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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number 1-8836

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HAWAIIAN AIRLINES, INC.(Exact name of registrant as specified in its charter)

HAWAII(State or other jurisdiction of
incorporation or organization)

99-0042880(I.R.S. employer
identification no.)3375 Koapaka Street, Suite G-350
Honolulu, Hawaii(Address of principal executive offices)

96819(Zip code)


Registrant's
telephone number, including area code:(808) 835-3700

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

|Title of each class             |  | Name of each exchange on which registered   
|------------------------------- |  | --------------------------------------------
|Common Stock ($.01 par value)   |  | American Stock Exchange and Pacific Exchange
|Preferred Stock Purchase Rights |  | American Stock Exchange and Pacific Exchange

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

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

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

Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by the
court. Yes ý    No o

As
of March 18, 2002, 34,464,324 shares of Common Stock of the Registrant were outstanding. The aggregate market value of voting stock held by non-affiliates of the
Registrant (14,409,036 shares) on March 18, 2002 is $43,083,018.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's Definitive Proxy Statement for the 2002 Annual Meeting of Shareholders is incorporated herein by reference in Part III of this
Form 10-K.

EXHIBIT INDEX ON PAGE 37

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TABLE OF CONTENTS

|            |  |                                                                                        |  | PAGE
|----------- |  | -------------------------------------------------------------------------------------- |  | ----
|COVER PAGE  |  | 1                                                                                     
|PART I     
|ITEM 1.     |  | BUSINESS.                                                                              |  | 4   
|ITEM 2      |  | PROPERTIES.                                                                            |  | 15  
|ITEM 3.     |  | LEGAL PROCEEDINGS.                                                                     |  | 16  
|ITEM 4.     |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                   |  | 17  
|PART II    
|ITEM 5.     |  | MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.             |  | 17  
|ITEM 6.     |  | SELECTED FINANCIAL DATA.                                                               |  | 19  
|ITEM 7.     |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |  | 20  
|ITEM 7A.    |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                            |  | 30  
|ITEM 8.     |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                                           |  | 30  
|ITEM 9.     |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.  |  | 30  
|PART III   
|ITEM 10.    |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                                    |  | 30  
|ITEM 11.    |  | EXECUTIVE COMPENSATION.                                                                |  | 30  
|ITEM 12.    |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.                        |  | 30  
|ITEM 13.    |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                                        |  | 30  
|PART IV    
|ITEM 14.    |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.                       |  | 31  
|            |  | EXHIBIT INDEX.                                                                         |  | 37  
|            |  | SIGNATURES.                                                                            |  | 38  
|TABLE INDEX
|            |  | REPORT OF INDEPENDENT AUDITORS.                                                        |  | F-1 
|            |  | STATEMENTS OF OPERATIONS.                                                              |  | F-2 
|            |  | BALANCE SHEETS.                                                                        |  | F-4 
|            |  | STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME.                           |  | F-6 
|            |  | STATEMENTS OF CASH FLOWS.                                                              |  | F-7 
|            |  | NOTES TO FINANCIAL STATEMENTS.                                                         |  | F-9 
|            |  | INDEPENDENT AUDITORS' REPORT ON SCHEDULE.                                              |  | S-1 
|            |  | FINANCIAL STATEMENT SCHEDULE.                                                          |  | S-2 

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As used in this Annual Report on Form 10-K, the terms "Hawaiian", "Company, "we", "us", "our" and similar terms refer to Hawaiian Airlines, Inc., unless the
context indicates otherwise.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains statements that are not related to historical results, including, without limitation, statements
regarding Hawaiian's business strategy and objectives, future financial position, estimated cost savings, estimated size and growth of relevant markets and the effects on Hawaiian of the
September 11, 2001 terrorist attacks, the Air Transportation Safety and System Stabilization Act ("Stabilization Act") and the Aviation and Transportation Security Act ("Security Act"), are
forward-looking statements within the meaning of the "Safe Harbor for Forward-Looking Statements" provision of the Private Securities Litigation Act of 1995. It is not reasonably possible to itemize
all of the many factors and specific events that could affect the outlook of an airline operating in the global economy. Some factors that could significantly impact expected capacity, traffic, load
factors, yields, revenues, unit revenues, expenses, costs, unit costs, capital spending, cash flows, pre-tax margins, earnings, earnings per share, price to earnings ratios, debt load and
other forward-looking information include, without limitation, the adverse impact of the September 11 terrorist attacks and the war on terrorism on the economy in general; the demand for air
travel; the ability to reduce operating costs and conserve financial resources, taking into account increased costs incurred or to be incurred as a consequence of the attacks; the higher costs
associated with new airline security directives and any other increased regulation of air carriers; the significantly higher costs of aircraft insurance coverage for future claims caused by acts of
war, terrorism, sabotage, hijacking and other similar perils, and the extent to which such insurance will continue to be available; the ability to reduce costs to a level that takes into account the
size of Hawaiian's operation; the ability to raise financing in light of the September 11 events; the cost of crude oil and jet fuel; airline pricing environment; industry capacity decisions;
competitors' route decisions; the success of Hawaiian's cost-reduction efforts; strategic decisions of management; adoption of new accounting rules; results of union contract negotiations
and their impact on labor costs and operations; the willingness of customers to travel; continued benefits of strategic airline alliances; actions of the U.S., foreign and local governments; foreign
currency exchange-rate fluctuations; the stability of the U.S. economy; inflation; the economic environment of the airline industry and the economic environment in general. Forward-looking
statements involve risks and uncertainties that may impact Hawaiian's actual results of operations. In some cases, identification of forward-looking statements can be made through use of terminology
such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of such terms and other comparable
terminology. Although we believe that the assumptions on which any forward -looking statements are based are reasonable, there can be no assurance that such assumptions will prove to be accurate and
actual results could differ materially from those discussed in the forward-looking statements.

Developments
in any of these areas, as well as other risks and uncertainties detailed from time to time in Hawaiian's Securities and Exchange Commission filings, could cause our results
to differ from results that have been or may be projected by or on behalf of Hawaiian. We caution that the foregoing list of important factors is not exclusive. We do not undertake and expressly
disclaim any obligation to update any forward-looking statements that may be made from time to time by or on behalf of Hawaiian.

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PART I

ITEM 1.BUSINESS.

Overview

Hawaiian is the largest airline headquartered in Hawaii, based on operating revenues of $611.6 million for 2001. We are engaged primarily in the scheduled
transportation of passengers, cargo and mail. Hawaiian was incorporated in January 1929 under the laws of the Territory of Hawaii. We currently fly approximately 150 daily flights between
Hawaii and six major U.S. cities ("transpacific") and among the six major islands in the State of Hawaii ("interisland"), and weekly flights between Hawaii and each of Pago Pago, American Samoa and
Papeete, Tahiti in the South Pacific ("south pacific"). Our common stock is listed on the American Stock Exchange and the Pacific Exchange under the symbol "HA." Our principal offices are located at
3375 Koapaka Street, Suite G-350, Honolulu, Hawaii 96819. Our telephone and facsimile numbers are (808) 835-3700 and (808) 835-3690, respectively.

Segment Information

Principally all of our flight operations either originate or end in the State of Hawaii. The management of our operations is based on a system-wide
approach due to the interdependence of our route structure in the various markets that we serve. We operate as a matrix form of organization as we have overlapping sets of components for which
managers are held responsible. Managers report to our chief operating decision-maker on both our geographic components and our product and service components, resulting in components based on products
and services constituting one operating
segment. As we offer only one service (i.e., air transportation), management has concluded that we have only one segment of business.

Recent Developments

On September 11, 2001, the United States was attacked by terrorists using four hijacked commercial jets of two other U.S. airlines. The Federal Aviation
Administration ("FAA") ordered all U.S. aircraft grounded immediately and closed U.S. airspace to all air traffic. Certain airports were reopened on September 13, 2001, and we were able to
resume service on a limited basis that day. However, it took several days to reposition aircraft, reopen airports and return to full service capability.

We
responded to the reduced travel demand after the events of September 11, 2001 by reducing operating capacity and furloughing part of our workforce. Effective October 1,
2001 we reduced our capacity, measured by available seat miles, by approximately 22%. On September 28, 2001, we sent out furlough notices to approximately 12% of our total workforce. In
addition, on September 25, 2001, Renaissance Cruises, Inc. ceased operations resulting in the termination of our Los Angeles to Papeete charter service, consisting at that time of
approximately four round trips weekly.

On
September 22, 2001, President George W. Bush signed into law the Stabilization Act, affecting all U.S. airlines and air cargo carriers. The provisions of the Stabilization Act
allow for the airlines and cargo carriers to receive certain reimbursements, suspensions or extensions of payment of fees and taxes, and other costs related to the impact on airline industry of the
events of the September 11, 2001 terrorist attacks. Additionally, on November 19, 2001, President Bush signed into law the Security Act, federalizing substantially all aspects of civil
aviation security.

We
received $24.9 million in assistance from the federal government under the Stabilization Act as of December 31, 2001 and anticipate receiving an additional
$5.9 million in early 2002. In addition, subject to federal guidelines, the Stabilization Act includes federal loan guarantees for airlines of which we expect to be eligible to apply. We cannot
guarantee that we will seek or be able to obtain federal loan guarantees under the Stabilization Act.

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The
environment in which we operate and on which we are dependent has been greatly affected by the events of September 11, 2001 and their aftermath. Tourism is the largest source
of revenue for the economy of the State of Hawaii, and the tourism industry in the State of Hawaii has been and continues to be adversely affected. Due to the lack of predictability of future traffic,
business mix and yields, we are not able to fully estimate the long-term impact of the events of September 11, 2001 on our business.

On
December 19, 2001, we entered into an Agreement and Plan of Merger (the "Merger Agreement") among Hawaiian, Aloha Airgroup, Inc. ("Aloha"), TurnWorks Acquisition
III, Inc. ("Holdco") and TurnWorks, Inc. ("TurnWorks"), pursuant to which each of Hawaiian and Aloha agreed to become a wholly owned subsidiary of Holdco and the existing shareholders of
Hawaiian and Aloha would become, along with TurnWorks, shareholders of Holdco (the "proposed merger"). On February 14, 2002, Holdco and its subsidiaries filed a Registration Statement on
Form S-4 with the Securities and Exchange Commission with respect to the proposed merger.

When
it became clear to the parties that the April 18, 2002 outside date agreed to by the parties in the Merger Agreement would not be satisfied due to the expected timing of
regulatory approvals and reviews and other matters, TurnWorks requested that Hawaiian extend the outside date. After considering the request, Hawaiian announced on March 16, 2002 that it had
determined not to extend the outside date. The parties conducted discussions with respect to potential revisions to the Merger Agreement and a potential formal termination of the Merger Agreement, but
no resolution was reached. As the parties have now publicly announced their intentions to pursue other courses of action, we have treated the Merger Agreement as having been effectively terminated. We
believe the other parties are taking the same position.

