorldCorp is evaluating the feasibility of a spinoff of
its interest in World Airways or a disposition to a third party. There can be
no assurances, however, that any such transactions will ultimately be
consumated.

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RESULTS OF OPERATIONS

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

Operating Revenues. Total block hours increased 10,885 hours, or 41%,
------------------
to 37,342 hours in 1995 from 26,457 hours in 1994, with an average of 10.3
available aircraft per day in 1995 compared to 8.2 in 1994. Average daily
utilization (block hours flown per day per aircraft) increased to 9.9 hours in
1995 from 8.8 hours in 1994. In 1995, the Company continued to obtain a higher
percentage of its revenues under basic contacts as opposed to full service
contracts. In 1995, basic contracts accounted for 70% of total block hours, up
from 63% in 1994. Total operating revenues increased $78.8 million, or 44%, to
$259.5 million in 1995 from $180.7 million in 1994.

Revenues from flight operations increased $75.8 million, or 44%, to $249.7
million in 1995 from $173.9 million in 1994. This increase was primarily
attributable to a $58.4 million increase in revenues generated from the new
multi-year contracts with Malaysian Airlines. Average daily utilization for
these contracts was 11.2 hours in 1995. In addition, the Company realized an
increase in revenues associated with services to certain international carriers
and from the commencement of scheduled service operations to Tel Aviv in July
1995. Partially offsetting these increases was a decrease in revenues
associated with the 1995 summer charter programs to Europe.

Revenues from flight operations subcontracted to other carriers increased
$3.2 million for 1995 to $8.6 million from $5.4 million in 1994. This increase
resulted primarily from the Company's need to subcontract certain flights to
other carriers due to peak airlift requirements for the 1995 Hadj pilgrimage.
This increase was partially offset by the subservice of certain contracts in
the fourth quarter of 1994 primarily to make aircraft capacity available for
the commencement of operations under the Company's multi-year contracts with
Malaysian Airlines.

Operating Expenses. Total operating expenses increased $63.2 million,
------------------
or 34%, in 1995 to $249.1 million from $185.9 million in 1994.

Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Flight operations expenses increased $15.0 million, or 26%, in
1995 to $72.8 million from $57.8 million in 1994. This increase resulted
primarily from the following: an increase in block hours flown; higher cockpit
crew levels associated with the integration of additional aircraft into the
fleet in 1995; and an increase in accruals under the Company's profit sharing
plans for its crewmembers during 1995. These factors were partially offset by
a shift from full service to basic contracts.

Maintenance expenses increased $17.1 million, or 65%, in 1995 to $43.3
million from $26.2 million in 1994. This increase resulted primarily from a
non-recurring 1994 reversal of $4.2 million of excess reserves associated with
the expiration of three DC10-30 aircraft leases and the increase in block hours
flown in 1995, partially offset by lower costs associated with reduced
maintenance requirements of new MD-11 aircraft and the guarantees and
warranties received from the engine and aircraft manufacturers of the MD-11
aircraft and related engines, which guaranties and warranties began to expire
in 1995.

Aircraft costs increased $17.3 million, or 32%, in 1995 to $71.2 million
from $53.9 million in 1994. This increase was primarily due to the lease of
two additional MD-11 convertible aircraft in the first quarter of 1995 and the
short-term lease of incremental DC10-30 aircraft which began in the fourth
quarter of 1994 and second quarter of 1995, partially offset by the return of
three lower-cost DC10-30 aircraft to the lessor in the third quarter of 1994.

Fuel expenses increased $2.8 million, or 17%, in 1995 to $19.7 million from
$16.9 million in 1994. This increase is due primarily from an increase in fuel
uplifted for military and scheduled service operations, partially offset by a
shift from full service to basic contracts in 1995 under which the Company is
not responsible for fuel.

Promotions, sales and commissions increased $4.2 million in 1995 to $5.3
million from $1.1 million in 1994. This increase resulted primarily from
commissions paid in connection with scheduled service operations to Tel Aviv
which commenced in 1995 and an increase in joint venture commissions associated
with the larger fixed-award contract received from the U.S. Air Force beginning
October 1995.

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<PAGE>

Depreciation and amortization increased $2.1 million, or 53%, in 1995 to
$6.1 million from $4.0 million in 1994. This increase resulted primarily from
an increase in spare parts required to support the additional MD-11 aircraft
and incremental DC10-30 aircraft described above as well as the amortization of
certain MD-11 aircraft integration costs and other deferred costs.

General and administrative expenses increased $1.2 million, or 6%, in 1995
to $21.7 million from $20.5 million in 1994. This increase was primarily due
to various start-up expenses and personnel necessary for scheduled service
operations as well additional marketing personnel, partially offset by a
decrease in certain legal and professional fees.

Other Income (Expense). Other expenses decreased $2.6 million, or 68%,
----------------------
in 1995 from 1994 primarily due to a $0.7 million loss on the sale of a DC10
engine by the Company in 1994. In addition, the Company recognized a $0.8
million gain in 1995 resulting from a settlement with the lessor relating to
the return of two DC10 aircraft in 1993.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Operating Revenues. Total block hours increased 2,995 hours, or 13%,
------------------
to 26,457 hours in 1994 from 23,462 hours in 1993. Average daily utilization
increased from 7.3 block hours in 1993 to 8.8 hours partially due to a planned
reduction in average available aircraft per day from 8.8 in 1993 to 8.2 in
1994. During 1994, the Company began to obtain a higher percentage of its
revenues under basic contracts as opposed to full service contracts. In 1994,
basic contracts accounted for 63% of total block hours up from 45% in 1993.
Total operating revenues increased $2.0 million, or 1%, to $180.7 million in
1994 from $178.7 million in 1993.

Revenues from flight operations decreased $2.6 million, or 1%, to $173.9
million in 1994 from $176.5 million in 1993. This decrease resulted primarily
from a decrease in military charter revenues and cargo revenues in 1994
compared to 1993. While the Company's U.S. Air Force fixed award revenues
increased during 1994, this increase was offset by a decrease in short-term
expansion flying. During 1993, the Company participated in short-term
expansion flying in connection with the transportation of military personnel to
Mogadishu, Somalia. In addition, a reduction in cargo revenues resulted
primarily from the expiration of a contract with a cargo carrier in January
1994. These decreases were partially offset by increases of $17.1 million in
revenues generated from the multi-year contracts with Malaysian Airlines
entered into in 1994 and an increase in charter passenger service revenues
resulting from additional charter programs to Europe and South America.

Revenues from flight operations subcontracted to other carriers were $5.4
million in 1994 compared to $1.2 million in 1993. This increase was required
primarily to make aircraft capacity available for the commencement of
operations under the Company's multi-year contracts with Malaysian Airlines.

Operating Expenses. Total operating expenses decreased slightly in
------------------
1994 to $185.9 million from $186.1 million in 1993.

Flight operations expenses increased $2.5 million, or 5%, in 1994 to $57.8
million from $55.3 million in 1993. This increase was primarily due to the
increase in block hours flown, partially offset by the shift to more basic
contracts. In addition, in 1993, the Company incurred costs related to MD-11
integration which were not incurred in 1994.

Maintenance expense decreased $2.5 million, or 9%, in 1994 to $26.2 million
from $28.7 million in 1993 primarily due to a $4.2 million reversal of excess
accrued maintenance reserves associated with the expiration of three DC10-30
aircraft leases during 1994. Excluding the effect of this reversal,
maintenance expenses increased $1.7 million, or 6%, primarily due to an
increase in block hours flown in 1994, partially offset by lower costs
associated with reduced maintenance requirements of new MD-11 aircraft and the
guarantees and warranties received from engine and aircraft manufacturers on
the MD-11 aircraft and related engines, which guaranties and warranties began
to expire in 1995.

Aircraft costs increased $1.8 million, or 3%, in 1994 to $53.9 million from
$52.1 million in 1993. This increase was primarily due to the higher lease
costs associated with MD-11 aircraft, partially offset by the Company's return
of three DC10-30 aircraft with long-term leases in 1993 and related termination
fees of $2.3 million.

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<PAGE>

Fuel expenses decreased $8.8 million, or 34%, in 1994 to $16.9 million from
$25.7 million in 1993. This decrease was primarily due to the shift to more
basic contracts in 1994 under which the Company is not responsible for fuel.

Depreciation and amortization decreased $1.6 million, or 29%, in 1994 to
$4.0 million from $5.6 million in 1993 primarily due to the elimination of
amortization for leasehold improvements in connection with two DC10-30 aircraft
returned to the lessor in July 1993. In addition, depreciation was reduced due
to the transfer of DC10-30 spare parts to assets held for sale following the
return of the DC10-30 aircraft. This decrease was partially offset by the
depreciation of spare parts purchased for MD-11 aircraft.

General and administrative expenses increased $4.3 million, or 27%, in 1994
to $20.5 million in 1994 from $16.2 million in 1993 primarily due to increased
professional fees and marketing expenses. During 1994, the Company began
increasing its marketing and sales personnel and related activities to develop
future marketing programs.

Other Income (Expense). Interest expense increased $1.6 million, or
----------------------
76%, in 1994 to $3.7 million from $2.1 million in 1993 primarily due to MD-11
rotable financing, and use of a bank line of credit in 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Company is highly leveraged. The Company incurred substantial debt and
lease commitments during 1993, 1994, and 1995 in connection with its
acquisition of MD-11 aircraft and related spare parts. The Company has
historically financed its working capital and capital expenditure requirements
out of cash flow from operating activities, public and private sales of its
common stock, secured borrowings, and other financings from banks and other
lenders.

In October 1995, the Company completed an initial public offering (the
"Offering") of 2,900,000 shares of the Company's common stock. Of the
2,900,000 shares sold, 2,000,000 shares were issued and sold by the Company and
900,000 shares were sold by WorldCorp, the Company's majority shareholder. As
a result of this offering, World Airways and WorldCorp received approximately
$22.8 million and $10.2 million in net proceeds, respectively.

The Company's cash and cash equivalents at December 31, 1995 and December
31, 1994 were $25.3 million and $4.1 million, respectively. At December 31,
1995 the Company's current assets were $55.5 million and current liabilities
were $64.4 million. The Company believes that the combination of the
financings consummated to date, income from operations and the additional
financings described below will be sufficient to allow the Company to meet its
operating and capital requirements for at least the next twelve months.

CASH FLOWS FROM OPERATING ACTIVITIES

Operating activities provided $18.7 million in cash for the year ended
December 31, 1995 compared to using $3.0 million of cash in 1994. This
increase in cash in 1995 was primarily from an increase in operating income
over 1994 and increases in accounts payable and accrued expenses. These
increases were partially offset by an increase in accounts receivable during
1995 over 1994.

CASH FLOWS FROM INVESTING ACTIVITIES

Investing activities used $22.5 million in cash for the year ended
December 31, 1995 compared to using $2.6 million in 1994. This increase in
cash used resulted primarily from the following: the purchase of rotable spare
parts required for the integration of two MD-11 aircraft; the purchase of
rotable spare parts required as station spares in Malaysia as a result of the
new multi-year contracts with Malaysian Airlines; and the purchase of a spare
engine in the third quarter of 1995. In addition, the Company made a $1.2
million downpayment towards the purchase of an additional spare engine to be
delivered in the first quarter of 1996.

CASH FLOWS FROM FINANCING ACTIVITIES

Financing activities provided $25.0 million in cash for the year ended
December 31, 1995 primarily from $22.8 million in cash received by the Company
from the sale of its common stock in October 1995. In addition, the

19
<PAGE>

Company increased its net borrowings by $2.2 million in 1995 as a result of
financing an engine. For the year ended December 31, 1994, financing
activities used $2.0 million in cash due to $14.4 million in net borrowing
repayments made by the Company, partially offset by $12.4 million in cash
received from the sale of its common stock to MHS in February 1994.

CAPITAL COMMITMENTS

In October 1992 and January 1993, the Company signed a series of agreements
to lease seven new MD-11 aircraft for initial lease terms of two to five years,
renewable for up to 10 years (and in the case of one aircraft, for 13 years) by
the Company with increasing rent costs. As of March 1995, the Company had
taken delivery of all seven aircraft, consisting of four passenger MD-11
aircraft, one freighter MD-11, and two passenger/cargo convertible MD-11s. As
part of the lease agreements, the Company was assigned purchase options for
four additional MD-11 aircraft. In 1992, the Company made non-refundable
deposits of $1.2 million toward the option aircraft.

In March 1996, the Company signed an agreement with the manufacturer to
lease two MD-11ER aircraft. Under the agreement, the Company leased each
aircraft for a term of 24 years with an option to return the aircraft after a
seven year period with certain fixed termination fees. As part of the
agreement, the above-mentioned deposits were applied towards the deposits
required on these two aircraft. In addition, the Company agreed to assume an
existing lease of two additional MD-11 freighter aircraft for 20 years,
beginning in 1999, in the event that the existing lessee terminates its lease
with the manufacturer at that time.

World Airways maintains four long-term DC10-30 aircraft leases with terms
expiring in 1998, 2003, and two in 1997. In addition, beginning in 1996, the
Company leased two additional DC10-30 aircraft for three-year terms. The
Company may choose to lease additional DC10-30 aircraft primarily to meet peak
demand requirements.

Annual minimum payments required under the Company's aircraft and lease
obligations total $88.7 million for 1996, including the two MD-11ER aircraft
and the two DC10-30 aircraft leased in 1996 (see Note 9 of "Notes to Financial
Statements").

The Company spent $11.0 million to purchase spare parts and to make cash
security deposits for MD-11 integration in 1995. In August 1995, the Company
amended its aircraft spare parts facility under the Credit Agreement to provide
for a variable rate borrowing of $10.5 million. Approximately $2.5 million of
this facility was used to pay off the previously outstanding balance of the
spare parts loan facility and $0.8 million was used to purchase additional
spare parts for MD-11s required during the remainder of 1995. The balance of
this loan facility was used to increase cash balances which were drawn down
during the first half of 1995 to purchase MD-11 spare parts.

On September 29, 1995, the Company entered into an agreement with a lessor
to purchase a spare engine, previously under lease, for $5.5 million (see Note
9 of "Notes to Financial Statements"). In addition, the Company purchased an
additional spare engine delivered in the first quarter of 1996. The engine cost
approximately $8.0 million. The Company entered into an agreement with the
engine's manufacturer to finance 80% of the purchase price over a seven-year
term. The Company made payments of $1.2 million and $0.4 million towards this
purchase in September 1995 and January 1996, respectively.

As discussed above, the Company signed an agreement for the lease of two
MD-11ER aircraft beginning in the first quarter of 1996 to provide additional
capacity for growth opportunities. As a result of this agreement, the Company
estimates that it will expend approximately $1.6 million for crewmember
training, $8.9 million for additional spare parts and $8.5 million for an
additional spare engine and a QEC kit in 1996. As part of the agreement for the
MD-11 aircraft, the Company will receive spare parts financing from the lessor
of $9.0 million of which $3.0 million will be advanced with the delivery of
each aircraft, and the remaining $3.0 million will be available in December
1996. In January 1996, the Company received a commitment from the engine
manufacturer to finance 85% of the engine purchase price over a seven-year term
with an interest rate to be fixed at the time of delivery.

The Company anticipates that its total capital expenditures in 1996 will be
approximately $28.0 million. As discussed above, the Company will receive
approximately $22.6 million in financing for these expenditures. The remaining
balance will be funded from its operating cash flow and available cash
balances.

20
<PAGE>

On September 28, 1995, the Credit Agreement was amended to increase the
limit on capital expenditures by the Company to no more than $25.0 million in
1995. While the Credit Agreement limits capital expenditures by the Company to
no more than $15.0 million in 1996, the Company currently is negotiating with
BNY Financial Corporation to amend the Credit Agreement to increase the annual
limit on capital expenditures. There can be no assurance that the Credit
Agreement will be so amended or that a waiver will be obtained, in which event
the Company would expect to limit its annual capital expenditures to $15.0
million.

In March 1996, the Company received regulatory authority to provide
scheduled passenger and cargo service between Newark and points in West Africa
and South Africa beginning in the second quarter of 1996. The Company
anticipates that it will incur approximately $1.0 million in start-up costs in
connection with this operation and will fund such start-up costs from its
operating cash flow.

As of December 1995, the Company held approximately $3.0 million (at book
value) of aircraft spare parts currently available for sale.

FINANCING DEVELOPMENTS

On October 30, 1993, WorldCorp, the Company and MHS entered into the MHS
Stock Purchase Agreement pursuant to which MHS, subject to satisfactory
completion of its due diligence investigations, agreed to purchase 24.9% of the
Common Stock. On February 28, 1994, the transaction was completed. The Company
received upon closing $12.4 million to fund its working capital requirements.
The remaining proceeds from the sale ($15.0 million less a $2.7 million deposit
received in November 1993) were paid directly to WorldCorp.

In October 1995, the Company completed an initial public offering pursuant
to which World Airways and WorldCorp received approximately $22.8 million and
$10.2 million in net proceeds, respectively. World Airways used its proceeds
to increase cash reserves.

In 1993, the Company entered into the Credit Agreement, which included a
$12.0 million spare parts loan and an $8.0 million revolving line of credit
collateralized by certain receivables, inventory, equipment, and general
intangibles. The Company is prohibited from granting a security interest in such
collateral to anyone other than BNY Financial Corporation. Approximately $10.8
million of the proceeds from this borrowing were used to retire existing
obligations. This agreement contains certain covenants related to the Company's
financial condition and operating results. In March, August and September of
1995, the Company amended this agreement to adjust certain covenants beginning
in the first quarter of 1995, in August 1995 and in September 1995,
respectively, and extended the credit facility's term to 1998. Under the terms
of the amended Credit Agreement, the Company is not permitted to (i) incur
indebtedness in excess of $25.0 million (excluding capital leases), (ii)
declare, pay, or make any dividend or distributions in any six month period
which aggregate in excess of the lesser of $4.5 million or 50% of net income for
the previous six months, (iii) declare or pay dividends if after giving effect
to such dividends the Company's cash or cash equivalents would be less than $7.5
million or (iv) make capital expenditures in 1995 of more than $25.0 million or
in any subsequent year of more than $15.0 million. The Company must also
maintain a certain quarterly net worth and net income (loss) requirements, and
at December 31, 1995, the Company was in compliance with the terms of the Credit
Agreement as in effect as of such date. No assurances can be given that the
Company will continue to meet these revised covenants or, if necessary, obtain
the required waivers. In addition, the Company amended the aircraft spare parts
facility under the Credit Agreement to provide for a variable rate spare parts
loan of $10.5 million. As of December 31, 1995, $1.7 million of the $8.0 million
portion of the credit facility collateralized by receivables was utilized, with
$0.3 million capacity currently available, and $8.6 million of the $10.5 million
spare parts loan was outstanding.

In the first quarter of 1995, the Company obtained approximately $6.0
million in short-term borrowings from equipment lessors for working capital
purposes, with an average interest rate of approximately 11%. The borrowings
had been repaid as of December 1995.

As discussed above, in September 1995 the Company entered into an agreement
with a lessor to purchase a spare engine, previously under lease, for $5.5
million. The Company paid $0.5 million upon closing and signed a note for the
$5.0 million balance. The note bears interest at a rate of 7.25% and is payable
over a 40-month period at $69,000 a month, with the balance of $3.3 million due
on January 29, 1999.

21
<PAGE>

OTHER MATTERS

LEGAL AND ADMINISTRATIVE PROCEEDINGS

The Company and WorldCorp (the "World Defendants") are defendants in
litigation brought by the Committee of Unsecured Creditors of Washington
Bancorporation (the "Committee") in August 1992, captioned Washington
Bancorporation v. Boster, et. al., Adv. Proc. 92-0133 (Bankr. D.D.C.) (the
"Boster Litigation"). The complaint asserts that the World Defendants received
preferential transfers or fraudulent conveyances from Washington Bancorporation
when the World Defendants received payment at maturity on May 4, 1990 of
Washington Bancorporation commercial paper purchased on May 3, 1990. Washington
Bancorporation filed for relief under the Federal Bankruptcy Code on August 1,
1990. The Committee seeks recovery of approximately $4.8 million from the
Company and approximately $2.0 million from WorldCorp, which are alleged to be
the amounts paid to each of the Company and WorldCorp by Washington
Bancorporation. On the motion of the World Defendants, among others, the Boster
Litigation was removed from the Bankruptcy Court to the District Court for the
District of Columbia on May 10, 1993. The World Defendants filed a motion to
dismiss the Boster Litigation as it pertains to them on June 9, 1993, and
intend to vigorously contest liability. On September 20, 1995, the District
Court for the District of Columbia granted the motion to dismiss filed by the
World Defendants with respect to three of the four counts alleged in the
litigation, but declined to grant a motion to dismiss the remaining claim
regarding fraudulent transfers. The District Court's ruling is subject to
appeal in certain cases. The World Defendants filed a summary motion with
respect to the remaining claim on October 19, 1995, which remains pending. In
any event, the Company believes it has substantial defenses to this action,
although no assurance can be given of the eventual outcome of this litigation.
Depending upon the timing of the resolution of this claim, if the Committee
were successful in recovering the full amount claimed, the resolution could
have a material adverse effect on the Company's financial condition and results
of operations.

In addition, the Company is party to routine litigation and administrative
proceedings incidental to its business, none of which is believed by the
Company to be likely to have a material adverse effect on the financial
condition of the Company.

EMPLOYEES

The Company's flight attendants are also represented by the Teamsters under
a collective bargaining agreement that became amendable in 1992. The
parties exchanged their opening contract proposals in 1992 and have had
numerous contract negotiation sessions. In December 1994, the Company and the
Teamsters jointly requested the assistance of a federal mediator to facilitate
negotiations. After several mediated sessions, the National Mediation Board
(the "NMB") mediator recommended that the NMB release the parties to pursue
"direct" (i.e., non-mediated) negotiations with the flight attendants. The
Company and the Teamsters agreed and direct negotiations continue. The outcome
of the negotiations with the flight attendants cannot be determined at this
time. The inability to reach an agreement upon terms favorable to the Company
could have a material adverse effect on the Company. The Company's flight
attendants continue to challenge the use of foreign flight attendant crews on
the Company's flights for Malaysian Airlines and Garuda Indonesia which has
historically been the Company's operating procedure. The Company is
contractually obligated to permit its Southeast Asian customers to deploy their
own flight attendants. While the Company intends to contest this matter
vigorously in an upcoming arbitration, an unfavorable ruling for the Company
could have a material adverse effect on the Company.

22
<PAGE>

unit. The election by such employees of representation in such an organization
could result in employee compensation and working condition demands that could
have a material adverse effect on the financial results of the Company.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends or distributions on
its common stock since the payment of a distribution to WorldCorp in 1992. Any
future decision concerning the payment of dividends on the common stock will
depend upon the results of operations, financial condition and capital
expenditure plans of the Company, as well as such other factors as the Board of
Directors, in its sole discretion, may consider relevant.

Under the terms of a shareholders agreement among the Company, WorldCorp,
and MHS, the Company has agreed to declare and distribute all dividends properly
payable, subject to the requirements of law and general overall financial
prudence. The Credit Agreement with BNY Financial Corporation (as amended
through September 1995, the "Credit Agreement") contains restrictions on the
Company's ability to pay dividends on the common stock. The Credit Agreement
provides that the Company shall not declare, pay or make any dividends or
distributions in any six-month period which aggregate in excess of the lesser of
$4.5 million or 50% of the Company's net income for the previous six months and
requires that the Company have a cash balance of not less than $7.5 million
after giving effect to such dividend or distribution. Additionally, WorldCorp,
which owns approximately 59.3% of the Company's common stock, is subject to the
provisions of an indenture expiring in 2004 under which it is obligated to cause
the Company not to pay dividends upon the occurrence of any events of default by
WorldCorp under such indenture. Further, under the indenture terminating in
1997, WorldCorp has agreed to cause the Companies not to pay dividends unless
WorldCorp has a positive adjusted net worth (as defined therein). As of March
11, 1996, WorldCorp's adjusted net worth was negative and under the indenture
terminating in 1997, WorldCorp is therefore obligated to cause World Airways not
to pay dividends.

INCOME AND OTHER TAXES

In August 1991, 5.7 million shares of WorldCorp common stock were sold by a
group of existing shareholders. This transaction constituted an ownership
change of WorldCorp (and thus of the Company) as defined under Section 382 of
the Code (the "1991 Ownership Change"). The 1991 Ownership Change subjected
WorldCorp to an annual limitation in 1991 and future years in the use of net
operating losses ("NOLs") that were available to WorldCorp (and thus allocable
to the Company) on the date on which the 1991 Ownership Change occurred. As of
December 31, 1995, the Company had NOLs for federal income tax purposes of
$100.4 million which, if not utilized to offset taxable income in future
periods, will expire from 1997 to 2009. Of this amount, $62.0 million is
subject to a $6.9 million annual limitation resulting from the 1991 Ownership
Change. The remaining $38.4 million was generated after the 1991 Ownership
Change and, therefore, is not currently subject to annual limitation.

Use of the Company's net operating loss carryforwards in future years could
be further limited if an Ownership Change were to occur in the future. While
the Company believes that the sale of common stock in its initial public
offering (the "Offering") did not cause an Ownership Change, the application of
the Code in this area is subject to interpretation by the Internal Revenue
Service. Also, any future transactions in the Company's or WorldCorp's stock
could cause an Ownership Change. In the event that more than approximately
$5.0 million of the outstanding convertible debentures of WorldCorp are
converted into WorldCorp common stock, the Company believes an Ownership Change
will occur.

There can be no assurance that the operations of the Company will generate
taxable income in future years so as to allow the Company to realize a tax
benefit from its NOLs. The NOLs are subject to examination by the IRS and,
thus, are subject to adjustment or disallowance resulting from any such IRS
examination. In addition to the change in ownership that might occur upon the
conversion of the WorldCorp debentures, additional ownership changes of the
Company may occur in the future and may result in the imposition of a lower
annual limitation on the Company's NOLs existing at the time of any such
ownership change.

The valuation allowance for deferred tax assets as of December 31, 1995 was
$39.5 million. The Company's estimate of the required valuation allowance is
based on a number of factors, including historical operating results. The
Company generated net earnings for the year ended 1995 as compared to losses in
both 1994 and 1993. If the Company continues to generate net earnings in 1996,
it is possible that a change in the estimate of the required valuation
allowance will occur in the near term, and could differ materially from the
amount recorded at December 31, 1995.

23
<PAGE>

NEW ACCOUNTING STANDARDS

In June 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of ("SFAS No. 121").
SFAS No. 121 requires companies to review long-lived assets and certain
identifiable intangibles to be held, used or disposed of, for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company believes the adoption of this
statement will not have a significant effect on its financial statements. The
Company is required to adopt this statement in 1996.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-based
Compensation ("Statement 123"). Statement 123 recommends, but does not require,
the adoption of a fair value based method of accounting for stock-based
compensation to employees, including common stock options, and stock-based
compensation to individuals other than employees. The Company currently intends
to continue recording stock-based compensation to employees under the intrinsic
value method and does not intend to adopt the fair value based method of
accounting for stock-based compensation to employees as permitted by Statement
123. Certain pro forma disclosures will be required in the Company's financial
statements for the year ending December 31, 1996 as if the fair value based
method had been adopted.

INFLATION

The Company believes that inflation has not had a material effect on the
Company's revenues during the past three years.

24
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

WORLD AIRWAYS, INC.
BALANCE SHEETS
ASSETS
(IN THOUSANDS)

December 31,
-------------------
1995 1994
-------- -------
CURRENT ASSETS
Cash and cash equivalents, including restricted
cash of $619 at December 31, 1995 and
$103 at December 31, 1994 (Note 14) $ 25,271 $ 4,054

Restricted short-term investments (Notes 5 and 14) 909 668

Trade accounts receivable, less allowance for
doubtful accounts of $258 at December 31, 1995
and $35 at December 31, 1994 (Notes 3 and 8) 15,472 5,480

Other receivables (Note 3) 3,314 2,936

Prepaid expenses and other current assets (Note 6) 9,882 6,931

Assets held for sale (Notes 7 and 9) 700 2,500
-------- --------

Total current assets 55,548 22,569
-------- --------

ASSETS HELD FOR SALE (Notes 7 and 9) 2,308 11,328

EQUIPMENT AND PROPERTY (Notes 7 and 9)
Flight and other equipment 54,460 22,457
Equipment under capital leases 11,466 11,466
-------- --------

65,926 33,923
Less accumulated depreciation and amortization 13,497 9,257
-------- --------

Net equipment and property 52,429 24,666
-------- --------

LONG-TERM OPERATING DEPOSITS (Note 9) 16,157 13,562

OTHER ASSETS AND DEFERRED CHARGES,
NET (Notes 3 and 6) 4,253 5,926
-------- --------

TOTAL ASSETS $130,695 $ 78,051
======== ========

(Continued)

25
<PAGE>

WORLD AIRWAYS, INC.
BALANCE SHEETS
(CONTINUED)
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

December 31,
-------------------
1995 1994
-------- -------
CURRENT LIABILITIES
Notes payable (Note 8) $ 6,764 $ 7,162
Current maturities of long-term obligations (Note 9) 9,398 9,550
Deferred aircraft rent (Note 9) 533 907
Accounts payable 15,278 11,609
Unearned revenue 10,417 5,300
Air traffic liability 2,332 --
Accrued maintenance in excess of reserves paid 8,919 6,395
Accrued salaries and wages 8,716 5,328
Accrued taxes 1,485 1,601
Due to affiliate (Note 2) 405 97
Other accrued liabilities 184 414
--------- ---------
Total current liabilities 64,431 48,363
--------- ---------

LONG-TERM OBLIGATIONS, NET (Note 9) 20,417 17,114

OTHER LIABILITIES
Deferred gain from sale-leaseback transactions, net of
accumulated amortization of $18,041 at December
31, 1995 and $16,978 at December 31, 1994 7,310 8,373
Accrued maintenance in excess of reserves paid 3,579 2,866
Accrued postretirement benefits (Note 10) 2,596 2,384
Other liabilities 2,022 318
--------- ---------
Total other liabilities 15,507 13,941
--------- ---------

TOTAL LIABILITIES 100,355 79,418
--------- ---------

COMMON STOCKHOLDERS' EQUITY (DEFICIT) (Notes 1, 2,
3, 9, 10 and 13)
Common stock, $.001 par value (20,000,000 shares
authorized, 12,000,064 and 10,000,064 shares
issued and outstanding at December 31, 1995
and December 31, 1994, respectively) 12 10
Additional paid-in capital 42,312 19,503
Contributed capital 3,000 3,000
Accumulated deficit (14,984) (23,880)
--------- ---------
Total common stockholders' equity (deficit) 30,340 (1,367)
--------- ---------

COMMITMENTS AND CONTINGENCIES (Notes 2, 8, 9,
10, 11, 12 and 14)

TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
EQUITY (DEFICIT) $ 130,695 $ 78,051
========= =========

See accompanying Notes to Financial Statements

26
<PAGE>

WORLD AIRWAYS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)

Years Ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
[S] [C] [C] [C]
OPERATING REVENUES (Note 12)
Flight operations $249,719 $173,925 $176,492
Flight operations subcontracted
to other carriers 8,598 5,378 1,221
Other 1,165 1,412 1,023
-------- -------- --------
Total operating revenues 259,482 180,715 178,736
-------- -------- --------

OPERATING EXPENSES
Flight 72,812 57,792 55,336
Maintenance (Notes 9 and 14) 43,272 26,212 28,668
Aircraft costs (Note 9) 71,238 53,860 52,056
Fuel 19,678 16,915 25,660
Flight operations subcontracted
to other carriers 9,096 5,549 1,312
Promotions, sales and commissions 5,281 1,060 1,237
Depreciation and amortization 6,056 4,006 5,573
General and administrative (Note 2) 21,707 20,522 16,223
-------- -------- --------
Total operating expenses 249,140 185,916 186,065
-------- -------- --------

OPERATING INCOME (LOSS) 10,342 (5,201) (7,329)
-------- -------- --------

OTHER INCOME (EXPENSE)
Interest expense (Notes 8 and 9) (3,486) (3,684) (2,103)
Interest income 933 426 499
Other, net (Note 9) 1,403 (568) (52)
-------- -------- --------
Total other expense (1,150) (3,826) (1,656)
-------- -------- --------

EARNINGS (LOSS) BEFORE INCOME TAXES 9,192 (9,027) (8,985)

INCOME TAX EXPENSE (BENEFIT) (Note 11) 296 (26) 63
-------- -------- --------

NET EARNINGS (LOSS) $ 8,896 $ (9,001) $ (9,048)
======== ======== ========

NET EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE $ 0.84 $ (0.91) $ (1.01)
======== ======== ========

WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 10,572 9,939 9,000
======== ======== ========

See accompanying Notes to Financial Statements

27
<PAGE>

WORLD AIRWAYS, INC.
STATEMENTS OF CHANGES
IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
Total
Common
Additional Stockholders'
Common Paid-in Contributed Accumulated Equity
Stock Capital Capital Deficit (Deficit)
------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1992 $ -- $ 7,123 $ -- $ (5,831) $ 1,292

Net loss -- -- -- (9,048) (9,048)
------- ------- ------- -------- --------
BALANCE AT
DECEMBER 31, 1993 $ -- $ 7,123 $ -- $(14,879) $ (7,756)

1 for 88,737 stock split (Note 1) 9 (9) -- -- --
Sale of stock to MHS (Note 3) 1 12,389 -- -- 12,390
Contributed capital (Note 3) -- -- 3,000 -- 3,000
Net loss -- -- -- (9,001) (9,001)
------- ------- ------- -------- --------
BALANCE AT
DECEMBER 31, 1994 $ 10 $19,503 $ 3,000 $(23,880) $ (1,367)

Sale of common stock in public
offering, net (Note 1) 2 22,809 -- -- 22,811

Net earnings -- -- -- 8,896 8,896
------- ------- ------- -------- --------
BALANCE AT
DECEMBER 31, 1995 $ 12 $42,312 $ 3,000 $(14,984) $ 30,340
======= ======= ======= ======== ========
</TABLE>

See accompanying Notes to Financial Statements

28
<PAGE>

WORLD AIRWAYS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

Years Ended December 31,
---------------------------------
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR (Note 4) $ 4,054 $ 11,596 $ 12,509

CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) 8,896 (9,001) (9,048)
Adjustments to reconcile net earnings
(loss) to cash provided (used) by
operating activities:
Depreciation and amortization 6,056 4,006 5,573
Deferred gain recognition (1,063) (1,949) (4,587)
Deferred aircraft rent payments, net 153 576 8,145
(Gain) loss on sale of property and
equipment (55) 725 (14)
Reversal of excess accrued maintenance
reserves -- (4,200) --
Other 277 (96) 32
Changes in certain assets and liabilities
net of effects of non-cash transactions:
(Increase) decrease in accounts
receivable (10,370) 11,120 (5,405)
(Increase) decrease in restricted
short-term investments (241) (518) 299
Increase in deposits, prepaid expenses
and other assets (4,601) (8,511) (2,656)
Increase in accounts payable, accrued
expenses and other liabilities 12,172 874 234
Increase in unearned revenue 5,117 4,007 302
Increase in air traffic liability 2,332 -- --
--------- --------- --------
Net cash provided (used) by operating
activities 18,673 (2,967) (7,125)
--------- --------- --------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property (23,210) (4,358) (19,599)
Proceeds from disposals of equipment
and property 717 1,787 864
--------- --------- --------
Net cash used by investing activities (22,493) (2,571) (18,735)
--------- --------- --------

CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in line of credit
borrowing arrangement, net (1,051) (4,275) 7,069
Issuance of debt 25,240 5,999 32,762
Repayment of debt (21,963) (16,118) (14,394)
Proceeds from sale of common stock, net 22,811 12,390 --
Debt issuance costs -- -- (490)
--------- --------- --------
Net cash provided (used) by financing
activities 25,037 (2,004) 24,947
--------- --------- --------

NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 21,217 (7,542) (913)
--------- --------- --------

CASH AND CASH EQUIVALENTS AT END OF
YEAR (Note 4) $ 25,271 $ 4,054 $ 11,596
========= ========= ========
</TABLE>
See accompanying Notes to Financial Statements

29
<PAGE>

WORLD AIRWAYS, INC.
NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

World Airways is a U.S. certificated air carrier, which operates in the air
transportation industry. Airline operations account for 100% of the Company's
operating revenue and operating income. World Airways is a leading provider of
long-range passenger and cargo air transportation, serving customers in four
distinct markets: (i) major international air carriers; (ii) the U.S.
Government; (iii) international tour operators in the leisure passenger market;
and (iv) small package shippers and freight forwarders. In addition, the
Company recently commenced operations in a fifth market, scheduled
passenger/cargo service (including scheduled charters to leisure passenger
markets on a seasonal basis). The Company's business relies heavily on its
contracts with Malaysian Airline System Berhad ("Malaysian Airlines"), P.T.
Garuda Indonesia ("Garuda") and the U.S. Air Force (see Note 12).

Effective June 23, 1987, World Airways, Inc. ("World Airways" or the
"Company") became a wholly-owned subsidiary of WorldCorp, Inc. ("WorldCorp")
pursuant to a Merger Agreement and Plan of Reorganization (the "Plan"). Under
the Plan, the shareholders of World Airways exchanged their outstanding common
shares, warrants and/or options for common shares, warrants and/or options of
WorldCorp in a one-for-one exchange. This transaction was accounted for in a
manner similar to a pooling of interests.

On October 30, 1993, WorldCorp, World Airways, and MHS Berhad ("MHS")
entered into a stock purchase agreement pursuant to which MHS, subject to
satisfactory completion of its due diligence investigations, agreed to purchase
24.9% of World Airways' common stock. On February 28, 1994, WorldCorp, World
Airways, and MHS concluded the transaction. Effective December 31, 1994,
WorldCorp purchased 5% of World Airways' common stock held by MHS, increasing
its ownership to 80.1%. Therefore, at December 31, 1994, MHS owned 19.9% of
World Airways' common stock (see Note 3).

On August 8, 1995, World Airways filed a registration statement on Form S-1
with the Securities and Exchange Commission to register 2,900,000 shares of
World Airways' common stock. The offering was completed on October 12, 1995.
Of the 2,900,000 shares registered, 2,000,000 shares were issued and sold by
World Airways and 900,000 shares were sold by WorldCorp, Inc., the majority
shareholder. At December 31, 1995, WorldCorp and MHS own approximately 59.3%
and 16.6%, respectively, of the outstanding common stock of World Airways. The
remaining shares are publicly traded.

FINANCIAL STATEMENT RECLASSIFICATIONS

Certain items in prior year financial statements included herein have been
reclassified to conform to the 1995 financial statement presentation. In
addition, in 1995 the Company changed its presentation of activity under
contracts in which certain of the services to be provided under the contract
are subcontracted by the Company to the customer. In prior years, equal
amounts of revenue and expenses related to these subcontracted services were
reflected in the financial statements. For the year ended December 31, 1995,
no revenue or expenses have been included in the financial statements for these
subcontracted services. Prior year financial statements have been reclassified
to conform to the 1995 presentation. The revenue and expenses which have been
reclassified amounted to $22.3 million and $22.8 million for the years ended
December 31, 1994, and 1993, respectively.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

30
<PAGE>

CASH EQUIVALENTS

For purposes of the Statements of Cash Flows, the Company considers all
highly liquid investments purchased with an original maturity of ninety days or
less to be cash equivalents.

REVENUE RECOGNITION

Contract flight operations and scheduled service revenues are recognized as
the services are provided.

ADMINISTRATIVE AND INTEREST EXPENSES

Administrative expenses incurred by WorldCorp are allocated as described in
Note 2. This allocation is intended to reflect the costs that would have been
incurred had World Airways been operated on a stand-alone basis. Interest
expense is charged based upon the outstanding balance of long-term payables to
WorldCorp, if any. In the opinion of WorldCorp management, such allocations
are made on a reasonable basis; however, the allocations are not necessarily
indicative of the costs which may be incurred in subsequent periods. The
amounts due to/from affiliates resulting from allocations of expenses are
short-term in nature and are non-interest bearing.

INCOME TAXES

The results of the Company's operations prior to February 28, 1994 are
included in WorldCorp's consolidated income tax returns. As a result of
certain transactions with MHS Berhad during 1994 (see Note 3), the results of
the Company's operations for the period from February 28, 1994 to December 31,
1994 and subsequent periods will not be included in WorldCorp's consolidated
income tax returns. Income tax expenses included in the Company's financial
statements were computed as if the Company filed its own tax return for the
whole year.

The Company computes income taxes in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes, ("FAS #109"). Under the asset and liability method of FAS
#109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under FAS #109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.

EARNINGS (LOSS) PER COMMON SHARE

Primary and fully diluted earnings (loss) per common share is computed by
dividing net earnings (loss) by the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent
shares consist of stock options. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin Topic 4:D, stock issued and stock options
granted during the 12-month period preceding the date of the Company's initial
public offering have been included in the calculation of weighted average
shares of common stock and common stock equivalents outstanding for all periods
using the treasury stock method based on the initial public offering price of
$12.50 per share.

On October 21, 1993, the Board of Directors approved the recapitalization
of the Company and declared a one for 88,737 stock split effective February 2,
1994, and changed the par value of the common stock from $1 to $.001 per share.
The par value of the new shares issued totaled approximately $9,000 and this
amount was transferred from additional paid-in-capital to common stock. All
share and per share data for prior periods presented have been restated to
reflect the stock split.

EQUIPMENT AND PROPERTY

Equipment and property are stated at cost or, if acquired under capital
leases, at the present value of the minimum lease payments. Engine overhauls
and major airframe maintenance and repairs are charged to operating expense on
an accrual basis. Modifications performed in response to Airworthiness
Directives issued by the Federal Aviation Administration are capitalized at
cost.

31
<PAGE>

Provisions for depreciation and amortization of equipment and property are
computed over estimated useful lives or the term of the lease, if shorter, for
capital leases, by the straight-line method, with estimated residual values of
0 - 15%. Estimated useful lives of equipment and property are as follows:

DC10 and MD-11 flight equipment 15-16 years
Other equipment and property 5-10 years

Deferred gains realized in connection with sale-leasebacks of aircraft and
equipment are amortized over the periods of the respective leases.

ASSETS HELD FOR SALE

Assets held for sale are recorded at the lower of cost or estimated net
realizable value. Net realizable value is based on the estimated fair value
(measured by using a current selling price for similar assets) less estimated
selling costs.

AIR TRAFFIC LIABILITY

The air traffic liability relates to scheduled service to Tel Aviv, Israel,
which the Company began in July 1995. Scheduled service passenger ticket sales
are initially recorded in the air traffic liability account. When
transportation is provided by the Company, revenue is recognized and the
liability is reduced. The liability is also reduced by any refunds to
passengers or billings from other airlines that provide the passenger
transportation.

OTHER ASSETS AND DEFERRED CHARGES

Contract enhancements and pre-operating costs are amortized on a straight
line basis over certain estimated periods (see Notes 3 and 6).

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

World Airways' cockpit crewmembers and eligible dependents are covered
under postretirement health care benefits to age 65. The Company accounts for
the benefit costs in accordance with Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("FAS #106"). The Company funds the benefit costs on a
pay-as-you-go (cash) basis.

2. TRANSACTIONS WITH PARENT COMPANY

ADMINISTRATIVE COST ALLOCATION

Prior to December 31, 1994, WorldCorp and its operating subsidiaries
utilized a single corporate staff for administrative support services thus
permitting the Company to draw upon the expertise of WorldCorp management
personnel as needed. Effective January 1, 1995, a majority of the WorldCorp
employees providing services to World Airways became employees of the Company.
As a result, the net allocation of corporate administrative costs to the
Company was minimal in 1995. Allocations of $5.9 million and $6.7 million of
corporate administrative costs were made to the Company in 1994 and 1993,
respectively. These allocations include the costs of directing or performing
certain management, accounting, financial, legal, tax, marketing, cash
management, employee benefits, human resources, management information services
activities and operations and maintenance administrative services. Office
space, furniture and fixtures and other items were also considered in the
administrative cost allocation. This allocation and other costs incurred
directly by the Company are reflected in selling and administrative expense in
the accompanying statements of operations.

CONTROL BY WORLDCORP

As of December 31, 1995, WorldCorp owns approximately 59.3% of World
Airways. WorldCorp's revenues are derived from its ownership of majority
positions in US Order, Inc. and the Company. WorldCorp is highly leveraged,
and therefore requires substantial funds to cover debt service. As a holding
company, all of WorldCorp's funds are generated through its subsidiaries,
neither of which has paid dividends since 1992. The Company intends

32
<PAGE>

to retain any earnings for the foreseeable future. Additionally, WorldCorp is
subject to two indentures that could, under certain circumstances, restrict the
Company's ability to pay dividends to all shareholders. Under an indenture
terminating in 2004, WorldCorp has agreed to cause the Company not to pay
dividends upon the occurrence of any events of default by WorldCorp under such
indenture. Further, under the indenture terminating in 1997, WorldCorp has
agreed to cause the Companies not to pay dividends unless WorldCorp has a
positive adjusted net worth (as defined therein). As of March 11, 1996,
WorldCorp's adjusted net worth was negative and under the indenture terminating
in 1997, WorldCorp is therefore obligated to cause World Airways not to pay
dividends.

The managements of WorldCorp and World Airways are currently exploring ways
to maximize value for the shareholders of each company, including actively
exploring the feasibility of employee initiatives to purchase a substantial
portion of WorldCorp's ownership position in World Airways. In addition to
employee initiatives, WorldCorp is evaluating the feasibility of a spinoff of
its interest in World Airways or a disposition to a third party. There can be
no assurances, however, that any such transactions will ultimately be
consumated.

3. TRANSACTIONS WITH MHS AND MALAYSIAN AIRLINES

On October 30, 1993, WorldCorp, Inc., World Airways, Inc., and MHS entered
into a Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to
which MHS, subject to satisfactory completion of its due diligence
investigations, agreed to purchase 24.9% of World Airways' common stock for
$27.4 million in cash. Under this Agreement, World Airways would receive upon
closing $12.4 million to fund its working capital requirements. The remaining
$15.0 million would be paid to WorldCorp to add to its cash reserves. WorldCorp
received $2.7 million prior to December 31, 1993 as an advance on the sales
price. At the time of the signing of the Stock Purchase Agreement, World
Airways was a wholly-owned subsidiary of WorldCorp. On February 28, 1994,
WorldCorp, World Airways, and MHS concluded the transaction according to the
terms described above. Under the agreement, if at any time after October 30,
1996 World Airways registers its common stock under the Securities Act of 1933,
MHS has the right to demand the registration of its shares of the Company's
common stock. Under a shareholders agreement, MHS agreed not to transfer,
sell, or pledge any of its shares of common stock prior to February 28, 1997
without the prior written consent of WorldCorp. MHS has the right to nominate
two members to the Company's board of directors and WorldCorp has agreed to
vote its shares of common stock to elect such nominees. Also, if without the
prior written consent of MHS: (1) World Airways sells all or substantially all
of its business; or (2) World Airways fundamentally changes its line of
business, then MHS has the option (a) to sell or transfer all or a portion of
its shares to a third party prior to February 28, 1997, and/or (b) to require
WorldCorp to purchase all or part of MHS's shares at fair market value. Fair
market value is defined to be not less than the aggregate of the costs borne by
MHS in acquiring and holding its World Airways shares. Management has
indicated that it does not have any current intent to take any such actions
without the prior consent of MHS or the directors nominated by MHS. The
shareholders agreement also provides that if WorldCorp's ownership interest in
the Company falls below 51% of the outstanding shares of common stock, then MHS
may either sell its shares to a third party or require WorldCorp to sell a pro
rata number of shares held by MHS to the party purchasing WorldCorp's shares.
MHS also has a right of first refusal to purchase shares of common stock issued
by the Company or sold by WorldCorp and to purchase additional shares of common
stock to maintain its ownership percentage in the Company.

During 1994, MHS acquired 32% of Malaysian Airline System Berhad, the flag
carrier of Malaysia. World Airways has provided service to Malaysian Airlines
for many years, providing aircraft for integration into Malaysian Airlines'
scheduled passenger and cargo operations as well as transporting passengers for
the annual Hadj pilgrimage. The current Malaysian Airlines Hadj contract, which
was entered into in 1992, expires in 1996. The Company is currently in
negotiations with Malaysian Airlines regarding future Hadj operations. In 1995
and 1994, the Company provided three and two aircraft, respectively, for Hadj
operations and will provide three aircraft for the 1996 Hadj operations.
Malaysian Airlines is the Company's largest customer (see Note 12).

Effective December 31, 1994, WorldCorp entered into a 6% note payable to
MHS in the amount of $8.5 million, due December 31, 1995, in exchange for 5% of
World Airways' common stock held by MHS and the execution of a series of
multi-year contracts between World Airways and Malaysian Airlines. The shares
were pledged as security for the note payable. The note was repaid in
accordance with the agreement. As a result of this transaction, effective
December 31, 1994, MHS owned 19.9% of World Airways' common stock. As a result
of the Company's initial public offering (see Note 1), MHS owns approximately
16.6% of the Company's common stock as of December 31, 1995.

Under the terms of its new multi-year contracts with Malaysian Airlines,
World Airways operates three freighter aircraft for a combined guaranteed
minimum of 1,200 block hours per month (except when an aircraft is in scheduled
maintenance). One freighter began service in June 1994 and will operate through
September 1999; two additional freighters began service in June and July 1995,
respectively, and will operate through September 2000. Also under

33
<PAGE>

the new contracts, Malaysian Airlines extended through March 1997 the operation
of two MD-11 passenger aircraft that had been previously contracted by
Malaysian Airlines to operate from October 1994 through March 1995. Each of
these passenger aircraft operates a minimum of 320 block hours per month.
Certain operating costs incurred by the Company pursuant to these contracts are
reimbursed by Malaysian Airlines. As of December 31, 1995 and 1994, the Company
has $3.0 million and $0.6 million, respectively, included in trade accounts
receivable in the accompanying balance sheets relating to these costs.

Of the $8.5 million consideration paid by WorldCorp to MHS, $3.0 million is
attributable to the contract enhancements discussed above. This amount is
included in other assets and deferred charges and in contributed capital in the
accompanying balance sheets, and is being amortized over the terms of the
Malaysian Airlines contracts, approximately two to five years. As of December
31, 1995, the unamortized balance of the deferred contract cost is $2.3
million, net of $0.7 million of accumulated amortization (see Note 6).

The Company and Malaysian Airlines entered into an agreement in March 1995
pursuant to which Malaysian Airlines provides routine maintenance checks,
structural inspections and other necessary work for the Company's aircraft in
Kuala Lumpur. The Company paid Malaysian Airlines approximately $0.4 million
during 1995 related to these services.

During 1995, the Company entered into agreements with Malaysian Airlines to
lease two DC10-30 aircraft. The aircraft were delivered in June and December
1995 and have lease terms of 26 and 36 months, respectively. Rent expense and
maintenance reserve payments related to these aircraft amounted to $1.6 million
in 1995. The Company incurred approximately $1.4 million during 1995 related
to improvements made to these two aircraft, which will be reimbursed by
Malaysian Airlines. Approximately $0.7 million of this amount is included in
trade and other receivables in the accompanying balance sheet at December 31,
1995.

In March 1996, the Company leased two additional DC10-30 aircraft from
Malaysian Airlines. These aircraft have lease terms of 36 months with monthly
rent expense and other lease terms similar to the aircraft leased during 1995.
The Company may choose to enter into additional aircraft leases with Malaysian
Airlines to meet short-term peak demand requirements.

4. SUPPLEMENTAL INFORMATION -- STATEMENTS OF CASH FLOWS

Additional information pertaining to certain cash payments and noncash
investing and financing activities is as follows (in thousands):

For the years ended December 31,
--------------------------------
1995 1994 1993
------- ------- -------
Cash paid for:
Interest $ 3,377 $ 3,334 $ 1,779
Income taxes 336 15 62

In 1994, the Company paid approximately $1.8 million and exchanged a DC10
engine valued at approximately $1.0 million in connection with the settlement
of maintenance reserves due on the return of three DC10 aircraft in 1994.

During 1993, the Company sold $9.5 million of MD-11 aircraft spare parts and
leased the parts back under a 79 month capital lease. The following is a
summary of the transaction (in thousands):

Sale price of parts $ 9,463
Debt retired (7,570)
Security deposit (1,893)
-------
Net cash proceeds $ 0
=======

5. SHORT-TERM INVESTMENTS

At December 31, 1995 and 1994, short-term investments consist of cash
pledged as collateral for letters of credit with original maturities in excess
of ninety days, and expiration dates within one year.

34
<PAGE>

6. OTHER ASSETS

Prepaid expenses and other current assets consist of the following (in
thousands):

December 31,
------------------
1995 1994
------- -------
Prepaid rent $ 1,533 $ 975
Prepaid insurance 5,857 4,821
Deposit on spare engine (see Notes
9 and 14) 1,150 --
Other 1,342 1,135
------ ------
$9,882 $6,931
====== ======

Other assets and deferred charges include net deferred contract costs of
$2.3 million and $3.0 million as of December 31, 1995 and 1994, respectively
(see Note 3) and net MD-11 aircraft integration costs of $2.0 million and $2.9
million as of December 31, 1995 and 1994, respectively. Aircraft integration
costs consist of pre-operating costs incurred in connection with integrating
the new MD-11 aircraft into the Company's fleet (see Note 9). These costs,
consisting primarily of flight crew training, are being amortized on a
straight-line basis over a five-year period.

7. ASSETS HELD FOR SALE

Assets held for sale consist primarily of DC10 rotables with a net book
value of $3.0 million and $11.0 million as of December 31, 1995 and 1994,
respectively, as well as two DC10 engines with a net book value of $2.8 million
as of December 31, 1994. The Company has consigned these parts with a third
party to sell these parts over a reasonable period of time with the objective
of maximizing the proceeds from the sales. Due to the increased number of DC10
aircraft leased by the Company during 1995, DC10 rotables and the two DC10
engines with a total net book value of $9.9 million were reclassified from
assets held for sale to flight and other equipment in the accompanying balance
sheet at December 31, 1995. This amount represents the Company's estimate of
the additional spare parts needed to support the Company's fleet of DC10-30
aircraft.

8. NOTES PAYABLE

In 1993, the Company entered into an $8.0 million revolving line of credit
borrowing arrangement which is collateralized by certain receivables which were
sold to the bank with recourse. Borrowing availability under the line is based
on the amount of eligible receivables. At December 31, 1995, World Airways had
an unused borrowing capacity of $0.3 million. At December 31, 1994, World
Airways had no unused borrowing capacity available. Borrowings under the line
of credit were $1.7 million and $2.8 million at December 31, 1995 and 1994,
respectively, and bear interest at the greater of the federal funds rate plus
2.5% or the prime rate plus 2%. The interest rate was 10.5% at December 31,
1995 and 1994. World Airways is required to pay any outstanding amounts under
the line of credit on January 7, 1998. This agreement contains certain
covenants related to World Airways' financial condition and operating results,
including minimum quarterly net income tests. In March 1995, World Airways
amended this agreement to adjust certain covenants beginning in the first
quarter of 1995. No assurances can be given that the Company will continue to
meet these covenants or, if necessary, obtain the required waivers. The
agreement also requires an unused facility fee of 0.5% per year.

A $5.0 million note bearing interest at 3.8% and a $4.4 million note bearing
interest at 4.4% are included in notes payable at December 31, 1995 and 1994,
respectively. Principal and interest is payable monthly in 1996 and 1995,
respectively.

In the first quarter of 1995, World Airways received approximately $6.0
million in working capital and short-term financing from certain of its
equipment lessors, bearing interest at approximately 11%. The balance was
repaid during 1995.

9. LONG-TERM OBLIGATIONS

LONG-TERM DEBT

The Company's long-term obligations at December 31 are as follows (in
thousands):

35
<PAGE>

<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Note payable due 1995 -- with interest at one month LIBOR
plus 1.95% payable monthly (7.95% at December 31, 1994),
collateralized by one General Electric CF6-50C2 engine. $ -- $ 300

Note payable due 1999 -- with interest at 7.25% payable
monthly, collateralized by one Pratt & Whitney PW4462 engine. 4,883 --

Spare parts loan due 1998 -- with principal and interest at 8.5%
payable monthly, collateralized by certain MD-11 spare parts. 3,617 4,004

Spare parts loan due 1997 -- with principal paid semi-annually beginning
in 1995 and interest at 8.5% payable semi-annually, collateralized
by certain MD-11 spare parts. 2,857 5,000

Aircraft spare parts security agreement payable to a bank due 1998 --
with interest at the greater of the federal funds rate plus 2.5%
or the prime rate plus 2% (10.5% at December 31, 1995 and
December 31, 1994), collateralized by certain rotables. 8,568 6,371

Deferred aircraft rent, non-current 1,142 1,522

Capitalized lease obligations 8,748 9,467
------- -------

Total 29,815 26,664

Less current maturities 9,398 9,550
------- -------

Total long-term obligations, net $20,417 $17,114
======= =======
</TABLE>

The aircraft security agreement is subject to the terms of the $8.0 million
revolving line of credit borrowing (see Note 8). Under this agreement the
borrowing must be reduced by the amount of proceeds received from the sale of
excess spare parts, but at a minimum of $0.5 million each month. The borrowing
facility also restricts World Airways' ability to pay dividends. Under this
agreement, World Airways cannot declare, pay, or make any dividend or
distributions in any six month period which aggregate in excess of the lesser
of $4.5 million of 50% of net income for the previous six months. In addition,
World Airways must have a cash balance of at least $7.5 million immediately
after giving effect to such dividend. Under the terms of the agreement, the
Company is also not permitted to incur indebtedness in excess of $25.0 million
(excluding capital leases), or make capital expenditures in 1995 of more than
$25.0 million or in any subsequent year of more than $15.0 million. In 1995,
World Airways amended this agreement to adjust certain covenants beginning in
the first quarter of 1995, extend the credit facility to 1998, and to defer
payments of principal due in February and March 1995 until the second quarter
of 1995. On August 24, 1995, the Company again amended the agreement to
provide for a variable rate, $10.5 million borrowing, which is payable over a
21-month term. The Company used a portion of the proceeds from this loan to
pay off the previously outstanding balance of the aircraft parts loan. No
assurances can be given that the Company will continue to meet these revised
covenants or, if required, obtain the required waivers.

The Company has a commitment to purchase a spare engine in the first quarter
of 1996. World Airways has made deposits of $1.6 million as of March 1996
towards this engine and intends to finance the remaining balance of
approximately $6.4 million through the manufacturer over a seven year period at
a fixed interest rate.

In January 1996, the Company entered into an agreement with an engine
manufacturer to purchase another spare engine and a quick engine change kit for
approximately $8.5 million to be delivered by July 1996. As part of the
agreement, World Airways plans to finance 85% of the purchase price through the
manufacturer over a seven year period at a fixed interest rate.

The following table shows the aggregate annual amount of scheduled principal
maturities (in thousands) of debt outstanding at December 31, 1995.

36
<PAGE>

1996 $ 8,306
1997 4,910
1998 3,408
1999 3,300
2000 --
Thereafter --
-------
Total $19,924
=======

DEFERRED AIRCRAFT RENT

During 1993, the Company negotiated with several of its lessors to defer
approximately $14.7 million of lease payments on eight aircraft. Of this amount,
the Company repaid approximately $13.7 million in 1995, 1994, and 1993. In
addition, during 1995 and 1994 the Company deferred approximately $0.7 million
of rent, pursuant to the 1993 agreement. The remaining deferrals at December 31,
1995 bear interest at rates ranging from 7% to 11.7% and are due as follows (in
thousands):

1996 $ 533
1997 227
1998 244
1999 261
2000 280
Thereafter 130
-------
Total $ 1,675
=======

CAPITAL LEASES

The present value of the obligations under capital leases at December 31,
1995 is calculated using rates ranging from 6.1% to 11.7%. The following are
scheduled minimum capital lease payments (in thousands) due in the succeeding
five years and thereafter, together with the present value of such obligations:

1996 $ 1,934
1997 1,673
1998 3,352
1999 1,317
2000 2,940
Thereafter --
-------
Total minimum lease payments 11,216
Less imputed interest 2,468
-------
Present value of obligations under capital lease $ 8,748
=======

Property under capital leases consists of equipment leases and are amortized
over the lease terms or expected useful life of the assets. Accumulated
amortization under capital leases was $3.6 million and $2.8 million at December
31, 1995 and 1994, respectively. Amortization expense of property under
capital leases totaled approximately $0.8 million for the years ended December
31, 1995 and 1994, respectively, and $0.4 million for the year ended December
31 1993.

OPERATING LEASES

In October 1992 and January 1993, World Airways signed a series of
agreements with International Lease Finance Corporation ("ILFC"), McDonnell
Douglas Corporation, GATX Capital Corporation, and United Technologies
Corporation's Pratt & Whitney Group ("Pratt and Whitney") to lease seven new
McDonnell Douglas MD-11 aircraft under initial lease terms of two to five
years. Six of the seven aircraft leases contain annual renewal options in
years six through fifteen of the lease term. Under the terms of the lease
agreements, World Airways may be required to pay additional rent in excess of
the fixed monthly amounts depending on block hours flown.

In February 1992, World Airways signed 12 year operating leases for two
McDonnell Douglas DC10-30 passenger aircraft. In July 1993, World Airways
returned these aircraft to their lessor which resulted in a $1.5

37
<PAGE>

million early termination payment of which $1.1 million was expensed in 1993
and included in aircraft costs. Certain matters related to the termination of
these leases were resolved in 1995 and resulted in a gain to the Company of
approximately $0.8 million. This gain is included in other income in 1995 (see
Note 14).

In October 1993, the Company returned an aircraft to its lessor and recorded
an expense of $1.2 million related to the early termination of the lease which
is also included in aircraft costs.

In 1994, the Company recorded a $4.2 million reversal of excess accrued
maintenance reserves associated with the expiration of three additional DC10-30
aircraft leases in 1994. The reversal is recorded as a reduction to
maintenance expense.

As of December 31, 1995, the Company's fleet consisted of four passenger
MD-11 aircraft, one freighter MD-11 aircraft, two convertible MD-11 aircraft,
three passenger DC10-30 aircraft, and one DC10-30 convertible aircraft. The
MD-11 leases contain options to purchase the aircraft at various times
throughout the lease terms. Long-term deposits consist primarily of deposits
on the MD-11 leases. As part of the lease agreements, World Airways was
assigned purchase options for four additional MD-11 aircraft. In 1992, World
Airways made non-refundable deposits to McDonnell Douglas toward the option
aircraft. These options expired in 1995. In March 1996, the Company entered
into an agreement with McDonnell Douglas to lease two MD-11ER aircraft. Under
this agreement, the Company will lease each aircraft for a term of 24 years
with an option to return the aircraft after a seven year period, subject to
fixed termination fees of $2.8 million per aircraft. The non-refundable
deposits of $1.2 million previously paid to McDonnell Douglas towards options
on four MD-11 aircraft will be applied to the deposits required on the MD-11ER
aircraft. The Company entered into a simultaneous agreement with McDonnell
Douglas to finance MD-11 spare parts. The Company will receive a total of $9.0
million of which $3.0 million will be advanced with the delivery of each
aircraft and an additional $3.0 million will be available in December 1996.
McDonnell Douglas will retain a purchase money lien in the purchased parts. In
connection with this lease agreement, the Company agreed to assume an existing
lease of two additional MD-11 freighter aircraft for 20 years, beginning in
1999, in the event the existing lessee terminates its lease with McDonnell
Douglas at that time.

World Airways ultimately plans to exit DC10 aircraft and standardize its
fleet around the MD-11 aircraft. However, to the extent the Company can obtain
DC10 aircraft at favorable lease terms, the Company will continue to utilize
these aircraft to supplement the MD-11 fleet during peak flying times until the
MD-11 fleet is sufficient to fulfill its obligations. Therefore, in 1995, World
Airways entered into three DC10-30 aircraft leases with lease terms expiring in
August 1997, September 1997, and December 1998. In March 1996, the Company
leased two additional DC10-30 aircraft (see Note 3).

The Company extended the lease terms on two spare engines subsequent to year
end. One lease, originally expiring on December 31, 1995, was extended until
February 1998. This lease was classified as a capital lease at December 31,
1995, but will be classified as an operating lease under the new agreement.
The other engine was extended three years from its original April 20, 1996
termination date.

Rental expense, primarily relating to aircraft leases, totaled approximately
$68.5 million, $52.5 million, and $50.6 million for the years ended December
31, 1995, 1994 and 1993, respectively.

The following is a schedule of future annual minimum rental payments,
principally aircraft rentals (excluding variable portions), required under
operating leases that have initial or remaining noncancellable lease terms in
excess of one year as of December 31, 1995, including the leases entered into
subsequent to year-end (in thousands):

1996 $ 88,673
1997 93,021
1998 88,979
1999 75,002
2000 71,350
Thereafter 749,335
----------
Total $1,166,360
==========

These future annual minimum rental payments include all option years. Under
the terms of certain of the leases, if the options are not exercised, the
Company must pay to the lessor either a fixed penalty or a penalty based on

38
<PAGE>

the number of block hours flown since delivery of the aircraft per the lease
agreement. The Company intends to exercise the options under these leases.

10. EMPLOYEE BENEFIT PLANS

The World Airways' Crewmembers Target Benefit Plan and the World Airways'
Flight Attendants Target Benefit Plan are defined contribution plans covering
flight engineers and pilots, and flight attendants, respectively, with
contributions based upon defined wages. These are both tax-qualified
retirement plans under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). Pension expense for both plans totaled $1.9 million,
$1.4 million, and $1.5 million for the years ended December 31, 1995, 1994, and
1993, respectively.

Effective January 1, 1987, World Airways adopted the World Airways, Inc.
Profit Sharing Bonus Plan (the "1987 Profit Sharing Plan"). Distributions
under the 1987 Profit Sharing Plan are equal to 20% of World Airways' defined
operating income, subject to an annual limitation of 10% of the total annual
aggregate compensation of World Airways' employees participating in the 1987
Profit Sharing Plan in that year. This is not a tax-qualified retirement plan
under Section 401(a) of the Code. The Company made no distributions in 1995 or
1994 pertaining to 1994 or 1993 financial results, respectively. The Company
has recorded expense and expects to distribute approximately $1.8 million in
1996 pertaining to 1995 results.

World Airways' cockpit crewmembers and eligible dependents are covered under
postretirement health care benefits to age 65. The Company accounts for the
cost of health benefits in accordance with Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions ("FAS #106"). FAS #106 requires accrual accounting for all
postretirement benefits other than pensions. World Airways funds the benefit
costs on a pay-as-you-go (cash) basis.

A summary of the net periodic postretirement benefit costs for the years
ended December 31, 1995, 1994, and 1993 is as follows:

1995 1994 1993
--------- --------- ---------

Service cost $ 118,000 $ 145,000 $ 103,000
Interest cost on accumulated
postretirement benefit obligation 134,000 143,000 156,000
Net amortized gain (40,000) -- --
--------- --------- ---------
Net periodic postretirement benefit
cost $ 212,000 $ 288,000 $ 259,000
========= ========= =========

The components of the Accumulated Postretirement Benefit Obligation for the
years ended December 31, 1995 and 1994 are as follows:

1995 1994
---------- ----------

Retirees and dependents $ 951,000 $ 935,000
Fully eligible, active participants 165,000 211,000
Not fully eligible participants 1,480,000 1,238,000
---------- ----------
$2,596,000 $2,384,000
Less: plan assets 0 0
---------- ----------
Accrued postretirement benefit
obligation $2,596,000 $2,384,000
========== ==========

The assumed discount rates used to measure the accumulated postretirement
benefit obligation for 1995 and 1994 were 6.0% and 8.0%, respectively. The
medical cost trend rate in 1995 was 7.0% trending down to an ultimate rate in
2020 of 3.5%. A one percentage point increase in the assumed health care cost
trend rates for each future year would have increased the aggregate of the
service and interest cost components of 1995 net periodic postretirement
benefit cost by $33,000 and would have increased the accumulated postretirement
benefit obligation as of December 31, 1995 by $136,000.

On May 24, 1995, the Company's stockholders approved the 1995 Stock Option
Plan (the "1995 Plan") that took effect May 31, 1995. Members of the Company's
Board of Directors, employees, and consultants to the Company

39
<PAGE>

or its affiliates are eligible to participate in the 1995 Plan. The company
has reserved 1,100,000 shares of common stock for issuance upon the exercise of
options granted to participants under the 1995 Plan. As of December 31, 1995,
the Company has awarded options to purchase 1,070,083 shares of common stock,
which are exercisable at prices ranging from $10.00 to $11.55 per share. As of
December 31, 1995, no options had been exercised. These options become vested
at various times through May 2003.

On July 27, 1995, the Company adopted the Non-Employee Directors' Stock
Option Plan (the "Directors' Plan"), pursuant to which each non-affiliate
director will be offered options to purchase 10,000 shares of common stock upon
election or appointment to the Board of Directors of the Company. On the third
anniversary of the initial award, each such director will be offered an option
to purchase 5,000 shares of common stock. Options granted under the Directors'
Plan become exercisable in equal monthly installments during the 36 months
following the award, as long as the person remains a director of the Company.
The exercise price of all such options will be the average closing price of the
common stock during the 30 trading days immediately preceding the date of
grant. Up to 250,000 shares of common stock may be issued under the Directors'
Plan, subject to certain adjustments.

11.FEDERAL AND STATE INCOME TAXES

Income tax expense attributable to income from continuing operations
consists of (in thousands):

For the years ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------

U.S. Federal $ 208 $ (44) $ 19
State 88 18 44
-------- -------- --------
Income tax expense (benefit) $ 296 $ (26) $ 63
======== ======== ========

There is no deferred tax expense or benefit for the years ended December 31,
1995, 1994, and 1993.

Income tax expense attributable to income (loss) from continuing operations
for the years ended December 31, 1995, 1994, and 1993 differed from the amounts
computed by applying the U.S. Federal income tax rate of 34 percent as a result
of the following (in thousands):

For the years ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
Expected Federal income tax expense
(benefit) at the statutory rate $ 3,125 $ (3,069) $(3,055)
Generation (utilization) of net
operating loss carryforward (3,349) 2,666 2,899
Alternative minimum and environmental
taxes 285 -- --
State income tax expense, net of
Federal benefit 58 12 30
Other 177 365 189
-------- -------- -------
Income tax expense (benefit) $ 296 $ (26) $ 63
======== ======== =======

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, are as follows
(in thousands):

1995 1994
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 34,136 $ 38,610
Recognition of sales/leaseback gains 2,485 2,846
Accrued maintenance in excess of reserves
paid, primarily due to accrual for
financial statement purposes 3,811 2,728
Accrued postretirement benefit obligation,
due to accrual for financial statement
purposes 883 811

40
<PAGE>

Compensated absences, primarily due to accrual
for financial statement purposes 656 514
Accrued rent 608 --
Alternative minimum tax credit carryforward 2,500 2,211
Investment tax credit carryforward 1,300 7,100
Other 204 --
-------- --------
Gross deferred tax assets 46,583 54,820
Less: valuation allowance 39,453 51,143
-------- --------
Net deferred tax assets 7,130 3,677
-------- --------
Deferred tax liabilities:
Property and equipment 6,757 3,451
Other 373 226
-------- --------
Gross deferred tax liabilities 7,130 3,677
-------- --------
Net deferred income taxes -- --
======== ========

The valuation allowance for deferred tax assets as of January 1, 1994 was
$49.1 million. The net changes in the total valuation allowance for the years
ended December 31, 1995 and 1994 were a decrease of $11.7 and an increase of
$2.0 million, respectively. The Company's estimate of the required valuation
allowance is based on a number of factors, including historical operating
results. The Company generated net earnings for the year ended 1995 as
compared to losses in both 1994 and 1993. If the Company continues to generate
net earnings in 1996, it is possible that a change in the estimate of the
required valuation allowance will occur in the near term, and could differ
materially from the amount recorded at December 31, 1995.

The availability of net operating loss, alternative minimum tax credit, and
investment tax credit carryforwards to reduce the Company's future federal
income tax liability is subject to limitations under section 382 of the
Internal Revenue Code of 1986, as amended (the "Code"). Generally, these
limitations restrict the availability of net operating loss and investment tax
credit carryforwards upon certain changes in stock ownership by five percent
shareholders which, in aggregate, exceed 50 percentage points in value in a
three-year period ("Ownership Change").

In August 1991, 5.7 million shares of WorldCorp common stock were sold by a
group of existing shareholders. This transaction constituted an Ownership
Change as defined under Section 382 of the Internal Revenue Code of 1986, as
amended. This Ownership Change subjects the Company to an annual limitation in
1991 and future years in the use of net operating loss, alternative minimum tax
credit, and investment tax credit carryforwards which were available to
WorldCorp (and thus allocable to the Company) on the date on which the Ownership
Change occurred. As of December 31, 1995, the Company had net operating
loss carryforwards for federal income tax purposes of $100.4 million. Of this
amount, $62.0 million is subject to a $6.9 million annual limitation resulting
from the 1991 Ownership Change. The remaining $38.4 million was generated
after the 1991 Ownership Change and, therefore, is not currently subject to
annual limitation. The Company's net operating loss carryforwards expire as
follows (in millions):

1997 $ 14.2
1998 12.0
1999 15.8
2000 10.2
2004 4.0
2007 20.4
2008 5.9
2009 17.9

41
<PAGE>

12. MAJOR CUSTOMERS

The Company operates in one business segment, the air transportation
industry. Information concerning customers for years in which their revenues
comprised 10% or more of the Company's operating revenues is presented in the
following table (in thousands):

Year ended December 31,
-----------------------
1995 1994 1993
-------- -------- --------

Malaysian Airlines $100,934 $ 32,773 $ 24,162
U.S. Department of Defense
(including U.S. Air Force) 52,889 44,572 54,201
P. T. Garuda Indonesia 26,263 32,356 30,309
Look Charters 3,677 21,222 12,468
Burlington Air Express, Inc. -- 526 22,358

World Airways has provided service to Malaysian Airlines since 1981,
providing aircraft for integration into Malaysian Airlines' scheduled passenger
and cargo operations as well as transporting passengers for the annual Hadj
pilgrimage. World Airways recently entered into a series of multi-year
agreements with Malaysian Airlines (see Note 3). World Airways provides five
aircraft to Malaysian Airlines under multi-year contracts with expirations
ranging from March 1997 to September 2000. As a result of these contracts,
World Airways expects that the percentage of the Company's total revenue
generated from Malaysian Airlines in 1996 will continue to increase as compared
to historical levels. The current Malaysian Airlines' Hadj contract, which was
entered into in 1992, expires in 1996. The Company is currently in
negotiations with Malaysian Airlines regarding future Hadj operations. World
Airways provided three aircraft for the 1995 Hadj operations and two aircraft
for the 1994 Hadj operations.

The Company's contract with the U.S. Air Force expires in September 1996.
The Company anticipates that future renewals of the U.S. Air Force contract
will be on an annual basis.

The Company has provided service to PT Garuda Indonesia since 1973 and has
operated under an annual Hadj contract since 1988. World Airways operated five
aircraft in the 1995 Garuda Hadj and six aircraft in the 1994 Garuda Hadj. The
Company will operate seven aircraft in the 1996 Garuda Hadj.

World Airways has provided service to Look Charters under an annual contract
since 1992. In 1995 and 1994, World Airways performed operations for a summer
charter program transporting passengers between Paris, France and various
locations in the United States and Mexico.

The loss of any of the Company's contracts described above, or a substantial
reduction in business from any of the Company's major customers, could have a
material adverse effect on the Company's results of operations and financial
condition.

The Company derives a significant percentage of its revenues and block hours
from its operations in Southeast Asia and the Middle East primarily as a result
of its contracts with Malaysian Airlines, Garuda Indonesia and its scheduled
passenger service to Tel Aviv. While the Company believes Southeast Asia and
the Middle East are growth markets for air transportation, any economic decline
or any military or political disturbance in these areas may interfere with the
Company's ability to provide service in these areas and could have a material
adverse effect on the Company's financial condition and results of operations.

All export contracts are denominated in U.S. dollars as are substantially
all of the related expenses. The classification between domestic and export
revenues is based on entity definitions prescribed in the economic regulations
of the Department of Transportation. Information concerning the Company's
export revenues is presented in the following table (in thousands):

For the Years Ended December 31,
--------------------------------

1995 1994 1993
-------- -------- --------
Operating Revenues:
Domestic $ 76,374 $ 63,156 $ 96,637

42
<PAGE>

Export- Malaysia 100,934 32,773 24,162
- Indonesia 26,263 32,356 30,310
- France 6,897 22,217 12,531
- Other 49,014 30,213 15,097
-------- -------- --------
Total $259,482 $180,715 $178,737
======== ======== ========

13. RELATED PARTY TRANSACTIONS

Effective December 31, 1995, WorldCorp owns approximately 59.3% of the
outstanding common stock of World Airways. Transactions between World Airways
and WorldCorp are described in Note 2.

Effective December 31, 1995, MHS owns approximately 16.6% of the outstanding
commons stock of World Airways. During 1994, MHS acquired 32% of Malaysian
Airline System Berhad, the flag carrier of Malaysia. Malaysian Airlines is
World Airways' largest commercial customer (see Notes 3 and 12).

Bain & Company, Inc. provided consulting services of approximately $150,000
and $400,000 to the Company during 1995 and 1994, respectively. A principle of
Bain & Company is also a member of the Board of Directors of WorldCorp.

W. Jerrold Scoutt, Jr., a member of the Board of Directors of WorldCorp
until May 1994, is a member of the law firm of Zuckert, Scoutt & Rasenberger,
Washington, D.C. Zuckert, Scoutt & Rasenberger rendered legal services to the
Company during 1995, 1994, and 1993.

14. COMMITMENTS AND CONTINGENCIES

LITIGATION AND CLAIMS

As of February 29, 1996, the Company's flight attendants represented
approximately 29% of the Company's work force. The collective bargaining
agreement between the Company and the Teamsters on behalf of the Company's
flight attendants expired in 1992. The parties exchanged their opening
contract proposals in 1992 and have had numerous contract negotiation sessions.
In December 1994, the Company and the Teamsters jointly requested the
assistance of a federal mediator to facilitate negotiations. After several
mediated sessions, the National Mediation Board (the "NMB") mediator
recommended that the NMB release the parties to pursue "direct" (i.e.,
non-mediated) negotiations with the flight attendants. The Company and the
Teamsters agreed and direct negotiations continue. The outcome of the
negotiations with the flight attendants cannot be determined at this time. The
inability to reach an agreement upon terms favorable to the Company could have
a material adverse effect on the Company.

43
<PAGE>

The Company's flight attendants continue to challenge the use of foreign flight
attendant crews on the Company's flights for Malaysian Airlines and Garuda
Indonesia which has historically been the Company's operating procedure. The
Company in contractually obligated to permit its Southeast Asian customers to
deploy their own flight attendants. While the Company intends to contest this
matter vigorously in an upcoming arbitration, an unfavorable ruling for the
Company could have a material adverse effect on the Company.

The Company is involved in various other claims and legal actions arising in
the the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect
on the Company's financial condition.

CONTINGENT RENTAL PAYMENTS

In July 1993, the Company returned certain DC10-30 aircraft to the lessor
(see Note 9). As a result of this early lease termination, the Company is
responsible, until 2004 for one aircraft and 2005 for the second aircraft, for
one-third of any deficit in rent incurred in future leases of the aircraft, up
to $100,000 monthly per plane, with an overall combined cap of $1,850,000. The
Company accrued $904,000 for rent shortfalls for the period August 1993 to
September 1995. One aircraft is currently being leased for an amount in excess
of the shortfall limit. The current lease for the second aircraft requires the
Company to contribute $8,000 per month. The estimated shortfall liabilities
relating to these aircraft are accrued in the accompanying balance sheet at
December 31, 1995. The Company's remaining contingent liability related to
this matter approximates $923,000.

COMMITMENTS TO PURCHASE SPARE ENGINES

The Company has commitments to purchase two spare engines in the first and
second quarters of 1996 (See Note 9).

LETTERS OF CREDIT

At December 31, 1995 and 1994, restricted cash and short-term investments
include customer deposits held in escrow and cash pledged as collateral for
various letters of credit facilities issued by a bank on the Company's behalf
totaling $0.9 million and $0.7 million, respectively, with expiration dates
principally occurring in 1996.

MD-11 ENGINE MAINTENANCE AGREEMENT

In July 1995 and January 1996, the Company amended its MD-11 engine
maintenance agreement covering the leased MD-11 engines. Under the terms of
the amended agreement with the engine manufacturer, which expires in August
2003, the manufacturer will perform a significant portion of the Company's
required engine overhauls. In exchange, the manufacturer agreed to provide
such maintenance services at a cost not to exceed a specified rate per hour
during the term of the contract. The specified rate per hour is subject to
annual escalation, and increases substantially in September 1998. Accordingly,
while the Company believes the terms of this agreement will result in lower
engine maintenance costs than it otherwise would incur during the first five
years of the agreement, these costs will increase substantially during the
last seven years of the agreement. Also under this agreement, the Company will
pay approximately $0.7 million for MD-11 spare parts in 1996.

44
<PAGE>

15.UNAUDITED QUARTERLY RESULTS

The results of the Company's quarterly operations (unaudited) for 1995 and
1994 are as follows (in thousands except share data):

<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
September December Total
March 31 June 30 30 31 Year
------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
1995

Operating revenues $40,537 $75,778 $79,246 $63,921 $259,482

Operating income (loss) (3,074) 11,402 4,049 (2,035) 10,342

Net earnings (loss) $(3,800) $10,934 $ 3,359 $(1,597)(2) $ 8,896

Primary and fully diluted
net earnings (loss) per
common share (0.38) 1.08 0.33 (0.13) 0.84

1994

Operating revenues $31,720 $55,865 $51,544 $41,586 $180,715

Operating income (loss) (5,522)(1) 6,944 (6,147) (476) (5,201)

Net earnings (loss) $(6,454) $6,224 $(7,490) $(1,281) $ (9,001)

Primary and fully diluted
net earnings (loss) per
common share (0.69) 0.61 (0.74) (0.13) (0.91)
</TABLE>

(1) Operating loss in the quarter ended March 31, 1994 includes approximately
$4.2 million of reversals of excess accrued maintenance reserves associated
with the expiration of three DC10 aircraft leases in 1994.

(2) Net loss in the quarter ended December 31, 1995 includes a gain of
approximately $0.8 million on a settlement relating to the return of two
DC10-30 aircraft in 1993 (see Note 9).

45
<PAGE>

INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND STOCKHOLDERS
WORLD AIRWAYS, INC.:

We have audited the accompanying balance sheets of World Airways, Inc.
("World Airways") as of December 31, 1995 and 1994, and the related statements
of operations, changes in common stockholders' equity (deficit) and cash flows
for each of the years in the three-year period ended December 31, 1995. In
connection with our audits of the financial statements, we also have audited
the related financial statement schedule as listed in Item 14(a)(2) herein.
These financial statements and financial statement schedule are the
responsibility of World Airways' management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule 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 World Airways as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

KPMG PEAT MARWICK LLP

WASHINGTON, D.C.
MARCH 18, 1996

46
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------

DIRECTORS

The Company incorporates herein by reference the information concerning
directors contained in its Notice of Annual Stockholder's Meeting and Proxy
Statement to be filed within 120 days after the end of the Company's fiscal
year (the "1996 Proxy Statement").

EXECUTIVE OFFICERS

The following table sets forth the names and ages of all executive officers
of the Company and all positions and offices within the Company presently held
by such executive officers:

Name Age Position Held
---- --- -------------

Charles W. Pollard 38 Chief Executive Officer, President,
and Director

Vance Fort 52 Senior Vice President - Government
Affairs and General Counsel

Henk J. Guitjens 57 Senior Vice President - Marketing and
Sales

Ahmad M. Khatib 46 Executive Vice President and Director
- Operations

Michael E. Savage 37 Chief Financial Officer and Vice
President

Mr. Charles W. Pollard has served as a Director of the Company since
September 1989, President of the Company since June 1992, and Chief Executive
Officer of the Company since March 1996. He served as General Counsel and
Secretary of WorldCorp from October 1987 until October 1990, and Vice
President, Administration and Legal Affairs from October 1990 until June 1992.
From August 1983 to October 1987, he practiced law in the corporate department
of the law firm of Skadden, Arps, Slate, Meagher & Flom, Washington, D.C.

Vance Fort has served as Senior Vice President - Government Affairs and
General Counsel of the Company since July 1993 and currently manages the Human
Resources and Management Information Systems departments of the Company. He
joined the Company as Senior Vice President, Government and International
Affairs, in September 1989. He serves as Vice President, International and
Government Affairs for the Flying Tiger Line, an air cargo service provider,
from September 1987 to September 1989. From 1978 to 1987 he served in various
positions at the U.S. Department of Transportation, including service as Deputy
Assistant Secretary for Policy and International Affairs.

Henk J. Guitjens has served as Senior Vice President - Marketing and Sales
of the Company since April 1995. Prior to joining the Company, Mr. Guitjens
served in various executive capacities with Martinair Holland N.V.
("Martinair"), a passenger airline and provider of air cargo services, for 27
years, most recently as Vice President and General Manager, the Americas. Mr.
Guitjens began his 33 years in the air travel business as a charter wholesaler
for Boston-based University Air Travel, after which he joined KLM where he
managed the North American division of its charter unit, Martinair.

Ahmad M. Khatib has served as a Director and Executive Vice President -
Operations of the Company since February 1994. Mr. Khatib has served as Senior
Vice President, in different capacities, since June 1988. He joined

47
<PAGE>

the Company in May 1972 as a passenger service agent. During his more than 20
years with the Company, he has held numerous management positions in the areas
of sales, planning and services as well as in aircraft leasing and related
agreements, becoming Vice President of Marketing and Customer Services in 1987.

Michael E. Savage has served as Vice President and Chief Financial Officer
of the Company since May 1994. He serves as Vice President and Chief Financial
Officer of Tower Air, Inc., a long-haul scheduled and charter passenger
airline, from April 1991 until April 1994. From 1983 to April 1991 Mr. Savage
was with the accounting firm of Arthur Young & Company (which became Ernst &
Young) where he was promoted to the position of Manager in 1985 and to the
position of Principal in 1989.

BENEFICIAL OWNERSHIP REPORTING

The Company incorporates herein by reference the information required by
Item 405 of Regulation S-K contained in its 1996 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------

The Company incorporates herein by reference the information concerning
executive compensation contained in the 1996 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------

The Company incorporates herein by reference the information concerning
security ownership of certain beneficial owners and management contained in the
1996 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------

The Company incorporates herein by reference the information concerning
certain relationships and related transactions contained in the 1996 Proxy
Statement.

48
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------

(a) The following documents are filed as part of this report:

(1) Financial Statements

The following financial statements of World Airways, Inc. are filed
herewith:

Balance Sheets, December 31, 1995 and 1994

Statements of Operations, Years Ended December 31, 1995, 1994, and 1993

Statements of Changes in Common Stockholders' Equity (Deficit),
Years Ended December 31, 1995, 1994 and 1993

Statements of Cash Flows, Years Ended December 31, 1995, 1994 and 1993

Notes to Financial Statements

Independent Auditors' Report

(2) Financial Statement Schedule

Schedule
Number
--------

II. Valuation and Qualifying Accounts

NOTE: All other schedules are omitted because the requisite
information is either presented in the financial statements or
notes thereto or is not present in amounts sufficient to require
submission of the schedules.

(3) Index to Exhibits

No. Description
-----------

1.1 Form of Underwriting Agreement to be entered into among Incorporated
the Company, WorldCorp, Inc. and the Underwriters. By Reference

3.1 Amended and Restated Certificate of Incorporation. Incorporated
By Reference

3.2 Amended and Restated Bylaws. Incorporated
By Reference

4.1 Article IV of the Company's Amended and Restated Incorporated
Certificate of Incorporation, incorporated by reference By Reference
to Exhibit 3.1 filed herewith, and Section 6 of the
Company's Bylaws, incorporated by reference to Exhibit
3.2 filed herewith.

5.1 Opinion of Hunton & Williams. Incorporated
By Reference

10.1 The Company's 1995 Stock Option Plan. Incorporated
By Reference

49
<PAGE>

10.2 Form of Directors' Indemnification Agreement. Incorporated
By Reference

10.3 Employment Agreement between the Company and Charles Incorporated
W. Pollard, dated as of January 1, 1995. By Reference

10.4 Amendment No. 1 to the Employment Agreement between Incorporated
the Company and Charles W. Pollard, dated as of May By Reference
31, 1995.

10.5 Stock Option Agreement between the Company and Charles Incorporated
W. Pollard, dated as of January 1, 1995. By Reference

10.6 Amendment No. 1 to the Stock Option Agreement between Incorporated
the Company and Charles W. Pollard, dated as of By Reference
May 31, 1995.

10.7 Agreement between the Company and Flight Attendants Incorporated
represented by International Brotherhood of Teamsters. By Reference
(Filed as Exhibit 10.67 to WorldCorp, Inc.'s Form S-3
Registration Statement (Commission File No. 91998) filed
on December 10, 1987 and incorporated herein by reference.)

10.8 Office Lease--The Hallmark Building dated as of Incorporated
September 20, 1989 between the Company and GT By Reference
Renaissance Centre Limited Partnership. (Filed as
Exhibit 10.38 to WorldCorp, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1989
and incorporated herein by reference.)

10.9 Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48518 dated as of September 30, 1992 between the By Reference
Company and International Lease Finance Corporation.
(Filed as Exhibit 10.38 to WorldCorp, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1992 and incorporated herein by reference.)

10.10 Amendment No. 1 to Aircraft Lease Agreement for Incorporated
Aircraft Serial Number 48518 dated as of November 1992 By Reference
between the Company and International Lease Finance
Corporation. (Filed as Exhibit 10.68 to WorldCorp,
Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by
reference.)

10.11 Amendment No. 2 to Aircraft Lease Agreement for Incorporated
Aircraft Serial Number 48518 dated as of March 8, 1993 By Reference
between the Company and International Lease Financial
Corporation. (Filed as Exhibit 10.69 to WorldCorp,
Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by
reference.)

10.12 Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48519 dated as of September 30, 1992 between the By Reference
Company and International Lease Finance Corporation.
(Filed as Exhibit 10.39 to WorldCorp, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1992 and incorporated herein by reference.)

10.13 Amendment No. 2 to Aircraft Lease Agreement for Incorporated
Aircraft Serial Number 48519 dated as of April 23, By Reference
1993 between the Company and International
Lease Finance Corporation.

10.14 Amendment No. 3 to Aircraft Lease Agreement for Incorporated
Aircraft Serial Number 48519 dated as of April 1993 By Reference
between the Company and International Lease Finance.

10.15 Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48437 dated as of September 30, 1992 between the By Reference
Company and International Lease Finance Corporation.
(Filed as Exhibit 10.40 to WorldCorp, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1992 and incorporated herein by reference.)

50
<PAGE>

10.16 Amendment No. 2 to Aircraft Lease Agreement for Incorporated
Aircraft Serial Number 48437 dated as of March 31, By Reference
1993 between the Company and International Lease
Finance Corporation. (Filed as Exhibit 10.73 to
WorldCorp, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference.)

10.17 Amendment No. 3 to Aircraft Lease Agreement for Incorporated
Aircraft Serial Number 48437 dated as of April 15, By Reference
1993 between the Company and International Lease
Finance Corporation. (Filed as Exhibit 10.74 to
WorldCorp, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference.)

10.18 Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48633 dated as of September 30, 1992 between the By Reference
Company and International Lease Finance Corporation.
(Filed as Exhibit 10.41 to WorldCorp, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1992 and incorporated herein by reference.)

10.19 Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48631 dated as of September 30, 1992 between the By Reference
Company and International Lease Finance Corporation.
(Filed as Exhibit 10.42 to WorldCorp, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1992 and incorporated herein by reference.)

10.20 Amendment No. 2 to Aircraft Lease Agreement for Incorporated
Aircraft Serial Number 48631 dated as of April 28, By Reference
1995 between the Company and International Lease
Finance Corporation.

10.21 Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48632 dated as of September 30, 1992 between the By Reference
Company and International Lease Finance Corporation.
(Filed as Exhibit 10.43 to WorldCorp, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1992 and incorporated herein by reference.)

10.22 Amendment No. 2 to Aircraft Lease Agreement for Incorporated
Aircraft Serial Number 48632 dated as of April 28, By Reference
1995 between the Company and International Lease
Finance Corporation.

10.23 Accounts Receivable Management and Security Agreement Incorporated
dated as of December 7, 1993 between the Company and By Reference
BNY Financial Corporation. (Filed as Exhibit 10.46 to
WorldCorp, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference.)

10.24 Amendment (No. 1) to the Accounts Receivable Incorporated
Management and Security Agreement between the Company By Reference
and BNY Financial Corporation dated March 15, 1995 and
effective as of January 1, 1995.

10.25 Amendment No. 2 to the Accounts Receivable Management Incorporated
and Security Agreement between the Company and BNY By Reference
Financial Corporation dated August 1995.

10.26 Long Term Aircraft Charter Agreement dated August 20, Incorporated
1986 between the Company and Malaysian Airline System By Reference
Berhad (Filed as Exhibit 10.79 to WorldCorp's Annual
Report on Form 10-K for the year ended December 31,
1986).

10.27 Amendment dated April 10, 1991 to the Long Term Incorporated
Aircraft Charter Agreement dated August 20, 1986 By Reference
between the Company and Malaysian Airline System
Berhad.

51
<PAGE>

10.28 Stock Purchase Agreement by and among the Company, Incorporated
WorldCorp, Inc., and Malaysian Helicopter Services By Reference
Berhad dated as of October 30, 1993. (Filed as Exhibit
10.87 to WorldCorp, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and
incorporated herein by reference.)

10.29 Stock Registration Rights Agreement between the Incorporated
Company and Malaysian Helicopter Services Berhad dated By Reference
as of October 30, 1993. (Filed as Exhibit 10.88 to
WorldCorp, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and incorporated
herein by reference.)

10.30 Shareholders Agreement between Malaysian Helicopter Incorporated
Services Berhad, WorldCorp, Inc. and the Company, By Reference
dated as of February 3, 1994. (Filed as Exhibit 10.89
to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 and
incorporated herein by reference.)

10.31 Amendment No. 1 to Shareholders Agreement dated as of Incorporated
February 28, 1994, among WorldCorp, the Company and By Reference
Malaysian Helicopter Services Berhad. (Filed as
Exhibit 10.90 to WorldCorp Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1994
and incorporated herein by reference.)

10.32 Agreement between the Company and the International Incorporated
Brotherhood of Teamsters representing the Cockpit By Reference
Crewmembers employed by the Company dated August 15,
1994-June 30, 1998. (Filed as Exhibit 10.98 to
WorldCorp, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and incorporated
herein by reference.)

10.33 Aircraft Services Agreement dated September 26, Incorporated
1994 by and between the Company and Malaysian Airline By Reference
System Berhad. (Filed as Exhibit 10.101 to WorldCorp,
Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by
reference.)

10.34 Freighter Services Agreement dated October 6, 1994 by Incorporated
and between the Company and Malaysian Airline System By Reference
Berhad. (Filed as Exhibit 10.102 to WorldCorp, Inc.'s
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by
reference.)

10.35 Amendment No. 1 to Passenger Aircraft Incorporated
Services and Freighter Services Agreement dated By Reference
December 31, 1994 by and between the Company and
Malaysian Airline System Berhad. (Filed as Exhibit
10.107 to WorldCorp, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and
incorporated herein by reference.)

10.36 Amendment No. 2 to the Aircraft Services and Freighter Incorporated
Services Agreements by and between the Company and By Reference
Malaysian Airline System Berhad, dated February 9,
1995.

10.37 Amendment No. 3 to the Freighter Services Agreement by Incorporated
and between the Company and Malaysian Airline System By Reference
Berhad dated May, 1995.

10.38 1995 U.S. Air Force Contract F11626-94-D0027 dated Incorporated
October 1, 1994 between the Company and Air Mobility By Reference
Command. (Filed as Exhibit 10.103 to WorldCorp, Inc.'s
Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1994 and incorporated herein by
reference.)

10.39 FY1996 Contractor Team Agreement among the Company, Incorporated
Continental Airlines, Inc., Emery Worldwide Airlines, By Reference
Inc., Evergreen International Airlines, Inc., Miami
Air International, Inc., Northwest Airlines, Inc. and
Rich International Airways, Inc. dated April 3, 1995.

52
<PAGE>

10.40 Lease agreement for Aircraft Serial Number 48485 dated Incorporated
as of January 15, 1991 between the Company and First By Reference
Security National Bank of Utah, N.A. (Filed as Exhibit
10.65 to WorldCorp, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1991 and
incorporated herein by reference).

10.41 Maintenance Agreement between Malaysian Airline System Incorporated
Berhad and the Company dated March 1, 1995. By Reference

10.42 Form of Master Services Agreement between the Company Incorporated
and WorldCorp, Inc. By Reference

10.43 1996 U.S. Air Force Contract dated October 1, 1995 Incorporated
between the Company and Air Mobility Command. By Reference

10.44 Amendment No. 3 to the Accounts Receivable Management Incorporated
and Security Agreement between the Company and BNY By Reference
Financial Corporation dated as of September 28, 1995.

10.45 Amendment No. 4 to the Accounts Receivable Management Incorporated
and Security Agreement between the Company and BNY By Reference
Financial Corporation dated as of September 28, 1995.

10.46 Form of Non-Employee Directors' Stock Option Plan. Incorporated
By Reference

11.1 Computation of earnings (loss) per share. Filed
Herewith

27 Financial data schedule for the year ended December
31, 1995 Filed
Herewith
(b) Reports on Form 8-K

None.

STATUS OF PRIOR DOCUMENTS

World Airways' Annual Report on Form 10-K for the year ended December 31,
1995, at the time of filing with the Securities and Exchange Commission, shall
modify and supersede all prior documents filed pursuant to Sections 13, 14, and
15(d) of the Securities Exchange Act of 1934 for purposes of any offers or
sales of any securities after the date of such filing pursuant to any
Registration Statement or Prospectus filed pursuant to the Securities Act of
1933, as amended, which incorporates by reference such Annual Report on Form
10-K.

* * * * * * * * * *

53
<PAGE>

SCHEDULE II

WORLD AIRWAYS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance
beginning costs and charged at end of
of period expenses to reserve period
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
- -------------------------------

Year ended December 31, 1995 $ 35 $ 370 $ 147 $ 258
======== ======== ======== ========

Year ended December 31, 1994 $ 277 $ 409 $ 651 $ 35
======== ======== ======== ========

Year ended December 31, 1993 $ 15 $ 271 $ 9 $ 277
======== ======== ======== ========

Valuation Allowance for
Deferred Tax Assets
- --------------------------------

Year ended December 31, 1995 $51,143 $ -- $11,690 $ 39,453
======== ======== ======== ========

Year ended December 31, 1994 $49,138 $ 2,005 $ -- $ 51,143
======== ======== ======== ========

Year ended December 31, 1993 $45,462 $ 3,676 $ -- $ 49,138
======== ======== ======== ========
</TABLE>

54
<PAGE>

EXHIBIT 11.1

WORLD AIRWAYS, INC.
CALCULATION OF EARNINGS (LOSS) PER COMMON SHARE
(IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
Net earnings (loss) applicable to
common stock $ 8,896 $ (9,001) $ (9,048)
=========== ========== ===========
Weighted average common shares
outstanding 10,476,776 9,812,337 9,000,000

Weighted average options and warrants treated
as common stock equivalents 95,066 126,390 --
----------- ---------- -----------

Primary and fully diluted number of shares 10,571,842 9,938,727 9,000,000
=========== ========== ===========

Primary and fully diluted net earnings (loss)
per share of common stock $ 0.84 $ (0.91) $ (1.01)
</TABLE>

55
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

WORLD AIRWAYS, INC.

By /s/ Charles W. Pollard
----------------------
Charles W. Pollard
Chief Executive Officer,
President, and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

/s/ Charles W. Pollard Chief Executive Officer, March 29, 1996
- ---------------------- President and Director
(Charles W. Pollard) and Director

/s/ Michael E. Savage Chief Financial Officer March 29, 1996
- ---------------------
(Michael E. Savage)

/s/ T. Coleman Andrews, III Director and Chairman of March 29, 1996
- --------------------------- the Board
(T. Coleman Andrews, III)

/s/ A. Scott Andrews Director March 29, 1996
- --------------------
(A. Scott Andrews)

/s/ Wan Malek Ibrahim Director March 29, 1996
- ---------------------
(Wan Malek Ibrahim)

/s/ Ahmad M. Khatib Director March 29, 1996
- -------------------
(Ahmad M. Khatib)

/s/ Russell L. Ray, Jr Director March 29, 1996
- ----------------------
(Russell L. Ray, Jr.)

/s/ Peter M. Sontag Director March 29, 1996
- -------------------
(Peter M. Sontag)

/s/ Lim Kheng Yew Director March 29, 1996
- -----------------
(Lim Kheng Yew)

<PAGE>

EXHIBIT 11.1

WORLD AIRWAYS, INC.
CALCULATION OF EARNINGS (LOSS) PER COMMON SHARE
(IN THOUSANDS EXCEPT SHARE DATA)

Weighted average options and warrants treated
as common stock equivalents 95,066 126,390 --
----------- ---------- -----------

Primary and fully diluted number of shares 10,571,842 9,938,727 9,000,000
=========== ========== ===========

Primary and fully diluted net earnings (loss)
per share of common stock $ 0.84 $ (0.91) $ (1.01)
</TABLE>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 25,271
<SECURITIES> 0
<RECEIVABLES> 15,730
<ALLOWANCES> 258
<INVENTORY> 0
<CURRENT-ASSETS> 55,548
<PP&E> 65,926
<DEPRECIATION> 13,497
<TOTAL-ASSETS> 130,695
<CURRENT-LIABILITIES> 64,431
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 30,328
<TOTAL-LIABILITY-AND-EQUITY> 130,695
<SALES> 0
<TOTAL-REVENUES> 259,482
<CGS> 0
<TOTAL-COSTS> 249,140
<OTHER-EXPENSES> 1,150
<LOSS-PROVISION> 370
<INTEREST-EXPENSE> 3,486
<INCOME-PRETAX> 9,192
<INCOME-TAX> 296
<INCOME-CONTINUING> 8,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,896
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84

</TABLE>