United States Securitie and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10-Q

                                   (Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934 For the Period Ended June 30, 2004 or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From ____________ to ____________

Commission file number  000-21642

                               ATA HOLDINGS CORP.
- --------------------------------------------------------------------------------

             (Exact name of registrant as specified in its charter)

          Indiana                                            35-1617970
(State or other jurisdiction of                           (I.R.S.  Employer
incorporation or organization)                            Identification No.)


   7337 West Washington Street
      Indianapolis, Indiana                                     46231
(Address of principal executive offices)                     (Zip  Code)

                                 (317) 247-4000
- --------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                 Not applicable
- --------------------------------------------------------------------------------
            (Former name, former address and former fiscal year, if
                           changed since last report)

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

                      Applicable Only to Corporate Issuers

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practical date.

Common Stock,  Without Par Value - 11,823,864 shares  outstanding as of July 31,
2004

Part I - Financial Information
Item I - Financial Statements


                                                 ATA HOLDINGS CORP. AND SUBSIDIARIES
                                                     CONSOLIDATED BALANCE SHEETS
                                                       (Dollars in thousands)

                                                                              June 30,         December 31,
                                                                                2004               2003
                                                                           -----------       ------------
                                 ASSETS                                      (Unaudited)
                                                                                       
Current assets:
 Cash and cash equivalents                                                 $   150,046       $    160,644
 Receivables, net of allowance for doubtful accounts
 (2004 - $1,077; 2003 - $1,388)                                                114,303            118,745
 Inventories, net                                                               46,803             47,604
 Prepaid expenses and other current assets                                      30,568             21,406
                                                                           -----------       ------------
Total current assets                                                           341,720            348,399

Property and equipment:
 Flight equipment                                                              330,993            324,697
 Facilities and ground equipment                                               147,250            142,032
                                                                            -----------       ------------
                                                                               478,243            466,729
 Accumulated depreciation                                                     (236,329)          (213,247)
                                                                           -----------       ------------
                                                                               241,914            253,482

Restricted cash                                                                 31,682             48,301
Goodwill                                                                        14,887             14,887
Prepaid aircraft rent                                                          146,175            144,088
Investment in BATA                                                              13,679             14,672
Deposits and other assets                                                       51,549             46,158
                                                                           -----------       ------------

Total assets                                                               $   841,606       $    869,987
                                                                           ===========       ============

                  LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
 Current maturities of long-term debt                                      $    59,597       $     51,645
 Accounts payable                                                               31,687             25,327
 Air traffic liabilities                                                       125,677            102,831
 Accrued expenses                                                              171,398            154,689
                                                                           -----------       ------------
Total current liabilities                                                      388,359            334,492


Long-term debt, less current maturities                                        433,531            443,051
Deferred gains from sale and leaseback of aircraft                              53,484             55,392
Other deferred items .                                                          80,695             51,822
Mandatorily redeemable preferred stock; authorized and issued 500 shares        50,000             56,330
                                                                           -----------       ------------
Total liabilities                                                            1,006,069            941,087

Commitments and contingencies

Convertible redeemable preferred stock; authorized and issued 300 shares        30,000             32,907

Shareholders' deficit:
 Preferred stock; authorized 9,999,200 shares; none issued                           -                  -
 Common stock, without par value; authorized 30,000,000 shares;
  issued 13,535,304 - 2004; 13,476,193 - 2003                                   66,236             65,711
 Treasury stock; 1,711,440 shares - 2004; 1,711,440 shares - 2003              (24,778)           (24,778)
 Additional paid-in capital                                                     17,938             18,163
 Accumulated deficit                                                          (253,859)          (163,103)
                                                                           -----------       ------------
Total shareholders' deficit                                                   (194,463)          (104,007)
                                                                           -----------       ------------

Total liabilities and shareholders' deficit                                $   841,606       $    869,987
                                                                           ===========       ============

See accompanying notes.


                                       2



                                                 ATA HOLDINGS CORP.AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                            (Dollars in thousands, except per share data)

                                                 Three Months Ended June 30,    Six Months Ended June 30,
                                                    2004             2003          2004           2003
                                                -----------      -----------   -----------   ------------
                                                 (Unaudited)      (Unaudited)   (Unaudited)    (Unaudited)

                                                                                  
Operating revenues:
 Scheduled service                               $  300,750       $  278,009    $  577,917    $  522,777
 Charter                                             72,676           94,550       164,366       206,857
 Ground package                                       2,978            3,265         7,873         8,476
 Other                                               14,370           12,298        27,951        23,641
                                                ------------      -----------   -----------   -----------
Total operating revenues                            390,774          388,122       778,107       761,751
                                                ------------      -----------   -----------   -----------
Operating expenses:
 Salaries, wages and benefits                       107,394           98,875       215,062       193,153
 Fuel and oil                                        85,838           68,081       168,128       143,173
 Aircraft rentals                                    59,835           56,065       119,380       111,334
 Handling, landing and navigation fees               30,097           31,399        63,452        61,456
 Aircraft maintenance, materials and repairs         19,512           10,751        39,414        24,230
 Other selling expenses                              14,015           13,085        26,559        24,842
 Crew and other employee travel                      12,967           16,856        29,984        31,843
 Depreciation and amortization                       12,819           13,796        26,450        28,989
 Advertising                                         10,399           10,030        20,226        20,305
 Passenger service                                   10,096           10,756        21,432        21,005
 Facilities and other rentals                         6,729            5,797        13,113        11,621
 Insurance                                            5,978            7,526        11,476        14,861
 Commissions                                          5,676            4,214        12,496        10,240
 Ground package cost                                  2,508            2,786         6,571         6,990
 U.S. Government Funds                                    -          (37,156)            -       (37,156)
 Other                                               17,434           19,316        37,238        37,400
                                                 -----------      -----------   -----------   -----------
Total operating expenses                            401,297          332,177        10,981       704,286
                                                 -----------      -----------   -----------   -----------

 Operating income (loss)                            (10,523)          55,945       (32,874)       57,465

Other income (expense):
 Interest income                                        532              705         1,075         1,511
 Interest expense                                   (15,442)         (12,959)      (30,431)      (25,641)
 Loss on extinguishment of debt                           -                -       (27,314)            -
 Other                                                 (229)            (376)         (462)       (1,012)
                                                 -----------      -----------   -----------   -----------
Other expense                                       (15,139)         (12,630)      (57,132)      (25,142)
                                                 -----------      -----------   -----------   -----------

Income (loss) before income taxes                   (25,662)          43,315       (90,006)       32,323
Income taxes                                              -                -             -             -
                                                 -----------      -----------   -----------   -----------
Net income (loss)                                   (25,662)          43,315       (90,006)       32,323

Preferred stock dividends                              (375)          (2,485)         (750)       (2,860)
                                                 -----------      -----------   -----------   -----------
Income (loss) available to common shareholders   $  (26,037)      $   40,830    $  (90,756)   $   29,463
                                                 ===========      ===========   ===========   ===========

Basic earnings per common share:
Average shares outstanding                       11,823,864       11,764,753    11,823,317    11,764,753
Net income (loss) per share                      $    (2.20)      $     3.47    $    (7.68)   $     2.50
                                                 ===========      ===========   ===========   ===========

Diluted earnings per common share:
Average shares outstanding                       11,823,864       14,077,005    11,823,317    14,053,238
Net income (loss) per share                      $    (2.20)      $     2.93    $    (7.68)   $     2.15
                                                 ===========      ===========   ===========   ===========

 See accompanying notes.


                                       3



                                                 ATA HOLDINGS CORP. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE REDEEMABLE PREFERRED STOCK
                                                      AND SHAREHOLDERS' DEFICIT
                                                       (Dollars in thousands)

                                    Convertible
                                    Redeemable                          Additional                   Total
                                     Preferred   Common    Treasury       Paid-in   Retained      Shareholders'
                                       Stock     Stock     Stock          Capital    Deficit        Deficit
                                      -------   -------   ---------       -------   ---------      ---------
                                                                                 
Balance as of December 31, 2003       $32,907   $65,711   $ (24,778)      $18,163   $(163,103)     $(104,007)

Net loss                                    -         -           -             -     (64,344)       (64,344)

Stock options exercised                     -       525           -          (225)          -            300

Preferred stock dividends              (2,907)        -           -             -        (375)          (375)
                                      -------   -------   ---------       -------   ---------      ---------
Balance as of March 31, 2004          $30,000   $66,236   $ (24,778)      $17,938   $(227,822)     $(168,426)
                                      =======   =======   =========       =======   =========      =========

Net loss                                    -         -           -             -     (25,662)       (25,662)

Preferred stock dividends                   -         -           -             -        (375)          (375)
                                      -------   -------   ---------       -------   ---------      ---------
Balance as of June 30, 2004           $30,000   $66,236   $ (24,778)      $17,938   $(253,859)     $(194,463)
                                      =======   =======   =========       =======   =========      =========


 See accompanying notes.


                                       4



                                                 ATA HOLDINGS CORP. AND SUBSIDIARIES
                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (Dollars in thousands)

                                                                Six Months EndedJune 30,
                                                                 2004              2003
                                                             (Unaudited)        (Unaudited)
                                                             -----------        -----------
                                                                          
Operating activities:

Net income (loss)                                            $ (90,006)         $  32,323
Adjustments to reconcilenet income(loss)
to net cash provided byoperatingactivities:
 Depreciation andamortization                                   26,450             28,989
 Loss on extinguishment of debt                                 27,314                  -
 Other non-cash items                                            5,472              4,969
Changes in operating assets and liabilities:
 U.S.Government grant receivable                                     -              6,158
 Other receivables                                               4,442            (14,394)
 Inventories                                                      (736)              (151)
 Prepaid expenses                                               (4,760)             2,719
 Accounts payable                                                6,360             (1,275)
 Air traffic liabilities                                        22,846             14,835
 Accrued expenses                                               21,934              2,551
 Other deferred items                                           20,000                  -
                                                             ---------          ---------
 Net cash provided by operating activities                      39,316             76,724
                                                             ---------          ---------
Investing activities:

Aircraft pre-delivery deposits                                       -              8,374
Capital expenditures                                           (13,515)           (29,523)
Noncurrent prepaid aircraft rent                                (2,087)           (63,882)
(Additions) reductions to other assets                          (8,468)             4,909
Proceeds from sales of property and equipment                      108                171
                                                             ---------          ---------
 Net cash used in investing activities                         (23,962)           (79,951)
                                                             ---------          ---------
Financing  activities:

Proceeds from long-term debt                                     1,500              5,729
Payments of preferred dividends                                 (9,987)                 -
Payments on short-term debt                                          -             (4,187)
Payments on long-term debt and exchange offers                 (29,982)            (4,283)
Decrease (increase) in restricted cash                          12,217             (8,210)
Proceeds from stock options exercises                              300                  -
                                                             ---------          ---------
 Net cash used in financing activities                         (25,952)           (10,951)
                                                             ---------          ---------
Decrease in cash and cash equivalents                          (10,598)           (14,178)
Cash and cash equivalents, beginning of period                 160,644            200,160
                                                             ---------          ---------
Cash and cash equivalents, end of period                     $ 150,046          $ 185,982
                                                             =========          =========

Supplemental disclosures:

Cash payments (receipts) for:
 Interest                                                    $  26,047          $  22,999
 Income tax refunds                                             (4,142)           (16,711)

Financing and investing activities not affecting cash:
 Accrued capitalized interest                                      479                752
 Accrued preferred stock dividends                                   -              2,860
 Additional new notes                                        $  12,991          $       -

See accompany notes.


                                       5

                       ATA HOLDINGS CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of Presentation and Stock Based Compensation

     The accompanying  consolidated  financial  statements of ATA Holdings Corp.
     and  subsidiaries  ("the  Company")  have been prepared in accordance  with
     instructions for reporting interim financial  information on Form 10-Q and,
     therefore,  do not include all  information  and footnotes  necessary for a
     fair  presentation  of financial  position,  results of operations and cash
     flows in conformity with accounting  principles  generally  accepted in the
     United States ("GAAP"). For further information,  refer to the consolidated
     financial statements and footnotes thereto included in the Company's Annual
     Report on Form 10-K for the year ended December 31, 2003.

     The consolidated  financial  statements for the periods ended June 30, 2004
     and 2003 reflect, in the opinion of management,  all adjustments  necessary
     to present  fairly the financial  position,  results of operations and cash
     flows for such periods. Results for the periods ended June 30, 2004 are not
     necessarily  indicative  of results to be expected for the full fiscal year
     ending December 31, 2004.

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

     The Company has not granted options since the year ended December 31, 2001.
     For  purposes  of pro forma  disclosure,  the  estimated  fair value of the
     options is amortized to expense  over the options'  vesting  period (1 to 3
     years).  The Company's total pro forma  stock-based  employee  compensation
     expense  determined  under  fair value  based  method,  net of related  tax
     effects,  is less than $10,000 for the quarter and six months periods ended
     June 30, 2004 and 2003, and has no effect on basic or diluted  earnings per
     share for these periods.

2.   State of the Industry and the Company

     The  geopolitical  impact of the conflict in the Middle East and  generally
     weak economic  conditions of the past several years have adversely affected
     the Company  and the airline  industry.  The  industry as a whole,  and the
     Company,  have  suffered  significant  financial  losses since 2001.  These
     trends  continued in the first six months of 2004,  as the industry and the
     Company  experienced a weak revenue  environment  and increased fuel costs.
     These conditions caused several network carriers including United Airlines,
     American Airlines,  Delta Airlines and US Airways to either seek bankruptcy
     protection or threaten bankruptcy.  The Company faced a competitive pricing
     environment  that  included   extraordinary  fare  discounting  by  several
     airlines in many of the scheduled  service markets the Company  serves.  In
     addition,  the  Company  faced  increased  capacity by its  competitors  in
     several  of the  east-west  markets it serves.  These  economic  conditions
     contributed to liquidity concerns for the Company.