Flight Operations

In the first half of 2001, we added daily transpacific flights between Honolulu, Hawaii and San Diego, California.    In response to the events of
September 11, 2001, we suspended on October 1, 2001 our transpacific flight between Maui, Hawaii and Los Angeles, California, as well as our second flight between Honolulu, Hawaii and
Seattle, Washington. We continue to evaluate our transpacific expansion plans and are increasing service into these markets as travel patterns warrant. In 2002, we announced that we will begin in
June 2002 additional transpacific flights between Maui, Hawaii and San Francisco, California, and between Maui, Hawaii and Los Angeles, California, as well as a seasonal flight between
Honolulu, Hawaii and Los Angeles, California. On March 15, 2002, we introduced a daily flight between Maui, Hawaii and Seattle, Washington. We also announced that we will begin in
June 2002 service to two new mainland cities with daily nonstop service between Honolulu, Hawaii and Sacramento, California, and between Honolulu, Hawaii and Ontario, California.

On
average and depending on seasonality, we operate approximately 150 scheduled flights per day with



We
also provide charter service daily from Honolulu, Hawaii to Las Vegas, Nevada and two to three times weekly from Honolulu, Hawaii to Anchorage, Alaska.

5

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Aircraft

In 1999, we announced our plans to modernize our narrow-body interisland aircraft fleet with new Boeing 717s. In 2001, we completed the replacement of
our entire fleet of 15 DC-9-50 aircraft used on interisland routes with 13 new Boeing 717-200 aircraft. Also, in 2001 we announced plans to replace all of our
wide-body DC-10 aircraft utilized on the transpacific and south pacific routes with Boeing 767-300ERs. We took delivery of three new Boeing 767-300ER
aircraft in the fourth quarter of 2001; two additional Boeing 767-300ER aircraft were delivered in March 2002 and we have plans for 11 additional Boeing 767-300ER
aircraft to be delivered in 2002 and 2003. Upon completion of our fleet modernization plan in 2003, we expect to have one of the youngest fleets of any U.S. national or major carrier. Refer to Part I, Item 2, Propertiesof this Form 10-K for further discussion on our aircraft.

Maintenance

We developed extensive maintenance programs, which consist of a series of phased or continuous checks for each aircraft type. These checks are performed at
specified intervals measured either by time flown or by the number of takeoffs and landings, or "cycles," performed. In addition, from time to time, we perform inspections, repairs and modifications
of our aircraft in response to FAA directives. Checks range from daily "walk around" inspections, to more involved overnight maintenance checks, to exhaustive and time consuming overhauls. Aircraft
engines are subject to phased maintenance programs designed to detect and remedy potential problems before they occur. The service lives of certain parts and components of both airframes and engines
are time or cycle controlled. Parts and other components are replaced or overhauled prior to the expiration of their time or cycle limits.

Code Sharing and Other Alliances

We have marketing alliances with other airlines that provide reciprocal frequent flyer mileage accrual and redemption privileges and code sharing on certain
flights. We have code sharing agreements with
Alaska Airlines, Inc. ("Alaska"), American Airlines, Inc. ("American"), American Eagle Airlines, Inc. ("American Eagle"), Continental Airlines, Inc. ("Continental"), and
Northwest Airlines, Inc. ("Northwest"). We also participate in the frequent flyer programs of Alaska, American, Continental, Northwest, Air Tahiti Nui, Inc. ("Air Tahiti Nui") and Virgin
Atlantic Airlines, Inc. ("Virgin Atlantic"). These programs enhance our revenue opportunities by



Although
these programs and services increase our ability to be more competitive, they also increase our reliance on third parties. Refer to "Risk Factors, Reliance on Third Parties".

Marketing

As with other airlines, most of our ticket sales are generated by travel agents. Travel agents generally receive commissions measured by a certain percentage of
the price of tickets sold. In an effort to reduce our reliance on travel agencies and lower our distribution costs, we continue to expand and pursue e-commerce initiatives.

Electronic
tickets or e-tickets, result in lower distribution costs to us while providing increased customer convenience. In 2001, we recorded over $153.1 million in
e-ticket revenue representing approximately 31% of total passenger revenue. Our website, <www.hawaiianair.com>, offers customers

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information on our flight schedules, our frequent flyer program, HawaiianMiles, booking reservations on our flights or connecting flights with any of our code share partners, the status of our
flights as well as the ability to purchase tickets or travel packages. We also publish fares with web-based travel services such as ORBITZ, Travelocity, Expedia, Cheap Tickets, Trip,
Hotwire, and Priceline. These comprehensive travel planning websites provide customers with convenient online access to airline, hotel, car rental, and other travel services. In 2001, we recorded
$27.5 million in ticket sales from web-based travel services compared with $18.1 million in 2000.

We
expect to continue our promotion of e-ticket usage and growth in e-commerce in order to improve service to our customers and to reduce our distribution costs.

Frequent Flyer Program

Our HawaiianMiles frequent flyer program was initiated in 1983 to encourage and develop a customer loyalty base. The HawaiianMiles program allows passengers to
earn mileage credits by flying on Hawaiian and other carriers, particularly Alaska, Northwest and Virgin Atlantic. We also credit members with mileage credits for patronage of other businesses,
including hotels, car rental firms, credit cards and long distance telephone companies, pursuant to our exchange partnership agreements. We also sell mileage credits to other companies participating
in the program.

HawaiianMiles
members are entitled to a choice of various awards based on accumulated mileage, with a majority of the awards being free air travel. Travel awards available in the
HawaiianMiles program range from a 5,000 mile award, which are redeemable for a one-way interisland flight, to 60,000 and 75,000 mile awards, which are redeemable for a roundtrip first
class transpacific flight and a roundtrip first class south pacific flight, respectively.

We
have increased our frequent flyer membership to 1.08 million members as of December 31, 2001 from 0.91 million members as of December 31, 2000. Active
membership increased to 0.75 million as of December 31, 2001 from 0.63 million as of December 31, 2000.

Competition



We face multiple competitors on our transpacific routes, including major carriers such as American, Continental, Northwest, Delta Airlines, Inc. ("Delta"),
United Airlines, Inc. ("United") and charter carriers. We believe that transpacific competition is primarily based on fare levels, flight frequency, on-time performance and
reliability, name recognition, affiliations, frequent flyer programs, customer service, aircraft type and in-flight service.



We are the only provider of direct service between Honolulu and each of Pago Pago, American Samoa and Papeete, Tahiti.



While there are several small commuter and "air taxi" companies that provide air transportation to Hawaii airports that cannot be served by large aircraft, the
interisland routes are serviced primarily by Hawaiian and Aloha. We operate approximately 129 daily interisland flights subject to seasonality, representing about 40% of total flights operated by the
two carriers. We believe that interisland competition is primarily based on fare levels, flight frequency, on-time performance and reliability, name recognition, affiliations, frequent
flyer programs, customer service and aircraft type.

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Employees

As of December 31, 2001, we had 3,069 active employees, of which 2,572 were employed on a full-time basis. The majority of our employees are
covered by labor agreements with the following unions: the International Association of Machinists and Aerospace Workers (AFL-CIO) ("IAM"), the Air Line Pilots Association, International
("ALPA"), the Association of Flight Attendants ("AFA"), the Transport Workers Union ("TWU") and the Employees of the Communications Section ("Communications Section"). All contracts, other than the
contract with the seven-member Communications Section, were renegotiated in 2000 and 2001 and are subject to renegotiation again in 2004 and 2005. We are currently in direct negotiations with the
Communications Section. We expect to continue to develop and execute our business strategy of ongoing good relations with our employees.

Regulation

Our business is subject to extensive and evolving federal, state, local and transportation laws and regulations. These laws and regulations are administered by
federal, state and local agencies in the United States. Many of these agencies regularly examine our operations to monitor compliance with these laws and regulations. Governmental authorities have the
power to enforce compliance with these laws and regulations and to obtain injunctions or impose civil or criminal penalties in case of violations.

We
cannot guarantee that we will be able to obtain or maintain necessary governmental approvals. Once obtained, operating permits are subject to modification and revocation by the
issuing agency. Compliance with these and any future regulatory requirements could require us to make significant capital and operating expenditures. However, most of these expenditures are made in
the normal course of business and do not place us at any competitive disadvantage. The primary U.S. federal statutes affecting our business are summarized below:



As a certificated air carrier, we are subject to the regulatory jurisdiction of the Department of Transportation ("DOT") and the Federal Aviation Administration
("FAA"). The DOT has jurisdiction over certain aviation matters such as the carriers' certificate of public convenience and necessity, international routes and fares, consumer protection policies
including baggage liability and denied-boarding compensation and unfair competitive practices as set forth in the Transportation Act. Hawaiian and all other domestic airlines are subject to regulation
by the FAA under the Transportation Act. The FAA has regulatory jurisdiction over flight operations generally, including equipment, ground facilities, security systems, maintenance and other safety
matters. To assure compliance with its operational standards, the FAA requires air carriers to obtain operations, airworthiness and other certificates, which may be suspended or revoked for cause. The
FAA also conducts safety audits and has the power to impose fines and other sanctions for violations of aviation safety and security regulations. Like other carriers, we are subject to inspections by
the FAA in the normal course of business on a routine ongoing basis. We operate under a Certificate of Public Convenience and Necessity issued by the DOT (authorizing us to provide commercial aircraft
service) as well as a Part 121 Scheduled Carrier Operating Certificate issued by the FAA.



The FAA approves all airline maintenance programs, including changes to the programs. In addition, the FAA licenses the mechanics who perform the inspections and
repairs, as well as the inspectors who monitor the work.

The
FAA frequently issues air worthiness directives, often in response to specific incidents or reports by operators or manufacturers, requiring operators of specified equipment to
perform prescribed inspections, repairs or modifications within stated time periods or numbers of take off and

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landing cycles. In the last several years, the FAA has issued a number of maintenance directives and other regulations relating to, among other things, cargo compartment fire detection/suppression
systems, collision avoidance systems, airborne windshear avoidance systems, noise abatement and increased inspection requirements. We cannot predict what new air worthiness directives will be issued
and what new regulations will be adopted or how our businesses will be affected by any such directives or regulations. We expect that we may from time to time incur expenses to comply with new
airworthiness directives and regulations.

Additional
laws and regulations are proposed from time to time, which could significantly increase the cost of airline operations by imposing additional requirements or restrictions.
Laws and regulations also have been considered from time to time that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and landing slots. Also, the award of
international routes to U.S. carriers (and their retention) is regulated by treaties and related agreements between the U.S. and foreign governments, which are amended from time to time. We cannot
predict what laws and regulations will be adopted or what changes to international air transportation treaties will be effected, if any, or how we will be affected.

We
believe that we are in compliance with all requirements necessary to maintain in good standing our respective operating authorities granted by the DOT and our respective air carrier
operating certificates issued by the FAA. A modification, suspension or revocation of any of our DOT or FAA authorizations or certificates would have a material adverse effect on our operations.

Several
aspects of airline operations are subject to regulation or oversight by federal agencies other than the FAA and the DOT. The U.S. Department of Defense regulates Civil Reserve
Air Fleet and government charters. The federal antitrust laws are enforced by the U.S. Department of Justice. The U.S. Postal Service has jurisdiction over certain aspects of the transportation of
mail and related services provided by our cargo services. Labor relations in the air transportation industry are generally regulated under the Railway Labor Act. Hawaiian and other airlines
certificated prior to October 24, 1978 are also subject to preferential hiring rights granted by the Transportation Act to certain airline employees who have been furloughed or terminated
(other than for cause).



On November 19, 2001, President Bush signed into law the Security Act. This Security Act federalizes substantially all aspects of civil aviation security,
creating a new Transportation Security Administration (the "TSA") under the Under Secretary of Transportation for Security of the DOT. Under the Security Act, all screeners at airports will be federal
employees, and substantially all elements of airline and airport security will be overseen and performed by federal employees, including federal security managers, federal law enforcement officers,
federal air marshals and federal security screeners. The law, among other matters, mandates numerous changes for the airline industry and its passengers. These mandates include improved flight deck
security, deployment of federal air marshals on board flights, improved airport perimeter access security, airline crew security training, enhanced security screening of passenger baggage, cargo,
mail, employees, vendors and enhanced training and qualifications of security screening personnel. In addition, airlines will be responsible for providing additional passenger data to U.S. Customs and
enhanced background checks. Funding for the costs of
these new airline and airport security measures under the law is provided by a new $2.50 per enplanement ticket fee (up to a maximum fee of $5.00 per one-way trip). Beginning on
February 1, 2002, air carriers were required to begin collecting the new ticket fee from passengers. The law requires that, beginning February 18, 2002, the TSA will assume all civil
aviation security functions and responsibilities. Also, the TSA may assume existing contracts for the provision of passenger screening services at U.S. airports for up to 270 days, after which
all security screeners must be federal employees. In accordance with the Security Act, effective January 18, 2002, all checked baggage are

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required to be screened at all airports in the U.S. Also, all U.S. airports are required to have sufficient explosive detecting systems in place to screen all checked baggage by December 31,
2002.

Risk Factors



The terrorist attacks of September 11, 2001 adversely affected our financial condition and results of operations as well as the airline industry in
general. Those effects continue, although they have been mitigated somewhat by increased traffic, the Stabilization Act and our cost-cutting measures. Moreover, additional terrorist
attacks, even if not made directly on the airline industry, or the fear of such attacks, could further negatively impact us and the airline industry. Among the effects we experienced from the
September 11, 2001 terrorist attacks were significant flight disruption costs caused by the FAA-imposed grounding of the U.S. airline industry's fleet, significantly increased
security, insurance and other costs, and lower yields. Due in part to the lack of predictability of future traffic, business mix and yields, we are currently unable to estimate the
long-term impact on us of the events of September 11, 2001 and the sufficiency of our financial resources to absorb that impact. However, given the magnitude of these unprecedented
events and their potential subsequent effects, the adverse impact on our financial condition, results of operations and prospects may continue to be material.



Implementation of the requirements of the Security Act will result in increased costs for our passengers. In addition, we may not be able to meet the requirements
of the law regarding this screening while maintaining current service levels, thus these requirements may result in service disruptions and delays.

The
law also requires air carriers to honor tickets for suspended service on other air carriers that are insolvent or have declared bankruptcy within 18 months of the passage of
the Security Act. To be eligible, a passenger must make arrangements with the air carrier within 60 days after the date on which the passenger's air transportation was suspended. Because this
provision of the Security Act was recently enacted, it is difficult to determine its impact. If a major U.S. air carrier were to declare bankruptcy and cease operations, this feature of the Security
Act could have a significant impact on our operations. To the extent we are not reimbursed for honoring such tickets, the impact could be adverse.



Aircraft fuel is a significant expense for any air carrier and even marginal changes in fuel prices can greatly impact a carrier's profitability. The following
table sets forth statistics about our aircraft fuel consumption and cost for each of the last three years (including the impact of our fuel hedging program):

Year

Gallons
consumed
(in thousands)

Total cost,
including taxes
(in thousands)

Average
cost per
gallon

% of
operating
expenses2001
*
129,208

$
111,717

86.5
¢
18.8
%2000

141,429

$
126,962

89.8
¢
20.4
%1999

120,894

$
76,148

63.0
¢
14.4
%


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The
single most important factor affecting petroleum product prices, which includes the price of aircraft fuel, continues to be the actions of the major oil producing countries in
setting targets for the production and pricing of crude oil. In addition, the markets for heating oil, diesel fuel, automotive gasoline and natural gas can affect aircraft fuel prices. All petroleum
product prices continue to be subject to unpredictable economic, political and market factors. Also, the balance among supply, demand and price has become more reactive to world market conditions.
Accordingly, the price and availability of aviation fuel, as well as other petroleum products, continues to be unpredictable. A fuel supply shortage resulting from a disruption of oil imports or
otherwise, could result in higher fuel prices or curtailment of scheduled service which could have a material adverse effect on our operations.

A
one-cent change in the cost per gallon of fuel has an impact on our operating expenses of approximately $108,000 per month (based on 2001 consumption). We have realized
savings in fuel expense in 2001 as a result of our introduction of 13 new Boeing 717-200 aircraft to our aircraft fleet replacing less fuel-efficient aircraft. We expect
further savings in fuel expense in 2002 and thereafter with the introduction to our aircraft fleet of Boeing 767-300ER aircraft replacing older DC-10 aircraft. Significant
changes in fuel prices or availability would materially affect our operating results.

We
utilize heating oil forward contracts to manage market risks and hedge our financial exposure to fluctuations in our aircraft fuel costs. We employ a strategy whereby heating oil
contracts may be used to hedge up to 50% of our anticipated aircraft fuel needs. Our fuel hedging strategy may limit our ability to benefit from declines in fuel prices and expose us to losses in the
event of crude oil price fluctuations. Refer toManagement's Discussion and Analysis of Financial Condition and Results of Operationscontained in
Part II, Item 7 of this Form 10-K for further discussion on aircraft fuel expense and the financial instruments that we use to manage market risks and hedge our financial
exposure resulting from fluctuations in our aircraft fuel costs.



Our profitability and liquidity are sensitive to seasonal volatility primarily due to leisure and holiday travel patterns. Hawaii is a popular vacation
destination for travelers. Traffic levels are typically weaker
in the first quarter of the year and stronger travel periods occur during June, July, August and December. During weaker travel periods, we may adjust our flight availability or utilize aggressive
fare pricing strategies, in order to increase our traffic volume, which may involve higher ticket discounts during these periods.

Even
without the events of September 11, 2001, the airline industry is subject to substantial cyclical volatility. Airlines frequently experience higher fluctuating
short-term cash requirements caused by seasonal fluctuations in traffic, that often deplete cash during off-peak periods, and by other factors that are not necessarily
seasonal. These factors include the extent and nature of fare changes and competition from other airlines, changing levels of operations, national and international events, fuel prices and general
economic conditions, including inflation. Because a substantial portion of both personal and business airline travel is discretionary, the industry tends to experience adverse financial results in
general economic downturns. Accordingly, airlines require substantial liquidity to sustain continued operations under most conditions.

The
nature of the airline industry requires substantial financial and operating leverage. The airline industry operates on low gross profit margins and revenues that vary substantially
in relation to fixed operating costs. Due to high fixed costs, the expenses of each flight do not vary proportionately with the number of passengers carried, but the revenues generated from a
particular flight are directly related to the number of passengers carried. Accordingly, while a decrease in the number of passengers carried would cause a corresponding decrease in revenue (if not
offset by higher fares), it may result in a disproportionately greater decrease in profits. An increase in the number of passengers carried would have the opposite effect.

11

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Our principal base of operations is in Hawaii with our revenue linked primarily to the number of travelers to, from and among the Hawaiian Islands. Tourists
constitute a majority of the travelers to and from Hawaii, as well as between the islands. Tourism levels are affected by, among other things, the strength of the local Hawaii economy, the popularity
of Hawaii as a tourist destination in general and other global factors, including the political and economic climate in the areas from which tourists to Hawaii typically originate. From time to time,
various events and industry-specific problems such as strikes have had a negative impact on tourism in Hawaii. In addition, the terrorist attacks that occurred on September 11, 2001 have had a
material adverse effect on Hawaii tourism.

According
to statistics published by the State of Hawaii's Department of Business, Economic Development and Tourism, for the year ended December 31, 2001, visitors arriving on
domestic flights to Hawaii totaled approximately 4.2 million, a decrease of 5.1% from 2000. During the same period, visitors arriving on international flights totaled approximately
2.1 million, a decrease of 16.2% from
2000. Overall visitor arrivals for the last three months of 2001 totaled approximately 1.3 million, a decrease of 24.4% from the same period in 2000.

No
assurance can be given that the level of passenger traffic to Hawaii will not further decline in the future. A decline in the level of Hawaii passenger traffic could have a material
adverse effect on our operations and profitability.



The airline industry is highly competitive, primarily due to the effects of the Airline Deregulation Act of 1978, recodified into the Transportation Act. The
Transportation Act substantially eliminated government authority to regulate domestic routes and fares and has increased the ability of airlines to compete with respect to destination, flight
frequencies and fares. Airline profit levels are highly sensitive to, and can be severely impacted by, among other things, adverse changes in fuel costs, average yield (seat pricing) and passenger
demand. After September 11, 2001, we reduced fares in certain markets to attract customers, as did most airlines.

The
U.S. airline industry has consolidated in recent years as a result of mergers and liquidations, and further consolidation may occur in the future. The consolidations have, among
other things, enabled certain carriers to expand their international operations and increase their presence in the United States. In recent years, the airline industry has experienced alliances among
U.S. carriers and between large U.S. and foreign carriers, allowing the carriers that are parties to these alliances to strengthen their overall operations. Conversely, the industry has also seen in
recent years the emergence and growth of low-cost, low-fare domestic carriers, which has further intensified competitive pressures. Aircraft, skilled labor and gates at most
airports continue to be available to start-up carriers. In some cases, the new entrants have initiated or triggered price discounting.

Many
of our competitors are larger and have substantially greater financial resources than we do. The commencement of or increase in service on our routes by existing or new carriers
could negatively impact our operating results. Competing airlines have, from time to time, reduced fares and increased capacity beyond market demand on routes served by us in order to maintain or
generate additional revenues. Further fare reductions and capacity increases by competing airlines could cause us to reduce fares or adjust our capacity to levels that may adversely affect our
operations and profitability. Many of our competitors have larger customer bases, greater brand recognition in other airline markets and significantly greater financial and marketing resources than we
do. Either aggressive marketing tactics or a prolonged fare war initiated by these competitors could impact our limited financial resources and affect our ability to compete in these markets.

12

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Vigorous
price competition exists in the airline industry, with competitors frequently offering reduced discount fares and other promotions to stimulate traffic during weaker travel
periods, generate cash flow or increase relative market share in selected markets. The introduction of broadly available, deeply discounted fares by a U.S. airline could result in lower yields for the
entire industry and could have a material adverse effect on our operating results.



We have agreements with contractors, including The Boeing Company and its affiliates ("Boeing"), Alaska, American, Continental, Delta, Northwest and certain other
contractors, to provide certain facilities and services required for our operations. These facilities and services include aircraft leasing and maintenance, code sharing, reservations, computer
services, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling and personnel training. Our reliance on these third parties to continue to provide these
important aspects of our business may impact our ability to conduct our business effectively.

Maintenance
on the DC-10 aircraft leased from Continental is provided by Continental. Line maintenance including daily routine and nonroutine work up to and including
B-checks on the DC-10 aircraft leased from American is performed by us in Honolulu and by various contracted vendors at our U.S. mainland stations. American is responsible for
all other maintenance on the DC-10 aircraft leased from American. The maintenance agreement with American provides for access to spare parts, engines and rotables for the maintenance of
these aircraft. As a result, we do not maintain large inventories of spare engines or parts to support the operation of the DC-10 aircraft. We pay American a minimum contractual per hour
charge for maintenance services, monthly in arrears. During 2001, we incurred approximately $80.8 million of lease and maintenance expenses under the American leases and aircraft maintenance
agreements. If American, Continental or other maintenance vendors terminates the respective maintenance arrangements, we would have to seek an alternate source of maintenance service or undertake to
maintain these DC-10s ourselves. No assurance can be given that we would be able to do so on a basis that is as cost-effective as the current maintenance arrangements.

We
have an agreement with the Pratt & Whitney division of United Technologies Corporation to provide comprehensive power by the hour overhaul and maintenance services as needed
for the Pratt & Whitney engines utilized on our fleet of Boeing 767-300ER aircraft. We also have a contract with Delta for maintenance on our Boeing 767-300ER aircraft
at stations on the U.S. mainland. For our Boeing 717 interisland fleet, we have agreements with Rolls Royce entities to provide power by the hour maintenance and spare engine and parts pooling. If
Pratt & Whitney, Delta or Rolls Royce terminates or fails to perform under these arrangements, we would have to seek an alternative source for these services or undertake to maintain these
engines and aircraft ourselves. No assurance can be given that we would be able to do so on a basis that is as cost-effective as these agreements.

We
have code sharing agreements with Alaska, American, American Eagle, Continental and Northwest. We also participate in the frequent flyer programs of Air Tahiti Nui, American,
Continental, Northwest,
and Virgin Atlantic. Although these agreements increase our ability to be more competitive, they also increase our reliance on third parties.

In
2001 and 2000, passenger ticket sales from one Hawaii-based wholesaler constituted approximately 21% and 17% of our total operating revenues, respectively. Travel agents generally
have a choice between one or more airlines when booking a customer's flight. Accordingly, any effort by travel agencies to favor another airline or to disfavor the Company could adversely affect our
revenues. Although management intends to continue to offer competitive incentives, and to maintain favorable relations with travel agencies, there can be no assurance that travel agencies will
continue to do business with us. The loss of any one or several travel agencies may have a material adverse affect on our operations.

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We are exposed to potential losses that may be incurred in the event of an aircraft accident. Any such accident could involve not only the repair or replacement
of a damaged aircraft and its consequential temporary or permanent loss of service, but also significant potential claims of injured passengers and others. We are required by the DOT to carry
liability insurance on each of our aircraft. We currently maintain commercial airline insurance with a major group of independent insurers that regularly participate in world aviation insurance
markets including public liability insurance and coverage for losses resulting from the physical destruction or damage to our aircraft which management believes is adequate and consistent with current
industry practice. However, there can be no assurance that the amount of such coverage will not be changed or that we will not bear substantial losses from accidents. We could incur substantial claims
resulting from an accident in excess of related insurance coverage that could have a material adverse effect on our operations and revenue.

After
the events of September 11, 2001, independent insurers canceled all war risk insurance coverage for the airline industry. Our war risk insurance coverage was subsequently
reinstated to a limit of $100 million from the independent insurers at increased premiums. We also purchased from the U.S. government, through the DOT, third-party war risk insurance coverage
above $100 million, up to a cap of twice the previous limit. This coverage has been extended to May 18, 2002, after which it is anticipated that the federal policy will be extended
unless insurance for war risk coverage in necessary amounts is available from independent insurers or a group insurance program is instituted by the U.S. carriers and the DOT. There can be no
assurance that the amount of such coverage will not be changed or that we will not bear additional increased premiums or substantial losses from accidents or other events. Substantial claims in excess
of related insurance coverage could have a material adverse effect on our operations and profitability.

The
Stabilization Act provides for reimbursement to air carriers and their vendors or subcontractors for increases in the cost of war risk insurance for the first 30 days of
reinstated coverage, over the premium in effect prior to September 10, 2001. We were reimbursed for the excess cost of war risk insurance above that previously incurred for the first
30-day period of this interim war risk insurance period, but have not received reimbursement for premiums beyond that period. As of December 31, 2001, we received reimbursement of
approximately $500,000. Due in part to the events of September 11, 2001, we expect the annual cost of our aviation insurance programs to increase from approximately $3.6 million to
approximately $12.4 million.



As of December 31, 2001, Hawaiian had 3,069 active employees, of which 2,572 were employed on a full-time basis. Approximately 86% of our
employees are covered by labor agreements with the IAM, ALPA, AFA, TWU and Communications Section.

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All contracts, other than the contract with the seven-member Communications Section, were renegotiated in 2000 and 2001 and are subject to renegotiation again in 2004 and 2005. Future
negotiations of these agreements could result in increases in compensation and benefit costs. We are currently in direct negotiations with the Communications Section. If an agreement is not reached in
direct negotiations, federally-mandated mediation will occur and could last for an unspecified period of time. Although the overwhelming majority of labor negotiations in the airline industry are
resolved in mediation, there can be no assurance that the discussions will result in an agreement and ratification. The time required to negotiate a contract under the Railway Labor Act varies.
Therefore, management cannot currently estimate the time frame or results of these negotiations. Should Hawaiian and the Communications Section be unable to reach an agreement, we could be adversely
affected. If we are unable to reach an agreement with any unionized work group, we may be subject to future work interruptions and/or stoppages, which may hamper or halt operations.

ITEM 2.PROPERTIES.

Aircraft

As of December 31, 2001, our operating fleet consisted of three Boeing 767-300ER aircraft, 13 Boeing 717-200 aircraft and 15
DC-10 aircraft. The following table summarizes our aircraft fleet currently in service as of December 31, 2001 as well as our commitments and options for additional aircraft:

|Aircraft Type |  | Leased |  | Commitments |  | Options |  | Seating
Capacity
(Per Aircraft) |  | Average Age
(In Years)
|------------- |  | ------ |  | ----------- |  | ------- |  | ------------------------------- |  | ----------------------
|B767-300ER    |  | 3      |  | 13          |  |        |  | 252                             |  | Less Than One         
|B717-200      |  | 13     |  |            |  | 7       |  | 123                             |  | Less Than One         
|DC-10-10      |  | 10     |  |            |  |        |  | 304                             |  | 28.1                  
|DC-10-30      |  | 2      |  |            |  |        |  | 314                             |  | 24.9                  
|DC-10-30      |  | 3      |  |            |  |        |  | 282                             |  | 22.8                  
|              |  |        |  |             |  |         |  |                                 |  |                       
|Total         |  | 31     |  | 13          |  | 7       |  |                                 |  |                       
|              |  |        |  |             |  |         |  |                                 |  |                       



We executed lease agreements for 16 Boeing 767-300ER aircraft, including three new Boeing 767-300ER aircraft under 15-year
operating leases with Ansett Worldwide Aviation that were delivered in the fourth quarter of 2001. The first two of four Boeing 767-300ER aircraft under seven-year operating
leases with International Lease Finance Corporation were received in March 2002, and the remaining two are scheduled to be delivered during the first half of 2002. Nine new Boeing
767-300ER aircraft under 18-year lease financing arranged through Boeing Capital Corporation and Ansett Worldwide Aviation are scheduled to be delivered during the second half
of 2002 and the first half of 2003. On November 6, 2001, the FAA granted Hawaiian's application for extended-range twin-engine operations certification
for Boeing 767-300ER aircraft. The Boeing 767-300ER aircraft have been introduced on our transpacific routes.



During 2001, we took delivery of and introduced into service on our interisland routes 13 new Boeing 717-200 aircraft, all under 18-year
leveraged lease financing provided by Boeing affiliates. These aircraft replaced the DC-9-50 fleet previously utilized on our interisland routes.

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The DC-10 aircraft are currently utilized on our transpacific and south pacific routes. Of the 15 DC-10 aircraft, 10 are leased from
American on long-term operating leases expiring at various times in 2002 and the first half of 2003. One of the 10 DC-10 aircraft was returned to American in
January 2002 and one in March 2002. Three DC-10-30 aircraft were leased from Continental, two of which were returned in January 2002 and the remaining
aircraft is on a lease which expires in May 2002. We operate two DC-10-30 aircraft under operating leases with BCI Aircraft Leasing, which expire in January 2004.



Our fleet of 15 McDonnell Douglas DC-9-50 aircraft, previously utilized on our interisland routes, has been retired from service. Fourteen
of the DC-9-50 aircraft have been placed for storage with Avtel Services in Mojave, California, pending return to lessors or sale. Two of these aircraft have been returned to
the respective lessors, by way of lease terminations, but are still parked at Avtel Services under our agreement with Avtel Services. One DC-9-50 aircraft remains in Honolulu.

Ground Facilities

Our principal terminal facilities, cargo facilities, hangar and maintenance facilities are located at the Honolulu International Airport. The facilities at
Honolulu International Airport (except for the terminal facilities) are leased on a month-to-month basis. We also occupy terminal facilities in the
terminal buildings at the airports owned by the State of Hawaii in Hilo and Kona on the island of Hawaii, in Kahului on the island of Maui, in Lanai City on the island of Lanai, in Hoolehua on the
island of Molokai, and in Lihue on the island of Kauai. All of our terminal facilities, including gates and holding rooms, are considered by the State of Hawaii Department of Transportation/Airports
to be common areas and thus are not exclusively controlled by Hawaiian.

Our
corporate headquarters are located in leased premises of 129,667 square feet in a complex adjacent to the Honolulu International Airport. The lease for this office expires in 2013.
We lease four ticket offices in Hawaii: three on the island of Oahu and one on the island of Hawaii. We also lease sales offices in San Francisco, Seattle (cargo), Los Angeles, Papeete and Tokyo. The
leases for these offices expire on various dates from May 30, 2002 to December 31, 2003. We have a signatory agreement with the Port of Portland for terminal space, and operating
agreements with the Port of San Diego and McCarren International Airport in Las Vegas, Nevada. We have a right of entry agreement with the Anchorage International Airport and also have sublease
agreements for terminal space with LAX Two in Los Angeles, Northwest Airlines in Seattle and San Diego, US Airways (which will change to Delta effective April 1, 2002) in San Francisco, and the
Government of American Samoa in Pago Pago. We also have agreements in place for alternate landing sites with the Port of Moses Lake, King County (Boeing Field) in Seattle, Ontario Airport in
California and Fairbanks International Airport in Alaska. The aggregate rent for all facilities in the year ended December 31, 2001 was approximately $12.6 million consisting of
$11.4 million for space rentals and $1.2 million for parking stalls.

ITEM 3.LEGAL PROCEEDINGS.

Hawaiian and/or its directors are parties to four lawsuits filed by our shareholders and one demand for arbitration filed by an optionholder, challenging the
proposed merger with Aloha that was announced on December 19, 2001. We believe that these actions which are described below are without merit and intend to defend them vigorously. We expect
that these legal proceedings will become moot because the proposed merger is not expected to be consummated.

On
January 11, 2002, Crandon Capital Partners filed an action in the First Circuit Court of the State of Hawaii titled CRANDON CAPITAL PARTNERS v. JOHN W. ADAMS, ET AL. against

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Hawaiian, the directors of Hawaiian, and Airline Investors Partnership, L.P. ("AIP"), the majority shareholder of Hawaiian. The purported class-action suit alleges that the merger and the related
transactions provide unfair preferential treatment to AIP and Mr. Adams, who is Chairman of Hawaiian's Board and an affiliate of AIP, and that the director defendants breached their fiduciary
duty to Hawaiian's shareholders by approving the proposed merger and the related transactions. Plaintiff seeks to enjoin the proposed merger and the related transactions and obtain unspecified
damages. On January 24, 2002, the First Circuit Court denied plaintiff's motion for a temporary restraining order enjoining the proposed merger because, according to the Court, plaintiff did
not show that the balance of irreparable damage favored the issuance of a temporary restraining order. By stipulation, plaintiff has agreed to defer moving for a preliminary injunction against the
proposed merger until after we have provided 28-days notice that a shareholder vote on the proposed merger has been scheduled. This case has been tendered for defense under our directors'
and officers' insurance policy.

On
January 17, 2002, three separate but virtually identical actions titled MOCARSKI v. CASEY, ET AL., MOORE V. CASEY, ET AL., and WHITE V. CASEY, ET AL., were filed in First
Circuit Court of the State of Hawaii. Defendants in each of the purported class-action lawsuits are Hawaiian directors Paul J. Casey, Joseph P. Hoar, Sharon L. Soper, Thomas J. Trzanowski, Reno F.
Morella, John W. Adams, Robert G. Coo, Edward Z. Safady, Todd G. Cole and Samson Poomaihealani. Plaintiffs Joseph J. Mocarski, Ted Moore and Richard A. White allege that defendants had a
self-interest in approving the proposed merger as a result of the change-of-control provisions in their Hawaiian stock options and employment agreements, and that
they breached their fiduciary duties to Hawaiian's shareholders by approving the proposed merger. The actions seek, among other relief, to enjoin the proposed merger. Subsequently, Mr. Mocarski
filed an amended complaint in his action. The amended complaint asserts purported derivative claims on behalf of Hawaiian, which is named as a nominal plaintiff, and adds as defendants AIP and
director William Weisfield. The amended complaint asserts five claims, including breach of fiduciary duty, waste, abuse of control, and unjust enrichment. In addition, counsel for plaintiffs Mocarski,
Moore and White sought our assurance that we would not pay any termination fees or other similar pay-outs to any party involved in the proposed merger, and threatened unspecified legal action if our
intentions were otherwise. We replied that we did not believe the payment of a termination fee was a proper subject of plaintiffs' lawsuits, but that, in any event, we have no present intention to pay
a termination fee to any party to the merger agreements. These cases have been tendered for defense under our directors' and officers' insurance policy.

On
February 7, 2002, John L. Garibaldi, a former Chief Financial Officer of Hawaiian, filed a demand for arbitration with the Arbitration Tribunals of Dispute Prevention and
Resolution, Inc. in Honolulu, Hawaii titled GARIBALDI v. HAWAIIAN AIRLINES, INC. The respondent in the action is Hawaiian. Mr. Garibaldi alleges that Hawaiian has repudiated its
obligations in regard to the vesting and exercise date of stock options granted to him under his release and separation agreement with Hawaiian. The demand seeks, among other relief, to enjoin the
proposed merger as well as unspecified damages.

Hawaiian
is not a party to any other litigation that is expected to have a significant effect on the operations or business of Hawaiian.

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

None.

PART II

ITEM 5.MARKET PRICE AND DIVIDEND INFORMATION.

In the table below, we present the range of the reported high and low sales prices on the American Stock Exchange of our common stock for the calendar quarters
indicated. The shares of our

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common stock are listed on the American Stock Exchange and the Pacific Exchange under the symbol "HA."

Price RangeHigh

Low2001First Quarter

3.2500

1.8125Second Quarter

3.3000

2.3000Third Quarter

3.5000

1.7000Fourth Quarter

4.0500

2.06002000First Quarter

2.5000

1.7500Second Quarter

2.8750

2.0625Third Quarter

2.7500

2.2500Fourth Quarter

2.5000

1.9500


On
March 26, 2002, the closing price per share of our common stock was $3.08. Past price performance is not necessarily indicative of future price performance.

There
were approximately 1,026 holders of record of our common stock as of March 18, 2002, including record owners holding shares for an indeterminate number of beneficial owners.

We
paid no dividends in 2001 or 2000. Under the terms of the financing arrangement with CIT Group/Business Credit, Inc. ("CIT"), we are restricted from paying any cash or stock
dividends.

As
part of the collective bargaining agreement negotiated with ALPA in December 2000, we agreed to distribute 1,685,380 shares of our common stock on a quarterly basis to the
individual 401(k) accounts of ALPA pilots in our employment during 2001 and 2002. The first distribution of 259,541 shares, representing the number of shares required to be distributed in respect of
the first and second quarter of 2001, was made on September 11, 2001 to Vanguard Group, Inc. as trustee for the Hawaiian Airlines, Inc. Pilots' 401(k) Plan. The distribution for
the quarter ended September 30, 2001, consisting of 259,369 shares, was made on November 9, 2001, and the distribution for the quarter ended December 31, 2001, consisting of
313,515 shares, was made on February 13, 2002 to Vanguard Group, Inc, as trustee.

In
March 2000, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to 5 million shares of our common stock from time to time. In
August 2000, the Board of Directors increased the authorization to 10 million shares. Including the effect of the repurchase of certain warrants and stock repurchased in 2000, the total
number of shares of common stock repurchased under the stock repurchase program amounted to 9,333,508 as of December 31, 2001. In March 2002, our Board of Directors approved a stock
repurchase program authorizing the repurchase of up to 5 million shares of our common stock from time to time in the open market or privately negotiated transactions, to be implemented in the
event that the proposed merger is formally terminated.

The
Transportation Act prohibits non-U.S. citizens from owning more than 25% of the voting interest of a U.S. air carrier or controlling a U.S. air carrier. Our restated
articles of incorporation prohibit the ownership or control of more than 25% (to be increased or decreased from time to time, as permitted under the laws of the United States) of issued and
outstanding voting capital stock of Hawaiian by persons who are not "citizens of the United States." As of January 31, 2002, we believe that less than 13% of the voting stock of Hawaiian is
held by non-United States citizens.

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ITEM 6.SELECTED FINANCIAL DATA.

The Selected Financial and Statistical Data should be read in connection with the accompanying Financial Statements of Hawaiian and the notes related thereto and
Part II, Item 7Management's Discussion and Analysis of Financial Condition and Results of Operations.

Hawaiian Airlines, Inc.  Selected Financial and Statistical Data  (in thousands, except per share data)

|                                                                                                                            |                                                      | 2001 |        | 2000      |   | 1999   |           | 1998 |        | 1997      |  
|--------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ---- | ------ | --------- | - | ------ | --------- | ---- | ------ | --------- | -
|Summary of Operations:                                                                                                      |                                                      |      |        |           |   |        |           |      |        |           |  
|                                                                                                                            | Operating revenues                                   |      | $      | 611,582   |   | $      | 607,220   |      | $      | 488,877   |  
|                                                                                                                            | Operating expenses                                   |      | $      | 594,921   |   | $      | 621,022   |      | $      | 529,414   |  
|                                                                                                                            | Operating income (loss)                              |      | $      | 16,661    |   | $      | (13,802   | )    | $      | (40,537   | )
|                                                                                                                            | Net income (loss)                                    |      | $      | 5,069     |   | $      | (18,615   | )    | $      | (29,267   | )
|Net Income (Loss) per Common Stock Share:                                                                                   |                                                      |      |        |           |   |        |           |      |        |           |  
|                                                                                                                            | Basic                                                |      | $      | 0.15      |   | $      | (0.48     | )    | $      | (0.72     | )
|                                                                                                                            | Diluted                                              |      | $      | 0.15      |   | $      | (0.48     | )    | $      | (0.72     | )
|Weighted Average Shares Outstanding:                                                                                        |                                                      |      |        |           |   |        |           |      |        |           |  
|                                                                                                                            | Basic                                                |      |        | 33,811    |   |        | 38,537    |      |        | 40,997    |  
|                                                                                                                            | Diluted                                              |      |        | 33,947    |   |        | 39,038    |      |        | 40,997    |  
|Shareholders' Equity Per Share (Without Dilution)                                                                           |                                                      | $    | (0.62  | )         | $ | 0.54   |           | $    | 1.61   |           | $
|Shares Outstanding at End of Period                                                                                         |                                                      |      | 34,151 |           |   | 33,708 |           |      | 40,997 |           |  
|* Includes shares reserved for issuance under the Consolidated Plan of Reorganization dated September 21, 1993, as amended. |                                                     
|Balance Sheet Items:                                                                                                        |                                                      |      |        |           |   |        |           |      |        |           |  
|                                                                                                                            | Total assets                                         |      | $      | 305,294   |   | $      | 256,968   |      | $      | 241,937   |  
|                                                                                                                            | Property and equipment, net                          |      | $      | 45,256    |   | $      | 83,743    |      | $      | 65,272    |  
|                                                                                                                            | Long-term debt, excluding current portion            |      | $      | 1,673     |   | $      | 10,763    |      | $      | 23,858    |  
|                                                                                                                            | Capital lease obligations, excluding current portion |      | $      | 3,308     |   | $      | 2,067     |      | $      | 2,790     |  
|                                                                                                                            | Shareholders' equity                                 |      | $      | (21,210   | ) | $      | 18,259    |      | $      | 66,126    |  
|Scheduled Operations:                                                                                                       |                                                      |      |        |           |   |        |           |      |        |           |  
|                                                                                                                            | Revenue passengers                                   |      |        | 5,478     |   |        | 5,886     |      |        | 5,425     |  
|                                                                                                                            | Revenue passenger miles                              |      |        | 4,295,479 |   |        | 4,492,395 |      |        | 4,076,576 |  
|                                                                                                                            | Available seat miles                                 |      |        | 5,587,566 |   |        | 5,967,810 |      |        | 5,468,589 |  
|                                                                                                                            | Passenger load factor                                |      |        | 76.9      | % |        | 75.3      | %    |        | 74.5      | %
|                                                                                                                            | Passenger revenue per passenger mile                 |      |        | 11.4      | ¢ |        | 10.6      | ¢    |        | 9.8       | ¢
|Overseas Charter Operations:                                                                                                |                                                      |      |        |           |   |        |           |      |        |           |  
|                                                                                                                            | Revenue passengers                                   |      |        | 367       |   |        | 382       |      |        | 283       |  
|                                                                                                                            | Revenue passenger miles                              |      |        | 1,097,069 |   |        | 1,165,436 |      |        | 803,524   |  
|                                                                                                                            | Available seat miles                                 |      |        | 1,218,734 |   |        | 1,279,749 |      |        | 852,155   |  
|Total Operations:                                                                                                           |                                                      |      |        |           |   |        |           |      |        |           |  
|                                                                                                                            | Revenue passengers                                   |      |        | 5,845     |   |        | 6,268     |      |        | 5,708     |  
|                                                                                                                            | Revenue passenger miles                              |      |        | 5,392,548 |   |        | 5,657,831 |      |        | 4,880,100 |  
|                                                                                                                            | Available seat miles                                 |      |        | 6,806,300 |   |        | 7,247,559 |      |        | 6,320,744 |  
|                                                                                                                            | Passenger load factor                                |      |        | 79.2      | % |        | 78.1      | %    |        | 77.2      | %
|                                                                                                                            | Revenue Per ASM                                      |      |        | 8.99      | ¢ |        | 8.38      | ¢    |        | 7.73      | ¢
|                                                                                                                            | Cost Per ASM                                         |      |        | 8.74      | ¢ |        | 8.57      | ¢    |        | 8.38      | ¢

19

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

This discussion analyzes our operations for the fiscal years ended December 31, 2001, 2000 and 1999. The following information should be read together with
our audited financial statements and the accompanying notes included elsewhere in this report.

Effects of September 11, 2001 Events

As a result of reduced travel demand due to the events of the September 11, 2001 terrorist attacks, during the quarter ended December 31, 2001, we
reduced our total capacity by approximately 17.0% as measured by available seat miles. The total number of passengers we carried during the quarter ended December 31, 2001 declined by
approximately 12.0%, as compared to the quarter ended December 31, 2000. As a result of the reduced level of operations, we furloughed approximately 12.0% of our total workforce during the
quarter ended December 31, 2001. In addition to the reductions in our operations, we incurred significant additional expenses since September 11, 2001. During the quarter ended
December 31, 2001, we experienced increased security screening costs that we expect to continue incurring for an indefinite period of time, and the annual costs of our aviation insurance
program, commencing with the fourth quarter of 2001, have increased by approximately $9.0 million.

The
trends evidenced during the quarter ended December 31, 2001 may continue to affect us to an extent that cannot yet be fully measured. We are unable to estimate the full impact
of the terrorist attacks of September 11, 2001. We are also unable to predict the full effect of subsequent events that may adversely affect the entire airline industry, including related
vendors and suppliers, and which may result in increased costs caused by several factors, including additional security requirements and increased government oversight. Total airline industry traffic
and operational efficiencies have been severely impacted by the events of September 11, 2001, and it is not possible to project the length of time and the future economic impact on the industry
of recovering from these events and the extent to which we will follow the industry pattern.

Results of Operations



For the year ended December 31, 2001, we reported operating income of $18.8 million and net income of $5.1 million. For the year ended
December 31, 2000, we reported an operating loss of $13.8 million and a net loss of $18.6 million.

For
the year ended December 31, 2001, overall revenues and expenses were unfavorably impacted by the events of September 11, 2001. That impact was mitigated by relief
received under the Stabilization Act, which resulted in a credit to operating expenses of $30.8 million. Except for this item, it is not practicable to determine the impact of those events on
individual elements of our operations, and the disussion that follows makes no attempt to set forth what would have been our 2001 operating results had the events of September 11, 2001 not
occurred.

Operating Revenue.Operating revenues totaled $611.6 million for the year ended December 31, 2001, compared to
$607.2 million for the year ended December 31, 2000, an increase of $4.4 million, or 0.7%. Significant year-to-year variances were as follows:



20

---



Net Change in
Revenue
(in millions)

Net Change in
Revenue Passengers

Net Change in
YieldsTranspacific

$
8.6

-4.7
%
+7.0
%Interisland

$
5.5

-7.7
%
+11.8
%South Pacific

-$
1.3

-8.2
%
+1.2
%




Operating Expenses.Operating expenses, including restructuring charges and the special credit resulting from federal
financial assistance received under the Stabilization Act, totaled $594.9 million for the year ended December 31, 2001 compared to $621.0 million for the year ended
December 31, 2000, a decrease of $26.1 million, or 4.2%. Significant year to year variances were as follows:



21

---





For the year ended December 31, 2000, we incurred operating losses and net losses of $13.8 million and $18.6 million, respectively. As
discussed below, in 2000 we recorded $14.9 million in pretax restructuring charges in conjunction with our intent to replace our narrow-body DC-9 interisland fleet and a
$7.6 million pretax loss on assets held for sale on the two DC-10 aircraft sold in January 2001. Excluding the effects of the restructuring charges and the loss on assets
held for sale, we generated operating income and net income of $8.7 million and $5.5 million, respectively. Our total operating revenues increased by $118.3 million, or 24.2%,
primarily the result of increased passenger and charter revenues. Our operating expenses, net of impairment loss, restructuring charges and the loss on assets held for sale, also increased by
$116.1 million, or 24.1%, of which $50.8 million related to year over year increases in fuel expense. In response to our increased flight operations, available seat mile growth of 14.7%
and investments in infrastructure to support our growth strategies, operational cost increases were incurred in wages and benefits, maintenance, aircraft fuel and certain general and administrative
expense categories.

Operating Revenues.Operating revenues totaled $607.2 million in 2000 compared to $488.9 million in 1999, an
increase of $118.3 million, or 24.2%. Significant year-to-year variances were as follows:



Net Change in
Revenue
(in millions)

Net Change in
Revenue Passengers

Net Change in
YieldsTranspacific

$
50.5

+9.6
%
+9.7
%Interisland

$
22.9

+8.1
%
+7.3
%South Pacific

$
1.8

+9.0
%
+0.5
%


22

---



Operating Expenses.Operating expenses totaled $621.0 million in 2000, an increase of $91.6 million, or 17.3%,
from total operating expenses of $529.4 million in 1999. All fluctuations in operating expenses per available seat mile were affected by an overall increase in available seat miles of
approximately 14.7% in 2000 from 1999. Significant year to year variances were as follows:



23

---



Cumulative Effect of Change in Accounting Principle.Under our HawaiianMiles frequent flyer program, we sell mileage credits
to participating partners such as hotels, car rental agencies and credit card companies. During 1999, we changed our method of accounting for the sale of these mileage credits in accordance with the
SEC's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". This change, applied retroactively to January 1, 1999, totaled approximately $772,000, net of
income tax benefit of approximately $515,000 and is reflected as a cumulative effect of change in accounting principle in the accompanying statements of operations. Under the new accounting method,
revenue from the sale of mileage credits is deferred and recognized when transportation is provided. Previously, the resulting revenue was recorded in the period in which the credits were sold. We
believe the new method is preferable as it results in a better matching of revenues with the period in which services are provided.

Liquidity and Capital Resources



Our cash and cash equivalents totaled $102.9 million at December 31, 2001. In addition to the cash and cash equivalents, we had restricted cash of
$26.9 million at December 31, 2001. Restricted cash includes $26.3 million in escrow deposits held by a credit card processor and a $0.6 million deposit securing
outstanding letters of credit. We also had $0.2 million available under our revolving credit facility with CIT (the "Credit Facility").

For
the year ended December 31, 2001, cash flows from operating activities provided $56.8 million, of which approximately $35.7 million was generated through
increases in advance ticket sales. Our operating cash flow reflects our net earnings for the year including approximately $24.9 million received from the federal government under the
Stabilization Act, offset by an increase in restricted cash withheld by a credit card processor of $26.3 million. Also, under the Stabilization Act, we deferred

24

---

approximately $10.0 million in federal transportation taxes, which was subsequently paid in January 2002.

For
the year ended December 31, 2001, our investing activities used $8.5 million of cash. Our principal cash outflow from investing activities was $21.4 million for
the acquisition and improvements of our new Boeing 717-200 aircraft delivered in 2001. Our cash inflow from investing activities was approximately $12.9 million received from the
sale-leaseback of two DC-10 aircraft.

For
the year ended December 31, 2001, financing activities used $13.3 million in cash. Our primary cash outflow from financing activities included $7.1 million used
in the early payoff of long-term notes that were secured by the two DC-10 aircraft involved in the sale-leaseback transaction and $4.6 million in principal
repayments on our Credit Facility.

After
adjusting for federal financial assistance and deferred federal transportation taxes, we did not generate positive cash flow during the quarter ended December 31, 2001.
Excluding approximately $22.3 million of federal financial assistance recorded during the fourth quarter of 2001, we experienced operating losses of $22.4 million during the quarter
ended December 31, 2001, as compared to operating losses of $17.9 million during the quarter ended December 31, 2000. During the quarter ended December 31, 2000, we
recorded restructuring charges of $2.1 million and a loss on assets held for sale of $7.6 million. Excluding these one-time charges, the operating loss for the fourth quarter
ended 2000 would have been $8.2 million.

We
have also incurred significant additional expenses since September 11, 2001. During the quarter ended December 31, 2001, we experienced increased security costs that we
expect to continue to incur for an indefinite period of time. Also, the cost of our aviation insurance program has increased at the annual rate of approximately $9 million commencing in the
fourth quarter of 2001. However, our costs for fuel decreased as a result of reduced fuel consumption resulting from the significant reduction in capacity and the introduction of more fuel efficient
new aircraft in the quarter ended December 31, 2001.

Although
our current average daily cash flow from operations has improved to some extent since September 11, 2001, our negative daily cash flow from operations, excluding the
impact of federal financial assistance and deferred federal transportation taxes, was between $75,000 and $100,000 during the quarter ended December 31, 2001. Based on the current trends we
cannot determine at this time
the continuing effects of the September 11, 2001 terrorist attacks and the resulting impact on our future profitability.

Debt Covenants.On January 10, 2002, we received a "notice of acceleration" from one of our lenders with respect to a
loan in the amount of approximately $2.3 million. The lender claims that a default exists under the loan because of a late payment made by Hawaiian two days after the applicable cure period.
The loan is secured by a DC-9-50 aircraft that has been retired from service. We are exploring our options with respect to the alleged default. In addition to making the late payment of
$70,000, we continued, and intend to continue, to make our monthly payments of $70,000 under the loan. We reclassified the loan as a current obligation for financial statement purposes as of
December 31, 2001.

The
acceleration of the loan resulted in a cross default under our Credit Facility, which has been waived. In addition, CIT notified us of a default under a specified financial covenant,
which also has been waived. In connection with the waivers, CIT extended the final maturity of the Credit Facility to April 30, 2002 and reduced the amount available under the Credit Facility
from $4.1 million to $2.7 million. Aggregate loans and letters of credit outstanding as of December 31, 2001 under the Credit Facility were $2.5 million and
$1.0 million, respectively.

Available Sources of Funds.Other than the Credit Facility, we do not currently have any lines of credit. Under the
Stabilization Act, we are eligible for loan guarantees, subject to federal guidelines.

25

---

We cannot guarantee, however, that we will seek or be able to obtain any commercial financing or federal loan guarantees under the Stabilization Act. We also anticipate other sources for
short-term credit which may be obtained through the pledging of our unencumbered assets. We estimate that if needed, these alternative methods of short-term financing may be
available.

Aircraft and Other Commitments.In 2001, we entered commitments to take delivery of 16 Boeing 767-300 aircraft.
We took delivery of three in the fourth quarter of 2001. As of December 31, 2001, we had commitments for the additional 13 Boeing 767-300 aircraft to be delivered in 2002 and 2003.
These aircraft are expected to replace our entire DC-10 fleet on our transpacific and south pacific routes. In addition to the delivery of the Boeing 767-300 aircraft, we will
take delivery of two Pratt & Whitney spare aircraft engines in September 2002 and one in March 2003. Our current aircraft, engines, and ground service equipment are financed under operating
leases and we have entered operating leases for the 2002 and 2003 Boeing 767-300 aircraft deliveries. We lease our corporate headquarters and ticket and sales offices in the locations we
serve. The following table summarizes the effect these significant obligations are expected to have on our cash flow in future periods (in thousands):

|                                      |  | Payments Due by Period
(in thousands)
|------------------------------------- |  | -------------------------------------
|
|Long-Term Debt                        |  | 7,905                                
|Capital Lease Obligations             |  | 6,086                                
|Operating LeasesAircraft and Related |  | 851,228                              
|Operating LeasesNon-Aircraft         |  | 37,149                               
|Aircraft Commitments                  |  | 1,312,239                            
|                                      |  |                                      
|Total Contractual Cash Obligations    |  | 2,214,607                            
|                                      |  |                                      

---

We
estimate that our capital expenditures for the year 2002 are anticipated to be approximately $15.5 million. Approximately $8.7 million is related to aircraft
improvements and modifications, mainly for 767 aircraft, and $2.8 million is for improvements in software and related hardware. The remaining $4.0 million represents facility
improvements, purchase of ground equipment and other assets. These expenditures will be funded through the use of available cash and cash equivalents, cash flow from operations and leasing
arrangements.

Stock and Warrant Repurchases.In March 2000, our Board of Directors approved a stock repurchase program authorizing
the repurchase of up to 5 million shares of our common stock from time to time. In August 2000, the Board of Directors increased the authorization to 10 million shares. Including
the effect of the repurchase of certain warrants and stock repurchased in 2000, the total number of shares of common stock repurchased under the stock repurchase program amounted to 9,333,508 as of
December 31, 2001. In March 2002, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to 5 million shares of our common stock from time to
time in the open market or privately negotiated transactions, to be implemented in the event that the proposed merger is formally terminated.

Deferred Tax Assets

As of December 31, 2001, we had net deferred tax assets aggregating $5.9 million based on gross deferred tax assets of $62.9 million less a
valuation allowance of $54.1 million and deferred tax

26

---

liabilities of $2.9 million. As of December 31, 2000, we had net deferred tax assets aggregating $15.7 million based on gross deferred tax assets of $56.4 million less a
valuation allowance of $28.6 million and deferred tax liabilities of $12.1 million. Utilization of these deferred tax assets is predicated on Hawaiian being profitable in future years.
We will continually assess the adequacy of its financial performance in determination of its valuation allowance which, should there be an adjustment required, may result in an adverse effect on its
income tax provision.

Derivative Financial Instruments

We utilize heating oil forward contracts to manage market risks and hedge our financial exposure to fluctuations in our aircraft fuel costs. We employ a strategy
whereby heating oil contracts may be used to hedge up to 50% of our anticipated aircraft fuel needs. The contracts are exchange traded with counterparties of high credit quality. Therefore, the risk
of nonperformance by the counterparties is considered to be small.

As
of January 1, 2001, we adopted Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure those instruments at fair value. We measure fair value of our derivatives based on quoted market prices. Derivatives
that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will be either
offset against the change in the fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.

We
are required to account for our fuel-hedging program under SFAS No. 133. For the year ended December 31, 2001, realized net losses on liquidated contracts of
$1.7 million are included as a component of aircraft fuel cost. Based upon our derivative positions, realized losses of $1.2 million, net of taxes of $0.5 million, and unrealized
losses of $3.5 million have been recognized as other comprehensive losses on the balance sheet as of December 31, 2001 related to hedging instruments included in the assessment of hedge
effectiveness. We expect to reclassify losses on derivative instruments from accumulated other comprehensive losses to operations during the next twelve months when the hedged fuel expenses are
recognized. A realized net gain on liquidated contracts amounting to $11.7 million is included as a component of aircraft fuel cost for the year ended December 31, 2000.

Landing Fees and Ticket Taxes

On September 1, 1999, landing fees at all airports in the State of Hawaii were reinstated after a two-year moratorium. After
September 11, 2001, the State of Hawaii suspended collection of landing fees at all airports in Hawaii. We paid approximately $4.8 million and $7.1 million in landing fees for all
airports in the State of Hawaii for the years ended December 31, 2001 and 2000, respectively. The State of Hawaii has announced that landing fees will be reinstated, effective April 1,
2002.

In
1997, legislation was enacted to, among other things, gradually reduce the federal passenger excise tax from 10% to 7.5% and phase-in a $3.00 "head tax" per domestic
flight segment by the year 2002. On October 1, 1999, the passenger excise tax decreased from 8% to 7.5%, with a corresponding increase in the "head tax" from $2.00 to $2.25 per domestic flight
segment. The "head tax" has increased incrementally over the past three years, with corresponding decreases in the excise tax. As of January 1, 2002 the excise tax was 7.5% and the head tax was
$3.00 per domestic flight segment. The federal passenger excise tax is exempt for the pro-rata portion of the ticket price flown over international waters. Under the Security Act, a new
$2.50 per enplanement ticket fee (up to a

27

---

maximum of $5.00 per one-way trip) took effect on February 1, 2002. The Security Act also imposes additional fees on air carriers.

Frequent Flyer Program

Refer toBusiness, Frequent Flyer Programcontained in Part I, Item 1 of this Form 10-K
for discussion on our frequent flyer program.

As
of December 31, 2001 and 2000, HawaiianMiles members had accumulated approximately 6.9 and 5.1 billion miles, representing liabilities totaling approximately
$6.9 million and $2.7 million, respectively. Our accruals assume full redemption of mileage points. During the years ended December 31, 2001, 2000 and 1999, approximately 2.2, 2.1
and 1.7 billion award miles were redeemed, respectively.

We
believe that the usage of free travel awards will not result in the displacement of revenue customers and, therefore, such usage will not materially affect our liquidity or operating
results. The use of free travel awards is subject to review by Hawaiian, to limit the possibility of displacing revenue passengers. HawaiianMiles travel redemption accounted for approximately 3.4%,
4.0% and 4.8% of interisland traffic, 3.8% of transpacific traffic in 2001 and a negligible percentage of transpacific traffic in 2000 and 1999, and a negligible percentage of south pacific traffic in
2001, 2000 and 1999, respectively.

28

---



Critical Accounting Policies

The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. We believe our estimates and assumptions are reasonable; however, actual results and the timing of the recognition of such
amounts could differ from those estimates. We believe that our critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other
accounting policies, see Note 3 in the notes to the financial statements.



29

---



ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to market risks related to aircraft fuel. Refer toBusiness, Fuelcontained in Part I, Item
1 of this Form 10-K andDerivative Financial Instruments, as described above for further discussion on aircraft fuel and related
financial instruments. An immediate ten percent increase or decrease in underlying fuel-related commodity prices from the December 31, 2001 prices would correspondingly change the
fair value of the commodity derivative instruments in place by approximately $2 million. Changes in the related commodity derivative instrument cash flows may change by more or less than this
amount based upon further fluctuations in future prices as well as related income tax effects. The sensitivity analysis does not consider the effects that such adverse changes may have on overall
economic activity nor does it consider additional actions management may take to mitigate our exposure to such change. Actual results may differ.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our financial statements, accompanying notes, Report of Independent Auditors, Independent Auditors' Report and Selected Financial and Statistical Data are
contained in this Annual Report on Form 10-K beginning on page F-1 and are incorporated herein by reference.

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

None.

PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS.

Refer to our Proxy Statement for the 2002 Annual Meeting of Shareholders or any amendment to this Form 10-K to be filed on our before
April 30, 2002.

ITEM 11.EXECUTIVE COMPENSATION.

Refer to our Proxy Statement for the 2002 Annual Meeting of Shareholders or any amendment to this Form 10-K to be filed on our before
April 30, 2002.

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

Refer to our Proxy Statement for the 2002 Annual Meeting of Shareholders or any amendment to this Form 10-K to be filed on our before
April 30, 2002.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

From July 17, 2000 through February 28, 2001, William F. Loftus served as executive vice president, chief financial officer and treasurer of
Hawaiian. During this period, Hawaiian paid Mr. Loftus a base salary of $152,000. During this same period, Hawaiian paid The Loftus Group, a financial and management consulting firm of which
more than ten percent (10%) is owned by Mr. Loftus, $638,535 in fees for financial consulting services, plus expenses.

Since
May 19, 2000, Hawaiian has invested $3.0 million in certificates of deposit with Liberty Bank, SSB, of Austin, Texas. Liberty Bank is majority owned by John W. Adams
and another individual. John W. Adams is an employee of Hawaiian, Chairman of Hawaiian's board of directors and the sole shareholder of AIP General Partner, Inc., the general partner of Airline
Investors Partnership, L.P., which is the majority shareholder of Hawaiian. Current directors of Hawaiian include Edward Z.

30

---

Safady and Thomas J. Trzanowski, both of whom are also employees and/or directors of Liberty Bank, SSB.

On
December 19, 2001, Hawaiian executed an Advisory Services Agreement with Smith Management LLC and John W. Adams, pursuant to which Hawaiian or its successor would pay, upon the
completion of the proposed merger, $4 million in cash to John W. Adams and $1 million in cash, one million shares of Holdco common stock and Holdco notes with an aggregate principal
amount of $2 million to Smith Management. The Advisory Services Agreement provides that it will be terminated automatically upon the formal termination of the Merger Agreement. John W. Adams is
an affiliate of Smith Management.

PART IV

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

Financial
Statement Schedule.





Exhibit 3Articles
of Incorporation, Bylaws.



Exhibit 4Instruments
Defining the Rights of Security Holders Including Indentures.

31

---





Exhibit 10Material
Contracts.



32

---



33

---



34

---



35

---



Exhibit 23Consent of experts and counsel.



Exhibit 24Power of Attorney.

36

---



EXHIBIT INDEX

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                      
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10-1           |  | PW4060 Engine Fleet Management Program Agreement by and between United Technologies Corporation Pratt & Whitney Division and Hawaiian Airlines, Inc., dated as of October 5, 2001, filed in redacted form since confidential treatment
for certain provisions thereof has been requested pursuant to Rule 24.b-2.

37

---



SIGNATURES

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

|              |  | HAWAIIAN AIRLINES, INC.
|------------- |  | -----------------------
|April 1, 2002 |  | By:                    

38

---



Report of Independent Auditors

The
Board of Directors
Hawaiian Airlines, Inc.

We
have audited the accompanying balance sheets of Hawaiian Airlines, Inc. (the "Company") as of December 31, 2001 and 2000, and the related statements of operations,
shareholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hawaiian Airlines, Inc. as of December 31,
2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.

As
discussed in Note 3 to the financial statements, effective January 1, 1999, the Company changed its method of accounting for the sale of mileage credits to participating
partners in its frequent flyer program.

|Honolulu, Hawaii
March 25, 2002 |  | 
|------------------------------- |  | 

F-1

---



Hawaiian Airlines, Inc.  Statements of Operations (in thousands)  For the Years ended December 31, 2001, 2000, and 1999

|                                                                                          |                                           | 2001  |         | 2000    |         | 1999    |        
|----------------------------------------------------------------------------------------- | ----------------------------------------- | ----- | ------- | ------- | ------- | ------- | -------
|Operating Revenues:                                                                       |                                           |       |         |         |         |         |        
|                                                                                          | Passenger                                 |       | $       | 488,300 |         | $       | 475,475
|                                                                                          | Charter                                   |       |         | 75,632  |         |         | 82,358 
|                                                                                          | Cargo                                     |       |         | 22,214  |         |         | 27,791 
|                                                                                          | Other                                     |       |         | 25,436  |         |         | 21,596 
|                                                                                          |                                           |       |         |         |         |         |        
|                                                                                          |                                           | Total |         |         | 611,582 |         |        
|                                                                                          |                                           |       |         |         |         |         |        
|Operating Expenses:                                                                       |                                           |       |         |         |         |         |        
|                                                                                          | Wages and benefits                        |       |         | 188,813 |         |         | 160,459
|                                                                                          | Aircraft fuel, including taxes and oil    |       |         | 111,876 |         |         | 127,221
|                                                                                          | Maintenance materials and repairs         |       |         | 99,043  |         |         | 111,240
|                                                                                          | Rentals and landing fees                  |       |         | 61,767  |         |         | 39,458 
|                                                                                          | Sales commissions                         |       |         | 20,812  |         |         | 14,798 
|                                                                                          | Depreciation and amortization             |       |         | 13,983  |         |         | 16,321 
|                                                                                          | Impairment loss                           |       |         |        |         |         |       
|                                                                                          | Restructuring charges                     |       |         | (3,600  | )       |         | 14,927 
|                                                                                          | Loss on assets held for sale              |       |         |        |         |         | 7,575  
|                                                                                          | Special credit (Stabilization Act)        |       |         | (30,780 | )       |         |       
|                                                                                          | Other                                     |       |         | 133,007 |         |         | 129,023
|                                                                                          |                                           |       |         |         |         |         |        
|                                                                                          |                                           | Total |         |         | 594,921 |         |        
|                                                                                          |                                           |       |         |         |         |         |        
|Operating Income (Loss)                                                                   |                                           |       | 16,661  |         |         | (13,802 | )      
|                                                                                          |                                           |       |         |         |         |         |        
|Nonoperating Income (Expense):                                                            |                                           |       |         |         |         |         |        
|                                                                                          | Interest and amortization of debt expense |       |         | (2,212  | )       |         | (3,034 
|                                                                                          | Interest income                           |       |         | 3,865   |         |         | 4,291  
|                                                                                          | Loss on disposition of equipment          |       |         | (32     | )       |         | (85    
|                                                                                          | Other, net                                |       |         | 557     |         |         | 305    
|                                                                                          |                                           |       |         |         |         |         |        
|                                                                                          |                                           | Total |         |         | 2,178   |         |        
|                                                                                          |                                           |       |         |         |         |         |        
|Income (Loss) Before Income Taxes and Cumulative Effect of Change in Accounting Principle |                                           |       | 18,839  |         |         | (12,325 | )      
|Income Tax Benefit (Provision)                                                            |                                           |       | (13,770 | )       |         | (6,290  | )      
|                                                                                          |                                           |       |         |         |         |         |        
|Net Income (Loss) Before Cumulative Effect of Change in Accounting Principle              |                                           |       | 5,069   |         |         | (18,615 | )      
|Cumulative Effect of Change in Accounting Principle, Net of Income Taxes                  |                                           |       |        |         |         |        |        
|                                                                                          |                                           |       |         |         |         |         |        
|Net Income (Loss)                                                                         |                                           | $     | 5,069   |         | $       | (18,615 | )      
|                                                                                          |                                           |       |         |         |         |         |        

See
accompanying Notes to Financial Statements

F-2

---

Hawaiian Airlines, Inc.  Statements of Operations (in thousands, except per share data)  For the Years ended December 31, 2001, 2000, and 1999

|                                                      |                                                                          | 2001 |      | 2000   |   | 1999  |       
|----------------------------------------------------- | ------------------------------------------------------------------------ | ---- | ---- | ------ | - | ----- | ------
|Net Income (Loss) Per Common Stock Share:             |                                                                          |      |      |        |   |       |       
|Basic                                                 |                                                                          |      |      |        |   |       |       
|                                                      | Before cumulative effect of change in accounting principle               |      | $    | 0.15   |   | $     | (0.48 
|                                                      | Cumulative effect of change in accounting principle, net of income taxes |      |      |       |   |       |      
|                                                      |                                                                          |      |      |        |   |       |       
|Net Income (Loss) Per Common Stock Share              |                                                                          | $    | 0.15 |        | $ | (0.48 | )     
|                                                      |                                                                          |      |      |        |   |       |       
|Diluted                                               |                                                                          |      |      |        |   |       |       
|                                                      | Before cumulative effect of change in accounting principle               |      | $    | 0.15   |   | $     | (0.48 
|                                                      | Cumulative effect of change in accounting principle, net of income taxes |      |      |       |   |       |      
|                                                      |                                                                          |      |      |        |   |       |       
|Net Income (Loss) Per Common Stock Share              |                                                                          | $    | 0.15 |        | $ | (0.48 | )     
|                                                      |                                                                          |      |      |        |   |       |       
|Weighted Average Number of Common Shares Outstanding: |                                                                          |      |      |        |   |       |       
|                                                      | Basic                                                                    |      |      | 33,811 |   |       | 38,537
|                                                      |                                                                          |      |      |        |   |       |       
|                                                      | Diluted                                                                  |      |      | 33,947 |   |       | 39,038
|                                                      |                                                                          |      |      |        |   |       |       



|Weighted average Common Stock Shares outstanding                                                                         |  | 33,811 |  | 38,537 |  | 40,997
|------------------------------------------------------------------------------------------------------------------------ |  | ------ |  | ------ |  | ------
|Incremental Common Stock shares issuable upon exercise of outstanding warrants and stock options (treasury stock method) |  | 136    |  | 501    |  |      
|                                                                                                                         |  |        |  |        |  |       
|Weighted average Common Stock Shares and Common Stock Share equivalents                                                  |  | 33,947 |  | 39,038 |  | 40,997
|                                                                                                                         |  |        |  |        |  |       

See
accompanying Notes to Financial Statements

F-3

---

Hawaiian Airlines, Inc.  Balance Sheets (in thousands)  December 31, 2001 and 2000

|                        |                                                                                                 | 2001                        |   | 2000    |        
|----------------------- | ----------------------------------------------------------------------------------------------- | --------------------------- | - | ------- | -------
|ASSETS                  |                                                                                                 |                             |   |         |        
|Current Assets:         |                                                                                                 |                             |   |         |        
|                        | Cash and cash equivalents                                                                       |                             | $ | 102,860 |        
|                        | Restricted cash                                                                                 |                             |   | 26,910  |        
|                        | Accounts receivable, net of allowance for doubtful accounts of $1,305 and $500 in 2001 and 2000 |                             |   | 35,010  |        
|                        | Inventories                                                                                     |                             |   | 4,675   |        
|                        | Assets held for sale                                                                            |                             |   |        |        
|                        | Deferred tax assets, net                                                                        |                             |   | 3,000   |        
|                        | Prepaid expenses and other                                                                      |                             |   | 6,877   |        
|                        |                                                                                                 |                             |   |         |        
|                        |                                                                                                 | Total current assets        |   |         | 179,332
|                        |                                                                                                 |                             |   |         |        
|Property and Equipment: |                                                                                                 |                             |   |         |        
|                        | Flight equipment                                                                                |                             |   | 27,218  |        
|                        | Progress payments on flight equipment                                                           |                             |   | 1,068   |        
|                        | Ground equipment, buildings and leasehold improvements                                          |                             |   | 50,129  |        
|                        |                                                                                                 |                             |   |         |        
|                        |                                                                                                 | Total                       |   |         | 78,415 
|                        | Accumulated depreciation and amortization                                                       |                             |   | (33,159 | )      
|                        |                                                                                                 |                             |   |         |        
|                        |                                                                                                 | Property and equipment, net |   |         | 45,256 
|                        |                                                                                                 |                             |   |         |        
|Other Assets:           |                                                                                                 |                             |   |         |        
|                        | Long-term prepayments and other                                                                 |                             |   | 49,482  |        
|                        | Deferred tax assets, net                                                                        |                             |   | 2,904   |        
|                        | Reorganization value in excess of amounts allocable to identifiable assets, net                 |                             |   | 28,320  |        
|                        |                                                                                                 |                             |   |         |        
|                        |                                                                                                 | Total other assets          |   |         | 80,706 
|                        |                                                                                                 |                             |   |         |        
|                        |                                                                                                 | Total Assets                |   | $       | 305,294
|                        |                                                                                                 |                             |   |         |        

See
accompanying Notes to Financial Statements

F-4

---

Hawaiian Airlines, Inc.  Balance Sheets (in thousands, except share data)  December 31, 2001 and 2000

|                                        |                                                                                                                                                   | 2001                                         |                                            | 2000    |        
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------ | ------- | -------
|LIABILITIES AND SHAREHOLDERS' EQUITY    |                                                                                                                                                   |                                              |                                            |         |        
|Current Liabilities:                    |                                                                                                                                                   |                                              |                                            |         |        
|                                        | Accounts payable                                                                                                                                  |                                              | $                                          | 71,926  |        
|                                        | Air traffic liability                                                                                                                             |                                              |                                            | 110,641 |        
|                                        | Other accrued liabilities                                                                                                                         |                                              |                                            | 59,824  |        
|                                        | Current portion of long-term debt                                                                                                                 |                                              |                                            | 5,469   |        
|                                        | Current portion of capital lease obligations                                                                                                      |                                              |                                            | 1,516   |        
|                                        |                                                                                                                                                   |                                              |                                            |         |        
|                                        |                                                                                                                                                   | Total current liabilities                    |                                            |         | 249,376
|                                        |                                                                                                                                                   |                                              |                                            |         |        
|Long-Term Debt                          |                                                                                                                                                   |                                              | 1,673                                      |         |        
|                                        |                                                                                                                                                   |                                              |                                            |         |        
|Capital Lease Obligations               |                                                                                                                                                   |                                              | 3,308                                      |         |        
|                                        |                                                                                                                                                   |                                              |                                            |         |        
|Other Liabilities and Deferred Credits: |                                                                                                                                                   |                                              |                                            |         |        
|                                        | Accumulated pension and other postretirement benefit obligations                                                                                  |                                              |                                            | 63,451  |        
|                                        | Other                                                                                                                                             |                                              |                                            | 8,696   |        
|                                        |                                                                                                                                                   |                                              |                                            |         |        
|                                        |                                                                                                                                                   | Total other liabilities and deferred credits |                                            |         | 72,147 
|                                        |                                                                                                                                                   |                                              |                                            |         |        
|Shareholders' Equity:                   |                                                                                                                                                   |                                              |                                            |         |        
|                                        | Common Stock$.01 par value, 60,000,000 shares authorized, 34,150,809 and 33,707,599 shares issued and outstanding in 2001 and 2000, respectively |                                              |                                            | 415     |        
|                                        | Special Preferred Stock$.01 par value, 2,000,000 shares authorized, seven shares issued and outstanding                                          |                                              |                                            |        |        
|                                        | Capital in excess of par value                                                                                                                    |                                              |                                            | 84,592  |        
|                                        | Notes receivable from Common Stock sales                                                                                                          |                                              |                                            | (1,560  | )      
|                                        | Accumulated deficit                                                                                                                               |                                              |                                            | (48,820 | )      
|                                        | Accumulated other comprehensive loss                                                                                                             |                                              |                                            |         |        
|                                        |                                                                                                                                                   | Minimum pension liability adjustment         |                                            |         | (51,600
|                                        |                                                                                                                                                   | Unrealized loss on hedge instruments         |                                            |         | (4,237 
|                                        |                                                                                                                                                   |                                              |                                            |         |        
|                                        |                                                                                                                                                   |                                              | Shareholders' equity (deficiency)          |         |        
|                                        |                                                                                                                                                   |                                              |                                            |         |        
|                                        | Commitments and Contingent Liabilities                                                                                                            |                                              |                                            |         |        
|                                        |                                                                                                                                                   |                                              | Total Liabilities and Shareholders' Equity |         | $      
|                                        |                                                                                                                                                   |                                              |                                            |         |        

See
accompanying Notes to Financial Statements

F-5

---



Hawaiian Airlines, Inc.    Statements of Shareholders' