Global Aviation (GLAH) 10-12G Registration of securities

As filed with the Securities and Exchange Commission on August 27, 2007

Registration No.            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or 12(g) of

The Securities Exchange Act of 1934

Global Aero Logistics Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-4222196
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
7337 West Washington Street Building 1 – Corporate Offices Indianapolis, Indiana	46231-1300
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (317) 282-4000

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

Title of each class to be so registered	Name of each exchange on which each class is to be registered
None	None

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

Class A Common Stock, par value $0.0001 per share

(Title of class)

TABLE OF CONTENTS

		Page
Item 1.	Business	3
Item 1A.	Risk Factors	15
Item 2.	Financial Information	29
Item 3.	Properties	55
Item 4.	Security Ownership of Certain Beneficial Owners and Management	55
Item 5.	Directors and Executive Officers	56
Item 6.	Executive Compensation	60
Item 7.	Certain Relationships and Related Transactions, and Director Independence	79
Item 8.	Legal Proceedings	80
Item 9.	Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters	80
Item 10.	Recent Sales of Unregistered Securities	81
Item 11.	Description of Registrant’s Securities to be Registered	82
Item 12.	Indemnification of Directors and Officers	85
Item 13.	Financial Statements and Supplementary Data	86
Item 14.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	86
Item 15.	Financial Statements and Exhibits	86
Index to Consolidated Financial Statements		F-1

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Form 10 contains forward-looking statements, including in the items entitled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”, that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities and the effects of future regulation and competition.

Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “may”, “shall”, “could” or “would” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in the forward-looking statements. Except as required under the federal securities laws and the rules and regulations of the Security and Exchange Commission, we do not have any intention or obligation to update publicly any forward-looking statements after we file this Form 10, whether as a result of new information, future events or otherwise. Neither the Private Securities Litigation Reform Act of 1995 nor Section 27A of the Securities Act of 1933, as amended, provides any protection for statements made in this Form 10.

Important factors that could cause actual results to differ materially from forward-looking statements include, but are not limited to:

• high fuel costs, significant disruptions in the supply of aircraft fuel and further significant increases in fuel prices;

• terrorist attacks;

• risks inherent to airlines, such as demand for air services to and from the regions served by us and our ability to implement our growth strategy;

• our relationship with Southwest Airlines;

• our dependence on certain regions;

• our competitive environment, including significant fare pricing activities by major airlines;

• our ability to secure and maintain any necessary financing for aircraft acquisitions and other purposes;

• relations with unionized employees generally and the impact and outcome of future labor negotiations;

• our fixed obligations;

• problems with our aircraft;

• levels of military spending for the transportation of military personnel and their families;

• economic and other conditions in regions in which we operate;

• governmental regulation of our operations;

• increases in maintenance and security costs and insurance premiums; and

• cyclical and seasonal fluctuations in our operating results.

These factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. You should review carefully the items captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10 for a more complete discussion of these and other factors that may affect our business.

BASIS OF PRESENTATION

All references to “we”, “us”, “our”, “our company”, “the Company” or “Global” in this Form 10 mean Global Aero Logistics Inc. (f/k/a New ATA Holdings Inc.), a Delaware corporation, and all consolidated subsidiaries owned by Global Aero Logistics Inc. All references to “ATA” in this Form 10 mean our wholly owned subsidiary, ATA Airlines, Inc., an Indiana corporation. All references to “our predecessor” mean ATA Holdings Corp., formerly an Indiana corporation. See “Business — Our History — Our Reorganization”.

All references to our “common stock” in this Form 10 mean our Class A common stock, par value $0.0001 per share.

INDUSTRY AND MARKET DATA

The industry and market data and other statistical information used throughout this Form 10 are based on independent industry publications. Some data are also based on our good faith estimates, which are derived from our review of independent industry publications, government publications, reports by market research firms or other published independent sources. Estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors”. Although we believe that these sources are reliable and we are not aware of any misstatements regarding the industry or market data presented herein, we have not independently verified the information. None of the independent industry publications used in this Form 10 was prepared on our or our affiliates’ behalf or at our expense.

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ITEM 1. BUSINESS

Summary

We are a diversified passenger airline operating in two principal segments: a low cost carrier providing scheduled service that leverages a unique codeshare agreement with Southwest Airlines, and a charter operator that focuses principally on serving the U.S. military. We report our results of operations for these businesses as two segments: scheduled service and military charter service.

We flew 5.9 million passengers during 2005 and 2.5 million passengers during the ten months ended December 31, 2006. For 2005 and the ten months ended December 31, 2006, our scheduled service segment represented 58.2% and 52.2%, respectively, of our total revenue and our military charter service segment represented 37.4% and 45.3%, respectively, of our total revenue for those periods. We conduct substantially all of our operations through our subsidiary, ATA Airlines, Inc.

Scheduled Service. Our scheduled service segment operates more than 50 daily flights from various western U.S. airports to Hawaii and over certain routes on the U.S. Mainland. Our scheduled service segment is designed to leverage our codeshare agreement with Southwest Airlines, the largest U.S. airline in terms of domestic passengers flown.

Our codeshare agreement with Southwest is the only codeshare agreement Southwest has entered into since it commenced operations in 1971. Most of our domestic flights are available for purchase onsouthwest.com. Under the agreement, international codesharing is expected to begin in 2009. We sell to Southwest’s large customer base and are able to utilize Southwest’s brand name and distribution channels, most notablysouthwest.com, the world’s most searched airline website according to Hitwise™. Our agreement, which expires in 2013, provides us codeshare exclusivity in certain markets for specified periods of time.

We plan to implement a disciplined growth strategy by offering service from airports where Southwest has a significant presence to non-Southwest airports where competition is limited due to slot restrictions, bilateral treaties that limit the number of carriers providing service, or where aircraft performance requirements preclude most low cost carrier competition.

Military Charter Service. Our largest charter contract is with the U.S. military, for whom we transport service personnel and their families to and from overseas destinations. We and our predecessor have been engaged in this business since 1983, and we are among the largest active military charter carriers in terms of revenue. Our military charter service operates through a contract with the U.S. Department of Defense’s Air Mobility Command, or AMC, designed to reimburse contracting airlines for their weighted average historical seat-mile costs and provide approximately 10% operating margins. Since our contract with the AMC provides for a pass-through of actual fuel costs to the military, this business is insulated from fuel price volatility. We also sell charter services to other governmental and commercial customers using the same aircraft used in our military charter service, primarily during off-peak periods in our military service.

We intend to build on our position as one of the leading operators of passenger charter flights for the AMC by growing our fleet of wide-body aircraft. We have entered into lease agreements for seven McDonnell Douglas DC-10 aircraft. These additional aircraft will enable us to use our full wide-body contractual entitlement with the AMC. See “— Military Charter Service”.

Our Aircraft. As of June 30, 2007, we operate a fleet of 28 aircraft: 14 Boeing 737s, 10 Boeing 757s and three Lockheed L-1011s and one McDonnell Douglas DC-10-30. We own the L-1011s and lease the other aircraft. The 737s and 757s are narrow-body, short- to medium-haul aircraft, and the L-1011s are wide-body, long-haul aircraft. Our 737s are used primarily in scheduled service; twelve of them are B737-800s certified for Extended Twin-engine Operational Performance Standards, or ETOPS, allowing them to operate West Coast-to-Hawaii over-water routes. Our 757s also are certified for ETOPS and are deployed in our military

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charter service as well as in our scheduled service on U.S. Mainland-to-Hawaii routes. Our L-1011 aircraft are used exclusively in military charter service. We currently are performing integration maintenance on the DC-10 aircraft and are obtaining the necessary government certifications to operate them. We expect all of our DC-10s to be operational by the first quarter of 2008 and we plan to use them primarily for AMC charters.

Our Revenues. The following table summarizes our revenue sources for the periods indicated.

	Predecessor												Global Aero Logistics Inc.
	Year ended December 31,									Two months ended February 28, 2006			Ten months ended December 31, 2006
	2003			2004			2005
Operating Revenues:
Scheduled Service	$	1,085.4		$	1,099.9		$	635.2		$	53.5		$	332.3
Military Charter Service (1)		366.2			358.9			408.7			58.8			288.3
Other		66.9			73.8			48.4			2.8			16.5
Total	$	1,518.5		$	1,532.6		$	1,092.3		$	115.1		$	637.1
Percentage of Revenue:
Scheduled Service		71.5	%		71.8	%		58.2	%		46.5	%		52.2	%
Military Charter Service		24.1	%		23.4	%		37.4	%		51.1	%		45.3	%

(1) Includes commercial charter service revenues of (i) $69.3 million, $32.0 million and $15.3 million for the years ended December 31, 2003, 2004 and 2005, respectively; (ii) $1.2 million for the two-month period ended February 28, 2006; and (iii) $19.1 million for the ten-month period ended December 31, 2006.

For additional information regarding our operating segments, see “Note 9 — Segment Reporting” of the notes to our audited consolidated financial statements as of and for the ten months ended December 31, 2006.

Our Reorganization.Our predecessor filed for bankruptcy protection on October 26, 2004 and emerged on February 28, 2006. See “— Our History — Our Reorganization”. We believe we made substantial improvements to our business during our Chapter 11 reorganization, including a codeshare agreement with Southwest, a restructured route system, renegotiated labor contracts, a restructured balance sheet, long-term maintenance agreements, exits from non-core businesses and reductions of approximately 55% in our fleet size and 65% in headcount.As a result of these changes, we do not believe that our business operations or our operating results for periods prior to March 1, 2006 are comparable to our current business operations or our operating results since that date.

Recent Developments. On April 5, 2007, the Company entered into an agreement and plan of merger with Hugo Acquisition Corp., a Delaware corporation and the Company’s wholly owned subsidiary, and World Air Holdings, Inc. (“World Air Holdings”), a Delaware corporation, whereby Hugo Acquisition Corp. will merge with and into World, with World as the surviving corporation and the Company’s indirect wholly owned subsidiary. The board of directors of each company unanimously approved the merger agreement. The stockholders of World Air Holdings approved adoption of the merger agreement on July 18, 2007. On August 14, 2007, the merger transaction was consummated. Each outstanding share of common stock of World was converted into the right to receive $12.50 in cash, resulting in an aggregate purchase price of approximately $313 million. World has two airline subsidiaries: World Airways, Inc. and North American Airlines, Inc. Following the consummation of the merger, the Company will operate three independent airlines under one umbrella: World Airways, North American Airlines and ATA Airlines.

In order to fund the acquisition of World Air Holdings pursuant to the merger agreement on August 14, 2007, the Company’s subsidiary, New ATA Acquisition Inc. entered into a $340.0 million senior secured payment-in-kind (PIK) term loan agreement with the lenders party thereto and JPMorgan Chase Bank, N.A., as

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administrative agent (the “Term Loan”) which matures one year from the date of issuance, and bears interest annually at LIBOR, plus a margin. The Company expects the Term Loan to be converted into notes due in 2015. The Term Loan is secured by a significant portion of the Company’s unencumbered assets. The issuers of the Term Loan received approximately 2.3 million warrants with an exercise price of $0.01 per share immediately exercisable. In addition, the Company issued $161.1 million of Series A Preferred Convertible Stock (“the Series A preferred stock”) to MatlinPatterson with an annual cumulative dividend rate of 16.0% payable in common stock upon conversion. The Series A preferred stock is convertible into common stock of the Company. Upon conversion of the Series A preferred stock to common stock (the “Conversion Shares”) MatlinPatterson is required to complete a rights offering to common stock holders of the Company’s common stock to purchase a pro rata share of the Conversion Shares at a price per share equal to the conversion price.

On August 14, 2007, using funds from the Term Loan and Series A preferred stock, the Company paid off a $81.6 million loan, including accrued interest and a prepayment premium, which was partially guaranteed by Air Transportation Stabilization Board. In addition, the Company paid off its two loans from MatlinPatterson totaling $54.3 million, including accrued interest.

Attached hereto are the financial statements of World Air Holdings, Inc. for the three years ended December 31, 2006 and the three months ended March 31, 2006 and 2007 and as of the two years ended December 31, 2006 and the three months ended March 31, 2006 and 2007. See Item 15: Financial Statements and Exhibits.

Our Business Strategy

Our strategy for our scheduled service business is to leverage our Southwest codeshare, operational capabilities, aircraft fleet and low costs to be a leading provider of medium- and long-haul passenger air service. We believe that other low cost carriers lack the aircraft types to compete effectively in this business and therefore we have significant opportunities for growth. Our strategy for our military charter business is to better meet demand for additional passenger transportation from the U.S. military by expanding our wide-body charter fleet. The key elements of our strategy are:

Expand Our Routes by Leveraging Our Southwest Codeshare. We intend to operate scheduled service flights between airports where our codeshare partner, Southwest Airlines, has a significant presence, and airports that are not served by Southwest or other low cost carriers. We sell to Southwest’s large customer base and are able to utilize Southwest’s brand name and distribution channels, most notablysouthwest.com, the world’s most searched airline website according to Hitwise™. The majority of our domestic flights are available for purchase onsouthwest.com. We plan to grow by adding flights on existing routes, connecting to additional airports where Southwest has a strong schedule and marketing presence, expanding our presence in Hawaii and connecting to additional airports.

Enhance Current Codeshare Relationship in International Regions.Southwest is currently developing the technical capability to sell international itineraries, which is expected to be complete by January 2009. We expect these international destinations to provide attractive growth opportunities for us.

Leverage Operational Capabilities and Fleet.We intend to distinguish ourselves from the traditional low cost carrier business model by emphasizing medium- to long-haul flights. In 2006, we flew to over 200 airports worldwide to serve our charter and scheduled service customers. Our average stage length for scheduled service is approximately 1,500 miles, which is significantly longer than the average for Southwest and most of our competitors. Our narrow-body Boeing 737-800 and Boeing 757 aircraft are certified for ETOPS, which enables these aircraft to fly long, over-water routes, such as from the western United States to Hawaii. Most other low cost carriers do not have aircraft suitable for medium- and long-haul flights over water.

Expand Our Wide-Body Fleet and Continue to Capitalize on Strong Military Passenger Transportation Spending. We intend to build on our position as one of the leading operators of passenger charter flights for the U.S. military. We currently operate only four wide-body aircraft, which is insufficient to use our full contractual entitlement with the AMC. We have entered into lease agreements for seven wide-body DC-10 aircraft, which allows us to grow our wide-body fleet and enables us to use our full wide-body contractual entitlement with the AMC. The growth in our wide-body military charter fleet will allow us to redeploy some of our 757s to grow our

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scheduled service. In addition, military budget projections indicate continued robust spending levels through 2011 as the Department of Defense has reiterated its commitment to rely almost solely upon the commercial sector for its passenger transportation needs. See “— Military Charter Service”.

Maintain Cost Advantage.We intend to keep our costs low by maintaining flexibility in our labor contracts and outsourcing various functions to third parties. We believe that our scheduled service cost per available seat mile, or CASM, excluding fuel, is lower than the average of all U.S. airlines. Because demand can vary from year to year and within a year in the charter business, we keep our fixed costs low by utilizing older aircraft with lower ownership costs. Since the AMC pays a rate based on the weighted average costs of participating airlines, we intend to keep our costs competitive with those of other airlines. As we grow our business, we plan to leverage our current infrastructure, thus further reducing our unit costs.

Scheduled Service

We provide scheduled airline services to certain major U.S. metropolitan areas, Hawaii and other leisure destinations. We received 58.2 % of our total revenue from our scheduled service segment for 2005 and 52.2% of our total revenue for the ten months ended December 31, 2006. Our scheduled service business is designed to leverage our codeshare agreement with Southwest. We seek to complement Southwest’s network by flying routes between airports with a large Southwest customer base and airports that Southwest does not serve. Examples of these routes include flights from Midway Airport in Chicago, where Southwest offers more than 200 flights per day, to slot-controlled airports that Southwest does not serve, such as LaGuardia Airport in New York and Ronald Reagan National Airport in Washington, D.C., and flights to Hawaii from major Southwest airports in the Western United States, such as Las Vegas, Phoenix and Oakland. Through direct ATA services and connecting Southwest codeshare flights, we serve more than 60 airports. Our published schedule for Summer 2007 includes new non-stop flights from Oakland to Kona and Lihue and adds our first non-stop flight between Las Vegas and Maui. We believe that we offer non-stop service from the U.S. Mainland to more Hawaiian destinations than any other airline.

ATA’s Non-Stop Routes (Summer 2007)	ATA’s Connecting Routes with Southwest Codeshare (Summer 2007)

Codeshare Agreement. Our codesharing with Southwest began in February 2005 and was enhanced significantly by an amendment to the agreement that became effective March 1, 2006, increasing booking and frequent flyer opportunities for our customers. Our codeshare has two components: (i) a “connect” codeshare service whereby both ATA and Southwest sell passenger itineraries consisting of both ATA and Southwest flight legs; and (ii) a “local” codeshare service whereby Southwest acts as our distribution channel selling ATA-only itineraries on Southwest’s website and via Southwest reservations. While connect codeshares are typical to the industry, we believe that the local codeshare, in its depth and scope, is unique within the industry. We expect the

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codeshare agreement to be expanded in 2009 to include international routes. We believe the listing of our schedules on Southwest’s website affords us a significant marketing advantage, as market research firm Hitwise^TM rankssouthwest.com as the world’s most searched airline website.

Under the codeshare agreement, we and Southwest are subject to certain customer service covenants. Neither we nor Southwest are or have been in violation of any of these covenants.

ATA customers have the right to earn frequent flyer credits in Southwest’s Rapid Rewards^TM program or in our ATA Travel Awards^TM program. See “— Our Travel Awards”. We make certain quantities of our seats available for Rapid Rewards^TM redemptions on identified ATA flights, including flights on our popular Hawaiian routes.

Hawaii.We have served Hawaii from Western U.S. airports since 1994. We use two-engine, fuel-efficient Boeing 737 and 757 aircraft that have been certified for ETOPS. In April 2006, we moved our San Francisco-based flights to Oakland, where Southwest offers a large flight schedule. In addition, we started flying between Oakland and Hilo in April 2006, providing the only non-stop service between the U.S. Mainland and Hilo. We also commenced service in April 2006 from Ontario, California, where Southwest is the largest airline as measured by daily departures, to provide the only non-stop service from that airport to Honolulu. In addition, we continue to provide flights to Hawaii from Los Angeles, Phoenix and Las Vegas, all cities where Southwest has a strong customer base. Our published schedule for Summer 2007 includes additional non-stop flights from Oakland to Kona and Lihue and adds our first non-stop flight between Las Vegas and Maui. We believe that we offer non-stop service from the U.S. Mainland to more Hawaiian destinations than any other airline.

U.S. Mainland. The majority of our U.S. Mainland flights originate from Midway Airport in Chicago. We have provided service from Midway since 1992 and have strong brand recognition in that region. Our Midway schedule provides service to three domestic airports that Southwest does not serve: slot-controlled LaGuardia Airport in New York and Reagan National Airport in Washington, D.C., and Dallas/Fort Worth Airport (Southwest operates from Dallas Love Field). With more than 200 daily Southwest flights from Midway, Southwest provides a significant source of connecting traffic through the codeshare. In May 2007, we began serving Oakland and Ontario non-stop from Midway. In addition, we provide scheduled service to Cancun and Guadalajara, Mexico from Midway. Beginning in 2009, we expect these flights, and other international flights, to be sold by Southwest under the codeshare agreement.

Our Travel Awards^TM and FlightBank^TMLoyalty Programs.We believe that our frequent flyer program, Travel Awards^TM, offers one of the lowest thresholds for earning travel rewards. Like Southwest’s, our program is based on trips flown rather than mileage. One of the significant benefits of our program is that we have no redemption blackout dates. With three roundtrips booked throughata.com, our customers earn a companion coach class ticket on any ATA-operated flight in the continental United States. As a result of the recent enhancements in our codeshare agreement with Southwest, customers purchasing flights directly through ATA reservations andata.com now have the option of earning either ATA Travel Awards^TM points or Southwest Rapid Rewards^TM credits. Customers also have the option of redeeming Travel Awards^TM points for Rapid Rewards^TM credits, thereby gaining access to over 50 additional domestic destinations served by Southwest.

Another innovative loyalty program we offer is FlightBank^TM, which enables our high-frequency Hawaii customers to pre-pay for points, which can be redeemed for travel between Hawaii and the U.S. Mainland over a twelve-month period. This program, implemented in late 2005, appeals to several customer segments, such as U.S. Mainland residents with second homes or time shares in Hawaii, and Hawaii residents who frequently travel to the U.S. Mainland. We expect this program to grow as we expand our U.S. Mainland-to-Hawaii schedule.

Military Charter Service

We are one of the largest providers of passenger charter service. In our charter business segment we contract to sell all of the seats available on the aircraft to a single customer or a small group of customers. Our largest

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single customer is the AMC, for whom we transport U.S. military personnel and their families principally to and from their overseas deployments. We received 37.4% and 45.3% of our total revenue for 2005 and the ten months ended December 31, 2006, respectively, from our military charter business segment. For the same periods, our Revenue per Available Seat Mile, or RASM, was $0.11 and $0.12, respectively. These RASMs were approximately 66% and 50% higher, respectively, than our scheduled service RASMs for those periods.

AMC International Program. The majority of our military charter revenues are earned under the AMC International contract, which pays based on the historical weighted average costs of the participating airlines plus approximately 10% operating margins. However, if fuel prices vary from the contract price, the impact is passed through to the AMC, providing an effective hedge against fluctuations in fuel prices.

The U.S. military, through the AMC, contracts with commercial airlines to provide nearly all of the airlift requirements for its personnel. The AMC assigns its peacetime airlift business by awarding entitlement points to air carriers in proportion to the number and type of aircraft they pledge to make available to the Civil Reserve Air Fleet, or CRAF, to support Department of Defense airlift requirements during emergencies. By participating in CRAF, airlines are able to fly AMC charter missions as well as contract with the General Services Administration, which purchases seats on their scheduled service flights. Most airlines choose not to fly AMC charters, and instead enter into teaming arrangements which allow them to monetize their unused entitlement points. There are currently two large teams, FedEx and Alliance, that in government fiscal year 2007 account for approximately 38% and 58%, respectively, of the entitlement points. We are a member of the FedEx team. The team allocates points from team members that do not fly AMC missions to other team members, such as ATA, and collects a commission on the charter revenue derived from those points. Omni Air International, Inc. and we fly all passenger requirements of the FedEx team. For government fiscal year 2007, we have contracted with the FedEx team to fly 50% of the team’s passenger entitlement requirements and expect to contract for the same percentage for government fiscal year 2008.

References to a “government fiscal year” in our discussion of our military charter service are references to an AMC contract year, which extends from October 1 through September 30 of the following year. For example, a reference to “government fiscal year 2007” means the AMC contract period from October 1, 2006 through September 30, 2007.

Other Charter Customers.AMC also runs a much smaller domestic program that is open to bids, on an individual flight basis, from all U.S. airlines that participate in CRAF. These flights are awarded based on comprehensive bidding rather than entitlement, and there is no fuel cost pass-through on domestic military business.

We also provide passenger charter services to non-military customers, such as sports teams, incentive groups, the Department of Homeland Security and other U.S. and foreign governmental organizations. Under these contracts, we typically pass on to the customer fuel cost increases over an agreed-upon target price.

Our commercial charter service uses the same aircraft used in our military charter service, primarily during off-peak periods in our military service.

Competition

Scheduled Service. The airline industry is highly competitive. Airline profit levels are sensitive to adverse changes in fuel costs, average fare levels and passenger demand. Passenger demand and fare levels have historically been influenced by, among other things, the general state of the economy, international events, industry capacity and pricing actions taken by other airlines. The principal competitive factors in the airline industry are flight schedules, fare pricing, appeal to frequent flyers and reputation for customer service. Our competitors and potential competitors include legacy carriers, low cost carriers, regional airlines, international airlines and new entrant airlines. Many of these airlines are larger than us and have significantly greater financial resources and serve more routes than we do. Some of these competitors have chosen, and may in the future choose, to add service, reduce their fares or both, on current or future routes.

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We believe that we have competitive advantages over other small airlines:

• Our flight schedule leverages our codeshare agreement with Southwest and provides our customers with more than 60 destinations, which is unmatched by most other low cost carriers; and

• We can access several million Southwest frequent flyers via Southwest’s distribution channels.

In addition, we aggressively reduced our cost structure through the Chapter 11 reorganization process and have emerged with one of the most competitive cost structures in the airline industry. We restructured our aircraft and facility leases, renegotiated our collective bargaining agreements, outsourced heavy maintenance operations and reduced our debt service. As a result, we have one of the lowest cost structures in the industry. We believe that our scheduled service CASM, excluding fuel, is lower than that of the majority of our competitors.

We believe a key to our future success is our strategy, which leverages our codeshare with Southwest, to operate our scheduled service between airports where Southwest has a significant presence and airports that are not served by Southwest or other low cost carriers. However, we face direct or indirect competition on all of our routes.

Military Charter Service.The passenger charter business is highly fragmented, and we face competition both from charter airlines as well as scheduled service airlines seeking to utilize marginal capacity. Much of the U.S. leisure charter business has been replaced by scheduled service offered by low cost carriers. We believe that the most important criteria for competition in the charter business include the range, as well as passenger capabilities, of the aircraft, in addition to the price, flexibility, quality and reliability of the air transportation service provided. In the AMC international program, airlines that desire to fly for the U.S. military use teaming arrangements to increase their entitlement. The two principal teams are FedEx and Alliance. For government fiscal year 2007, the Fedex team has 38% of the entitlement points and ATA has contracted with the FedEx team to fly 50% of the team’s passenger entitlement points.

Our History

Our predecessor began its operations in 1973 as Ambassadair, an air travel club in Indianapolis, Indiana. After the airline industry was deregulated in 1978, ATA became certified as a common-air carrier and began to grow its fleet to provide charter flights. In 1983, ATA began providing charter flights for the U.S. military. By 1991, ATA was the largest civilian passenger carrier, based on missions flown, for the U.S. military, transporting 108,000 military personnel on 494 missions to the Persian Gulf for Operation Desert Storm. ATA began scheduled service operations in 1986, began service from Chicago Midway in 1992 and added routes from the western United States to Hawaii in 1994. From 2001 to 2004, ATA significantly expanded its operations at Chicago Midway to build a hub franchise.

Our Reorganization. Since September 11, 2001, the airline industry, as a whole, has incurred substantial losses. The war in Iraq and significant increases in the cost of fuel also have created significant challenges for airlines to maintain profitability. Due to continued scheduled service operating losses and a weakened financial position, on October 26, 2004, our predecessor and seven of its subsidiaries, including ATA Airlines, Inc., its principal operating subsidiary, filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code.

After the date of the petition, and with the assistance of new management, our predecessor made a number of fundamental changes to its business operations to emerge from the Chapter 11 proceeding as a competitive, low cost passenger air carrier. Key initiatives included:

• Eliminating unprofitable scheduled service routes;

• Reducing our aircraft fleet by approximately 55% and our head count by approximately 65%;

• Amending collective bargaining agreements and reducing overall labor costs;

• Establishing a codesharing arrangement with Southwest Airlines;

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• Appointing a new and experienced management team led by our President and Chief Executive Officer, Subodh Karnik;

• Reducing aircraft expenses through the rejection and renegotiation of leases;

• Reducing operating costs by outsourcing certain functions, such as heavy maintenance, airport operations and reservations; and

• Liquidating the assets of non-core businesses, including a regional airline based in Chicago, a travel club and a travel agency.

We emerged from bankruptcy on February 28, 2006 with a more focused business plan, fewer aircraft on more economical aircraft lease terms, a new business model for scheduled service and a competitive cost structure.

Employees

On June 30, 2007, we employed 2,483 personnel, of whom 1,597 were represented under collective bargaining agreements. The following summarizes the status of our collective bargaining agreements and the number of included employees as of June 30, 2007:

Employee Group	Number of Employees	Union	Contract Status
Cockpit Crew	604	Airline Pilots Association (ALPA)	Amendable on October 1, 2008
Flight Attendants	857	Association of Flight Attendants (AFA)	Amendable on October 31, 2008
Mechanics	100	Aircraft Mechanics Fraternal Association (AMFA)	Amendable on June 1, 2009
Ramp	0	International Association of Machinists (IAM)	Amendable on September 20, 2008
Storekeepers/Toolroom	23	IAM	Amendable on February 7, 2010
Dispatchers	13	Transport Workers Union (TWU)	Amendable on May 1, 2010

Relations between air carriers and labor unions in the United States are governed by the Railway Labor Act, or the RLA. Under the RLA, collective bargaining agreements generally contain “amendable dates” rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi-stage bargaining process overseen by the National Mediation Board. This process continues until either the parties have reached agreement on a new collective bargaining agreement, or the parties have been released to “self-help” by the National Mediation Board. Although in most circumstances the RLA prohibits strikes, after release by the National Mediation Board, airlines and unions are free to engage in self-help measures such as strikes and lock-outs. The majority of our labor agreements become amendable before December 31, 2009, three of which become amendable during 2008.

Our employees receive matching contributions under a 401(k) plan. We have never, in our or our predecessor’s history, created a defined benefit plan for any of our employee groups.

While we believe that relations with our employees are satisfactory, any prolonged dispute with employees or work stoppages, whether or not the affected employees are represented by a union, could have a material adverse impact on our financial condition, results of operations and cash flows.

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Our Aircraft Fleet

Through our reorganization, we restructured our aircraft fleet to better meet the needs of our revised business plan. As of June 30, 2007, we were certified to operate a fleet of 29 aircraft, as follows:

Aircraft Type	Owned	Leased	Number of Seats
Boeing 737-300	—	2	138
Boeing 737-800	—	12	160-175
Boeing 757-200	—	6	185-200
Boeing 757-300	—	4	232-247
Lockheed L-1011-500	3	—	283
McDonnell Douglas DC-10-30	—	1	318

Our Boeing 737-300s, which support our scheduled service at Chicago’s Midway Airport, are used in our higher-frequency domestic operations. In 2005, we certified our B737-800 aircraft for ETOPS, allowing us to fly from the western United States to Hawaii. Our Boeing 757 aircraft, which are well suited for medium-haul scheduled service operations, are deployed in both our scheduled service and military charter service. This enables us to balance capacity with demand by shifting narrow-body aircraft between the two businesses.

We use our L-1011 aircraft in our military charter service as their long-range capabilities and seating configuration are well suited to the AMC’s passenger transportation needs. However, we are not able to fulfill our contractual entitlement for wide-body flying with only four aircraft. We have entered into lease agreements for seven DC-10-30 aircraft to grow our wide-body fleet, which also allows us to redeploy some of the 757s in our military charter service to scheduled service. We expect the DC-10s to enter into revenue service on a phased-in basis, and we expect all of the DC-10 aircraft to be operational by the first quarter of 2008. The DC-10 introduction program will involve (i) refurbishing aircraft, airframes and interiors; (ii) training crew members; and (iii) establishing procedures and programs in compliance with Federal Aviation Administration, or FAA, requirements in order to add these aircraft to our operating certificate.

Fuel Price Risk Management

Prices and availability of aviation fuel are subject to political, economic and market factors that are generally outside of our control. Prices may be affected by many factors including: the impact of political instability and crude oil production, unexpected changes in the availability of petroleum products due to disruptions at distribution systems or refineries, unpredicted increases in demand due to weather or the pace of economic growth, inventory levels of crude oil and other petroleum products, and the relative fluctuation between the U.S. dollar and other major currencies.

Fuel costs constitute our largest operating expense, comprising 27.4% and 30.6% of total operating expenses for 2005 and the ten months ended December 31, 2006, respectively. The historically high fuel costs we experienced in the last two years negatively affected our results of operations even though our international military charter business allows us to pass fuel price increases to the AMC. See “ — Military Charter Service”. Additionally, we purchase a portion of our fuel needs on a spot basis, taking delivery in the Gulf Coast and shipping it through pipelines to certain scheduled service locations. We generally make these purchases six to twelve weeks in advance of consuming the fuel.

Flight Operations and Aircraft Maintenance

Our worldwide flight operations are planned and controlled by our Flight Operations group based in Indianapolis, Indiana, which is staffed on a 24-hour basis, seven days per week. We coordinate the logistical support necessary for extended operations away from our fixed bases through our global communications network. We are able to dispatch maintenance and operational personnel and equipment as necessary to support flight operations around the world.

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The maintenance performed on our aircraft can be divided into three general categories: line maintenance, heavy maintenance checks and engine and component overhaul and repair. Line maintenance consists of routine scheduled maintenance checks on our aircraft, including pre-flight, weekly, daily and overnight checks, and any diagnostic or routine repairs. Line maintenance is generally performed by our own mechanics, with certain tasks carried out by third-party providers. We have line maintenance operations at many of our scheduled service airports, as well as at our hangar in Indianapolis, Indiana. Because we fly to airports and military bases worldwide, our mechanics are able to travel with the aircraft and perform certain line maintenance functions.

Heavy maintenance checks consist of more complex inspections and servicing of the aircraft that cannot be accomplished during an overnight visit. These checks can range in duration from a few days to approximately one month, depending on the magnitude of the work prescribed in the particular check. Component overhaul and repair involves sending parts, such as engines, landing gear and avionics, to a third-party, FAA-approved maintenance facility for repair or overhaul. We rely almost exclusively on third-party providers for our heavy maintenance checks and engine and component overhaul and repair.

Insurance

We carry types and amounts of insurance we believe to be customary in the airline industry, including coverage for public liability, passenger liability, property damage, aircraft loss or damage, baggage and cargo liability and workers’ compensation.

Following the terrorist attacks of September 11, 2001, commercial aviation insurers significantly increased the premiums and reduced the amount of war-risk coverage available to commercial carriers. The U.S. government has provided supplemental war-risk coverage to U.S. air carriers, including us, as a result of the reduction in coverage offered by the commercial market. This insurance program has been extended to December 31, 2007. We are unable to predict whether the government will extend this insurance coverage past December 31, 2007, whether alternative commercial insurance with comparable coverage will become available at reasonable premiums, and what impact this will have on our ongoing operations or future financial performance.

Regulation

General. We are subject to regulation by the Department of Transportation, or DOT, the Federal Aviation Administration, or FAA, the Transportation Security Administration, or TSA, and numerous other governmental agencies.

The DOT principally regulates economic matters affecting air service, including air carrier citizenship, certification and fitness, insurance, leasing arrangements, allocation of route rights, authorization of proposed scheduled and charter operations, allocation of certain airport slots not controlled by the FAA, consumer protection and competitive practices. The DOT has the authority to investigate and institute proceedings to enforce its economic regulations and may assess civil penalties, order carriers to cease and desist from violations, revoke operating authority and seek criminal sanctions. Our current certificate of public convenience and necessity, issued by DOT in 2003, authorizes us to engage in air transportation within the United States, its territories and possessions and to perform charter trips in both domestic and international regions. The DOT may revoke such certificate, in whole or in part, for intentional failure to comply with certain provisions of the U.S. Transportation Code, or any order or regulation issued thereunder, or any term of such certificate after notice to the certificate holder and an opportunity to appeal.

The FAA primarily regulates flight operations, particularly matters affecting air safety, including airworthiness requirements for each type of aircraft, the licensing of pilots, mechanics and dispatchers and the certification of flight attendants. The FAA requires each carrier to obtain an operating certificate authorizing the carrier to fly to specific airports using specified equipment. We have, and maintain, FAA certificates of airworthiness for all of our aircraft, and have the necessary FAA authority to fly to all of the cities that we currently serve.

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Like all U.S. certificated carriers, we cannot fly to new destinations without the prior authorization of the FAA. If we fail to comply with FAA regulations, the FAA has the authority to modify, suspend temporarily or revoke permanently our authority, or that of our licensed personnel, to provide air transportation, after providing notice and opportunity for a hearing. The FAA can assess civil penalties for such failures or institute proceedings for the imposition and collection of monetary fines for the violation of certain FAA regulations. The FAA can revoke our authority to provide air transportation on an emergency basis, without providing notice and a hearing, where significant safety issues are involved. The FAA monitors our compliance with maintenance, flight operations and safety regulations, maintains onsite representatives and performs frequent spot inspections of our aircraft, employees and records.

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

The civil aviation security functions of the FAA were transferred to the TSA under the Aviation Security Act. The TSA operates under the Department of Homeland Security and is responsible for all civil aviation security, including passenger and baggage screening, cargo security measures, airport security, assessment and distribution of intelligence, and security research and development. The TSA also has law enforcement powers and the authority to issue regulations. In cases of national emergency it may issue regulations without a notice or comment period.

Based upon bilateral aviation agreements between the United States and other nations, or, in the absence of such agreements, comity and reciprocity principles, we, as a charter carrier, are generally not restricted as to the frequency of our flights to and from most foreign destinations. However, these arrangements generally restrict us to the carriage of passengers and cargo on flights which either originate in the United States and terminate in a single foreign nation, or which originate in a single foreign nation and terminate in the United States. The civil aeronautics authorities in the relevant countries must generally specifically approve proposals for any charter service unless specifically authorized by bilateral agreements. Approval of such requests is typically based on considerations of comity and reciprocity and cannot be guaranteed. Charterworthiness rules specifying the terms and conditions under which charter traffic may be carried are generally established either by the terms of the applicable bilateral agreement or by the country of origin of the charter traffic.

We believe that we are operating in material compliance with DOT, FAA and TSA regulations and hold all necessary operating and airworthiness authorizations and certificates. A modification, suspension or revocation of any of our DOT or FAA authorizations or certificates could have a material adverse effect on our business.

Airport Access. LaGuardia Airport and Ronald Reagan National Airport are subject to the high-density traffic rule established by the FAA in 1968. This rule limits the number of scheduled flights at each of the subject airports during specified periods of time. At LaGuardia and Reagan National there is a limit on the number of scheduled flights from 6:00 a.m. to midnight, and carriers must obtain slots from the FAA or, in certain cases, exemptions from the DOT in order to operate at these airports during the restricted period.

The FAA is currently working on a revision to the high-density rule and is working with all interested parties. The FAA’s current rulemaking proposals do not indicate any negative impact on us, but there can be no assurance that these rules will not be changed, including in a manner that adversely affects us.

In addition to various federal regulations, local governments and authorities in certain regions have adopted regulations governing various aspects of aircraft operations, including noise abatement procedures, curfews and restrictions on the use of airport facilities.

CRAF. We are a participant in the CRAF program, which permits the U.S. Department of Defense to utilize our aircraft during national emergencies when the need for military airlift exceeds the capability of military aircraft. Only twice, during the Persian Gulf War and again during the war in Iraq, have commercial air carriers

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been mobilized by the military to use their aircraft. By participating in this program, we are eligible to bid on and be awarded certain airlift contracts with the military.

Foreign Ownership. Under federal law and DOT regulations, we must be a citizen of the United States. In this regard, we must be incorporated under the laws of the United States or one of the states, our president and at least two-thirds of our board of directors and key management officials must be U.S. citizens and not more than 25% of the voting interest in the company may be owned or controlled by non-U.S. citizens. In addition, under existing precedent and policy, actual control of our company must reside with U.S. citizens. As a matter of regulatory policy, the DOT has stated that it will not permit aggregate equity ownership of a domestic air carrier by non-U.S. citizens in an amount in excess of 25% in the case of ownership by citizens of countries not having liberal “open skies” bilateral agreements. Citizens of countries having open skies bilateral agreements may own additional equity taking the total foreign equity to 49%. We currently are in compliance with these ownership provisions.

Other Regulations. Various aspects of airline operations are subject to regulation or oversight by federal agencies other than the DOT, FAA and TSA. The U.S. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services provided by ATA. Employee 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 employee unions arising under collective bargaining agreements. We also are subject to the jurisdiction of the Federal Communications Commission regarding the utilization of radio equipment. In addition, the Immigration and Naturalization Service, the U.S. Customs Service, and the Animal and Plant Health Inspection Service of the Department of Agriculture have jurisdiction over inspection of our aircraft, passengers and cargo to ensure our compliance with U.S. immigration, customs and import laws. Also, while our aircraft are in foreign countries, we must comply with the requirements of similar authorities in those countries. The U.S. Commerce Department also regulates the export and re-export of our U.S.-manufactured aircraft and certain equipment.

We are also subject to state and local laws and regulations at locations where we operate and the regulations of various local authorities that operate the airports we serve.

Future Regulation. Congress, the DOT, the FAA, the TSA and other governmental agencies have under consideration, and in the future may consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, our operations, ownership and profitability. In the past, during a period of fuel scarcity, air carrier access to jet fuel was subject to allocation regulations promulgated by the Department of Energy. We cannot predict what other matters might be considered in the future by the FAA, the DOT or Congress, nor can we judge what impact, if any, the implementation of any future proposals or changes might have on our business.

Environmental Matters

Our operations are subject to comprehensive federal, state, and local laws and regulations relating to pollution and the protection of the environment, including those governing aircraft noise, the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, and the cleanup of contaminated sites. Some of our operations require environmental permits and controls, and these permits are subject to modification, renewal and revocation by issuing authorities.

The Airport Noise and Capacity Act of 1990 recognizes the right of airport operators with special noise problems to implement local noise abatement procedures as long as those procedures do not interfere unreasonably with the interstate and foreign commerce of the national air transportation system. Certain airports, including Reagan National Airport, have established restrictions to limit noise, which can include limits on the number of hourly or daily flights and the time of such flights. These limitations serve to protect the noise-sensitive communities surrounding the airport. Our scheduled flights at Reagan National Airport are in compliance with the noise curfew limit, but when we experience irregular operations, on occasion we violate this curfew. As a result, we have been and may continue to be required to reduce our hours of operation at particular airports, to install noise abatement equipment on our aircraft or to change operational procedures during takeoff

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and landing. At the present time, we believe our airline equipment and scheduled flights are in material compliance with these and other local noise abatement requirements, and we do not believe any such restrictions will have a material adverse effect on our financial condition, results of operations or cash flows.

At our aircraft maintenance facilities and the airports we serve, materials are used such as aircraft deicing fluids, fuel, oils and other materials that are regulated as hazardous under federal, state or local laws. We are required to maintain programs to protect the safety of the employees who use these materials and to manage and dispose of any wastes generated by the use of these materials in compliance with applicable laws. The Environmental Protection Agency regulates operations, including air carrier operations, that affect the quality of air in the United States, such as the discharge of aircraft emissions exhaust into the environment. We believe we have made all necessary modifications to our operating fleet to meet fuel-venting requirements and smoke-emissions standards.

Although we believe we are in compliance in all material respects with applicable environmental laws, we could incur substantial costs, including cleanup costs, fines, civil or criminal penalties, or third-party property damage or personal injury claims as a result of violations of, or liabilities under, environmental laws or noncompliance with the environmental permits required for our operations. In addition, the adoption of new or more stringent requirements could increase the cost of our operations, require significant capital expenditures or result in material restrictions on our operations.

Facilities

Our corporate offices are located in Indianapolis, Indiana. We lease three adjacent office buildings, consisting of approximately 126,400 square feet, located approximately one mile from the Indianapolis International Airport. The leases expire in August 2010. These buildings house our administrative offices, maintenance and engineering staff and flight operations center to support both our scheduled service and military charter businesses.

We lease all of our facilities at each of the airports we serve. Our leases for our terminal passenger service facilities, which include ticket counter and gate space, operations support areas and baggage service offices, generally have a term ranging from less than one year to five years, and contain provisions for periodic adjustments of lease rates. We also are responsible for maintenance, insurance and other facility-related expenses and services. We have entered into use agreements at each of the airports we serve that provide for the non-exclusive use of runways, taxiways and other facilities. Landing fees under these agreements are based on the number of landings and weight of the aircraft.

ITEM 1A. RISK FACTORS

The risks described below are not the only ones facing our company. Additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations. Our financial condition or results of operations could be materially and adversely affected by any of these risks. The market price of our common stock could decline due to any of these risks.

Risks Relating to Our Business

We recently emerged from a Chapter 11 bankruptcy reorganization, have a history of losses and may not achieve or maintain profitability.

We emerged from a Chapter 11 bankruptcy reorganization on February 28, 2006, approximately 16 months after filing a voluntary petition for bankruptcy reorganization. Our predecessor recorded a consolidated net loss of $455.6 million for the year ended December 31, 2005, and a consolidated net loss of more than $1.2 billion

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during the three years ended December 31, 2005. Despite significant labor cost reductions and other cost savings we achieved through our reorganization, our consolidated net loss for the ten months ended December 31, 2006 was $36.5 million. See “Business — Our History — Our Reorganization”. Our return to profitability will be affected by a number of factors, including the successful implementation of our new business plan. If we cannot achieve or maintain profitability, the market price of our common stock may decline.

We may be subject to claims that were not discharged in the bankruptcy proceedings.

Substantially all of the material claims against us that arose prior to the date of the bankruptcy filing were addressed during the Chapter 11 proceedings or were resolved in connection with the Plan and Confirmation Order adopted by the U.S. Bankruptcy court. See “Business — Our History — Our Reorganization”. In addition, the Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation and certain debts arising afterwards. Circumstances in which claims and other obligations that arose prior to the bankruptcy filing were not discharged primarily relate to certain actions by governmental units under police power authority, instances where we have agreed to preserve a claimant’s claims, as well as, potentially, instances where a claimant had inadequate notice of the bankruptcy filing. In addition, except in limited circumstances, claims against non-debtor subsidiaries, including foreign subsidiaries, are generally not subject to discharge under the Bankruptcy Code. To the extent any pre-filing liability remains, the ultimate resolution of such claims and other obligations may have a material adverse effect on our financial condition and results of operations.

You will not be able to compare our historical financial information to our current financial information, which will make it more difficult to evaluate the performance of our business.

As a result of our emergence from bankruptcy, we operate our business with a new capital structure, fewer aircraft, more economical aircraft lease terms, significantly different and reduced scheduled service and significantly reduced employee and occupancy costs. We also adopted fresh start accounting prescribed by generally accepted accounting principles. Accordingly, unlike other companies that have not previously filed for bankruptcy protection, our financial condition and results of operations are not comparable to the financial condition and results of operations reflected in our predecessor’s financial statements for periods prior to February 28, 2006, contained in this Form 10. Without historical financial statements to compare to our current performance, it will be more difficult for you to assess our future prospects when evaluating our business.

We may not be able to successfully implement our new business plan and, even if we do so, this new business plan may not result in our being profitable.

Our business plan was developed by, and reflects the current intentions of, our management and our board of directors. See “Business — Our Strategy”. The success of our plan is subject to, among other things, our ability to:

• benefit from our restructured codeshare agreement with Southwest,

• expand our Hawaii and international routes and acquire the aircraft to support this growth,

• reduce workforce costs and related expenses,

• outsource certain additional maintenance activities and renegotiate vendor agreements,

• increase unit revenues as we reestablish our position in the marketplace,

• induct DC-10s into our fleet, and

• generally improve the efficiency and effectiveness of our business processes.

We cannot assure you that our business plan will be successful or that we will be able to operate profitably even if the new business plan is successfully executed. If implementation of the new business plan is not

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successful and we are unable to generate sufficient operating revenues to pay debt service requirements and aircraft leasing obligations, we cannot assure you that alternative sources of financing will be available or, if available, that such financing will be available on terms that we can afford.

Our codeshare agreement with Southwest is essential to the operations of our scheduled service business.

The success of our scheduled service business is dependent upon our codeshare agreement with Southwest. We operate our scheduled services (i) where Southwest is the dominant carrier at the origin or destination of the flight, (ii) to cities that are slot-constrained or bilaterally constrained and in which we are allocated slots; and (iii) to regions that low cost carriers have difficulty servicing (such as Hawaii, given trans-Pacific flight requirements). See “Business — Scheduled Service — Codeshare Agreement”. We cannot assure you that the amended codeshare agreement will enable our scheduled service business to operate profitably, or that it will deliver the benefits expected. We also cannot assume that Southwest will not alter its operations strategy and thereby diminish the benefits of our codeshare agreement and adversely affect our financial condition and results of operations. Finally, we cannot assure you that Southwest will be able to implement in a timely manner the technical changes to its systems to enable the extension of our codeshare arrangements to international flights.

Our amended codeshare agreement will be directly affected by the financial and operating strength of Southwest. Any event that negatively impacts the financial strength of Southwest or that has a long-term effect on the use of Southwest by airline travelers will have a material adverse effect on the benefits we derive from the codeshare agreement and, therefore, on our financial condition and results of operations. In the event of a substantial decrease in the financial or operational strength of Southwest, it may seek to reduce, or be unable to make, the payments due to us under the codeshare agreement, which would also have such a material adverse effect.

Southwest has wide discretion concerning which flights are eligible for codeshare status. Southwest could, for instance, choose to limit such flights based on minimum and maximum connecting times that would limit the number of codeshare flights. Southwest could also choose not to price codeshare flights aggressively, which would limit the number of codeshare tickets likely to be sold through its distribution channels and reduce overall revenues in our scheduled service business.

Under the codeshare agreement, we and Southwest are subject to customer service-related and other covenants. The agreement is subject to early termination by either party if the other party materially breaches the agreement. Any termination of our codeshare agreement with Southwest would have a material adverse effect on our financial condition and results of operations.

Our scheduled service business is heavily dependent on a limited number of regions, and a reduction in demand or an increase in competition for air travel in these regions could adversely affect our business.

Our scheduled service business is focused on flights to and from Chicago’s Midway Airport and between the western United States and Hawaii. We would be adversely affected by any circumstance that causes a reduction in demand for air transportation to or from those regions, such as adverse changes in local economic conditions, political disruptions or violence (including any terrorist attacks), negative public perception of the cities or regions or significant price increases linked to increases in airport access costs and fees imposed on passengers. Likewise, any disruption of services or facilities that support our scheduled service in these regions could adversely affect this business. Moreover, it is possible other airlines will begin to provide non-stop services to and from these regions or otherwise target these regions. Any increase in competition with respect to these regions could cause us to reduce fares or take other competitive measures that might adversely affect our financial condition and results of operations.

The success of our higher-margin military charter business is dependent on continuing at current demand levels, the method by which the U.S. military awards contracts and the availability of suitable aircraft.

Any reduction in military activities in Iraq or Afghanistan, without a corresponding increase elsewhere, could over time reduce the military’s demand for transportation services. Each year, AMC grants a certain

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portion of its business to different airlines based on a point system. The number of points an airline can accrue is determined by the number and types of aircraft pledged to the Civil Reserve Air Fleet, or CRAF. We participate in the CRAF program through a teaming arrangement with other airlines, led by FedEx. The formation of competing teaming arrangements, an increase by other carriers in their commitment of aircraft to the program or the withdrawal of our team’s current partners, especially FedEx, could adversely affect the amount of our AMC business in future years. In addition, if any of our team members were to cease or restructure its operations, the number of planes pledged to the CRAF program by our team could be reduced. As a result, the number of points allocated to our team could be reduced and our allocation of AMC business would likely decrease. If we lose military charter contracts, or if the military reduces substantially the amount of business it awards to the FedEx team, or if the FedEx team reduces the number of points it awards to us, we may not be able to replace the lost business and our financial condition and results of operations could be materially adversely affected.

We have entered into lease agreements for seven DC-10s that we expect will enter into revenue service on a phased-in basis and we expect to be operating all of the aircraft by the first quarter of 2008. If we experience delays in the initial dates of operation of the DC-10 aircraft, we may not be able to fly our full allocation of passenger requirements for the FedEx team. Further, while we expect to fly approximately 50% of the FedEx team’s passenger requirements from October 2007 through September 2008, we can give no assurances that we will be able to meet these requirements, nor can we know what percent we will be able to fly after such date.

Since the U.S. military does not have its own fleet of passenger aircraft to meet its airlift needs, we expect that revenues and net income from the AMC will continue to be a significant source of revenue and net income for the foreseeable future. However, our revenue and net income from the AMC are derived from one-year contracts that the AMC is not obligated to renew. In addition, the AMC can typically terminate or modify its contract with us for convenience, if we fail to perform or if we fail to pass semi-annual inspections. Any such termination would result in a loss of revenue and net income and could expose us to significant liability or hinder our ability to compete for future contracts with the federal government. If our AMC business declines significantly, it would have a material adverse effect on our financial condition and results of operations. Even if the AMC continues to award business to us, we cannot assure you that we will continue to generate the same level of revenue and net income we currently derive from our military charter operations. The volume of our AMC business is sensitive to changes in national and international political priorities and the U.S. federal budget.

As a U.S. government contractor, we are subject to a number of procurement and other laws and regulations.

In order to do business with U.S. government agencies, we must comply with and are affected by many laws and regulations governing the formation, administration and performance of U.S. government contracts. These laws and regulations, among other things:

• require, in some cases, certification and disclosure of all cost and pricing data in connection with contract negotiations,

• impose accounting rules that define allowable costs and otherwise govern our right to reimbursement under certain cost-based U.S. government contracts, and

• restrict the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.

These laws and regulations affect how we do business with our customers and, in some instances, impose added costs on our business. A violation of these laws and regulations by us or by any of our employees could result in the imposition of fines and penalties or the termination of our contracts. In addition, the violation of certain other generally applicable laws and regulations could result in our suspension or termination as a government contractor.

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A significant portion of our military charter revenue is generated from operations in volatile overseas regions that are sensitive to changes in U.S. foreign relations, foreign governments and foreign economies.

Our military charter business is sensitive to changes in economic and political conditions that could increase our security and insurance costs or reduce our aircraft utilization rates. Changes in any of the following areas of risk could disrupt or adversely affect our military charter operations in overseas regions:

• potential adverse changes in diplomatic relations between foreign countries and the United States,

• instability of foreign governments and risks of insurrections,

• terrorism and foreign hostility directed at U.S. companies,

• U.S. government policies that restrict the conduct of business by U.S. citizens in certain foreign countries, and

• policies of foreign governments that restrict the ownership or conduct of business by non-nationals.

Any disruption in our military charter operations could have a material adverse effect on our financial condition and results of operations.

Insurance availability and costs have fluctuated significantly since the September 11 terrorist attacks.

As a result of the terrorist attacks on September 11, 2001, the amount of insurance coverage available to commercial air carriers for claims resulting from acts of terrorism, war and similar events has fluctuated significantly. At the same time, the cost for such coverage, and for aviation insurance in general, has also fluctuated. The U.S. government currently provides us with such insurance coverage, but this program is set to expire on December 31, 2007. After that date, should this coverage no longer be offered, the coverage that may be available to us through commercial aviation insurers may have substantially less desirable terms, result in higher costs and not be adequate to protect our risks, any of which could have a material adverse effect on our financial condition and results of operations. Future terrorist attacks involving aircraft, or the threat of such attacks, as well as other factors, could result in further volatility in the availability and cost of aviation insurance.

Our insurance coverage does not cover all risks and we do not maintain business interruption insurance.

Our operations involve inherent risks that subject us to various forms of liability. We carry insurance against those risks for which we believe competitors in each of our businesses commonly insure. However, we can give no assurance that we are adequately insured against all risks. If our liabilities exceed the amounts of our coverage, we would be required to pay any such excess amounts, which amounts could be material to our business and operations.

Except for limited situations, we do not have insurance against losses arising from business interruptions. If we fail to keep our aircraft in service, we may have to take impairment charges in the future and our results of operations would be adversely affected. The loss of our aircraft or the grounding of our fleet could reduce our capacity utilization and revenues, require significant capital expenditures to replace such aircraft and could have a material adverse affect on us and our ability to make payments on the financing or lease related to the aircraft.

Our results of operations are affected materially by the price and availability of aircraft fuel.

Fuel costs constitute a substantial portion of our total operating expenses, comprising 27.4% and 30.6% of total operating expenses for 2005 and the ten months ended December 31, 2006, respectively. The historically high fuel costs we experienced in the last two years negatively affected our results of operations even though our international military charter business allows us to pass fuel price increases to the U.S. Department of Defense. See “Business — Military Charter Business”. We estimate that a $0.01 increase in fuel cost would increase our fuel expense for 2007 by approximately $1.2 million, or approximately $650,000 net of the effect of fuel costs that are passed through in

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our military charter business. Due to the highly competitive nature of the airline industry, we generally have not been able to increase our fares for our scheduled service business sufficiently to offset the immediate rise in fuel prices in the past, and we may not be able to do so in the future. Further increases in fuel costs or a shortage of supply would adversely affect our financial condition and results of operations.

Fuel costs typically are subject to wide price fluctuations based on geopolitical issues and supply and demand. Fuel availability is also affected by demand for home heating oil, gasoline and other petroleum products, oil refining capacity and the occurrence of natural catastrophes, such as hurricanes. Because of the effect of these events on the price and availability of fuel, the cost and future availability of fuel cannot be predicted with any degree of certainty. A fuel supply shortage or further increases in fuel prices could affect our scheduled service business, particularly if market conditions continue to restrict our ability to implement fare increases to pass fuel cost increases to our customers. Moreover, there can be no assurance that any such fare increases would realize sufficient revenue to offset increases in fuel prices or would not reduce the competitive advantage we seek by offering affordable fares. In addition, our creditworthiness has not been sufficient to enable us to implement a hedging program that could provide some protection against significant increases in fuel prices for our scheduled service business.

Union disputes, employee strikes and other labor-related disruptions may adversely affect our operations.

Our business plan includes assumptions about labor costs going forward. Currently, our labor costs are competitive within the airline industry; however, we cannot assure you that labor costs going forward will remain competitive, either because our agreements become amendable or because competitors may significantly reduce their labor costs.

The majority of our employees are represented for collective bargaining purposes by labor unions. These employees are organized into six labor groups represented by five different unions.

Relations between air carriers and labor unions in the United States are governed by the Railway Labor Act, or the RLA. Under the RLA, collective bargaining agreements generally contain “amendable dates” rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a lengthy, multi-stage series of bargaining processes overseen by the National Mediation Board. This process continues until either the parties have reached agreement on a new collective bargaining agreement, or the parties have been released to “self-help” by the National Mediation Board. Although in most circumstances the RLA prohibits strikes, after release by the National Mediation Board, carriers and unions are free to engage in self-help measures such as strikes and lock-outs. None of our labor agreements are currently amendable.

We are subject to risks of work interruption or stoppage and may incur additional expenses associated with the union representation of our employees. While we have not experienced a labor strike in the past, we cannot assure you that disputes, including disputes with any certified collective bargaining representative of our employees, will not arise in the future or will result in an agreement on terms satisfactory to us. Such disputes and the inherent costs associated with their resolution could have a material adverse effect on our financial condition and results of operations.

There is also a risk that disgruntled employees, either with or without union involvement, could engage in illegal slow-downs, work stoppages, partial work stoppages, sick-outs or other action short of a full strike that could, individually or collectively, adversely affect our operations and impair our financial performance.

Any inability to acquire and maintain additional compatible aircraft, engines or spare parts, on terms favorable to us or at all, would increase our operating costs and could adversely affect our profitability.

Any increase in demand for the types of aircraft we currently fly (737s, 757s and L-1011s), or will fly in the future (DC-10s), could impair our ability to obtain additional aircraft, engines and spare parts. We may be unable

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to obtain additional suitable aircraft, engines or spare parts on satisfactory terms or at the time needed for our operations or for the implementation of our growth plan. If available 737-800 and 757 aircraft, whether by purchase or lease, are not compatible with the rest of our fleet in terms of takeoff weight, avionics, engine type or other factors, we would incur potentially significant costs of fleet induction and modification. Additionally, there is a greater risk associated with acquiring used aircraft because we may incur additional costs to remedy any mechanical issues and, generally, the cost to maintain used aircraft exceeds the cost to maintain new aircraft.

Our maintenance costs will increase as our fleet ages.

Our aircraft were manufactured between 1975 and 2003. In general, the cost to maintain aircraft increases as they age and exceeds the cost to maintain new aircraft. FAA regulations require additional maintenance inspections for older aircraft. We will also need to comply with other programs that require enhanced inspections of aircraft, including Aging Aircraft Airworthiness Directives, which typically increase as an aircraft ages and vary by aircraft or engine type depending on the unique characteristics of each aircraft and/or engine. In April 2006, the FAA proposed to issue regulations limiting the age of aircraft that may be flown by U.S. airlines. The announcement did not indicate the maximum age that would be allowed, the effective date of the regulation or any grandfathering provisions. Comments regarding this proposal were submitted in September 2006, and it is unclear when a final decision will be made. This proposal, if and when implemented, may have a material effect on our future operations. Our ability to retain a significant market share of the military charter business will depend on our ability to obtain aircraft suitable for such business.

Our reputation and financial results could be adversely affected in the event of an accident or incident involving our aircraft or the same types of aircraft operated by other airlines.

Although we have not had any accidents or material incidents to date, an accident or incident involving one of our aircraft could involve repair or replacement of a damaged aircraft, its consequential temporary or permanent loss from service and significant potential claims of injured passengers and others. Substantial claims resulting from an accident in excess of our related insurance coverage would adversely affect our business and financial results (see “— Our insurance coverage does not cover all risks and we do not maintain business interruption insurance”). Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that we are less safe or reliable than other airlines, which would adversely affect our business. Because we are a small airline, an accident would be likely to adversely affect us to a greater degree than it would a larger, more established airline.

Our business would be significantly adversely affected if a mechanical problem with the 737, 757, DC-10 or L-1011 aircraft were discovered that caused such aircraft to be grounded while any such problem was corrected, assuming it could be corrected at all. The FAA could also suspend or restrict the use of certain of our aircraft in the event of any actual or perceived mechanical problems, whether involving our aircraft or another U.S. or foreign airline’s aircraft, while it conducted its own investigation. Our business would also be significantly adversely affected if the public avoided flying our aircraft, or if the U.S. military avoided using our aircraft, due to an adverse perception of our aircraft because of safety concerns or other problems, whether real or perceived, or in the event of an accident involving one of our aircraft types.

Due to our limited fleet size, if any of our aircraft becomes unavailable, we may suffer greater damage to our service, reputation and profitability than airlines with larger fleets.

As of June 30, 2007, we operate a fleet of 28 aircraft. Given the limited number of aircraft we operate, if an aircraft becomes unavailable due to unscheduled maintenance, repairs or other reasons, we could suffer greater adverse financial and reputational impacts than larger airlines if our flights are delayed or cancelled due to the absence of replacement aircraft. If we are unable to operate those aircraft for a prolonged period of time for reasons outside of our control, for example, due to a catastrophic event or a terrorist act, our financial condition and results of operations could be disproportionately adversely affected.

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We may be unable to renew our gate leases or continue to access slots at the major domestic airports we serve.

We currently lease two gates at Chicago’s Midway Airport and have slot access at constrained airports, including New York’s LaGuardia Airport and Washington’s Reagan National Airport. Access to slots at LaGuardia and Reagan National are allotted by the Department of Transportation and the FAA on a restricted basis. Our U.S. Mainland scheduled service business depends upon our ability to maintain continued access to these airports on favorable terms. Any adverse change in our gate lease agreements at Midway or any regulatory change adversely affecting our access to slots at LaGuardia or Reagan National could have a material adverse effect on our financial condition and results of operations.

We have a significant amount of fixed obligations and we expect to incur significantly more fixed obligations as we take delivery of additional aircraft and other equipment, which could hurt our ability to meet our strategic goals.

As of December 31, 2006, we had aggregate long-term debt (including capital leases) of $146.7 million, including current maturities. In addition to long-term debt, we have a significant amount of other fixed obligations under operating leases related to our aircraft, airport terminal space, other airport facilities and office space. As of December 31, 2006, future minimum lease payments under non-cancelable operating leases with initial or remaining terms in excess of one year were approximately $1.0 billion. We expect to incur additional debt and other fixed obligations as we take delivery of additional aircraft and other equipment and continue to expand into new regions.

The amount of our debt and other fixed obligations could:

• limit our ability to obtain additional financing to support capital expansion plans and for working capital and other purposes;

• divert substantial cash flow from our operations and expansion plans to service our fixed obligations;

• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; or

• place us at a competitive disadvantage compared to less leveraged competitors and competitors with better access to capital resources.

Our ability to make scheduled payments on our debt and other fixed obligations will depend upon our future operating performance and cash flows, which in turn will depend upon prevailing economic and political conditions and financial, competitive, regulatory, business and other factors, many of which are beyond our control. We cannot assure you that we will be able to generate sufficient cash flows from our operations to pay our debt and other fixed obligations as they become due, and our failure to do so could adversely affect our business. If we are unable to make payments on our debt and other fixed obligations, we could be forced to renegotiate those obligations or obtain additional equity or debt financing. To the extent we finance our activities or future aircraft acquisitions with additional debt, we may become subject to financial and other covenants that may restrict our ability to pursue our growth strategy. We cannot assure you that any renegotiation efforts would be successful or timely, or that we would be able to refinance our obligations on terms acceptable to us, if at all.

Our lack of an established line of credit or borrowing facility makes us highly dependent upon our operating cash flows.

We have no lines of credit and rely on operating cash flows to provide working capital. Unless we secure a line of credit or borrowing facility, we will be dependent upon our operating cash flows and cash balances to fund our operations and to make scheduled payments on our debt and other fixed obligations. If we fail to generate sufficient funds from operations to meet these cash requirements or do not secure a line of credit, other borrowing facility or equity financing, we could default on our debt and other fixed obligations. Our inability to meet our obligations as they become due would materially restrict our ability to grow and materially adversely affect our financial condition and results of operations.

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Our operations are capital intensive. They are financed from operating cash flows and term loan debt. Many airlines, including us, have defaulted on debt securities and bank loans in recent years and have had their equity eliminated in bankruptcy reorganizations. This history has led to limited access to the capital markets by companies in our industry. Our access to the capital markets may also be limited for the foreseeable future due to limited liquidity in our securities, among other things. Restrictions on our ability to access capital and obtain sufficient financing to fund our operations may diminish our financial and operational flexibility and could curtail our operations and adversely affect our ability to take advantage of opportunities for expansion of our business. We cannot assure you, however, that any additional financing will be available on terms that are favorable or acceptable to us.

If all credit card processing companies serving us were to require 100% holdbacks for processing credit card transactions for the purchase of air travel and other services, as they have from time to time in the past, our cash flows would be adversely affected.

Credit card companies frequently require significant holdbacks when future air travel and other future services are purchased through credit card transactions. Our credit card processing companies maintain significant holdbacks for processing our credit card transactions for the purchase of air travel and other services. As virtually all of our scheduled service and ancillary services are paid for with credit cards, if all the credit card processing companies were to increase our holdbacks to 100%, our cash flows would be adversely affected. This risk is exacerbated by the fact that we do not have any established line of credit or borrowing facility.

If we develop problems with any of our third party service providers, our operations could be adversely affected by a resulting decline in revenue, increase in expenses or negative public perception about our services.

Our reliance upon others to provide essential services on behalf of our operations may result in our relative inability to control the efficiency and timeliness of contract services. We have entered into outsourcing agreements with contractors to provide various services required for our operations, including aircraft maintenance, ground facilities operations and baggage handling. It is likely that similar agreements will be entered into in any new regions we decide to serve. Any material problems with the efficiency and timeliness of contract services could have a material adverse effect on our financial condition and results of operations.

Our success depends upon the retention of our senior management, as well as our ability to attract and retain qualified and experienced employees.

The success of our business is highly dependent upon the efforts of our management team and certain other operating personnel. If any of our key employees leave and we are unable to quickly hire a qualified replacement, our business, financial condition and results of operations may suffer. In addition, the growth of our business is largely dependent upon our ability to attract and retain qualified personnel in all areas of our business. If we are unable to attract and retain these qualified personnel, our growth may be limited and our business and operating results could suffer.

Government regulations impose requirements and restrictions on our operations that increase our operating costs.

We, like other airlines, are subject to extensive regulatory and legal requirements, both domestically and internationally, that involve significant compliance costs. In the last several years, Congress has passed laws, and the FAA, the Department of Transportation and the Transportation Security Administration have issued regulations, relating to the operation of airlines that have required significant expenditures. Local governments and authorities in certain regions also have adopted regulations governing various aspects of aircraft operations, including noise abatement procedures, curfews and use of airport facilities. We expect to continue to incur increased expenses in connection with complying with government regulations, including continuing costs for

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new security measures. Historically we have been unable to recoup these increased costs through increased ticket prices. Additional laws, regulations, taxes and airport charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce the demand for air travel. If adopted, these measures could have the effect of raising ticket prices, reducing revenue and increasing costs. We can give no assurance that these and other laws or regulations enacted in the future will not adversely affect our business.

We also are subject to various laws, rules and regulations relating to the Internet and online commerce, consumer protection and privacy, and sales, use, occupancy, value-added and other taxes. Any new laws or changes in existing laws could decrease demand for our services, increase our costs and/or subject us to additional liabilities, which could adversely affect our business. For example, there is, and will likely continue to be, an increasing number of laws and regulations pertaining to Internet and online commerce, which may relate to liability for information retrieved from or transmitted over the Internet, user privacy, taxation and the quality of products and services. Furthermore, the growth and development of online commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on online businesses generally.

In addition, the application of various sales, use, occupancy, value-added and other tax laws, rules and regulations to our products and services is subject to interpretation by the applicable taxing authorities. While we believe we are compliant with these tax provisions, we cannot assure you taxing authorities will not take a contrary position, or that such positions would not materially adversely affect our financial condition and results of operations.

Furthermore, our operating authority in international regions is subject to aviation agreements between the United States and foreign governments and to considerations of comity and reciprocity between the United States and the concerned foreign government. These bilateral agreements are subject to periodic renegotiation or renewal, and comity and reciprocity are subject to review by the relevant governments. Any alteration or termination of such agreements, or restrictions on airline operations by governments based on considerations of comity and reciprocity, could diminish the value of route authorities or otherwise adversely affect our international operations.

Our processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights.

In the processing of our customer transactions, we receive and store a large volume of identifiable personal data. Although we believe we are in compliance in all material respects with applicable regulations, this data is increasingly subject to legislation and regulation. This government action is typically intended to protect the privacy of personal data that is collected, processed and transmitted. We could be adversely affected if legislation or regulations are expanded to require changes in our business practices in ways that negatively affect our business, financial condition and results of operations. As privacy and data protection become more sensitive issues, we also may become exposed to potential liabilities as a result of differing views on the privacy of travel data. These and other privacy developments are difficult to anticipate and could adversely affect our financial condition and results of operations.

Our results of operations will vary among quarters, which will make comparison of our quarterly results difficult.

We expect our operating results to fluctuate among quarters in the future based on a variety of factors, including:

• changes in fuel, security and insurance costs;

• the timing and amount of maintenance expenditures;

• the timing and success of our growth plans;

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• fluctuations in demand in the military charter business segment; and

• increases in personnel, marketing, aircraft ownership and other operating expenses to support our anticipated growth.

In addition, our scheduled service operations are seasonal by nature, with peak activity occurring during the Spring and Summer holiday seasons. This typically results in a decline in demand for these services in the first and fourth quarters of our fiscal year. Quarter-to-quarter comparisons of our operating results may not be good indicators of our future performance. It is also possible that our operating results in any future quarter could be below the expectations of investors or any published reports or analyses regarding our company. In that event, the market price of our common stock could decline, perhaps substantially.

The historical consolidated financial information in this Form 10 does not reflect the added costs and internal control reporting standards we expect to incur or will be required to comply with as a public company.

We will face increased legal, accounting, administrative and other expenses as a public company that we do not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and controls of public companies. We expect these rules and regulations to result in both a significant initial cost, as we initiate certain internal controls and other procedures designed to comply with the requirements of the Sarbanes-Oxley Act, and an ongoing increase in our legal, audit and financial compliance costs. Compliance could also divert management’s attention from operations and strategic opportunities and will make legal, accounting and administrative activities more time-consuming and costly. We also expect to incur higher costs to maintain directors and officers insurance. We currently anticipate increased annual costs following this offering and we expect to incur additional costs during the first year following the offering in implementing and verifying internal control procedures as required by Section 404 of the Sarbanes-Oxley Act, and the rules and regulations thereunder, and in connection with preparing our financial statements on a timely basis to meet the SEC’s reporting requirements.

Once we become a public company, Section 404 of the Sarbanes-Oxley Act and the related rules of the Securities and Exchange Commission will require our management to conduct annual assessments of the effectiveness of our internal control over financial reporting and will require a report by our independent registered public accounting firm addressing these assessments for our fiscal year ending December 31, 2008. During the course of documenting and testing our internal control procedures to satisfy the requirements of Section 404, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which likely would cause investors to lose confidence in our reported financial information. This could lead to a significant decline in the market price of our common stock. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets, regulatory investigations and civil or criminal sanctions. Similar adverse effects could result if our auditors express an adverse opinion or disclaim or qualify an opinion on management’s assessment or on the effectiveness of our internal control over financial reporting.

A significant stockholder controls the direction of our business. The concentrated ownership of our common stock will prevent other stockholders from influencing significant corporate decisions.

As of June 30, 2007, MatlinPatterson Global Advisers LLC and its affiliates (collectively, MatlinPatterson) owned approximately 69.7% of our outstanding shares of common stock (or 54.1% on a fully diluted basis). As a result, MatlinPatterson has the ability to effectively control all matters requiring stockholder approval, including the nomination and election of directors, the determination of our corporate and management policies and the

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determination of the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions.

The interests of MatlinPatterson may not coincide with the interests of the other holders of our common stock. In addition, such stockholders will not be able to prevent MatlinPatterson from selling shares, including all of the shares of our common stock that it holds. For example, MatlinPatterson could cause us to make acquisitions that increase the amount of our indebtedness or the number of outstanding shares of our common stock or to sell revenue-generating assets. MatlinPatterson may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as MatlinPatterson continues to own a substantial number of shares of our common stock, MatlinPatterson will effectively control all of our corporate decisions.

Additionally, MatlinPatterson may invest in entities that directly or indirectly compete with us, or companies in which it currently invests may begin competing with us. As a result of these relationships, when conflicts between the interests of MatlinPatterson and the interests of our other stockholders arise, our directors who were nominated by MatlinPatterson may not be disinterested.

Risks Relating to the Airline Industry

The airline industry has recently incurred significant losses resulting in airline restructurings, consolidations and bankruptcies, which could result in further changes in the industry.

The domestic airline industry has reported significant losses in recent years. Airlines have been renegotiating aircraft leases, reconfiguring flight schedules, furloughing or terminating employees and implementing other efficiency and cost-cutting measures. Despite these actions, several airlines commenced cases under Chapter 11 of the U.S. Bankruptcy Code in the past several years, enabling these airlines to reduce labor rates, restructure debt, terminate pension plans and generally reduce their cost structure. Such events may have a greater impact during time periods when the airline industry encounters continued financial losses, as passenger air carriers under financial pressures may institute pricing structures to achieve near-term survival rather than long-term viability. Further airline reorganizations, bankruptcies or consolidations may occur, the effects of which we are unable to predict but which could adversely affect our competitive position in the industry.

The airline industry is highly competitive and is characterized by low profit margins and high fixed costs.

The airline industry is highly competitive, fragmented and capital intensive. Successful competition depends on price, quality, safety and reliability of service. Greater financial resources, newer aircraft, larger facilities and lower cost structures provide air carriers with financial and operating advantages over their competitors. The U.S. airline industry is characterized generally by low profit margins and high fixed costs, primarily for personnel, aircraft fuel, aircraft and engine leases and debt service. The expenses of a passenger aircraft flight do not vary significantly with the number of passengers carried. As a result, a relatively small change in the number of passengers or in pricing can have a disproportionate effect on a passenger air carrier’s operating and financial results. Accordingly, shortfalls in expected passenger levels significantly adversely affect our business. In addition, the U.S. airline industry in general, and the low-fare sector in particular, is highly competitive and is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats. The advent of Internet websites has lowered the cost to airlines of selling tickets. However, it has also had a significant negative impact on airline revenues because travel consumers now have access to nearly perfect pricing information and, as a result, have become more efficient in finding lower fare alternatives.

The airline and travel industry tends to experience adverse financial results during general economic downturns.

Since a substantial portion of airline travel, for both business and leisure, is discretionary, the airline and travel industries tend to experience adverse financial results during general economic downturns. Any general downturn in the U.S. or global economies could lead to a reduction in airline passenger traffic, which likely would adversely affect the airline industry, including us.

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Future terrorist attacks, the threat of such attacks or the escalation of U.S. military involvement overseas could materially adversely affect our scheduled service and commercial charter businesses.

The terrorist attacks of September 11, 2001 materially adversely affected the airline industry. Increased security procedures have adversely affected the air travel experience and increased our costs. Additional terrorist attacks, even if not made directly on the airline industry, or fear of such attacks, could have a further adverse effect on us and the rest of the airline industry. In the event of a terrorist attack, we may experience significantly reduced demand for our travel services, which could have an adverse effect on our financial condition and results of operations.

Airlines often are affected by factors beyond their control, including traffic congestion at airports, weather conditions, increased security measures and public health threats, any of which could adversely affect our operating results and financial condition.

Like other airlines, our business is affected by factors beyond our control, including air traffic congestion at airports, adverse weather conditions, increased security measures and the outbreak of disease. Delays frustrate passengers and increase costs, which in turn affect profitability. During periods of fog, snow, rain, storms or other adverse weather conditions, flights may be cancelled or significantly delayed. Cancellations or delays due to weather conditions, traffic control problems and breaches in security could adversely affect our financial condition and results of operations. Additionally, public health threats that affect travel behavior, such as SARS or avian flu, could have a material adverse effect on the airline industry, including us.

Risks Relating to our Common Stock

The market price of our common stock may be volatile.

The market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including those described above under “Risks Relating to our Business” and “Risks Associated with the Airline Industry” and the following:

• our financial performance or the performance of our competitors and similar companies,

• announcements concerning our competitors, the airline industry or the economy in general,

• strategic actions by us or our competitors, such as acquisitions or restructurings,

• media reports and publications about the safety of our aircraft or the aircraft type we operate,

• new regulatory pronouncements and changes in regulatory guidelines,

• general and industry-specific economic conditions,

• changes in financial estimates or recommendations by securities analysts,

• sales of our common stock or other actions by investors with significant shareholdings,

• general market conditions,

• loss of key personnel, and

• availability of capital.

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies. These types of broad market fluctuations may adversely affect the trading price of our common stock.

In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management’s attention and resources, and adversely affect our business or results of operations.

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There is no existing market for our common stock and we do not know if one will develop to provide our stockholders with adequate liquidity.

There has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market or how liquid that market might become. If an active trading market does not develop, our stockholders may have difficulty selling any shares of our common stock that they own.

If a significant number of shares of our common stock are sold into the market, the market price of our common stock could decline significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could cause the prevailing market price of our common stock to decline significantly.

We may sell shares of our common stock in public offerings. We may also issue shares of our common stock to finance future acquisitions. As of June 30, 2007, 10,755,688 shares of our common stock were outstanding. 7,503,000 of these shares are owned by our officers, directors and “affiliates”, as that term is defined under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), and thus are “restricted securities” under the Securities Act and may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.

In addition, as of June 30, 2007, 2,659,523 shares of our common stock were issuable upon the exercise of outstanding stock options. 448,029 shares of our common stock also were issuable upon the exercise of outstanding warrants as of June 30, 2007.

We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of a substantial number of shares of our common stock in the public market (including shares issued in connection with an acquisition), or the perception that such sales may occur, could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.

We do not intend to pay cash dividends.

We do not intend to pay cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of our current financing agreements preclude us, and any future financing agreements may preclude us, from paying any dividends. As a result, appreciation, if any, in the market value of our common stock will be the sole source of potential financial gain from our common stock for the foreseeable future.

Delaware law and provisions of our certificate of incorporation and by-laws contain provisions that could delay, deter or prevent a change of control.

The anti-takeover provisions of the Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. We are currently subject to these Delaware anti-takeover provisions. Additionally, our amended and restated certificate of incorporation, as amended, and our amended and restated by-laws contain provisions that might enable our management to resist a proposed takeover of our company. These provisions could discourage, delay or prevent a change of control of our company or an acquisition of our company at a price that our stockholders may find attractive. These provisions also may discourage proxy contests and make it more difficult for our stockholders to elect directors and take other corporate actions. The existence of these provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. The provisions include:

• limitations as to who may call special meetings of both our board of directors and stockholders;

• advance notice requirements for stockholder proposals; and

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• the authority of our board to issue, without stockholder approval, preferred stock with such terms as our board may determine.

For additional information regarding these provisions, you should read the information under the headings “Description of Registrant’s Securities to be Registered — Anti-Takeover Effects of Our Certificate of Incorporation and By-Laws” and “— Delaware ‘Business Combination’ Statute.”

Our certificate of incorporation and by-laws include provisions limiting voting by non-U.S. citizens.

To comply with restrictions imposed by federal law on foreign ownership of U.S. airlines, our amended and restated certificate of incorporation, as amended, and amended and restated by-laws restrict voting of shares of our capital stock by non-U.S. citizens. The restrictions imposed by federal law currently require no more than 25% of our stock be voted, directly or indirectly, by persons who are not U.S. citizens, that our president and at least two-thirds of the members of our board of directors be U.S. citizens, and that we remain under the actual control of U.S. citizens. The “actual control” doctrine, among other things, limits the amount of non-voting equity that may be held by non-U.S. citizens. Our by-laws provide that no shares of our capital stock may be voted by or at the direction of non-U.S. citizens unless such shares are registered on a separate stock record, which we refer to as the foreign stock record.

ITEM 2. FINANCIAL INFORMATION

Selected Financial Information

The following table sets forth our selected historical consolidated financial information and other data for each of the periods indicated. The selected historical financial data for the dates and periods ended prior to March 1, 2006 were derived from the audited consolidated financial statements of ATA’s former parent, ATA Holdings Corp., which we sometimes refer to as our “predecessor”. The statement of operations data for the years ended December 31, 2003, 2004 and 2005, for the two months ended February 28, 2006 and for the ten months ended December 31, 2006, and the balance sheet data as of December 31, 2004, 2005 and 2006, were derived from our or our predecessor’s audited consolidated financial statements included elsewhere in this Form 10. The statement of operations data for the six month period ended June 30, 2006 was derived from our unaudited consolidated financial statements for the four month period ended June 30, 2006 and from our predecessor’s audited consolidated financial statements for the two months ended February 28, 2006 included elsewhere in this Form-10. The statement of operations data for the six month period ended June 30, 2007 and the balance sheet data as of June 30, 2007, were derived from our unaudited interim financial statements included elsewhere in this Form 10. In the opinion of management, the unaudited interim financial statements for us and our predecessor included in this Form-10 include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of that information for such unaudited interim periods. The financial information presented for the interim periods has been prepared in a manner consistent with our accounting policies described elsewhere in this Form-10, and should be read in conjunction therewith. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year period. The statement of operations data for the year ended December 31, 2002, and the balance sheet data as of December 31, 2002 and 2003, were derived from our predecessor’s audited consolidated financial statements that are not included elsewhere in this Form 10. The selected historical financial data presented below are not necessarily indicative of results of future operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes contained elsewhere in this Form 10.

The comparability of our selected historical financial data has been affected by our reorganization. As we discuss more fully in “Note 1 — Fresh-Start Reporting” of the notes to our audited consolidated financial statements as of and for the ten months ended December 31, 2006, our predecessor and certain of its affiliates, including ATA Airlines, Inc., our principal operating subsidiary, filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in October 2004. We emerged from bankruptcy protection on

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February 28, 2006 with a new capital structure. We have applied fresh-start accounting as of March 1, 2006 for our consolidated financial statements. As a result of the fresh-start change in the basis of accounting for our underlying assets and liabilities, our results of operations and cash flows are separated as pre-March 1, 2006 (predecessor) and post-February 28, 2006 (successor). We include as a reporting period of our predecessor our pre-emergence two-month period ended February 28, 2006. The historical periods of our predecessor also do not reflect the impact of the fundamental changes in our assets and operations we effected through our reorganization. See “Business — Our History — Our Reorganization” for additional information.As a result of these changes, we do not believe that our business operations or our operating results for periods prior to March 1, 2006 are comparable to our current business operations or our operating results since that date.

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	Predecessor															Global Aero Logistics Inc.			Predecessor and Global Aero Logistics Inc.			Global Aero Logistics Inc.
	Year ended December 31,												Two months ended Feb. 28,			Ten months ended Dec. 31,			Six months ended June 30,			Six months ended June 30,
	2002			2003			2004 (2)			2005 (2)			2006 (1)(2)			2006			2006 (3)			2007
																			(unaudited)			(unaudited)
	(Dollars in thousands, except per share data)
Statement of Operations Data:
Operating revenues:
Scheduled service	$	886,579		$	1,085,420		$	1,099,944		$	635,232		$	53,527		$	332,255		$	186,753		$	172,163
Charter		309,242			366,207			358,870			408,714			58,753			288,256			174,938			160,712
Other		81,549			66,906			73,757			48,355			2,771			16,651			9,900			7,938
Total operating revenues		1,277,370			1,518,533			1,532,571			1,092,301			115,051			637,062			371,591			340,813
Operating expenses:
Fuel and oil		206,574			276,057			368,273			322,094			37,086			202,613			117,543			113,428
Salaries, wages and benefits		355,201			399,622			422,430			281,791			36,066			150,929			100,875			88,704
Aircraft rentals		190,148			226,559			242,602			148,614			16,181			69,439			44,054			41,460
Flight costs		93,119			105,055			100,327			82,243			11,488			52,769			28,389			28,861
Handling, landing and navigation fees		110,528			113,781			119,963			89,453			8,077			48,553			27,303			25,533
Selling and marketing		107,288			110,527			111,041			66,050			7,624			36,452			21,874			18,974
Aircraft maintenance, materials and repairs		52,254			45,741			74,992			44,801			3,103			29,051			13,027			22,627
Depreciation and amortization		76,727			56,729			52,013			36,270			5,219			17,386			11,366			11,773
U.S. Government grants		16,221			(37,156	)		—			—			—			—			—			—
Asset impairments and aircraft retirements		66,787			5,288			7,887			403			—			13,476			—			3,649
Goodwill impairment		6,893			—			—			—			—			—			—			—
Other		155,667			138,789			133,206			101,973			10,197			41,045			31,891			23,921
Total operating expenses		1,437,407			1,440,992			1,632,734			1,173,692			135,041			661,713			396,322			378,930
Operating income (loss)		(160,037	)		77,541			(100,163	)		(81,391	)		(19,990	)		(24,651	)		(24,731	)		(38,117	)
Other income (expenses):
Reorganization items, net (1)		—			—			(638,479	)		(369,632	)		1,456,000			—			1,456,000			—
Interest income		2,829			2,878			2,283			2,467			397			6,154			2,762			4,026
Interest expense		(35,746	)		(56,324	)		(51,145	)		(6,235	)		(4,666	)		(18,231	)		(12,216	)		(12,136	)
Loss on extinguishment of debt		—			—			(27,314	)		—			—			—			—			—
Other		(1,260	)		(2,350	)		(911	)		(796	)		(233	)		266			(161	)		172
Total other income (expenses)		(34,177	)		(55,796	)		(715,566	)		(374,196	)		1,451,498			(11,811	)		1,446,385			(7,938	)
Income (loss) before income taxes		(194,214	)		21,745			(815,729	)		(455,587	)		1,431,508			(36,462	)		1,421,654			(46,055	)
Income taxes (credits)		(24,950	)		1,311			—			—			—			—			—			—
Net income (loss)		(169,264	)		20,434			(815,729	)		(455,587	)		1,431,508			(36,462	)		1,421,654			(46,055	)
Preferred stock dividends		(5,720	)		(4,642	)		(1,125	)		—			—			—			—			—
Income (loss) available to common stockholders (4)	$	(174,984	)	$	15,792		$	(816,854	)	$	(455,587	)	$	1,431,508		$	(36,462	)	$	1,421,654		$	(46,055	)
Basic earnings per common share:
Weighted average shares outstanding																	10,752,688						10,755,688
Net loss per share																$	(3.39	)				$	(4.28	)
Diluted earnings per common share:
Average shares outstanding																	10,752,688						10,755,688
Net loss per share																$	(3.39	)				$	(4.28	)
Other Financial Data:
Cash flows provided by (used in):
Operating activities	$	(59,014	)	$	93,779		$	(26,200	)	$	(67,010	)	$	(19,577	)	$	(34,847	)	$	(61,999	)	$	(25,264	)
Reorganization activities		—			—			66,194			18,309			(6,014	)		—			(6,014	)		—
Investing activities		88,931			(98,694	)		531			(18,731	)		(10,406	)		8,689			(9,779	)		(9,825	)
Financing activities		(14,196	)		(34,601	)		(61,517	)		6,997			(6,777	)		51,924			65,379			30,887
Capital expenditures		(59,346	)		(42,534	)		(26,660	)		(22,884	)		(8,447	)		(27,570	)		(10,793	)		(9,678	)
Selected Consolidated Operating Statistics (Unaudited):
Revenue passengers carried (thousands)		10,046.7			11,226.9			11,653.4			5,868.1			449.0			2,519.8			1,492.4			1,467.1
Revenue passenger miles (millions)		12,384.2			14,358.7			14,678.5			8,709.7			816.2			4,799.2			2,727.5			2,838.4
Available seat miles (millions)		17,600.0			21,125.9			21,242.0			13,360.2			1,362.9			6,804.2			4,069.1			3,959.7
Passenger load factor		70.4	%		68.0	%		69.1	%		65.2	%		59.9	%		70.5	%		67.0	%		71.7	%

31

	Predecessor									Global Aero Logistics Inc
	As of December 31,									As of June 30,
	2003			2004			2005			2006(1)		2007
				(Dollars in thousands)						(unaudited)		(unaudited)
Balance Sheet Data:
Cash and cash equivalents	$	160,644		$	139,652		$	79,217		$	66,804	$	58,007
Property and equipment, net		253,482			182,759			101,267			82,157		89,383
Total assets		869,987			651,065			389,450			441,698		404,984
Total debt		494,696			41,000			54,600			166,179		174,076
Liabilities subject to compromise (5)		—			1,279,676			1,475,447			—		—
Mandatorily redeemable preferred stock (6)		56,330			—			—			—		—
Convertible redeemable preferred stock		32,907			—			—			—		—
Stockholders’ equity (deficit)	$	(104,007	)	$	(920,556	)	$	(1,376,143	)	$	97,837	$	27,238

(1) As of February 28, 2006, the effective date of the plan of reorganization, we adopted fresh-start accounting for our financial statements. See Note 1 to our audited consolidated financial statements with respect to our fresh-start financial reporting. Because of the emergence from bankruptcy and adoption of fresh-start accounting, the historical financial data for Global is not comparable to that of our predecessor.

(2) The consolidated financial statements of our predecessor have been prepared in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code and on a going-concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. Reorganization expenses identify those costs that are not in the ordinary course of business and include aircraft lease rejection charges, impairments and professional fees related to the predecessor’s Chapter 11 filing. See Note 1 to our predecessor’s audited consolidated financial statements for more information.

(3) The statement of operations data for the six month period ended June 30, 2006 was derived from Global’s unaudited consolidated financial statements for the one month period ended June 30, 2006 and from Global’s predecessor’s audited consolidated financial statements for the two months ended February 28, 2006.

(4) Preferred stock dividends of $5.7 million, $4.6 million, $1.1 million, $0 and $0 were recorded in 2002, 2003, 2004 and 2005 and for the ten months ended December 31, 2006, respectively. No common stock dividends were paid in any period presented. No preferred stock remains outstanding after the effective date of the plan of reorganization.

(5) Liabilities subject to compromise refers to liabilities to be accounted for under a plan of reorganization, including claims incurred prior to the petition date. These amounts result from known or potential claims to be resolved through the Chapter 11 process and such claims remain subject to future adjustments.

(6) Mandatorily redeemable preferred stock of $50.0 million was outstanding as of December 31, 2004 and as of December 31, 2005 was classified on the balance sheet as a liability subject to compromise.

32

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

Overview

We are a diversified passenger airline operating in two principal segments: a low cost carrier providing scheduled service that leverages a unique codeshare agreement with Southwest Airlines, and a charter operator that focuses principally on serving the U.S. military. The scheduled service segment derives its revenues primarily from the sale of single-seat tickets to individuals on flights to predetermined destinations. The military charter segment derives its revenues primarily from the sale of all seats on an aircraft flight to either the U.S. Government or another customer that determines the destination of these flights.

We flew 777,052 passengers during the three months ended June 30, 2006 and 804,458 passengers during the three months ended June 30, 2007. For the three months ended June 30, 2006 and 2007, respectively, our scheduled service business represented 52.3% and 53.5%, respectively, of our total revenue and our military charter service business represented 45.3% and 44.2%, respectively, of our total revenue for those periods. We flew 1.49 million passengers during the six months ended June 30, 2006 and 1.47 million passengers during the six months ended June 30, 2007. For the six months ended June 30, 2006 and 2007, respectively, our scheduled service business represented 50.3% and 50.5%, respectively, of our total revenue and our military charter service business represented 47.1% and 47.2%, respectively, of our total revenue for those periods. We conduct substantially all of our operations through our subsidiary, ATA Airlines, Inc.

The comparability of our historical financial data has been affected by our reorganization. As we discuss more fully in “Note 1 — Fresh-Start Reporting” of the notes to our audited consolidated financial statements as of and for the ten months ended December 31, 2006, our predecessor and certain of its affiliates, including ATA Airlines, Inc., our principal operating subsidiary, filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in October 2004. We emerged from bankruptcy protection on February 28, 2006 with a new capital structure. We have applied fresh-start accounting as of March 1, 2006 for our consolidated financial statements. As a result of the fresh-start change in the basis of accounting for our underlying assets and liabilities, our results of operations and cash flows are separated as pre-March 1, 2006 (predecessor) and post-February 28, 2006. We include as a reporting period of our predecessor our pre-emergence two-month period ended February 28, 2006. The historical periods of our predecessor also do not reflect the impact of the changes in our assets and operations we effected through our reorganization.As a result of these changes, we do not believe that our business operations or our operating results for periods prior to March 1, 2006 are comparable to our current business operations or our operating results since that date.

In April 2006, we began reporting results of operations for two business segments: scheduled service and military charter. Given the brief operating history for which we have segment reporting and the lack of meaningful comparison periods on account of this as well as the impact of fresh-start accounting, we do not believe that a discussion of segment information is appropriate for an understanding of our business. For additional information regarding our operating segments, see “Note 9 – Segment Reporting” of the notes to our audited consolidated financial statements as of and for the ten months ended December 31, 2006. Information included in this Management’s Discussion and Analysis of the Result of Operations and Financial Condition for the six month period ended June 30, 2006 was derived from our unaudited consolidated financial statements for the four month period ended June 30, 2006 and our predecessor’s audited consolidated financial statements for the two month period ended February 28, 2006.

33

Results of Operations

The following tables sets forth, for the periods indicated, selected statement of operations data.

	Predecessor									Global Aero Logistics Inc.
	Year ended December 31,						Ten months ended December 31,			Ten months ended December 31,
	2004			2005			2005			2006
							(unaudited)
Operating revenues:
Scheduled service	$	1,099,944		$	635,232		$	526,435		$	332,255
Charter		358,870			408,714			333,081			288,256
Other		73,757			48,355			37,006			16,551
Total operating revenues		1,532,571			1,092,301			896,522			637,062
Operating expenses:
Fuel and oil		368,273			322,094			267,095			202,613
Salaries, wages and benefits		422,430			281,791			219,777			150,929
Aircraft rentals		242,602			148,614			116,927			69,439
Flight costs		100,327			82,243			67,774			52,769
Handling, landing and navigation fees		119,963			89,453			69,710			48,553
Selling and marketing		111,041			66,050			53,611			36,452
Aircraft maintenance, materials and repairs		74,992			44,801			34,576			29,051
Depreciation and amortization		52,013			36,270			28,107			17,386
Asset impairments and aircraft retirements		7,887			403			214			13,476
Other		133,206			101,973			79,570			41,045
Total operating expenses		1,632,734			1,173,692			937,361			661,713
Operating income (loss)		(100,163	)		(81,391	)		(40,839	)		(24,651	)
Other income (expenses):
Reorganization items, net		(638,479	)		(369,632	)		(363,811	)		—
Interest income		2,283			2,467			2,177			6,154
Interest expense		(51,145	)		(6,235	)		(5,162	)		(18,231	)
Loss on extinguishment of debt		(27,314	)		—			—			—
Other		(911	)		(796	)		(639	)		266
Other expense		(715,566	)		(374,196	)		(367,435	)		(11,811	)
Income (loss) before income taxes		(815,729	)		(455,587	)		(408,274	)		(36,462	)
Income taxes		—			—			—			—
Net income (loss)	$	(815,729	)	$	(455,587	)	$	(408,274	)	$	(36,462	)

34

The following tables set forth, for the periods indicated, selected statement of operations data.

GLOBAL AERO LOGISTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Global Aero Logistics, Inc.
	Three Months Ended June 30,			Three Months Ended June 30,
	2006			2007
	(unaudited)			(unaudited)
Operating revenues:
Scheduled service	$	101,250		$	96,692
Charter		87,723			79,813
Other		4,782			4,159
Total operating revenues		193,755			180,664
Operating expenses:
Fuel and oil		62,092			59,107
Salaries, wages and benefits		46,870			44,058
Aircraft rentals		20,887			20,680
Flight costs		12,156			14,264
Aircraft maintenance, materials and repairs		7,106			12,394
Handling, landing and navigation fees		15,712			10,988
Selling and marketing		10,508			10,204
Depreciation and amortization		4,632			6,225
Asset impairments and aircraft retirements		—			3,023
Other		15,009			10,785
Total operating expenses		194,972			191,728
Operating loss		(1,217	)		(11,064	)
Other income (expense):
Interest income		1,774			2,202
Interest expense		(5,626	)		(6,211	)
Other		48			140
Other income (expense)		(3,804	)		(3,869	)
Loss before income taxes		(5,021	)		(14,933	)
Income taxes		—			—
Net loss	$	(5,021	)	$	(14,933	)

35

GLOBAL AERO LOGISTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Predecessor			Global Aero Logistics, Inc.
	Two Months Ended February 28,			Four Months Ended June 30, 2006			Six Months Ended June 30, 2007
				(unaudited)			(unaudited)
Operating revenues:
Scheduled service	$	53,527		$	133,226		$	172,163
Charter		58,753			116,185			160,712
Other		2,771			7,129			7,938
Total operating revenues		115,051			256,540			340,813
Operating expenses:
Fuel and oil		37,086			80,457			113,428
Salaries, wages and benefits		36,066			64,809			88,704
Aircraft rentals		16,181			27,873			41,460
Flight costs		11,488			16,901			28,861
Aircraft maintenance, materials and repairs		3,103			9,924			22,627
Handling, landing and navigation fees		8,077			19,226			25,533
Selling and marketing		7,624			14,250			18,974
Depreciation and amortization		5,219			6,147			11,773
Asset impairments and aircraft retirements		—			—			3,649
Other		10,197			21,694			23,921
Total operating expenses		135,041			261,281			378,930
Operating loss		(19,990	)		(4,741	)		(38,117	)
Other income (expense):
Interest income		397			2,365			4,026
Interest expense		(4,666	)		(7,550	)		(12,136	)
Other		(233	)		72			172
Reorganization items, net		1,456,000			—			—
Other income (expense)		1,451,498			(5,113	)		(7,938	)
Income (loss) before income taxes		1,431,508			(9,854	)		(46,055	)
Income taxes		—			—			—
Net income (loss)	$	1,431,508		$	(9,854	)	$	(46,055	)

36

Results of Operations in Cents Per ASM

The following tables set forth, for the periods indicated, operating revenues and expenses expressed as cents per available seat mile (“ASM”).

	Cents per ASM Three Months Ended June 30,				Cents per ASM Six Months Ended June 30,
	2006		2007		2006		2007
Consolidated operating revenues	9.58		8.94		9.13		8.61
Consolidated operating expenses:
Fuel and oil	3.07		2.93		2.89		2.86
Salaries, wages and benefits	2.32		2.18		2.48		2.24
Aircraft rentals	1.03		1.02		1.08		1.05
Flight Costs	0.60		0.71		0.70		0.73
Aircraft maintenance, materials, repairs	0.35		0.61		0.32		0.57
Handling, landing and navigation fees	0.78		0.54		0.67		0.64
Selling and Marketing	0.52		0.51		0.54		0.48
Depreciation and amortization	0.23		0.31		0.28		0.30
Asset impairments and aircraft retirements	0.00		0.15		0.00		0.09
Other	0.74		0.53		0.78		0.61
Total consolidated operating expenses	9.64		9.49		9.74		9.57
Consolidated operating loss	(0.06	)	(0.55	)	(0.61	)	(0.96	)
ASM's (in thousands)	2,022,602		2,020,269		4,069,139		3,959,708

37

Key Operating and Financial Data

The following tables sets forth, for the periods indicated, certain key operating and financial data for the scheduled service, military/government and commercial charter operations of the Company.

	Three months ended June 30,
	2006		2007		Inc (Dec)		% Inc (Dec)
Scheduled Service:
Departures	5,088		4,811		(277	)	(5.44	)
Block Hours	18,173		17,616		(557	)	(3.06	)
RPMs (000s) (a)	1,038,923		1,168,391		129,468		12.46
ASMs (000s) (b)	1,264,417		1,293,844		29,427		2.33
Load Factor ( c )	82.17		90.30		8.13		9.89
Passengers Enplaned (d)	682,065		706,045		23,980		3.52
Revenue $ (000s)	101,250		96,692		(4,558	)	(4.50	)
RASM in cents (e)	8.01		7.47		(0.54	)	(6.74	)
Yield in cents (f)	9.75		8.28		(1.47	)	(15.08	)
Revenue per passengers enplaned $	148.45		136.95		(11.50	)	(7.75	)
Military/Commercial Charter:
Departures	1,516		1,619		103		6.79
Block Hours	6,484		6,599		115		1.77
ASMs (000s) (b)	741,762		725,345		(16,417	)	(2.21	)
Revenue $ (000s)	87,723		79,813		(7,910	)	(9.02	)
RASM in cents (e)	11.83		11.00		(0.83	)	(7.02	)
Percentage of Consolidated Revenues:
Scheduled Service	52.3	%	53.5	%	1.2
Military/Commercial Charter	45.3	%	44.2	%	(1.1	)
	Six months ended June 30,
	2006		2007		Inc (Dec)		% Inc (Dec)
Scheduled Service:
Departures	10,641		9,549		(1,092	)	(10.26	)
Block Hours	36,413		34,855		(1,558	)	(4.28	)
RPMs (000s) (a)	1,949,824		2,086,704		136,880		7.02
ASMs (000s) (b)	2,518,893		2,481,918		(36,975	)	(1.47	)
Load Factor ( c )	77.41		84.08		6.67		8.62
Passengers Enplaned (d)	1,322,165		1,274,146		(48,019	)	(3.63	)
Revenue $ (000s)	186,753		172,163		(14,590	)	(7.81	)
RASM in cents (e)	7.41		6.94		(0.47	)	(6.34	)
Yield in cents (f)	9.58		8.25		(1.33	)	(13.88	)
Revenue per passengers enplaned $	141.25		135.10		(6.15	)	(4.35	)
Military/Commercial Charter:
Departures	2,945		3,134		189		6.42
Block Hours	13,205		13,276		71		0.54
ASMs (000s) (b)	1,519,899		1,474,596		(45,303	)	(2.98	)
Revenue $ (000s)	174,938		160,712		(14,226	)	(8.13	)
RASM in cents (e)	11.51		10.90		(0.61	)	(5.30	)
Percentage of Consolidated Revenues:
Scheduled Service	50.3	%	50.5	%	0.2
Military/Commercial Charter	47.1	%	47.2	%	0.1

38

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

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

(c) Passenger load factor is the percentage derived by dividing RPMs by ASMs.

(d) Passengers enplaned are the number of revenue passengers who occupied seats on the Company’s flights.

(e) Revenue per ASM is total operating revenue divided by total ASMs. This measure is also referred to as “RASM.” RASM measures the Company’s unit revenue using total available seat capacity.

(f) Revenue per RPM is total operating revenue divided by total RPMs. This measure is also referred to as yield.”

Operating Revenues

Total operating revenues for the three months ended June 30, 2007 decreased 6.8% to $180.7 million, as compared to $193.8 million for the three months ended June 30, 2006; and operating revenues for the six months ended June 30, 2007 decreased 8.3% to $340.8 million, as compared to $371.6 million for the six months ended June 30, 2006.

Scheduled Service Revenues.Scheduled service revenues for the three months ended June 30, 2007 decreased 4.5% to $96.7 million, as compared to $101.3 million for the three months ended June 30, 2006; and scheduled service revenues for the six months ended June 30, 2007 decreased 7.8% to $172.2 million, as compared to $186.8 million for the six months ended June 30, 2006. These decreases were primarily due to the Company experiencing lower yields in both periods of 2007 as compared to the same periods of 2006, due to a more competitive pricing environment in 2007, partially offset by higher load factors in both periods of 2007.

Military and Commercial Charter Revenues. Military and commercial charter revenues for the three months ended June 30, 2007 decreased 9.0% to $79.8 million as compared to $87.7 million for the three months ended June 30, 2006; and military and commercial charter revenues for the six months ended June 30, 2007 decreased 8.1% to $160.7 million, as compared to $174.9 million for the six months ended June 30, 2006. The Company experienced a lower revenue per ASM in both periods of 2007 as compared to the same periods of 2006, due to a change in the mix of aircraft flying.

Operating Expenses

Fuel and Oil. Fuel and oil expense decreased 4.8% to $59.1 million in the three months ended June 30, 2007, as compared to $62.1 million in the three months ended June 30, 2006; and for the six months ended June 30, 2007 fuel and oil expense decreased 3.5% to $113.4 million, as compared to $117.5 million for the six months ended June 30, 2006. For the quarter and six months ending June 30, 2007, system-wide block hours decreased by 3.1% and 3.7% respectively, compared to the same periods of 2006, resulting in a fuel and oil expense decrease of approximately $0.2 million and $2.5 million respectively, between those periods. For the three and six months ended June 30, 2007 the average cost per gallon of jet fuel consumed system-wide decreased 1.3% and increased 0.7%, respectively, resulting in $0.8 million less fuel and oil expense and $0.7 million more fuel and oil expense, respectively, as compared to the same periods of 2006.

Salaries, Wages and Benefits. Salaries, wages and benefits expense includes the cost of salaries and wages paid to the Company’s employees, together with the Company’s cost of employee benefits and payroll-related local, state and federal taxes. Salaries, wages and benefits expense for the three months ended June 30, 2007 decreased 6.0% to $44.1 million, as compared to $46.9 million for the three months ended June 30, 2006; and in the six months ended June 30, 2007 salaries, wages, and benefits decreased 12.1% to $88.7 million, as compared

39

to $100.9 million for the six months ended June 30, 2006. These decreases were mainly due to the average number of employees decreasing 11.4% and 17.2% respectively between periods, partially offset by an increase in the average employee wage.

Aircraft Rentals. Aircraft rental expense for the three months ended June 30, 2007 decreased 1.0% to $20.7 million, as compared to $20.9 million for the three months ended June 30, 2006; and in six months ended June 30, 2007, aircraft rental expense decreased 5.9%, to $41.5 million, as compared to $44.1 million for the six months ended June 30, 2006. The Company leased a comparable amount of aircraft in the three months ended June 30, 2007 and 2006. The decrease in the six months ended June 30, 2007, as compared to the same period of 2006, was mainly due to the return of five aircraft to lessors during the first quarter of 2006. The Company incurred aircraft rental expense on the aircraft for a portion of the six months ended June 30, 2006.

Flight Costs.Flight costs are primarily the cost of air transportation, hotels and per diem reimbursements to crewmembers incurred to position them away from their bases to operate Company flights throughout the world. Additionally, they include the onboard costs of meal and non-alcoholic beverage catering, the cost of alcoholic beverages and the cost of onboard entertainment programs, together with certain costs incurred for mishandled baggage and passengers inconvenienced due to flight delays or cancellations.

Flight costs for the three months ended June 30, 2007 increased 17.2% to $14.3 million, as compared to $12.2 million for the three months ended June 30, 2006; and flight costs for the six months ended June 30, 2007 increased 1.8% to $28.9 million, as compared to $28.4 million for the six months ended June 30, 2006. These increases are primarily due to increased hotel and positioning rates, partially offset by a decline in system-wide departures.

Aircraft Maintenance, Materials and Repairs.Aircraft maintenance, materials and repairs expense includes the cost of expendable aircraft spare parts, repairs to repairable and rotable aircraft components, contract labor for maintenance activities and other non-capitalized direct costs related to fleet maintenance, including spare engine leases, parts loan and exchange fees and related shipping costs. It also includes the costs incurred under hourly engine maintenance agreements the Company has on certain of its aircraft fleets. These agreements provide for the Company to pay monthly fees based on a specified rate per engine flight hour in exchange for major engine overhauls and maintenance.

Aircraft maintenance, materials, and repairs for the three months ended June 30, 2007 increased 74.7% to $12.4 million, as compared to $7.1 million for the three months ended June 30, 2006; and aircraft maintenance, materials and repairs for the six months ended June 30, 2007 increased 73.8% to $22.6 million, as compared to $13.0 million for the six months ended June 30, 2006. These increases were due to the outsourcing of maintenance inventory management and unscheduled maintenance work required on the Company’s fleet in both periods of 2007 that was not required in the same periods of 2006.

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

Handling, landing, and navigation fees for the three months ended June 30, 2007 decreased 30.0% to $11.0 million, as compared to $15.7 million for the three months ended June 30, 2006; and handling, landing, and navigation fees for the six months ended June 30, 2007 decreased 6.6% to $25.5 million, as compared to $27.3 million for the six months ended June 30, 2006, primarily due to a decline in system-wide departures in both periods of 2007, as compared to the same periods of 2006, and a change in the mix of aircraft flying.

Selling and Marketing. Selling and marketing expenses are comprised primarily of commissions on scheduled service sales by travel agents and on certain military and commercial charter flights, credit card discount expenses incurred when selling to customers using credit cards for payments, and advertising costs.

40

Selling and marketing expenses for the three months ended June 30, 2007 decreased 2.9% to $10.2 million, as compared to $10.5 million for the three months ended June 30, 2006; and selling and marketing expense for the six months ended June 30, 2007 decreased 13.2% to $19.0 million, as compared to $21.9 million for the six months ended June 30, 2006. These decreases were primarily due to the decline in scheduled service departures between both periods and less commissionable military charter flights in both periods of 2007, as compared to the same periods of 2006.

Depreciation and Amortization.Depreciation reflects the periodic expensing of the recorded cost of owned airframes and engines, leasehold improvements and rotable parts for all fleet types, together with other property and equipment owned by the Company. Depreciation and amortized expense for the three months ended June 30, 2007 increased 34.8% to $6.2 million, as compared to $4.6 million for the three months ended June 30, 2006; and depreciation and amortization expense for the six months ended June 30, 2007 increased 3.5% to $11.8 million, as compared to $11.4 million for the six months ended June 30, 2006. These increases mainly relate to engine and airframe overhauls, completed in late 2006 and the first six months of 2007, which were and are being amortized over their useful lives.

Asset impairments and aircraft retirements.On April 6, 2007, the Company entered into a letter agreement with one of its aircraft lessors to return two Boeing 737-300 aircraft earlier than the termination dates set forth in the leases. One aircraft was returned on May 25, 2007 and the other is expected to be returned in September 2007. The Company recorded a $3.0 million and $3.6 million charge for the three and six months ended June 30, 2007 to asset impairments and aircraft retirements expense related to the return of these aircraft.

Other.Other operating expense primarily includes the cost of hull and liability insurance, the cost of general insurance policies such as workers’ compensation insurance, facility and equipment rentals, technology related expenses, external professional services and other items. Other operating expense for the three months ended June 30, 2007 decreased 28.0% to $10.8 million, as compared to $15.0 million for the three months ended June 30, 2006; and other expense for the six months ended June 30, 2007 decreased 25.1% to $23.9 million, as compared to $31.9 million for the six months ended June 30, 2006. These decreases were attributable mainly to declining costs related to the Company’s restructuring, reduction in flight activity, and the exiting of leased space in certain airport locations.

Reorganization Expense.In accordance with SOP 90-7, the Company’s revenues, expenses (including professional fees), realized gains and losses and provision for losses that can be directly associated with the reorganization and restructuring of the business were reported separately as reorganization items in the consolidated statement of operations for the two months ended February 28, 2006.

The Company did not recognize reorganization expenses in the three or six months ending June 30, 2007 or the four months ending June 30, 2006, as the Company had emerged from Chapter 11 bankruptcy. For the two months ended February 28, 2006, the Company recognized the following reorganization expenses in the consolidated statement of operations:

	Two months ended February 28, 2006
	(in thousands)
Discharge of Claims	$	(1,304,653	)
Revaluation of Assets and Liabilities		(178,895	)
Aircraft and engine lease rejection charges		10,522
Other agreement and lease rejection charges		3,364
Professional fees		11,046
Interest income		(387	)
Other		3,003
Total	$	(1,456,000	)

41

The discharge of claims primarily relates to those unsecured claims arising during the bankruptcy process. In accordance with the Plan, the Company discharged its obligations to unsecured creditors in exchange for cash or shares of Class A Common Stock of New ATA Holdings.

The revaluation of assets and liabilities relates to the revaluing of the Company’s assets at their estimated fair value and liabilities at their estimated fair value or present value of amounts to be paid.

The aircraft and engine lease rejection charges are non-cash charges comprised of the Company’s estimate of claims resulting from the rejection or return of the aircraft and engines as part of the bankruptcy process. They also include the write-off of assets and liabilities related to aircraft and engine leases that the Company has rejected and returned to the lessor. The other agreement and lease rejection charges are non-cash charges that are comprised of the Company’s estimate of claims resulting from the rejection of non-aircraft agreements and leases.

Interest Expense. Interest expense for the three months ended June 30, 2007 increased 10.7% to $6.2 million, as compared to $5.6 million for the three months ended June 30, 2006; and interest expense for the six months ended June 30, 2007 decreased 0.8% to $12.1 million, as compared to $12.2 million for the six months ended June 30, 2006. The increase in the three months ended June 30, 2007, as compared to the same period of 2006, was mainly due to the recognition of interest expense related to a $28.0 million loan agreement entered into on January 16, 2007. The decrease in the six months ended June 30, 2007, as compared to the same period of 2006, resulted from the Company expensing a funding fee related to debtor-in-possession financing received in the first quarter of 2006, partially offset by interest expense recognized on the $28.0 million loan agreement in 2007.

Income Taxes.The Company did not record any income tax expense or benefit in the three months or the six months ended June 30, 2007 applicable to its pre-tax losses of $14.9 million and $46.1 million respectively, nor did it record any income tax expense or benefit in the three months or the six months ended June 30, 2006 applicable to its pre-tax loss of $5.0 million and pre-tax income of $1.422 billion respectively. The Company has recorded a full valuation allowance against its net deferred tax asset.

Ten Months Ended December 31, 2006 Compared to Ten Months Ended December 31, 2005

Results of Operations in Cents Per ASM

The following tables set forth, for the periods indicated, our operating revenues and expenses expressed as cents per ASM.

	Cents per ASM Ten Months Ended December 31
	2005		2006
Consolidated operating revenues	8.52		9.36
Consolidated operating expenses:
Fuel and oil	2.54		2.98
Salaries, wages and benefits	2.09		2.22
Aircraft rentals	1.11		1.02
Flight costs	0.64		0.78
Handling, landing and navigation fees	0.66		0.71
Selling and marketing	0.51		0.54
Aircraft maintenance, materials and repairs	0.33		0.43
Depreciation and amortization	0.27		0.26
Asset impairments and aircraft retirements	0.00		0.20
Other	0.76		0.59
Total consolidated operating expenses	8.91		9.73
Consolidated operating income (loss)	(0.39	)	(0.37	)
Total
ASMs (000s)	10,520,439		6,804,230

42

Key Operating and Financial Data

The following table sets forth, for the periods indicated, certain key operating and financial data for us.

	Ten Months Ended December 31,						Change			Change (%)
Scheduled Service:	2005			2006
Departures		37,428			17,085			(20,343	)	(54.35	)
Block Hours		102,084			61,171			(40,913	)	(40.08	)
RPMs (000s) (a)		5,545,854			3,477,503			(2,068,351	)	(37.30	)
ASMs (000s) (b)		7,500,735			4,265,534			(3,235,201	)	(43.13	)
Load Factor (c)		73.94			81.53			7.59		10.27
Passengers Enplaned (d)		4,442,602			2,226,307			(2,216,295	)	(49.89	)
Revenue (000s)	$	526,435		$	332,255		$	(194,180	)	(36.89	)
RASM in cents (e)		7.02			7.79			0.77		10.97
Yield in cents (f)		9.49			9.55			0.06		0.63
Revenue per passenger enplaned	$	118.50		$	149.24		$	30.74		25.94
Military/Commercial Charter:
Departures		5,574			5,202			(372	)	(6.67	)
Block Hours		25,748			22,384			(3,364	)	(13.07	)
ASMs (000s) (b)		2,983,894			2,503,921			(479,973	)	(16.09	)
Revenue (000s)	$	333,081		$	288,256		$	(44,825	)	(13.46	)
RASM in cents (e)		11.16			11.51			0.35		3.14
RASM excluding fuel escalation (g)		10.82			11.33			0.51		4.71
Percentage of Consolidated Revenues:
Scheduled Service		58.7	%		52.2	%		(6.5	)
Military/Commercial Charter		37.2	%		45.3	%		8.0

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

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

(c) Passenger load factor is the percentage derived by dividing RPMs by ASMs.

(d) Passengers enplaned are the number of revenue passengers who occupied seats on our flights.

(e) Revenue per ASM (expressed in cents), or RASM, is total operating revenue divided by total ASMs. RASM measures our unit revenue using total available seat capacity.

(f) Revenue per RPM (expressed in cents), or yield, is total operating revenue divided by total RPMs.

(g) The military assumes an average fuel price for each contract year. If actual fuel prices differ from the contract rate, revenues are adjusted up or down to neutralize the impact on us. Certain commercial charter contracts also provide for reimbursement to us for certain fuel costs.

Operating Revenues

Total operating revenues for the ten months ended December 31, 2006 decreased 28.9% to $637.1 million, as compared to $896.5 million for the ten months ended December 31, 2005.

Scheduled Service Revenues.Scheduled service revenues for the ten months ended December 31, 2006 decreased 36.9% to $332.3 million, as compared to $526.4 million for the ten months ended December 31, 2005. The decrease in revenues was mainly due to our returning 26 jet aircraft, or 49% of our total aircraft fleet, to lessors between March 1, 2005 and December 31, 2006 as part of our reorganization.

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Military and Commercial Charter Revenues. Military and commercial charter revenues for the ten months ended December 31, 2006 decreased 13.4% to $288.3 million, as compared to $333.1 for the ten months ended December 31, 2005. The decrease in revenues was mainly the result of our continuing retirement of Lockheed L-1011 aircraft, partially offset by our utilization of additional narrow-body aircraft on military and commercial charters.

Operating Expenses

Fuel and Oil. Fuel and oil expense for the ten months ended December 31, 2006 decreased 24.1% to $202.6 million, as compared to $267.1 million for the ten months ended December 31, 2005. For the ten months ended December 31, 2006, system-wide block hours decreased by 34.5% as compared to the ten months ended December 31, 2005, resulting in a decrease in fuel and oil expense of approximately $94.1 million between these periods. This decrease was partially offset by an increase in the average cost per gallon of jet fuel. For the ten months ended December 31, 2006, the average cost per gallon of jet fuel consumed increased by 16.3% compared to the ten months ended December 31, 2005, resulting in an increase in fuel and oil expense of approximately $28.3 million between periods. We also benefited from fuel reimbursement clauses and guarantees in our military/government and commercial charter contracts, as well as bulk scheduled service, but the benefit of these price guarantees was accounted for as revenue when realized during these periods.

Salaries, Wages and Benefits. Salaries, wages and benefits expense for the ten months ended December 31, 2006 decreased 31.3% to $150.9 million, as compared to $219.8 million for the ten months ended December 31, 2005. This decrease was mainly due to our average number of employees decreasing 40.0% between periods, partially offset by an increase in benefits expenses per employee between periods.

Aircraft Rentals.Aircraft rentals expense for the ten months ended December 31, 2006 decreased 40.6% to $69.4 million, as compared to $116.9 million for the ten months ended December 31, 2005. This decrease was mainly due to our returning 26 jet aircraft to lessors between March 1, 2005 and December 31, 2006 as part of our reorganization.

Flight Costs.Flight costs for the ten months ended December 31, 2006 decreased 22.1% to $52.8 million, as compared to $67.8 million for the ten months ended December 31, 2005. This decrease was due primarily to the decrease in system-wide jet departures of 45.7% between periods, partially offset by an increase in crewmember hotel and positioning costs primarily associated with military flying.

Handling, Landing and Navigation Fees.Handling, landing and navigation fees for the ten months ended December 31, 2006 decreased by 30.3% to $48.6 million, as compared to $69.7 million for the ten months ended December 31, 2005. This decrease was due primarily to a 45.7% decrease in system-wide jet departures between periods, partially offset by an increase in costs per departure for handling and landing between periods due mainly to less frequent flying to scheduled service stations.

Selling and Marketing.Selling and marketing expenses for the ten months ended December 31, 2006 decreased 31.9% to $36.5 million, as compared to $53.6 million for the ten months ended December 31, 2005. This decrease was primarily due to the decline in scheduled service activity between periods.

Aircraft Maintenance, Materials and Repairs.Aircraft maintenance, materials and repairs expense for the ten months ended December 31, 2006 decreased 15.9% to $29.1 million, as compared to $34.6 million for the ten months ended December 31, 2005. This decrease was due to the rejection by us of hourly engine maintenance agreements related to our Boeing 757-200 and Boeing 757-300 aircraft in the first half of 2005. This decrease was partially offset by outsourcing of maintenance activities and unscheduled maintenance work required on the Lockheed L-1011 fleet in 2006 that was not required in 2005.

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Depreciation and Amortization.Depreciation and amortization expense for the ten months ended December 31, 2006 decreased 38.1% to $17.4 million, as compared to $28.1 million for the ten months ended December 31, 2005, due mainly to the reduction of certain aircraft parts and the revaluation of assets as part of our application of fresh-start accounting under American Institute of Certified Public Accountants Statement of Position No. 90-7,Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, or SOP 90-7, in 2006.

Asset Impairments and Aircraft Retirement.In November 2006, we executed an agreement to purchase seven McDonnell Douglas DC-10-30 aircraft from a third party, along with associated engines and two spare airframes. The DC-10s will go into service throughout 2007 and we expect to hold the Lockheed L-1011 fleet as operational spares while transitioning to the DC-10 fleet. Beyond the fourth quarter of 2007, we have no revenue commitments for use of Lockheed L-1011 time. In accordance with Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, or FAS 144, we determined that the estimated future undiscounted cash flows expected to be generated by the Lockheed L-1011 fleet were less than the current net book value of these aircraft and the related rotable parts and inventory. In 2006, we recorded an asset impairment charge of $13.5 million to reduce the carrying amount of the Lockheed L-1011 aircraft and related assets to their estimated fair market value. In 2005, we recorded an asset charge of $0.2 million related to the remaining net book value of our Boeing 727-200 aircraft.

Other Operating Expense.Other operating expense for the ten months ended December 31, 2006 decreased 48.5% to $41.0 million, as compared to $79.6 million for the ten months ended December 31, 2005. This decrease was attributable mainly to declining costs related to our reduction in fleet size and our exiting leased space in certain airport locations.

Reorganization Expense.In accordance with SOP 90-7, our revenues, expenses (including professional fees), realized gains and losses and provision for losses that can be directly associated with the reorganization and restructuring of the business were reported separately as reorganization items in the consolidated statement of operations for 2005.

We did not recognize reorganization expenses for the ten months ended December 31, 2006 as we had emerged from Chapter 11 bankruptcy. For the ten months ended December 31, 2005, we recognized the following reorganization expenses in the consolidated statement of operations:

	Ten months ended December 31, 2005
	(in thousands)
Aircraft and engine lease rejection charges	$	138,180
Other agreement and lease rejection charges		39,240
ALPA claim		128,850
Impairment of assets held for sale		10,799
Aircraft impairment		18,347
Professional fees		23,761
Interest income		(2,107	)
Goodwill impairment		—
Other		6,741
Total	$	363,811

The aircraft and engine lease rejection charges are non-cash charges comprised of our estimate of claims resulting from the rejection or return of the aircraft and engines as part of the bankruptcy process. They also include our write-off of assets and liabilities related to aircraft and engine leases that we have rejected and returned to the lessor. The other agreement and lease rejection charges are non-cash charges that are comprised of our estimate of claims resulting from the rejection of non-aircraft agreements and leases.

45

The ALPA claim includes an unsecured pre-petition claim against us by the Air Line Pilots Association, or ALPA, for the benefit of its members in the total amount of $128.9 million. On September 28, 2005, the cockpit crewmembers voted to ratify a new collective bargaining agreement effective October 1, 2005, which included, among other things, wage and benefit concessions and the pre-petition claim. The Bankruptcy Court approved the claim on October 12, 2005.

The impairment of assets held for sale is a non-cash charge related to the discontinuance of the operations of C8 Airlines, Inc. (f/k/a Chicago Express Airlines, Inc.), or C8, and the sale of certain related assets. The aircraft impairment charge is related to repairable and rotable parts related to our Boeing 757-200, Boeing 757-300 and Boeing 737-800 fleets. We conducted an impairment review on these parts in 2005 based on impairment indicators under FAS 144.

Interest Expense.Interest expense for the ten months ended December 31, 2006 increased 250% to $18.2 million, as compared to $5.2 million for the ten months ended December 31, 2005. In accordance with SOP 90-7, following our Chapter 11 filing, we did not record interest expense with respect to pre-petition unsecured debt or secured debt in which the collateral value was less than the principal amount of the debt in 2005. Upon emergence from bankruptcy on February 28, 2006, we began recording interest expense on our post-emergence outstanding debt.

Income Taxes.We did not record any income tax expense or benefit for the ten months ended December 31, 2006 applicable to our pre-tax loss of $36.5 million for that period, nor did we record any income tax expense or benefit for the ten months ended December 31, 2005 applicable to our pre-tax loss of $408.3 million for that period. We have recorded a full valuation allowance against our net deferred tax asset.

Fiscal Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31, 2004

Results of Operations in Cents Per ASM

The following table sets forth, for the periods indicated, operating revenues and expenses expressed as cents per available seat mile.

	Cents per ASM Fiscal Year Ended December 31,
	2004		2005
Consolidated operating revenues	7.21		8.18
Consolidated operating expenses:
Fuel and oil	1.73		2.41
Salaries, wages and benefits	1.99		2.11
Aircraft rentals	1.14		1.11
Flight costs	0.47		0.62
Handling, landing and navigation fees	0.56		0.67
Selling and marketing	0.52		0.49
Aircraft maintenance, materials and repairs	0.35		0.34
Depreciation and amortization	0.24	��	0.27
Asset impairments and aircraft retirements	0.04		0.00
Other	0.64		0.76
Total consolidated operating expenses	7.68		8.78
Consolidated operating income (loss)	(0.47	)	(0.60	)
ASMs (000s)	21,242,000		13,360,194

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Key Operating and Financial Data

The following table sets forth, for the periods indicated, certain key operating and financial data.

	Fiscal Year Ended December 31,
	2004			2005			Change			Change (%)
Scheduled Service:
Departures		130,338			51,693			(78,645	)	(60.34	)
Block Hours		276,287			134,701			(141,586	)	(51.25	)
RPMs (000s) (a)		12,728,760			6,783,054			(5,945,706	)	(46.71	)
ASMs (000s) (b)		17,450,098			9,610,306			(7,839,792	)	(44.93	)
Load Factor (c)		72.94			70.58			(2.36	)	(3.24	)
Passengers Enplaned (d)		11,190,961			5,493,998			(5,696,963	)	(50.91	)
Revenue (000s)	$	1,099,944		$	635,232		$	(464,712	)	(42.25	)
RASM in cents (e)		6.30			6.61			0.31		4.92
Yield in cents (f)		8.64			9.36			0.72		8.33
Revenue per passenger enplaned	$	98.29		$	115.62		$	17.33		17.63
Military/Commercial Charter:
Departures		7,366			7,015			(351	)	(4.77	)
Block Hours		32,520			32,460			(60	)	(0.18	)
ASMs (000s) (b)		3,755,547			3,711,171			(44,376	)	(1.18	)
Revenue (000s)	$	358,870		$	408,714		$	49,844		13.89
RASM in cents (e)		9.56			11.01			1.45		15.17
RASM excluding fuel escalation (g)		9.16			10.74			1.58		17.25
Percentage of Consolidated Revenues:
Scheduled Service		71.8	%		58.2	%		(13.6	)
Military/Commercial Charter		23.4	%		37.4	%		14.0

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

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

(c) Passenger load factor is the percentage derived by dividing RPMs by ASMs.

(d) Passengers enplaned are the number of revenue passengers who occupied seats on our flights.

(e) Revenue per ASM (expressed in cents), or RASM, is total operating revenue divided by total ASMs. RASM measures our unit revenue using total available seat capacity.

(f) Revenue per RPM (expressed in cents), or yield, is total operating revenue divided by total RPMs.

(g) The military assumes an average fuel price for each contract year. If actual fuel prices differ from the contract rate, revenues are adjusted up or down to neutralize the impact on us. Certain commercial charter contracts also provide for reimbursement to us for certain fuel costs.

Operating Revenues

Our total operating revenues for the year ended December 31, 2005 decreased 28.8% to $1.092 billion, as compared to $1.533 billion for the year ended December 31, 2004.

Scheduled Service Revenues.Scheduled service revenues for the year ended December 31, 2005 decreased 42.3% to $635.2 million, as compared to $1.1 billion for the year ended December 31, 2004, consistent with the decline in ASMs. During 2005, we returned 33 jet aircraft to lessors as part of our reorganization under

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Chapter 11. Approximately 51.1% of our scheduled service capacity was generated by flights either originating or terminating at Chicago-Midway in 2005, as compared to 64.8% in 2004. The Hawaiian market generated approximately 31.1% of scheduled service capacity in 2005, as compared to 14.9% in 2004. Another 13.4% of scheduled service capacity was generated in the Indianapolis market in 2005, as compared to 14.7% in 2004. On January 9, 2006, we suspended scheduled service to and from Indianapolis.

Military and Commercial Charter Revenues. Military and commercial charter revenues for the year ended December 31, 2005 increased 13.9% to $408.7 million, as compared to $358.9 million for the year ended December 31, 2004. Military charter revenues increased due to increased demand and a change in the mix of aircraft flying as narrow body aircraft, which result in a higher yield, continued to replace retired wide-body aircraft. Offsetting this increase was a less significant decrease in commercial charter revenues due primarily to the retirement of certain Lockheed L-1011 aircraft that we traditionally used in commercial charter flying.

Operating Expenses

Fuel and Oil.Fuel and oil expense for the year ended December 31, 2005 decreased 12.5% to $322.1 million in 2005, as compared to $368.3 million for the year ended December 31, 2004. During 2005, system-wide block hours decreased by 45.8% compared to 2004, resulting in a decrease in fuel and oil expense of approximately $136.2 million between periods. This decrease was partially offset by an increase in the average cost per gallon of jet fuel. During 2005, the average cost per gallon of jet fuel consumed increased by 37.8% compared to 2004, resulting in an increase in fuel and oil expense of approximately $91.4 million between periods. We also benefited from fuel reimbursement clauses and guarantees in its military/government and commercial charter contracts, as well as bulk scheduled service, which were recorded as revenue.

Salaries, Wages and Benefits.Salaries, wages and benefits expense for the year ended December 31, 2005 decreased 33.3% to $281.8 million, as compared to $422.4 million for the year ended December 31, 2004, consistent with the average number of our full-time equivalent employees decreasing by approximately 35.4% between periods. On September 28, 2005, the cockpit crewmembers, who are represented by ALPA, voted to ratify a new three-year collective bargaining agreement that became effective October 1, 2005 and amendable on September 30, 2008. Under the new agreement, the cockpit crewmembers agreed to an 18% reduction in wages until January 1, 2007, modifications to the Cockpit Crewmember Money Purchase Plan and conversion to a new health insurance plan. The new agreement also provides the cockpit crewmembers with additional future wage compensation and incentives, as well as stock options representing 4% of our common stock.

In October 2004, we and our cabin crewmembers who are represented by the Association of Flight Attendants, or AFA, executed an amendment to the AFA agreement. Under the amended AFA agreement, the cabin crewmembers agreed to reduce their base hourly pay rate by 10% for the period from October 15, 2004 through October 15, 2006.

Aircraft Rentals.Aircraft rentals expense for the year ended December 31, 2005 decreased 38.7% to $148.6 million, as compared to $242.6 million for the year ended December 31, 2004. This decrease was partially attributable to the renegotiation of aircraft lease rates related to Boeing 757-300 and Boeing 757-200 aircraft after we filed for bankruptcy protection. In addition, during 2005, we returned 33 jet aircraft to lessors as part of our reorganization.

Flight Costs.Flight costs for the year ended December 31, 2005 decreased 18.0% to $82.2 million, as compared to $100.3 million for the year ended December 31, 2004. This decrease was mainly attributable to the decrease in scheduled service activity between periods, partially offset by an increase in military/government activity during 2005. Military flying requires more crew positioning costs and passengers on these flights require a more expensive catering product.

Handling, Landing and Navigation Fees.Handling, landing and navigation fees for the year ended December 31, 2005 decreased by 25.5% to $89.4 million, as compared to $120.0 million for the year ended

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December 31, 2004. This decrease was due primarily to a 38.1% decrease in system-wide jet departures between periods, partially offset by an increase in costs per departure for handling and landing between periods, mainly due to less frequent flying to scheduled service stations.

Selling and Marketing.Selling and marketing expenses for the year ended December 31, 2005 decreased 40.5% to $66.1 million, as compared to $111.0 million for the year ended December 31, 2004. This decrease was primarily due to the decline in scheduled service activity between periods.

Aircraft Maintenance, Materials and Repairs.Aircraft maintenance, materials and repairs expense for the year ended December 31, 2005 decreased 40.3% to $44.8 million, as compared to $75.0 million for the year ended December 31, 2004. This decrease was due primarily to the rejection by us of hourly engine maintenance agreements related to our Boeing 757-200 and Boeing 757-300 aircraft in the first half of 2005. This decrease was also due to our having a smaller aircraft fleet in 2005 as compared to 2004.

Depreciation and Amortization. Depreciation and amortization expense for the year ended December 31, 2005 decreased 30.2% to $36.3 million, as compared to $52.0 million for the year ended December 31, 2004. In the fourth quarter of 2004, we recorded a significant impairment charge against our L1011-500 fleet. As a result, the fleet’s depreciable value in 2005 was considerably less than its depreciable value in 2004. At the same time, the depreciable life of the fleet was shortened to reflect the most current planned fleet retirement schedule. In addition, depreciation expense in 2005 decreased as compared to 2004 as assets associated with furniture and fixtures, computer hardware and software, equipment and buildings became fully depreciated.

Asset Impairments and Aircraft Retirements.We began performing impairment reviews on our 727-200 fleet in 2000 and the fleet became impaired in 2001, subsequent to the terrorist attacks of September 11. We continue to monitor current fair market values of previously impaired assets. In 2004, we recorded an asset impairment charge of $7.9 million against our investment in BATA Leasing LLC, or BATA, a joint venture with The Boeing Company that leases 727-200 aircraft as freighters to third parties.

Other Operating Expense.Other operating expense for the year ended December 31, 2005 decreased 23.4% to $102.0 million, as compared to $133.2 million for the year ended December 31, 2004. This decrease was primarily attributable to exiting or reducing lease space in certain airport locations, the reduction of fleet size and the reduction of the workforce as part of our restructuring.

Reorganization Expenses.In accordance with SOP 90-7, our revenues, expenses (including professional fees), realized gains and losses and provision for losses that can be directly associated with the reorganization and restructuring of our business are reported separately as reorganization items in the consolidated statement of operations.

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For the years ended December 31, 2005 and December 31, 2004, we recognized the following reorganization expenses in the consolidated statement of operations:

	Fiscal Year Ended December 31,
	2004			2005
	(in thousands)
Aircraft lease rejection charges	$	568,317		$	140,969
Other agreement and lease rejection charges		—			39,240
ALPA claim		—			128,850
Impairment of assets held for sale		—			10,799
Aircraft and related parts impairment charges		44,499			18,347
Professional fees		8,747			27,895
Interest income		(275	)		(2,532	)
Goodwill impairment		6,399			4,576
Other		10,792			1,488
Total	$	638,479		$	369,632

The aircraft and engine lease rejection charges are non-cash charges comprised of our estimate of claims resulting from the rejection or return of the aircraft and engines as part of the bankruptcy process. They also include the write-off of assets and liabilities related to aircraft and engine leases that we have rejected, committed to return dates with the lessor or intended to reject as of December 31, 2005. The other agreement and lease rejection charges are non-cash charges that are comprised of our estimate of claims resulting from the rejection of non-aircraft agreements and leases.

The ALPA claim includes an unsecured pre-petition claim against us by ALPA for the benefit of its members in the total amount of $128.9 million. On September 28, 2005, the cockpit crewmembers voted to ratify a new collective bargaining agreement effective October 1, 2005, which included, among other things, wage and benefit concessions and the pre-petition claim. The Bankruptcy Court approved the claim on October 12, 2005.

The impairment of assets held for sale is a non-cash charge related to the discontinuance of C8 operations and the sale of certain related assets.

Interest Expense. Interest expense for the year ended December 31, 2005 decreased 87.9% to $6.2 million, as compared to $51.1 million for the year ended December 31, 2004. In accordance with SOP 90-7, following our Chapter 11 filing, we did not record interest expense with respect to pre-petition unsecured debt or secured debt in which the collateral value was less than the principal amount of the debt.

Loss on Extinguishment of Debt.On January 30, 2004, we completed exchange offers and issued Senior Notes due 2009 (“2009 Notes”) and cash consideration for certain of our $175.0 million 10 ¹/2% Senior Notes due August 2004 (“2004 Notes”) and issued Senior Notes due 2010 (“2010 Notes”) and cash consideration for certain of our $125.0 million 9 5/8% Senior Notes due December 2005 (“2005 Notes”). We issued $163.1 million in aggregate principal amount of 2009 Notes and delivered $7.8 million in cash in exchange for $155.3 million in aggregate principal amount of 2004 Notes tendered. We also issued $110.2 million in aggregate principal amount of 2010 Notes and delivered $5.2 million in cash in exchange for $105.0 million in aggregate principal of 2005 Notes tendered. As a result of these transactions, we recorded a non-operating loss on extinguishment of debt of $27.3 million in the first quarter of 2004 in accordance with FASB Emerging Issues Task Force Issue No. 96-19,Debtor’s Accounting for Modification of Exchange of Debt Terms. The loss mainly related to the accounting for the $13.0 million cash consideration paid at the closing of the exchange offers and the $13.0 million of incremental notes issued during the exchange offers.

Income Taxes.We did not record any income tax expense or benefit for the year ended December 31, 2005 applicable to our pre-tax loss of $455.6 million for that period, nor did we record any income tax expense or

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benefit for the year ended December 31, 2004 applicable to our pre-tax loss of $815.7 million for that period. We have recorded a full valuation allowance against our net deferred tax asset.

Liquidity and Capital Resources

Predecessor Bankruptcy. In the fourth quarter of 2004, ATA Holdings Corp. (“Holdings”) and seven of its subsidiaries, including ATA, C8 and Ambassadair Travel Club, Inc. (“Ambassadair”), filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Indiana.

Holdings, ATA, American Trans Air ExecuJet, Inc. (“ExecuJet”), ATA Cargo, Inc. (“ATA Cargo”) and ATA Leisure Corp. (“Leisure”) received an order approving the Amended Joint Chapter 11 Plan for the Reorganizing Debtors as immaterially modified (the “Plan”) on January 31, 2006. The Plan became effective on February 28, 2006 (the “Effective Date”). Holdings did not reorganize and, prior to the Effective Date, a new holding company, Global Aero Logistics Inc. (f/k/a New ATA Holdings Inc.), was formed. ATA Cargo and Leisure were merged into the Company prior to the Effective Date. Holdings dissolved in mid-2006. The Chapter 11 cases of Ambassadair, Amber Travel, Inc. and C8 continue separately.

The Plan provided for the full payment pursuant to the Bankruptcy Code of all allowed administrative and priority claims, and provided for the restructuring of the loan agreement with, and the allowed secured loan indebtedness claim of, the Air Transportation Stabilization Board and other lenders (collectively, the “ATSB Loan Lenders”). Holders of general unsecured claims of $1.0 million or less were approved to be paid a pro rata share, based on 1.0% recovery, up to a maximum total payout of $1.5 million. Holders of general unsecured claims over $1.0 million recovered an estimated 0.7% of their respective claims in shares and warrants of New ATA Holdings, based on the Company’s value as estimated in the Plan. There were no material unresolved claims as of June 30, 2007.

Liquidity. As of June 30, 2007, the Company had unrestricted cash of $58.0 million and a restricted cash balance of $24.6 million, which primarily secures letters of credit. In addition, the Company had $75.7 million of cash on advance scheduled service ticket sales held by credit card processors until service is provided. The Company had no revolving credit facility and had no funds available through other unused financing options. The Company expects that cash generated by operations will be sufficient to fund operations during the next twelve months.

In the six months ended June 30, 2007, net cash used in operating activities was $25.3 million mainly related to the Company’s operating loss for the period, partially offset by an increase in advanced scheduled service ticket sales for future flights.

Net cash used in investing activities in the six months ending June 30, 2007 was $9.8 million, which mainly consisted of capital expenditures.

Net cash provided by financing activities for the six months ending June 30, 2007 was $30.9 million, which mainly consisted of the receipt of $28.0 million under a loan agreement with MatlinPatterson and a reduction in restricted cash used to collateralize letters of credit due to a reduction in the amount of required letters of credit.

On April 5, 2007, the Company entered into an agreement and plan of merger with Hugo Acquisition Corp., a Delaware corporation and the Company’s wholly owned subsidiary, and World Air Holdings, Inc. (“World”), a Delaware corporation, whereby Hugo Acquisition Corp. will merge with and into World, with World as the surviving corporation and the Company’s indirect wholly owned subsidiary. The board of directors of each company unanimously approved the merger agreement. The stockholders of World Air Holdings approved adoption of the merger agreement on July 18, 2007. On August 14, 2007, the merger transaction was consummated. Each outstanding share of common stock of World was converted into the right to receive $12.50 in cash, resulting in an

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aggregate purchase price of approximately $313 million. World has two airline subsidiaries: World Airways, Inc. and North American Airlines, Inc. Following the consummation of the merger, the Company will operate three independent airlines under one umbrella: World Airways, North American Airlines and ATA Airlines.

In order to fund the acquisition of World pursuant to the merger agreement, on August 14, 2007, the Company’s subsidiary, New ATA Acquisition Inc., entered into a $340.0 million senior secured payment-in-kind (PIK) term loan agreement with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Term Loan”), which matures one year from the date of issuance, and bears interest annually at LIBOR, plus a margin. The Company expects the Term Loan to be converted into notes due in 2015. The Term Loan is secured by a significant portion of the Company’s unencumbered assets. The issuers of the Term Loan received approximately 2.3 million warrants with an exercise price of $0.01 per share immediately exercisable. In addition, the Company issued $161.1 million of Series A Preferred Convertible Stock (the “Series A preferred stock”) to MatlinPatterson with an annual cumulative dividend rate of 16.0% payable in common stock upon conversion. The Series A preferred stock is convertible into approximately 11.5 million shares of common stock at a price of $14 per share which is subject to periodic adjustments to protect against dilution (the “Conversion Price”). Upon conversion of the Series A preferred stock to common stock (the “Conversion Shares”), MatlinPatterson is required to complete a rights offering to common stock holders of the Company’s common stock to purchase a pro rata share of the Conversion Shares at a price per share equal to the Conversion Price.

On August 14, 2007, using funds from the Term Loan and Series A preferred stock, the Company paid off a $81.6 million loan, including accrued interest and a prepayment premium, which was partially guaranteed by Air Transportation Stabilization Board. In addition, the Company paid off its two loans from MatlinPatterson totaling $54.3 million, including accrued interest.

The Company expects to realize a significant increase in interest expense in future periods as a result of entering into the Term Loan agreement.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with generally accepted accounting principles requires management to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. Certain significant account policies used in the preparation of the financial statements require management to make difficult, subjective or complex judgments and are considered critical accounting policies by us. We have identified the following areas as critical accounting policies.

Revenue Recognition.Passenger revenue derived from ticket sales is recognized when transportation is provided. Passenger ticket sales for which transportation has not yet been provided are recorded as air traffic liability. The balance of the air traffic liability fluctuates throughout the year based on seasonal travel patterns and fare changes. Tickets that are sold but not flown on the scheduled travel date can be exchanged and reused for another flight, up to the date of sale, or can be refunded if the ticket is sold under a refundable tariff. A small percentage of tickets (or partially used tickets) expire unused. Revenue from unused tickets is recognized upon the expiration of the ticket.

Fresh-Start Reporting.In accordance with SOP 90-7, we adopted fresh-start reporting as of the Effective Date. Fresh-start reporting required us to value our assets and liabilities at their estimated fair value in accordance with FASB Statement of Financial Accounting Standards No. 141,Business Combinations, or FAS 141. The fair values of assets and liabilities represent our best estimates.

Accounting for Long-Lived Assets. As of December 31, 2006, we have $89.9 million of net property and equipment and $51.6 million of definite-lived net intangible assets on our balance sheet. Generally, property and equipment is depreciated to residual values over their estimated useful service lives using the straight-line method. Leasehold improvements and rotable parts related to our aircraft are depreciated over the period of

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benefit or the terms of the related leases, whichever is less. Properties under capital lease are amortized on a straight-line basis over the life of the lease. Our facilities and ground equipment are generally depreciated over lives of three to seven years. Definite-lived intangible assets are amortized on a straight-line basis over the estimated lives of the related assets.

In accordance with FASB Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, or FAS 144, we evaluate our long-lived assets, including definite lived intangible assets, for impairment when events or changed in circumstances indicate that the book value of the asset may not be recoverable. In testing for impairment, FAS 144 requires the undiscounted estimated future cash flows from the expected use of those assets to be compared to their net book value to determine if impairment is indicated. FAS 144 requires that assets deemed impaired be written down to their estimated fair value through a charge to earnings. Fair values may be estimated using discounted cash flow analysis or quoted market prices, together with other available information. The application of FAS 144 requires the exercise of significant judgment and the preparation of numerous significant estimates.

Stock-Based Compensation. Upon emergence from Chapter 11 bankruptcy, we adopted share-based compensation plans for our officers and key employees, including our board of directors (“Management Plans”), and for cockpit crewmember employees (the “ALPA Plan”). Options under both the Management Plans and the ALPA Plan were granted with an exercise price not less that the market price at the grant date. None of our grants include performance-based or market-based vesting conditions. We account for these plans in accordance with FASB Financial Accounting Standards No. 123 (Revised 2004),Share-Based Payment, or FAS 123R. FAS 123R requires companies to measure the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of the awards.

We estimate the fair value of stock option awards on the date of grant utilizing a modified Black-Scholes option-pricing model. Utilizing this method requires us to make assumptions, some of which are subjective, including risk-free interest rate, stock price volatility and expected life of the options.

The risk-free rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. Stock price volatility assumptions were based on historical volatilities of comparable airlines whose shares are traded using weekly stock price returns equivalent to the contracts term of the option. The expected life of the options was determined based upon a simplified assumption that the options will be exercised evenly from vesting to expiration under the transitional guidance of Staff Accounting Bulletin No. 107, Topic 14,Shared-Based Payments.

As of December 31, 2006, we had $5.1 million of total unrecognized compensation costs related to share-based compensation arrangements. We expect to recognize this expense over a weighted-average period of 2.38 years.

Off-Balance Sheet Arrangements

Debt and Operating Lease Cash Payment Obligations.The Company finances most of its aircraft with leases. In accordance with GAAP, the Company does not include assets and obligations associated with operating leases in its consolidated balance sheet. The following table summarizes the Company’s material contractual obligations and commitments and their currently scheduled impact on liquidity and cash flows as of June 30, 2007.

	Cash Payments Currently Scheduled
	Total As of 6/30/07		Q3-Q4 2007		2008		2009		2010 - 2011		After 2011
	(in thousands)
Current and long-term debt	$	140,168	$	9,617	$	68,188	$	55,479	$	236	$	6,648
Capital leases		73,800		2,700		5,400		5,400		10,800		49,500
Operating leases (1)		961,305		43,280		89,396		87,735		170,854		570,040
Total contractual cash obligations	$	1,175,273	$	55,597	$	162,984	$	148,614	$	181,890	$	626,188

(1) Amounts include estimated lease payments related to the Company’s expected acquisition of seven McDonnell Douglas DC-10-30 aircraft in 2007.

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The Company is secondarily liable for gates and a hangar facility at Chicago Midway Airport assigned to Southwest. This position has been interpreted as a guaranty that is accounted for in accordance with FIN 45. In accordance with FIN 45, the Company estimates the maximum potential amount of future payments (undiscounted) that could be required under this guaranty to be approximately $13.4 million as of June 30, 2007. However, the Company has estimated the fair value of the guaranty as of June 30, 2007 to be minimal due to the remote likelihood that the Company would be required to perform under the obligation and the mitigating steps that could be taken to eliminate the liability if such a need arose.

Inflation

To date, inflation has not had a significant effect on our operations.

Seasonality

Our scheduled service operations are seasonal by nature, with peak activity occurring during the Spring and Summer holiday seasons. This typically results in a decline in demand for these services in the first and fourth quarters of our fiscal year.

Quantitative and Qualitative Disclosures About Market Risk

We are subject to certain market risks, including commodity price risk resulting from aircraft fuel price fluctuations and interest rate risk. The adverse effects of potential changes in these market risks are discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions management might take to mitigate the adverse impact of such changes on us. See the notes to our consolidated financial statements for a description of our accounting policies and other information related to these financial instruments.

Aircraft Fuel Prices. Our results of operations are impacted by changes in the price of aircraft fuel. For the ten months ended December 31, 2006, aircraft fuel accounted for approximately 30.6% of our operating expenses. For the year ended December 31, 2005, aircraft fuel accounted for approximately 27.4% of our operating expenses, as compared to 22.6% for the year ended December 31, 2004. We obtain fuel price fluctuation protection in our military charter business. The military contract includes a fuel reconciliation process whereby the military compensates us to the extent fuel costs exceed a fixed price, and we reimburse the military to the extent fuel costs are below this fixed price. We also include fuel escalation clauses in certain commercial charter and bulk scheduled service contracts.

Market risk is estimated as a hypothetical 10% increase in the average 2006 cost per gallon of fuel system-wide. Based on projected fuel usage for the 12 months following December 31, 2006, such a change would result in an increase in aircraft fuel expense of approximately $26.5 million. This estimate does not include protection from fuel reimbursement clauses and guarantees in our military/governmental and commercial charter contracts.

Interest Rates.Our results of operations are affected by fluctuations in market interest rates. As of December 31, 2006, the majority of our variable-rate debt was comprised of a $79.3 million secured loan, partially guaranteed by the ATSB, and a $23.3 million emergence financing loan. As of December 31, 2005, our variable-rate debt consisted of debtor-in-possession financing from Southwest for $21.0 million.

Holding other variables constant (such as debt levels), a one-hundred basis point change in interest rates on our variable-rate debt as of December 31, 2006 would be expected to have an impact on net income and cash flows of approximately $1.0 million. As of December 31, 2005, that risk was $0.2 million.

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ITEM 3. PROPERTIES

For a description of our aircraft fleet, see “Business — Our Aircraft Fleet”. For a description of our ground properties, see “Business — Facilities”.

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of June 30, 2007, the number of shares of our common stock that are held by our directors, executive officers and each stockholder known by us to be a beneficial owner of more than 5% of our common stock. The number of shares beneficially owned by each person is determined under rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the person has the sole or shared voting power or investment power and also any shares which the person has the right to acquire within 60 days of June 30, 2007 through the exercise of any stock option, warrant or other right. Except as indicated in this table, each person or entity listed has sole investment and voting power (or, in the case of individuals, shares such power with his or her spouse) with respect to the shares set forth in the table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of such shares. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares subject to options or warrants held by that person that are or will become exercisable within 60 days of June 30, 2007 are deemed outstanding, although the shares are not deemed outstanding for purposes of computing percentage ownership of any other person.

Name and address of beneficial owner (1)	Shares Beneficially Owned as of June 30, 2007 (2)
	Number	Percent
Greater than 5% Stockholders:
MatlinPatterson ATA Holdings LLC     520 Madison Avenue     New York, NY 10022-4213	7,500,000	69.7	%
Delaware Street Capital, L.L.C.     900 N. Michigan Avenue     Chicago, IL 60611	808,676	7.5	%
Executive Officers and Directors:
Gen. Duane H. Cassidy, Director (3)	3,999	*
Marc Chodock, Director	—	—
John Denison, Chairman (4)	55,000	*
Gary E. Ellmer, Executive Officer	—	—
Bernard L. Han, Director (5)	3,999	*
Subodh Karnik, Executive Officer, Director (6)	26,667	*
Josef Loew, Executive Officer (7)	18,333	*
David Matlin, Director	—	—
Peter Schoels, Director	—	—
Lawrence M. Teitelbaum, Director	—	—
Harvey L. Tepner, Director (8)	3,999	*
Doug Yakola, Executive Officer (9)	18,333	*
All executive officers and directors as a group (12 persons)	130,330	1.2	%

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 * less than 1%

(1) Unless otherwise noted, the address of each beneficial owner listed is c/o Global Aero Logistics Inc., 7337 West Washington St., Indianapolis, Indiana 46231.

(2) The number of shares of our common stock deemed outstanding for purposes of determining the percentage of common stock held by a person or entity includes 10,755,688 shares outstanding as of June 30, 2007.

(3) Includes 3,333 shares subject to options that are exercisable within 60 days of June 30, 2007.

(4) Includes 55,000 shares subject to options that are exercisable within 60 days of June 30, 2007.

(5) Includes 3,333 shares subject to options that are exercisable within 60 days of June 30, 2007.

(6) Includes 26,667 shares subject to options that are exercisable within 60 days of June 30, 2007.

(7) Includes 18,333 shares subject to options that are exercisable within 60 days of June 30, 2007.

(8) Includes 3,333 shares subject to options that are exercisable within 60 days of June 30, 2007.

(9) Includes 18,333 shares subject to options that are exercisable within 60 days of June 30, 2007.

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS

Directors and Executive Officers

Set forth below is information concerning our directors and executive officers as of June 30, 2007.

Name	Age	Position
Subodh Karnik	46	President and Chief Executive Officer, Director
Doug Yakola	42	Senior Vice President and Chief Financial Officer
Gary Ellmer	53	Senior Vice President, Operations and General Manager, Charter
Josef Loew	51	Senior Vice President, Scheduled Service
John Denison	62	Chairman of the Board of Directors
Gen. Duane H. Cassidy	73	Director
Marc Chodock	28	Director
Bernard L. Han	43	Director
David Matlin	45	Director
Peter Schoels	33	Director
Lawrence M. Teitelbaum	52	Director
Harvey L. Tepner	50	Director

Subodh Karnik has served as our President and Chief Executive Officer since January 1, 2007 and has served as a director on our board since May 2007. Mr. Karnik joined Global in May 2005 as Senior Vice President and Chief Commercial Officer. In January, 2006, he was promoted to Executive Vice President and Chief Operating Officer. Prior to joining Global, Mr. Karnik was Senior Vice President of Marketing Planning at Delta Air Lines. Before joining Delta in 1999, he worked as Staff Vice President of International Finance at Continental Airlines and Chief Financial Officer of a subsidiary, Continental Micronesia. He moved to Continental from Northwest Airlines, where he maintained responsibilities in alliances, international sales, revenue management and strategic planning. Prior to entering the airline industry, Mr. Karnik held internal and external consultant roles with Ernst & Young and Unilever India. A native of Mumbai, India, Mr. Karnik holds a BS in Mechanical Engineering from the Birla Institute of Technology and Science and an MBA from the University of Michigan Ross School of Business.

Doug Yakola has served as our Senior Vice President and Chief Financial Officer since January 2006. Mr. Yakola joined Global in 2003 as Vice President, Station Operations and Cargo. In 2005, he was promoted to Senior Vice President, Customers and Ground operations. In addition to his finance and accounting responsibilities, Mr. Yakola is responsible for Strategic Sourcing, Information Technology, and Real Estate. Prior

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to joining Global, Mr. Yakola spent eighteen years at Northwest Airlines in various capacities. Mr. Yakola holds a BS in Business Administration from the University of Central Florida and an MBA from the Kellogg School of Management — Northwestern University.

Gary Ellmer joined Global in September 2006 as Senior Vice President, Operations and General Manager, Charter. He has direct responsibility for flight and technical operations as well as Global’s Charter business. Mr. Ellmer has 25 years of extensive and diverse airline management experience and joined Global from American Eagle, where he was Vice President of Business Development. Mr. Ellmer has previously served in various leadership positions, including President and Chief Operating Officer of Executive Airlines, a division of American Eagle Airlines, President and Chief Operating Officer of Business Express Airlines, and Vice President, Maintenance and Engineering at WestAir Commuter Airlines/Mesa Airlines. Prior to entering the commercial airline industry, in 1980, Mr. Ellmer spent seven years in the U. S. Marine Corps as a mechanic and crewmember aboard UH-1 helicopters and as a flight engineer and instructor on KC-130 Tanker Aircraft. Mr. Elmer holds a BS in Aeronautics from Long Beach City College.

Josef Loew joined Global in March 2006 as Senior Vice President, Scheduled Service. In this role, Mr. Loew has direct responsibility for the Company’s Marketing and Market Planning functions as well as Inflight, Station Operations and Cargo. Mr. Loew previously served as Vice President for Revenue Management at America West Airlines and held various other roles at Northwest Airlines and Canadian Airlines. Immediately prior to joining Global, Mr. Loew served as Head of Product at SITA INC Canada Inc., driving the development and marketing of its Airline Pricing and Fares Management business unit. He holds a BS in Applied Physics from Fachhochschule Munich and an MBA in Finance from the University of Calgary.

John Denison has served as Chairman of our board of directors since January 2006. Mr. Denison joined Global as Co-Chief Restructuring Officer in January 2005. He served as President and Chief Executive Officer of ATA Airlines, Inc. from February 2005 until December 2006. Mr. Denison joined Global following a three-year period of retirement from Southwest Airlines. While at Southwest, his responsibilities included serving as Executive Vice President of Corporate Services and Chief Financial Officer. Prior to joining Southwest, Mr. Denison served for six years in various corporate finance roles at LTV Corporation in Dallas, Texas. Among other responsibilities, he assisted in the financial restructuring of the conglomerate that held interests in aerospace defense, steel and energy. Prior to LTV, Mr. Denison spent more than a decade at the Chrysler Corporation where he was part of a team responsible for obtaining the government assistance that was necessary for the automaker’s restructuring efforts. Mr. Denison holds a BA in Economics from Oakland University in Rochester, Michigan and an MBA in Finance from Wayne State University.

General Duane H. Cassidy ( USAF Ret.) has served as a director on our board since April 2006. General Cassidy attained the rank of four stars in 1985 and served as Commander in Chief of the Military Airlift Command and the U.S. Transportation Command before retiring in 1989. Upon retirement, General Cassidy joined CSX Corporation and served in senior management positions as President of CSX/Sealand logistics, Senior Vice President for Sales and Marketing of CSX Transportation and as the Corporate Senior Vice President and Chairman of the Commercial Board before retiring in 2000. Since retirement from CSX, he has served on several boards and consulted principally in the field of transportation. He holds a BS in Geography from University of Nebraska and a MS from Troy State Univ. He has attended management schools at The Kellogg School at Northwestern University and at the Kennedy School of Government at Harvard University. General Cassidy currently serves on the board, as immediate past Chairman, of the Airlift/Tanker Association and on the board of the Special Operations Warrior Foundation. He served as a Commissioner on a Base Realignment and Closure Commission and recently co-chaired a similar commission for the Governor of the State of Florida.

Marc Chodock has served as a director on our board since March 2006. Mr. Chodock currently is an associate at MatlinPatterson, where he started as an analyst in February 2003. Prior to joining MatlinPatterson, Mr. Chodock served as a management consultant at McKinsey & Company. Prior to McKinsey, he was an analyst in Credit Suisse First Boston’s Technology and Healthcare Investment Banking divisions. Mr. Chodock

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holds a BS in Economics from the University of Pennsylvania’s Wharton School of Business and a Bachelor of Applied Science in Biomedical Science from the School of Engineering and Applied Science of the University of Pennsylvania.

Bernard L. Hanhas served as a director on our board since March 2006. Mr. Han is currently Executive Vice President and Chief Financial Officer of Echostar Communications Corporation and has served in that role since joining Echostar in September 2006. Prior to Echostar, Mr. Han held positions as Chief Financial Officer at Northwest Airlines, Chief Financial Officer at America West Airlines and Chief Marketing Officer at America West. Mr. Han began his career in the airline industry at American Airlines. He holds a BS and MS in Electrical Engineering, and an MBA, all from Cornell University.

David Matlinhas served as a director on our board since November 2006. Mr. Matlin serves as the Chief Executive Officer of MatlinPatterson Global Advisers LLC, a $3.8 billion private equity firm that he co-founded in 2002 in a spin-off from Credit Suisse First Boston. Prior to the formation of MatlinPatterson in 2002, Mr. Matlin was a Managing Director at Credit Suisse First Boston and the head of its Distressed Securities Group since its formation in 1994. Prior to joining Credit Suisse First Boston, Mr. Matlin was co-founder and Managing Director of Distressed Securities of Merrion Group, L.P., a successor to Scully Brothers & Foss L.P., from 1988 to 1994. Mr. Matlin holds a BS in Economics from the University of Pennsylvania’s Wharton School of Business and a JD from UCLA School of Law.

Peter Schoelshas served as a director on our board since March 2006. Mr. Schoels joined MatlinPatterson in 2002 as a partner. Prior to joining MatlinPatterson, Mr. Schoels served as a member of Credit Suisse First Boston’s Distressed Securities Group, making investments in North America, Latin America, Europe and the CIS. Prior to joining Credit Suisse First Boston, Mr. Schoels served as Director of Finance and Strategy for Tradeledger and Knowledge Platform, both subsidiaries of Itim Group Plc. Prior to these roles, he was Manager, Mergers and Acquisitions for Ispat International NV, specializing in buying distressed steel assets in emerging markets. Mr. Schoels is a Belgian citizen and holds a BA in International Business from Eckerd College in St. Petersburg, Florida and an MBA from U.B.I. (University of Wales and Mercer University) in Brussels, Belgium.

Lawrence M. Teitelbaumhas served as a director on our board since March 2006. Mr. Teitelbaum joined MatlinPatterson as Partner and Chief Financial Officer in October 2002. He was previously Chief Financial Officer of Fenway Partners from 1996 to 2002. Prior to Fenway Partners, Mr. Teitelbaum was Treasurer and Vice President for Financial Planning for Petrie Retail Inc. following an extensive career at Ernst & Young LLP. While at Ernst & Young, he provided due diligence and investment advisory services to private equity clients on more than 30 leveraged buyout transactions. Mr. Teitelbaum began his career as Chief Accountant for Real Estate at Madison Square Garden. Mr. Teitelbaum holds a BS in Accounting from the State University of New York at Buffalo and is a Certified Public Accountant. He is a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants.

Harvey L. Tepner has served as a director on our board since March 2006. Since December 2002, Mr. Tepner has been a partner of Compass Advisers, LLP, in charge of its investment banking restructuring practice. Prior to joining Compass, Mr. Tepner was a Managing Director of Loeb Partners Corporation from 1995 to 2002. Prior to Loeb, Mr. Tepner worked as an officer in the corporate finance departments of Dillon, Read & Co. Inc. and Rothschild Inc. and began his career as a Chartered Accountant with Price Waterhouse in Canada. Mr. Tepner holds a BA in Economics from Carleton University, an MBA from Cornell University and is a Chartered Accountant (Canada). Mr. Tepner is a director of Core-Mark Holding Company, Inc. and is on the board of the Post Confirmation Trust of the Fleming Companies.

Our Board of Directors

Our board of directors comprises nine directors, four of whom (Messrs. Chodock, Matlin, Schoels and Teitelbaum) are associated with our majority stockholder, MatlinPatterson ATA Holdings LLC. Although our

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common stock is not, and we have not applied for it to be, listed on the NASDAQ Global Market, we have chosen to apply the director independence requirements of the NASDAQ Global Market to our board of directors and its committees. Of these eight directors, Messrs. Cassidy, Han and Tepner satisfy the independence requirements of the federal securities laws and the rules of the NASDAQ Global Market. Because MatlinPatterson holds more than 50% of the voting power of our voting stock, we are a “controlled company” under the rules of the NASDAQ Global Market and are therefore exempt from the requirement that a majority of our board of directors be comprised of independent directors.

Committees of the Board of Directors

Pursuant to our amended and restated by-laws, our board of directors is permitted to establish committees of one or more directors from time to time as it deems appropriate. Currently, our board of directors has an audit committee and a compensation committee. The membership and function of each committee are described below.

Audit Committee

The principal duties of the audit committee are as follows:

• to retain, compensate, oversee, evaluate and terminate any registered public accounting firm in connection with the preparation or issuance of an audit report, and to approve all audit fees and terms and any permissible non-audit services provided by the independent auditors;

• to review the auditor’s annual audit plan, including the scope of the audit, and to recommend changes, discuss difficulties during the audit’s course, and to review any alternative treatments of financial information;

• to review and discuss annual audited and quarterly unaudited financial statements with management and the independent auditors;

• to periodically meet separately with management, internal auditors and the independent auditors;

• to establish procedures to receive, retain and treat complaints regarding accounting, internal accounting controls or auditing matters;

• to consider the Company’s major financial risk exposures and steps taken to monitor and control them;

• to review, at least annually, the Company’s accounting principles and financial statement presentations, any analyses prepared by management or the auditor regarding significant financial reporting issues, the effect of regulatory and accounting initiatives and off-balance sheet structures on the Company’s financial statements, and other related matters;

• to periodically review any changes, fraud, or deficiencies with respect to the Company’s internal controls;

• to retain independent counselor and other outside advisors, including experts in the area of accounting, as it determines necessary to carry out its duties; and

• to report regularly to our full board of directors with respect to any issues raised by the foregoing.

Messrs. Tepner (Chair), Cassidy, Chodock and Han currently serve on the audit committee. Each member of the audit committee, other than Mr. Chodock, is “independent,” as defined under and required by the federal securities laws and the rules of the NASDAQ Global Market, including Rule 10A-3(b)(i) under the Securities Exchange Act of 1934, as amended, for purposes of the audit committee.

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Compensation Committee

The principal duties of the compensation committee are as follows:

• to review key employee compensation policies, plans and programs;

• to review and approve the compensation of our chief executive officer and the other executive officers of the Company and its subsidiaries;

• to review and approve any employment contracts or similar arrangement between the Company and any executive officer of the Company;

• to review and consult with our chief executive officer concerning selection of officers, management succession planning, performance of individual executives and related matters; and

• to administer our stock plans, incentive compensation plans and any such plans that the board may from time to time adopt and to exercise all the powers, duties and responsibilities of the board of directors with respect to such plans.

Messrs. Chodock (Chair), Cassidy, Han and Schoels currently serve on the compensation committee. Messrs. Cassidy and Han satisfy the director independence requirements of the rules of the NASDAQ Global Market for service on the compensation committee. Because MatlinPatterson holds more than 50% of the voting power of our voting stock, we are a “controlled company” under the rules of the NASDAQ Global Market and are therefore exempt from the requirement that our compensation committee be comprised solely of independent directors.

Nominating and Corporate Governance Committee

Our board of directors currently does not have a nominating and corporate governance committee. Messrs. Cassidy, Han and Tepner satisfy the independence requirements of the rules of the NASDAQ Global Market for service on a nominating and corporate governance committee. Because MatlinPatterson holds more than 50% of the voting power of our voting stock, we are a “controlled company” under the rules of the NASDAQ Global Market and are therefore exempt from the requirement that our nominating and corporate governance committee, if we form one, be comprised solely of independent directors.

ITEM 6. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview of Executive Compensation Philosophy and Objectives

In connection with the compensation committee’s responsibility of determining and approving the compensation for our management employees, including our Chief Executive Officer, Chief Financial Officer and three other most highly compensated executive officers (our named executive officers), its primary objectives are to:

• attract and retain high quality management employees by providing total compensation opportunities with a combination of compensation elements that are competitive and comparable to those offered by peer companies in the aviation industry; and

• align shareholder interests and management rewards by providing meaningful incentive opportunities to be earned by management if they meet pay-for-performance standards designed to increase long-term shareholder value.

Therefore, the compensation packages we provide to management, including the named executive officers, include both cash and stock-based compensation that reward performance as measured against established goals.

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In determining compensation for a specific named executive officer, the compensation committee considers many factors, including the nature of the individual’s job, the individual’s job performance compared to individual goals and objectives established at the beginning of the year, the individual’s historical performance at the company and experience level in the individual’s current position, the compensation levels of competitive jobs and our financial performance.

The compensation committee reviews the total compensation for the named executive officers but sees each element as distinct. The compensation program is designed to provide a proper balance of fixed versus variable and cash versus equity compensation in order to align both short and long-term interests with overall business objectives. We have no specific formula for allocating between cash and non-cash compensation. Actual earned compensation may increase when performance is outstanding relative to individual and/or company goals. To the extent that performance goals are not achieved, compensation may be negatively impacted.

The Compensation Committee’s Processes and Procedures

The compensation committee’s primary processes and procedures for establishing and overseeing the compensation of its named executive officers include the following:

• Meetings. The compensation committee meets several times each year (four times in 2006). Compensation committee meeting agendas are established in consultation with the compensation committee Chairman, the compensation committee’s independent compensation consultant and members of our management team.

• Role of Independent Consultant. The compensation committee engaged a compensation consultant beginning in August 2006, to assist it in a review of our management compensation programs and to provide recommendations on potential changes to ensure that such programs facilitate the attraction, retention and motivation of the our management team and are aligned with the short-term and long-term objectives of our shareholders. The consultant participated in compensation committee meetings and also advised the compensation committee with respect to the design of a long-term incentive plan for management intended to align management interests with the interests of shareholders and to provide management with the opportunity to share in our long-term value creation. The long-term incentive plan is described in more detail below in “— Compensation Components for Executive Officers — Long-Term Equity Incentive Awards”.

• Assessment of Company Performance. The compensation committee has established specific Company performance measures that determine the size of the payouts under our incentive bonus plans. Such plans are discussed below in “— Compensation Components for Executive Officers — Annual Cash Bonuses and Cash Incentive Awards”. In addition, the compensation committee considers the impact of significant Company events, such as our emergence from bankruptcy in 2006, in making compensation decisions.

• Assessment of Individual Performance. The compensation committee meets with our Chief Executive Officer annually to agree upon the performance objectives for the Chief Executive Officer as well as our other named executive officers. At the end of the year, the compensation committee meets in executive session to conduct a review of the individual performance goals of each named executive officer. Such review is used to determine eligibility for payouts under our incentive cash bonus plans and forms the base of the compensation committee’s decisions with respect to other elements of compensation for the following year.

• Role of Executive Officers. Our Chief Executive Officer is involved in formulating recommendations on matters of compensation philosophy and plan design and the specific compensation recommendations for each of the named executive officers. The Chief Executive Officer gives the compensation committee a performance assessment and compensation recommendation for each of the other named executive officers. Those recommendations are then considered by the compensation committee in approving the final determination of compensation. The compensation committee determines the compensation of the Chief Executive Officer with advice from the Chairman of our board of directors.

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Compensation Components for Executive Officers

Our compensation program consists of the following components:

• base salary;

• annual cash bonuses and cash incentive bonuses;

• long-term equity incentive awards;

• severance and change of control benefits; and

• other benefits.

The compensation committee believes this program balances both the mix of cash and equity compensation and the mix of short-term and long-term compensation necessary to further the compensation objectives discussed above. Following is a discussion of the compensation committee’s considerations in establishing each of the components of compensation for the named executive officers.

Base Salary

Base salaries paid to our named executive officers are the fixed portion of annual compensation and are intended to recognize the fundamental skills and experience of our named executive officers. The base salaries are reviewed annually by the compensation committee and are adjusted from time to time based on level of responsibility, outstanding individual performance, length of service, our financial performance, promotions and internal equity considerations. The compensation committee also takes into account the salaries paid to executives of a comparison group of other airlines and the salary provisions of its employment agreements with the named executive officers. See “Executive Compensation — Employment Agreements” for a description of the salary requirements under the employment agreements.

The compensation committee made adjustments to the base salaries of Messrs. Denison, Karnik and Yakola effective January 1, 2007. Mr. Denison’s base salary was reduced to $175,000 to reflect his relinquishing the day-to-day leadership of the Company as President and Chief Executive Officer. Mr. Karnik’s base salary was increased to $350,000 as a result of his promotion to President and Chief Executive Officer from Chief Operations Officer. Finally, Mr. Yakola’s base salary was increased to $249,500 in recognition of his performance in 2006 and the importance of his role in the Company.

Annual Cash Bonuses and Cash Incentive Awards

In 2006, we paid senior management, including our named executive officers, both a discretionary cash bonus and an incentive cash bonus earned as a result of our achieving certain financial goals. See “Executive Compensation — Employment Agreements” for provisions in the employment agreements with the named executive officers providing for eligibility to participate in our bonus and cash incentive bonus plans.

Discretionary Cash Bonus

In 2006, we paid certain key management personnel a discretionary cash bonus as a result of our successful emergence from Chapter 11 proceedings. All named executive officers, except for Messrs. Ellmer and Loew who were not with us at the time of the grant, received a one-time “emergence” bonus of $50,000. This bonus was not based on any specific financial targets being achieved or formula.

Incentive Cash Bonuses

Our objective of providing short-term incentives to our management is met by using cash-based, pay-for-performance annual incentive plans. We pay annual incentive bonuses to reward management for achieving or surpassing annual performance goals. At the beginning of each year, the compensation committee

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establishes performance targets for the annual incentive program. These performance targets are developed based on economic and industry factors, general market conditions and other considerations. Each eligible member of management, including the named executive officers, has a target bonus potential, expressed as a percentage of base salary that is based on his or her roles and responsibility, internal equity considerations and external competitive compensation data.

In 2006, we maintained two annual incentive cash bonus plans: the Annual Incentive Bonus Plan (“AI Bonus Plan”) and the 2006 Contribution Improvement Bonus Plan (“CI Bonus Plan”).

AI Bonus Plan.The AI Bonus Plan was designed to supplement base salaries and to reward management, including the named executive officers and other key employees, for meeting specific financial goals. The AI Bonus Plan called for annual incentive compensation awards based on our budget EBITDA for the nine month period ended December 31, 2006, as compared to the actual EBITDA for the same period. The aggregate payout for the named executive officers and other key employees at target was $1 million, the maximum payout was 150% of target and the threshold payout was 25% of target. The individual bonus target payout percentages were the same as the maximum target percentages for the CI Bonus Plan set forth below.

Inasmuch as the actual EBITDA target was not achieved in 2006, no cash bonuses were paid to the named executive officers or other employees under the AI Bonus Plan.

CI Bonus Plan. The CI Bonus Plan was a one-time plan approved following our emergence from Chapter 11 proceedings. The purpose of the CI Bonus Plan was to provide greater incentives to those employees who were responsible for our future growth, profitability and continued success and to strengthen our ability to attract, motivate and retain such employees. There were approximately ten employees, including all the named executive officers other than Mr. Ellmer, who were participants under the CI Bonus Plan, and each received an annual bonus award. The CI Bonus Plan called for annual incentive compensation awards based on our financial performance compared with fully allocated budgeted EBITDA for our scheduled service segment for the second, third and fourth quarters of 2006. The payout upon the achievement of certain goals was equal to a percentage of base salary, which was set at the initiation of the CI Bonus Plan in May 2006. Those percentages were determined on an individual basis, taking into account responsibilities, prior experience and recent performance of the relevant employee. The maximum payout for Messrs. Denison and Karnik was 55% of base salary and the maximum payout for Messrs. Yakola and Loew was 45% of base salary.

Inasmuch as all the financial targets in the CI Bonus Plan were not achieved, the eligible named executive officers did not receive the full award for which they were eligible but were paid only 75% of the target bonus. The aggregate of the two payouts for each of the named executive officers is set forth in the “Summary Compensation Table”.

Long-Term Equity Incentive Awards

In 2006, our long-term incentive program was based on the award of stock options. The award of stock options furthers our objectives to enhance the link between the creation of shareholder value and long-term executive incentive compensation; provide an opportunity for increased equity ownership by management; and maintain competitive levels of total compensation.

In 2006, we issued options to management, including the named executive officers, under two stock option plans: The Stock Option Plan for Management Employees of New ATA Holdings Inc. and its Subsidiaries (the “Chapter 11 Emergence Plan”) and the New ATA Holdings Inc. 2006 Long-Term Incentive Plan (the “LTIP”). See “Executive Compensation — Employment Agreements” for provisions in the employment agreements with the named executive officer providing for eligibility for equity-based compensation awards.

Chapter 11 Emergence Plan.Pursuant to our Chapter 11 Plan of Reorganization approved by the Bankruptcy Court on January 31, 2006, our management team was granted 5% of the fully diluted shares of the

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Company. The compensation committee was responsible for allocation of the stock options to the individual members of the management team. The compensation committee issued stock options, as opposed to an outright distribution of shares, because it believed stock options provide our management team with long-term incentive opportunities that are aligned with the shareholder benefits of an increased common stock value. Stock options are “pay-for-performance” awards because they have no value unless the share price appreciates.

On March 23, 2006, the compensation committee granted stock options under the Chapter 11 Emergence Plan to approximately 40 employees. The seven-year options granted at the market price of our stock on the date of grant, help focus employees on long-term growth. These options vest and become exercisable in three equal annual installments, with the first installment vesting March 1, 2007. The per share exercise price for the stock options granted under the Chapter 11 Emergence Plan on March 23, 2006, is $10.00. On October 4, 2006, the compensation committee granted stock options to Mr. Ellmer, who joined us in September 2006, at a per share exercise price of $14.00, based on its assessment of the increase in the value of our shares since MatlinPatterson’s February 28, 2006 purchase of Company shares. Options under the Chapter 11 Emergence Plan were granted with an exercise price equal to the fair market value of a share on the date of the grant.

LTIP.The objectives of the LTIP are to reward achievement over a multi-year period, align the interests of executives with those of shareholders by focusing executives on the shareholder return performance of the Company and provide a retention mechanism through multi-year vesting.

Only seven members of our management participate in the LTIP, including the named executive officers and two non-executive officers. The seven-year options granted under the LTIP were divided into four tranches, with exercise prices of shares within each tranche ranging from $30.00 per share to $60.00 per share. A portion of shares issued under each tranche vest and become exercisable in three equal annual installments with the first installment vesting September 12, 2008. Information with respect to exercise and vesting is provided in the “Outstanding Equity Awards at Fiscal Year End” table.

Grant Timing and Price.The compensation committee procedure for the timing of equity grants provides assurance that grant timing is not being manipulated to result in a price that is favorable to management. We do not plan to time, and have not timed, our release of material non-public information for the purpose of affecting the value of compensation to our management team. We do not have any program, plans or practices of awarding stock options and setting the exercise price based on the stock’s price on a date other than the actual grant date.

The stock options granted under the Chapter 11 Emergence Plan on March 23, 2006 were granted with an exercise price of $10.00 per share, the fair market value of our common shares on such grant date. The stock options granted to Mr. Ellmer on October 4, 2006 under the Chapter 11 Emergence Plan were granted with an exercise price of $14.00 per share, which the compensation committee determined to be the fair market value of the shares on the date of grant based on its assessment of the increase in the value of our shares since MatlinPatterson’s February 28, 2006 purchase of Company shares. The options granted under the LTIP were granted on September 12, 2006, at exercise prices substantially in excess of the market value of our common shares on such date.

Accelerated Vesting of Stock Options. As set forth in the employment agreements of the named executive officers, as well as the stock option agreements executed pursuant to the Chapter 11 Emergence Plan and LTIP, upon the occurrence of a change of control (referred to in the Chapter 11 Emergence Plan, LTIP and/or the stock option agreements as a “Significant Event” and defined in “Executive Compensation — Potential Payments Upon Termination or a Change of Control”) or a Tag Along Event (as defined in Executive Compensation — Potential Payments Upon Termination or a Change of Control”), or upon the termination of the optionee’s full time employment because of a termination without cause, death, disability, or retirement after age 60, the options granted under such plans immediately vest and become exercisable in full with respect to all shares.

Severance and Change of Control Benefits

In 2006, we entered into employment agreements with certain members of our management team, including the named executive officers. The agreements were entered into as a means of providing more certainty and

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stability for both us and the management employees upon our emergence from bankruptcy and in light of the changes to our ownership, including the majority ownership by MatlinPatterson. Upon termination of employment, the employment agreements with each of our named executive officers provide for certain severance payments, the amount of which is affected by the reason for the termination and whether such termination is in connection with a change of control.

• Severance Payments. Severance payments, which are payable upon a termination by us without cause, a termination by the named executive officer for material breach, or a termination due to death or disability, include a multiple of such officer’s annual base pay, any target bonus under the AI Bonus Plan and certain welfare and travel benefits, including a tax gross up for welfare benefits in certain cases. The provisions for severance payments and benefits were a result of individual negotiations with the named executive officers. The compensation committee also determined that providing for severance payments in the executive officers’ employment agreements was in the best interest of the Company and our shareholders because the executive officer must comply with certain post-termination restrictions set forth in the employment agreement in order to obtain such severance payments. These restrictions include providing us with a release agreement, agreeing not to disclose any of our confidential information or trade secrets, and agreeing to certain provisions relating to non-competition, non-solicitation of employees and non-interference with contractors and vendors.

• Severance Payments in Connection with a Change in Control. The compensation committee considers the retention of an effective management team to be essential to protecting and enhancing the best interests of the Company and our shareholders. To that end, the compensation committee recognizes that the possibility of a change in control may exist from time to time, and that this possibility, and the uncertainty and questions it may raise among senior management, including the named executive officers, may result in the departure or distraction of senior management personnel to the detriment of the Company and our stockholders. Accordingly, the compensation committee determined that appropriate steps should be taken to encourage the continued attention and dedication of our senior management to assigned duties without the distraction that may arise from the possibility of a change in control. These steps are also intended to preserve employee morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of the Company. In addition, these steps are intended to align senior management and shareholder interests by enabling senior management to consider corporate transactions that are in the best interest of the shareholders without undue concern whether transactions may jeopardize such individuals’ own employment. As a result, the employment agreements with our named executive officers contain a change in control severance feature that utilizes a “double trigger.” In order for change in control severance benefits to be “triggered”, a change in control must occur and the named executive officer must be terminated by us without cause or have “good reason” to terminate his employment, in each case, within 90 days of a change in control.

For a description of benefits provided as part of a severance payment and as part of a severance payment in connection with a change in control, see “Executive Compensation — Potential Payments Upon Termination or Change of Control” below.

Other Benefits

We provide our named executive officers with benefits that are generally available to all our employees, including a 401(k) plan matching contribution, medical, dental, vision, life insurance, accidental death & dismemberment, long term disability, employee assistance plan, flexible spending accounts and travel benefits. With respect to short-term disability, we provide a self-funded salary continuance program for management based on years of service; other employees participate in our short term disability plan. For 2006, no amounts were paid under this program to the named executive officers. We believe that these welfare benefits are appropriate and reasonable.

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Report of the Compensation Committee on Executive Compensation

The compensation committee consists of Chairman Marc Chodock, Peter Schoels and independent directors, Duane Cassidy and Bernard Han. None of the executive officers serve on the compensation committee.

The compensation committee has reviewed and discussed the “Compensation Discussion and Analysis” required by Item 402(b) of Regulation S-K with Company management. Based on such review and discussions, the compensation committee recommended to the Board of Directors that the ��Compensation Discussion and Analysis” be included in this Form 10.

Respectfully submitted,

/s/    MARC CHODOCK	/s/    DUANE CASSIDY
Marc Chodock,	Duane Cassidy
Chairman
/s/    PETER SCHOELS	/s/    BERNARD HAN
Peter Schoels	Bernard Han

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Executive Compensation

Summary Compensation Table

The following table sets forth information with respect to compensation earned by our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated executive officers (referred to as our “named executive officers”) for the fiscal year ended December 31, 2006.

Name and Principal Position	Year	Salary ($)	Bonus ($)	Option Awards ($)(1)	Non-Equity Incentive Plan Compensation ($)	All Other Compensation ($)(2)	Total ($)
John Denison Chairman of the Board of Directors (3)	2006	280,000	50,000	315,719	115,500	0	761,219
Subodh Karnik President and Chief Executive Officer, Director (4)	2006	270,000	50,000	169,132	111,375	4,290	604,797
Douglas Yakola Chief Financial Officer	2006	225,450	50,000	106,899	76,107	8,580	467,036
Gary Ellmer Senior VP, Operations and Charter Sales (5)	2006	57,885	0	36,177	0	0	94,062
Josef Loew Senior VP, Marketing and Scheduled Service Sales (6)	2006	168,750	0	106,899	75,938	0	351,587

(1) The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006, in accordance with FAS 123R, of awards pursuant to the Chapter 11 Emergence Plan and the LTIP. Assumptions used in the calculation of these amounts are included in Note 8, “Stock Option Plans” to our audited financial statements for the fiscal year ended December 31, 2006 included elsewhere in this Form 10 filing. However, as required, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.

(2) The amounts in this column reflect our matching contribution under our 401(k) plan. No named executive officer received perquisites in 2006 with an aggregate value greater than $10,000.

(3) As of December 31, 2006, Mr. Denison served as our President and Chief Executive Officer. Mr. Denison resigned from this position on January 1, 2007 and currently serves as Chairman of our board of directors.

(4) As of December 31, 2006, Mr. Karnik served as our Chief Operating Officer. Mr. Karnik became President and Chief Executive Officer on January 1, 2007, following Mr. Denison’s resignation from that position, and became a director in May 2007.

(5) Mr. Ellmer commenced his employment with us on September 11, 2006.

(6) Mr. Loew commenced his employment with us on March 20, 2006.

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Grants of Plan-based Awards

The following table sets forth information on stock option awards and awards under our non-equity incentive plans to our named executive officers during the fiscal year ending as of December 31, 2006.

	Grant Date		Estimated Future Payouts Under Non-Equity Incentive Plan Awards			All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/sh)	Grant Date Fair Value of Stock and Option Awards ($)
Name			Threshold ($)	Target ($) (1)	Maximum ($)
John Denison	3/23/2006					110,000	10.00	578,000
	4/12/2006	(1)	77,000	154,000	154,000
	4/12/2006	(2)	38,500	154,000	231,000
	9/12/2006					150,000	30.00	458,000
	9/12/2006					100,000	40.00	243,000
	9/12/2006					100,000	50.00	200,000
	9/12/2006					100,000	60.00	168,000
Subodh Karnik	3/23/2006					80,000	10.00	428,800
	4/12/2006	(1)	74,250	148,500	148,500
	4/12/2006	(2)	37,125	148,500	222,750
	9/12/2006					100,000	30.00	305,000
	9/12/2006					66,667	40.00	162,000
	9/12/2006					66,667	50.00	133,000
	9/12/2006					66,666	60.00	112,000
Douglas Yakola	3/23/2006					55,000	10.00	294,800
	4/12/2006	(1)	50,727	101,453	101,453
	4/12/2006	(2)	25,363	101,453	152,180
	9/12/2006					50,000	30.00	153,000
	9/12/2006					33,334	40.00	81,000
	9/12/2006					33,333	50.00	67,000
	9/12/2006					33,333	60.00	56,000
Gary Ellmer	9/12/2006					50,000	30.00	153,000
	9/12/2006					33,334	40.00	81,000
	9/12/2006					33,333	50.00	67,000
	9/12/2006					33,333	60.00	56,000
	10/4/2006					30,000	14.00	134,000
	10/4/2006	(2)	24,188	96,790	145,125
Josef Loew	3/23/2006					55,000	10.00	294,800
	4/12/2006	(1)	50,727	101,453	101,453
	4/12/2006	(2)	25,312	101,250	151,875
	9/12/2006					50,000	30.00	153,000
	9/12/2006					33,334	40.00	81,000
	9/12/2006					33,333	50.00	67,000
	9/12/2006					33,333	60.00	56,000

(1) Represents awards under the CI Bonus Plan. Payments actually made were at 75% of the target bonus. No further payments will be made with respect to these awards.

(2) Represents awards under the AI Bonus Plan. Because company targets were not met for the applicable performance period, none of these awards have been or will be paid out.

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Outstanding Equity Awards at Fiscal Year-end

The following table sets forth the outstanding equity awards as of December 31, 2006, held by each of our named executive officers.

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price ($)	Option Expiration Date
John Denison	—	110,000	(1)	10.00	3/23/2013
	—	150,000	(2)	30.00	9/11/2013
	—	100,000	(2)	40.00	9/11/2013
	—	100,000	(2)	50.00	9/11/2013
	—	100,000	(2)	60.00	9/11/2013
Subodh Karnik	—	80,000	(3)	10.00	3/23/2013
	—	100,000	(2)	30.00	9/11/2013
	—	66,667	(2)	40.00	9/11/2013
	—	66,667	(2)	50.00	9/11/2013
	—	66,666	(2)	60.00	9/11/2013
Douglas Yakola	—	55,000	(3)	10.00	3/23/2013
	—	50,000	(2)	30.00	9/11/2013
	—	33,334	(2)	40.00	9/11/2013
	—	33,333	(2)	50.00	9/11/2013
	—	33,333	(2)	60.00	9/11/2013
Gary Ellmer	—	30,000	(4)	14.00	10/4/2013
	—	50,000	(2)	30.00	9/11/2013
	—	33,334	(2)	40.00	9/11/2013
	—	33,333	(2)	50.00	9/11/2013
	—	33,333	(2)	60.00	9/11/2013
Josef Loew	—	55,000	(3)	10.00	3/23/2013
	—	50,000	(2)	30.00	9/11/2013
	—	33,334	(2)	40.00	9/11/2013
	—	33,333	(2)	50.00	9/11/2013
	—	33,333	(2)	60.00	9/11/2013

(1) These awards vest as follows: 55,000 on 3/1/2007 and 27,500 each on March 1, 2008 and March 1, 2009.

(2) These awards vest as follows: 20% on 9/12/2008, 30% on 9/12/2009, and 50% on September 12, 2010.

(3) These awards vest as follows: three equal installments on each of March 1, 2007, March 1, 2008 and March 1, 2009.

(4) These awards vest as follows: three equal installments on each of October 4, 2007, October 4, 2008 and October 4, 2009.

None of the named executive officers exercised any stock options in 2006.

The Company does not provide any nonqualified deferred compensation to the named executive officers.

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Employment Agreements

The Company entered into employment agreements with each of the named executive officers in 2006. On January 1, 2007, the employment agreement with Mr. Karnik was amended and restated to reflect his promotion to the position of President and Chief Executive Officer and the employment agreement with Mr. Denison was amended and restated to reflect his new position as Chairman of the Board of Directors. The following is a description of the material terms of the compensation provided to the named executive officers during their employment pursuant to the employment agreements. See “Potential Payments Upon Termination or Change of Control” for a description of the payments and benefits that would be provided to the named executive officers in connection with a termination of their employment or a change in control of the Company.

The employment agreements provide for indefinite terms and annual base salary amounts as follows: Mr. Denison ($175,000); Mr. Karnik ($350,000) (the base salary applicable prior to the amendment of Mr. Karnik’s employment agreement on January 1, 2007 was $270,000); Mr. Yakola ($225,000); Mr. Ellmer ($215,000); and Mr. Loew ($225,000). The base salaries for Messrs. Ellmer and Loew, which are shown in the “Summary Compensation Table”, were pro-rated for their employment during 2006. For 2007, Mr. Yakola’s base salary was increased to $249,500 by the compensation committee. Pursuant to the employment agreements, the base salary will be reviewed on an annual basis.

Pursuant to the employment agreements, each named executive officer was also eligible for awards under various of the Company’s cash and equity incentive plans as follows:

• Mr. Denison: Pursuant to his employment agreement, Mr. Denison is eligible to participate in the Company’s Chapter 11 Emergence Plan and LTIP. Under Mr. Denison’s employment agreement in effect in 2006, prior to its amendment on January 1, 2007, he was also eligible in 2006 for the CI Bonus Plan and AI Bonus Plan.

• Mr. Karnik: Pursuant to his employment agreement, Mr. Karnik is eligible to participate in each of the AI Bonus Plan, CI Bonus Plan, LTIP and Chapter 11 Emergence Plan (the “Plans”). The maximum bonus payable under the AI Bonus Plan is 125% of base salary; this maximum also applies to the 2007 annual bonus.

• Mr. Yakola: Pursuant to his employment agreement, Mr. Yakola is eligible to participate in each of the Plans. No maximum bonus is indicated in the employment agreement.

• Mr. Ellmer: Pursuant to his employment agreement, Mr. Ellmer is eligible to participate in each of the Plans other than the CI Bonus Plan. The maximum bonus payable under the AI Bonus Plan is 50% of base salary.

• Mr. Loew: Pursuant to his employment agreement, Mr. Loew is eligible to participate in each of the Plans. No maximum bonus is indicated in the employment agreement.

For 2006, no payments were made under the AI Bonus Plan and the CI Bonus Plan was paid out at 75% of target.

Pursuant to the employment agreements, each named executive officer is entitled to participate in employee health and welfare benefits generally made available to employees of the Company and their eligible dependents. The named executive officer and his spouse and dependents are also entitled to lifetime, positive space passes on ATA, and other carriers with whom ATA has reciprocal pass arrangements. The following named executive officers have additional relocation benefits under their employment agreements:

• Messrs. Karnik and Loew: Pursuant to their employment agreements, each of Messrs. Karnik and Loew was entitled to relocation benefits in accordance with the Company’s relocation policy upon the relocation of his permanent residence to the Indianapolis, Indiana area prior to July 1, 2006.

• Mr. Ellmer: Pursuant to his employment agreement, Mr. Ellmer was entitled to a relocation allowance of $25,000 (gross) in connection with his relocation to the Indianapolis, Indiana area prior to

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December 11, 2006. In addition, the Company was required to reimburse Mr. Ellmer for housing and rental car expenses until the earlier of Mr. Ellmer’s moving to a permanent residence in Indianapolis and December 11, 2006.

Equity-Incentive Plans

The Company maintains two equity-based compensation plans under which awards have been granted to the named executive officers, the Stock Option Plan for Management Employees of New ATA Holdings, Inc. (the “Chapter 11 Emergence Plan”) and the New ATA Holdings’ Inc. 2006 Long Term Incentive Plan (the “LTIP”).

Chapter 11 Emergence Plan

For reasons discussed in the “Compensation Discussion and Analysis”, the compensation committee granted options under the Chapter 11 Emergence Plan to its named executive officers on March 23, 2006, and to Mr. Ellmer on October 4, 2006. Other than as specified below, each award contains the same principal terms and conditions, which are described below.

Exercise price. The exercise price for the grants on March 23, 2006 to the named executive officers other than Mr. Ellmer, was $10.00, which was the price paid by MatlinPatterson for Company shares on February 28, 2006, in connection with the Plan of Reorganization. The exercise price for the grant on October 4, 2006, to Mr. Ellmer was based on the compensation committee’s determination that $14.00 per share was the fair market value of shares underlying the options on that date.

Vesting. The vesting schedule for each stock option award is indicated in the notes to the “Outstanding Equity Awards at Fiscal Year End” table. However, upon the occurrence of a change in control (referred to in the award agreements as a “Significant Event”) and a “Tag Along Event” (each as defined below in “— Potential Payments Upon Termination or Change of Control”), or upon the termination of the optionee’s full-time employment because of a termination without cause, death, disability or retirement after age 60, the options will become immediately exercisable in full.

Forfeiture. Under the terms of the award agreements, in the event the optionee ceases to be a full-time employee other than for “cause”, the option will terminate at the end of three months following the date the optionee ceases to be a full-time employee. In the event of a termination for “cause”, the option will expire on the date of termination. In the event of a termination due to death, disability or retirement after age 60 while a full-time employee of the Company, the option will terminate at the end of one year following the date of termination.

Exercise. Each stock option may be exercised solely to the extent vested.

Term. Each stock option grant will expire as indicated in the “Outstanding Equity Awards at Fiscal Year End” table.

LTIP

In 2006, the Company granted its named executive officers stock options under the LTIP on September 12, 2006, and to Mr. Ellmer on October 4, 2006. The compensation committee’s reasons for making these grants is discussed in the “Compensation Discussion and Analysis”. Each of the awards contain the same principal terms and conditions which are described below.

Vesting and Exercise Price. Options awarded under the LTIP vest in three installments as follows: 20% on September 12, 2008; 30% on September 12, 2009; and 50% on September 12, 2010. See the “Outstanding Equity Awards at Fiscal Year End” table for exercise price and vesting schedules of options granted under the LTIP. The

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exercise price of the options are all greater than the fair market value of the shares on the date of grant, which was $10.00, on March 28, 2006 and $14.00, on October 4, 2006. However, upon the occurrence of a change in control (referred to in the award agreement as a “Significant Event”) and a “Tag Along Event” (each as defined below in “— Potential Payments Upon Termination or Change of Control”), or upon the termination of the optionee’s full-time employment because of a termination without cause, death, disability or retirement after age 60, the options will become immediately exercisable in full.

Forfeiture. Under the terms of the award agreements, in the event the optionee ceases to be a full-time employee other than for “cause”, the option will terminate at the end of three months following the date the optionee ceases to be a full-time employee. In the event of a termination for “cause”, the option will expire on the date of termination. In the event of a termination due to death, disability or retirement after age 60 while a full-time employee of the Company, the option will terminate at the end of one year following the date of termination.

Exercise. Each stock option may be exercised solely to the extent vested.

Term. Each stock option grant will expire as indicated in the “Outstanding Equity Awards at Fiscal Year End” table.

Non-Equity Incentive Plans

The Company maintained two non-equity incentive plans in 2006, the 2006 Annual Incentive Bonus Plan (the “AI Bonus Plan”) and the 2006 Contribution Improvement Bonus Plan (the “CI Bonus Plan”).

AI Bonus Plan

The Company maintains an annual incentive bonus plan, which provides for payments to be made in the event certain EBITDA targets were met. In 2006, targets were not met and no payments were made under the annual bonus plan. For an additional discussion of the AI Bonus Plan, see “Compensation Discussion and Analysis — Compensation Components for Executive Officers — Annual Cash Bonuses and Cash Incentive Awards”.

CI Bonus Plan

The Company maintained the CI Bonus Plan, which provided for payments to be made in the event certain adjusted pro forma EBITDA targets were met. Payments under the CI Bonus Plan were made in two installments and the aggregate payments are reflected in the “Summary Compensation Table” under the “Non-Equity Incentive Plan” column. Mr. Ellmer did not receive payments under the CI Bonus Plan in 2006 because he commenced employment after the commencement of the applicable performance period. For an additional discussion of the CI Bonus Plan, see “Compensation Discussion and Analysis — Compensation Components for Executive Officers — Annual Cash Bonuses and Cash Incentive Awards”.

Potential Payments Upon Termination or Change of Control

This section outlines the potential payments that may be made to the named executive officers in the event of termination or change of control pursuant to their employment agreements and our benefit plans. As indicated in the “Compensation Discussion and Analysis”, on January 1, 2007, we entered into new employment agreements with Messrs. Denison and Karnik. The descriptions and amounts in “Employment Agreements” and “Potential Payments Upon Termination or Change in Control Table” below reflect the employment agreements in effect during the fiscal year ended December 31, 2006. We have also included a separate section, “New Employment Agreements with Messrs. Denison and Karnik” below, which provides a summary of the key changes to the termination and change of control provisions under our employment agreements with Messrs. Denison and Karnik.

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Employment Agreements

Under the employment agreements, if the named executive officer’s employment is terminated by us without cause (as defined in the employment agreement) or by the named executive officer due to a “material breach” (defined below), the named executive officer is entitled to the following payments and benefits in addition to accrued rights (which includes vesting of equity as described in “Equity Based Compensation” below):

(a) lump sum cash severance equal to 12 months of base salary; and

(b) supplemental severance compensation of 12 monthly payments, each equal to the sum of the monthly COBRA premium the named executive officer would pay if he elected to exercise his COBRA rights, grossed up for taxes, until the named executive officer obtains equal or greater coverage under the plans of a subsequent employer.

The term “material breach” means (i) any material breach by the Company of the employment agreement which is not cured within 10 business days following receipt of written notice of the breach by the individual; (ii) a material reduction in title, rank, responsibilities or compensation (except where done broadly across the individual’s peer group); or (iii) relocation of the individual’s place of primary employment from the Indianapolis, Indiana, metropolitan area (unless the relocation is to the metropolitan area in which the individual’s primary residence is maintained).

In the event of a termination by us for cause, the named executive officer is entitled to payment of accrued rights, except that, if the named executive officer is terminated due to any of the following, accrued or vested bonuses or stock options after such event will be forfeited: (a) the executive officer’s conviction of, pleading guilty to, or pleadingnolo contendere or its equivalent to, a felony or any crime involving moral turpitude; (b) the executive officer’s engaging in any illegal conduct or willful misconduct in the performance of the executive officer’s employment duties; or (c) the executive officer’s engaging in any fraudulent or tortious conduct in the executive officer’s dealing with, or on behalf of, either the Companies (or their affiliates).

In the event the named executive officer’s employment terminates due to his disability (not defined in the employment agreement), the named executive officer will be entitled to the following payments and benefits in addition to accrued rights (which includes vesting of equity as described in “Equity Based Compensation” below):

(a) six months of continued base salary; and

(b) six months of continued health and welfare benefits and travel benefits.

In the event the named executive officer’s employment terminates due to death, the named executive officer will be entitled to the following payments and benefits in addition to accrued rights (which includes vesting of equity as described in “Equity Based Compensation” below):

(a) payment of base salary for an additional three months following the date of death;

(b) three months of health and welfare benefits for the named executive officer’s spouse and dependents; and

(c) 12 months of travel benefits for the named executive officer’s spouse and dependents.

If the named executive officer terminates his employment without good reason and other than for material breach, he is entitled to accrued payments and benefits;provided,however, that the named executive officer will not be entitled to travel benefits if he has not been employed by the Company for at least five years.

The named executive officers are also entitled to certain “double trigger” benefits in the event of termination by the Company without cause or by the named executive officer for “good reason” (defined below), in each case

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within 90 days following a change in control (as defined below). In the event of such termination, the named executive officer will be entitled to the following payments and benefits in addition to accrued rights (which include vesting of equity as described in “Equity Based Compensation” below):

(a) severance compensation equal to 12 months (24 months if terminated without cause) of base salary plus any bonus which was earned before the employment termination date minus, in the case of a termination for good reason, the base salary paid to the executive officer for the period from the change in control to the employment termination date;

(b) continued payments for 12 months (24 months if terminated without cause) of the amount equal to the monthly COBRA premium for the executive officer and any eligible dependents; and

(c) continued travel benefits.

The term “good reason” is defined as (a) a material reduction in the nature or scope of executive officer’s authority or (b) any reduction in the base salary, executive officer’s participation level in any of the incentive plans, or a reduction in the health, welfare or other employment benefits.

For purposes of the employment agreements, the term “change of control” is defined as: (a) the consummation of a sale or other disposition of all or substantially all of the assets of the Company or certain of its affiliates; (b) the acquisition by any individual, entity or group (excluding any individual, entity or group which already has beneficial ownership of more than 50% of the outstanding equity interests of the Company or certain of its affiliates) of beneficial ownership of more than 50% of the outstanding equity interests of any of the Company or certain of its affiliates; or (c) the acquisition by any individual, entity or group (excluding MatlinPatterson) of a controlling interest (i.e. “golden share”) that would allow such individual, entity or group to exercise effective control of and/or veto power with respect to the Company or certain of its affiliates; or (d) solely for purposes of triggering the period during which the named executive officer may terminate the employment agreement for “good reason”, a merger, consolidation, acquisition or other business combination.

In order to receive severance payments, the named executive officer must sign a release. In addition, each employment agreement contains covenants for the benefit of the Company relating to non-competition during the term of employment and post-employment benefits, protection of our confidential information, and non-solicitation of Company employees for one year following termination of the named executive officer’s employment for any reason.

New Employment Agreements with Messrs. Denison and Karnik

Pursuant to the terms of his new employment agreement dated January 1, 2007, Mr. Denison will receive substantially the same payments and benefits as under his prior agreement with the following exceptions:

(a) in the event of a termination by us without cause, by Mr. Denison for material breach, due to death or disability or by Mr. Denison for good reason, Mr. Denison will only receive accrued rights; and

(b) Mr. Denison no longer receives double trigger benefits in the event of a change in control if his employment is terminated by us without cause or by Mr. Denison for good reason following the change in control.

Pursuant to the terms of his new employment agreement dated January 1, 2007, Mr. Karnik will receive substantially the same payments and benefits as under his prior agreement, with the following exceptions:

(a) in the event of a termination by us without cause, by Mr. Karnik for material breach, due to death or disability or by Mr. Karnik for good reason within 90 days following a change in control, Mr. Karnik will receive a lump sum payment equal to the target bonus under the AI Bonus plan for the year of termination, provided that the target bonus will be no less than the target bonus for the immediately preceding year; and

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(b) in the event of a termination by us without cause within 90 days following a change in control, Mr. Karnik will receive a lump sum payment equal to two times the target bonus under the AI Bonus plan for the year of termination, provided that the target bonus will be no less than the target bonus for the immediately preceding year.

In connection with the approval Mr. Karnik’s new employment agreement, the compensation committee acted to provide the same target bonus severance benefit contained in Mr. Karnik’s new agreement to the other named executive officers (other than Mr. Denison), but without formally amending their existing employment agreements.

Equity-Based Compensation

Options granted to the named executive officers are granted pursuant to the Chapter 11 Emergence Plan and the LTIP (together, the “Management Plans”).

Pursuant to the Management Plans, in the event of a termination of the optionee’s full-time employment because of a termination without cause, death, disability (as defined in the option award agreement) or retirement after age 60, the options will immediately become exercisable in full. Furthermore, in the event the optionee ceases to be a full-time employee other than for “cause”, the option will terminate at the end of three months following the date the optionee ceases to be a full-time employee. In the event of a termination for “cause” the option will expire on the date of termination. In the event of a termination due to death, disability or retirement after age 60 while a full-time employee of the Company, the option will terminate at the end of one year following the date of termination.

Pursuant to the terms of the Management Plans or the award agreements with the named executive officers, in the event of a change of control (which are referred to in the Management Plans as a “Significant Event”) or a Tag Along Event (each as defined below), all unvested options immediately vest. For purposes of the equity-based compensation plans, the term “change of control” is defined as: (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of capital stock of the Company entitled to vote generally in any election of directors (“Voting Stock”) would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the outstanding Voting Stock immediately prior to the merger have the same proportionate voting interests in the capital stock of the surviving corporation immediately after the merger, (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Company, (c) the adoption of any plan for the liquidation or dissolution of the Company or (d) during any period of two consecutive years, individuals who at the beginning of such period constituted the entire board of directors ceased for any reason to constitute a majority thereof unless the election, or the nomination for election by our shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.

A “Tag Along Event” is defined as: a sale of our Class A Common Stock, par value $0.0001, by a holder of Class A Common Stock of the Company which holds at least 25% of the voting stock of the Company (a “Qualified Class A Stockholder”) in which the purchaser of such stock acquires shares representing 50% or more of the then outstanding Class A Common Stock of the Qualified Class A Stockholder.

Potential Payments Upon Termination or Change of Control Table

The following table sets forth the estimated payments and other benefits that would have been received by each named executive officer employed by us as of December 29, 2006 (the last business day of 2006), or his or her estate, under existing agreements, plans and arrangements, if the named executive officer’s employment had terminated on December 29, 2006 under the following circumstances:

• voluntary termination by the named executive officer,

• termination by the named executive officer for material breach by us,

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• termination by us without cause,

• termination by the named executive officer with good reason following a change of control,

• termination by us without cause following a change of control,

• termination by us for cause,

• termination as a result of disability or

• termination as a result of death.

The amounts are calculated based on a per share price of $14.00 as of December 29, 2006.

The amounts do not include amounts payable pursuant to our contract, agreements, plans or arrangements to the extent they do not discriminate in scope, terms or operation, in favor of executive officers of the Company and that are available generally to all salaried employees, such as accrued base salary and vacation and long-term disability payments. Amounts also do not include the value of travel benefits as there is no incremental cost to the Company for providing such benefits. As indicated above, the amounts are based on the employment agreement in effect for the fiscal year ended December 31, 2006 and do not reflect any changes to the terms of the employment agreements with Messrs. Denison and Karnik effective as of January 1, 2007. The amounts below are only estimates, and actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company.

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Executive Benefits and Payments Upon Separation	Voluntary Termination on 12/29/2006 ($)	Voluntary Termination for Material Breach ($)	Involuntary Not For Cause Termination on 12/29/2006 ($)	Voluntary Termination for Good Reason (Change of Control) on 12/29/2006 ($)	Involuntary Not for Cause Termination (Change of Control) on 12/29/2006 ($)	For Cause Termination on 12/29/2006 ($)	Disability on 12/29/2006 ($)	Death on 12/29/2006 ($)
John Denison
Cash Severance (1)	0	280,000	280,000	280,000	560,000	0	140,000	70,000
Health and Welfare Benefits (2)	0	0	0	0	0	0	0	0
Equity Treatment (3)	0	440,000	440,000	440,000	440,000		440,000	440,000
Gross-Up for Welfare Benefits (4)	0	0	0	0	0	0	0	0
TOTAL	0	720,000	720,000	720,000	1,000,000		580,000	510,000
Subodh Karnik
Cash Severance (1)	0	270,000	270,000	270,000	540,000	0	135,050	67,500
Health and Welfare Benefits (2)	0	16,625	16,625	16,625	33,250	0	6,192	3,096
Equity Treatment (3)	0	320,000	320,000	320,000	320,000	0	320,000	320,000
Gross-Up for Welfare Benefits (4)	0	9,234	9,234	9,234	20,668	0	0	0
TOTAL	0	615,859	615,859	615,859	913,918	0	461,242	390,596
Douglas Yakola
Cash Severance (1)	0	225,450	225,450	225,450	450,900	0	112,725	56,363
Health and Welfare Benefits (2)	0	15,311	15,311	15,311	30,622	0	6,240	3,120
Equity Treatment (3)	0	220,000	220,000	220,000	220,000	0	220,000	220,000
Gross-Up for Welfare Benefits (4)	0	11,240	11,240	11,240	21,814	0	0	0
TOTAL	0	472,001	472,001	472,001	723,336	0	338,965	279,483
Gary Ellmer
Cash Severance (1)	0	215,000	215,000	215,000	430,000	0	107,500	53,750
Health and Welfare Benefits (2)	0	11,004	11,004	11,004	22,008	0	3,988	1,011
Equity Treatment (3)	0	0	0	0	0	0	0	0
Gross-Up for Welfare Benefits (4)	0	5,850	5,850	5,850	13,146	0	0	0
TOTAL	0	231,854	231,854	231,854	465,154	0	111,488	54,761
Josef Loew
Cash Severance (1)	0	225,000	225,000	225,000	450,000	0	112,500	56,520
Health and Welfare Benefits (2)	0	9,631	9,631	9,631	19,262	0	4,133	1,048
Equity Treatment (3)	0	220,000	220,000	220,000	220,000	0	220,000	220,000
Gross-Up for Welfare Benefits (4)	0	4,494	4,494	4,494	11,118	0	0	0
TOTAL	0	459,125	459,125	459,125	700,380	0	336,633	277,568

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(1) Represents following amounts of base salary: (a) 12 months for Voluntary Termination for Material Breach, Not For Cause Termination, and Voluntary Termination for Good Reason (Change of Control) columns; (b) 24 months for Involuntary Not for Cause Termination (Change of Control) column; (c) 6 months for Disability column; and (d) 3 months for Death column.

(2) Represents estimated value of health and welfare benefits for financial accounting purposes for the following periods after termination: (a) 12 months for Voluntary Termination for Material Breach, Not For Cause Termination, and Voluntary Termination for Good Reason (Change of Control) columns; (b) 24 months for Involuntary Not for Cause Termination (Change of Control) column; (c) 6 months for Disability column; and (d) 3 months for Death column.

(3) Represents difference between the exercise price of the option and the fair market value of a common share on December 29, 2006, which was $14.00, as determined by the compensation committee, multiplied by the number of unvested options held by the named executive officer on December 29, 2006.

(4) Represents tax gross up for welfare benefits, as applicable.

Director Compensation

We do not provide compensation to our employee directors or to directors who are appointed to our board of directors by MatlinPatterson. For our other directors, our general practice is to provide annual fees of $25,000 per director. Harvey Tepner, our audit committee chairman, receives an addition $10,000 fee. In addition, we provide a $2,500 fee per board meeting attended and $1,000 fee per committee meeting attended. Generally, we hold twelve board meetings, four audit committee meetings and four compensation committee meetings per year.

We also provided each non-employee, non-MatlinPatterson-appointed director with options to purchase 10,000 shares and 1,000 restricted shares, each of which vests in three equal annual installments. These grants were made upon the appointment of the director to the board.

The following table sets forth information with respect to compensation earned by our non-employee directors other than directors appointed to our board of directors by MatlinPatterson for the fiscal year ended December 31, 2006. We do not provide compensation to our employee directors or our directors appointed by MatlinPatterson.

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)		Option Awards ($)		All Other Compensation ($)	Total ($)
Gen. Duane H. Cassidy	38,375	10,000	(1)	54,000	(1)	—	102,375
Bernard L. Han	40,875	10,000	(2)	53,500	(2)	—	104,375
Harvey L. Tepner	52,125	10,000	(2)	53,500	(2)	—	115,625

(1) Gen. Cassidy’s options were granted on April 18, 2006, and vest in three equal installments on each of April 18, 2007, April 18, 2008 and April 18, 2009. Gen. Cassidy’s restricted shares were granted on April 18, 2006, and vest in three equal installments on each of April 18, 2006, April 18, 2007 and April 18, 2008. The exercise price of the options and the fair market value of the restricted shares on the date of grant were $10.00 per share.

(2) Messrs. Han and Tepner’s options were granted on March 23, 2006 and vest in three equal installments on each of March 1, 2007, March 1, 2008 and March 1, 2009. Messrs. Han and Tepner’s restricted shares were granted on March 23, 2006, and vested in three equal installments on March 23, 2006, March 23, 2007 and March 23, 2008. The exercise price of the options and the fair market value of the restricted shares on their respective dates of grant were $10.00 per share.

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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with MatlinPatterson

MatlinPatterson Global Advisers LLC and its affiliates (collectively, MatlinPatterson) own approximately 54.1% of our shares of common stock outstanding as of June 30, 2007, on a fully diluted basis. In addition, four of our directors — Messrs. Chodock, Matlin, Schoels and Teitelbaum — serve in various executive capacities at MatlinPatterson. MatlinPatterson and these directors are “related persons” of Global under the Securities Exchange Act of 1934, as amended, and these directors may be considered to have an indirect interest in transactions involving MatlinPatterson given these relationships.

In February 2006, in connection with our Chapter 11 reorganization, ATA entered into a term loan agreement with MatlinPatterson pursuant to which ATA borrowed $24.2 million. The term loan matures in October 2009 and bears interest at a rate of LIBOR plus 10.0% per annum, payable quarterly. As of June 30, 2007, ATA had paid MatlinPatterson $4.0 million in interest and repaid $0.9 million of principal under this loan, leaving $23.3 million of principal outstanding as of such date. On March 16, 2007, the term loan agreement was amended to provide certain covenant relief through June 30, 2007.

In January 2007, ATA entered into a bridge loan agreement with MatlinPatterson pursuant to which ATA borrowed $28.0 million. The bridge loan matures in January 2008 and bears interest at a rate of LIBOR plus 10.0% per annum, payable on the loan maturity date. As of June 30, 2007, ATA had not paid MatlinPatterson any interest and the full principal amount of $28.0 million remained outstanding under this loan. In connection with our proposed acquisition of World Air Holdings, Inc., we and MatlinPatterson are currently contemplating the conversion of the bridge loan into additional Global equity, though there can be no assurances that such a conversion will occur.

The terms of our transactions with MatlinPatterson may be more or less favorable than those we could have negotiated with third parties.

Related Party Transaction Policy

Global currently does not have a written, stand-alone policy for evaluating related party transactions. The audit committee of the board of directors reviews any related party transactions in which Global is or will be a participant and that involves an amount exceeding $120,000. The audit committee’s review procedures include evaluating the following:

• the nature of the relationships among the parties;

• the materiality of the transaction to Global;

• the related person’s interest in the transaction; and

• the benefit of the transaction to the related person and to Global.

Additionally, in cases of transactions in which a director or executive officer may have an interest, the audit committee also will evaluate the effect of the transaction on such individual’s willingness or ability to properly perform his or her duties at Global. The audit committee may utilize, as necessary, Global’s Code of Ethics, which may be viewed atwww.ata.com.

Global’s bridge loan from MatlinPatterson described above under “—Transactions with MatlinPatterson” was not independently reviewed by the audit committee but was unanimously approved by Global’s board of directors.

Director Independence

See “Directors and Executive Officers — Our Board of Directors” and “— Committees of the Board of Directors”.

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ITEM 8. LEGAL PROCEEDINGS

We are subject to a small number of claims and litigation matters that have arisen in the ordinary course of business. Although the final outcome of any legal proceeding is subject to many variables and cannot be predicted with any degree of certainty, management currently believes that the ultimate outcome of these legal proceedings will not have a material adverse effect on our long-term results of operations, cash flows or financial position.

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

There is currently no established trading market for our common stock. As of June 30, 2007, the number of shares of our common stock subject to outstanding options and warrants was 3,107,552.

Holders of Record

As of June 30, 2007, there were 1,245 holders of record of our common stock.

Dividends

We have not in the past paid, and do not intend to pay, cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of our current financing agreements preclude us, and any future financing agreements may preclude us, from paying any dividends.

Equity Compensation Plans

The following table sets forth information as of December 31, 2006 with respect to our equity compensation plans.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders	—		—	—
Equity compensation plans not approved by security holders	2,011,334	$	33.58	704,090
Total	2,011,334	$	33.58	704,090

For additional information regarding our equity compensation plans, see “Recent Sales of Unregistered Securities — Equity Compensation Plans” and “Note 8 — Stock Option Plans” of the notes to our audited consolidated financial statements as of and for the ten months ended December 31, 2006.

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ITEM 10.    RECENT SALES OF UNREGISTERED SECURITIES

Pursuant to our Amended Joint Chapter 11 Plan for the Reorganizing Debtors, or Chapter 11 Plan, we issued and/or sold shares of our common stock and other securities in four separate series of transactions. Each of these transactions was exempt from registration under the Securities Act pursuant to Section 4(2) thereof because such issuances and/or sales did not involve any public offering of securities.

MatlinPatterson Investments

In December 2005, MatlinPatterson provided ATA with $30 million in debtor-in-possession term loan financing. As part of this financing, ATA incurred a funding fee of $3.6 million that was treated as a principal advance under the loan. The term loan matured in February 2006 and bore interest at a rate of 10.0% per annum, payable on the loan maturity date. Pursuant to the terms of the term loan, MatlinPatterson could elect to receive repayment of the principal amount of the loan in the form of shares of Global common stock valued at $10.00 per share. MatlinPatterson exercised this option in February 2006 and converted $34.2 million, including the funding fee and interest, into 3.4 million shares of our common stock.

Also in February 2006, MatlinPatterson entered into an investment agreement with us pursuant to which it purchased 4.1 million shares of our common stock for $41 million in cash.

Equity Distribution Plan

Pursuant to the Chapter 11 Plan, we created an equity distribution plan that authorized the distribution of (i) 752,688 shares of our common stock, valued at $10.00 per share, and (ii) warrants to purchase 448,029 shares of our common stock at an exercise price of $10.00 per share (subject to specified adjustments), in each case to certain of our unsecured creditors in satisfaction of the claims of such creditors. Over the course of four distributions by our agent between February 2006 and December 2006, we issued 710,150 of the shares and 422,708 of the warrants, which were allocated among creditors according to a pro-rata formula based upon the total number of allowed claims and our reserve. As of June 30, 2007, 8,961 warrants were held in reserve and an additional 16,360 warrants were held for satisfaction of disputed claims. We expect that distributions will continue as long as disputed claims remain outstanding. The warrants are exercisable at any time up until February 28, 2011.

In February 2006, we also adopted the Nonqualified Stock Option Plan for Flight Deck Crewmembers of ATA Airlines, Inc. for cockpit crewmember employees (the “ALPA Plan”). The ALPA Plan was created in consideration of ALPA’s collective bargaining concessions in connection with our reorganization. Under the ALPA Plan, options to purchase 492,339 shares of our common stock, at an exercise price of $10.00 per share (subject to specified adjustments), were granted to 1,137 members of ALPA. The options vest in two tranches —half on August 28, 2007 and half on February 28, 2009 — and expire on May 12, 2011.

Equity Compensation Plans

Pursuant to the Chapter 11 Plan, on February 28, 2006, we adopted the following share-based compensation plans for our officers and key employees, including our board of directors: the Stock Option Plan for Management Employees of New ATA Holdings Inc. and the Stock Incentive Plan for Non-Employee Directors of New ATA Holdings Inc. In September 2006, we also adopted the New ATA Holdings Inc. 2006 Long Term Incentive Plan (together with the Stock Option Plan for Management Employees and the Stock Incentive Plan for Non-Employee Directors, the “Management Plans”). Pursuant to the Management Plans, for the period from March 1, 2006 through June 30, 2007, shares and options to purchase shares totalling 2,170,184 of our common stock have been granted and 545,240 shares have been reserved for future issuance. These options were awarded to approximately 40 of our officers, directors and employees who are participants in the Management Plans. The exercise prices for the options granted under the Management Plans range from $10.00 to $60.00 (subject to specified adjustments), with a weighted average exercise price of $33.47. The options vest periodically through September 12, 2010 and expire periodically until January 1, 2014.

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Rights Offering

Pursuant to the Chapter 11 Plan, between December 2005 and January 2006 we offered non-transferable subscription rights for 2.5 million shares of our common stock to holders of certain allowed claims who were U.S. citizens and accredited investors, as defined in Rule 501(a) of Regulation D under the Securities Act. The subscription rights entitled the holders thereof to receive a portion of the subject shares, valued at $10.00 per share, in consideration of and proportion to the respective values of the holders’ claims, which totaled approximately $1.1 billion. The rights offering resulted in the fully-subscribed distribution of 2.5 million shares of our common stock to approximately fifteen creditors. MatlinPatterson was the exclusive standby purchaser for any unsubscribed shares but was not required to make any purchases.

ITEM 11.    DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED

The following description summarizes the material terms of our capital stock and provisions of our amended and restated certificate of incorporation, as amended (“certificate of incorporation”) and amended and restated by-laws (“by-laws”). Because this is only a summary, it does not contain all of the information that may be important to you. For a complete description, you should refer to our certificate of incorporation and by-laws, copies of which are filed as exhibits to this Form 10, and to the applicable provisions of the Delaware General Corporation Law, or the DGCL.

Authorized Capitalization

Our authorized capital stock consists of 50,000,000 shares, as follows:

• 14,708,480 shares of Class A common stock, par value $0.0001 per share; and

• 35,291,520 shares of undesignated capital stock, par value $0.0001 per share.

As of June 30, 2007, 10,755,688 shares of our Class A common stock were issued and outstanding and no other shares of our capital stock were issued and outstanding.

As of June 30, 2007, there were 1,245 holders of record of our Class A common stock.

Class A Common Stock

Voting Rights. The holders of our Class A common stock are entitled to one vote per share. Except as otherwise required by law, holders of Class A common stock will vote as a single class on all matters presented to the stockholders for a vote. Our certificate of incorporation and by-laws do not provide for cumulative voting with respect to the election of directors. Directors will be elected by a plurality of the votes cast in the election of directors once a quorum is present. All other matters will be decided by holders of stock having a majority of the votes that could be cast by the holders of all stock entitled to vote on such matters present at the meeting or by proxy.

Dividend Rights.All shares of our Class A common stock are entitled to share equally in any dividends our board of directors may declare from legally available sources.

Liquidation Rights. Upon liquidation or dissolution of the Company, whether voluntary or involuntary, all shares of our Class A common stock are entitled to share equally in the assets available for distribution to stockholders after payment of all of our prior obligations, including our preferred stock, if any.

Preemptive Rights.Our by-laws provide that, prior to an initial public offering of the Company’s common stock, whenever the Company proposes to sell and issue (i) any shares of its common or preferred stock, (ii) any rights, options or warrants to purchase shares of its common or preferred stock or (iii) securities of any type that are or may become convertible into or exchangeable for shares of its common or preferred stock, each holder of

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the Company’s Class A common stock shall have the right to purchase such securities in proportion to its ownership of the Company’s outstanding common stock. If such preemptive rights are not exercised within a designated period of time, the Company may proceed with such sale to a third party. Certain issuances of securities by the Company, including in connection with equity compensation plans, mergers and acquisitions, stock splits and dividends, as well as issuances expressly designated by our board of directors, shall be exempt from these preemptive rights.

Co-Sale Rights. Our by-laws provide that, prior to an initial public offering of the Company’s common stock, in the event that any holder of the Company’s Class A common stock that holds at least 25% of the Company’s voting stock and proposes to sell shares to a purchaser who will, by virtue of such transaction, acquire (i) shares representing 20% or more of the then-outstanding shares of the Company or (ii) the power to appoint a majority of the members of our board of directors, such holder must offer the other holders of Class A common stock the right to participate in such sale in proportion to their respective ownership percentages of the Company’s common stock relative to that of all holders of Class A common stock. To the extent such rights are exercised, the number of shares that the original selling stockholder may sell in such transaction shall be correspondingly reduced.

Other Matters. The holders of our Class A common stock have no conversion rights and our Class A common stock is not subject to further calls or assessments by us. There are no redemption or sinking fund provisions applicable to our Class A common stock. All outstanding shares of our Class A common stock are fully paid and non-assessable.

Preferred Stock

No shares of our preferred stock currently are outstanding. Under our certificate of incorporation, our board of directors, without further action by our stockholders, is authorized to issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting or other powers or rights of holders of our Class A common stock. The issuance of preferred stock also could have the effect, under certain circumstances, of delaying, deferring or preventing a change of control of our company.

Registration Rights

Our by-laws provide that if the Company proposes, in connection with a public stock offering for cash, to register under the Securities Act any equity securities owned by a holder of the Company’s Class A common stock that holds at least 25% of the Company’s voting stock, the Company shall offer each other holder of Class A common stock the opportunity to have its shares included in such registration, subject to certain exceptions and underwriter cutbacks.

Anti-Takeover Effects of Our Certificate of Incorporation and By-laws

Our certificate of incorporation and by-laws contain some provisions that are intended to enhance the likelihood of continuity and stability in the composition of our board of directors. These provisions also may have the effect of delaying, deferring or preventing a future takeover or change in control unless the takeover or change in control is approved by our board of directors.

Undesignated Preferred Stock. The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. This ability may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.

Advance Notice Requirements for Stockholder Proposals. Our bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders must provide written notice of their proposal to the

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corporate secretary not less than 90 days nor more than 135 days prior to the anniversary date of the immediately preceding annual meeting. Our by-laws also specify requirements as to the form and content of a stockholder’s notice. These provisions may impede stockholders’ ability to bring matters before an annual meeting of stockholders or make nominations for directors at an annual meeting of stockholders.

Special Meetings of Stockholders.Our by-laws provide that special meetings of our stockholders may be called only by the chairman of our board of directors, if any, or pursuant to a resolution approved by a majority of our board of directors, or a committee of the board of directors authorized to call such meetings.

Authorized but Unissued Shares.Our authorized but unissued shares of Class A common stock and preferred stock will be available for future issuance without stockholder approval. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of Class A common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

Certain Other Provisions of Our Certificate of Incorporation and By-Laws and Delaware Law

Stockholder Action by Written Consent. Pursuant to our by-laws, any action required or permitted to be taken at an annual or special stockholders’ meeting may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote on such action were present and voted.

Delaware “Business Combination” Statute.We have elected not to be subject to Section 203 of the DGCL, which generally prohibits a publicly held Delaware corporation from engaging in various “business combination” transactions with any “interested stockholder” for a period of three years after the date of the transaction in which the person became an “interested stockholder”, unless the transaction is approved by the board of directors before that person becomes an “interested stockholder” or another exception is available. A “business combination” includes mergers, asset sales and other transactions resulting in a financial benefit to a stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of a corporation’s voting stock. The statute is intended to prohibit or delay the accomplishment of mergers or other takeover or change in control attempts that do not receive the prior approval of the board of directors. By virtue of our decision to elect out of the statute’s provisions, the statute does not apply to us, but we could elect to be subject to Section 203 in the future by amending our certificate of incorporation.

Amendments to Our Certificate of Incorporation and By-Laws.Pursuant to our certificate of incorporation, our board of directors may amend our by-laws, subject to any specific limitation on such power contained in any by-laws adopted by stockholders, except that the stockholders are not entitled to amend the by-laws in a manner that would materially and adversely affect the rights of the holders of our Class A common stock unless such amendment has been approved by our board of directors. The stockholders are not entitled to amend the foregoing provision in our certificate of incorporation in a manner that would materially and adversely affect the rights of the holders of our Class A common stock unless such amendment has been approved by our board of directors.

Limitations on Non-U.S. Citizen Ownership.Non-U.S. citizens may not own or control more than 25% of the voting power of our outstanding capital stock entitled to vote.

Limitations on Liability and Indemnification of Officers and Directors.The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our organizational documents include provisions that eliminate, to the extent allowable under the DGCL, the personal liability of directors for monetary

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damages for actions taken as a director. Our organizational documents also provide that we must indemnify and advance reasonable expenses to our directors and officers to the fullest extent authorized by the DGCL. We will also be expressly authorized to purchase and maintain directors’ and officers’ insurance for our directors, officers and certain employees for some liabilities.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

Transfer Agent and Registrar

The transfer agent and registrar for our Class A common stock is Registrar & Transfer Company. Its address is 10 Commerce Drive, Cranford, New Jersey 07015.

ITEM 12.    INDEMNIFICATION OF DIRECTORS AND OFFICERS

The following is a summary of the statutes, certificate of incorporation and by-law provisions, contracts or other arrangements under which our directors and officers are insured or indemnified against liability in their capacities as such. All of our directors and officers are covered by insurance policies maintained and held in effect by Global against certain liabilities for actions taken in their capacities as such, including liabilities under the Securities Act.

Global is incorporated under the laws of the State of Delaware. Section 145 of the DGCL provides that a corporation may indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or complete action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any such person serving in any such capacity who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action or suit by or the right of the corporation to procure a judgment in its favor, against expenses actually and reasonably incurred in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court or Chancery or such other court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Our amended and restated certificate of incorporation, as amended, and amended and restated by-laws limit the liability of its directors and officers to the fullest extent permitted under the DGCL. The certificate of incorporation specifies that the directors and officers will not be personally liable for monetary damages for breach of fiduciary duty as a director or officer. This limitation does not apply to actions by a director or officer

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that do not meet the standards of conduct which make it permissible under the DGCL for us to indemnify such director or officer. Additionally, we have entered into employment agreements with certain of our officers that include indemnification provisions which may, in certain cases, be broader than the specific indemnification provisions under current applicable law.

ITEM 13.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our predecessor’s and our financial statements appearing on pages F-1 through F-51 hereof are incorporated herein by reference. The financial statements of World Air Holdings, Inc. appearing on pages F-52 through F-97 hereof are incorporated herein by reference.

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 15.    FINANCIAL STATEMENTS AND EXHIBITS

(a) List of Financial Statements Filed

Our predecessor’s and our financial statements, as well as the financial statements of World Air Holdings, Inc. appear at the end of this Form 10. See the table of contents to the financial statements on page F-1.

(b) Exhibits

See the Exhibit Index following the signature page to this Form 10, which Exhibit Index is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

	GLOBAL AERO LOGISTICS INC.
Date: August 27, 2007
	By:	/s/    SUBODH KARNIK
		Subodh Karnik
		President and Chief Executive Officer

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EXHIBIT INDEX

Exhibit Number	Description
	Exhibits to be filed by amendment.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Audited Consolidated Financial Statements of Global Aero Logistics Inc. (f/k/a New ATA Holdings Inc.)
Report of Independent Registered Public Accounting Firm	F-3
Consolidated Balance Sheet at December 31, 2006	F-4
Consolidated Statements of Operations for the ten months ended December 31, 2006	F-5
Consolidated Statements of Shareholders’ Equity for the ten months ended December 31, 2006	F-6
Consolidated Statements of Cash Flows for the ten months ended December 31, 2006	F-7
Notes to Consolidated Financial Statements	F-8
Unaudited Consolidated Financial Statements of Global Aero Logistics Inc.
Unaudited Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006	F-23
Unaudited Consolidated Statements of Operations for the six months ended June 30, 2007 and the two months ended February 28, 2006 and four months ended June 30, 2006	F-24
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2007 and the two months ended February 28, 2006 and four months ended June 30, 2006	F-25
Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and the two months ended February 28, 2006 and four months ended June 30, 2006	F-26
Notes to Unaudited Consolidated Financial Statements	F-27
Audited Consolidated Financial Statements of Predecessor
Report of Independent Registered Public Accounting Firm	F-31
Consolidated Balance Sheets at December 31, 2005 and December 31, 2004	F-32
Consolidated Statements of Operations for the two months ended February 28, 2006 and for the years ended December 31, 2005, 2004 and 2003	F-33
Consolidated Statements of Shareholders’ Deficit for the two months ended February 28, 2006 and for the years ended December 31, 2005, 2004 and 2003	F-34
Consolidated Statements of Cash Flows for the two months ended February 28, 2006 and for the years ended December 31, 2005, 2004 and 2003	F-35
Notes to Consolidated Financial Statements	F-37
World Air Holdings, Inc.
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-55
Consolidated Balance Sheets at December 31, 2006 and 2005	F-57
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004	F-59
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2006, 2005 and 2004	F-60
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004	F-61
Notes to Consolidated Financial Statements	F-62

F-1

	Page
Unaudited Interim Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheet at March 31, 2007 and December 31, 2006	F-86
Unaudited Condensed Consolidated Statements of Income for the three months ended March 31, 2007 and 2006	F-88
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2007 and 2006	F-89
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006	F-90
Notes to Unaudited Condensed Consolidated Financial Statements	F-91

F-2

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

New ATA Holdings Inc.

We have audited the accompanying consolidated balance sheet of New ATA Holdings Inc. and Subsidiaries as of December 31, 2006, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the ten month period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of New ATA Holdings Inc. and Subsidiaries at December 31, 2006, and the consolidated results of their operations and their cash flows for the ten month period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

Ernst & Young LLP

Indianapolis, Indiana

March 16, 2007

F-3

NEW ATA HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Dollars in thousands)

	December 31, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	62,209
Receivables, net of allowance for doubtful accounts — $1,808		64,520
Inventories, net		28,663
Prepaid expenses and other current assets		31,047
Total current assets		186,439
Property and equipment:
Flight equipment		77,187
Facilities and ground equipment		21,737
		98,924
Accumulated depreciation		(8,977	)
		89,947
Restricted cash		27,696
Military contract intangible, net of amortization $4,377		48,111
Other intangibles, net of amortization $941		5,421
Deposits and other assets		12,752
	$	370,366
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt	$	8,530
Current maturities of long-term debt from affiliates		2,619
Accounts payable		4,984
Air traffic liabilities		61,523
Accrued compensation and benefits		31,500
Accrued flight expenses		21,612
Other accrued expenses and current liabilities		23,673
Total current liabilities		154,441
Long-term debt, less current maturities		114,813
Long-term debt, less current maturities, from affiliates		20,700
Other deferred items		8,122
Total long-term liabilities		143,635
Commitments and contingencies
Shareholders’ equity:
Common stock at par, $.0001 par value; authorized 50,000,000 shares; issued — 10,710,150 shares		1
Warrants		1,434
Additional paid-in capital		107,317
Accumulated deficit		(36,462	)
Total shareholders’ equity		72,290
Total liabilities and shareholders’ equity	$	370,366

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

F-4

NEW ATA HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

	10 Month Period Ended December 31, 2006
Operating revenues:
Scheduled service	$	332,255
Charter		288,256
Other		16,551
Total operating revenues		637,062
Operating expenses:
Fuel and oil		202,613
Salaries, wages and benefits		150,929
Aircraft rentals		69,439
Flight Costs		52,769
Handling, landing and navigation fees		48,553
Selling and marketing		36,452
Aircraft maintenance, materials and repairs		29,051
Depreciation and amortization		17,386
Asset impairments and aircraft retirements		13,476
Other		41,045
Total operating expenses		661,713
Operating loss		(24,651	)
Other income (expense):
Interest income		6,154
Interest expense		(18,231	)
Other		266
Other expense		(11,811	)
Loss before income taxes		(36,462	)
Income taxes		—
Net loss	$	(36,462	)
Basic and diluted earnings per common share:
Average Shares Outstanding (in thousands)	$	10,753
Net loss per share		(3.39	)

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

F-5

NEW ATA HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in thousands)

	Common Stock		Warrants		Additional Paid-in Capital		Accumulated Deficit			Total Shareholders’ Equity
Balance as of February 28, 2006 (Predecessor Company)	$	—	$	—	$	—	$	—		$	—
Allocation of New ATA Holdings Inc. reorganization value in connection with emergence from Chapter 11		1		1,434		106,092		—		$	107,527
Balance as of March 1, 2006		1		1,434		106,092		—		$	107,527
Net loss		—		—		—		(36,462	)		(36,462	)
Stock-based compensation		—		—		1,225		—			1,225
Balance as of December 31, 2006	$	1	$	1,434	$	107,317	$	(36,462	)	$	72,290

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

F-6

NEW ATA HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	10 Months Ended December 31, 2006
Operating activities:
Net loss	$	(36,462	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		17,386
Asset impairments and aircraft retirements		13,476
Other non-cash items		7,459
Changes in operating assets and liabilities:
Receivables		18,694
Inventories		3,031
Prepaid expenses and other current assets		(10,579	)
Accounts payable		3,729
Accrued expenses		(40,928	)
Air traffic liabilities		(10,653	)
Net cash used in operating activities		(34,847	)
Investing activities:
Capital expenditures		(27,570	)
Proceeds from sale of assets		20,561
Proceeds from sale of Investment in BATA		18,350
Additions to deposits		(3,047	)
Proceeds from sales of property and equipment		395
Net cash provided by investing activities		8,689
Financing activities:
Emergence financing, net of re-payment of DIP financing		68,651
Payments on long-term debt		(19,158	)
Payments on long-term debt from affiliates		(860	)
Decrease in other restricted cash		3,291
Net cash provided by financing activities		51,924
Increase in cash and cash equivalents		25,766
Cash and cash equivalents, beginning of period		36,443
Cash and cash equivalents, end of period	$	62,209
Supplemental disclosures:
Cash payments for:
Interest	$	17,445
Income tax refunds, net	$	(301	)
Finance and investing activities not affecting cash:
Notes payable issued in connection with property and equipment purchase	$	1,900

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

F-7

NEW ATA HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Fresh-Start Reporting

New ATA Holdings Inc., through its principal subsidiary, ATA Airlines, Inc. (“ATA”), is a low cost airline providing scheduled service to more than 60 markets and charter service throughout the world to the U.S. military, independent tour operators and specialty charter customers. ATA has been operating for 33 years.

In the fourth quarter of 2004, ATA Holdings Corp. (“Holdings” and collectively with its subsidiaries, the “Predecessor Company”) and seven of its subsidiaries, including ATA, C8 Airlines, Inc. (“C8”) and Ambassadair Travel Club, Inc. (“Ambassadair” and collectively, with the other seven entities, the “Debtors”), filed voluntary petitions for relief (the “Filing”) under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Indiana (the “Bankruptcy Court”).

Holdings, ATA, American Trans Air ExecuJet, Inc. (“ExecuJet”), ATA Cargo, Inc. (“ATA Cargo”) and ATA Leisure Corp. (“Leisure”) (collectively, the “Reorganizing Debtors”) received an order approving the Amended Joint Chapter 11 Plan for the Reorganizing Debtors as immaterially modified (the “Plan”) on January 31, 2006. The Plan became effective on February 28, 2006 (the “Effective Date”). Holdings did not reorganize and, prior to the Effective Date, a new holding company was formed (“New ATA Holdings”). ATA Cargo and Leisure were merged into ATA prior to the Effective Date. ATA, ExecuJet, ATA Cargo, and Leisure, together with their new parent companies, New ATA Holdings Inc., New ATA Investment Inc. and New ATA Acquisition Inc., are referred to collectively as the “Company” or “Successor Company.” Holdings dissolved in mid-2006. The Chapter 11 cases of Ambassadair, Amber Travel and C8 continue separately.

Upon the Effective Date, an investment agreement was executed with MatlinPatterson Global Opportunities Partners II, L.P. and/or MatlinPatterson Global Opportunities Partners (Cayman) II, L.P. (including affiliates, “MatlinPatterson” or “New Investor”). As a result, MatlinPatterson holds 69.75% of the outstanding Class A Common Stock of New ATA Holdings.

The Plan provided for the full payment pursuant to the Bankruptcy Code of all allowed administrative and priority claims, and provided for the restructuring of the loan agreement with, and the allowed secured loan indebtedness claim of, the Air Transportation Stabilization Board (“ATSB”) and other lenders (the ATSB and such other lenders collectively referred to as the “ATSB Loan Lenders”). Holders of general unsecured claims of $1.0 million or less (“Convenience Class Claims”) were approved to be paid a pro rata share, based on 1.0% recovery, up to a maximum total payout of $1.5 million. Holders of general unsecured claims over $1.0 million will recover an estimated 0.57% to 0.71% of their claim in shares and warrants of New ATA Holdings. On the Effective Date, unsecured creditors receiving shares owned approximately 7.0% of the Class A Common Stock of New ATA Holdings, prior to the issuance of shares under warrants and options. This percentage does not include shares of New ATA Holdings purchased by unsecured creditors pursuant to a rights offering which was a part of the Plan. Claim amounts can be resolved for up to 120 days after the Effective Date, unless otherwise extended by the Bankruptcy Court. There are no material unresolved claims as of December 31, 2006.

All outstanding shares of Holdings were cancelled on the Effective Date under the Plan and pursuant to the Bankruptcy Code.

In accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code,” (“SOP 90-7”), the Company adopted fresh-start reporting as of the Effective Date. As of the Effective Date, the Company was a new reporting entity with no retained earnings or accumulated deficit.

Fresh-start reporting reflects the value of the Company as determined in the Plan. Fresh-start reporting required the Company to allocate its reorganization value to its assets and liabilities based upon their estimated

F-8

fair value in conformity with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 141,Business Combinations (“FAS 141”). In addition, fresh-start reporting also requires that all liabilities, other than deferred taxes, be stated at the present value of amounts to be paid using appropriate interest rates. The determination of the fair value of assets and liabilities is subject to significant estimation and assumptions and there can be no assurances that the estimates, assumptions and values reflected in the valuations will be realized and actual results could vary materially. In accordance with FAS 141, the preliminary allocation of the reorganization value is subject to additional adjustments within one year from the Effective Date to the extent that improved information on assets and liability valuations become available.

The equity value of the Company of $107.5 million was determined pursuant to the Company’s Plan and the terms of the Investment Agreement and Rights Offering. Under the terms of the Investment Agreement and Rights Offering, ten million shares of the Class A Common Stock of New ATA Holdings were issued at the Effective Date for an aggregate equity investment of $100.0 million. In addition, under the Plan, unsecured creditors of the Predecessor Company will receive approximately 753,000 shares of the Class A Common Stock of New ATA Holdings, (valued at $7,530,000) and 448,029 warrants as settlement of their pre-petition claims. These shares were valued consistently with the shares issued under the Investment Agreement and Rights Offering for the purpose of determining equity value.

In applying fresh-start reporting, adjustments to reflect the fair value of assets and liabilities, on a net basis, and the write-off of the Predecessor Company’s equity accounts resulted in a gain of $178.9 million. In addition, a gain of $1.305 billion was recorded related to the discharge of pre-petition debt and liabilities. The Company’s fair value assigned to its net assets exceeded its reorganization value (defined as “excess”). In accordance with FAS 141, this excess of $6.8 million was allocated as a pro-rata reduction to the fair value assigned to certain long-lived assts including property and equipment and intangible assets.

F-9

The effects of the Plan of Reorganization and fresh-start reporting on the Company’s balance sheet were as follows (in thousands):

	Predecessor February 28, 2006			(a) Exit Financing		(b) Reinstatement of Liabilities and Extinguishment of Debt		(c) Revaluation of Assets and Liabilities		Successor March 1, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	36,443		68,651		—		—		$	105,094
Receivables, net of allowance for doubtful accounts		82,697		—		(352	)	869			83,214
Inventories, net		30,426		—		—		2,344			32,770
Assets held for sale		—		—		—		21,191			21,191
Prepaid expenses and other current assets		22,507		—		—		(2,241	)		20,266
Total Current Assets		172,073		68,651		(352	)	22,163			262,535
Property and Equipment:
Flight equipment		114,717		34,942		—		(88,372	)		61,287
Facilities and ground equipment		121,967		—		—		(101,136	)		20,831
		236,684		34,942		—		(189,508	)		82,118
Accumulated depreciation		(138,089	)	—		—		138,089			—
Property and equipment, net		98,595		34,942				(51,419	)		82,118
Military contract intangible		—		—		—		52,488			52,488
Other intangibles		—		—		—		6,362			6,362
Goodwill		2,411		—		—		(2,411	)		—
Prepaid aircraft rent		154		—		—		(154	)		—
Investment in BATA		4,539		—		—		13,811			18,350
Restricted cash		33,960		—		—		—			33,960
Deposits and other assets		14,639		—		—		(4,934	)		9,705
Total Assets	$	326,371		103,593		(352	)	35,906		$	465,518
LIABILITIES AND SHAREHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt	$	652		1,648		3,450		—		$	5,750
Short-term debt		54,777		(54,777	)	—		—			—
Accounts payable		1,255		—		—		—			1,255
Air traffic liability		58,828		—		—		13,348			72,176
Accrued expenses and other current liabilities		132,570		(579	)	11,825		(26,637	)		117,179
Total current liabilities		248,082		(53,708	)	15,275		(13,289	)		196,360
Long-term debt, less current maturities		8,058		57,473		93,500		—			159,031
Other deferred items		65,847		—		—		(63,247	)		2,600
Liabilities subject to compromise		1,423,502		(172	)	(1,421,307	)	(2,023	)		—
Shareholders’ equity (deficit):
Holdings preferred stock		—		—		—		—			—
Holdings common stock		66,013		—		—		(66,013	)		—
New ATA Holdings common stock		—		1		0		—			1
Holdings Treasury stock		(24,778	)	—		—		24,778			—
Warrants		—		1,434		—		0			1,434
Additional paid-in capital		18,166		98,565		7,527		(18,166	)		106,092
Retained earnings		(1,478,519	)	—		1,304,653		173,866			—
Total shareholders’ equity (deficit)		(1,419,118	)	100,000		1,312,180		114,465			107,527
Total liabilities and shareholders’ equity (deficit)	$	326,371		103,593		(352	)	35,906		.$	465,518

(a) Exit Financing.This column represents the conversion of debtor-in-possession financing from MatlinPatterson, including interest, of $34.2 million into Class A Common Stock of New ATA Holdings,

F-10

the additional purchase by MatlinPatterson of 40.8 million shares of Class A Common Stock of New ATA Holdings, and emergence financing from MatlinPatterson of $24.2 million. It also represents the $25.0 million received under the Rights Offering for 2.5 million shares of Class A Common Stock of New ATA Holdings, the issuance of 448,029 warrants with an exercise price of $10.00 per share for unsecured creditors immediately exercisable and the payoff of the debtor-in-possession financing from Southwest Airlines Co. (“Southwest”) of $21.1 million. In addition, the column reflects the impact of ATA amending two capital leases on Boeing 757-200 aircraft on the Effective Date.

(b) Reinstatement of Liabilities and Debt Extinguishment.This column reflects the discharge of $1.421 billion of liabilities subject to compromise pursuant to the Plan. Most of these claimants are only entitled to receive such distributions of cash and equity as provided under the Plan. The column reflects the reinstatement of $11.8 million of estimated administrative, cure and priority claims that were unpaid as of the Effective Date and the impact of the Restructured ATSB Loan. In the fourth quarter of 2006, the Company recorded a reduction of approximately $0.5 million to the estimated administrative, cure and priority claims amount to reflect current estimates of the claims. In addition, the column reflects the equity allocation to the unsecured creditor group of $7.5 million pursuant to the terms of the Plan of Reorganization.

(c) Revaluation of Assets and Liabilities.This column represents adjustments made to reflect assets and liabilities at estimated fair value including:

• Reclassification of $21.2 million in inventory and property and equipment to assets held for sale. The Company was negotiating the sale of these assets at the Effective Date, and entered into definitive agreements in April 2006.

• An approximate $30.2 million reduction to the value of net property and equipment to reflect its estimated fair value, net of the reclassification of property and equipment to assets held for sale.

• The elimination of the Predecessor Company’s equity accounts.

• The elimination of certain deferred gain accounts related to the Company’s aircraft leases and assignment of gates at Chicago Midway Airport to Southwest.

• Recognition of a $52.5 million intangible asset related to the Company’s contract with the U.S. Government to carry military passengers. In addition, it includes the recognition of $6.4 million in other identifiable intangible assets. (See “Note 2 — “Summary of Significant Accounting Policies”)

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated. ATA accounted for over 99% of the Company’s operating revenues for the ten-months ended December 31, 2006. ATA is a U.S.-certificated air carrier providing domestic and international charter and scheduled passenger air services.

Use of Estimates

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

Cash Equivalents

Cash equivalents are carried at cost, which approximates market, and are primarily comprised of money market funds of $60.3 million and investments in U.S. Treasury repurchase agreements of $1.9 million. All cash equivalents have maturity dates of three months or less at the time of purchase.

F-11

Inventories

Inventories consist primarily of expendable aircraft spare parts, fuel and other supplies. In accordance with fresh-start accounting, inventories were stated at fair value as of March 1, 2006. Inventories purchased after this date are recorded at average cost. The Company records an allowance for obsolescence against its aircraft parts inventory by amortizing the book value of the aircraft parts inventory, net of an estimated residual value, over the related fleet’s estimated useful service life. The obsolescence allowance at December 31, 2006 was $1.1 million. Inventories are charged to expense when consumed.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist mainly of deposits under leases or other agreements that will be returned within the next 12 months and the prepayment of goods or services to be realized in future months. Also included are deposits received in advance of certain charter flights, which are held in an escrow account until the charter service is provided. In addition to these usual components, as of December 31, 2006, the Company had $10.5 million of deposits related to its commitment to acquire seven McDonnell Douglas DC-10-30 aircraft. The Company expects these deposits to be returned once financing is completed by mid-2007. (See “Note 11 — Commitments and Contingencies”)

Property and Equipment

In accordance with fresh-start accounting, property and equipment, including owned aircraft, was recorded at its fair value as of March 1, 2006. The Company records additions to property and equipment at cost. Property and equipment is depreciated to residual values over their estimated useful service lives using the straight-line method. Leasehold improvements and rotable parts related to the Company’s aircraft are depreciated over the period of benefit or the terms of the related leases, whichever is less. Properties under capital leases are amortized on a straight-line basis over the life of the lease. The Company’s facilities and ground equipment is generally depreciated over lives of three to seven years.

Airframe and Engine Maintenance

The Company has an engine manufacturers’ maintenance agreement for engines that power the Boeing 737-800 aircraft that provides for the Company to pay a monthly fee per engine flight hour in exchange for major overhaul and maintenance of those engines. The Company expenses the cost per flight hour under this agreement as incurred. The cost of engine overhauls for remaining fleet types, and the cost of airframe overhauls for all fleet types are capitalized when performed and amortized over estimated useful lives based upon usage, or to earlier fleet or aircraft retirement dates, for both owned and leased aircraft.

Under certain of its aircraft and engine leases, the Company is required to make periodic maintenance reserve payments for certain future maintenance work such as engine and airframe overhauls. The Company records the payments as deposits on its balance sheet. Under certain leases, the deposits are not refundable to the Company, and the Company periodically reviews the balances of the maintenance reserve deposits and writes off any amounts that are no longer probable of being used to offset the liability for future maintenance costs. In determining whether it is probable that maintenance deposits will be used to offset the liability for future maintenance costs, the Company considers the condition of the aircraft, including but not limited to the airframe and engines and the projected future usage of the aircraft based on the Company’s business and fleet plan. As of December 31, 2006, the Company had $3.0 million of maintenance reserve payments recorded as a deposit on its consolidated balance sheet as the maintenance reserve payments were refundable or it was probable that the nonrefundable payments would be used to offset the liability for future maintenance costs. In addition, in the ten months ended December 31, 2006, the Company expensed $2.3 million of nonrefundable maintenance reserve payments on certain aircraft leases where the Company determined that it was not probable that payments would be used to offset the liability for future maintenance costs.

F-12

Restricted Cash

Restricted cash primarily consists of deposits held to secure outstanding stand-by letters of credit currently provided by the Company. While the existing letters of credit mature within the next 12 months, management believes it is likely that the letters of credit will be renewed and has classified the restricted cash as a long-term asset on the consolidated balance sheets.

Intangible Assets

The Company has identifiable intangible assets that consist of its contract with the U.S. Government to carry military passengers, its trade name, its codeshare agreement with Southwest and its operating certificate. The Company accounts for its intangible assets in accordance with FASB Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets. Definite-lived intangible assets are amortized on a straight-line basis over the estimated lives of the related assets. Indefinite-lived assets are not amortized, but instead are reviewed for impairment annually or more frequently if events or circumstances indicate that the asset may be impaired. The Company recorded $5.3 million of amortization expense in 2006 and expects to record amortization expense of $5.9 million in 2007 and $5.8 million per year in 2008, 2009, 2010 and 2011.

The following table presents information about our intangible assets at December 31, 2006:

	Asset Life	Gross Carrying Amount		Accumulated Amortization
		(Dollars in thousands)
Amortized intangible assets
Military contract	10 yrs	$	52,488	$	4,377
Southwest codeshare	7 yrs		3,856		459
Tradename	1 year		578		482
		$	56,922	$	5,318
Unamortized intangible assets
FAA Operating certificate		$	1,928

Revenue Recognition

Revenues are recognized when air transportation or other services are provided. Customer flight deposits and unused passenger tickets sold are included in air traffic liability. Revenue from unused tickets is recognized upon the expiration of the ticket.

In addition, the Company has a travel awards program that allows customers to earn points for travel on ATA. As points accumulate to certain levels, the passenger can redeem them for travel. The Company had a liability of $0.3 million at December 31, 2006, related to travel earned by the travel award customers but not yet redeemed. The Company accrues the estimated incremental cost of providing for free travel for awards earned under this program.

The Company has a codeshare arrangement with Southwest. Under a codeshare arrangement, the codesharing air carriers have permission to book and sell tickets on each other’s flights. The codeshare flights began on February 4, 2005. On December 14, 2005, the Bankruptcy Court approved an expanded and restated Codeshare Agreement (“Amended Codeshare Agreement”). Revenue from ATA flights sold by Southwest is also recognized when air transportation is provided.

F-13

Aircraft Lease Return Conditions

The Company finances substantially all of its aircraft through leases accounted for as operating leases. Many of these leases require that the airframes and engines be in a specified maintenance condition upon their return to the lessor at the end of the lease. If these return conditions are not met by the Company, the leases generally require financial compensation to the lessor. When an operating lease is within five years of its initial termination date, the Company accrues ratably over that five years, if estimable, the total costs that will be incurred by the Company to render the aircraft in a suitable return condition per the contract.

Advertising

The Company expenses advertising costs in the period incurred. Advertising expense was $2.3 million for the ten-month period ended December 31, 2006.

Share-Based Compensation

The Company records stock-based compensation under the provisions of FASB Statement of Financial Accounting Standards No. 123 (Revised 2004),Share-Based Payment (“FAS 123R”). Among other items, FAS 123R requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards. The Company uses a Black-Scholes pricing model to estimate the fair value of the awards. The resulting cost is recognized as compensation expense over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. See “Note 8 — Stock Option Plans” for more information.

New Accounting Pronouncements

In July 2006, the FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN 48”), which clarifies FASB Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes. FIN 48 defines the threshold for recognizing tax benefits in the Company’s financial statements and promotes consistency in recognizing and measuring the tax benefits. FIN 48 provides that tax benefits are to be recognized if the Company’s tax return positions will “more likely than not” be sustained by a taxing authority. In addition, FIN 48 requires an annual disclosure in the Company’s financial statements of the beginning and ending balances of unrecognized tax benefits. The Company has not yet determined the impact, if any, that adopting FIN 48 will have on the Company’s results from operations or financial position. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 for fiscal year 2007 that begins January 1, 2007. The Company does not expect that the adoption of FIN 48 will have a significant impact on the company’s financial position and results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007, with earlier application encouraged. Any amounts recognized upon adoption as a cumulative effect adjustment will be recorded to the opening balance of retained earnings in the year of adoption. The Company has not yet determined the impact of this Statement on its financial condition and results of operations.

F-14

3. Debt

As of December 31, 2006, the Company’s debt, including debt from affiliates, consisted of the following:

	December 31, 2006
	(in thousands)
Restructured ATSB loan, variable rate of LIBOR plus a margin, averaging 13.28% in 2006, payable in quarterly installments through September 2009	$	79,302
MatlinPatterson Exit Loan Financing, variable rate of LIBOR plus a margin, averaging 15.28% in 2006, payable in quarterly installments through October 2009		23,319
Capital lease obligations, rate of 13.3% per annum, payable monthly		34,333
Secured note payable to institutional lender, rate of 10.0% per annum, payable in monthly installments through November 2008		673
Secured note payable to institutional lender, rate of 10.0% per annum, payable in monthly installments through February 2009		751
City of Chicago construction financing agreement, rate averaging 6.4%, payable monthly through December 2030		6,677
Secured note payable, rate of 8.0% per annum, payable monthly through June 2009		1,607
	$	146,662
Less current maturities of long-term debt		11,149
	$	135,513

As of the Effective Date, ATA entered into an amended and restated loan agreement with the ATSB Loan Lenders which restructured the terms and payment requirements for the unpaid balance of the allowed secured claim of the ATSB Loan Lenders (“Restructured ATSB Loan”). The principal amount of the Restructured ATSB Loan (being the unpaid balance of the allowed secured claim of the ATSB Loan Lenders) was $97.0 million. The Restructured ATSB Loan has a base interest rate of LIBOR, plus 8.0% per annum, payable quarterly in arrears. The Restructured ATSB Loan matures on September 30, 2009. The Restructured ATSB Loan is guaranteed by New ATA Holdings Inc and its subsidiaries. The Restructured ATSB Loan is collateralized by substantially all unencumbered assets of ATA and the guarantors (excluding trust accounts), including, but not limited to, cash and cash equivalents, receivables, spare parts and engines, owned and unencumbered aircraft, fuel, ground support equipment, ownership interest in subsidiaries and computer systems and software licenses.

ATA is subject to certain financial covenants under the Restructured ATSB Loan. These financial covenants include a fixed charges ratio and leverage ratio to be measured each quarter beginning March 31, 2007 and a minimum cash balance to be measured each week of the agreement. The covenant calculation for both the fixed charges and leverage ratio utilizes 12 months of operating results in the calculation, with the exception of the March 31, 2007 measurement date, which includes nine months of operating results annualized. Due to potential covenant violations for March 31 and June 30, 2007, the Company obtained an amendment to the covenants for those measurement dates. The Company��s current forecast indicates that the covenants will be met at all measurement dates in 2007 taking into consideration the amendment. However, if forecasted operations are not met, the Company could potentially violate a covenant. In the case of further violations, the Company would need to work with the ATSB to obtain further amendments or waivers to the covenants. If the Company violates future covenants and is not successful in obtaining waivers or amendments, it would be required to obtain financing from other sources.

As of the Effective Date, MatlinPatterson provided $24.2 million of exit term loan financing to ATA. The base interest rate is LIBOR, plus 10.0% per annum, payable quarterly. Principal payments must be made semi-

F-15

annually over the term of the loan and the loan matures on October 10, 2009. Quarterly interest payments were made to a total of $3.1 million for the year. ATA is subject to certain financial covenants under the loan similar to the covenants under the Restructured ATSB Loan described above.

As of the Effective Date, ATA entered into two 15-year capital leases for Boeing 757-200 aircraft. The base interest rate, payable monthly, is 13.3% per annum. As of December 31, 2006, the aircraft have a carrying amount of $31.9 million.

ATA has outstanding two notes payable, each collateralized by one Lockheed L-1011-500 aircraft. The loans have a combined balance of $1.4 million and the related aircraft have a combined carrying amount of $0.6 million as of December 31, 2006.

The Company has outstanding a note payable to the City of Chicago for funds borrowed to finance construction costs for a gate extension at Midway Airport. As of December 31, 2006, the loan has a balance of $6.7 million and is secured by a letter of credit issued for the account of Southwest. In addition, ATA has issued a back-up letter of credit to Southwest.

ATA has a secured note payable, collateralized by two aircraft engines. The loan-related aircraft engines have a combined carrying value of $0.2 million as of December 31, 2006.

As of December 31, 2006, aggregate annual principal maturities of debt and capital leases for the five-year period ending December 31, 2011 were $11.1 million in 2007, $41.2 million in 2008, $56.6 million in 2009, $1.4 million in 2010, $1.6 million in 2011 and $34.8 million thereafter.

4. Lease Commitments

The Company leases aircraft and aircraft engines, ground facilities, including terminal space and maintenance facilities, and ground equipment. The majority of the Company’s aircraft are classified as operating leases. Total rental expense for operating leases, both aircraft and other, charged to operations for the ten months ended December 31, 2006 was $71.4 million. As of December 31, 2006, the Company had two aircraft classified as capital leases included in property and equipment representing $33.8 million of cost and $1.9 million of related accumulated depreciation.

At December 31, 2006, scheduled future minimum lease payments under capital leases (which are for aircraft) and operating leases, including estimated lease payments related to the Company’s expected acquisition of seven McDonnell Douglas DC-10-30 aircraft in 2007, having initial non-cancelable lease terms of more than one year were as follows:

	Capital Leases		Operating Leases				Total
			Aircraft		Non-aircraft
	(in thousands)
2007	$	5,400	$	84,318	$	3,394	$	93,112
2008		5,400		89,457		3,293		98,150
2009		5,400		88,107		2,868		96,375
2010		5,400		87,146		2,391		94,937
2011		5,400		86,250		1,545		93,195
Thereafter		49,500		576,413		2,284		628,197
Total minimum lease payments	$	76,500	$	1,011,691	$	15,775	$	1,103,966
Less amount representing interest		42,167
Present value of minimum lease payments		34,333
Less current portion		880
Long-term portion	$	33,453

F-16

5. Income Taxes

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

	December 31, 2006
	(in thousands)
Federal Income Tax Benefit at Statutory Rate	$	(12,762	)
State Income Tax Benefit, net of Federal		(778	)
Non-Deductible Expenses		1,618
Valuation Allowance		11,944
Other, net		(22	)
Income Tax Expense (credit)	$	—

The Company has not recorded any tax benefit from its losses incurred during the ten-month period ended December 31, 2006. Net deferred tax assets have been fully reserved at December 31, 2006 due to the uncertainty of the ultimate realization of those assets. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2006 are presented below:

	December 31, 2006
	(in thousands)
Deferred Tax Liabilities:
Property & Equipment	$	(12,503	)
Intangible		(10,831	)
Deferred Tax Liabilities		(23,334	)
Deferred Tax Assets:
Tax Benefit of NOL Carryforwards		8,436
Capital/Operating Lease		12,841
Aircraft Deposits		1,662
Vacation Pay Accrual		3,952
Deferred Rent Expense		1,235
Prepaid Maintenance		1,273
Workers’ Compensation		4,431
Allowance for Obsolescense		403
FAS 123R		459
Other Deductible Temporary Differences		586
Deferred Tax Assets		35,278
Valuation Allowance		(11,944	)
Net Deferred Tax Asset/(Liability)	$	—

As of December 31, 2006, the Company had a $22.5 million federal net operating loss carryforward expiring starting in 2026.

6. Retirement Plan

The Company has a defined contribution 401(k) savings plan which provides for participation by substantially all the Company’s employees. In 2006, the Company elected to contribute an amount equal to 65.0% of the amount contributed by all employees to the 401(k) savings plan up to 6.0% of eligible compensation. Matching contributions expensed in the ten months ended December 31, 2006 were $3.4 million.

F-17

The Company has a defined contribution plan for cockpit crewmember employees, the Cockpit Crewmember Money Purchase Plan, that is funded by the Company. During the bankruptcy proceedings, the cockpit crewmembers agreed to suspension of the Company’s contributions to the plan through December 31, 2006, therefore no contributions were made to the plan in the ten months ended December 31, 2006. Effective January 1, 2007, the Company will reinstate contributions to the plan.

7. Earnings Per Share

The following tables set forth the computation of basic and diluted earnings per share:

(in thousands, except per share data)	December 31, 2006
Net loss	$	(36,462	)
Weighted-average shares outstanding, basic		10,753
Weighted-average shares outstanding, diluted		10,753
Net loss per share, basic	$	(3.39	)
Net loss per share, diluted	$	(3.39	)

There was no dilutive impact from the assumed exercise of stock options or warrants in the ten months ended December 31, 2006.

8. Stock Option Plans

FAS123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award.

The Company has share-based compensation plans for officers and key employees of the Company, including the Company’s Board of Directors (“Management Plans”), and a stock option plan for cockpit crewmember employees (“ALPA Plan”). Options granted under both the Management Plans and the ALPA Plan were granted with an exercise price not less than the market price at the grant date. None of the Company’s grants include performance-based or market-based vesting conditions. There were no Company stock options exercisable as of December 31, 2006.

The Black-Scholes option pricing method was used to determine the fair value of the options. This method requires the Company to make several assumptions, including risk-free interest rate, stock price volatility and expected life.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of the grant.

Stock price volatility assumptions were based upon historical volatilities of comparable airlines whose shares are traded using weekly stock price returns equivalent to the contractual term of the option. Due to its emergence from bankruptcy, historical volatility data for the Company was not considered in determining expected volatility.

The expected life of the options was determined based upon a simplified assumption that the option will be exercised evenly from vesting to expiration under the transitional guidance of Staff Accounting Bulletin No. 107, Topic 14,Share-Based Payments.

The weighted-average fair value of options granted in the ten months ended December 31, 2006 under the Management Plan was determined to be $3.15 based on a weighted-average risk-free interest rate of 4.71%, expected life of options of 5.81 years and an expected stock volatility of 55%.

F-18

The dividend yield on New ATA Holdings common stock is assumed to be zero based on the Company’s past policy of not awarding dividends and that it has no current plans to do so in the future. The Company anticipates no forfeiture of options due to minimal turnover being expected at the management level.

The total intrinsic value was measured as the amount be which the fair value of the underlying stock exceeds the exercise price of a stock option on the exercise date.

During the ten months ended December 31, 2006, $1.2 million of compensation expense was charged to operations. There was no corresponding tax benefit in 2006 related to this stock-based compensation, as the Company records a full valuation allowance against its deferred tax assets due to the uncertainty regarding the ultimate realization of those assets. As of December 31, 2006, the Company had $5.1 million of total unrecognized compensation costs related to share-based compensation arrangements. The Company expects to recognize this expense over a weighted-average period of 2.38 years.

Management Plan

Options granted under the Management Plans vest and become fully exercisable over three or four years of continued employment, depending on the grant type, and have terms between seven and ten years. For grants under the Management Plans that are subject to graded vesting over a service period, the Company recognizes the expense on a straight-line basis over the requisite service period for the entire award. Certain options under the Management Plans provide for accelerated vesting if there is change in control (as defined in the plan).

The table below summarizes the stock option activity pursuant to the Management Plans:

	Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at beginning of period	—		—
Granted	2,011,334	$	33.58
Exercised	—		—
Canceled	—		—
Outstanding at end of period	2,011,334	$	33.58	9.6	$	—

ALPA Plan

All cockpit crewmembers employed by the Company as of September 15, 2005 were granted options with no continued employment requirement. Because there is no future employee service requirement associated with the options granted under the ALPA Plan, the Predecessor Company recognized all of the related compensation costs as of the Effective Date. Options granted under the ALPA Plan become fully exercisable over a three-year period and have a term of five years.

The table below summarizes the stock option activity pursuant to the ALPA Plan:

	Options	Weighted- Average Exercise Price		Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at beginning of period	492,339	$	10.00
Granted	—		—
Exercised	—		—
Canceled	—		—
Outstanding at end of period	492,339	$	10.00	4.4	$	—

F-19

9. Segment Reporting

The Company identifies its segments on the basis of similar products and services. ATA is a diversified passenger airline operating two principal businesses: a low cost airline providing scheduled service that leverages a code share agreement with Southwest Airlines, and a charter operator that focuses principally on transporting U.S. military personnel and their families to and from their overseas deployments. The scheduled service segment derives its revenues primarily from the sale of single-seat tickets to individuals on flights to predetermined destinations. The military charter segment derives its revenues primarily from the sale of all seats on an aircraft flight to either the U.S. Government or another customer. The U.S. Government or such other customer determines the destination of these flights.

Upon emergence from Chapter 11, ATA reorganized its management structure, including designating a separate Senior Vice President of Scheduled Service operations and a Senior Vice President of Charter operations, in order to assign specific responsibility. This management change facilitated managing the two business segments separately. ATA also designated aircraft to each of these operating segments rather than continuing the practice of moving the aircraft freely between scheduled service routes and charter flights. Finally, to better manage each business segment individually, and to begin monitoring the profitability of each business segment, the Company developed a process to produce income statement information for each of the business segments on a monthly basis.

Prior to April 1, 2006, the businesses of the Predecessor Company and the Company were managed as one segment. Separate internal reporting of expense information was not maintained to enable discrete financial information for the scheduled service and the military charter segments to be separately identifiable. Thus, the Predecessor Company, and during its first month of operations, the Company appropriately had one reportable segment under FASB Statement of Financial Accounting Standards No. 131,Disclosures About Segments of an Enterprise and Related Information (“FAS 131”). However, prior to April 1, 2006, both Predecessor and Successor companies historically could and did report revenue from the two different sources, scheduled service and military charter service. Because of the significant organizational and procedural changes made to the airline at the time of emergence from bankruptcy and acquisition by MatlinPatterson, the Company is now able to produce discrete financial information for both the scheduled service and military charter segments subsequent to April 1, 2006.

The Company’s revenues are derived principally from customers domiciled in the United States. The most significant component of the Company’s property and equipment is aircraft and related improvements and parts. All aircraft are registered in the United States. The Company therefore considers all property and equipment to be domestic.

The U.S. Government accounts for 42.3% of consolidated revenues for the ten months ended December 31, 2006, the only customer in excess of 10%.

Selected available financial data as of and for the ten months ended December 31, 2006 follows. The other column represents revenue and expenses for March 2006 which cannot be discretely separated between the scheduled service and military charter segments:

	Nine Months Ended December 31, 2006 Scheduled Service			Nine Months Ended December 31, 2006 Military and Commercial Charter			March 2006			Consolidated
	(in thousands)
Operating revenue	$	311,325		$	262,952		$	62,785		$	637,062
Operating expenses		330,448			264,956			66,309			661,713
Operating income (loss)		(19,123	)		(2,004	)		(3,524	)		(24,651	)
Segment assets (at December 31, 2006)	$	181,409		$	188,957					$	370,366

F-20

10. Fleet and Related Equipment Impairment

In November 2006, the Company executed an agreement to purchase seven McDonnell Douglas DC-10-30 aircraft (“DC-10 fleet”) from a third party, along with associated engines and two spare airframes. These assets are a wide-body fleet replacement for the Company’s aging and cost intensive Lockheed L-1011 aircraft (“L-1011”). The DC-10 fleet will go into service throughout 2007 and the Company expects to hold the L-1011 fleet as operational spares while transitioning to the DC-10 fleet. Past the fourth quarter of 2007, the Company has no revenue commitments for use of L-1011 time. In accordance with FASB Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”), the Company determined that the estimated future undiscounted cash flows expected to be generated by the L-1011 fleet were less than the current net book value of these aircraft and the related rotable parts and inventory. Therefore these assets were impaired under FAS 144. During the fourth quarter of 2006, the Company recorded an asset impairment charge of $13.5 million to the military and commercial charter segment to reduce the carrying amount of the L-1011 aircraft and related assets to their estimated fair market value.

11. Commitments and Contingencies

Secondary Obligation on Chicago Midway Airport Property Leases

As of the Filing Date, ATA leased 15 gates and a hangar facility from the City of Chicago at Chicago Midway Airport under a lease agreement with a termination date of December 31, 2012. While in Chapter 11 bankruptcy, ATA assigned ten of the gates and the hangar facility to Southwest in exchange for cash and debt forgiveness. In addition, ATA returned four gates to the City of Chicago. ATA remains secondarily liable for the gates and hangar facility assigned to Southwest. This position has been interpreted as a guaranty, which must be accounted for in accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”).

In accordance with FIN 45, the Company estimates the maximum potential amount of future payments (undiscounted) that could be required under this guaranty to be approximately $14.7 million as of December 31, 2006. However, the Company has estimated the fair value of the guaranty as of December 31, 2006 to be $0 due to the remote likelihood that the Company would be required to perform under the obligation and the mitigating steps that could be taken to eliminate the liability if such a need arose. As a result, the Company has not recorded a liability on the balance sheet as of December 31, 2006.

New Aircraft

In the fourth quarter of 2006, the Company signed a definitive purchase agreement with a third party in which the Company agreed to purchase seven McDonnell Douglas DC-10-30 aircraft, two McDonnell Douglas DC-10-30 airframes, two spare engines and certain other related property. The Company received a commitment from a lessor under which the Company will assign its purchase rights and lease back the aircraft and other equipment. In addition to the assignment, the Company and lessor agreed to share in the capital investment necessary to make the fleet operational. The lease agreement requires the Company to make payments aggregating approximately $38 million over approximately six years. As of December 31, 2006, the Company had funded $10.5 million in deposits under the purchase agreement. The Company expects these deposits to be returned as aircraft become operational throughout 2007.

Other

In its aircraft financing agreements, the Company typically indemnifies the financing parties, trustees acting on their behalf and other related parties against liabilities that arise from the manufacture, design, ownership, financing, use, operation and maintenance of the aircraft and for tort liability, whether or not these liabilities arise out of or relate to the negligence of these indemnified parties, except for their gross negligence or willful misconduct. ATA expects that it would be covered by insurance (subject to deductibles) for most tort liabilities

F-21

and related indemnities under these aircraft leases which were entered into after its Filing or which were assumed by it, pursuant to the Bankruptcy Code.

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

12. Selected Supplemental Quarterly Data (Unaudited)

	One Month Ended March 31, 2006			Three Months Ended June 30, 2006			Three Months Ended September 30, 2006			Three Months Ended December 31, 2006
	(In thousands)
Operating revenues	$	62,785		$	193,755		$	214,855		$	165,667
Operating expenses		66,309			194,972			210,597			189,835
Operating income (loss)		(3,524	)		(1,217	)		4,258			(24,168	)
Other expenses		(1,309	)		(3,804	)		(3,770	)		(2,928	)
Income (loss) before income taxes		(4,833	)		(5,021	)		488			(27,096	)
Net income (loss)	$	(4,833	)	$	(5,021	)	$	488		$	(27,096	)

13. Subsequent Events

On January 16, 2007, ATA entered into a loan agreement with MatlinPatterson under which ATA borrowed $28.0 million. The loan matures in January 2008, at which time the full amount of the principal is due. The base interest rate is LIBOR, plus 10.0% per annum, payable on the loan maturity date. ATA is subject to certain financial covenants under the loan.

F-22

GLOBAL AERO LOGISTICS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	June 30, 2007			December 31, 2006
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	58,007		$	62,209
Receivables, net of allowance for doubtful accounts 2007—$1,816; 2006—$ 1,808		110,739			64,520
Inventories, net		29,822			28,663
Prepaid expenses and other current assets		29,505			31,047
Total current assets		228,073			186,439
Property and equipment:
Flight equipment		83,388			77,187
Facilities and ground equipment		22,724			21,737
		106,112			98,924
Accumulated depreciation		(16,729	)		(8,977	)
		89,383			89,947
Restricted cash		24,605			27,696
Military contract intangible, net of amortization 2007—$7,003; 2006—$ 4,377		45,485			48,111
Other intangibles, net of amortization 2007—$1,313; 2006—$ 941		5,049			5,421
Deposits and other assets		12,389			12,752
Total assets	$	404,984		$	370,366
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt	$	24,166		$	8,530
Current maturities of long-term debt from affiliates		34,484			2,619
Accounts payable		4,998			4,984
Air traffic liabilities		113,582			61,523
Accrued compensation and benefits		31,646			31,500
Accrued flight expenses		15,625			21,612
Other accrued expenses and current liabilities		29,504			23,673
Total current liabilities		254,005			154,441
Long-term debt, less current maturities		98,592			114,813
Long-term debt, less current maturities from affiliates		16,834			20,700
Other deferred items		8,315			8,122
Total long-term liabilities		123,741			143,635
Commitments and Contingencies
Shareholders’ equity:
Common Stock at par, $.0001 par value,; authorized 50,000,000 shares; issued—2007—10,712,549 shares; 2006—10,710,150 shares		1			1
Warrants		1,434			1,434
Additional paid in capital		108,320			107,317
Accumulated deficit		(82,517	)		(36,462	)
Total shareholders’ equity		27,238			72,290
Total liabilities and shareholders’ equity	$	404,984		$	370,366

See accompanying notes.

F-23

GLOBAL AERO LOGISTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30, 2007			Four months ended June 30, 2006			Predecessor Two months ended February 28, 2006
	2007			2006
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Operating revenues:
Scheduled service	$	96,692		$	101,250		$	172,163		$	133,226		$	53,527
Charter		79,813			87,723			160,712			116,185			58,753
Other		4,159			4,782			7,938			7,129			2,771
Total operating revenues		180,664			193,755			340,813			256,540			115,051
Operating expenses:
Fuel and oil		59,107			62,092			113,428			80,457			37,086
Salaries, wages and benefits		44,058			46,870			88,704			64,809			36,066
Aircraft rentals		20,680			20,887			41,460			27,873			16,181
Flight costs		14,264			12,156			28,861			16,901			11,488
Aircraft maintenance, materials and repairs		12,394			7,106			22,627			9,924			3,103
Handling, landing and navigation fees		10,988			15,712			25,533			19,226			8,077
Selling and marketing		10,204			10,508			18,974			14,250			7,624
Depreciation and amortization		6,225			4,632			11,773			6,147			5,219
Asset impairments and aircraft retirements		3,023			—			3,649			—			—
Other		10,785			15,009			23,921			21,694			10,197
Total operating expenses		191,728			194,972			378,930			261,281			135,041
Operating loss		(11,064	)		(1,217	)		(38,117	)		(4,741	)		(19,990	)
Other income (expense):
Interest Income		2,202			1,774			4,026			2,365			397
Interest Expense		(6,211	)		(5,626	)		(12,136	)		(7,550	)		(4,666	)
Other		140			48			172			72			(233	)
Reorganization items, net		—			—			—			—			1,456,000
Other income (expense)		(3,869	)		(3,804	)		(7,938	)		(5,113	)		1,451,498
Income (loss) before income taxes		(14,933	)		(5,021	)		(46,055	)		(9,854	)		1,431,508
Income taxes		—			—			—			—			—
Net Income (loss)	$	(14,933	)	$	(5,021	)	$	(46,055	)	$	(9,854	)	$	1,431,508
Basic and diluted earnings per common share:
Average Shares Outstanding (in thousands)		10,756			10,753			10,755			10,753
Net loss per share	$	(1.39	)	$	(0.47	)	$	(4.28	)	$	(0.92	)

See accompanying notes.

F-24

GLOBAL AERO LOGISTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in thousands)

	Common Stock		Warrants		Additional Paid-in Capital		Accumulated Deficit			Total Shareholders’ Equity
Balance as of December 31, 2006	$	1	$	1,434	$	107,317	$	(36,462	)	$	72,290
Net loss		—		—		—		(31,122	)		(31,122	)
Stock-based compensation		—		—		420		—			420
Balance as of March 31, 2007 (unaudited)	$	1	$	1,434	$	107,737	$	(67,584	)	$	41,588
Net loss								(14,933	)		(14,933	)
Stock-based compensation						583					583
Balance as of June 30, 2007 (unaudited)	$	1	$	1,434	$	108,320	$	(82,517	)	$	27,238

See accompanying notes.

F-25

GLOBAL AERO LOGISTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Six Months Ended June 30, 2007			Four Months Ended June 30, 2006			Predecessor Two Months Ended February 28, 2006
	(Unaudited)			(Unaudited)
Operating activities:
Net loss before reorganization items	$	(46,055	)	$	(9,854	)	$	(24,492	)
Adjustments to reconcile net loss before reorganization items to net cash used in operating activities:
Depreciation and amortization		11,773			6,148			5,219
Asset impairments and aircraft retirements		3,649			—			—
Other non-cash items		1,351			1,151			4,275
Changes in operating assets and liabilities:
Receivables		(46,219	)		(13,256	)		7,242
Inventories		(1,878	)		(848	)		574
Prepaid expenses and other current assets		757			(9,035	)		6,633
Accounts payable		14			1,554			(4,303	)
Accrued expenses and other current liabilities		(715	)		(26,447	)		(3,139	)
Liabilities subject to compromise		—			—			(16,396	)
Air traffic liabilities		52,059			8,165			4,810
Net cash used in operating activities		(25,264	)		(42,422	)		(19,577	)
Reorganization activities:
Reorganization items, net		—			—			1,456,000
Discharge of claims and liabilities		—			—			(1,304,653	)
Valuation adjustments		—			—			(178,895	)
Receivables		—			—			(48	)
Prepaid expenses and other current assets		—			—			92
Accrued expenses		—			—			6,822
Liabilities subject to compromise		—			—			(9,570	)
Other non-cash items		—			—			11,522
Reductions to other assets		—			—			12,716
Net cash used in reorganization activities		—			—			(6,014	)
Investing activities:
Capital expenditures		(9,678	)		(2,346	)		(8,447	)
Additions to deposits		(491	)		2,655			(2,462	)
Proceeds from sales of property and equipment		344			318			503
Net cash provided by (used in) investing activities		(9,825	)		627			(10,406	)
Financing activities:
Emergence Financing, net of repayment of DIP financing		—			68,651			—
Proceeds from long-term debt from affiliates		28,000						—
Payments on long-term debt		(991	)		(501	)		—
Increase (decrease) in other restricted cash		3,878			4,006			(6,777	)
Net cash provided by (used in) financing activities		30,887			72,156			(6,777	)
Increase (decrease) in cash and cash equivalents		(4,202	)		30,361			(42,774	)
Cash and cash equivalents, beginning of period		62,209			36,443			79,217
Cash and cash equivalents, end of period	$	58,007		$	66,804		$	36,443
Supplemental disclosures:
Cash payments for:
Interest	$	9,688		$	7,235		$	985
Income tax payments, net	$	10		$	26		$	1

See accompanying notes.

F-26

Notes to Consolidated Financial Statements

1. Basis of Presentation

Global Aero Logistics Inc. (collectively with its subsidiaries, the “Company” or “Successor Company”), formerly New ATA Holdings Inc., through its principal subsidiary, ATA Airlines, Inc. (“ATA”) is a low cost airline providing scheduled service to more than 60 markets and charter service throughout the world to the U.S. military, independent tour operators and specialty charter customers. ATA has been operating for 33 years.

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying financial statements include all adjustments that are, in the opinion of management, necessary for a fair presentation of the Company’s interim financial position and operating results. For further information, refer to the consolidated financial statements and footnotes for the ten months ended December 31, 2006.

The Company’s predecessor emerged from Chapter 11 bankruptcy protection on February 28, 2006. Upon emergence, the Company adopted fresh-start reporting in accordance with American Institute of Certified Public Accountants Statement of Position 90-7,Financial Reporting by Entities in Reorganization under the Bankruptcy Code (“SOP 90-7”). As a result, the financial statements presented for periods prior to March 1, 2006 are not comparable with the financial statements for periods on or after March 1, 2006.

2. Earnings Per Share

The following tables set forth the computation of basic and diluted earnings per share:

	Three Months Ended June 30, 2007		Three months ended June 30, 2006
(in thousands, except per share data)	(Unaudited)
Net loss	(14,933	)	(5,021	)
Weighted-average shares outstanding, basic	10,756		10,753
Weighted-average shares outstanding, diluted	10,756		10,753
Net loss per share, basic	(1.39	)	(0.47	)
Net loss per share, diluted	(1.39	)	(0.47	)

	Six Months Ended June 30, 2007		Four Months Ended June 30, 2006
(in thousands, except per share data)	(Unaudited)
Net loss	(46,055	)	(9,854	)
Weighted-average shares outstanding, basic	10,755		10,753
Weighted-average shares outstanding, diluted	10,755		10,753
Net loss per share, basic	(4.28	)	(0.92	)
Net loss per share, diluted	(4.28	)	(0.92	)

The impact of 128,008 incremental shares from the assumed exercise of warrants were not included in the computation of diluted earnings per share for the three and six months ended June 30, 2007 because their effect would be anti-dilutive. In addition, the impact of 297,525 employee stock options has been excluded for the computation of diluted earnings per share for the three and six months ended June 30, 2007 because their effect would be anti-dilutive.

Comparative data is not shown for the Company’s predecessor for the two months ended February 28, 2006 as those shares were canceled upon emergence from bankruptcy.

F-27

3. Segment Reporting

The Company identifies its segments on the basis of similar products and services. ATA is a diversified passenger airline operating two principal businesses: a low cost airline providing scheduled service which leverages a code share agreement with Southwest Airlines, and a charter operator which focuses principally on transporting U.S. military personnel and their families to and from their overseas deployments. The scheduled service segment derives its revenues primarily from the sale of single-seat tickets to individuals on flights to predetermined destinations. The military charter segment derives its revenues primarily from the sale of all seats on an aircraft flight to either the U.S. Government or other customer. The U.S. Government or other customer determines the destination of these flights.

Upon emergence from Chapter 11, ATA reorganized its management structure including designating a separate Senior Vice President of Scheduled Service operations and a Senior Vice President of Charter operations—in order to assign specific responsibility. This management change facilitated managing the two business segments separately. ATA also designated aircraft to each of these operating segments rather than continuing the practice of moving the aircraft freely between scheduled service routes and charter flights. Finally, to better manage each business segment individually, and to begin monitoring the profitability of each business segment, the Company developed a process to produce income statement information for each of the business segments on a monthly basis.

Prior to April 1, 2006, the businesses of the predecessor company and the Company were managed as one segment. Separate internal reporting of expense information was not maintained to enable discrete financial information for the scheduled service and the military charter segments to be separately identifiable. Thus, the predecessor company, and during its first month of operations, the Company appropriately had one reportable segment under Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 131,Disclosures About Segments of an Enterprise and Related Information (“FAS 131”). However, prior to April 1, 2006, both predecessor and successor companies historically could and did report revenue from the two different sources, scheduled service and military charter service. Because of the significant organizational and procedural changes made to the airline at the time of emergence from bankruptcy and acquisition by MatlinPatterson ATA Holdings LLC (“MatlinPatterson”), the Company is now able to produce discrete financial information for both the scheduled service and military charter segments subsequent to April 1, 2006.

Selected available financial data for the three months ended June 30, 2007 and 2006 and for the six months ended June 30, 2007 follows. Comparative information is not presented for the six months ended June 30, 2006 because the financial data cannot be discretely separated between scheduled service and military charter segments for the three months ended March 31, 2006.

	Three Months Ended June 30, 2007 Scheduled Service			Three Months Ended June 30, 2007 Military Charter		Consolidated			Three Months Ended June 30, 2006 Scheduled Service			Three Months Ended June 30, 2006 Military Charter		Consolidated
				(in thousands)								(in thousands)
				(unaudited)								(unaudited)
Operating revenue	$	100,339		$	80,325	$	180,664		$	104,627		$	89,128	$	193,755
Operating expenses		116,837			74,891	$	191,728			110,462			84,510	$	194,972
Operating income (loss)		(16,498	)		5,434	$	(11,064	)		(5,835	)		4,618	$	(1,217	)

	Six Months Ended June 30, 2007 Scheduled Service			Six Months Ended June 30, 2007 Military Charter		Consolidated
				(in thousands)
				(unaudited)
Operating revenue	$	179,476		$	161,337	$	340,813
Operating expenses		226,138			152,792	$	378,930
Operating income (loss)		(46,662	)		8,545	$	(38,117	)

F-28

4. Commitments and Contingencies

In the fourth quarter of 2006, the Company signed a definitive purchase agreement with a third party in which the Company agreed to purchase seven McDonnell Douglas DC-10-30 aircraft, two McDonnell Douglas DC-10-30 airframes, two spare engines, and certain other related property. The Company received a commitment from a lessor under which the Company will assign its purchase rights, and lease back the aircraft and other equipment. In addition to the assignment, the Company and lessor agreed to share in the capital investment necessary to make the fleet operational. Definitive lease agreements for each of the seven aircraft were signed during the first half of 2007. The lease agreements require the Company to make payments aggregating approximately $38 million over approximately six years. The Company was required to make security deposits related to these aircraft, and as of June 30, 2007, all of the security deposits had been returned to the Company. As of June 30, 2007, one of these aircraft was in revenue service.

5. New Accounting Pronouncements

In June of 2006, FASB discussed and ratified the Emerging Issues Task Force (“EITF”) consensus on EITF 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation),(“EITF 06-3”). The scope of this ratification includes any tax assessed by a governmental authority that is both imposed on and concurrent with specific revenue-producing transactions between a seller and a customer, and presented on either a gross or net basis. For such taxes that are reported on a gross basis, an entity should disclose the amounts of those taxes in interim and annual financial statements if those amounts are significant. EITF 06-3 is effective to financial reports for interim and annual reporting periods beginning after December 15, 2006. The Company adopted the ratified EITF 06-3 on January 1, 2007. The Company collects various excise taxes on ticket sales, which are accounted for on a net basis.

In July 2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes (“FIN 48”), which clarifies FASB Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes. FIN 48 defines the threshold for recognizing tax benefits in the Company’s financial statements and promotes consistency in recognizing and measuring the tax benefits. The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company has identified its federal tax return and its state and local tax returns in Arizona, California, Hawaii, Illinois, Indiana, New York City, New York State, Texas and Virginia as significant tax jurisdictions.

The Company and its predecessor’s income tax returns for tax years after 2002 remain subject to examination by the Internal Revenue Service and the state and local taxing jurisdictions. However, the taxing jurisdictions are precluded from collecting any potential income tax liabilities found under audit for periods prior to the January 31, 2006 confirmation date of the predecessor’s plan of reorganization. In addition, the Company believes that the income tax filing positions and deductions on all previously filed income tax returns by the Company and its predecessors would be sustained on audit.

Based on these circumstances, the Company has not recorded any reserves for uncertain income tax positions pursuant to FIN 48. In addition, the Company did not record a cumulative effect adjustment related to the adoption of FIN 48.

The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. Penalties are recorded in other expense and interest paid or received is recorded in interest expense or interest income, respectively, in the statement of operations. For the third quarter and six months ended June 30, 2007, the Company did not record any penalties, interest expense or interest income related to income tax audits.

F-29

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007, and earlier application is allowed under certain circumstances. Any amounts recognized upon adoption, as a cumulative effect adjustment will be recorded to the opening balance of retained earnings in the year of adoption. The Company has not yet determined the impact of this Statement on its financial condition and results of operations.

6. Subsequent Events

On April 5, 2007, the Company entered into an agreement and plan of merger with Hugo Acquisition Corp., a Delaware corporation and the Company’s wholly owned subsidiary, and World Air Holdings, Inc. (“World”), a Delaware corporation, whereby Hugo Acquisition Corp. will merge with and into World, with World as the surviving corporation and the Company’s indirect wholly owned subsidiary. The board of directors of each company unanimously approved the merger agreement. The stockholders of World Air Holdings approved adoption of the merger agreement on July 18, 2007. On August 14, 2007, the merger transaction was consummated. Each outstanding share of common stock of World was converted into the right to receive $12.50 in cash, resulting in an aggregate purchase price of approximately $313 million. World has two airline subsidiaries: World Airways, Inc. and North American Airlines, Inc. Following the consummation of the merger, the Company will operate three independent airlines under one umbrella: World Airways, North American Airlines and ATA Airlines.

In order to fund the acquisition of World pursuant to the merger agreement, on August 14, 2007, the Company’s subsidiary, New ATA Acquisition Inc., entered into a $340.0 million senior secured payment-in-kind (PIK) term loan agreement with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Term Loan”), which matures one year from the date of issuance, and bears interest annually at LIBOR, plus a margin. The Company expects the Term Loan to be converted into notes due in 2015. The Term Loan is secured by a significant portion of the Company’s unencumbered assets. The issuers of the Term Loan received approximately 2.3 million warrants with an exercise price of $0.01 per share immediately exercisable. In addition, the Company issued $161.1 million of Series A Preferred Convertible Stock (the “Series A preferred stock”) to MatlinPatterson with an annual cumulative dividend rate of 16.0% payable in common stock upon conversion. The Series A preferred stock is convertible into common stock of the Company. Upon conversion of the Series A preferred stock to common stock (the “Conversion Shares”), MatlinPatterson is required to complete a rights offering to common stock holders of the Company’s common stock to purchase a pro rata share of the Conversion Shares at a price per share equal to the conversion price.

On August 14, 2007, using funds from the Term Loan and Series A preferred stock, the Company paid off a $81.6 million loan, including accrued interest and a prepayment premium, which was partially guaranteed by Air Transportation Stabilization Board. In addition, the Company paid off its two loans from MatlinPatterson totaling $54.3 million, including accrued interest.

F-30

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

ATA Holdings Corp.

We have audited the accompanying consolidated balance sheets of ATA Holdings Corp. and Subsidiaries (Debtor and Debtors-in-Possession as of October 26, 2004) as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ deficit, and cash flows for the two month period ended February 28, 2006 and for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ATA Holdings Corp. and Subsidiaries (Debtor and Debtors-in-Possession as of October 26, 2004) at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for the two month period ended February 28, 2006 and for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

Ernst & Young LLP

Indianapolis, Indiana

March 16, 2007

F-31

ATA HOLDINGS CORP. AND SUBSIDIARIES

(Debtor and Debtor-in-Possession as of October 26, 2004)

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	December 31, 2005			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	79,217		$	139,652
Receivables, net of allowance for doubtful accounts 2005 — $4,937 2004 — $2,608		89,891			118,807
Inventories, net		31,364			43,802
Prepaid expenses and other		29,067			39,160
Total current assets		229,539			341,421
Property and equipment:
Flight equipment		142,488			198,888
Facilities and ground equipment		123,361			147,420
		265,849			346,308
Accumulated depreciation		(164,582	)		(163,549	)
		101,267			182,759
Restricted cash		27,348			32,355
Goodwill		2,411			8,488
Prepaid aircraft rent		154			52,031
Investments in BATA		4,808			6,930
Deposits and other assets		23,923			27,081
Total assets	$	389,450		$	651,065
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Short-term debt	$	54,600		$	41,000
Accounts payable		5,558			7,563
Air traffic liabilities		54,018			89,887
Accrued compensation and benefits		38,708			51,312
Accrued flight expenses		25,787			19,917
Accrued expenses		64,392			50,802
Total current liabilities		243,063			260,481
Other deferred items		47,083			31,464
Liabilities subject to compromise		1,475,447			1,279,676
Commitments and contingencies
Shareholders’ equity (deficit):
Preferred stock, authorized 9,999,200 shares; none issued		—			—
Common stock, without par value; authorized 30,000,000 shares; issued —13,535,727 2005 and 2004		66,013			66,013
Treasury stock; 1,711,440 shares-2005; 1,711,440 shares — 2004		(24,778	)		(24,778	)
Additional paid-in capital		18,166			18,166
Accumulated deficit		(1,435,544	)		(979,957	)
Total shareholders’ deficit		(1,376,143	)		(920,556	)
Total liabilities and shareholders’ deficit	$	389,450		$	651,065

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

F-32

ATA HOLDINGS CORP. AND SUBSIDIARIES

(Debtor and Debtor-in-Possession as of October 26, 2004)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands)

	Period from January 1 to February 28, 2006			Year Ended December 31,
				2005			2004			2003
Operating revenues:
Scheduled service	$	53,527		$	635,232		$	1,099,944		$	1,085,420
Charter		58,753			408,714			358,870			366,207
Other		2,771			48,355			73,757			66,906
Total operating revenues		115,051			1,092,301			1,532,571			1,518,533
Operating expenses:
Fuel and oil		37,086			322,094			368,273			276,057
Salaries, wages and benefits		36,066			281,791			422,430			399,622
Aircraft rentals		16,181			148,614			242,602			226,559
Flight costs		11,488			82,243			100,327			105,055
Handling, landing and navigation fees		8,077			89,453			119,963			113,781
Selling and marketing		7,624			66,050			111,041			110,527
Depreciation and amortization		5,219			36,270			52,013			56,729
Aircraft maintenance, materials and repairs		3,103			44,801			74,992			45,741
U.S. Government grants		—			—			—			(37,156	)
Asset impairments and aircraft retirements		—			403			7,887			5,288	)
Other		10,197			101,973			133,206			138,789
Total operating expenses		135,041			1,173,692			1,632,734			1,440,992
Operating income (loss)		(19,990	)		(81,391	)		(100,163	)		77,541
Other income (expense):
Reorganization items, net		1,456,000			(369,632	)		(638,479	)		—
Interest income		397			2,467			2,283			2,878
Interest expense		(4,666	)		(6,235	)		(51,145	)		(56,324	)
Loss on extinguishment of debt		—			—			(27,314	)		—
Other		(233	)		(796	)		(911	)		(2,350	)
Other income (expense)		1,451,498			(374,196	)		(715,566	)		(55,796	)
Income (loss) before income taxes		1,431,508			(455,587	)		(815,729	)		21,745
Income taxes		—			—			—			1,311
Net income (loss)		1,431,508			(455,587	)		(815,729	)		20,434
Preferred stock dividends		—						(1,125	)		(4,642	)
Income (loss) available to common shareholders	$	1,431,508		$	(455,587	)	$	(816,854	)	$	15,792

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

F-33

ATA HOLDINGS CORP. AND SUBSIDIARIES

(Debtor and Debtor-in-Possession as of October 26, 2004)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(Dollars in thousands)

	Common Stock			Treasury Stock			Additional Paid-in Capital			Accumulated Deficit			Total Shareholders’ Deficit
Balance as of December 31, 2002	$	65,290		$	(24,778	)	$	18,374		$	(178,895	)	$	(120,009	)
Net income		—			—			—			20,434			20,434
Stock options exercised		421			—			(211	)		—			210
Accrued preferred stock dividends		—			—			—			(4,642	)		(4,642	)
Balance as of December 31, 2003	$	65,711		$	(24,778	)	$	18,163		$	(163,103	)	$	(104,007	)
Net loss		—			—			—			(815,729	)		(815,729	)
Stock options exercised		302			—			3			—			305
Preferred stock dividends		—			—			—			(1,125	)		(1,125	)
Balance as of December 31, 2004	$	66,013		$	(24,778	)	$	18,166		$	(979,957	)	$	(920,556	)
Net loss		—			—			—			(455,587	)		(455,587	)
Balance as of December 31, 2005	$	66,013		$	(24,778	)	$	18,166		$	(1,435,544	)	$	(1,376,143	)
Net loss from January 1 to February 28, 2006											(52,040	)		(52,040	)
Elimination of non-emerging subsidiaries											9,065			9,065
Discharge of claims and liabilities											1,304,653			1,304,653
Revaluation of assets and liabilities and elimination of common stock, treasury stock, and additional paid-in-capital		(66,013	)		24,778			(18,166	)		178,895			119,494
Elimination of accumulated deficit											(5,029	)		(5,029	)
Balance as of February 28, 2006	$	—		$	—		$	—		$	—		$	—

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

F-34

ATA HOLDINGS CORP. AND SUBSIDIARIES

(Debtor and Debtor-in-Possession as of October 26, 2004)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Period from January 1 to February 28, 2006			Year Ended December 31,
				2005			2004			2003
Operating activities:
Net income (Loss) before reorganization expenses	$	(24,492	)	$	(85,955	)	$	(177,250	)	$	20,434
Adjustments to reconcile net income (loss) before reorganization expenses to net cash provided by (used in) operating activities:
Depreciation and amortization		5,219			36,270			52,013			56,729
Loss on extinguishment of debt		—			—			27,314			—
Asset impairments and aircraft retirements		—			403			7,887			5,288
Other non-cash items		4,275			(1,136	)		23,697			31,686
Changes in operating assets and liabilities:
Receivables		7,242			29,667			(62	)		(32,368	)
Inventories		574			6,535			(5,322	)		38
Prepaid expenses and other current assets		6,633			2,797			(8,348	)		17,808
Accounts payable		(4,303	)		(2,005	)		5,811			1,639
Air traffic liabilities		4,810			(35,869	)		(12,944	)		8,138
Liabilities subject to compromise		(16,396	)		(19,027	)		(14,126	)		—
Accrued expenses		(3,139	)		1,310			55,130			(15,613	)
Other deferred items		—			—			20,000			—
Net cash provided by (used in) operating activities		(19,577	)		(67,010	)		(26,200	)		93,779
Reorganization activities:
Reorganization expenses, net		1,456,000			(369,632	)		(638,479	)		—
Discharge of claims and liabilities		(1,304,653	)		—			—			—
Valuation adjustments		(178,895	)		—			—			—
Impairment losses, reported as reorganization items		—			29,496			44,499			—
Prepaid expenses and other current assets		92			16,723			(4,395	)		—
Liabilities subject to compromise		(9,570	)		206,363			507,311			—
Accrued expenses		6,822			3,551			6,710			—
Other non-cash items		11,522			27,639			17,459			—
Proceeds from Debtor-in-Possession financing		—			30,000			56,500			—
Payments on Debtor-in-Possession financing		—			—			(15,500	)		—
Proceeds from sales of property and equipment		—			8,800			34,000			—
Receivables		(48	)		(751	)		—			—
Noncurrent prepaid aircraft rent		—			66,120			58,089			—
Reductions to other assets		12,716			—			—			—
Net cash provided by (used in) reorganization activities		(6,014	)		18,309			66,194			—
Investing activities:
Aircraft pre-delivery deposits		—			—			—			16,582
Capital expenditures		(8,447	)		(22,884	)		(26,660	)		(42,534	)
Noncurrent prepaid aircraft rent		—			1,587			33,968			(75,260	)
(Additions) reductions to other assets		(2,462	)		(1,052	)		(7,339	)		2,206
Proceeds from sales of property and equipment		503			3,618			562			312
Net cash provided by (used in) investing activities		(10,406	)		(18,731	)		531			(98,694	)
Financing activities:
Preferred stock dividends		—			—			(9,987	)		—
Payments on short-term debt		—			—			—			(8,384	)
Proceeds from long-term debt		—			—			1,500			5,729
Payments on long-term debt and exchange offers		—			—			(64,313	)		(14,215	)
(Increase) decrease in other restricted cash		(6,777	)		6,997			10,978			(17,941	)
Proceeds from stock option exercises		—			—			305			210
Net cash provided by (used in) financing activities		(6,777	)		6,997			(61,517	)		(34,601	)
Decrease in cash and cash equivalents		(42,774	)		(60,435	)		(20,992	)		(39,516	)
Cash and cash equivalents, beginning of period		79,217			139,652			160,644			200,160
Cash and cash equivalents, end of period	$	36,443		$	79,217		$	139,652		$	160,644

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

F-35

ATA HOLDINGS CORP. AND SUBSIDIARIES

(Debtor and Debtor-in-Possession as of October 26, 2004)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Period from January 1 to February 28, 2006		Year Ended December 31,
			2005			2004			2003
Supplemental disclosures:
Cash payments for:
Interest	$	985	$	4,253		$	42,575		$	47,088
Income taxes (refunds), net	$	1	$	(948	)	$	(6,502	)	$	(10,992	)
Financing and investing activities not affecting cash:
Accrued capitalized interest	$	—	$	—		$	491		$	343
Exchange of debtor-in-possession debt for leasehold interest	$	—	$	20,000		$	—		$	—
Accrued preferred stock dividends	$	—	$	—		$	375		$	4,642

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

F-36

ATA HOLDINGS CORP. AND SUBSIDIARIES

(Debtor and Debtor-in-Possession as of October 26, 2004)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Chapter 11 Filing and Status

Chapter 11 Reorganization. On October 26, 2004 (the “Petition Date”), ATA Holdings Corp. (“Holdings” and collectively with its subsidiaries, the “Company”) and seven of its subsidiaries including ATA Airlines, Inc. (“ATA”), C8 Airlines, Inc., formally known as Chicago Express Airlines, Inc. (“C8”), and Ambassadair Travel Club, Inc. (“Ambassadair” and, collectively with the other seven entities, the “Debtors”) filed voluntary petitions for relief (the “Filing”) under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Indiana (the “Bankruptcy Court”). During the term of the Chapter 11 cases, the Debtors continued to operate their respective businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and applicable provisions of the Bankruptcy Code and applicable court orders. However, certain assets of C8, Ambassadair and Amber Travel, Inc. (“Amber”) (collectively, the “Liquidating Debtors”) were sold by the Liquidating Debtors in 2005, and each of the Liquidating Debtors ceased business operations.

Holdings, ATA, American Trans Air ExecuJet, Inc. (“ExecuJet”), ATA Cargo, Inc. (“ATA Cargo”), and ATA Leisure Corp. (“Leisure”) (collectively, the “Reorganizing Debtors”) received an order approving the Amended Joint Chapter 11 Plan for the Reorganizing Debtors as immaterially modified (the “Plan”) on January 31, 2006. The Plan became effective on February 28, 2006 (the “Effective Date”). Holdings is not reorganizing and, prior to the Effective Date, a new holding company was formed (“New ATA Holdings”). ATA, Execujet, ATA Cargo and Leisure, together with their new parent companies, New ATA Holdings Inc., New ATA Investment Inc. and New ATA Acquisition Inc., are referred to collectively as the “Reorganized Company.” ATA Cargo and Leisure were merged into ATA prior to the Effective Date. In accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position 90-7,“Financial Reporting by Entities in Reorganization under the Bankruptcy Code,”(“SOP 90-7”), the Reorganized Company adopted fresh-start reporting as of the Effective Date. Among other items, SOP 90-7 requires a company to value its assets, liabilities and equity at fair value and the excess of the reorganization value over tangible assets and identifiable intangible assets, if any, will be reflected as goodwill on the balance sheet.

The Plan was formulated based upon the substantive consolidation of the estates of Holdings, ATA Cargo, ExecuJet and Leisure into the estate of ATA (the “Consolidated Estates”) for all purposes under the Plan, including voting, confirmation and distribution. The Plan divided claims and interests against the Consolidated Estates into classes according to their similarity. Claims and interests within a class are treated the same unless the holder of a particular claim or interest agreed to a less favorable treatment of its claim or interest. Among other things, the Plan provided for the full payment pursuant to the Bankruptcy Code of all allowed administrative and priority claims, and provided for the restructuring of the loan agreement with, and the allowed secured loan indebtedness claim of, the Air Transportation Stabilization Board (“ATSB”) and other lenders (the ATSB and such other lenders collectively referred to as the “ATSB Loan Lenders”). Holders of general unsecured claims of $1.0 million or less (“Convenience Class Claims”) will be paid a pro rata share, based on 1.0% recovery, up to a maximum total payout of $1.5 million. Holders of general unsecured claims over $1.0 million will recover an estimated 0.57% to 0.71% of their claim in shares and warrants of New ATA Holdings. On the Effective Date, unsecured creditors receiving shares owned approximately 7.0% of the Class A Common Stock of New ATA Holdings, prior to the issuance of shares under warrants and options. This percentage does not include shares of New ATA Holdings purchased by unsecured creditors pursuant to a rights offering that was a part of the Plan. Claim amounts can be resolved for up to 120 days after the Effective Date, unless otherwise extended by the Bankruptcy Court.

All outstanding shares of Holdings were cancelled on the Effective Date under the Plan and pursuant to the Bankruptcy Code.

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The Chapter 11 cases of the Liquidating Debtors continue separately.

MatlinPatterson Financing Commitment.On November 10, 2005, the Company filed with the Bankruptcy Court a motion to approve a commitment letter with MatlinPatterson Global Opportunities Partners II, L.P. and/or MatlinPatterson Global Opportunities Partners (Cayman) II, L.P. (including affiliates, “MatlinPatterson” or “New Investor”), for debtor-in-possession financing (“DIP”) of $30.0 million (“MatlinPatterson DIP”) and the execution of an investment agreement (the “New Investor Bid”). Under the New Investor Bid, MatlinPatterson or funding designees would invest up to $70.0 million in equity in New ATA Holdings upon ATA’s emergence from its Chapter 11 case. Under the New Investor Bid and the Plan, general unsecured creditors who qualified were provided an opportunity to purchase up to $25.0 million of the equity, subject to the New Investor purchase commitment, at the same price to be paid by the New Investor (the “Rights Offering”). The Rights Offering was fully subscribed. On December 16, 2005, the Bankruptcy Court approved the commitment letter and the $30.0 million MatlinPatterson DIP was closed and funded on December 28, 2005. A funding fee of $3.6 million was treated as a principal advance under the MatlinPatterson DIP. The MatlinPatterson DIP had a base interest rate of 10% per annum, payable on the maturity date which was the earliest of (i) March 31, 2006, (ii) an Event of Default and acceleration of Obligations as defined in the MatlinPatterson DIP, or (iii) the Effective Date of a reorganization plan for ATA.

Upon the Effective Date, the MatlinPatterson DIP, including interest and the MatlinPatterson funding fee, of approximately $34.2 million was converted into Class A Common Stock of New ATA Holdings. In addition, pursuant to an Investment Agreement, MatlinPatterson purchased approximately $40.8 million in the Class A Common Stock of New ATA Holdings. As a result, MatlinPatterson held 69.75% of the issued and outstanding Class A Common Stock of New ATA Holdings as of the Effective Date. After giving effect to issuance of all the Class A Common Stock reserved for issuance under warrants and options, MatlinPatterson held 60.93% of the outstanding Class A Common Stock as of the Effective Date.

MatlinPatterson also provided on the Effective Date $24.2 million of exit term loan financing to ATA. The base interest rate is LIBOR, plus 10.0% per annum, payable quarterly beginning March 31, 2006. Principal payments must be made semi-annually over the term of the loan beginning September 30, 2006, and the loan matures on October 10, 2009. ATA is subject to certain financial covenants under the loan.

ATSB Loan.On November 20, 2002, ATA obtained a secured term loan (the “ATSB Loan”), a significant portion of which was guaranteed by the ATSB. On April 19, 2005, the Bankruptcy Court approved a settlement agreement among the Debtors, the creditors’ committee for the Debtors and the ATSB Loan Lenders (the “Settlement Agreement”) under which the parties agreed that the ATSB Loan Lenders had an allowed, secured claim in respect of the ATSB Loan in the amount of $110.0 million and an allowed, general unsecured claim in respect of the remaining outstanding portion of the ATSB Loan of approximately $30.6 million. Under the Settlement Agreement, ATA paid the ATSB Loan Lenders adequate protection payments of $2.3 million per quarter, beginning in the second quarter of 2005 through the first quarter of 2006, and $4.5 million on January 2, 2006. In addition, ATA made a payment of $1.85 million in November 2005 using proceeds from the sale of certain assets. Collectively, these payments reduced the amount of the ATSB Loan Lenders’ secured claim.

As of the Effective Date, ATA entered into an amended and restated loan agreement with the ATSB Loan Lenders which restructured the terms and payment requirements for the unpaid balance of the allowed secured claim of the ATSB Loan Lenders (“Restructured ATSB Loan”). The principal amount of the Restructured ATSB Loan (being the unpaid balance of the allowed secured claim of the ATSB Loan Lenders) was $97.0 million, which included $2.5 million in respect to certain costs and fees which ATA agreed to pay. ATA is required to make semi-annual principal payments beginning September 30, 2006. The Restructured ATSB Loan has a base interest rate of LIBOR, plus 8.0% per annum, payable quarterly in arrears, with the first interest payment date to be June 30, 2006. The Restructured ATSB Loan matures on September 30, 2009. The Restructured ATSB Loan is guaranteed by all parent holding companies and their subsidiaries. The Restructured ATSB Loan is collateralized by substantially all unencumbered assets of ATA and the guarantors (excluding trust funds and trust accounts), including, but not limited to, cash and cash equivalents, receivables, spare parts and engines,

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aircraft, fuel, ground support equipment, ownership interest in subsidiaries and computer systems and software licenses. ATA is subject to certain financial covenants under the Restructured ATSB Loan.

Transactions with Southwest Airlines

Codeshare Agreement.On December 23, 2004, Southwest Airlines Co. (“Southwest”) and ATA entered into the Southwest-ATA Codeshare Agreement (the “Codeshare Agreement”) related to air transportation service to and from Chicago-Midway and other specified points. Under a codeshare arrangement, the codesharing air carriers have permission to book and sell tickets on each other’s flights. The codeshare flights began on February 4, 2005. On December 14, 2005, the Bankruptcy Court approved an expanded and restated Codeshare Agreement (“Amended Codeshare Agreement”). The Amended Codeshare Agreement, which became effective on the Effective Date, has a seven-year term and provides for: (i) the sale by Southwest of ATA local flights through Southwest’s distribution channels, including Southwest’s website; (ii) integration of the frequent flyer programs of Southwest and ATA; and (iii) the grant of codeshare exclusivity from Southwest to ATA for certain markets for specified periods. ATA is the only air carrier with which Southwest presently has a codesharing agreement.

Southwest DIP Financing Arrangement.On December 23, 2004, ATA and Southwest entered into a Secured Debtor-in-Possession Credit and Security Agreement (the “DIP Facility”) that provided up to $40.0 million in cash to ATA, plus a letter of credit in the approximate amount of $7.0 million to secure two pre-petition loans obtained by ATA from the City of Chicago for the construction of a jet bridge extension at Chicago Midway Airport (the “Chicago LOC”). ATA received $40.0 million under the DIP Facility on December 23, 2004. A closing fee of 2.5%, or $1.0 million, was treated as a principal advance under the DIP Facility.

The base interest rate, paid monthly, on amounts borrowed under the DIP Facility was the greater of (a) 8.0% per annum and (b) the three-month LIBOR rate, plus 5.0% per annum. Southwest received a guaranty fee of $0.3 million for the amounts guaranteed but not drawn under the Chicago LOC. During the term of the DIP Facility, the Company was subject to certain financial covenants. ATA obtained amendments to, or waivers of, these financial covenants for certain months. The DIP Facility was guaranteed by Holdings and its subsidiaries. Southwest exchanged $20.0 million of the amounts owed to it under the DIP Facility on December 28, 2005, as part of an agreement under which ATA assigned certain gates at Chicago Midway Airport to Southwest (see “Asset Sale” below). The remaining $21.0 million of the principal amount outstanding under the DIP Facility was repaid on the Effective Date. As of the Effective Date, ATA provided a backup letter of credit to Southwest in the approximate amount of $7.0 million to secure reimbursement of any amounts which are paid to the City of Chicago under the Chicago LOC.

Asset Sale.On December 28, 2005, the Company and Southwest, with consent of the Department of Aviation for the City of Chicago, executed agreements by which the airlines assigned and exchanged leasehold interests in certain gates between the airlines and the City of Chicago at Chicago Midway Airport. Under these agreements, Southwest exchanged $20.0 million of the amounts owed to it under the DIP Facility for the assignment of leasehold interests to certain gates to Southwest by ATA. The $20.0 million, offset by the recorded costs of leasehold improvements related to the assigned leaseholds, is recorded as deferred gain on the Company’s balance sheet at December 31, 2005, and is being amortized over the remaining eight-year lease term.

On December 23, 2004, the Company and Southwest executed a substantial portion of the transactions contemplated by an Asset Acquisition Agreement (the “Asset Acquisition Agreement”) by which ATA agreed to assign to Southwest ATA’s leasehold interests in six specified gates and a hangar facility at Chicago Midway Airport and related assets for $40.0 million, subject to certain adjustments. The Asset Acquisition Agreement was entered into after the completion of an auction process supervised by the Bankruptcy Court. ATA received $34.0 million of proceeds from the assignment of its leasehold interests in six specified gates and related assets

F-39

on December 23, 2004. ATA received $6.0 million of proceeds from the assignment of its leasehold interest in the hangar facility and related assets on March 28, 2005. Almost all of the $40.0 million in proceeds was recorded as deferred gain on the Company’s balance sheet at December 31, 2004 and is being amortized over the remaining eight-year lease term.

2. Summary of Significant Accounting Policies

Description of Business

Holdings, through its principal subsidiary, ATA, is a low cost airline providing scheduled service to more than 60 markets and charter service throughout the world to independent tour operators, specialty charter customers and the U.S. military. ATA has been operating for 33 years.

The consolidated financial statements include the accounts of Holdings and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company operates principally in one business segment through ATA, its principal subsidiary, which accounts for approximately 97% of the Company’s operating revenues. ATA is a U.S.-certificated air carrier providing domestic and international charter and scheduled passenger air services. As of December 31, 2005, the Company had approximately 3,800 full-time and part-time employees, approximately 2,200 of whom were represented under collective bargaining agreements.

The Company’s revenues are derived principally from the sale of scheduled service or charter air transportation to customers domiciled in the United States. The most significant component of the Company’s property and equipment is aircraft and related improvements and parts. All aircraft are registered in the United States. The Company therefore considers all property and equipment to be domestic.

The U.S. Government is the only customer that accounted for more than 10.0% of consolidated revenues. U.S. Government revenues accounted for 50.0%, 36.0%, 21.3% and 19.6% of consolidated revenues for the two -month period ended February 28, 2006, and the years ended December 31, 2005, 2004 and 2003, respectively.

Basis of Presentation

The accompanying consolidated financial statements of the Company for the two-month period ended February 28, 2006 and the years ended December 31, 2005 and 2004, have been prepared in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7,Financial Reporting by Entities in Reorganization under the Bankruptcy Code(“SOP 90-7”) and on a going-concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business.

SOP 90-7, which is applicable to companies in Chapter 11, generally does not require filers to change the manner in which their financial statements are prepared. However, it does require that the financial statements for periods subsequent to the Petition Date to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Generally, the Company’s revenues, expenses (including professional fees), realized gains and losses, and provision for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the consolidated statement of operations. The consolidated balance sheet must distinguish pre-petition liabilities subject to compromise from those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by the reorganization plan must be reported at the amounts expected to be allowed, even if they may be settled for different amounts. In addition, cash used by reorganization items must be disclosed separately in the consolidated statement of cash flows.

F-40

Reorganization Items

For the two-month period ended February 28, 2006 and the years ended December 31, 2005 and 2004, the Predecessor Company has recognized the following primarily non-cash reorganization (income) expense in the consolidated statements of operations:

	Period from January 1 to February 28, 2006			Year Ended December 31,
				2005			2004
	(in thousands)
Discharge of claims	$	(1,304,653	)	$	—		$	—
Revaluation of Assets and Liabilities		(178,895	)		—			—
Aircraft and engine lease rejection charges		10,522			140,969			568,317
Other agreement and lease rejection charges		3,364			39,240			—
ALPA claim		—			128,850			—
Impairment of assets held for sale		—			10,799			—
Aircraft and related parts impairment charges		—			18,347			44,499
Professional fees		11,046			27,895			8,747
Interest income		(387	)		(2,532	)		(275	)
Goodwill impairment		—			4,576			6,399
Other		3,003			1,488			10,792
	$	(1,456,000	)	$	369,632		$	638,479

The discharge of claims primarily relates to those unsecured claims arising during the bankruptcy process. In accordance with the Plan, the Company discharged its obligations to unsecured creditors in exchange for cash or shares of Class A Common Stock of New ATA Holdings. See “Note 1 — Chapter 11 Filing and Status” for more information of the settlement of unsecured claims.

The revaluation of assets and liabilities relates to the revaluing of the Company’s assets at their estimated fair value and liabilities at their estimated fair value or present value of amounts to be paid.

The aircraft and engine lease rejection charges are non-cash charges comprised of the Company’s estimate of claims resulting from the rejection or return of the aircraft and engines as part of the bankruptcy process. They also include the write-off of assets and liabilities related to aircraft and engine leases that the Company has rejected and committed to return dates with the lessor. The other agreement and lease rejection charges are non-cash charges which are comprised of the Company’s estimate of claims resulting from the rejection of non-aircraft agreements and leases.

The ALPA claim included an unsecured pre-petition claim against ATA by the Air Line Pilots Association (“ALPA”) for the benefit of its members in the total amount of $128.9 million, for which they received a pro-rata share of New ATA Holdings stock in accordance with the Plan. On September 28, 2005, the cockpit crewmembers voted to ratify a new collective bargaining agreement effective October 1, 2005, which included, among other things, wage and benefit concessions and the pre-petition claim. The Bankruptcy Court approved the claim on October 12, 2005.

The impairment of assets held for sale is a non-cash charge related to the discontinuance of C8 operations and the sale of certain related assets. For information on the aircraft and goodwill impairment, see “Note 9 —Fleet and Related Equipment Impairment” and “Note 10 — Goodwill.”

Use of Estimates

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

F-41

Cash Equivalents

Cash equivalents are carried at cost, which approximates market, and are primarily comprised of money market funds and investments in U.S. Treasury repurchase agreements.

Cash and cash equivalents consist of the following:

	December 31,
	2005		2004
	(in thousands)
Cash and money market funds	$	76,724	$	131,478
U.S. Treasury repurchase agreements		2,493		8,174
	$	79,217	$	139,652

Inventories

Inventories consist primarily of expendable aircraft spare parts, fuel and other supplies. Aircraft parts inventories are stated at the average cost and are reduced by an allowance for obsolescence. The obsolescence allowance is provided by amortizing the cost of the aircraft parts inventory, net of an estimated residual value, over the related fleet’s estimated useful service life. The obsolescence allowance at December 31, 2005 and 2004 was $23.7 million and $17.3 million, respectively. Inventories are charged to expense when consumed.

Investment in BATA Leasing, LLC

The Company has a limited liability agreement with Boeing Capital Corporation — Equipment Leasing Corporation forming BATA Leasing LLC (“BATA”), a 50/50 joint venture. The Company has identified BATA as a variable interest entity under Financial Accounting Standards Board (“FASB”) Interpretation No. 46,Consolidation of Variable Interest Entities (“FIN 46”),in which the Company has a variable interest. The Company has determined that it is not the primary beneficiary of BATA under FIN 46 and is not required to consolidate BATA.Because the Company does not control BATA, the Company’s investment is accounted for under the equity method of accounting. BATA is remarketing the Company’s fleet of Boeing 727-200 aircraft in cargo configurations. In exchange for supplying the aircraft, the Company has and expects to continue to receive both cash and its share of the income or loss, after satisfaction of certain loan obligations by BATA, of BATA. As of December 31, 2005, the Company had transferred 23 of its fleet of Boeing 727-200 aircraft to BATA.

Prepaid Aircraft Rent

The Company’s operating leases require periodic cash payments that vary in amount and frequency. The Company accounts for aircraft rentals expense in equal monthly amounts over the term of each operating lease because straight-line expense recognition is most representative of the time pattern from which benefit from use of the aircraft is derived.

Revenue Recognition

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

In addition, the Company has a travel awards program that allows customers to earn points for travel on ATA. As points accumulate to certain levels, the passenger can redeem them for travel. The Company had a liability of $0.3 million and $1.4 million at December 31, 2005 and 2004, respectively, related to travel earned by the travel award customers but not yet redeemed.

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Passenger Traffic Commissions

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

Property and Equipment

Property and equipment, including owned aircraft, are recorded at cost and are depreciated to residual values over their estimated useful service lives using the straight-line method. Leasehold improvements and rotable parts related to the Company’s aircraft are depreciated over the period of benefit or the terms of the related leases, whichever is less. The Company’s other property and equipment is generally depreciated over lives of three to seven years.

Aircraft Lease Return Conditions

The Company finances substantially all of its of aircraft through leases accounted for as operating leases. Many of these leases require that the airframes and engines be in a specified maintenance condition upon their return to the lessor at the end of the lease. If these return conditions are not met by the Company, the leases generally require financial compensation to the lessor. When an operating lease is within five years of its initial termination date, the Company accrues ratably over that five years, if estimable, the total costs that will be incurred by the Company to render the aircraft in a suitable return condition per the contract.

Airframe and Engine Overhauls

The Company has an engine manufacturers’ maintenance agreement effective through February 2016 for engines that power the Boeing 737-800, which provides for the Company to pay a monthly fee per engine flight hour in exchange for major overhaul and maintenance of those engines. The Company expenses the cost per flight hour under this agreement as incurred. The cost of engine overhauls for remaining fleet types, and the cost of airframe overhauls for all fleet types, are capitalized when performed and amortized over estimated useful lives based upon usage, or to earlier fleet or aircraft retirement dates, for both owned and leased aircraft.

Restricted Cash

Restricted cash primarily consists of deposits held to secure outstanding stand-by letters of credit currently provided by the Company. While the existing letters of credit mature within the next 12 months, management believes it is likely that the letters of credit will be renewed and has classified the restricted cash as a long-term asset on the consolidated balance sheets.

The Company has an escrow arrangement that requires the Company to place advance receipts for certain charter flights into escrow until the flight operates. Once the flight occurs the Company is paid from the escrow account those advance deposits specific to that completed flight. As of December 31, 2005 and 2004, the Company had $1.8 million and $6.2 million, respectively, in advance charter receipts deposited in escrow, which was included in prepaid expenses and other current assets on the Company’s balance sheet as of that date.

Goodwill

The Company annually tests for impairment of goodwill in accordance with FASB Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”(“FAS 142). See “Note 10 — Goodwill.”

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Advertising

The Company expenses advertising costs in the period incurred. Advertising expense was $0.7 million, $10.1 million, $33.5 million and $37.9 million for the two-month period ended February 28, 2006, and the years ended December 31, 2005, 2004 and 2003, respectively.

Reclassifications

Certain amounts in the 2004 and 2005 financial statements have been reclassified to conform to the current period presentation.

3. Liabilities Subject to Compromise

Liabilities subject to compromise refers to liabilities that will be accounted for under the plan of reorganization, including claims incurred prior to the Petition Date. These amounts result from known or potential claims to be resolved through the Chapter 11 process and such claims remain subject to future adjustments. Adjustments may result from negotiations, actions of the Bankruptcy Court, rejection of executory contracts and unexpired leases, proofs of claims or other events. Such adjustments, as reflected in reorganization expense, have been material. See “Note 1 — Chapter 11 Filing and Status” for more information on claims settlement.

At December 31, 2005 and 2004, the Company’s liabilities subject to compromise consisted of the following:

	December 31,
	2005		2004
	(in thousands)
Aircraft-related accruals and deferred gains	$	747,336	$	640,788
Long-term debt, including accrued interest, net of unamortized issuance costs		436,020		456,334
Redeemable preferred stock		80,000		80,000
Accounts payable		31,038		32,136
ALPA Claim		128,850		—
Other accrued expenses and liabilities		52,203		70,418
	$	1,475,447	$	1,279,676

4. Debt

As of December 31, 2005 and 2004, the Company’s post-petition, short-term debt consisted of the following:

	December 31,
	2005		2004
	(in thousands)
MatlinPatterson DIP Financing, loan of $30 million and a loan fee of $3.6 million reported as short-term debt and with a fixed rate of 10% amortized over 63 days, up to February 28, 2006	$	33,600	$	—
Southwest DIP Financing with a rate of the greater of (a) 8.0% per annum and (b) the three-month LIBOR rate, plus 5.0% per annum		21,000		41,000
	$	54,600	$	41,000

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Southwest exchanged $20.0 million of the amounts owed to Southwest under the DIP Facility on December 28, 2005, as part of an agreement under which ATA assigned leasehold interests in certain gates at Chicago-Midway airport to Southwest.

Please see “Note 1 — Chapter 11 Filing and Status” for a full description of post-petition short-term debt.

5. Lease Commitments

The Company leases aircraft and aircraft engines, ground facilities, including terminal space and maintenance facilities, and ground equipment. Certain terms of these leases were modified during the reorganization process and are reflected in the table below.

As of December 31, 2005, scheduled future minimum lease payments under operating leases having initial non-cancelable lease terms of more than one year were as follows:

	Flight Equipment		Facilities and Ground Equipment		Total
	(in thousands)
2006	$	87,307	$	6,703	$	94,010
2007		86,957		5,979		92,936
2008		87,376		4,803		92,179
2009		86,026		3,435		89,461
2010		85,065		2,619		87,684
Thereafter		699,981		3,156		703,137
	$	1,132,712	$	26,695	$	1,159,407

The Company’s aircraft operating leases require cash payments that vary in amount and frequency. The Company accounts for aircraft rentals expense in equal monthly amounts over the life of each operating lease because straight-line expense recognition is most representative of the time pattern from which benefit from use of the aircraft is derived. The amount of the cash payments in excess of the aircraft rent expense has created a prepaid aircraft rent amount on the Company’s balance sheet. The portion of the prepaid aircraft rent schedule to be realized in the next twelve months is recorded as short-term prepaid expense while the remainder is recorded as long-term prepaid aircraft rent. Certain of the Company’s aircraft operating leases require more significant cash payments later in the lease term resulting in an accrued liability for aircraft rents on the Company’s balance sheet. As of December 31, 2005 and December 31, 2004, the portion of the liability that relates to leases that have not yet been accepted nor rejected has been recorded as a liability subject to compromise.

The table below summarizes the prepaid and accrued aircraft rents for 2005 and 2004 that result from straight-line expense recognition as reported under the following captions on the Company’s balance sheet.

	December 31,
	2005		2004
	(in thousands)
Assets:
Prepaid expenses and other current assets (short-term)	$	212	$	7,350
Prepaid aircraft rent (long-term)		154		52,031
Total prepaid aircraft rent	$	366	$	59,381
Liabilities:
Accrued expenses (short-term)	$	77	$	—
Liabilities subject to compromise		24,503		21,931
Total aircraft rent liabilities	$	24,580	$	21,931

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6. Income Taxes

The provision for income tax expense consisted of the following:

	Period from January 1 to February 28, 2006		December 31,
			2005		2004		2003
	(in thousands)
Federal:
Current	$	—	$	—	$	—	$	418
Deferred		—		—		—		—
	$	—	$	—	$	—	$	418
State:
Current	$	—	$	—	$	—	$	893
Deferred		—		—		—		—
		—		—		—		893
Income tax expense (credit)	$	—	$	—	$	—	$	1,311

The income tax expense differed from the amount obtained by applying the statutory federal income tax rate to income (loss) before income taxes as follows:

	Period from January 1 to February 28, 2006			December 31,
				2005			2004			2003
	(in thousands)
Federal income tax (credit) at statutory rate	$	501,028		$	(159,435	)	$	(285,590	)	$	7,611
State income tax (credit) net of federal benefit		19,428			(9,718	)		(18,197	)		580
Non-deductible expenses		(202,399	)		10,060			5,881			3,031
Valuation allowance		(318,970	)		159,099			297,857			(9,871	)
Other, net		913			(6	)		49			(40	)
Income tax expense (credit)	$	—		$	—		$	—		$	1,311

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax liability and asset components are as follows:

	December 31,
	2005			2004
	(in thousands)
Deferred tax liabilities:
Property and equipment	$	(11,265	)	$	11,975
Other taxable temporary differences		(522	)		—
Deferred tax liabilities		(11,787	)		11,975
Deferred tax assets:
Aircraft rejection charges		315,685			215,256
Tax benefit of net operating loss carryforwards		127,762			81,397
Deferred gain on sale of Chicago-Midway gates		15,673			12,607
Deferred revenue		8,314			—
Vacation pay accrual		5,036			7,343
Deferred rent expense		4,745			7,327
Alternative minimum tax and other tax credit carryforwards		1,628			1,628
Other deductible temporary differences		22,455			16,849
Deferred tax assets		501,298			342,407
Valuation allowance		(489,511	)		(330,432	)
Net deferred tax asset	$	—		$	—

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Because of the cumulative losses incurred by the Company, the deferred tax assets have been fully reserved.

As of December 31, 2005, the Company had a $341.0 million federal net operating loss carryforward expiring starting in 2022. As a result of the impact of the Plan, including the discharge of claims, the net operating loss carryforwards were eliminated.

7. Retirement Plan

The Company has a defined contribution 401(k) savings plan which provides for participation by substantially all the Company’s employees immediately upon hire. In 2006, the Company elected to contribute and amount equal to 65.0% of the amount contributed by all employees up to the first 6.0% of eligible compensation. In 2005, the Company elected to contribute an amount equal to 60.0% of the amount contributed by employees under a collective bargaining agreement to the 401(k) savings plan up to 6.0% of eligible compensation. In 2004 and 2003, the Company elected to contribute an amount equal to 60.0% of the amount contributed by all employees up to the first 6.0% of eligible compensation. Company matching contributions expensed in the first two months of 2006 and the full years of 2005, 2004 and 2003 were $0.8 million, $3.7 million, $7.3 million and $6.8 million, respectively.

The Company has a defined contribution plan for cockpit crewmember employees, the Cockpit Crewmember Money Purchase Plan, that is funded by the Company. The Company did not make contributions to the plan in the first two months of 2006. In the 2005 plan year, the Company contributed between 0.0% and 7.5% of each cockpit crewmember’s eligible earnings, depending on years of service with the Company. The contribution expense for the plan in 2005 was $2.0 million. In February 2005, the Company entered into a letter agreement with its cockpit crewmember’s in which, among other things, the cockpit crewmembers agreed to a 50% reduction in the Company’s contributions to the plan between January 31, 2005 and May 31, 2005. For January 2005, the Company contributed between 4.5% and 7.5% and from February 2005 to September 2005, the Company contributed between 2.25% and 3.75%, respectively, to the plan. In June 2005, the cockpit crewmembers extended this letter agreement through September 30, 2005. On September 28, 2005, the cockpit crewmembers voted to ratify a new three-year collective bargaining agreement which became effective October 1, 2005, and amendable on September 30, 2008, in which, among other things, the cockpit crewmembers agreed to modifications to the Cockpit Crewmember Money Purchase Plan. The cockpit crewmembers agreed to the suspension of the Company’s contributions to the plan effective October 1, 2005 through December 31, 2006. Effective January 1, 2007, the Company reinstated contributions of 2.0% to the defined contribution plan for cockpit crewmember employees.

In the 2004 and 2003 plan years, the Company contributed between 4.5% and 7.5%, and 4.0% and 6.5%, respectively, to the Cockpit Crewmember Money Purchase Plan. The contribution expense for the plan in 2004 and 2003 was $7.3 million and $6.1 million, respectively.

8. Commitments and Contingencies

In January 2002, a limited liability company which is a wholly owned subsidiary of Holdings (the “Chicago LLC”) entered into a long term lease of land from the City of Chicago (the “City”), which had been purchased by the City with proceeds of Chicago Midway Airport Revenue Bonds (“MARB’s”). The Chicago LLC also entered into a redevelopment agreement with the City in January 2002 to develop the leased land. The City agreed to pay for the debt service on the MARB’s from the incremental tax revenue expected to be generated from the land and its development. If the incremental tax revenue is insufficient to fund the MARB’s debt service, the City has the right to require the Chicago LLC to provide those funds as additional rent under the lease. ATA was a guarantor of certain of the lease obligations of the Chicago LLC, which has not filed for bankruptcy protection, to the City of Chicago. The City filed an ATA Chapter 11 case claim against ATA, as guarantor, for $26.1 million representing the purported amount of rent owed through 2021. Section 502(b)(6) of the Bankruptcy Code limits damage claims against Debtor-guarantors of real estate lease obligations to the lower of (1) 15% of the total rents due from the date of bankruptcy filing by that guarantor through the end of the lease and (2) the rent reserved for the three years following the date of such filing. The Company calculates the lower amount to be the rent reserved for the three

F-47

years following the date of ATA filing, which is $3.5 million. ATA has objected to the City’s claim utilizing Section 502(b)(6) of the Bankruptcy Code and has recorded $3.5 million in Liabilities Subject to Compromise on its balance sheet as of December 31, 2005. The claim of the City of Chicago on the lease guaranty is a pre-petition, unsecured claim which was subject to the Plan.

In ATA’s aircraft financing agreements, the Company typically indemnifies the financing parties, trustees acting on their behalf and other related parties against liabilities that arise from the manufacture, design, ownership, financing, use, operation and maintenance of the aircraft and for tort liability, whether or not these liabilities arise out of or relate to the negligence of these indemnified parties, except for their gross negligence or willful misconduct. ATA expects that it would be covered by insurance (subject to deductibles) for most tort liabilities and related indemnities under these aircraft leases which were entered into after its Filing or which were assumed by it, pursuant to the Bankruptcy Code.

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

9. Fleet and Related Equipment Impairment

The Company follows FASB Statement of Financial Accounting Standard No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”), which superseded FASB Statement of Financial Accounting Standards No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of(“FAS 121”).

The Company began performing impairment reviews on its 727-200 fleet in 2000 and the fleet became impaired in 2001, subsequent to the terrorist attacks of September 11. The Company continues to monitor the current fair market value of these previously impaired assets. In 2005 the Company recorded an additional asset impairment charge of $0.4 million against its remaining net book value of Boeing 727-200 aircraft (recorded as an investment in the BATA joint venture) and related assets, as compared to recording a $7.9 million and a $5.3 million impairment charge in 2004 and 2003, respectively. The Company’s current estimate of this fleet’s fair market value was based on a discounted future cash flow analysis.

The Company began performing impairment reviews on its L-1011-500 fleet and related parts and inventory in 2002 for impairment under FAS 144 assuming a common fleet retirement date of December 2010. In 2004, given the Company’s financial position, cash constraints and related limitations imposed by the Chapter 11 filing initiated in the fourth quarter of 2004, the Company determined that it likely would not perform heavy checks on certain of the L-1011-500 airframes when they became due. The fourth quarter 2004 evaluation indicated that the aircraft were impaired and the Company recorded a related impairment charge of $44.5 million in the fourth quarter of 2004. The Company estimates this fleet’s fair market value using discounted cash flow analysis. In accordance with SOP 90-7, because the 2004 impairment charge was directly related to the Company’s reorganization under Chapter 11, the charge was recorded as a reorganization expense on the Company’s statement of operations. The carrying amount of these assets is classified as assets held for use and appears in the property and equipment section of the accompanying consolidated balance sheets, as the Company is still flying these aircraft. The assets are being depreciated in accordance with the planned fleet retirement schedule of all aircraft being retired by 2008.

In the first quarter of 2005, the Company announced that it would cease the operations of C8 and sell certain assets related to C8. In the first quarter of 2005, the Company recorded an impairment charge of $11.3 million against certain assets related to C8 and classified the estimated value of these assets totaling $3.25 million as short-term assets held for sale on the consolidated balance sheet as of March 31, 2005. Subsequently, in June 2005, substantially all of C8 assets were sold for $1.25 million. The remaining $2.0 million of short-term assets held for sale related to C8, but owned by ATA, were sold in November 2005 for $2.35 million.

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The Company performed an impairment review of its repairable and rotable parts related to its Boeing 757-200, Boeing 757-300 and Boeing 737-800 fleets in the fourth quarter of 2005 based on impairment indicators under FAS 144. The review indicated that the parts were impaired and the Company recorded a related impairment charge of $16.2 million for rotables and $2.1 million for repairables in the fourth quarter of 2005. The Company used market data to estimate the fair market value of the parts. In accordance with SOP 90-7, because the impairment charge was directly related to the Company’s reorganization under Chapter 11 and the return of certain aircraft to the lessors, the charge was recorded as a reorganization expense on the Company’s statement of operations. The carrying amount of the repairable parts appears in the inventory section of the accompanying balance sheets and the carrying amount of the rotable parts appears in the property and equipment section of the accompanying balance sheets. The Company intends to sell a substantial portion of these parts to third-party vendors and to enter into maintenance service agreements wherein these parts are expected to be utilized. The Company also signed a maintenance services agreement with another vendor to perform heavy maintenance on certain aircraft in the first quarter of 2006.

10. Goodwill

The Company accounts for its goodwill in accordance with FAS 142 and performs its annual goodwill impairment test in the fourth quarter of each year.

In its 2004 annual goodwill impairment test, the Company determined that goodwill related to C8 and ATA Cargo was unimpaired, but that the estimated fair value of the Leisure brands outsourced to Mark Travel Corporation was lower than the carrying amount, resulting in an impairment loss of $6.4 million. The Company determined that the impairment was directly related to its reorganization efforts, including route and operating changes, and recorded the charge as a reorganization expense on its statement of operations.

In the first quarter of 2005, the Company announced that it intended to sell or cease C8’s operations. C8 ceased flights on March 28, 2005. The Company recorded an impairment loss of $1.5 million related to C8 goodwill in the first quarter of 2005. In its 2005 annual goodwill impairment test, the Company determined that the estimated fair value of ATA Cargo was lower than the carrying amount, resulting in an impairment loss of $4.5 million. The Company again determined that the impairment losses were directly related to its reorganization efforts and recorded the charges as reorganization expense on its statement of operations.

The fair values of all of the Company’s reporting units were estimated using discounted future cash flows since market quotes were not readily available.

11. Related Party Transactions

J. George Mikelsons, the Company’s former Chairman and Chief Executive Officer, is the sole owner of Betaco, Inc., a Delaware corporation (“Betaco”). Betaco owns two airplanes, a Cessna Citation II and a Lear Jet, and two helicopters, a Bell 206 B Jet Ranger III and a Bell 206 L-3 LongRanger. Prior to the Filing, these airplanes and helicopters were leased to ExecuJet, a subsidiary of ATA Holdings Corp. As part of the bankruptcy process, ExecuJet rejected these leases with Betaco, and the Company recorded a $2.3 million damage claim related to the rejection. Subsequently, ExecuJet entered into a new lease for the Lear Jet with Betaco that requires a monthly payment of $19,807 for a term beginning December 16, 2005, and ending December 15, 2006. ExecuJet has the option to renew this lease for two additional one-year periods. The Company believes that the current terms of this lease with Betaco for this equipment are no less favorable to the Company than those that could be obtained from third parties.

Since 1996, the Company and Mr. Mikelsons had an arrangement pursuant to which the Company provided certain domestic employees of Mr. Mikelsons with salary, health insurance and other non-cash benefits. As of December 31, 2005, Mr. Mikelsons owed $598,391 to the Company pursuant to that arrangement. On October 26, 2004, the Company and Mr. Mikelsons signed an agreement for the repayment of the debt which

F-49

requires quarterly installments of $19,403 beginning January 26, 2005 through October 26, 2009 and bears interest at 3.6% per annum, with the remaining balance due and payable on October 26, 2009. On August 31, 2005, the Company and Mr. Mikelsons signed a Non-Competition and Confidentiality Agreement for the period of September 1, 2005 through August 31, 2008. In exchange, the Company will reduce Mr. Mikelsons debt by an aggregate amount of $400,000 at quarterly intervals beginning September 1, 2006, provided no breach has occurred. The Company recorded an allowance of $400,000 against the receivable from Mr. Mikelsons in the third quarter of 2005. Also on August 31, 2005, the Company and Mr. Mikelsons executed a Severance Agreement effective with his retirement on the same date. The severance included all unused vacation benefits, $650,000 less applicable taxes payable bi-weekly over one year, and inclusion of Mr. and Mrs. Mikelsons in the ATA group health insurance plans. The Company has a liability for $460,715 representing the remaining severance under the agreement as of December 31, 2005.

12. Selected Supplemental Quarterly Data (Unaudited)

Financial Statements and Supplementary Data

ATA Holdings Corp. And Subsidiaries

(Debtor and Debtor-in-Possession as of October 26, 2004)

2005 Quarterly Financial Summary

(Unaudited)

	3/31			6/30			9/30			12/31
	(in thousands)
Operating revenues	$	308,276		$	270,868		$	290,787		$	222,370
Operating expenses		351,024			285,447			289,362			247,859
Operating income (loss)		(42,748	)		(14,579	)		1,425			(25,489	)
Reorganization expenses (1)		(318,483	)		(39,342	)		(137,622	)		125,815
Other expenses		(1,450	)		(879	)		(1,174	)		(1,061	)
Income (loss) before income taxes		(362,681	)		(54,800	)		(137,371	)		99,265
Income (loss) available to common shareholders	$	(362,681	)	$	(54,800	)	$	(137,371	)	$	99,265

Financial Statements and Supplementary Data

ATA Holdings Corp. And Subsidiaries

(Debtor and Debtor-in-Possession as of October 26, 2004)

2004 Quarterly Financial Summary

(Unaudited)

	3/31			6/30			9/30			12/31
	(in thousands)
Operating revenues	$	387,333		$	390,774		$	401,219		$	353,245
Operating expenses		409,684			401,297			417,397			404,356
Operating loss		(22,351	)		(10,523	)		(16,178	)		(51,111	)
Reorganization expenses (1)		—			—			—			(638,479	)
Other expenses		(41,993	)		(15,139	)		(14,726	)		(5,229	)
Loss before income taxes		(64,344	)		(25,662	)		(30,904	)		(694,819	)
Preferred stock dividends		375			375			375			—
Loss available to common shareholders	$	(64,719	)	$	(26,037	)	$	(31,279	)	$	(694,819	)

(1) The accompanying consolidated financial statements, for the periods ended February 28, 2006, December 31, 2005 and December 31, 2004, of the Company have been prepared in accordance with

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American Institute of Certified Public Accountants Statement of Position 90-7,Financial Reporting by Entities in Reorganization under the Bankruptcy Code(“SOP 90-7) and on a going-concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. Reorganization expenses identify those costs not in the ordinary business and include, but are not limited to, aircraft and engine lease rejection charges, other non-aircraft agreement rejection charges, impairments and professional fees related to the Filing. See “Notes to Consolidated Financial Statements — Note 1 — Chapter 11 Filing and Status” for more information.

F-51

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

World Air Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of World Air Holdings, Inc. and subsidiaries (“World Air Holdings”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2006. These consolidated financial statements are the responsibility of the World Air Holdings management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of World Air Holdings as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of World Air Holdings’ internal control over financial reporting as of December 31, 2006, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 3, 2007 expressed an unqualified opinion on management’s assessment and an adverse opinion on the effectiveness of internal control over financial reporting.

As discussed in Notes 1 and 8 to the consolidated financial statements, World Air Holdings adopted the provisions of Statement of Financial Accounting Standards No. 123(R),Share-Based Paymenteffective January 1, 2006. Also, as discussed in Notes 1 and 11 to the consolidated financial statements, World Air Holdings adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans as of December 31, 2006.

KPMG LLP

Atlanta, Georgia

July 3, 2007

F-52

Management’s Report on Internal Control Over Financial Reporting

World Air Holdings, Inc.’s (“World Air Holdings” or “the Company”) management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with existing policies or procedures may deteriorate.

Under the supervision of the Chief Executive Officer and the Chief Financial Officer, the Company’s management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2006, based on the framework and criteria established inInternal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that internal control over financial reporting was not effective as of December 31, 2006 as a result of the material weaknesses described below.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. In connection with management’s assessment of the Company’s internal control over financial reporting referred to above, management has identified the following material weaknesses in the Company’s internal control over financial reporting as of December 31, 2006:

1. The Company’s control environment did not sufficiently promote effective internal control over financial reporting throughout the organization. Specifically, the following deficiencies in the control environment existed as of December 31, 2006:

a. The Company lacked formal policies and procedures to clearly communicate management’s and employees’ roles and responsibilities in the Company’s internal control over financial reporting.

b. The Company lacked formal written accounting policies and procedures for the initiation and processing of transactions and for formal account reconciliations and related management review.

2. The Company’s information and communication controls did not sufficiently promote effective internal control over financial reporting throughout the organization. Specifically, the Company did not have formal policies and procedures in place to ensure that potential accounting or disclosure matters relevant to financial reporting were communicated to the Company’s accounting and finance personnel by others within the Company in an appropriate form or timeframe to enable accurate financial reporting.

Each of the material weaknesses described above contributed to the material weaknesses discussed in the following items 3 through 5.

3. The Company did not maintain effective policies and procedures regarding the accounting for income taxes, including taxes payable, deferred income tax assets and liabilities and the related income tax provision.

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Specifically, the Company’s policies and procedures did not provide for the effective internal preparation and review of complex tax calculations, the review of the tax provision, or the preparation of sufficient documentation of the Company’s income tax accounting. These deficiencies resulted in material errors in the Company’s income tax provision in the preliminary 2006 consolidated financial statements.

4. The Company did not maintain effective policies and procedures related to its accounting for accrued liabilities. Specifically, the Company did not effectively perform and document procedures to evaluate the reasonableness of assumptions used to estimate liabilities associated with maintenance, flight costs, legal and other expense accruals. Further, existing procedures were not subject to adequate supervisory review. This deficiency resulted in material errors in maintenance, flight costs, legal and other expense accruals within the preliminary 2006 consolidated financial statements.

5. The Company did not have effective controls over the financial reporting close process. Specifically, the Company did not have a sufficient number of accounting professionals with requisite technical and financial reporting knowledge to ensure the proper selection of accounting policies and the correct application of generally accepted accounting principles in the consolidated financial statements, and to ensure that accurate and reliable financial statements were prepared and reviewed on a timely basis. Also, the Company lacked effective policies and procedures to identify and record correctly the accounting implications of complex and non-routine transactions and to provide for sufficient review of financial information and related presentation and disclosures. These deficiencies resulted in material errors in the preliminary 2006 consolidated financial statements.

Each of the aforementioned material weaknesses results in more than a remote likelihood that a material misstatement in the Company’s annual or interim consolidated financial statements would not be prevented or detected.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 has been audited by KPMG LLP, an independent registered public accounting firm.

F-54

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

World Air Holdings, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (Item 9A(B)), that World Air Holdings, Inc. (the “Company”) did not maintain effective internal control over financial reporting as of December 31, 2006, because of the effect of material weaknesses identified in management’s assessment, based on criteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment:

1. The Company’s control environment did not sufficiently promote effective internal control over financial reporting throughout the organization. Specifically, the following deficiencies in the control environment existed as of December 31, 2006:

a. The Company lacked formal policies and procedures to clearly communicate management’s and employees’ roles and responsibilities in the Company’s internal control over financial reporting.

b. The Company lacked formal written accounting policies and procedures for the initiation and processing of transactions and for formal account reconciliations and related management review.

2. The Company’s information and communication controls did not sufficiently promote effective internal control over financial reporting throughout the organization. Specifically, the Company did not have formal

F-55

policies and procedures in place to ensure that potential accounting or disclosure matters relevant to financial reporting were communicated to the Company’s accounting and finance personnel by others within the Company in an appropriate form or timeframe to enable accurate financial reporting.

Each of the material weaknesses described above contributed to the material weaknesses discussed in the following items 3 through 5.

3. The Company did not maintain effective policies and procedures regarding the accounting for income taxes, including taxes payable, deferred income tax assets and liabilities and the related income tax provision. Specifically, the Company’s policies and procedures did not provide for the effective internal preparation and review of complex tax calculations, the review of the tax provision, or the preparation of sufficient documentation of the Company’s income tax accounting. These deficiencies resulted in material errors in the Company’s income tax provision in the preliminary 2006 consolidated financial statements.

4. The Company did not maintain effective policies and procedures related to its accounting for accrued liabilities. Specifically, the Company did not effectively perform and document procedures to evaluate the reasonableness of assumptions used to estimate liabilities associated with maintenance, flight costs, legal and other expense accruals. Further, existing procedures were not subject to adequate supervisory review. This deficiency resulted in material errors in maintenance, flight costs, legal and other expense accruals within the preliminary 2006 consolidated financial statements.

5. The Company did not have effective controls over the financial reporting close process. Specifically, the Company did not have a sufficient number of accounting professionals with requisite technical and financial reporting knowledge to ensure the proper selection of accounting policies and the correct application of generally accepted accounting principles in the consolidated financial statements, and to ensure that accurate and reliable financial statements were prepared and reviewed on a timely basis. Also, the Company lacked effective policies and procedures to identify and record correctly the accounting implications of complex and non-routine transactions and to provide for sufficient review of financial information and related presentation and disclosures. These deficiencies resulted in material errors in the preliminary 2006 consolidated financial statements.

Each of the aforementioned material weaknesses results in more than a remote likelihood that a material misstatement in the Company’s annual or interim consolidated financial statements would not be prevented or detected.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of World Air Holdings, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2006. The aforementioned material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2006 consolidated financial statements, and this report does not affect our report dated July 3, 2007, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, management’s assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Atlanta, Georgia

July 3, 2007

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WORLD AIR HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2006		2005
	(in thousands)
ASSETS
Current assets
Cash and cash equivalents	$	31,198	$	46,202
Restricted cash		1,087		6,262
Short-term investments		—		827
Trade accounts receivable, less allowance for doubtful accounts of $1,623 at December 31, 2006 and $1,643 at December 31, 2005		27,944		57,235
Other receivables		16,112		21,564
Prepaid expenses and other current assets		19,697		20,246
Deferred tax assets		1,261		3,846
Total current assets		97,299		156,182
Equipment and property
Flight and other equipment		84,048		81,206
Less: accumulated depreciation and amortization		48,613		47,480
Net equipment and property		35,435		33,726
Goodwill and other intangible assets
Goodwill		25,370		25,370
Other intangible assets, net of accumulated amortization of $1,614 at December 31, 2006 and $740 at December 31, 2005		6,481		7,355
Net goodwill and other intangible assets		31,851		32,725
Long-term deposits		28,481		28,298
Other assets and deferred charges, net of accumulated amortization of $185 at December 31, 2006 and $3,558 at December 31, 2005		5,684		9,715
Total assets	$	198,750	$	260,646

F-57

WORLD AIR HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2006		2005
	(in thousands except share amounts)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current maturities of long-term debt	$	—	$	24,000
Accounts payable and other accrued expenses		52,372		59,484
Current portion of accrued rent		3,945		4,700
Current portion of deferred rent		2,007		2,455
Unearned revenue		18,163		16,512
Accrued maintenance		14,504		9,739
Accrued salaries, wages and profit sharing		15,814		25,576
Accrued taxes		6,413		5,534
Total current liabilities		113,218		148,000
Long-term debt, net of current maturities		—		—
Deferred gain from sale-leaseback transactions, net of accumulated amortization of $5,263 at December 31, 2006 and $4,857 at December 31, 2005		244		650
Accrued post-retirement benefits		7,804		6,995
Accrued and deferred rent, net of current portion		9,128		14,551
Deferred income taxes		1,225		3,612
Total liabilities		131,619		173,808
Stockholders’ equity
Preferred stock, $.001 par value (5,000,000 shares authorized; no shares issued or outstanding)		—		—
Common stock, $.001 par value (100,000,000 shares authorized; 22,367,317 shares issued and outstanding at December 31, 2006; 25,002,645 shares issued and 23,921,402 shares outstanding at December 31, 2005)		22		25
Additional paid-in capital		37,021		67,770
Retained earnings		29,861		32,153
Deferred stock-based compensation		—		(253	)
Treasury stock, at cost (1,081,243 shares at December 31, 2005)		—		(12,857	)
Other comprehensive income		227		—
Total stockholders’ equity		67,131		86,838
Commitments and contingencies (Note 14)		—		—
Total liabilities and stockholders’ equity	$	198,750	$	260,646

See accompanying Notes to Consolidated Financial Statements

F-58

WORLD AIR HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2006			2005			2004
	(in thousands except per share amounts)
Operating revenues
Flight operations	$	824,098		$	783,939		$	501,698
Other		1,558			3,199			2,202
Total operating revenues		825,656			787,138			503,900
Operating expenses
Flight		233,951			218,498			157,147
Maintenance		147,241			113,769			76,004
Aircraft costs		121,114			109,562			77,243
Fuel		194,515			168,526			74,474
Flight operations subcontracted to other carriers		3,759			2,928			1,812
Commissions		38,050			36,265			23,352
Depreciation and amortization		7,514			6,286			5,283
Sales, general and administrative		80,292			72,588			48,302
Legal expense — California matter		—			2,100			—
Total operating expenses		826,436			730,522			463,617
Operating income/(loss)		(780	)		56,616			40,283
Other income (expense)
Interest expense		(3,657	)		(4,467	)		(5,139	)
Interest income		1,655			1,173			584
Other, net		135			(1,721	)		(1,696	)
Total other income (expense)		(1,867	)		(5,015	)		(6,251	)
Earnings/(loss) before income tax expense		(2,647	)		51,601			34,032
Income tax expense/(benefit)		(355	)		19,973			8,445
Net earnings/(loss)	$	(2,292	)	$	31,628		$	25,587
Basic earnings/(loss) per share
Net earnings/(loss)	$	(0.10	)	$	1.40		$	1.95
Weighted average shares outstanding		23,643			22,588			13,095
Diluted earnings/(loss) per share
Net earnings/(loss)	$	(0.10	)	$	1.19		$	1.09
Weighted average shares outstanding		23,643			26,824			24,591

See accompanying Notes to Consolidated Financial Statements

F-59

WORLD AIR HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share data)

	Common Stock			Additional Paid-In Capital			Retained Earnings/ (Deficit)			Deferred Stock-Based Compensation			Treasury Stock, at Cost			Accumulated Other Comprehensive Income		Total Stockholders’ Equity/ (Deficit)
Balance at December 31, 2003	$	13		$	29,876		$	(25,062	)	$	—		$	(12,857	)	$	—	$	(8,030	)
Net earnings		—			—			25,587			—			—			—		25,587
Exercise of 1,583,088 stock options		2			1,505			—			—			—			—		1,507
Exercise of warrants for 1,021,994 shares		1			2,499			—			—			—			—		2,500
Tax benefit of stock option exercises		—			1,221			—			—			—			—		1,221
Amortization of warrants		—			185			—			—			—			—		185
Issuance of 2,322,500 shares upon debt conversion		2			7,426			—			—			—			—		7,428
Balance at December 31, 2004		18			42,712			525			—			(12,857	)		—		30,398
Net earnings		—			—			31,628			—			—			—		31,628
Exercise of 835,975 stock options		—			2,353			—			—			—			—		2,353
Exercise of warrants for 1,076,345 shares		1			2,499			—			—			—			—		2,500
Tax benefit of stock option exercises		—			1,465			—			—			—			—		1,465
Amortization of warrants		—			143			—			—			—			—		143
Issuance of 5,660,302 shares upon conversion of debt		6			18,119			—			—			—			—		18,125
Stock-based compensation-accelerated vesting		—			176			—			—			—			—		176
Award of deferred stock-based compensation		—			303			—			(303	)		—			—		—
Amortization of deferred stock-based compensation		—			—			—			50			—			—		50
Balance at December 31, 2005		25			67,770			32,153			(253	)		(12,857	)		—		86,838
Net loss		—			—			(2,292	)		—			—			—		(2,292	)
Cumulative effect adjustment resulting from the adoption of SFAS 158, net of tax of $125		—			—			—			—			—			227		227
Comprehensive loss																			(2,065	)
Exercise of 405,475 stock options		1			527			—			—			—			—		528
Tax benefit of stock option exercises		—			1,377			—			—			—			—		1,377
Amortization of warrants		—			135			—			—			—			—		135
Stock-based compensation		—			1,195			—			—			—			—		1,195
Reversal of award of deferred stock-based compensation		—			(303	)		—			303			—			—		—
Reversal of amortization of deferred stock-based compensation		—			—			—			(50	)		—			—		(50	)
Repurchase of 2,222,222 shares of common stock		(2	)		(20,825	)		—			—			—			—		(20,827	)
Retirement of 1,039,694 shares of treasury stock		(2	)		(12,855	)		—			—			12,857			—		—
Balance at December 31, 2006	$	22		$	37,021		$	29,861		$	—		$	—		$	227	$	67,131

See accompanying Notes to Consolidated Financial Statements

F-60

WORLD AIR HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2006			2005			2004
	(in thousands)
Cash and cash equivalents at beginning of year	$	46,202		$	16,306		$	16,535
Cash flows from operating activities
Net earnings/(loss)		(2,292	)		31,628			25,587
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		7,514			6,286			5,283
Amortization of deferred gain		(406	)		(588	)		(1,132	)
Charges related to impairment of property and equipment		—			—			1,500
Loss on disposals of equipment and property		1,055			1,331			987
Tax benefit of stock option exercises		—			1,465			1,221
Amortization of warrants and debt issuance costs		2,987			2,024			2,019
Deferred income taxes		53			(463	)		(4,750	)
Provision for doubtful accounts		335			1,622			13
Stock-based compensation		1,195			—			—
Loss on debt extinguishment		—			(88	)		—
Other		282			676			(169	)
Changes in operating assets and liabilities, exclusive of acquisitions:
Accounts receivable		34,358			(15,187	)		(20,949	)
Restricted cash		5,175			1,464			364
Deposits, prepaid expenses and other assets		1,724			(18,825	)		(1,187	)
Accounts payable, accrued expenses and other liabilities		(17,533	)		21,742			13,616
Unearned revenue		1,651			768			2,747
Net cash provided by operating activities		36,098			33,855			25,150
Cash flows from investing activities
Purchases of equipment and property		(8,924	)		(7,161	)		(2,034	)
Net (purchases) and sales of short term investments		827			32,823			(19,650	)
Proceeds from disposals of equipment and property		559			192			35
Acquisition of North American, less cash acquired		—			(26,953	)		—
Net cash used in investing activities		(7,538	)		(1,099	)		(21,649	)
Cash flows from financing activities
Decrease in restricted cash due to repayment of debt		—			—			18,000
Repurchase of common stock		(20,827	)		—			—
Repayment of debt		(24,000	)		(6,000	)		(18,000	)
Proceeds from exercise of stock options		528			2,353			1,507
Proceeds from exercise of warrants		—			2,500			2,500
Excess tax benefit from employee stock-based compensation plan		1,227			—			—
Payment of debt issuance costs		(492	)		—			(541	)
Repayment of aircraft rent obligations		—			(1,713	)		(7,196	)
Net cash used in financing activities		(43,564	)		(2,860	)		(3,730	)
Net increase (decrease) in cash and cash equivalents		(15,004	)		29,896			(229	)
Cash and cash equivalents at end of year	$	31,198		$	46,202		$	16,306
Supplemental information:
Interest paid	$	447		$	2,820		$	3,121
Income taxes paid	$	129		$	15,121		$	6,981
Conversion of the Company’s convertible senior subordinated debentures to common stock	$	—		$	18,125		$	7,428

See accompanying Notes to Consolidated Financial Statements

F-61

WORLD AIR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Organization

The Consolidated Financial Statements include the accounts of World Air Holdings, Inc. (“World Air Holdings” or the “Company”), and its wholly-owned subsidiaries, World Airways, Inc. (“World Airways”), North American Airlines, Inc. (“North American”), and World Risk Solutions, Ltd. (“World Risk Solutions”). World Airways Parts Company, LLC is a wholly-owned subsidiary of World Airways. The Company acquired North American, a privately held airline based in Jamaica, New York, on April 27, 2005. All significant inter-company accounts and transactions have been eliminated in consolidation.

Effective January 10, 2005, World Airways was reorganized into a holding company structure, which was effected through a merger conducted pursuant to Section 251(g) of the General Corporation Law of the State of Delaware, which does not require stockholder approval. All of the outstanding shares of common stock of World Airways, par value $.001 per share, were converted on a share-for-share basis into shares of common stock of World Air Holdings, par value $.001 per share (the “common stock”), and all stockholders of World Airways became stockholders of World Air Holdings through a non-taxable transaction. Stock certificates representing shares of common stock of World Airways are deemed to represent shares of common stock of World Air Holdings until exchanged in the ordinary course as a result of transfers for stock certificates bearing the name of World Air Holdings. Airline operations account for 100% of World Air Holdings’ operating revenues.

World Airways was organized in March 1948 and is a U.S. certificated air carrier. Air transportation operations account for 100% of World Airways’ operating revenue. World Airways provides long-range passenger and cargo charter and wet-lease air transportation, serving the U.S. Government, international freight and passenger airlines, tour operators, and customers requiring specialized aircraft services. (see Note 13).

North American was organized in April 1989 and is a U.S. certificated air carrier. Air transportation accounts for 100% of North American’s operating revenues. North American provides passenger charter and wet-lease air transportation serving the U.S. Government, tour operators, and other airlines. In addition, North American operates scheduled passenger service in select markets (see Note 13).

World Risk Solutions, a Bermuda corporation, was formed in November 2004, with the objective of providing certain insurance cost savings, enhanced risk management programs, and better loss control practices to the Company.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Significant estimates include fixed asset useful lives, valuation allowances, (including but not limited to, those related to receivables, inventory, intangibles, and deferred taxes), income tax accounting, self-insured employee benefits, and legal liabilities.

Cash, Cash Equivalents and Restricted Cash

The Company considers all liquid investments purchased with an original or remaining maturity of 90 days or less to be cash equivalents. At December 31, 2006, current restricted cash of $1.1 million represented prepayments from customers for flights that are scheduled to be flown within 30 to 60 days of the balance sheet

F-62

date (unearned revenue). At December 31, 2005, current restricted cash of $6.3 million consisted of amounts required for letters of credit that had to be secured by cash collateral, and prepayments from charter customers for flights to be flown. Long-term restricted cash at December 31, 2005, included approximately $0.8 million of funds held in escrow in the Dominican Republic for North American, which is reported on the Consolidated Balance Sheets in other assets and deferred charges, net.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents. The Company places cash and cash equivalents with high-quality institutions. At times, such amounts are in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of December 31, 2006 and 2005, such excess over FDIC insurance limits amounted to approximately $35.1 million and $58.7 million, respectively.

Concentration of credit risk with respect to accounts receivable is limited due to the U.S. military business and the relatively small number of full service and ACMI customers the Company serves, which accounts for 78.7% of revenues.

Short-Term Investments

Short-term investments consist of auction rate securities with auction reset periods of less than 12 months, classified as available-for-sale securities and stated at fair value.

Trade Accounts Receivable and Other Receivables

Accounts receivable are due primarily from the U.S. Government, tour operators, major credit card processors, international passenger and cargo air carriers, and international freight forwarders. Other receivables include insurance claims, maintenance reserve receivables and other miscellaneous receivables. In the normal course of business, the Company reviews its accounts receivable and uses judgment to assess its ability to collect these receivables. Based on this assessment, an allowance for doubtful accounts is maintained for specifically identified accounts receivable deemed to be uncollectible.

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments at December 31, 2006 and 2005.

• Cash and cash equivalents; short-term investments; restricted cash; accounts receivable; accounts payable; and accrued expenses

The Company maintains cash and cash equivalents and short-term investments with various high credit-quality financial institutions or in short-duration, high quality debt securities. The estimated fair value of cash and cash equivalents, short-term investments, restricted cash, accounts receivable, accounts payable, and accrued expenses approximate their carrying values.

Long-Term Deposits

At December 31, 2006, long-term deposits of $28.5 million consisted of aircraft and engine deposits of $27.6 million and building and miscellaneous deposits of $0.9 million. Long-term deposits of $28.3 million at December 31, 2005 consisted of aircraft and engine deposits of $27.2 million and building and miscellaneous deposits of $1.1 million.

F-63

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets include insurance premiums, rent and fuel that are paid in advance as well as short-term deposits.

Additionally, prepaid expenses and other current assets include inventories consisting of expendable and recoverable aircraft spare parts. These items are stated at the lower of cost or market using the average cost method. Allowances for obsolescence are provided over the estimated useful life of the related aircraft and engines or the term of the related aircraft leases, whichever is shorter.

Equipment and Property

Equipment and property are stated at cost. Provisions for depreciation and amortization of equipment and property are computed over estimated useful lives or the expected term of the lease, if shorter, by the straight-line method, with estimated salvage values of 0-10%. Estimated useful life of equipment and property are as follows:

Flight equipment, including aircraft	1-9 years
Other equipment and property	3-7 years

Improvements to capital equipment, including those performed in response to Airworthiness Directives (“ADs”) issued by the Federal Aviation Administration (“FAA”), are capitalized at cost. Modifications, including those in response to ADs, and routine maintenance and repairs are expensed as incurred.

Leasehold improvements are stated at cost and amortized over the shorter of their estimated useful lives or the term of the lease.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets used in operations for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. To the extent that the future undiscounted net cash flows expected to be generated from an asset are less than the carrying amount of the asset, an impairment loss will be recognized based on the difference between the asset’s carrying amount and its estimated fair market value. No impairment charges were recognized in 2006 or 2005. A $1.5 million asset impairment of DC-10 parts was recorded during 2004.

Goodwill and Intangible Assets

The trademark, aircraft leases at market rates in excess of rental rates, Extended Range Two Engine Operations (“ETOPs”) and goodwill (cost in excess of net assets acquired) relate to the acquisition of North American during 2005 (see Note 10). The Company accounted for the intangible assets of North American in accordance with Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”),Goodwill and Other Intangible Assets.Pursuant to SFAS No. 142, goodwill and indefinite-lived intangibles, such as the trademark and ETOPs, are not amortized but are subject to annual impairment reviews. The Company performed an annual impairment test as of October 1, 2006 for goodwill and indefinite-lived intangibles. This test indicated that goodwill and indefinite-lived intangibles were not impaired. The trademark, valued at approximately $0.6 million, and ETOPs, valued at approximately $4.7 million, were acquired during 2005.

The aircraft leases at net market rates in excess of rental rates of $2.8 million are being amortized on a straight-line basis over a weighted average of 31 months, which was the average remaining life of the aircraft leases at the date of the North American acquisition. The Company expensed $0.9 million and $0.7 million in 2006 and 2005, respectively. For the years ending December 31, 2007, 2008, and 2009, the annual amortization expense is estimated to be $0.6 million, $0.5 million, and $0.1 million, respectively.

F-64

Other Assets and Deferred Charges

Debt issuance costs are amortized on a straight-line basis, which is not materially different from the results obtained using the effective interest method, over the period the related debt is expected to be outstanding.

The fair market value of the warrants issued to the Air Transportation Stabilization Board (“ATSB”) in connection with its loan guarantee was recorded as a long-term other asset and was amortized using the interest method (see Note 5). On March 30, 2006, the Company prepaid the remaining principal balance of $24.0 million under the ATSB Loan using cash reserves from operations. The Company had recorded the $24.0 million outstanding balance as a current liability as of December 31, 2005 in the accompanying Consolidated Balance Sheets due to covenant violations. As a result of this prepayment, during the first quarter of 2006, the Company expensed $2.3 million in unamortized debt issuance and warrant costs associated with the ATSB Loan.

Additionally, in March 2006, World Airways and North American entered into a Loan and Security Agreement with Wachovia Bank, National Association (“Wachovia Loan”), for the issuance of loans and letters of credit up to $50.0 million subject to certain terms, conditions, and limitations. At December 31, 2006, the unamortized debt issuance cost associated with the Wachovia Loan is $0.3 million, which is being amortized over 1.3 years.

Revenue Recognition

Military revenues are recognized as air transportation services are provided on a per leg basis. Charter revenues are initially recorded as unearned revenue at the time of sale and recognized as revenue when air transportation services are provided on a per leg basis. Passenger ticket sales for scheduled service are initially recorded as unearned revenue, and revenue derived from ticket sales is recognized in revenue on a per leg basis at the time the service is provided. Non-refundable tickets expire one year from the date the ticket is purchased. Tickets which expire unused are recognized as revenue upon expiration.

Aircraft Leases

The majority of the Company’s aircraft are leased from third parties. In order to determine the proper classification of its leased aircraft as either operating leases or capital leases, the Company must make certain estimates at the inception of the lease relating to the economic useful life the expected lease term, and the fair value of an asset, as well as select an appropriate discount rate to be used in discounting future lease payments. These estimates are utilized by management to determine whether the lease is classified as an operating lease or a capital lease. All of the Company’s aircraft leases have been classified as operating leases, which results in rental payments being charged to expense over the terms of the related leases. The Company recognizes lease expense on a straight-line basis over the term of the lease. Additionally, operating leases are not reflected in our Consolidated Balance Sheet and accordingly, neither a lease asset nor an obligation for future lease payments is reflected in our Consolidated Balance Sheet. Deferred gains realized in connection with the sale-leaseback of aircraft and equipment are amortized over the periods of the respective leases.

Fuel Reconciliation Adjustments

Military and charter contracts generally include a fixed rate per gallon for fuel usage with a provision to partially or fully adjust to the actual price per gallon paid. The contracted rate (per mile) and fuel prices (per gallon) are established by the military for a 12-month period running from October to September of the next year. The Company receives reimbursement from the military each month if the price of fuel paid by the Company to fuel vendors for military missions exceeds the fixed price; if the price of fuel paid by the Company to fuel vendors is less than the fixed price, the Company pays the difference to the military. A similar reconciliation is performed for certain charter contracts. The fuel reconciliation is recorded as an adjustment to revenues in the period when air transportation is provided.

F-65

Commission Expense

The Company pays commissions for World Airways and North American based on percentages of military revenues and on scheduled passenger service for North American travel agencies.

Passenger Taxes and Charges

Certain taxes and charges collected from passengers or customers, including but not limited to, excise taxes and passenger facility charges, remitted to taxing jurisdictions or agencies, are recorded on a net basis in the income statement.

Income Taxes

The Company’s effective tax rate is based on enacted statutory tax rates. Tax regulations require items to be included in the tax returns at different times than the items are reflected in the financial statements. As a result, the Company’s effective tax rate reflected in the Consolidated Financial Statements is different than that reported in its income tax returns. Deferred tax assets generally represent items that can be used as a tax deduction or credit in the Company’s tax returns in future years for which it has already recorded the tax benefit in the Consolidated Financial Statements. The Company provides a valuation allowance for deferred tax assets when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion, or all of the deferred tax assets, will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including reversals of deferred tax liabilities) during the periods in which those temporary difference will become deductible. Deferred tax liabilities generally represent tax expense recognized in the Consolidated Financial Statements for which payment has been deferred, or expense for which a deduction has already been taken on the Company’s income tax returns but has not yet been recognized as an expense in the Consolidated Financial Statements.

F-66

Earnings Per Share

Basic earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period. Diluted earnings per share includes the effects on net earnings and shares of common equivalent shares outstanding during the period.

	2006
	Earnings			Shares	Per Share Amount
	(Numerator)			(Denominator)
Basic and Diluted EPS
Loss available to common stockholders	$	(2,292	)	23,643	$	(0.10	)
Basic EPS
Earnings available to common stockholders	$	31,628		22,588	$	1.40
Effect of dilutive securities
Warrants		—		1,772
Options		—		1,454
Restricted shares		—		11
8% convertible debentures		162		999
Amortization of debt issuance cost		35		—
Aircraft lease restructuring fees		(13	)	—
Diluted EPS
Earnings available to common stockholders plus assumed conversion	$	31,812		26,824	$	1.19
Basic EPS
Earnings available to common stockholders	$	25,587		13,095	$	1.95
Effect of dilutive securities
Warrants		—		1,992
Options		—		1,842
8% convertible debentures		1,290		7,662
Profit sharing		(90	)	—
Amortization of debt issuance cost		183		—
Aircraft lease restructuring fees		(273	)	—
Diluted EPS
Earnings available to common stockholders plus assumed conversion	$	26,697		24,591	$	1.09

Excluded from the diluted earnings per share calculation for the year ended December 31, 2006 are 1.7 million shares related to warrants and 0.8 million shares related to options. These shares are excluded because the effect of including the shares would have been anti-dilutive.

Aircraft Maintenance

Airframe and engine maintenance costs are recognized using the expense as incurred method of accounting. Under this method, maintenance costs are recognized as expense when maintenance services are completed and as flight hours are flown for nonrefundable maintenance payments required by lease or service agreements. After qualifying maintenance is completed, the Company records a maintenance receivable from the lessors and is reimbursed for amounts paid from the funds held by the lessors.

Post-retirement Benefits Other Than Pensions

World Airways’ retired cockpit crewmembers and eligible dependents are covered under post-retirement health care and life insurance benefits to age 65. A small group of administrative retirees are also covered under a

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post-retirement health care and life insurance benefits plan for life. The Company accounts for the benefit costs in accordance with Statement of Financial Accounting Standards No. 106,Employers’ Accounting for Post-retirement Benefits Other Than Pensions(“SFAS No. 106”) and Statement of Financial Accounting Standards No. 158,Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans(“SFAS 158”). The Company funds the benefit costs on a pay-as-you-go (cash) basis. During 2005, World Airways recorded an adjustment of $1.6 million for post-retirement health care and life insurance benefits (see Note 11). The Company evaluated the impact of this adjustment to prior periods and determined that it was not material to any prior periods.

Accounting for Stock-Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R),Share-Based Payments(“SFAS 123R”) which supersedes Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued to Employees(“APB 25”) and revises guidance in SFAS No. 123,Accounting for Stock-Based Compensation(“SFAS 123”). This pronouncement requires companies to measure the cost of employee services received in exchange for an award of equity instruments (typically stock options) based on the grant-date fair value of the award. The fair value is estimated using option-pricing models. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. Additionally, SFAS 123R requires the cash flows resulting from the tax benefits in excess of the compensation expense recognized for those options (excess tax benefits) to be classified as financing cash flows. SFAS No. 123R applies to new share-based awards and to unvested stock options outstanding on the effective date and issuances under the Company’s stock incentive plan. The Company utilizes the Black-Scholes option pricing model to estimate the fair value of its stock based awards and expects to continue using the same methodology in the future (See Note 8). The Company used the modified prospective method to adopt SFAS 123R and therefore did not restate its prior period results.

Prior to the adoption of SFAS 123R, the Company accounted for stock-based compensation plans under the recognition and measurement principles of APB 25, and related interpretations.

The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123, to stock-based compensation (in thousands, except per share data):

	2005			2004
Net earnings, as reported	$	31,628		$	25,587
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(529	)		(810	)
Pro forma net earnings	$	31,099		$	24,777
Earnings per share
Basic — as reported	$	1.40		$	1.95
Basic — pro forma	$	1.38		$	1.89
Diluted — as reported	$	1.19		$	1.09
Diluted — pro forma	$	1.17		$	1.05

Recently Issued Accounting Standards

In September 2006, the Securities and Exchange Commission (the “SEC”) issued SAB 108. Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108 will not have a material impact on the Company’s financial statements.

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In September 2006, the FASB issued FASB Staff Position AUG AIR-1 (the “FSP”), “Accounting for Planned Major Maintenance Activities” that eliminates the accrue-in-advance method as an acceptable method of accounting for planned major maintenance activities. The FSP is applicable to fiscal years beginning after December 15, 2006 and requires retrospective application to all financial statements presented. The Company does not believe the impact of the adoption of this FSP will have a material impact on its financial statements.

In July 2006, the FASB, issued FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes” which clarifies the accounting and disclosure requirements for uncertainty in tax positions, as defined. This interpretation is effective for fiscal years beginning after December 15, 2006. FIN 48 requires a two-step approach to evaluate tax positions and determine if they should be recognized in the financial statements. The two-step approach involves recognizing any tax positions that are “more likely that not” to occur and then measuring those positions to determine if they are recognizable in the financial statements. The Company will adopt FIN 48 effective January 1, 2007 and does not believe its adoption will result in a material cumulative-effect adjustment.

2. Segment Information

The Company has two reportable segments: World Airways and North American. The Company operates and manages these companies as two distinct operating segments, and prepares separate financial statements for each that are reviewed by senior management at World Air Holdings, as well as the chief operating officer and other management at the operating company level. Financial and other information for the year ended December 31, 2006 and 2005 by reporting segment is set forth below (in thousands).

	Year Ended December 31, 2006
	World Airways		North American			World Air Holdings, World Risk Solutions, and Eliminations			Total
Total revenue	$	559,809	$	267,195		$	(1,348	)	$	825,656
Operating expense		557,211		271,144			(1,919	)		826,436
Operating income/(loss)		2,598		(3,949	)		571			(780	)
Total assets		115,040		76,572			7,138			198,750
Depreciation and amortization expense		6,072		1,425			17			7,514
Capital expenditures	$	6,629	$	2,165		$	130		$	8,924
Total block hours		56,102		27,475			—			83,577
	Year Ended December 31, 2005
	World Airways		North American			World Air Holdings, World Risk Solutions, and Eliminations			Total
Total revenue	$	623,719	$	163,333		$	86		$	787,138
Operating expense		570,059		162,201			(1,738	)		730,522
Operating income/(loss)		53,660		1,132			1,824			56,616
Total assets		176,165		78,274			6,207			260,646
Depreciation and amortization expense		5,181		1,105			—			6,286
Capital expenditures	$	6,579	$	577		$	5		$	7,161
Total block hours		58,515		17,175			—			75,690

* Financial and statistical data include the results of North American from April 28, 2005 to December 31, 2005

In 2004, the Company operated as a single segment. The Company acquired North American in 2005 and considered North American a separate segment.

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3. Prepaid Expenses and Other Current Assets

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

	December 31,
	2006		2005
Prepaid insurance	$	3,141	$	3,980
Prepaid rent		4,343		7,259
Prepaid fuel		1,251		2,038
Prepaid taxes		5,033		2,736
Deposits		1,650		927
Inventories, net of obsolescence reserve of $1,966 at December 31, 2006 and $1,245 at December 31, 2005		2,328		1,175
Other		1,951		2,131
Total	$	19,697	$	20,246

4. Other Assets and Deferred Charges

Other assets and deferred charges consist of the following (in thousands):

	December 31,
	2006			2005
Deferred rent	$	5,176		$	6,214
Fair market value of ATSB warrants		—			4,792
Debt issuance costs — Wachovia Loan		492			—
Debt issuance costs — term loan due in 2008		—			1,433
Restricted cash		—			830
Other		201			4
		5,869			13,273
Accumulated amortization		(185	)		(3,558	)
Total	$	5,684		$	9,715

5. Long-term Debt

The Company had no outstanding debt at December 31, 2006. The Company’s long-term debt, including current maturities thereof, at December 31, 2005 was as follows (in thousands):

	2006		2005
ATSB Loan	$	—	$	24,000
Less: current maturities		—		24,000
Total long-term debt, net of current maturities	$	—	$	—

On December 30, 2003, the Company issued $25.5 million aggregate principal amount of the Debentures in exchange for $22.5 million aggregate principal amount of its then outstanding 8.0% Convertible Senior Subordinated Debentures due in 2004 (the “Old Debentures”) and $3.0 million in cash. The Company called for redemption the remainder, or $18.0 million aggregate principal amount, of its Old Debentures and redeemed the Old Debentures on January 28, 2004. The Debentures were convertible, at any time, into the Company’s common stock at a conversion price of $3.20 per share. The Debentures were redeemable by the Company at 100% of the principal amount on or after December 30, 2004 if the average closing price of the Company’s

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common stock was equal to or greater than 200% of the conversion price for 20 of 30 consecutive trading days, and on or after December 30, 2005 if the average closing price of the Company’s common stock was equal to or greater than 150% of the conversion price for 20 of 30 consecutive trading days. On or after December 30, 2006, the New Debentures were redeemable at any time at 100% of the principal amount regardless of the stock price. On February 22, 2005, World Air Holdings issued a notice of redemption of the Debentures, giving the holders until March 22, 2005 to exercise their conversion rights at a conversion price of $3.20 per share. The holders converted all of the outstanding Debentures by March 22, 2005.

On December 30, 2003, the Company closed the $30.0 million ATSB Loan of which 90.0% (“Tranche A Loan”) was guaranteed by the ATSB and 10.0% (“Tranche B Loan”) was guaranteed by another third party. The Company’s obligations under the loan agreement were secured by substantially all of the assets of the Company and its subsidiaries. At December 31, 2005, the blended rate on both Tranches approximated 4.5%. Also, at December 31, 2005, the Company’s indebtedness of $24.0 million outstanding under its $30.0 million ATSB Loan was secured by substantially all of the Company’s assets. The ATSB Loan contained restrictive covenants that imposed significant operating and financial restrictions on the Company requiring it to maintain a certain amount of unrestricted cash or cash equivalents and to comply with certain financial ratios as well as certain negative covenants.

The Company recorded the $24.0 million outstanding balance as a current liability as of December 31, 2005 in the Consolidated Balance Sheets due to covenant violations. On March 30, 2006 the Company prepaid the remaining principal balance of $24.0 million under the ATSB Loan with working capital. As a result of this prepayment, during the first quarter of 2006, the Company expensed $2.3 million in unamortized debt issuance cost and unamortized warrant costs associated with the ATSB Loan.

In August 2004, the ATSB exercised warrants to purchase 111,111 shares at $2.50 per share and, pursuant to the net exercise provisions of the warrants, received 21,994 shares of the Company’s common stock. Additionally, in February 2005, the ATSB exercised warrants to purchase an additional 111,111 shares at $2.50 per share and, pursuant of the net exercise provisions of the warrants, received 76,345 shares of the Company’s common stock.

In March 2006, World Airways and North American entered a Loan and Security Agreement with Wachovia Bank, National Association (“Wachovia Loan”), for the issuance of loans and letters of credit up to $50.0 million subject to certain terms, conditions, and limitations. The facility matures in March 2008. Under the Wachovia Loan, the Company’s borrowings bear interest at fluctuating rates. The applicable rate will be one of the following three options, as designated by the Company: (1) the bank’s base lending rate, (2) the Federal Funds Rate, or (3) the Eurodollar or London Interbank Offered Rate (“LIBOR”) plus an applicable percentage. The rates applicable to outstanding borrowings fluctuate based on many factors including, but not limited to, general economic conditions, and general interest rates, including the prime rate, and the supply of and demand for credit in the London interbank market. At December 31, 2006, the Company’s borrowing base was approximately $29.0 million, of which $3.4 million was utilized for letters of credit issued under the facility. As a result, the available amount for borrowing was $25.6 million. The borrowing base fluctuates on a daily basis and is subject to a $50.0 million maximum and includes the sum of: (1) 85% – 90% of eligible government receivables, (2) 70% of eligible unbilled government receivables, not to exceed $5.0 million, (3) 80% of eligible commercial receivables, (4) 75% of the value of eligible spare parts, not to exceed $15.0 million; less the face amount of issued and outstanding letters of credit and any applicable reserves. The Company had no borrowings outstanding at December 31, 2006.

In October 2006, the Company completed a “modified Dutch Auction” tender offer (“Tender Offer”) and purchased 2.22 million shares of its outstanding common stock (See Note 9). As a result of the Tender Offer, the Company modified the number of warrants and exercise price pursuant to the provisions of the ATSB warrant agreement. As a result, the ATSB held warrants to purchase 1,153,973 shares and 806,616 shares at $0.86 and $3.52 per share, respectively at December 31, 2006. (See Note 7). The Company borrowed $21.0 million under

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the Wachovia Loan agreement to fund the Tender Offer and related transaction costs to repurchase Company stock. (See Note 9). The amount borrowed bore interest at the monthly LIBOR and was subsequently repaid on November 15, 2006.

6. Operating Leases

The Company leases all but one of its operational aircraft fleet under operating lease agreements. At December 31, 2006, World Airways’ operating fleet consisted of 17 aircraft, of which nine are passenger aircraft and eight are freighter aircraft, with base lease terms expiring at various dates through 2015. At December 31, 2006, North American’s operating fleet consisted of nine aircraft, all of which are operated in passenger configurations, with remaining base lease terms expiring at various dates through 2014.

In 2004, the Company reached an agreement with one of its MD-11 aircraft lessors to restructure certain leases. In exchange for reduced fixed monthly lease rates and a reduction in the lease terms, the Company agreed to an annual restructuring fee based on net earnings. Payments commenced in 2005 based on 2004 results, and continue through the lease terminations in 2011, which will be paid in 2012. Over the term of the agreement, the total obligation of the Company is limited to $24.2 million on a cumulative basis. In each year, the cash payment is limited to $1.6 million for 2005, $3.6 million per year for 2006 through and including 2011, and $1.0 million in 2012. Although cash disbursements are limited each year, due to the cumulative nature of the agreement, expense recognized may differ from the related cash payment to be disbursed in the following year. In 2005, the Company and the lessor agreed to a definitive methodology used to calculate the restructuring fee. As a result, the Company recognized no expense in 2006 due to the Company’s net loss, $5.0 million and $4.5 million was recorded in expense for 2005 and 2004, respectively. The Company’s related cash payments were $3.6 million and $1.6 million in 2006 and 2005, respectively.

Rental expense, primarily relating to aircraft leases, totaled approximately $122.6 million, $112.2 million, and $77.2 million for the years ended December 31, 2006, 2005, and 2004, respectively. Certain of the Company’s operating leases require rental payments that vary in amount from year to year. The Company accounts for the cost of these leases on a straight-line basis, thereby recognizing annual rent expense evenly over the lease term. The Company’s Consolidated Balance Sheets reflect the cumulative-to-date difference between rent expense recognized and cash payments made within current and non-current deferred rent.

Certain of the Company’s aircraft leases also require the Company to pay certain amounts related to maintenance reserves for airframes, engines, auxiliary power units and landing gears based on flight hours and cycles. Certain return conditions also must be met prior to returning the aircraft to the lessor. The Company also pays maintenance fees to certain maintenance providers for auxiliary power units based on flight hours. The aggregate amount the Company paid and expensed in 2006, 2005, and 2004 for maintenance reserves for airframes, engines, auxiliary power units and landing gears and maintenance fees for auxiliary power units was $50.5 million, $45.3 million, and $29.8 million, respectively.

Future annual minimum lease payments, excluding contingent rentals to maintenance reserve payments, at December 31, 2006 for operating leases that have initial or remaining base lease terms in excess of one year were as follows (in thousands):

��

2007	$	124,980
2008		112,659
2009		101,892
2010		92,558
2011		71,883
Thereafter		132,766
Total	$	636,738

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7. Capital Stock

At December 31, 2006, 5,159,751 shares of common stock were reserved for under stock option incentive plans (3,060,162 shares), upon the exercise of warrants (1,960,589 shares), and under an employee salary exchange program (139,000 shares).

In December 2003, the Company issued to the ATSB, as consideration for the federal loan guarantee, warrants to purchase an aggregate of 2,378,223 shares of common stock. These warrants were vested and fully exercisable at the date of grant. The fair value of these warrants on the date of grant using the Black Scholes option-pricing model was $4.8 million. The following table shows details of the warrants issued to the ATSB as well as the assumptions used in the Black Scholes option-pricing model:

Number of Shares	Exercise Price		Expiration Date	Risk Free Interest Rate		Expected Dividend Yield		Volatility		Expected Life
1,269,022	$	0.78	12/31/2008	3.23	%	0	%	50	%	5.0 yrs
111,111	$	2.50	8/23/2004	1.22	%	0	%	50	%	0.7 yrs
111,111	$	2.50	3/29/2005	0.96	%	0	%	50	%	1.2 yrs
886,979	$	3.20	12/31/2009	3.43	%	0	%	50	%	6.0 yrs

In August 2004, the ATSB exercised warrants to purchase 111,111 shares at $2.50 per share and, pursuant to the net exercise provisions of the warrants, received 21,994 shares of the Company’s common stock. Additionally, in February 2005, the ATSB exercised warrants to purchase an additional 111,111 shares at $2.50 per share and, pursuant to the net exercise provisions of the warrants, received 76,345 shares of the Company’s common stock. In October 2006, the Company completed the Tender Offer and purchased 2.22 million shares of its outstanding common stock (See Note 9). As a result of the Tender Offer, the Company modified the number of warrants and exercise price pursuant to the provisions of the ATSB warrant agreement. Therefore, the ATSB held warrants to purchase 1,153,973 shares and 806,616 shares at $0.86 and $3.52 per share, respectively at December 31, 2006.

The Company recorded the fair value of these warrants within other long-term assets, with a credit to additional paid-in capital. The Company recorded amortization of $1.5 million in 2005 and expensed the remaining $1.8 million in March 2006, when the debt was prepaid in full.

In 1999, pursuant to amendments to lease agreements for the Company’s MD-11 aircraft, the Company granted warrants to each of two lessors to purchase up to 1,000,000 shares of common stock at an exercise price of $2.50 per share, with expiration dates of August 2004 and March 2005. The warrants were vested and fully exercisable at the date of grant. Warrants were exercised in August 2004 to purchase 1,000,000 shares, and the remaining warrants to purchase 1,000,000 shares were exercised in January 2005. The per share weighted-average fair value of the warrants was $0.90 on the date of grant using the Black Scholes option-pricing model with the following assumptions: risk free interest rate of 5.735%, expected dividend yield of 0.0%, expected volatility of 78%, and expected life of 5 years.

In November 2006, the Company’s Board of Directors passed a resolution to retire 1,039,694 shares of common stock held as treasury shares. The resolution also provided that these shares be restored to the status of authorized but unissued shares of common stock of the Company.

8. Stock based compensation

Stock Incentive Plans

Under the World Air Holdings, Inc. Amended and Restated 1995 Stock Incentive Plan (the “1995 Plan”), members of the Company’s Board of Directors, employees, and consultants to the Company or its affiliates are eligible to receive stock incentive awards. At December 31, 2006, the Company had reserved 3,030,162 shares of

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common stock for issuance under the 1995 Plan. Options expire at the earlier of the stated expiration, which shall not exceed ten years from the date of grant, or one year after the termination of a grantee’s employment with the Company. The exercise price for options granted is the fair market value of the common stock on the date of grant. Outstanding options become vested and fully exercisable at various times through August 2013.

During 2005, the Company issued 50,000 shares of restricted stock with vesting over a four year required service period, and recorded compensation expense over the same period. In February 2006, the employee to whom the stock was issued resigned and, accordingly, the restricted stock grant terminated and was cancelled effective on the date of termination. During the first quarter of 2006, the Company reversed $0.3 million of deferred stock-based compensation related to the forfeiture of this restricted stock grant.

Under a Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”), non-affiliate directors are granted options to purchase 10,000 shares of common stock, upon election or appointment to the Board of Directors of the Company. Options granted under the Directors’ Plan vest in 36 equal monthly installments following the award, as long as the individual remains a director of the Company. The Director’s Plan provided that after December 31, 2005, no additional options could be granted from this plan.

Stock Options

For stock option awards granted prior to January 1, 2006, but for which the vesting period is not complete, the Company adopted SFAS 123R using the “modified prospective method” of accounting permitted under SFAS 123R. Under this method, the Company accounts for such awards on a prospective basis, with expense being recognized in the consolidated statements of income beginning in the first quarter of 2006, using the grant-date fair values previously calculated in prior pro forma disclosures. The Company will recognize the related compensation cost not previously recognized in the pro forma disclosures over the remaining vesting periods.

The fair value of stock options is determined at the grant date using a Black-Scholes option pricing model, which requires the Company to make several assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. The dividend yield on the Company’s common stock is assumed to be zero since the Company does not pay dividends and has no current plans to do so in the future. The market price volatility of the Company’s common stock is based on the historical volatility of the common stock price over an approximate four year time period. The expected term of the options is based on historical experience of all option grants.

During the third quarter of 2006, the Company granted options to purchase 333,400 shares under the 1995 Stock Incentive Plan. These stock options vest in 33 ¹/3% increments on the first three anniversary dates of the awards; thus, the Company will recognize compensation expense for these awards on a straight-line basis over each award’s vesting period. During the second quarter of 2005, the Company granted options to purchase 10,000 shares under the Director’s Plan that vest in 36 equal monthly installments from the day of grant.

The per share weighted-average fair value of the options to purchase 333,400 shares granted during the third quarter of 2006 was $4.61 on the date of grant using the Black Scholes options-pricing model. The per share weighted-average fair value of the options to purchase 10,000 shares granted during the second quarter of 2005 was $4.29 on the date of grant using the Black-Scholes option-pricing model. The per share weighted-average fair value of the options to purchase 696,000 shares granted during 2004 was $2.54 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions:

	2006		2005		2004
Expected dividend yield	0	%	0	%	0	%
Risk-free interest rate	4.6	%	3.9	%	3.7	%
Expected term (in years)	4.0		4.2		4.8
Expected stock volatility	80.9	%	70.7	%	80.2	%

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The table below summarizes stock option award activity pursuant to the Company’s plans for the last three years:

	Number of Shares (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2003	3,694		$	1.58
Granted	696			3.89
Exercised	(1,583	)		0.95
Forfeited	(174	)		2.04
Outstanding at December 31, 2004	2,633			2.53
Granted	10			7.53
Exercised	(836	)		2.82
Forfeited	(79	)		6.19
Outstanding at December 31, 2005	1,728			2.25
Granted	333			7.44
Exercised	(405	)		1.30
Forfeited	(32	)		2.59
Outstanding at December 31, 2006	1,624			3.55	4.5	$	10,296
Exercisable at December 31, 2006	1,108		$	2.31	3.7	$	7,205
Vested & Expected to Vest at December 31, 2006	1,454

At December 31, 2006, the range of exercise prices per share and weighted-average remaining life of outstanding options was $0.91 — $7.53 and 4.5 years, respectively.

The following table summarizes stock options outstanding and exercisable at December 31, 2006 (in thousands, except per share amounts):

	Outstanding Options				Exercisable Options
Range of Exercise Price	Number of Options	Weighted Average Remaining Life in Years	Weighted Average Exercise Price		Number of Options	Weighted Average Exercise Price
$0.56 – 1.25	510	2.3	$	0.91	510	$	0.91
1.26 – 2.50	38	1.1	$	1.57	38	$	1.57
2.51 – 3.75	671	5.2	$	3.46	516	$	3.42
3.76 – 5.00	6	5.1	$	4.06	—		—
5.01 – 6.25	56	5.5	$	6.15	39	$	6.15
6.25 – 7.50	334	6.6	$	7.44	—		—
7.50 – 8.75	10	8.3	$	7.53	5	$	7.53
Total	1,625	4.5	$	3.55	1,108	$	2.31

At December 31, 2006, 2005 and 2004, the number of shares issuable upon the exercise of vested options was 1,107,563, 1,170,426, and 1,444,464, respectively, and the weighted-average exercise prices per share of the options were $2.31, $1.82, and $1.89, respectively.

The total intrinsic value of options exercised for the year ended December 31, 2006, determined as of the date of exercise of options, was $3.1 million. The total intrinsic value of options exercised for the year ended December 31, 2005 and 2004, determined as of the date of exercise of options, was $5.0 million and $4.9 million, respectively. Cash received from option exercises during 2006, 2005, and 2004 totaled $0.5 million, $2.4 million and $1.5 million, respectively.

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The Company recorded $0.4 million of stock-based compensation expense related to non-vested stock options to sales, general and administrative expense for the year ended December 31, 2006. The excess tax benefit realized, for the tax deduction from option exercises under the Company plan was $1.4 million for 2006, which generated cash flows from excess tax benefits, under the long-haul method, of $1.2 million.

At December 31, 2006, there was $1.3 million of total unrecognized compensation expense related to non-vested stock options granted under the Company’s stock incentive plans. That cost is expected to be recognized over a weighted-average period of 2.5 years.

Restricted Stock Awards

During the third quarter of 2006, the Company granted 196,800 shares of restricted common stock to non-employee members of the Board, executive officers, officers, and certain other management employees of the Company. The restricted shares were granted pursuant to the 1995 Plan. The fair value at the date of grant of these shares was $1.7 million. Compensation expense for these awards will be recognized on a straight-line basis over the weighted-average requisite service period of 4.1 years.

The Company recorded $0.2 million of stock-based compensation expense to sales, general and administrative expense for the year ended December 31, 2006 associated with these restricted stock awards. At December 31, 2006, there was approximately $1.5 million of total unrecognized compensation expense related to non-vested restricted stock granted under the Company’s stock incentive plan, which is expected to be recognized over a weighted-average vesting period of 4.1 years.

Stock Option Awards Review

During 2006, under the direction of the Audit Committee of the Board of Directors, the Company voluntarily initiated a review of all stock option awards from the date of the Company’s initial public offering of its common stock in 1995 through December 31, 2006. In order to ensure independence and objectivity, the Company also retained a law firm that is independent of the Company to perform a review of all prior stock option awards as an independent investigation. The independent counsel engaged to perform that review has submitted its report to the Audit Committee, which accepted the report and deemed the review concluded. Based on its own review and the review of independent counsel, the Company concluded that, although no backdating or other intentional misconduct was found, the Company had not properly accounted for certain options awarded in each of the years 1997 through 2003.

The impact of such adjustments, consisting of previously unrecognized compensation expense, for each of such years and in the aggregate is as follows:

	1997			1998			1999			2000			2001			2002			2003			Total
	(in thousands)
Stock Compensation Expense	$	79		$	(20	)	$	—		$	103		$	256		$	79		$	73		$	570
Tax effect		—			—			—			—			—			—			(15	)		(15	)
Total, net of tax	$	79		$	(20	)	$	—		$	103		$	256		$	79		$	58		$	555
Income/(loss) before taxes	$	12,230		$	(10,905	)	$	(13,653	)	$	(3,159	)	$	(26,037	)	$	2,041		$	19,123
Percent of income before taxes		0.6	%		0.2	%		0.0	%		3.3	%		1.0	%		3.9	%		0.4	%

The Company recorded this cumulative adjustment of $0.6 million to sales, general, and administrative expense in its consolidated financial statements for the quarter ended September 30, 2006.

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9. Tender Offer

On September 5, 2006, the Company’s Board of Directors authorized a “modified Dutch Auction” tender offer whereby the terms permitted the Company to repurchase up to 2.22 million shares of its common stock at a price per share not greater than $9.50 and not less than $9.00.

In October 2006, the Company completed the Tender Offer and purchased 2.22 million shares of its outstanding common stock at a price per share of $9.20 totaling approximately $20.8 million, which was funded through borrowings under the Wachovia Loan. The shares purchased represented approximately 9.1% of the Company’s outstanding common stock at October 12, 2006.

10. North American Acquisition

On April 27, 2005, the Company acquired North American, a privately-held airline based in Jamaica, New York, for approximately $34.8 million in cash, which was funded from internally generated funds. In addition, there was a $0.6 million subsequent reduction in the purchase price based on terms of the purchase agreement.

The Company commenced the consolidation of North American on April 28, 2005 and the acquisition was accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141,Business Combinations.The following summarizes the total purchase price for North American (in thousands):

Cash consideration	$	34,750
Direct acquisition costs		1,408
Adjustment to distribution made to Seller to cover tax payments as provided in Stock Purchase Agreement		(565	)
	$	35,593

The purchase price allocation for the acquisition has been finalized with the exception of certain tax uncertainties related to amounts due from the seller.

Under the purchase method of accounting, the total purchase price was allocated to North American’s net tangible and intangible assets based upon their estimated fair value as of the date of the acquisition with any amount paid in excess of the fair value of the net assets recorded as goodwill. Based upon the purchase price and value of the net assets acquired and liabilities assumed, the purchase price allocation is as follows (in thousands):

	Fair Value of Net Assets Acquired
Cash and cash equivalents	$	8,640
Restricted cash		2,372
Other current assets		16,239
Equipment and property, net		1,498
Long-term deposits and other assets		4,446
Intangible assets acquired:
ETOPs * program added value		4,680
Aircraft leases at market rates in excess of rental rates		2,840
Trademark		575
Goodwill		25,370
Total assets acquired		66,660
Liabilities assumed:
Accounts payable and accrued liabilities		(29,155	)
Deferred tax liabilities		(1,912	)
Net assets acquired	$	35,593

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The fair values of certain identifiable tangible and intangible assets were determined with the assistance of American Appraisal Associates, Inc., an independent third-party appraiser. Goodwill of $25.4 million has been recorded and represents the excess of the purchase price over the fair value of the tangible and other intangible assets acquired less the fair value of the liabilities assumed. In accordance with SFAS No. 142,Goodwill and Other Intangible Assets, goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually or more frequently if circumstances indicate their value may no longer be recoverable. The Company performed an annual impairment test as of October 1, 2006 for goodwill and indefinite-lived intangibles. This test indicated that goodwill and indefinite-lived intangibles were not impaired as of December 31, 2006. The goodwill is not deductible for tax purposes.

Unaudited pro forma information for the Company reflecting the acquisition of North American as if it had occurred on January 1, 2005 and 2004 is as follows (in thousands, except per share amounts):

	2005		2004
Total operating revenues	$	863,098	$	709,396
Net earnings	$	34,222	$	24,131
Basic earnings per share	$	1.52	$	1.84
Weighted average shares outstanding		22,588		13,095
Fully diluted earnings per share	$	1.28	$	1.03
Weighted average shares outstanding		26,824		24,591

The above pro forma results include adjustments for the amortization of intangibles, adjustments to depreciation to reflect the new basis and depreciable lives for equipment and property, and decreased interest income/additional interest expense to reflect the impact of the cash payments related to the purchase of North American. These results are not indicative of what actual results would have been or will be in the future.

11. Employee Benefit Plans

World Airways’ Crewmembers Target Benefit Plan (the “Target Benefit Plan”) is a defined contribution plan covering cockpit crewmembers with contributions based upon wages, as defined. It is a tax-qualified retirement plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Expense for the Target Benefit Plan totaled $3.0 million, $2.8 million, and $2.7 million for the years ended December 31, 2006, 2005, and 2004, respectively.

World Airways also sponsors a Crewmembers Deferred Income Plan (the “Deferred Income Plan”). It is a tax-qualified retirement plan under Section 401(k) of the Code. Under the Deferred Income Plan, cockpit crewmembers may elect to invest salary deferrals of up to $15,000 or 25% of their salary in selected investment funds. The Company does not make any contributions to the Deferred Income Plan.

World Airways’ flight attendants participate in a pension plan maintained by the International Brotherhood of Teamsters (“IBT”). This plan is a multi-employer plan subject to the funding and other provisions of the Pension Protection Act of 2006. Contributions made to the IBT on behalf of the flight attendants totaled $1.3 million, $1.3 million, and $1.0 million for the years ended December 31, 2006, 2005, and 2004 respectively.

Under World Air Holdings’ and World Airways’ 401(k) Administrative Plan (“401(k) Plan”), employees may elect to invest salary deferrals of up to $15,000 or 25% of their salary in selected investment funds. It is a tax-qualified retirement plan under Section 401(k) of the Code. The Company contributes matching funds to the 401(k) Plan equal to 50% of participants’ voluntary deferrals up to 10% of salary. The Company expensed, for its contribution to the 401(k) Plan, approximately $0.7 million, $0.6 million, and $0.3 million during the years ended December 31, 2006, 2005, and 2004, respectively.

World Airways has a profit sharing bonus plan (the “Profit Sharing Plan”) for its cockpit crewmembers and flight attendants pursuant to agreements with the unions representing the two groups. It is not a tax-qualified plan

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under the Code. Distributions under the Profit Sharing Plan are equal to 20% of net earnings, as defined, subject to an annual limitation of 10% of the total annual aggregate compensation of World Airways employees participating in the Profit Sharing Plan in that year. Due to net losses for the year ended December 31, 2006, the Company recorded no profit sharing expense during 2006. The Company expensed $4.8 million and $4.8 million for this plan during the years ended December 31, 2005, and 2004, respectively.

World Air Holdings and World Airways have a profit sharing bonus plan for management, administrative and operations personnel. Due to net losses for the year ended December 31, 2006, the Company recorded no profit sharing expense during 2006. The Company expensed $4.7 million, and $4.2 million for these plans during the years ended December 31, 2005 and 2004, respectively.

World Airways’ cockpit crewmembers and eligible dependents are covered under a post-retirement health care and life insurance benefits plan until age 65. A small group of administrative retirees are also covered under a post-retirement health care and life insurance benefits plan for life. The Company accrues for the cost of post-retirement health and life insurance benefits in accordance with SFAS No. 106 but funds the benefit costs on a pay-as-you-go (cash) basis.

In December 2006, the Company adopted the recognition and disclosure provisions of SFAS 158. SFAS 158 requires the Company to recognize in its statement of financial position an asset for a defined benefit pension or post-retirement plan’s overfunded status or a liability for a plan’s underfunded status, and to recognize changes in that funded status through other comprehensive income/(loss) in the year in which the changes occur. SFAS 158 will not change the amount of net periodic benefit expense recognized in the Company’s results of operations.

World Airways uses a December 31st measurement date for the post-retirement health care and life insurance benefits plan. During 2005, the Company’s accumulated benefit obligation assumptions were modified for the following:

• The retirement eligibility provision was adjusted to reflect that World Airways cockpit employees have the option to retire at the age of 55 with at least five years of service in addition to the previously reflected age 60 provision.

• A flat $50,000 life insurance benefit was added effective February 1, 2005 for cockpit retirees who die prior to age 65.

A summary of the net periodic post-retirement benefit costs is as follows (in thousands):

	2006		2005		2004
Service cost	$	1,053	$	768	$	378
Interest cost on accumulated post-retirement benefit obligation		540		445		243
Amortization of prior service cost		11		10		—
Net amortized loss		156		272		13
Adjustment for revised retirement eligibility		—		1,599		—
Net periodic post-retirement benefit cost	$	1,760	$	3,094	$	634

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The reconciliation of the accumulated post-retirement benefit obligation is as follows (in thousands):

	2006			2005
Accumulated post-retirement benefit obligation, beginning of year	$	9,537		$	4,849
Service cost		1,053			768
Interest cost		540			445
Benefits paid		(245	)		(180	)
Adjustment for revised retirement eligibility		—			1,599
Actuarial (gain)/loss		(2,397	)		1,956
Plan amendments		(331	)		100
Accumulated post-retirement benefit obligation, end of year	$	8,157		$	9,537

The reconciliation of the accrued post-retirement benefits as of year-end is as follows (in thousands):

	2006			2005
Unfunded status	$	8,157		$	9,537
Unrecognized prior service cost		252			(89	)
Unrecognized net gain/(loss)		100			(2,453	)
Accumulated other comprehensive income		(352	)		—
Accrued post-retirement benefits included in liabilities on accompanying balance sheets	$	8,157		$	6,995

The assumed discount rate used to measure the accumulated post-retirement benefit obligation for 2006 and 2005 was 5.75% and 5.25%, respectively. The medical cost trend rate in 2006 was 10.75%, trending down to an ultimate rate in 2015 and beyond of 5.0%. 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 2006 net periodic post-retirement benefit cost by $226,000 and would have increased the accumulated post-retirement benefit obligation as of December 31, 2006 by $914,000. A one percentage point decrease in the assumed health care cost trend rates for each future year would have decreased the aggregate of the service and interest cost components of 2006 net periodic post-retirement benefit cost by $193,000 and would have decreased the accumulated post-retirement benefit obligation as of December 31, 2006 by $815,000.

World Airways used the following actuarial assumptions to determine its net periodic benefit cost for the years ended December 31, 2006 and 2005, as measured at December 31, 2006, and its benefit obligations at December 31, 2006 and 2005:

Assumption	Used for Net Periodic Post-Retirement Benefit Cost for 2006	Used for Benefit Obligations as of December 31, 2006
Discount rate	5.25%	5.75%
Salary increase*	not applicable	not applicable
Long-term rate of return*	not applicable	not applicable

Assumption	Used for Net Periodic Post-Retirement Benefit Cost for 2005	Used for Benefit Obligations as of December 31, 2005
Discount rate	5.25%	5.25%
Salary increase*	not applicable	not applicable
Long-term rate of return*	not applicable	not applicable

* The salary increase assumption is not applicable because the benefits are not related to compensation. The long-term rate of return assumption is not applicable because the plan is funded on a pay-as-you-go basis.

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The Company expects to contribute the following amounts to the post-retirement health care benefit plan in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter. Benefit payments, which reflect expected future service, are based on assumptions about future events. Actual benefit payments may vary significantly from the estimates listed below (in thousands):

2007	$	353
2008		398
2009		475
2010		535
2011		577
2012 through 2016		3,800
Total	$	6,138

North American provides a tax qualified 401(k) employee savings plan for the benefit of substantially all employees. Under the plan, employees may contribute up to $15,000 of their salary. North American matches employees’ contributions up to 100% of the first 3% of compensation plus 50% of the next 2% of compensation. North American also has the option to make additional profit-sharing contributions to the plan. Total contribution expense for matching of elective deferrals for the year ended December 31, 2006 was $0.6 million.

In August 2005, North American implemented a profit sharing plan for its employees. It is not a tax-qualified plan under the Code. The plan provided for payment based on certain earnings targets for the year ended December 31, 2006 and 2005. Due to net losses for the year ended December 31, 2006, North American recorded no profit sharing expense during 2006. North American expensed $1.0 million for this plan during the year ended December 31, 2005.

12. Income Taxes

The components of income tax expense (benefit) for the years ended December 31 are as follows (in thousands):

	2006			2005			2004
Current:
Federal	$	173		$	18,959		$	12,422
State		(953	)		1,477			773
Foreign		372			—			—
Deferred:
Federal		73			(317	)		(4,450	)
State		(20	)		(146	)		(300	)
Foreign		—			—			—
	$	(355	)	$	19,973		$	8,445

Income tax expense differed from the amounts computed by applying the U.S. federal statutory income tax rate of 35% to pre-tax income as a result of the following (in thousands):

	2006			2005			2004
Expected Federal income tax expense/(benefit) at the statutory rate of 35%	$	(926	)	$	18,061		$	11,911
State and local taxes (net of federal benefit)		(52	)		879			307
Decrease in deferred tax asset valuation allowance		—			(31	)		(5,075	)
Other:
Meals and entertainment		893			1,086			975
Other		(270	)		(22	)		327
Income tax expense/(benefit)	$	(355	)	$	19,973		$	8,445

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

	2006			2005
Deferred tax assets:
Net operating loss carry-forward	$	1,720		$	1,753
Recognition of sale/leaseback gains		233			386
Accrued post-retirement benefit obligation		2,794			2,553
Profit sharing and compensated absences		2,072			5,441
Deferred rent		2,314			2,117
Allowance for doubtful accounts receivable		589			604
Alternative minimum tax credit carry-forward		2,789			2,789
Legal expense		174			1,067
Other		1,438			1,193
Gross deferred tax assets		14,123			17,903
Less: valuation allowance		(3,717	)		(3,717	)
Net deferred tax assets	$	10,406		$	14,186
Deferred tax liabilities:
Prepaid expenses		2,042			2,389
Equipment and property		5,743			8,550
Recoverable parts		141			233
Intangibles		2,444			2,780
Net deferred tax asset/(liability)	$	36		$	234

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 2006. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

The availability of Net Operating Loss (“NOL”) carry-forwards and Alternative Minimum Tax (“AMT”) credit carry-forwards to reduce the Company’s future federal income tax liability is subject to limitations under Section 382 of the Code. Generally, these limitations restrict the availability of NOL carry-forwards upon certain changes in stock ownership by five percent stockholders which, in aggregate, exceed 50 percentage points in value in a three-year period (“Ownership Change”). The Company experienced an Ownership Change in July 2000 primarily due to vesting of restricted shares under the Company’s Employee Salary Exchange Program and the liquidation of WorldCorp, Inc.

As of December 31, 2006 the Company has $46.7 million NOL carry-forwards that are limited by Internal Revenue Code (“IRC”) Section 382. Due to this limitation, only $4.8 million of the NOL carry-forwards will be available for possible utilization for federal income tax purposes. This amount is computed based upon the $343,000 annual limitation resulting from the 2000 Ownership Change. Subsequent ownership changes, if any, could impose additional limitations on the Company’s NOL carry-forwards. The Company’s total NOL carry-forwards will begin to expire in 2007. The application of the Code in this area is subject to interpretation by the Internal Revenue Service (“IRS”). The NOL carry-forwards are subject to examination by the IRS and, thus, are subject to adjustment or disallowance resulting from any such IRS examination.

F-82

World Airways is presently under examination by the IRS for the income tax return filed for the year ended December 31, 2004. North American is also under examination by the IRS for the S-Corporation income tax returns filed for the years ended December 31, 2003 and 2004. Currently, there are no adjustments proposed by the IRS and the impact of this examination is not determinable.

13. Major Customers and Products

Information concerning customers for years in which their revenues comprise 10% or more of the Company’s total operating revenues is presented in the following table (in millions):

	Year Ended December 31,
World Airways	2006		2005		2004
U.S. Air Force (“USAF”) Air Mobility Command	$	398.7	$	477.6	$	390.7

	Year Ended December 31,
North American	2006		2005*
U.S. Air Force (“USAF”) Air Mobility Command	$	159.4	$	103.6

* Financial data include the results of North American from April 28, 2005 to December 31, 2005.

Information concerning the Company’s revenues comprising 10% or more of total operating revenues is presented in the following table (in millions):

	Year Ended December 31,
World Airways	2006		2005		2004
Passenger Charter Operations	$	445.8	$	520.8	$	432.6
Cargo Charter Operations	$	112.3	$	99.9	$	69.1

	Year Ended December 31
North American	2006		2005*
Passenger Charter Operations	$	204.8	$	131.0
Passenger Scheduled Service		61.0	$	31.8

* Financial data include the results of North American from April 28, 2005 to December 31, 2005.

14. Commitments and Contingencies

Union Negotiations and Litigation:

World Airways’ Cockpit Crewmembers: The cockpit crewmembers, who account for approximately 29.9% of the total workforce at World Airways and are represented by the International Brotherhood of Teamsters (“IBT”), are subject to a collective bargaining agreement which will become amendable on March 1, 2009.

World Airways’ Flight Attendants: The World Airways’ flight attendants, representing approximately 41.9% of World Airways employees, are subject to a collective bargaining agreement that became amendable August 31, 2006. Negotiations began in mid-August 2006 with the IBT and are ongoing.

North American’s Cockpit Crewmembers:The National Mediation Board (“NMB”) certified the IBT to represent North American’s cockpit crewmembers (approximately 24.6% of the total employees at North American) on January 16, 2004. North American and the IBT commenced negotiations for their first collective bargaining agreement on April 6, 2004 and have met on numerous occasions. Although representatives from North American and the IBT continue to negotiate the terms of a comprehensive final agreement under the auspices of the NMB, no collective bargaining agreement has yet been reached.

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North American’s Flight Attendants: On July 26, 2005, the NMB authorized a union election (the IBT) among North American’s flight attendants. Flight attendants comprise approximately 37.4% of employees at North American. On August 31, 2005, a majority of flight attendants voted for IBT representation. Negotiations began in 2006 between North American and the IBT and are ongoing.

Other Litigation:

On January 9, 2004, Whitebox Convertible Arbitrage Partners, L.P. and Pandora Select Partners, L.P. filed a complaint alleging breach of contract by World Airways in connection with its exchange in December 2003 of $22,545,000 aggregate amount of 8.0% Convertible Senior Subordinated Debentures due in 2004 (the “Old Debentures”) for a like amount of the newly-issued Debentures. In August 2006, World Airways and the plaintiff agreed to settle this matter with a full release, in exchange for approximately $0.4 million cash consideration. The settlement was accrued during the six month period ended June 30, 2006 and was subsequently paid in September 2006.

For competitive and economic reasons, effective as of January 2005, North American unilaterally reduced cockpit crewmember wages and other benefits in addition to modifying certain work rules. The IBT thereafter filed suit against North American. The United States District Court for the Northern District of California ruled in North American’s favor; the IBT appealed and the decision of the Ninth Circuit is pending. North American will continue to vigorously defend itself; however the Company cannot give any assurance that this litigation will not have a material adverse effect on its financial condition, results of operations, or liquidity.

North American, along with certain unrelated entities, is a defendant in litigation brought in the Dominican Republic for, among other things, breach of contract. Consequently, approximately $0.9 million of North American’s funds were embargoed and were not controlled by North American until August 2006, when the court in the Dominican Republic lifted the embargo and the funds were returned to North American in October 2006. North American believes that the litigation is without merit, and intends to vigorously contest the claims. Management believes that the ultimate outcome of these proceedings to which the Company is currently a party will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

North American was a defendant in a legal action pending in California brought by a former pilot for various causes of action, including wrongful termination. In May 2006, North American and the plaintiff agreed to settle this matter with a full release, in exchange for $2.3 million cash consideration. The settlement was accrued at December 31, 2005 and was paid in May 2006.

In the ordinary course of business, the Company is party to various other legal proceedings and claims which we believe are incidental to the operations of our business. Management believes that the ultimate outcome of these proceedings to which the Company is currently a party will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

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15. Valuation and Qualifying Accounts (in thousands)

	Balance at Beginning of Year		Additions Charged (Credited) to Expense			Amounts Charged to Allowance			Balance at End of Year
2006
Allowance for accounts receivable	$	1,643	$	335		$	(355	)	$	1,623
Deferred tax valuation allowance	$	3,717	$	—		$	—		$	3,717
2005
Allowance for accounts receivable	$	209	$	1,622		$	(188	)	$	1,643
Deferred tax valuation allowance	$	3,748	$	(31	)	$	—		$	3,717
2004
Allowance for accounts receivable	$	196	$	2,659		$	(2,646	)	$	209
Deferred tax valuation allowance	$	8,823	$	(5,075	)	$	—		$	3,748

16. Quarterly Results (unaudited)

The results of the Company’s quarterly operations (unaudited) for 2006 and 2005 are as follows (in thousands except share data):

	Quarter Ended
	Mar 31		Jun 30			Sep 30		Dec 31
2006
Operating revenues	$	216,253	$	176,657		$	231,421	$	201,325
Operating income/(loss)		9,446		(12,948	)		6,792		(4,070	)
Net earnings/(loss)		3,542		(7,479	)		5,425		(3,780	)
Basic earnings/(loss) per common share	$	0.15	$	(0.31	)	$	0.22	$	(0.17	)
Diluted earnings/(loss) per common share	$	0.13	$	(0.31	)	$	0.20	$	(0.17	)

	Quarter Ended
	Mar 31		Jun 30		Sep 30		Dec 31
2005
Operating revenues	$	159,549	$	171,882	$	217,180	$	238,527
Operating income		17,178		10,789		10,235		18,414
Net earnings		9,898		5,506		5,470		10,754
Basic earnings per common share	$	0.52	$	0.23	$	0.23	$	0.45
Diluted earnings per common share	$	0.38	$	0.21	$	0.20	$	0.40

17. Subsequent Events

On April 5, 2007, the Company announced that it has entered into an agreement to be acquired by Global Aero Logistics, Inc. for $315.0 million in an all-cash transaction. Under the terms of the agreement, World Air Holdings shareholders will receive $12.50 in cash for each share of the Company’s common stock owned.

Delta Air Lines, Inc. (“Delta”) filed for bankruptcy in 2005. World Airways filed a claim against Delta for certain maintenance and lease payments the Company had made to Delta under maintenance service and equipment lease agreements. In May 2007, World Airways reached a settlement agreement with Delta whereby the Company will have an allowed general unsecured claim in Delta’s bankruptcy case in the amount of $5.5 million. This agreement has no impact on the consolidated financial statements for the year ended December 31, 2006.

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FINANCIAL STATEMENTS

WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	March 31, 2007		December 31, 2006
ASSETS
Current assets
Cash and cash equivalents	$	33,966	$	31,198
Restricted cash		1,915		1,087
Short-term investments		10,500		—
Trade accounts receivable, less sales allowance and allowance for doubtful accounts of $2,074 at March 31, 2007 and $1,623 at December 31, 2006		32,452		27,944
Other receivables		13,477		16,112
Prepaid expenses and other current assets		18,426		19,697
Deferred income taxes		3,086		1,261
Total current assets		113,822		97,299
Equipment and property
Flight and other equipment		85,648		84,048
Less: accumulated depreciation and amortization		49,523		48,613
Net equipment and property		36,125		35,435
Goodwill and other intangible assets
Goodwill		25,370		25,370
Other intangible assets, net of accumulated amortization of $1,799 at March 31, 2007 and $1,614 at December 31, 2006		6,296		6,481
Net goodwill and other intangible assets		31,666		31,851
Long-term deposits		27,831		28,481
Other assets and deferred charges, net of accumulated amortization of $246 at March 31, 2007 and $185 at December 31, 2006		6,437		5,684
Total assets	$	215,881	$	198,750

See accompanying Notes to Condensed Consolidated Financial Statements

F-86

WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	March 31, 2007		December 31, 2006
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	60,552	$	52,372
Current portion of accrued rent		4,575		3,945
Current portion of deferred rent		1,772		2,007
Unearned revenue		17,760		18,163
Accrued maintenance		13,726		14,504
Accrued salaries, wages and profit sharing		17,305		15,814
Accrued taxes		10,761		6,413
Total current liabilities		126,451		113,218
Deferred gain from sale-leaseback transactions, net of accumulated amortization of $5,365 at March 31, 2007 and $5,263 at December 31, 2006		159		244
Accrued post-retirement benefits		8,067		7,804
Accrued and deferred rent, net of current portion		9,027		9,128
Deferred income taxes		—		1,225
Other liability		3,442		—
Total liabilities		147,146		131,619
Stockholders’ equity
Preferred stock, $.001 par value (5,000,000 shares authorized; no shares issued or outstanding)		—		—
Common stock, $.001 par value (100,000,000 shares authorized; 22,551,217 shares issued and outstanding at March 31, 2007; 22,367,317 shares issued and outstanding at December 31, 2006)		23		22
Additional paid-in capital		38,111		37,021
Retained earnings		30,379		29,861
Other comprehensive income		222		227
Total stockholders’ equity		68,735		67,131
Commitments and contingencies		—		—
Total liabilities and stockholders’ equity	$	215,881	$	198,750

See accompanying Notes to Condensed Consolidated Financial Statements

F-87

WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2007			2006
Operating revenues
Flight operations	$	222,477		$	215,867
Other		374			386
Total operating revenues		222,851			216,253
Operating expenses
Flight		68,103			61,415
Maintenance		33,575			30,434
Aircraft costs		31,764			29,261
Fuel		51,706			49,329
Flight operations subcontracted to other carriers		250			2,106
Commissions		11,787			10,965
Depreciation and amortization		1,852			1,671
Sales, general and administrative		22,984			21,626
Total operating expenses		222,021			206,807
Operating income		830			9,446
Other income (expense)
Interest expense		(1	)		(3,573	)
Interest income		345			339
Other, net		(78	)		(114	)
Total other income (expense)		266			(3,348	)
Earnings before income tax expense		1,096			6,098
Income tax expense		578			2,556
Net earnings	$	518		$	3,542
Basic earnings per share
Net earnings	$	0.02		$	0.15
Weighted average shares outstanding		22,513			23,938
Diluted earnings per share
Net earnings	$	0.02		$	0.13
Weighted average shares outstanding		24,714			26,569

See accompanying Notes to Condensed Consolidated Financial Statements

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WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES

IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2007

(in thousands, except share amounts)

(unaudited)

	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income			Total Stockholders’ Equity
Balances at December 31, 2006	$	22	$	37,021	$	29,861	$	227		$	67,131
Net Income		—		—		518		—			518
Other comprehensive income, net		—		—		—		(5	)		(5	)
Comprehensive income											513
Exercise of 185,400 stock options		1		220		—		—			221
Excess tax benefit of stock option exercises		—		563		—		—			563
Amortization of warrants		—		34		—		—			34
Stock-based compensation		—		273		—		—			273
Balances at March 31, 2007	$	23	$	38,111	$	30,379	$	222		$	68,735

See accompanying Notes to Condensed Consolidated Financial Statements

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WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2007 and 2006

(in thousands)

(unaudited)

	2007			2006
Cash and cash equivalents at beginning of year	$	31,198		$	46,202
Cash flow from operating activities
Net earnings		518			3,542
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		1,852			1,671
Amortization of deferred gain		(102	)		(101	)
Loss on disposals of equipment and property		297			114
Amortization of warrants and debt issuance costs		95			2,701
Deferred income taxes		(2,296	)		(1,168	)
Provision for doubtful accounts		529			50
Stock-based compensation		273			111
Other		(5	)		35
Changes in operating assets and liabilities, exclusive of acquisitions:
Trade and other receivables		(2,402	)		9,720
Restricted cash		(828	)		3,255
Deposits, prepaid expenses and other assets		418			3,555
Accounts payable, accrued expenses and other liabilities		16,973			(773	)
Unearned revenue		(403	)		1,005
Net cash provided by operating activities		14,919			23,717
Cash flows from investing activities
Purchases of equipment and property		(2,418	)		(2,238	)
Net (purchases) and sales of short term investments		(10,500	)		(2	)
Proceeds from disposals of equipment and property		48			161
Net cash used in investing activities		(12,870	)		(2,079	)
Cash flows from financing activities
Repayment of debt		—			(24,000	)
Proceeds from exercise of stock options		221			166
Excess tax benefit from employees stock-based compensation plan		498			59
Net cash provided by (used in) financing activities		719			(23,775	)
Net increase (decrease) in cash and cash equivalents		2,768			(2,137	)
Cash and cash equivalents at end of period	$	33,966		$	44,065
Supplemental information:
Interest paid	$	—		$	363
Income taxes paid	$	81		$	39

See accompanying Notes to Condensed Consolidated Financial Statements

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WORLD AIR HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Basis of Presentation

The unaudited Condensed Consolidated Financial Statements include the accounts of World Air Holdings, Inc. (“World Air Holdings” or the “Company”), and its wholly-owned subsidiaries, World Airways, Inc. (“World Airways”), North American Airlines, Inc. (“North American”), and World Risk Solutions, Ltd. (“World Risk Solutions”). World Airways Parts Company LLC is a wholly-owned subsidiary of World Airways. All significant inter-company accounts and transactions have been eliminated in consolidation for all periods presented.

Management believes that all adjustments necessary to present fairly the financial position of World Air Holdings, Inc. as of March 31, 2007 and the results of operations for the respective three-months ended March 31, 2007 have been included in the unaudited Condensed Consolidated Financial Statements for the interim periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 and the results of operations for the three-month period ended March 31, 2007 are not necessarily indicative of the results to be expected for the year ending December 31, 2007.

The Consolidated Balance Sheet for December 31, 2006 is from the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “2006 Form 10-K”). These interim period Consolidated Financial Statements and accompanying footnotes should be read in conjunction with the Consolidated Financial Statements contained in the 2006 Form 10-K.

2. Segment Reporting

The Company has two operating segments, World Airways and North American. Financial and other information for the three-month periods ended March 31, 2007 and 2006 by reporting segment is set forth below (in thousands).

	Three Months Ended March 31, 2007
	World Airways		North American			World Air Holdings, World Risk Solutions, and Eliminations			Total
Total operating revenues	$	138,807	$	84,827		$	(783	)	$	222,851
Total operating expenses	$	135,598	$	86,803		$	(380	)	$	222,021
Operating income/(loss)	$	3,209	$	(1,976	)	$	(403	)	$	830
Total assets	$	119,755	$	87,811		$	8,315		$	215,881

	Three Months Ended March 31, 2006
	World Airways		North American		World Air Holdings, World Risk Solutions, and Eliminations			Total
Total operating revenues	$	158,382	$	58,098	$	(227	)	$	216,253
Total operating expenses	$	148,633	$	57,786	$	388		$	206,807
Operating income (loss)	$	9,749	$	312	$	(615	)	$	9,446
Total assets	$	159,800	$	78,062	$	2,854		$	240,716

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3. Long-Term Deposits

Long-term deposits of $27.8 million at March 31, 2007 consisted of aircraft and engine (flight equipment) deposits of $27.3 million and building and miscellaneous deposits of $0.5 million. At December 31, 2006, long-term deposits of $28.5 million consisted of aircraft and engine deposits of $27.6 million and building and miscellaneous deposits of $0.9 million.

4. Earnings per Share

Basic earnings per share are computed by dividing net earnings by the weighted average number of shares outstanding during the period. Diluted earnings per share include the effects of common equivalent shares outstanding during the period that are dilutive.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

	Three Months Ended March 31, 2007
	Earnings (Numerator)		Shares (Denominator)	Per Share Amount
Basic EPS
Earnings available to common shareholders	$	518	22,513	$	0.02
Effect of dilutive securities
Warrants		—	1,562
Options		—	598
Restricted stock		—	41
Diluted EPS
Earnings available to common shareholders plus assumed conversion	$	518	24,714	$	0.02

	Three Months Ended March 31, 2006
	Earnings (Numerator)		Shares (Denominator)	Per Share Amount
Basic EPS
Earnings available to common shareholders	$	3,542	23,938	$	0.15
Effect of dilutive securities
Warrants		—	1,735
Options		—	889
Restricted stock		—	7
Diluted EPS
Earnings available to common shareholders plus assumed conversion	$	3,542	26,569	$	0.13

5. Long-term Debt

On March 30, 2006 the Company prepaid the remaining principal balance of $24.0 million outstanding under the $30.0 million term loan (the “ATSB Loan”), which was 90% guaranteed by the Air Transportation Stabilization Board (the “ATSB”) and 10% guaranteed by a third party, with working capital. As a result of this prepayment, the Company expensed an additional $2.3 million in unamortized debt issuance and warrant costs associated with the ATSB Loan during the first quarter of 2006.

Additionally, in March 2006, World Airways and North American entered into a Loan and Security Agreement with Wachovia Bank, National Association (“Wachovia Loan”), for the issuance of loans and letters of credit up to $50.0 million subject to certain terms, conditions, and limitations. The facility terminates in March 2008.

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Under the Wachovia Loan, the Company’s borrowings bear interest at fluctuating rates. The applicable rate will be one of the following three options, as designated by the Company: (1) the bank’s base lending rate, (2) the Federal Funds Rate, or (3) the Eurodollar or London Interbank Offered Rate (“LIBOR”) plus an applicable percentage. The rates applicable to outstanding borrowings fluctuate based on many factors including, but not limited to, general economic conditions, and general interest rates, including the prime rate, and the supply of and demand for credit in the London interbank market. At March 31, 2007, the Company’s borrowing base was approximately $33.7 million, of which $3.7 million was utilized for letters of credit issued under the facility. As a result, the available amount for borrowing was $30.0 million. At December 31, 2006, the Company’s borrowing base was approximately $29.0 million, of which $3.4 million was utilized for letters of credit issued under the facility. As a result, the available amount for borrowing was $25.6 million. The borrowing base fluctuates on a daily basis and is subject to a $50.0 million maximum and includes the sum of: (1) 85% –90% of eligible government receivables, (2) 70% of eligible unbilled government receivables, not to exceed $5.0 million, (3) 80% of eligible commercial receivables, (4) 75% of the value of eligible spare parts, not to exceed $15.0 million; less the face amount of issued and outstanding letters of credit and any applicable reserves. The Company had no borrowings outstanding at March 31, 2007 or December 31, 2006.

The Company has obtained the necessary waivers through August 17, 2007 relating to the covenant provisions for the submission of timely monthly consolidated financial statements, borrowing base certificates, the failure to timely file Securities Exchange Commission (“SEC”) required securities filings

6. Lease Obligations

During the second quarter of 2007, the Company signed a letter of intent to lease two Boeing 747-400 (“B747”) Special Freighter aircraft. Deliveries are planned during 2008, at the discretion of the lessor. The term of the leases are 120 months each from the respective delivery dates. Future minimum lease payments for these aircraft leases, excluding maintenance reserves, are $10.4 million, $19.2 million, $19.2 million, $19.2 million and $124.0 million for the years 2008, 2009, 2010, 2011, and thereafter, respectively. These aircraft leases require the Company to pay certain maintenance reserves for airframes, engines, landing gear and auxiliary power units of approximately $1.2 million per year plus additional amounts based on flight hours and cycles. Certain return conditions also must be met prior to returning the aircraft to the lessor.

7. Accounting for Stock-Based Compensation

At March 31, 2007, the Company had one stock-based compensation plan. The 1995 Stock Incentive Plan (the “1995 Plan”) was amended in May 2004 to allow for various forms of equity awards including restricted stock.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123(R),Share-Based Payments(“SFAS 123R”), using the modified-prospective transition method. Under the modified-prospective transaction method, compensation cost recognized during the three-months ended March 31, 2007 and 2006 include compensation cost for all share-based awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123R.

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Stock Options

The table below summarizes stock option award activity pursuant to the Company’s plans for the three-months ended March 31, 2007:

	Number of Shares (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2006	1,624		$	3.55
Granted	—			—
Exercised	(185	)	$	1.19
Forfeited	(4	)	$	7.44
Outstanding at March 31, 2007	1,435		$	3.85	4.7	$	9,695
Exercisable at March 31, 2007	936		$	2.56	4.0	$	7,526

The total intrinsic value of options exercised for the three-month period ended March 31, 2007, determined as of the date of exercise of options, was $1.4 million. The total intrinsic value of options exercised for the three-month period ended March 31, 2006, determined as of the date of exercise of options, was $0.2 million. Cash received from option exercises during the three-month periods ended March 31, 2007 and 2006, totaled $0.2 million and $0.2 million, respectively.

The Company recorded $0.2 million and $0.1 million of stock-based compensation expense related to non-vested stock options to sales, general and administrative expense for the three-month period ended March 31, 2007 and 2006, respectively. The excess tax benefit realized for the tax deduction from option exercises under the Company plan was $0.6 million and $0.1 million for the three-month periods ended 2007 and 2006, which generated cash flows from excess tax benefits, under the long-haul method, of $0.5 million and $0.1 million, respectively.

At March 31, 2007, there was approximately $1.1 million of total unrecognized compensation expense related to non-vested stock options granted under the Company’s stock incentive plans. That cost is expected to be recognized over a weighted-average period of 2.4 years.

Restricted Stock Awards

The Company recorded $0.1 million of stock-based compensation expense to sales, general and administrative expense for the three-month period ended March 31, 2007. At March 31, 2007, there was approximately $1.3 million of total unrecognized compensation expense related to non-vested restricted stock granted under the Company’s stock incentive plan, which is expected to be recognized over a weighted-average vesting period of 4.0 years. The Company had no stock-based compensation expense for the three-month period ended March 31, 2006.

10. Post-Retirement Health Care Benefits Plan

World Airways’ cockpit crewmembers and eligible dependents are covered by a post-retirement health care and life insurance benefits plan until age 65. A small group of administrative retirees are also covered under a post-retirement health care and life insurance benefits plan for life.

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A summary of the net periodic post-retirement benefit costs for the three-month periods ended March 31, 2007 and 2006 is as follows (in thousands):

	Three Months Ended March 31,
	2007			2006
Service cost	$	192		$	192
Interest cost		113			111
Amortization of prior service cost		(4	)		3
Net amortized loss		—			19
Net periodic post-retirement benefit cost	$	301		$	325

The Company anticipates that it will contribute approximately $0.2 million to fund its health care obligations in 2007. For the three-month periods ended March 31, 2007 and 2006, less than $0.1 million of contributions had been made.

11. Major Customers and Products

Information concerning customers for the three-month periods ended March 31, 2007 and 2006 in which their revenues comprise 10% or more of the Company’s total operating revenues is presented in the following table (in millions):

	Three Months Ended March 31,
World Airways	2007		2006
U.S. Air Force (“USAF”) Air Mobility Command	$	98.7	$	125.0

	Three Months Ended March 31,
North American	2007		2006
U.S. Air Force (“USAF”) Air Mobility Command	$	62.8	$	38.0

Information concerning the Company’s revenues comprising 10% or more of total operating revenues for the three-month periods ended March 31, 2007 and 2006 is presented in the following table (in millions):

	Three Months Ended March 31,
World Airways	2007		2006
Passenger Charter Operations	$	108.2	$	130.8
Cargo Charter Operations	$	30.2	$	26.9

	Three Months Ended March 31,
North American	2007		2006
Passenger Charter Operations	$	69.2	$	48.7
Passenger Scheduled Service	$	15.1	$	9.2

12. Commitments and Contingencies

Union Negotiations and Litigation:

World Airways’ Cockpit Crewmembers: The cockpit crewmembers, who account for approximately 29.7% of the total workforce at World Airways and are represented by the International Brotherhood of Teamsters (“IBT”), are subject to a collective bargaining agreement which will become amendable on March 1, 2009.

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World Airways’ Flight Attendants: The World Airways’ flight attendants, representing approximately 42.1% of World Airways employees, are subject to a collective bargaining agreement that became amendable August 31, 2006. In July 2007, the flight attendants represented by the IBT reached a tentative agreement for a new contract.

North American’s Cockpit Crewmembers:The National Mediation Board (“NMB”) certified the IBT to represent North American’s cockpit crewmembers (approximately 22.6% of the total employees at North American) on January 16, 2004. North American and the IBT commenced negotiations for their first collective bargaining agreement on April 6, 2004 and have met on numerous occasions. Although representatives from North American and the IBT continue to negotiate the terms of a comprehensive final agreement under the auspices of the NMB, no collective bargaining agreement has yet been reached.

North American’s Flight Attendants: On July 26, 2005, the NMB authorized a union election (the IBT) among North American’s flight attendants. Flight attendants comprise approximately 42.7% of employees at North American. On August 31, 2005, a majority of flight attendants voted for IBT representation. Negotiations began in 2006 between North American and the IBT and are ongoing.

Other Litigation:

For competitive and economic reasons, effective as of January 2005, North American unilaterally reduced cockpit crewmember wages and other benefits in addition to modifying certain work rules. The IBT thereafter filed suit against North American. The United States District Court for the Northern District of California ruled in North American’s favor; the IBT appealed and the decision of the Ninth Circuit is pending. North American will continue to vigorously defend itself; however the Company cannot give any assurance that this litigation will not have a material adverse effect on its financial condition, results of operations, or liquidity.

In March 2007, the Company entered into a settlement agreement with Virgin Atlantic Airways, Ltd. for damages sustained to a North American aircraft in 2004 that the Company had previously recorded a receivable of approximately $0.2 million. The Company received a total of approximately $1.0 million for the damages to the aircraft and recorded the settlement of adjusting expenses for the costs incurred for the damages of approximately $0.2 million to maintenance expense, $0.2 million to flight costs and $0.4 million to sales, general and administrative expense during the quarter ended March 31, 2007.

In the ordinary course of business, the Company is party to various other legal proceedings and claims which we believe are incidental to the operations of our business. Management believes that the ultimate outcome of these proceedings to which the Company is currently a party will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

13. Income Tax Expense

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”). The Company adopted FIN 48 effective January 1, 2007. FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. FIN 48 also provided guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

Upon adoption of FIN 48, there was no cumulative catch-up adjustment to the Company’s retained earnings. At January 1, 2007 and March 31, 2007, the total amount of gross unrecognized tax benefits was $3.2 million and

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$3.4 million, respectively. At March 31, 2007, these amounts relate to $1.5 million of federal income taxes and $1.9 million of state and foreign taxes. The impact on the Company’s effective tax rate as a result of the $3.4 million of unrecognized tax benefits would be approximately $1.3 million. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income tax expense. As of January 1, 2007 and March 31, 2007, the liability for gross unrecognized tax benefits included approximately $0.7 million and $0.9 million, respectively, of interest and penalties.

The Company files income tax returns in the United States and various state and local jurisdictions. World Airways is presently under examination by the Internal Revenue Service (“IRS”) for tax year ended December 31, 2004. North American is also under examination by the IRS for the income tax return filed for the year ended December 31, 2003 and the S-Corporation tax return filed for the year ended December 31, 2004.

The Company does not anticipate any significant adjustment to unrecognized tax benefits which will impact income tax expense, due to the settlement of audits and the expiration of statutes of limitations in the next 12 months. However, actual results could differ from those currently anticipated.

During the first quarter of 2007, additional reserves for tax uncertainties totaling less than $0.1 million and additional interest totaling approximately $0.1 million were provided by the Company. As of March 31, 2007, the Company has recorded approximately $3.4 million of unrecognized tax benefits in other liabilities on the consolidated balance sheet.

The effective income tax rate for the Company was 52.7% for the three-months ended March 31, 2007 compared to 41.9% in the same quarter of 2006. The increase in the effective rate is due to the impact of certain non-deductible items that do not fluctuate with the level of income, such as meal and entertainment expenses and penalties.

14. Subsequent Events

On April 5, 2007, the Company announced that it has entered into an agreement to be acquired by Global Aero Logistics, Inc. for $315.0 million in an all-cash transaction. Under the terms of the agreement as amended, World Air Holdings shareholders will receive $12.50 in cash for each share of the Company’s common stock owned. On July 18, 2007 at a special meeting of the shareholders, the merger agreement, as amended, was approved by a majority vote.

15. Recently Issued Accounting Standards

In June 2006, the FASB ratified the Emerging Issues Task Force (“EITF”) consensus on EITF Issue No. 06-03 “How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (“EITF 06-03”). The scope of EITF 06-03 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer, and provides that a company may adopt a policy of presenting taxes either gross within revenue or on a net basis. For any such taxes that are reported on a gross basis, a company should disclose the amounts of those taxes for each period for which an income statement is presented if those amounts are significant. This statement is effective for financial reports for interim and annual reporting periods beginning after December 15, 2006. The Company adopted EITF 06-03 on January 1, 2007. Various taxes and fees on the sale of tickets to customers are collected by the Company as an agent and remitted to the respective taxing authority. These taxes and fees have been presented on a net basis in the accompanying consolidated statement of income and recorded as a liability until remitted to the respective taxing authority.

In September 2006, the FASB issued FASB Staff Position AUG AIR-1 (the “FSP”), “Accounting for Planned Major Maintenance Activities” that eliminates the accrue-in-advance method as an acceptable method of accounting for planned major maintenance activities. The FSP is applicable to fiscal years beginning after December 15, 2006 and requires retrospective application to all financial statements presented. The Company adopted this FSP on January 1, 2007 and believes it has no material impact on its financial statements.

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