     In early 2004,  the Company  continued its efforts to address the liquidity
     problems  created by the  economic  conditions  the Company has faced since
     2001.  On January 30, 2004,  the Company  successfully  completed  exchange
     offers  and  issued   Senior  Notes  due  2009  ("2009   Notes")  and  cash
     consideration  for certain of its $175  million 10 1/2% Senior Notes due in

                                       6

     August 2004 ("2004  Notes") and issued  Senior Notes due 2010 ("2010 Notes"
     and, together with the 2009 Notes, "New Notes") and cash  consideration for
     certain of its $125 million 9 5/8% Senior Notes due in December 2005 ("2005
     Notes", and together with the 2004 Notes,  "Existing Notes"). In completing
     the exchange offers,  the Company accepted $260.3 million of Existing Notes
     tendered for exchange, issuing $163.1 million in aggregate principal amount
     of 2009 Notes and  delivering  $7.8  million in cash in exchange for $155.3
     million in aggregate  principal amount of 2004 Notes tendered,  and issuing
     $110.2 million in aggregate  principal  amount of 2010 Notes and delivering
     $5.2 million in cash in exchange for $105.0 million in aggregate  principal
     amount of 2005 Notes. In addition to the New Notes issued, $19.7 million in
     aggregate principal amount of the 2004 Notes and $20.0 million in aggregate
     principal amount of the 2005 Notes remain  outstanding after the completion
     of the exchange offers. In connection with the exchange offers, the Company
     also obtained the consent of the holders of the Existing  Notes to amend or
     eliminate  certain  of the  restrictive  operating  covenants  and  certain
     default  provisions  of the  indentures  governing the Existing  Notes.  In
     accordance  with the  Emerging  Issues  Task  Force of the FASB No.  96-19,
     Debtor's  Accounting  for  Modification  or Exchange  of Debt Terms  ("EITF
     96-19"),  the Company recorded a non-operating  loss on  extinguishment  of
     debt of $27.3 million in the first  quarter of 2004.  The loss is primarily
     related to the  accounting for the $13 million cash  consideration  paid at
     closing of the  exchange  offers and the $13 million of  incremental  notes
     issued during the exchange  offers.  In accordance with EITF 96-19, the New
     Notes are recorded in the Company's balance sheet at fair value at the date
     of the exchange offers, which closely approximated their face value.

     In addition, on January 30, 2004, the Company also completed the amendments
     of certain aircraft  operating leases with its three major lessors,  Boeing
     Capital Services  Corporation  ("BCSC"),  General Electric Capital Aviation
     Services ("GECAS") and International  Lease Finance  Corporation  ("ILFC").
     The  original  terms  of many  of  these  aircraft  operating  leases  were
     determined  before  September 11, 2001, and many were structured to require
     significant  cash payments in the first few years of each lease in order to
     reduce the total rental cost over the entire lease terms. The effect of the
     lease  amendments  was to delay the  payment of portions of the amounts due
     under those operating leases, primarily between June 30, 2003 and March 31,
     2005,  and to  extend  the  leases  generally  for two  years.  Most of the
     payments  delayed  during this time period are to be  subsequently  paid at
     various  times  throughout  the remaining  life of the leases.  The Company
     received a refund of $29.8  million on January 30, 2004 related to payments
     made in 2003  under the  original  terms of certain  retroactively  amended
     leases.  The amendments will also result in approximately  $69.6 million in
     lower cash payments during 2004 under these operating  leases,  as compared
     to payments that would have been due under the original lease terms.

     Even after these steps, the Company faces substantial  additional liquidity
     concerns  due to the  continuing  impact of the weak  pricing  environment,
     increased fuel costs, a declining  demand for  military/government  charter
     service and increasing aircraft operating lease payments in 2005, which are
     heavily  concentrated  in the  first  quarter  of  2005.  The  Company  has
     announced  that it expects to realize a net loss for the full year of 2004.
     The Company is attempting to minimize these losses,  including amending the
     collective  bargaining  agreement  with its cockpit  crewmembers  to forego
     scheduled pay  increases,  implementing  pay  reductions for certain of its
     non-crewmember   employees,   and  eliminating   jobs  where   appropriate.
     Additionally, on March 30, 2004, the Company signed a letter agreement with
     Boeing and ILFC (together  "Issuer")  that provides a financing  commitment
     from  the  Issuer  to ATA  for up to $30  million  under  certain  specific
     conditions. As consideration for the financing commitment, ATA must pay the
     Issuer $1.2 million upon execution of the definitive  documentation  of the
     financing  agreement.  If the Company obtains financing under the financing
     commitment,  the  Company  expects  that the  amount  available  under  the
     commitment  will be reduced by $10 million per year on the  anniversary  of
     the funding,  for up to three years.  Although  based on current  operating
     assumptions and market conditions the Company  presently  projects that the
     impact of these  actions,  together  with cash on hand as of June 30, 2004,
     will allow the Company to meet its cash  obligations in 2004, the sustained
     losses have negatively  impacted the Company's financial covenant outlooks.
     Specifically,  the Company  expects the percentage of its holdback with its
     Visa and  MasterCard  processing  bank to increase to 100% in August  2004,
     from 75% as of June 30, 2004.  This  increase in holdback  percentage  will
     decrease the Company's  unrestricted  cash balance by  approximately  $20.0

                                       7

     million.  Under  current  operating  assumptions  and absent any changes to
     existing  aircraft lease  obligations,  the Company does not expect to have
     sufficient cash to meet its cash obligations in the first quarter of 2005.

     As of  September  30,  2004,  the  Company is  required to meet an earnings
     before  interest,  taxes,  depreciation,  amortization  and  aircraft  rent
     ("EBITDAR")  to fixed charges ratio  covenant  under its secured term loan,
     which is partially guaranteed by the Air Transportation Stabilization Board
     ("ATSB"), and its mortgage note payable agreements. In addition, certain of
     the Company's other loan agreements have cross-default  provisions that may
     be triggered if the Company fails to meet this ratio.  These covenants were
     negotiated based on future  projections that did not anticipate an on-going
     weak  revenue  environment  and  increasing  fuel  costs.  Based on current
     financial  projections,  the Company is uncertain of its ability to satisfy
     this covenant. If the Company is unable to meet this financial covenant, it
     would be in default under these agreements,  and the lenders would have the
     right to  accelerate  the  maturity  date of the loan  and  exercise  other
     remedies against the Company.  The Company intends to discuss its financial
     position  with the ATSB and other  lenders to seek to obtain any  necessary
     waivers of these covenants.  However, the Company can provide no assurances
     as to its success in obtaining a waiver or revision of these covenants.  In
     addition, the Company cannot provide assurance that it will not be required
     to make  pre-payments  under the loans in order to  revise  the  covenants,
     which could negatively  impact the Company's cash outlook.  The Company has
     not  identified  alternate  sources of  funding  to meet cash  requirements
     should an  acceleration  of the  maturity  date  occur  due to the  current
     economic and capital environment.

     The Company's  ability to obtain  financing to assist with liquidity issues
     will  be  extremely   limited.   Therefore,   together  with   cost-cutting
     initiatives,  the Company is currently  exploring  opportunities to improve
     its revenue  generation and return the Company to profitability.  Beginning
     in August  2004,  the Company  will launch  business  class  seating.  This
     service will be available  system-wide  by the end of 2004.  The Company is
     also looking at opportunities for expansion in the  transatlantic  markets.
     The Company  could  begin  European  service in 2005,  although no specific
     destinations have been announced.  The Company is undertaking other actions
     to reduce cash obligations,  improve  liquidity and improve  profitability,
     including further restructuring of leases, further amendments to collective
     bargaining  agreements and  restructuring of operations,  with a concurrent
     disposition  of assets  and  reduction  of  workforce  associated  with the
     discontinued operations. Even with these potential initiatives, the Company
     faces  significant risks beyond its control that could affect its long-term
     viability  including  further  declines in demand for air  travel,  further
     increases in fuel price, competitive pricing and capacity increases,  other
     airlines seeking bankruptcy protection and the ongoing geopolitical impacts
     of the conflicts in the Middle East.

                                       8

3.   Earnings per Share

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


                                                          Three Months Ended June 30 ,
                                                          2004                 2003
                                                      ------------        ------------
                                                                     
 Numerator:
   Net income (loss)                                  $ (25,662,000)       $ 43,315,000
   Preferred stock dividends                               (375,000)         (2,485,000)
                                                      -------------        ------------
   Income (loss) available to common
   shareholders - numerator for basic
   earnings per share                                 $ (26,037,000)       $ 40,830,000
                                                      -------------        ------------
 Effect of dilutive securities:
   Convertible redeemable preferred stock             $           -        $    375,000
                                                      -------------        ------------
 Numerator for diluted earnings per share             $ (26,037,000)       $ 41,205,000
                                                      =============        ============


  Denominator:
   Denominator for basic earnings  per share
   - weighted average shares                             11,823,864          11,764,753
  Effect of potential delutive securities:
   Employee stock options                                         -                   -
   Convertible redeemable preferred stock                         -           1,914,486
   Warrants  issued under secured term loan                       -             397,766
                                                      -------------        ------------
   Denominator for diluted earnings per share
   - adjusted weighted average shares                    11,823,864          14,077,005
                                                      =============        ============
 Basic income (loss) per share                        $       (2.20)       $       3.47
                                                      =============        ============
 Diluted income (loss) per share                      $       (2.20)       $       2.93
                                                      =============        ============


                                       9



                                                          Six Months Ended June 30 ,
                                                         2004                  2003
                                                      -------------        ------------
                                                                     
 Numerator:
   Net income (loss)                                  $ (90,006,000)       $ 32,323,000
   Preferred stock dividends                               (750,000)         (2,860,000)
                                                      -------------        ------------
   Income (loss) available to common
   shareholders - numerator for basic
   earnings per share                                 $ (90,756,000)       $ 29,463,000
                                                      -------------        ------------
 Effect of dilutive securities:
   Convertible redeemable preferred  stock                       -        $     750,000
                                                      -------------        ------------
 Numerator for diluted earnings per share             $ (90,756,000)       $ 30,213,000
                                                      =============        ============


 Denominator:
   Denominator for basic earnings per share
   - weighted average shares                             11,823,317          11,764,753
 Effect of potential delutive securities:
   Employee stock options                                         -                   -
   Convertible redeemable preferred stock                         -           1,914,486
   Warrants issued under secured term loan                        -             373,999
                                                      -------------        ------------
   Denominator for diluted earnings per share
   - adjusted weighted average shares                    11,823,317          14,053,238
                                                      =============        ============
 Basic income (loss) per share                        $       (7.68)       $       2.50
                                                      =============        ============
 Diluted income (loss) per share                      $       (7.68)       $       2.15
                                                      =============        ============


     In accordance  with FASB  Statement of Financial  Accounting  Standards No.
     128,  Earnings  per Share ("FAS 128"),  the impact of  1,914,486  shares of
     convertible  redeemable  preferred  stock in the three and six months ended
     June 30, 2004 has been excluded from the  computation  of diluted  earnings
     per share because their effect would be  antidilutive.  Also, the impact of
     834,995  and  969,573  incremental  shares  from the  assumed  exercise  of
     warrants  issued in  conjunction  with the  secured  term loan the  Company
     obtained in November 2002 were not included in the  computation  of diluted
     earnings  per  share  for the three and six  months  ended  June 30,  2004,
     respectively,  because their effect would be antidilutive. In addition, the
     impact of 257 and 9,327  employee  stock  options,  respectively,  has been
     excluded from the  computation of diluted  earnings per share for the three
     and six months  ended June 30,  2004,  respectively,  because  their effect
     would be antidilutive.

                                       10

4.   Commitments and Contingencies

     The Company has a purchase  agreement with the Boeing Company ("Boeing") to
     purchase  seven new Boeing  737-800s,  which are  currently  scheduled  for
     delivery between July 2007 and December 2007. These aircraft are powered by
     General Electric CFM56-7B27 engines. The manufacturer's list price is $52.4
     million for each 737-800,  subject to  escalation.  The Company's  purchase
     price for each  aircraft is subject to various  discounts.  According  to a
     2004 amendment to the purchase  agreement with Boeing,  if the Company does
     not have permanent financing for these aircraft suitable to the Company and
     does not have suitable  pre-delivery deposit financing,  and if Boeing does
     not elect to  provide  such  financing  acceptable  to the  Company,  these
     deliveries can be delayed for one year periods  annually  through  December
     31, 2010. Aircraft  pre-delivery  deposits are required for these aircraft,
     and the Company has  historically  funded these  deposits for past aircraft
     deliveries  using  operating  cash  and  pre-delivery   deposit   financing
     facilities.  The Company can provide no  assurance  that it will be able to
     secure pre-delivery deposit financing facilities or permanent financing for
     any future  aircraft  purchases.  As of June 30, 2004, the Company had $4.9
     million in long-term pre-delivery deposits outstanding for the seven future
     aircraft  deliveries,  which were funded with operating cash. Upon delivery
     and financing of the aircraft,  pre-delivery deposits funded with operating
     cash are expected to be returned to the Company.  As of June 30, 2004,  the
     Company  also  has  purchase  rights  with  Boeing  for 40  Boeing  737-800
     aircraft.

     The Company also has commitments to take delivery of one additional  Boeing
     737-800 and four spare  engines,  all of which are currently  scheduled for
     delivery  between the  remainder of 2004 and 2008.  The Company  intends to
     finance all future aircraft and engine deliveries with leases accounted for
     as operating leases.

     In the  Company'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.  The Company expects that it
     would be  covered  by  insurance  (subject  to  deductibles)  for most tort
     liabilities and related indemnities under these aircraft leases.

     In January  2002,  the Company  entered into an agreement  (the "Lease") to
     lease land from the City of Chicago (the "City"),  which had been purchased
     by the City with Chicago  Midway  Airport  Revenue  Bonds  ("MARB's").  The
     Company also entered into a redevelopment  agreement (the "Agreement") with
     the City in January 2002 to develop real estate on the property. As part of
     the  Agreement,  the City agreed to pay for the debt  service on the MARB's
     from the  incremental  tax revenue  expected to be generated  from the real
     estate developments. Under the Agreement, if the incremental tax revenue is
     insufficient  to fund the MARB's  debt  service,  the City has the right to
     require the Company to provide  those  funds as  additional  rent under the
     lease. The total amount of the debt service,  including interest, from 2006
     through 2021 is approximately $27.2 million.

     The Company is considering  constructing a training  center,  primarily for
     pilot  training,  on the land  leased  from the City (the  "Project").  The
     Company has  received  $5.1 million in grants from the State of Illinois to
     assist  with costs  related to site  development  and  construction  of the
     training center.  As of June 30, 2004, $1.7 million of the grant funds have
     been spent on costs  related  to the  Project.  In  addition  to  requiring
     completion  of the  Project,  the  grants  require  the  Company to achieve
     certain employment levels in the State of Illinois by December 31, 2005. In
     the event that the Project is not  completed or the  employment  levels are
     not  achieved as  stipulated  in the grant,  the State of Illinois  has the
     right to seek  recovery of all the funds  received by the Company under the
     grant.  The  Company is  uncertain  whether  it can  achieve  the  required
     employment levels by December 31, 2005.

     Various claims, contractual disputes and lawsuits against the Company arise
     periodically   involving  complaints,   which  are  normal  and  reasonably

                                       11

     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.

5.   Income Taxes

     As of December 31, 2003,  the Company had incurred a three-year  cumulative
     loss.  Because of this cumulative loss and the presumption  under GAAP that
     net deferred tax assets should be fully  reserved if it is more likely than
     not that they will not be realized through  carrybacks or other strategies,
     the Company  recorded a full valuation  allowance  against its net deferred
     tax asset. In the first six months of 2004, the Company continued to record
     a full  valuation  allowance  against its net  deferred tax asset under the
     same presumption. This valuation allowance resulted in no tax benefit being
     recognized in the Company's first six months of 2004 and 2003.

6.   Prepaid and Accrued 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  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.  Forty-nine
     of the  Company's  aircraft  operating  leases were  structured  to require
     significant  cash in the early  years of the lease in order to obtain  more
     overall favorable lease rates. The amount of the cash payments in excess of
     the aircraft  rent  expense in these early years has created a  significant
     prepaid aircraft rent amount on the Company's balance sheet. The portion of
     the prepaid  aircraft rent that will be amortized in the next twelve months
     is recorded as short-term  prepaid  expense while the remainder is recorded
     as long-term prepaid aircraft rent.  Twenty-four 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.  The portion of the accrued  liability that will be paid in
     the next twelve months is recorded as short-term accrued expenses while the
     remainder is recorded as long-term  deferred  items.  Two of the  Company's
     aircraft  operating  leases were structured  whereby monthly cash rents and
     monthly book rents are equal.  The table below  summarizes  the prepaid and
     accrued  aircraft  rents as of June 30,  2004 and  December  31,  2003 that
     result from this  straight-line  expense  recognition as reported under the
     following captions on the Company's balance sheet:

                                       12



                                                                    June 30,    December 31,
                                                                      2004        2003
                                                                   --------     ------------
                                                                     (In thousands)
                                                                          
Assets:

 Prepaid expenses and other current assets (short-term)            $  2,282     $  3,879
 Prepaid aircraft rent (long-term)                                  146,175      144,088
                                                                   --------     --------
 Total prepaid aircraft rent                                       $148,457     $147,967
                                                                   ========     ========

Liabilities:

 Accrued expenses (short-term)                                     $  6,304     $ 11,529
 Other deferred items (long-term)                                    39,524       27,976
                                                                   --------     --------
Total accrued aircraft rent                                        $ 45,828     $ 39,505
                                                                   ========     ========




7.   Dividends

     In 2000,  the  Company  issued and sold 300 shares of Series B  convertible
     redeemable preferred stock, without par value ("Series B Preferred"),  at a
     price of $100,000 per share. The Company must redeem the Series B Preferred
     no later than  September 20, 2015.  The purchaser of the Series B Preferred
     is entitled to cumulative  quarterly dividends at an annual rate of 5.0% on
     the liquidation amount ($100,000 per share) of the Series B Preferred.  The
     annual rate is subject to an increase  to 8.44% on the  liquidation  amount
     ($100,000  per share) if the Company  fails to pay any  quarterly  dividend
     within ten days of the due date.  Once  dividends in arrears have been paid
     in  full,  the rate  returns  to the  original  annual  rate of  5.0%.  The
     mandatorily redeemable Series B Preferred is classified between liabilities
     and  equity on the  Company's  accompanying  balance  sheets  because it is
     convertible  to the Company's  common stock.  The dividends  related to the
     Series B Preferred are recorded below net income on the Company's statement
     of operations.

     Also,  in  2000,  the  Company  issued  and  sold 500  shares  of  Series A
     redeemable preferred stock, without par value ("Series A Preferred"),  at a
     price of $100,000  per share.  The  purchaser  of the Series A Preferred is
     entitled to cumulative  semiannual  dividends at an annual rate of 8.44% on
     the liquidation  amount ($100,000 per share) of the Series A Preferred.  As
     of July 1,  2003,  per  the  provisions  of  FASB  Statement  of  Financial
     Accounting Standards No. 150, Accounting for Certain Financial  Instruments
     with Characteristics of both Liabilities and Equity ("FAS 150"), the Series
     A Preferred  is  classified  as a liability on the  Company's  accompanying
     balance sheets because it is  mandatorily  redeemable and not  convertible,
     and the  dividends  related to the Series A  Preferred  are  classified  as
     interest expense on the Company's statement of operations.

     Prior to and as of December 31, 2003, the Company's  unsecured senior notes
     indentures  contained certain restricted  payment covenants,  which limited
     the Company's  ability to pay preferred stock dividends.  At the end of the
     third  quarter  of 2002,  that  covenant  no longer  permitted  payment  of
     preferred  dividends.  The  Company  accrued  preferred  dividends  at  the
     appropriate  rates plus interest for the payments due between  December 15,
     2002 and December 31, 2003.  In January  2004, as a result of completion of
     the exchange  offers,  the restricted  payment  covenants were removed.  In
     addition,  the restricted  payment  covenants in the Senior Note indentures
     for the 2009  Notes and 2010 Notes  permits  the  Company to pay  preferred

                                       13


     stock dividends. Concurrently with the completion of the exchange offers on
     January 30,  2004,  the Company  paid all accrued  preferred  dividends  in
     arrears of $9.2 million.

8.   Management Changes

     On June 28, 2004, the Company  announced the  resignation of David M. Wing,
     who had held the role of  Executive  Vice  President  and  Chief  Financial
     Officer  of the  Company  and  was a  member  of  the  Company's  Board  of
     Directors.  In addition,  the Company  appointed  Gilbert F. Viets, who had
     held the role of Chairman of the Audit  Committee of the Company's Board of
     Directors,  to the role of Executive  Vice  President  and Chief  Financial
     Officer.  On July 12, 2004, the Company  announced the appointment of Byron
     F.  Johnson as Chairman of the Audit  Committee of the  Company's  Board of
     Directors to replace Mr. Viets. Mr. Viets remains on the Board.

                                       14

Part I - Financial Information
Item II - Management's Discussion and Analysis of Financial Conditions and
Results of Operations

Quarter Ended June 30, 2004, Versus Quarter Ended June 30, 2003

Overview

The Company is a leading  provider of scheduled  airline services to leisure and
other  value-oriented  travelers,  and a leading provider of charter services to
the U.S. military. The Company, through its principal subsidiary,  ATA Airlines,
Inc.  ("ATA"),  has been  operating  for 31 years and is the tenth  largest U.S.
airline in terms of 2003  capacity  and  traffic.  ATA  provides  jet  scheduled
service   through   nonstop  and   connecting   flights  from  the  gateways  of
Chicago-Midway and Indianapolis to popular vacation destinations such as Hawaii,
Phoenix, Las Vegas, Florida, California, Mexico and the Caribbean, as well as to
New  York's  LaGuardia  Airport,   Philadelphia,   Denver,   Dallas-Ft.   Worth,
Washington, D.C., Boston, Seattle, Minneapolis-St.  Paul, Newark, Charlotte, and
Pittsburgh.  The Company's commuter  subsidiary  Chicago Express Airlines,  Inc.
("Chicago  Express") provides commuter scheduled service between  Chicago-Midway
and the cities of Indianapolis,  Dayton,  Des Moines,  Flint, Fort Wayne,  Grand
Rapids, Madison, Milwaukee, Moline, South Bend, Springfield and Toledo. ATA also
provides  charter  service to  independent  tour  operators,  specialty  charter
customers and the U.S. military.

In the  quarter and six months  ended June 30,  2004,  the  Company  recorded an
operating loss of $10.5 million and $32.9 million,  respectively, as compared to
an operating  income of $55.9  million and $57.5  million in the same periods of
2003. In the quarter and six months ended June 30, 2004,  the Company had a loss
available  to  common   shareholders   of  $26.0  million  and  $90.8   million,
respectively,  as compared to a net income  available to common  shareholders of
$40.8 million and $29.5 million in the same periods of 2003.  The loss available
to common shareholders for the first six months of 2004 includes a non-operating
charge of $27.3  million  related to a loss on  extinguishment  of debt from the
exchange offers  completed on January 30, 2004. The second quarter and first six
months of 2003 results include $37.2 million  received from the U.S.  Government
for a  reimbursement  of  expenses  incurred  and  revenue  foregone  related to
enhanced  aviation  security after  September 11, 2001,  which was recorded as a
reduction in operating expenses. See "Notes to Consolidated Financial Statements
- - Note 2 - State of the Industry and the Company" for additional  information on
the exchange offers.

Consolidated  revenue per available  seat mile ("RASM")  increased to 7.36 cents
and decreased to 7.14 cents,  respectively,  in the second quarter and first six
months of 2004, as compared to 7.23 cents and 7.15 cents,  respectively,  in the
comparable  periods of 2003. In 2004, the Company's  scheduled  service revenues
were adversely  affected by the  industry's  added  capacity,  especially in the
Company's transcontinental and other east-west markets. In addition, the Company
continued to be challenged by competitive  pricing which included  extraordinary
fare discounting by several airlines. As a result, the Company cancelled some of
its  east-west  routes  beginning  in March and April 2004 while  continuing  to
review its other scheduled  service markets.  The Company intends to enhance its
position as a leading  provider of passenger  airline  services in those markets
where  it can  capitalize  on  its  competitive  strengths.  Military/government
charter revenues decreased in the second quarter and first six months of 2004 as
a result of the  deactivation  of Civil Reserve Air Fleet ("CRAF") in the second
quarter  of 2003.  In  addition,  the  extension  of tours of duty for  overseas
military   personnel   caused   a   decline   in   demand   for  the   Company's
military/government charter product in the first six months of 2004.

The  Company's  unit costs  remained  among the lowest of major  airlines in the
second  quarter and first six months of 2004.  Consolidated  cost per  available
seat mile ("CASM") increased to 7.56 cents and 7.44 cents, respectively,  in the
quarter and six months ended June 30,  2004,  as compared to 6.19 cents and 6.61
cents,  respectively,  in the comparable  periods of 2003. The 2003 CASM amounts
reflect the impact of the receipt of $37.2 million, or 0.69 cents and 0.35 cents
in the quarter and six months  ended June 30,  2003,  in U.S.  Government  funds
received in the second  quarter of 2003.  The  remainder of the increase in CASM
between  periods is primarily  due to a 27.8% and 14.6%  increase in the average
cost per  gallon of fuel in the second  quarter  and first six months of 2004 as
compared to the same  periods of 2003.  In  addition,  the  Company  experienced
higher  maintenance  costs in the  first  six  months  of 2004 as a result  of a
contractual  rate  increase in the hourly engine  maintenance  agreement for the
Company's  fleet of Boeing  757-200  aircraft,  and  these  rate  increases  are
expected to continue. Salary costs also increased in 2004, due primarily to

                                       15

contractual rate increases for cockpit crew received in July 2003.

Critical Accounting Policies

Please  refer to the  Company's  Annual  Report on Form 10-K for the year  ended
December 31, 2003.

Results of Operations

For the quarter and six months ended June 30, 2004, the Company had an operating
loss of $10.5 million and $32.9 million,  respectively, as compared to operating
income of $55.9  million  and $57.5  million in the same  periods  of 2003.  The
Company had a net loss of $25.7 million and $90.0 million in the second  quarter
and first six months of 2004, respectively, as compared to a net income of $43.3
million and $32.3 million in the same periods of 2003.  The net loss for the six
months  ended June 30, 2004  includes a  non-operating  charge of $27.3  million
related to a loss on  extinguishment  of debt from the exchange offers completed
on January 30, 2004.

Operating  revenues  increased  0.7% to $390.8  million in the second quarter of
2004,  as compared to $388.1  million in the same period of 2003,  and increased
2.1% to $778.1  million in the first six months of 2004,  as  compared to $761.8
million in the same period of 2003.  Consolidated  RASM  increased 1.8 % to 7.36
cents and  decreased  1.2% to 7.14  cents in the  second  quarter  and first six
months of 2004,  respectively,  as  compared to 7.23 cents and 7.15 cents in the
second  quarter  and  first  six  months  of 2003.  Scheduled  service  revenues
increased  $22.7 million between the second quarters of 2003 and 2004, or 8.2 %,
while charter  revenues  decreased  $21.9 million  between the same periods,  or
23.1%.  Scheduled service revenues increased $55.1 million between the first six
months of 2003 and 2004,  or  10.5%,  while  charter  revenues  decreased  $42.5
million  between the same  periods,  or 20.5%.  Scheduled  service unit revenues
reflected  weakness in both load  factors and unit  revenue,  while  yields were
virtually  unchanged from 2003 levels in the second quarter and first six months
of 2004.  Military/government  charter  operations  decreased  in the  first six
months of 2004 as a result of the  deactivation of CRAF in the second quarter of
2003.

Operating  expenses  increased  20.8% to $401.3 million in the second quarter of
2004,  as  compared  to $332.2  million in the  comparable  period of 2003,  and
increased  15.1% to $811.0  million in the first six months of 2004, as compared
to $704.3 million in the same period of 2003.  Consolidated CASM increased 22.1%
to 7.56 cents in the second  quarter of 2004,  as  compared to 6.19 cents in the
second  quarter  of 2003,  and  increased  12.6% to 7.44  cents in the first six
months of 2004, as compared to 6.61 cents in the same period of 2003.  Operating
expenses for the second quarter and first six months of 2003 reflect the receipt
of $37.2  million in U.S.  Government  funds for the  reimbursement  of expenses
incurred  and revenue  foregone  related to  enhanced  aviation  security  after
September 11, 2001, which was recorded as a reduction to operating expenses.

                                       16

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 ("ASM").


                                                                Cents per ASM                          Cents per ASM
                                                         Three Months Ended June 30,             Six Months Ended June 30,
                                                              2004               2003              2004              2003
                                                         ----------------------------            -------------------------

                                                                                                  
Consolidated operating revenues:                             7.36               7.23              7.14              7.15

Consolidated operating expenses:
 Salaries, wages and benefits                                2.02               1.84              1.97              1.81
 Fuel and oil                                                1.62               1.27              1.54              1.34
 Aircraft rentals                                            1.13               1.04              1.10              1.04
 Handling, landing and navigation fees                       0.57               0.58              0.58              0.58
 Aircraft maintenance, materials and repairs                 0.37               0.20              0.36              0.23
 Other selling expenses                                      0.26               0.24              0.24              0.23
 Crew and other employee travel                              0.24               0.31              0.28              0.30
 Depreciation and amortization                               0.24               0.26              0.24              0.27
 Advertising                                                 0.20               0.19              0.19              0.19
 Passenger service                                           0.19               0.20              0.20              0.20
 Facilities and other rentals                                0.13               0.11              0.12              0.11
 Insurance                                                   0.11               0.14              0.11              0.14
 Commissions                                                 0.11               0.08              0.11              0.10
 Ground package cost                                         0.05               0.05              0.06              0.07
 U.S. Government Funds                                          -              (0.69)                -             (0.35)
 Other                                                       0.32               0.37              0.34              0.35
                                                            -----               ----             -----              ----
Total consolidated operating expenses                        7.56               6.19              7.44              6.61
                                                            -----               ----             -----              ----
Consolidated operating income (loss)                        (0.20)              1.04             (0.30)             0.54
                                                            =====               ====             =====              ====


ASMs (in thousands)                                     5,310,459          5,370,153        10,893,281        10,654,863


Consolidated Flight Operating and Financial Data

The following tables set forth, for the periods indicated, certain key operating
and financial data for the consolidated  flight operations of the Company.  Data
shown for "Jet"  operations  include  the  consolidated  operations  of Lockheed
L-1011,  Boeing 737-800,  Boeing 757-200,  and Boeing 757-300 aircraft in all of
the  Company's  business  units.  Data shown for "SAAB"  operations  include the
operations  of SAAB  340B  propeller  aircraft  by  Chicago  Express  as the ATA
Connection.  Data for  subservice  operations,  which is  insignificant,  is not
included.

                                       17




                                                                   Three Months Ended June 30,
                                               ---------------------------------------------------------------
                                                   2004               2003             Inc (Dec)    % Inc (Dec)
                                               ---------------------------------------------------------------
                                                                                            
Departures Jet                                    21,439             19,786               1,653          8.35
Departures SAAB                                   13,314             13,084                 230          1.76
                                               ---------------------------------------------------------------
 Total Departures                                 34,753             32,870               1,883          5.73
                                               ---------------------------------------------------------------
Block Hours Jet                                   64,417             61,716               2,701          4.38
Block Hours SAAB                                  12,956             12,797                 159          1.24
                                               ---------------------------------------------------------------
 Total Block Hours                                77,373             74,513               2,860          3.84
                                               ---------------------------------------------------------------
RPMs Jet (000s)                                3,749,521          3,732,628              16,893          0.45
RPMs SAAB (000s)                                  49,369             51,922              (2,553)        (4.92)
                                               ---------------------------------------------------------------
 Total RPMs (000s) (a)                         3,798,890          3,784,550              14,340          0.38
                                               ---------------------------------------------------------------
ASMs Jet (000s)                                5,233,066          5,292,058             (58,992)        (1.11)
ASMs SAAB (000s)                                  77,393             78,095                (702)        (0.90)
                                               ---------------------------------------------------------------
 Total ASMs (000s) (b)                         5,310,459          5,370,153             (59,694)        (1.11)
                                               ---------------------------------------------------------------

Load Factor Jet (%)                                71.65              70.53                1.12          1.59
Load Factor SAAB (%)                               63.79              66.49               (2.70)        (4.06)
                                               ---------------------------------------------------------------
 Total Load Factor (%)  (c)                        71.54              70.47                1.07          1.52
                                               ---------------------------------------------------------------
Passengers Enplaned Jet                        2,815,650          2,658,408             157,242          5.91
Passengers Enplaned SAAB                         284,551            295,799             (11,248)        (3.80)
                                               ---------------------------------------------------------------
 Total Passengers Enplaned (d)                 3,100,201          2,954,207             145,994          4.94
                                               ---------------------------------------------------------------
Revenue $ (000s)                                 390,774            388,122               2,652          0.68
RASM in cents (e)                                   7.36               7.23                0.13          1.80
CASM in cents (f)                                   7.56               6.19                1.37         22.13
Yield in cents (g)                                 10.29              10.26                0.03          0.29

Average Aircraft in Service
 Lockheed L-1011                                    6.00               8.42               (2.42)       (28.74)
 Boeing 737-800                                    32.50              30.20                2.30          7.62
 Boeing 757-200                                    15.59              15.00                0.59          3.93
 Boeing 757-300                                    12.00              10.11                1.89         18.69
 SAAB 340B                                         16.00              16.00                   -             -

Average Block Hours Flown per day
 Lockheed L-1011                                    6.77               7.34               (0.57)        (7.77)
 Boeing 737-800                                    10.71              10.71                   -             -
 Boeing 757-200                                    12.22              12.04                0.18          1.50
 Boeing 757-300                                    10.73              11.11               (0.38)        (3.42)
 SAAB 340B                                          8.99               8.88                0.11          1.24


See footnotes (a) through (g) on page 20.

                                       18



                                                                    Six Months Ended June 30,
                                               -----------------------------------------------------------------
                                                   2004                 2003          Inc (Dec)        % Inc (Dec)
                                               -----------------------------------------------------------------
                                                                                              
Departures Jet                                     43,332               38,980           4,352             11.16
Departures SAAB                                    26,471               25,797             674              2.61
                                               -----------------------------------------------------------------
 Total Departures                                  69,803               64,777           5,026              7.76
                                               -----------------------------------------------------------------
Block Hours Jet                                   132,426              122,532           9,894              8.07
Block Hours SAAB                                   25,914               25,220             694              2.75
                                               -----------------------------------------------------------------
 Total Block Hours                                158,340              147,752          10,588              7.17
                                               -----------------------------------------------------------------
RPMs Jet (000s)                                 7,273,958            7,057,275         216,683              3.07
RPMs SAAB (000s)                                   95,874               97,973          (2,099)            (2.14)
                                               -----------------------------------------------------------------
 Total RPMs (000s) (a)                          7,369,832            7,155,248         214,584              3.00
                                               -----------------------------------------------------------------
ASMs Jet (000s)                                10,737,873           10,500,361         237,512              2.26
ASMs SAAB (000s)                                  155,408              154,502             906              0.59
                                               -----------------------------------------------------------------
 Total ASMs (000s) (b)                         10,893,281           10,654,863         238,418              2.24
                                               -----------------------------------------------------------------
Load Factor Jet (%)                                 67.74                67.21            0.53              0.79
Load Factor SAAB (%)                                61.69                63.41           (1.72)            (2.71)
                                               -----------------------------------------------------------------
 Total Load Factor (%)  (c)                         67.65                67.15            0.50              0.74
                                               -----------------------------------------------------------------
Passengers Enplaned Jet                         5,378,751            5,036,086         342,665              6.80
Passengers Enplaned SAAB                          546,413              557,933         (11,520)            (2.06)
                                               -----------------------------------------------------------------
 Total Passengers Enplaned (d)                  5,925,164            5,594,019         331,145              5.92
                                               -----------------------------------------------------------------

Revenue $ (000s)                                  778,107              761,751          16,356              2.15
RASM in cents (e)                                    7.14                 7.15           (0.01)            (0.14)
CASM in cents (f)                                    7.44                 6.61            0.83             12.56
Yield in cents (g)                                  10.56                10.65           (0.09)            (0.85)

Average Aircraft in Service
 Lockheed L-1011                                     6.00                 9.21           (3.21)           (34.85)
 Boeing 737-800                                     32.25                30.10            2.15              7.14
 Boeing 757-200                                     15.30                15.33           (0.03)            (0.20)
 Boeing 757-300                                     12.00                10.01            1.99             19.88
SAAB 340B                                           16.00                 16.00               -                 -

Average Block Hours Flown per day
 Lockheed L-1011                                     8.04                 7.50            0.54              7.20
 Boeing 737-800                                     11.05                10.55            0.50              4.74
 Boeing 757-200                                     12.57                11.86            0.71              5.99
 Boeing 757-300                                     10.93                10.80            0.13              1.20
 SAAB 340B                                           9.00                 8.76            0.24              2.74


See footnotes (a) through (g) on page 20.

                                       19

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

(d)  Passengers enplaned are the number of revenue passengers who occupied seats
     on the Company's  flights.  This measure is also referred to as "passengers
     boarded."  In  the  case  of  commercial  charter  and  military/government
     charter,  passengers  enplaned is less relevant because the right to use an
     entire aircraft is sold by the Company instead of individual seats.

(e)  Revenue per ASM (expressed in cents) 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.  In the case of
     scheduled service,  RASM is a measure of the combined impact of load factor
     and yield (see (g) below for the definition of yield).

(f)  Cost per ASM  (expressed in cents) is total  operating  expense  divided by
     total ASMs.  This measure is also  referred to as "CASM." CASM measures the
     Company's unit cost using total available seat capacity.

(g)  Revenue per RPM (expressed in cents) is total operating  revenue divided by
     total RPMs.  This measure is also referred to as "yield." Yield is relevant
     to the  evaluation of scheduled  service  because yield is a measure of the
     average price paid by customers purchasing  individual seats. Yield is less
     relevant  to  the  commercial  charter  and   military/government   charter
     businesses  because the right to use an entire aircraft is sold at one time
     for one price.  Consolidated  yields and scheduled service yields are shown
     in the  appropriate  tables  for  industry  comparability,  but  yields for
     individual charter businesses are omitted from applicable tables.

Operating Revenues

Total operating  revenues in the second quarter of 2004 increased 0.7% to $390.8
million,  as  compared  to $388.1  million  in the second  quarter of 2003;  and
operating  revenues  in the first six  months of 2004  increased  2.1% to $778.1
million, as compared to $761.8 million in the same period of 2003.

These increases were due primarily to a $22.7 million and $55.1 million increase
in scheduled  service  revenues  for the second  quarter and first six months of
2004,  partially offset by a $21.9 million and $42.5 million decrease in charter
revenues for the second quarter and first six months of 2004.

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

                                       20



                                                            Three Months Ended June 30,
                                           -------------------------------------------------------------
                                              2004             2003         Inc (Dec)       % Inc (Dec)
                                           -------------------------------------------------------------
                                                                                     
Scheduled Service
 Departures                                   33,157           30,344           2,813              9.27
 Block Hours                                  70,453           63,530           6,923             10.90
 RPMs (000s)  (a)                          3,402,077        3,191,216         210,861              6.61
 ASMs  (000s) (b)                          4,497,588        4,172,529         325,059              7.79
 Load Factor  (c)                              75.64            76.48           (0.84)            (1.10)
 Passengers Enplaned (d)                   3,004,028        2,753,353         250,675              9.10
 Revenue $ (000s)                            300,750          278,009          22,741              8.18
 RASM in cents  (e)                             6.69             6.66            0.03              0.41
 Yield in cents  (g)                            8.84             8.71            0.13              1.49
 Revenue per segment (h)                      100.12           100.97           (0.85)            (0.85)

Military Charter
 Departures                                    1,283            1,602            (319)           (19.91)
 Block Hours                                   5,771            7,707          (1,936)           (25.12)
 ASMs  (000s)  (b)                           720,284          947,338        (227,054)           (23.97)
 Revenue $ (000s)                             65,538           78,020         (12,482)           (15.99)
 RASM in cents  (e)                             9.10             8.24            0.86             10.43
 RASM excluding fuel escalation  (j)            8.71             8.21            0.50              6.09

Commercial Charter
 Departures                                      302              915            (613)           (66.99)
 Block Hours                                   1,122            3,255          (2,133)           (65.53)
 ASMs  (000s)  (b)                            91,123          248,534        (157,411)           (63.34)
 Revenue $ (000s)                              7,138           16,530          (9,392)           (56.82)
 RASM in cents  (e)                             7.83             6.65            1.18             17.74
 RASM excluding fuel escalation  (i)            7.69             6.32            1.37             21.68

Percentage of Consolidated Revenues:
 Scheduled Service                              77.0%            71.6%            5.4%             7.54
 Military Charter                               16.8%            20.1%           (3.3%)          (16.42)
 Commercial Charter                              1.8%             4.3%           (2.5%)          (58.14)

See footnotes (a) through (j) on pages 20 and 22.

                                       21



                                                                Six Months Ended June 30,
                                              -------------------------------------------------------------
                                                  2004              2003        Inc (Dec)       % Inc (Dec)
                                              -------------------------------------------------------------
                                                                                       
Scheduled Service
 Departures                                      66,281             59,250         7,031            11.87
 Block Hours                                    142,672            123,688        18,984            15.35
 RPMs (000s)  (a)                             6,482,014          5,875,697       606,317            10.32
 ASMs  (000s)  (b)                            9,094,597          8,018,861     1,075,736            13.42
 Load Factor  (c)                                 71.27              73.27         (2.00)           (2.73)
 Passengers Enplaned (d)                      5,708,277          5,137,816       570,461            11.10
 Revenue $ (000s)                               577,917            522,777        55,140            10.55
 RASM in cents  (e)                                6.35               6.52         (0.17)           (2.61)
 Yield in cents  (g)                               8.92               8.90          0.02             0.22
 Revenue per segment $  (h)                      101.24             101.75         (0.51)           (0.50)

Military Charter
 Departures                                       2,721              3,320          (599)          (18.04)
 Block Hours                                     12,855             16,123        (3,268)          (20.27)
 ASMs  (000s)  (b)                            1,576,233          2,030,427      (454,194)          (22.37)
 Revenue $ (000s)                               146,260            164,215       (17,955)          (10.93)
 RASM in cents  (e)                                9.28               8.09          1.19            14.71
 RASM excluding fuel escalation  (j)               8.94               7.96          0.98            12.31

Commercial Charter
 Departures                                         742              2,198        (1,456)          (66.24)
 Block Hours                                      2,658              7,920        (5,262)          (66.44)
 ASMs  (000s)  (b)                              211,861            603,823      (391,962)          (64.91)
 Revenue $ (000s)                                18,106             42,642       (24,536)          (57.54)
 RASM in cents  (e)                                8.55               7.06          1.49            21.10
 RASM excluding fuel escalation  (i)               8.39               6.66          1.73            25.97

Percentage of Consolidated Revenues:
 Scheduled Service                                 74.3%              68.6%          5.7%            8.31
 Military Charter                                  18.8%              21.6%         (2.8%)         (12.96)
 Commercial Charter                                 2.3%               5.6%         (3.3%)         (58.93)


See footnotes (a) through (j) on pages 20 and 22.

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

(i)  Commercial charter contracts  generally provide that the tour operator will
     reimburse the Company for certain fuel cost increases,  which, when earned,
     are  accounted  for as additional  revenue.  A separate  RASM  calculation,
     excluding  the impact of fuel  reimbursements,  is  provided  as a separate
     measure of unit revenue changes.

(j)  Military/government reimbursements to the Company are calculated based upon
     a "cost plus"  formula,  including  an assumed  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 of the change on
     the Company. A separate RASM calculation is provided,  excluding the impact
     of the fuel price adjustments.

                                       22

Scheduled Service Revenues.  Scheduled service revenues in the second quarter of
2004  increased 8.2% to $300.8 million from $278.0 million in the second quarter
of 2003,  and scheduled  service  revenues in the six months ended June 30, 2004
increased  10.5% to $577.9  million  from  $522.8  million in the same period of
2003.  For the three  months  ended June 30,  2004  scheduled  service  capacity
increased 7.8%,  while unit revenues and yield  experienced only minor increases
and load factor experienced a minor decrease,  as compared to the same period of
2003.  For the six  months  ended  June 30,  2004,  scheduled  service  capacity
increased 13.4% and yield experienced a minor increase,  while unit revenues and
load factor experienced decreases of 2.6% and 2.7%, respectively, as compared to
the same  period  of 2003.  During  2004 the  Company  continued  to  experience
significant   pressure  from  a  competitive   pricing   environment   including
extraordinary  fare  discounting  by several  airlines in many of the  scheduled
service  markets the Company  serves.  The  primary  reason for the  competitive
pricing  environment has been the industry's  added capacity,  especially in the
Company's transcontinental and other east-west markets. As a result, the Company
cancelled some of its east-west  routes  beginning in March and April 2004 while
continuing to review its other scheduled service markets. The Company intends to
combat the adverse effects of the foregoing competitive factors by enhancing its
position as a leading provider of passenger airline services in selected markets
where it can  capitalize  on its  competitive  strengths.  However,  the Company
expects that it will continue to be challenged by  competitive  pricing  actions
and added industry capacity throughout 2004.

Approximately 66.3% of the Company's scheduled service capacity was generated by
flights  either  originating  or  terminating  at  Chicago-Midway  in the second
quarter  of 2004,  as  compared  to 65.7% in the  second  quarter  of 2003.  The
Hawaiian  market  generated  approximately  14.8%  of  total  scheduled  service
capacity  in the second  quarter  of 2004,  as  compared  to 13.4% in the second
quarter of 2003. Another 14.3% of total scheduled service capacity was generated
in the  Indianapolis  market in the second quarter of 2004, as compared to 13.5%
in the second quarter of 2003.

The Company  anticipates  that its  Chicago-Midway  operation  will  continue to
represent a  substantial  proportion of its  scheduled  service  business in the
future.  Construction  at Chicago's  Midway  Airport was completed in the second
quarter of 2004 and the company  occupies 14 jet gates as of June 30,  2004,  as
compared to its ten jet gates as of June 30, 2003. The Company operated 167 peak
daily jet and commuter departures from Chicago-Midway and served 42 destinations
on a nonstop basis in the second  quarter of 2004, as compared to 154 peak daily
jet and commuter departures and 39 nonstop destinations in the second quarter of
2003.

Military/Government   Charter  Revenues.   Military/government  charter  revenue
decreased  16.0% to $65.5  million  in the  second  quarter  of 2004 from  $78.0
million in the  second  quarter  of 2003,  and in the six months  ended June 30,
2004, military/government charter revenue decreased 10.9% to $146.3 million from
$164.2 million in the same period of 2003.

The decrease in revenue for  military/government  charter revenues in the second
quarter and first six months of 2004 was mainly due to the  deactivation  of the
CRAF program in the second  quarter of 2003.  The CRAF  program,  which ran from
February 18, 2003 to June 18, 2003,  required ATA to pledge up to 13 aircraft to
military/government  charter use to support  Operation Iraqi Freedom and allowed
the Company to increase  its Lockheed  L-1011  aircraft  utilization  (number of
productive hours of flying per day).

Although   military/government   charter  revenues   declined  between  periods,
military/government  charter  RASM,  excluding  the  impact  of fuel  escalation
revenue,  increased  6.1% to 8.71 cents and 12.3% to 8.94 in the second  quarter
and first six  months of 2004,  respectively,  from 8.21 cents and 7.96 cents in
the same periods of 2003.  The primary  reason for this increase was the Company
utilizing  proportionately  more L-1011-500 and narrow-body aircraft in 2004, as
compared  to 2003,  which  generate a higher  RASM  compared  to other  types of
aircraft.

Commercial Charter Revenues. Commercial charter revenues decreased 57.0% to $7.1
million in the second  quarter of 2004 from $16.5 million in the second  quarter
of 2003, and in the six months ended June 30, 2004,  commercial  charter revenue
decreased  57.5% to $18.1 million from $42.6 million in the same period of 2003.

                                       23

The  majority  of the  decline in  commercial  charter  revenues  was due to the
retirement   of  certain   Lockheed   L-1011   aircraft  that  the  Company  has
traditionally used in commercial charter flying.  Since aircraft  utilization is
typically much lower for commercial  charter,  as compared to scheduled  service
flying,  the  Company's  replacement  fleets of new  Boeing  737-800  and Boeing
757-300  aircraft  are  economically  disadvantaged  when  used  in the  charter
business,  because  of their  higher  fixed-ownership  cost.  Consequently,  the
Company  expects its commercial  charter  revenues to continue to decline as the
fleet  supporting  this  business  continues  to shrink as a result of  aircraft
retirements.

Although  commercial  charter revenues  declined between periods,  excluding the
impact of fuel escalation  revenue,  commercial  charter RASM increased 21.7% to
7.69 cents in the second  quarter of 2004 from 6.32 cents in the second  quarter
of 2003 and  increased  26.0% to 8.39 cents in the first six months of 2004 from
6.66 cents in the same period of 2003.  The primary  reason for the increases is
that the Company flew a higher  percentage of specialty charter flights in 2004,
as compared to same period of 2003.  The specialty  charter  flights,  which are
designed to meet the customers' needs, historically yield higher revenue per ASM
than the  track  charter  flights,  which are  repetitive  flights  to  vacation
destinations marketed to tour operators.

Ground Package  Revenues.  The Company earns ground package revenues through the
sale of hotel,  car rental and cruise  accommodations  in  conjunction  with the
Company's air transportation product. Currently the Company markets these ground
packages  through its  Ambassadair  subsidiary.  Ambassadair  Travel Club offers
tour-guide-accompanied  vacation packages to its approximately 32,000 individual
and family  members.  In the second  quarter and six months ended June 30, 2004,
ground  package  revenues  decreased  9.1% to $3.0 million and decreased 7.1% to
$7.9  million,  as compared to $3.3 million and $8.5 million in the same periods
of 2003.  These  declines  are  primarily  due to the  Company  closing  a small
Canadian tour operator  business as of July 1, 2003, and are partially offset by
increased  ground  revenue  for  Ambassadair  due to a change in mix of packages
offered.

Other  Revenues.  Other revenues are comprised of the  consolidated  revenues of
certain affiliated companies,  together with miscellaneous categories of revenue
associated   with  operations  of  the  Company,   such  as   cancellation   and
administration  service fees,  Ambassadair Travel Club membership dues and cargo
revenue.  Other revenues  increased 17.1% to $14.4 million in the second quarter
of 2004 from $12.3 million in the second  quarter of 2003, and in the six months
ended  June 30,  2004,  other  revenues  increased  18.6% to $28.0  million,  as
compared to $23.6 million in the same period of 2003, primarily due to increases
in cargo revenue and service fees.

Operating Expenses

Salaries,  Wages and Benefits.  Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees,  together with the Company's
cost of employee benefits and  payroll-related  local,  state and federal taxes.
Salaries,  wages and benefits  expense in the second  quarter of 2004  increased
8.6% to $107.4  million from $98.9 million in the second quarter of 2003, and in
the six  months  ended  June 30,  2004,  salaries,  wages and  benefits  expense
increased  11.3% to $215.1  million,  as compared to $193.2  million in the same
period of 2003.

The  increases in salaries,  wages and benefits in the second  quarter and first
six months of 2004,  as compared to the same periods of 2003,  are partially due
to the Company employing  additional  crewmembers and other operations employees
to handle its increased scheduled service capacity in 2004, as compared to 2003.
The Company also  incurred  increasing  costs in 2004 for  employee  medical and
workers'  compensation   benefits.  In  addition,  the  Company's  salary  costs
increased between these periods due to contractual rate increases effective July
1, 2003 for the Company's cockpit crewmembers.

The Company is experiencing  an erosion of its competitive  labor cost advantage
relative  to other  carriers  as  other  carriers  reduce  their  costs  through
negotiated  concessions.  The  Company  has  reached an  agreement  on  contract

                                       24

amendments  with the  cockpit  crewmembers  represented  by the Air Line  Pilots
Association  ("ALPA").  Under the amendments,  the crewmembers will forego their
contractual  rate increases that were to become  effective July 1, 2004 and July
1, 2005,  resulting in savings of  approximately  $32.5 million.  The amendments
include new contractual  increases  effective July 1, 2006 and July 1, 2007. The
cabin crewmembers, represented by the Association of Flight Attendants, rejected
an  amendment  to their  existing  collective  bargaining  agreement.  Under the
proposed  amendment,  the cabin crewmembers would have foregone two hours of pay
per month from August 1, 2004 through July 31, 2005,  which would have  resulted
in aggregate labor cost savings of approximately $1.0 million.

Fuel and Oil.  Fuel and oil  expense  increased  26.0% to $85.8  million  in the
second quarter of 2004, as compared to $68.1 million in the same period of 2003,
and increased  17.4% to $168.1 million in the six months ended June 30, 2004, as
compared to $143.2 million in the same period of 2003.

During the  quarter and six months  ended June 30,  2004,  the average  cost per
gallon of jet fuel consumed increased by 27.8% and 14.6%, respectively, compared
to the same periods of 2003, resulting in an increase in fuel and oil expense of
approximately  $18.1  million and $21.0  million,  respectively,  between  those
periods.

Periodically,  the Company has entered into fuel price hedge contracts to reduce
the  risk of fuel  price  fluctuations.  The  Company  did not  have  any  hedge
contracts in place in the first six months of 2004 or 2003. Although the Company
did not have any hedge  contracts  in place,  the Company did benefit  from fuel
reimbursement  clauses and guarantees in its bulk scheduled service,  commercial
charter and  military/government  contracts in the second  quarter of 2004.  The
benefit of these price guarantees was accounted for as revenue.

Aircraft Rentals.  The Company's operating leases require periodic cash payments
that vary in amount and  frequency.  Many of the  Company's  aircraft  operating
leases were originally  structured to require very significant cash in the early
years of the lease in order to obtain more overall  favorable  lease rates.  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 is derived from use of the
aircraft.  Although the Company  restructured  many of its  operating  leases in
January 2004 resulting in  significant  cash  deferrals,  the amount of the cash
payments in excess of the  aircraft  rent expense in these early years has still
resulted in a significant  prepaid aircraft rent amount on the Company's balance
sheet. This prepaid aircraft rent would have been  substantially  larger had the
leases not been  restructured  resulting in a $29.8 million  refund  received on
January 30, 2004 related to payments  made in 2003 under the  original  terms of
certain  retroactively  amended leases.  Aircraft  rentals expense in the second
quarter of 2004 increased 6.6% to $59.8 million from $56.1 million in the second
quarter of 2003,  and increased  7.3% to $119.4  million in the six months ended
June 30, 2004, as compared to $111.3  million in the same period of 2003.  These
increases  were  mainly  attributable  to the  delivery of three  leased  Boeing
737-800,  one leased Boeing 757-300  aircraft,  and one leased 757-200  aircraft
between June 2003 and June 2004.

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 cost appears within salaries,  wages and benefits. Air navigation fees
are incurred when the Company's aircraft fly over certain foreign airspace.

Handling,  landing and navigation fees decreased by 4.1% to $30.1 million in the
second quarter of 2004, as compared to $31.4 million in the same period of 2003,
and increased by 3.3% to $63.5 million in the six months ended June 30, 2004, as
compared to $61.5 million in the same period of 2003.

The Company  experienced a decrease in the cost of handling per departure due to
the negotiation of favorable  terms in new contracts,  resulting in $2.3 million
and $5.7 million, respectively, less expense in the second quarter and first six
moths of 2004, as compared to the same periods of 2003. The Company  realized an
8.4% and 11.2% increase in system-wide  jet departures  between  periods,  which

                                       25

resulted in an increase of handling, landing and navigation fees of $1.6 million
and $6.4  million more expense in the quarter and six month ended June 30, 2004,
respectively, as compared to the same periods of 2003.

Aircraft  Maintenance,  Materials and Repairs. This expense includes the cost of
expendable  aircraft  spare parts,  repairs to repairable  and rotable  aircraft
components, contract labor for 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 entered into
on its Boeing  737-800,  Boeing  757-200/300  and SAAB 340B power plants.  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  expense  increased 80.6% to $19.5
million  in the second  quarter of 2004,  as  compared  to $10.8  million in the
second quarter of 2003,  and increased  62.8% to $39.4 million in the six months
ended June 30, 2004, as compared to $24.2 million in the same periods of 2003.

The  increases  in  maintenance,  materials  and  repairs  were  mainly due to a
contractual  rate  increases  in the  cost  of  the  hourly  engine  maintenance
agreement for the Company's  Boeing 757-200 and Boeing 757-300 fleets  effective
January  1,  2004,  which  resulted  in an  increase  in  aircraft  maintenance,
materials  and repairs  expense of $6.2 million and $12.7  million in the second
quarter and first six months of 2004,  as compared to the same  periods of 2003.
The Company expects the increase for the remainder of 2004, as compared to 2003,
to be similar to the increase  experienced  in the first six months of the year.
The Company also incurred higher maintenance, materials and repairs cost in both
periods of 2004 due to an increase in the number of airframe checks, as compared
to the same period of 2003.

Other  Selling  Expenses.  Other  selling  expenses are  comprised  primarily of
booking fees paid to computer reservation systems ("CRS"),  credit card discount
expenses incurred when selling to customers using credit cards for payment,  and
toll-free  telephone  services  provided  to  customers  who contact the Company
directly to book  reservations.  Other selling expenses  increased 6.9% to $14.0
million  in the second  quarter of 2004,  as  compared  to $13.1  million in the
second  quarter of 2003,  and increased  7.3% to $26.6 million in the six months
ended June 30,  2004,  as compared to $24.8  million in the same period in 2003.
The  Company  experienced  increases  in  credit  card  and CRS  fees due to the
increase in scheduled service passengers enplaned between the second quarter and
first  six  months of 2004,  as  compared  to the same  periods  of 2003.  These
increases were partially offset by a decrease in toll-free service costs in both
the quarter and six months ended June 30, 2004,  compared to the same periods of
2003, due to contractual rate decreases offered by the Company's new provider.

Crew and Other Employee Travel.  Crew and other employee travel is primarily the
cost of air  transportation,  hotels and per diem  reimbursements to cockpit and
cabin  crewmembers  incurred to position  crews away from their bases to operate
Company flights throughout the world. The cost of crew and other employee travel
decreased  23.1% to $13.0 million in the second  quarter of 2004, as compared to
$16.9 million in the second quarter of 2003, and decreased 5.7% to $30.0 million
in the six months ended June 30, 2004,  as compared to $31.8 million in the same
period of 2003.  These  decreases are primarily due to less  military/government
flying in the second  quarter  and first six months of 2004,  as compared to the
same  periods  of 2003,  due to the CRAF  program  ending  in June  2003.  Since
military/government  flights  often  operate to and from points  remote from the
Company's crew bases,  the Company incurs  significant  travel expenses on other
airlines for positioning of the crews and higher hotel costs.

As a result of the contract amendments with the cockpit crewmembers  represented
by ALPA, the Company expects a reduction in per diem costs of approximately $4.2
million  for the  contract  years  effective  July 1, 2004 and July 1,  2005.  A
further  reduction of  approximately  $3.2  million is expected  from the flight
attendant  group due to stipulations in their  collective  bargaining  agreement
which link per diem rates to the cockpit crewmember contract.

                                       26

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 amortization  expense  decreased 7.2% to
$12.8 million in the second quarter of 2004, as compared to $13.8 million in the
second  quarter of 2003,  and decreased  8.6% to $26.5 million in the six months
ended June 30, 2004, as compared to $29.0 million in the same period of 2003.

The decrease in depreciation and amortization  expense is mainly attributable to
the L-1011-50 and 100 fleet. The Company retired four L-1011-50 and 100 aircraft
from revenue  service during the second and third quarters of 2003. Due to these
retirements,  the  Company  recorded  $1.3  million  and  $3.5  million  less in
depreciation  in the second quarter and first six months of 2004,  respectively,
as compared to the same period of 2003.

Advertising.  Advertising  expense increased 4.0% to $10.4 million in the second
quarter of 2004,  as compared to $10.0  million in the same period of 2003,  and
decreased  0.5% to $20.2  million in the six  months  ended  June 30,  2004,  as
compared  to $20.3  million  in the same  period  of 2003.  The  Company  incurs
advertising costs primarily to support  single-seat  scheduled service sales. In
the second quarter of 2004, the Company increased advertising due to initiatives
intended to respond to the current competitive pricing environment. In the first
six months of 2003, the Company  increased  advertising in an effort to increase
customer  preference  for the  Company's  enhanced  product with an  advertising
campaign  identifying the Company as "An Honestly Different  Airline." The brand
awareness campaign has enabled the Company to achieve efficiencies in the use of
advertising  resources  causing the expense to decrease in the first  quarter of
2004,  which  offset  increased  spending  for sales  initiatives  in the second
quarter of 2004.

Passenger Service.  Passenger service expense includes 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.  For the second quarters of 2004 and 2003,  catering  represented
82.6%  and  83.0%,  respectively,  of total  passenger  service  expense,  while
catering represented 81.4% and 82.1%,  respectively,  of total passenger service
expense for the six month periods ended June 30, 2004 and 2003.

The total  cost of  passenger  service  decreased  6.5% to $10.1  million in the
second  quarter of 2004, as compared to $10.8  million in the second  quarter of
2003 and increased  1.9% to $21.4 million in the six months ended June 30, 2004,
as  compared to $21.0  million in the same period of 2003.  In the three and six
month  periods  ended June 30,  2004,  the  Company  experienced  an increase in
passenger service expense of $0.4 million and $1.1 million, respectively, due to
the increase in scheduled service passengers, as compared to the same periods of
2003.  The Company  realized a decrease  in  passenger  service  expense of $0.8
million  and $0.5  million in the second  quarter  and first six months of 2004,
respectively,  as compared to the same periods of 2003,  related to the decrease
in  military/government  flying between periods, as  military/government  flying
requires a significantly more expensive catering product.

Facilities and Other Rentals.  Facilities and other rentals  include the cost of
all ground  facilities  that are leased by the  Company  such as airport  space,
regional  sales offices and general  offices.  The cost of facilities  and other
rentals  was $6.7  million in the second  quarter of 2004,  as  compared to $5.8
million in the second quarter of 2003,  and increased  12.9% to $13.1 million in
the six months  ended June 30,  2004,  as compared to $11.6  million in the same
period of 2003.  The Company  experienced  rate  increases  at certain  existing
locations due to increased frequency to those destinations.

Insurance. Insurance expense represents the Company's cost of hull and liability
insurance  and the costs of  general  insurance  policies  held by the  Company,
including workers' compensation insurance premiums and claims handling fees. The
total cost of insurance decreased 20.0% to $6.0 million in the second quarter of
2004, as compared to $7.5 million in the second  quarter of 2003,  and decreased
22.8% to $11.5  million in the six months  ended June 30,  2004,  as compared to
$14.9 million in the same period of 2003. The decreases are mainly  attributable

                                       27

to decreased  contract rates for the Company's hull and liability  insurance for
the policy year beginning in September 2003.

The federal  government has provided the Company and other  airlines  excess war
risk  insurance  coverage  above $50 million up to $3.0  billion per event.  The
Company is covered  under this  policy  through  December  2004.  If the Federal
government  stops  providing  excess war risk  insurance to the  Company,  it is
likely that the  Company's  insurance  expense  will  increase  as the  premiums
charged by aviation insurers for this coverage will be higher than those charged
by the government.

Commissions. The Company incurs commissions expense in association with the sale
by travel agents of single seats on scheduled service. In addition,  the Company
incurs  commissions to secure some  commercial and  military/government  charter
business.  Commissions  expense  increased  35.7% to $5.7  million in the second
quarter of 2004, as compared to $4.2 million in the second  quarter of 2003, and
increased  22.5% to $12.5  million  in the six  months  ended  June 30,  2004 as
compared to $10.2 million in the same period of 2003.

The Company experienced an increase in  military/government  charter commissions
of $1.9 million and $3.5  million in the second  quarter and first six months of
2004 because  certain CRAF flights in the second quarter and first six months of
2003 were  exempt from  commissions.  As CRAF ended in June 2003,  the  military
flights flown in 2004 were commissionable. These increases were partially offset
by a decrease in scheduled service  commissions of $0.4 million and $1.2 million
in the second  quarter  and first six months of 2004,  as  compared  to the same
periods  of  2003,  due to the  increasing  share of  non-commissionable  ticket
purchases made on the Company's own website.

Ground  Package  Cost.  Ground  package cost is incurred by the Company  through
hotels,  car rental  companies,  cruise  lines and  similar  vendors who provide
ground and cruise accommodations to Ambassadair  customers.  Ground package cost
decreased  10.7% to $2.5 million in the second  quarter of 2004,  as compared to
$2.8 million in the second  quarter of 2003,  and decreased 5.7% to $6.6 million
in the six months ended June 30,  2004,  as compared to $7.0 million in the same
period  of  2003.  See  the  "Ground  Package  Revenues"  section  above  for an
explanation of the ground package sales and related costs.

U.S.  Government  Funds.  On April 16, 2003,  President Bush signed into law the
Emergency  Wartime  Supplemental  Appropriations  Act, which made available $2.3
billion in reimbursement to U.S. air carriers for expenses  incurred and revenue
foregone related to enhanced aviation security subsequent to September 11, 2001.
Pursuant to this  legislation,  the Company  received $37.2 million in May 2003,
which was recorded as U.S.  Government  funds in the second quarter of 2003. The
Company does not expect to receive any further material  compensatory funds from
the U.S. Government.

Other  Operating  Expenses.  Other  operating  expenses  decreased 9.8% to $17.4
million  in the second  quarter of 2004,  as  compared  to $19.3  million in the
second  quarter of 2003,  and decreased  0.5% to $37.2 million in the six months
ended June 30,  2004,  as compared to $37.4  million in the same period of 2003.
These  decreases  were   attributable  to  various  changes  in  other  expenses
comprising this line item, none of which were individually significant.

Interest Expense.  Interest expense in the quarter and the six months ended June
30, 2004 increased to $15.4 million and $30.4 million, respectively, as compared
to $13.0  million  and $25.6  million in the same  periods of 2003.  The Company
recorded  $2.1 million and $3.5 million more in interest  expense in the quarter
and six  months  ended June 30,  2004 as  compared  to the same  period of 2003,
related to its unsecured senior notes  restructured in January 2004. The Company
also recorded  interest expense of $1.1 million and $2.3 million,  respectively,
in the second  quarter and first six months of 2004  related to dividends on the
Series A  Preferred.  As of July 1, 2003,  per the  provisions  of FAS 150,  the
dividends  related to the Series A Preferred are classified as interest  expense
on the Company's  statement of operations and the Series A Preferred is recorded
as a liability in the  accompanying  balance  sheet.  The Company  recorded less
interest in both periods of 2004,  as compared to the same  periods of 2003,  on

                                       28

various debt instruments,  including its secured term loan partially  guaranteed
by the ATSB, due to declining principal balances.

Loss on  Extinguishment  of Debt. On January 30, 2004, the Company  successfully
completed  exchange  offers and issued  2009  Notes and cash  consideration  for
certain  of its 2004  Notes and issued  2010  Notes and cash  consideration  for
certain of its 2005 Notes. The Company accepted $260.3 million of Existing Notes
tendered for exchange,  issuing $163.1 million in aggregate  principal amount of
2009 Notes and delivering $7.8 million in cash in exchange for $155.3 million in
aggregate principal amount of 2004 Notes tendered, and issuing $110.2 million in
aggregate  principal amount of 2010 Notes and delivering $5.2 million in cash in
exchange for $105.0 million in aggregate  principal  amount of 2005 Notes.  As a
result  of this  transaction,  the  Company  recorded  a  non-operating  loss on
extinguishment  of debt of $27.3 million in accordance with EITF 96-19. The loss
mainly relates to the accounting for the $13 million cash  consideration paid at
closing of the exchange  offers and the $13 million of incremental  notes issued
during the exchange  offers.  In accordance  with EITF 96-19,  the New Notes are
recorded  in the  Company's  balance  sheet  at fair  value  at the  date of the
exchange offers, which equates to their face value.

Income  Taxes.  The  Company did not record any income tax expense or benefit in
the quarter and the six months ended June 30, 2004  applicable  to $25.7 million
and $90.0 million,  respectively  in pre-tax loss for those periods,  nor did it
record  any income  tax  expense or benefit in the second  quarter or six months
ended  June  30,  2003,   applicable  to  $  43.3  million  and  $32.3  million,
respectively, in pre-tax income for those periods.

As of December 31, 2003, the Company had incurred a three-year  cumulative loss.
Because of this cumulative loss and the presumption under GAAP that net deferred
tax assets should be fully reserved if it is more likely than not that they will
not be realized through carrybacks or other strategies, the Company had recorded
a full  valuation  allowance  against its net deferred tax asset.  In the second
quarter of and first six months of 2004, the Company  continued to record a full
valuation   allowance  against  its  net  deferred  tax  asset  under  the  same
presumption.

Liquidity and Capital Resources

Statement of Cash Flow Overview

In the six months ended June 30, 2004, net cash provided by operating activities
was $39.3 million, as compared to $76.7 million for the same period of 2003. The
decrease in cash  provided by operating  activities  between  periods  primarily
resulted  from the  significant  net loss in the  first six  months of 2004,  as
compared to the net income in the first six months of 2003,  partially offset by
favorable changes in operating assets and liabilities.

Net cash used in investing  activities was $24.0 million in the first six months
of 2004, as compared to $80.0  million in the same period of 2003.  Such amounts
included capital expenditures  totaling $13.5 million in the first six months of
2004,  as  compared  to $29.5  million  in the  period  of 2003.  Cash  used for
non-current  prepaid  aircraft rent  payments of $2.1 million,  net of the $29.8
million  refund  received on January 30, 2004  related to payments  made in 2003
under the original terms of certain  retroactively  amended leases, in the first
six months of 2004 was much less significant as compared to $63.9 million in the
same period of 2003,  mainly due to the  completion  of the lease  amendments on
January 30, 2004. See "Liquidity Outlook" section below.

Net cash used in financing  activities was $26.0 million in the six months ended
June 30,  2004,  as compared to $11.0  million in the same period of 2003.  Upon
completion  of the  exchange  offers on January 30,  2004,  the Company paid all
accrued  preferred  dividends  in  arrears  totaling  $9.2  million in the first
quarter of 2004. In addition,  in the first six months of 2004, the Company also
paid $13.0  million as cash  consideration  for the  completion  of the exchange
offers and made other scheduled debt payments of $17.0 million. In the first six
months of 2003, the Company made  scheduled debt payments of $8.5 million.  Also
in the first six  months of 2004,  the  Company  reduced  restricted  cash $12.2
million  primarily  due to the  cancellation  of a surety  bond  relating to the
Department of Transportation  ("DOT") charter obligations.  In contrast,  in the

                                       29

first six  months of 2003,  the  Company's  restricted  cash  increased  by $8.2
million to collateralize additional letters of credit.

Liquidity Outlook

The  geopolitical  impact of the conflict in the Middle East and generally  weak
economic  conditions  of the past  several  years have  adversely  affected  the
Company and the airline industry. The industry as a whole, and the Company, have
suffered significant  financial losses since 2001. These trends continued in the
first six months of 2004,  as the  industry and the Company  experienced  a weak
revenue  environment and increased fuel costs.  These conditions  caused several
network carriers including United Airlines,  American  Airlines,  Delta Airlines
and US Airways to either seek bankruptcy protection or threaten bankruptcy.  The
Company faced a competitive pricing environment that included extraordinary fare
discounting  by several  airlines in many of the scheduled  service  markets the
Company  serves.  In  addition,  the  Company  faced  increased  capacity by its
competitors  in several of the  east-west  markets  it  serves.  These  economic
conditions contributed to liquidity concerns for the Company.

In early 2004,  the  Company  continued  its  efforts to address  the  liquidity
problems created by the economic conditions the Company has faced since 2001. On
January 30, 2004, the Company successfully  completed exchange offers and issued
2009 Notes and cash  consideration for certain of its 2004 Notes and issued 2010
Notes and cash  consideration  for certain of its 2005 Notes.  In completing the
exchange offers,  the Company accepted $260.3 million of Existing Notes tendered
for exchange, issuing $163.1 million in aggregate principal amount of 2009 Notes
and delivering  $7.8 million in cash in exchange for $155.3 million in aggregate
principal amount of 2004 Notes tendered, and issuing $110.2 million in aggregate
principal  amount of 2010 Notes and delivering  $5.2 million in cash in exchange
for $105.0 million in aggregate  principal  amount of 2005 Notes. In addition to
the New Notes issued,  $19.7 million in aggregate  principal  amount of the 2004
Notes and $20.0 million in aggregate  principal  amount of the 2005 Notes remain
outstanding  after the completion of the exchange offers. In connection with the
exchange  offers,  the Company  also  obtained the consent of the holders of the
Existing  Notes to amend  or  eliminate  certain  of the  restrictive  operating
covenants  and  certain  default  provisions  of the  indentures  governing  the
Existing  Notes.  In  accordance  with  EITF  96-19,   the  Company  recorded  a
non-operating  loss on  extinguishment  of debt of $27.3  million  in the  first
quarter of 2004.  The loss is primarily  related to the  accounting  for the $13
million cash  consideration  paid at closing of the exchange  offers and the $13
million of incremental  notes issued during the exchange  offers.  In accordance
with EITF 96-19,  the New Notes are recorded in the  Company's  balance sheet at
fair value at the date of the exchange offers,  which closely approximated their
face value.

In addition,  on January 30, 2004,  the Company also completed the amendments of
certain aircraft operating leases with its three major lessors,  BCSC, GECAS and
ILFC.  The  original  terms  of many of these  aircraft  operating  leases  were
determined  before  September  11,  2001,  and many were  structured  to require
significant  cash  payments  in the first  few  years of each  lease in order to
reduce the total  rental  cost over the entire  lease  terms.  The effect of the
lease  amendments  was to delay the payment of portions of the amounts due under
those operating leases,  primarily between June 30, 2003 and March 31, 2005, and
to extend  the leases  generally  for two years.  Most of the  payments  delayed
during this time period are to be subsequently  paid at various times throughout
the remaining life of the leases. The Company received a refund of $29.8 million
on January 30, 2004 related to payments made in 2003 under the original terms of
certain  retroactively  amended  leases.  The  amendments  will  also  result in
approximately  $69.6  million in lower cash  payments  during  2004 under  these
operating  leases,  as compared  to payments  that would have been due under the
original lease terms.

Even after these  steps,  the Company  faces  substantial  additional  liquidity
concerns due to the continuing impact of the weak pricing environment, increased
fuel  costs,  a declining  demand for  military/government  charter  service and
increasing  aircraft  operating  lease  payments  in  2005,  which  are  heavily
concentrated  in the first quarter of 2005.  The Company has  announced  that it
expects  to  realize  a net loss  for the full  year of  2004.  The  Company  is
attempting  to  minimize  these  losses,   including   amending  the  collective
bargaining  agreement  with its  cockpit  crewmembers  to forego  scheduled  pay
increases,  implementing  pay  reductions  for  certain  of  its  non-crewmember
employees,  and eliminating jobs where appropriate.  Additionally,  on March 30,
2004,  the Company  signed a letter  agreement  with the Issuer that  provides a
financing  commitment from the Issuer to ATA for up to $30 million under certain

                                       30

specific conditions. As consideration for the financing commitment, ATA must pay
the Issuer $1.2 million upon  execution of the definitive  documentation  of the
financing  agreement.  If the  Company  obtains  financing  under the  financing
commitment,  the Company expects that the amount  available under the commitment
will be reduced by $10 million per year on the  anniversary of the funding,  for
up to three years.  Although based on current  operating  assumptions and market
conditions  the Company  presently  projects  that the impact of these  actions,
together  with cash on hand as of June 30, 2004,  will allow the Company to meet
its cash obligations in 2004, the sustained losses have negatively  impacted the
Company's  financial  covenant outlooks.  Specifically,  the Company expects the
percentage  of its  holdback  with its Visa and  MasterCard  processing  bank to
increase to 100% in August 2004,  from 75% as of June 30, 2004. This increase in
holdback  percentage  will decrease the Company's  unrestricted  cash balance by
approximately $20.0 million.  Under current operating assumptions and absent any
changes to existing aircraft lease  obligations,  the Company does not expect to
have sufficient cash to meet its cash obligations in the first quarter of 2005.

As of September  30,  2004,  the Company is required to meet an EBITDAR to fixed
charges  ratio  covenant  under  its  secured  term  loan,  which  is  partially
guaranteed by the ATSB, and its mortgage note payable  agreements.  In addition,
certain of the Company's  other loan agreements  have  cross-default  provisions
that may be triggered if the Company fails to meet this ratio.  These  covenants
were negotiated based on future  projections that did not anticipate an on-going
weak revenue  environment and increasing fuel costs.  Based on current financial
projections,  the Company is uncertain of its ability to satisfy this  covenant.
If the Company is unable to meet this financial covenant, it would be in default
under these  agreements,  and the lenders would have the right to accelerate the
maturity date of the loan and exercise other remedies  against the Company.  The
Company  intends  to  discuss  its  financial  position  with the ATSB and other
lenders to seek to obtain any necessary waivers of these covenants. However, the
Company can  provide no  assurances  as to its success in  obtaining a waiver or
revision of these covenants.  In addition,  the Company cannot provide assurance
that it will not be  required to make  pre-payments  under the loans in order to
revise the covenants,  which could negatively impact the Company's cash outlook.
The  Company  has not  identified  alternate  sources  of  funding  to meet cash
requirements  should  an  acceleration  of the  maturity  date  occur due to the
current economic and capital environment.

The Company's  ability to obtain  financing to assist with liquidity issues will
be extremely limited.  Therefore,  together with cost-cutting  initiatives,  the
Company is currently  exploring  opportunities to improve its revenue generation
and return the Company to  profitability.  Beginning in August 2004, the Company
will launch business class seating.  This service will be available  system-wide
by the end of 2004. The Company is also looking at  opportunities  for expansion
in the transatlantic  markets. The Company could begin European service in 2005,
although  no  specific   destinations  have  been  announced.   The  Company  is
undertaking  other  actions to reduce cash  obligations,  improve  liquidity and
improve  profitability,  including  further  restructuring  of  leases,  further
amendments to collective  bargaining agreements and restructuring of operations,
with a concurrent  disposition  of assets and reduction of workforce  associated
with the discontinued  operations.  Even with these potential  initiatives,  the
Company  faces  significant  risks  beyond its  control  that  could  affect its
long-term viability including further declines in demand for air travel, further
increases  in fuel price,  competitive  pricing and  capacity  increases,  other
airlines seeking bankruptcy  protection and the ongoing  geopolitical impacts of
the conflicts in the Middle East.

Debt and Operating  Lease Cash Payment  Obligations.  The Company is required to
make cash  payments  in the future on debt  obligations  and  operating  leases.
Although the Company is obligated  on a number of  long-term  operating  leases,
which are not  recorded  on the balance  sheet  under  GAAP,  the Company has no
off-balance  sheet debt and does not guarantee the debt of any other party.  The
following table  summarizes the Company's  contractual  debt and operating lease
obligations as of June 30, 2004, and the effect such obligations are expected to
have on its liquidity and cash flows in future periods.

                                       31



                                                                  Cash Payments Currently Scheduled
                                         -------------------------------------------------------------------------------------
                                             Total            3 Qtr- 4 Qtr          2005              2007            After
                                         As of 6/30/04           2004               -2006             -2008            2008
                                         -----------          -----------      -----------        -----------     ------------
                                                                             (in thousands)
                                                                                                   
Current and long-term debt               $   497,595          $    36,631      $   101,354        $    81,335     $    278,275

Lease obligations                          3,810,669               79,546          589,401            635,785        2,505,937

Expected future lease obligations (1)        581,121                  654           10,668             59,373          510,426

Redeemable Preferred Stock (2)                50,000                    -                -                  -           50,000
                                         -----------          -----------      -----------        -----------     ------------
Total contractual cash obligations       $ 4,939,385          $   116,831      $   701,423        $   776,493     $  3,344,638
                                         ===========          ===========      ===========        ===========     ============



(1)  Represents  estimated  payments on eight new Boeing  737-800  aircraft  the
     Company is committed to taking delivery of in 2004 through 2007, as well as
     four spare  engines the Company is committed to taking  delivery of in 2005
     through 2008.  The Company  intends to finance  these  aircraft and engines
     with operating leases.  However, no such leases are in place as of June 30,
     2004, as the Company has not received the  aircraft.  Payments for expected
     future lease  obligations were derived using terms of leases for comparable
     aircraft currently in place.

(2)  Represents the mandatory redemption of the 500 shares of Series A Preferred
     in equal semiannual installments between 2010 and 2015. Amount excludes the
     mandatory  redemption of the 300 shares of Series B  convertible  preferred
     stock in 2015,  as these shares can be  converted  into common stock at any
     time up to the mandatory redemption date.

Aircraft  and Fleet  Transactions.  The  Company has a purchase  agreement  with
Boeing to purchase  directly  from Boeing seven new Boeing  737-800s,  which are
currently  scheduled  for delivery  between July 2007 and December  2007.  These
aircraft are powered by General Electric CFM56-7B27 engines.  The manufacturer's
list  price is $52.4  million  for each  737-800,  subject  to  escalation.  The
Company's  purchase  price for each  aircraft  is subject to various  discounts.
According  to a 2004  amendment to the purchase  agreement  with Boeing,  if the
Company does not have  permanent  financing for these  aircraft  suitable to the
Company,  and does not have  suitable  pre-delivery  deposit  financing,  and if
Boeing does not elect to provide such financing  suitable to the Company,  these
deliveries  can be delayed for one year periods  annually  through  December 31,
2010. Aircraft  pre-delivery  deposits are required for these aircraft,  and the
Company has  historically  funded these  deposits for past  aircraft  deliveries
using operating cash and pre-delivery  deposit finance  facilities.  The Company
can provide no  assurance  that it will be able to secure  pre-delivery  deposit
finance facilities or permanent financing for any future aircraft purchases.  As
of June 30,  2004,  the  Company  had $4.9  million  in  long-term  pre-delivery
deposits outstanding for the seven future aircraft deliveries, which were funded
with operating cash.  Upon delivery and financing of the aircraft,  pre-delivery
deposits  funded with operating cash are expected to be returned to the Company.
As of June 30, 2004,  the Company  also has  purchase  rights with Boeing for 40
Boeing 737-800 aircraft.

The Company  also has  commitments  to take  delivery of one  additional  Boeing
737-800  and four  spare  engines,  all of which  are  currently  scheduled  for
delivery between the remainder of 2004 and 2008.

In March 2001,  the Company  entered a limited  liability  agreement with Boeing
Capital  Corporation - Equipment Leasing Corporation forming BATA, a 50/50 joint
venture.  BATA is remarketing the Company's fleet of Boeing 727-200  aircraft in
cargo configurations. As of June 30, 2004, the Company had transferred 23 of its
fleet of Boeing 727-200 aircraft to BATA.

Significant Financings.  In November 2002, the Company obtained a $168.0 million
secured term loan, of which $148.5  million was  guaranteed by the ATSB. The net

                                       32

proceeds of the  secured  term loan were  approximately  $164.8  million,  after
deducting  issuance  costs.  The Company  used a portion of the net  proceeds to
repay borrowings on its existing bank credit facility and to  collateralize  new
letters of credit,  previously  secured under the bank  facility.  The remaining
funds were used for general corporate  purposes.  Interest is payable monthly at
LIBOR  plus a  margin.  Guarantee  fees of 5.5%  of the  outstanding  guaranteed
principal balance in 2003, with escalation to 9.5% on the outstanding guaranteed
principal balance in 2004 through 2008, are payable quarterly.

The  secured  term loan is  subject  to  certain  restrictive  covenants  and is
collateralized  primarily  by  certain  receivables,   certain  aircraft,  spare
engines, and rotable parts. The aircraft, spare engines and parts consist of two
Lockheed L-1011-500 aircraft,  one Lockheed L-1011-50 and 100 aircraft, two SAAB
340B  aircraft,  24 Rolls Royce RB211 spare engines and Boeing  757-200,  Boeing
757-300 and Boeing  737-800  rotables.  As of September 30, 2004, the Company is
required to meet a EBITDAR to fixed  charges  ratio  covenant.  Based on current
financial  projections,  the Company is uncertain of its ability to satisfy this
covenant.  If the Company is unable to meet this financial covenant, it would be
in default under this agreement as well as certain cross default provisions, and
the lenders would have the right to accelerate the maturity date of the loan and
exercise other remedies against the Company.  The Company intends to discuss its
financial  position  with the ATSB  and  other  lenders  to seek to  obtain  any
necessary  waivers of these  covenants.  However,  the  Company  can  provide no
assurances  as to its  success  in  obtaining  a  waiver  or  revision  of these
covenants. In addition, the Company cannot provide assurance that it will not be
required to make pre-payments  under the loans in order to revise the covenants,
which could  negatively  impact the Company's cash outlook.  The Company has not
identified  alternate  sources of funding  to meet cash  requirements  should an
acceleration of the maturity date occur due to the current  economic and capital
environment.

In  conjunction  with  obtaining  the secured  term loan,  the Company  issued a
warrant to the Federal  Government  to purchase up to 1.5 million  shares of its
common stock, and additional  warrants to other loan participants to purchase up
to 0.2 million shares of its common stock,  in each case at an exercise price of
$3.53 per share for a term of ten years.  The Company  recorded  $7.4 million as
the total fair value of  warrants  issued,  which was  recorded  as  unamortized
discount on the secured loan at the date of the loan.

On March 30, 2004,  the Company  signed a letter  agreement with the Issuer that
provides a  financing  commitment  from the Issuer to ATA for up to $30  million
under  certain  specific   conditions.   As  consideration   for  the  financing
commitment,  ATA  must  pay  the  Issuer  $1.2  million  upon  execution  of the
definitive  documentation  of the financing  agreement.  If the Company  obtains
financing  under the financing  commitment,  the Company expects that the amount
available  under the  commitment  will be reduced by $10 million per year on the
anniversary of the funding, for up to three years.

Card Agreement. The Company accepts charges to most major credit and debit cards
("cards") as payment from its customers.  Approximately 90% of scheduled service
and vacation  package sales are purchased  using these cards.  More than half of
these card sales are made using MasterCard or Visa cards. The Company  maintains
an agreement  with a bank for the  processing and collection of charges to these
cards. Under this agreement,  a sale is normally charged to the purchaser's card
account  and is paid to the  Company  in cash  within  a few days of the date of
purchase, although the Company may provide the purchased services days, weeks or
months later.  In 2003, the Company  processed  approximately  $753.8 million in
MasterCard and Visa charges under its merchant processing agreement.

According to the bank processing  agreement,  the bank can retain cash collected
by it on  processed  card  charges as a deposit,  up to 100% of the full  dollar
amount of  purchased  services to be provided at a future  date.  If the Company
fails to perform  pre-paid  services  which are purchased by a charge to a card,
the  purchaser  may be  entitled  to obtain a refund  which,  if not paid by the
Company,  is the  obligation  of the bank.  The deposit  secures this  potential
obligation  of the bank to make such  refunds.  The bank  exercised its right to
withhold   distributions   shortly  after  September  11,  2001.  The  retention
percentage  employed  by the bank has  ranged  from 60% to 100%  from  late 2001
through March 1, 2004 and was at 100% on March 1, 2004.

                                       33

On March 1, 2004,  the  Company  amended  its  agreement  with its  credit  card
processing  bank to reflect an extension for the  processing of sales charges on
MasterCard and Visa cards until June 30, 2005. The credit card  processing  bank
agreed to reduce the  holdback  percentage  for sales for  future  travel to 75%
effective  with the execution of the  amendment.  The effect of  decreasing  the
holdback  percentage  from 100% to 75% increased  the Company's  cash balance by
approximately  $21.0  million  based on the  holdback  balance at March 1, 2004,
which is  reflected on the June 30, 2004 balance  sheet.  The amended  agreement
provides  quarterly  financial  covenants under which the Company may maintain a
holdback  at 75% or 50% of sales for future  travel,  but at no time  during the
life of the  amendment  will the  holdback be lower than 50% of sales for future
travel.  However,  the Company can provide no assurances that it will be able to
maintain the  percentage  of holdback  below 100% in future  periods  under this
amendment.  As of June 30, 2004 and June 30, 2003,  the bank had withheld  $59.6
million and $39.7 million,  respectively.  The Company expects the percentage of
its holdback with it Visa and MasterCard  processing bank to increase to 100% in
August 2004, from 75% as of June 30, 2004. This increase in holdback  percentage
will decrease the Company's  unrestricted  cash balance by  approximately  $20.0
million.

The  Company  has the  right to  terminate  its  agreement  with  the bank  upon
providing 90 days notice,  as does the bank.  In the event of such  termination,
the bank may retain a deposit equal to the amount of purchased  services not yet
performed,  for up to 24 months  from the date of  termination.  The Company can
give no assurance that it could obtain a replacement credit card processor. Lack
of a credit  card  processor  would  have a  significant  adverse  impact on the
Company's ability to continue operations.

Although the Company continues to process  significant  dollar amounts of ticket
sales using credit cards other than MasterCard and Visa, as of June 30, 2004, no
cash deposit  requirements  had been implemented by the issuers or processors of
those cards.  However,  these  processors have the right to require  deposits if
certain material adverse events occur. As of June 30, 2004,  assuming a holdback
percentage  of 100% and  using  criteria  similar  to the  Visa  and  Mastercard
holdback, those deposits would have been approximately $20.0 million.

ATA Credit Card. On March 31, 2004, the Company  entered into  agreements with a
credit card issuer and Visa to  introduce  a consumer  credit card ("the  Card")
bearing  redemption  benefits  on ATA  Airlines,  Inc.  Holders of the Card will
accumulate  points through  purchases on the Card, which will allow them to earn
free travel on the airline once  certain  point  thresholds  are  attained.  The
Company  will earn  revenue  from the credit  card issuer as  consideration  for
issuing the Card with the Company's  logo, and certain  cooperative  advertising
activities.  Upon signing the agreement,  the Company  received a prepayment for
future  revenue to be earned  from the  issuer,  all of which is  recorded  as a
deferred item as of June 30, 2004. The Company expects to launch the Card in the
third quarter of 2004.

Surety  Bonds.  The Company has  historically  provided  surety bonds to airport
authorities  and selected other parties,  to secure the Company's  obligation to
these  parties.  As of June 30, 2004, the Company's  restricted  cash pledged to
secure its letters of credit for all surety bonds  totaled  $31.7 million and is
shown as non-current restricted cash on the Company's balance sheet.

The DOT  requires  the  Company to provide a surety  bond or an escrow to secure
potential  refund claims of charter  customers who have made  prepayments to the
Company for future  transportation.  On December 15, 2003, upon  cancellation of
the DOT charter  obligation surety bond by the issuer,  the Company entered into
an escrow  arrangement  which 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 June 30, 2004,  the Company has $4.4
million 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.  The  surety  bond of  $12.9  million  relating  to the DOT  charter
obligations  was released in the first quarter of 2004, and the restricted  cash
securing the letter of credit was returned to the Company.

                                       34

Forward-Looking Information

Information contained within "Management's  Discussion and Analysis of Financial
Condition and Results of Operations" includes forward-looking  information which
can be identified by forward-looking  terminology such as "believes," "expects,"
"may,"  "will,"  "should,"  "anticipates,"  or the  negative  thereof,  or other
variations in comparable terminology.  Such forward-looking information is based
upon management's current knowledge of factors affecting the Company's business.
The differences  between  expected  outcomes and actual results can be material,
depending upon the circumstances.  Where the Company expresses an expectation or
belief as to future results in any forward-looking information, such expectation
or belief is expressed in good faith and is believed to have a reasonable basis.
The Company can provide no assurance that the statement of expectation or belief
will result or will be achieved or accomplished.


Such forward-looking  statements involve known and unknown risks,  uncertainties
and other factors that may cause actual results to be materially different. Such
factors include, but are not limited to, the following:

o    economic conditions;
o    threat of future terrorist attacks;
o    labor costs;
o    aviation fuel costs;
o    competitive pressures on schedules and pricing;
o    weather conditions;
o    governmental legislation and regulation;
o    consumer perceptions of the Company's products;
o    demand for air transportation  overall and specifically in markets in which
     the  Company  operates;
o    higher  costs  associated  with  new  security
     directives;
o    higher costs for insurance and the continued  availability of such
     insurance;
o    the  Company's  ability  to raise  additional  financing  and to  refinance
     existing borrowings upon maturity;
o    declines  in the value of the  Company's  aircraft,  as these may result in
     lower collateral value and additional impairment charges; and
o    other  risks and  uncertainties  listed  from time to time in  reports  the
     Company periodically files with the Securities and Exchange Commission.

The Company is under no obligation to update,  and will not undertake to update,
its   forward-looking   statements  to  reflect  future  events  or  changes  in
circumstances.

                                       35

PART I - Financial Information
Item III - Quantitative and Qualitative Disclosures About Market Risk

The Company's results of operations are significantly impacted by changes in the
price of aircraft fuel. The price of fuel is subject to political,  economic and
market factors that are generally  outside of the Company's  control.  Continued
significant  increases in fuel costs could  materially and adversely  affect the
Company's liquidity,  results of operations and financial condition.  There have
been no material  changes in market risk from the  information  provided in Item
7A, Quantitative and Qualitative  Disclosures About Market Risk, of ATA Holdings
Corp.'s Annual Report on Form 10-K for the year 2003.

                                       36

PART I - Financial Information
Item IV - Controls and Procedures

The  Company  conducted  an  evaluation  (under  the  supervision  and  with the
participation of the Company's management, including the Chief Executive Officer
and Chief  Financial  Officer),  pursuant to Rule 13a-15  promulgated  under the
Securities   Exchange  Act  of  1934  ("Exchange  Act"),  as  amended,   of  the
effectiveness of the design and operation of the Company's  disclosure  controls
and  procedures  as of June 30, 2004.  Based on this  evaluation,  the Company's
Chief Executive  Officer and Chief Financial  Officer concluded that, as of June
30, 2004,  the  controls and  procedures  were  effective to provide  reasonable
assurance that information required to be disclosed by the Company in reports it
files or submits under the Exchange Act is recorded,  processed,  summarized and
reported  within  the time  periods  specified  in the  rules  and  forms of the
Securities and Exchange Commission.

There have been no significant  changes in the Company's internal controls or in
other factors that could significantly affect these controls,  subsequent to the
date of the evaluation.

                                       37

Item I - Legal Proceedings

None

Item II - Changes in Securities

None

Item III - Defaults Upon Senior Securities

None

Item IV - Submission of Matters to a Vote of Security Holders

None

Item V - Other information

None

Item VI - Exhibits and Reports on Form 8-K

     (a)  Exhibits  are filed as a separate  section of this report as set forth
          in the Index to Exhibits attached to this report.

     (b)  Report  filed on May 21,  2004,  furnishing  items under Item 5. Other
          Events and Item 7. Financial Statements and Exhibits.

          Report  filed on June 15, 2004,  furnishing  items under Item 5. Other
          Events, Item 7. Financial Statements and Exhibits.

          Report  filed on June 29, 2004,  furnishing  items under Item 5. Other
          Events and Item 7. Financial Statements and Exhibits.

          Report  filed  on  July  2,  2004,  furnishing  items  under  Item  9.
          Regulation FD Disclosure.

          Report  filed on July 12, 2004,  furnishing  items under Item 5. Other
          Events and Item 7. Financial Statements and Exhibits.

          Report  filed on July 15, 2004,  furnishing  items under Item 5. Other
          Events.

          Report filed on August 2, 2004,  furnishing  items under Item 5. Other
          Events and Item 7. Financial Statements and Exhibits.

                                       38

Signatures

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


                                 ATA Holdings Corp.
                                (Registrant)

Date     August 16, 2004        by /s/ Gilbert F. Viets
                                -----------------------
                                Gilbert F. Viets
                                Executive Vice President and
                                Chief Financial Officer
                                On behalf of the Registrant

                                Index to Exhibits

Exhibit No.

31.1 CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32   Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002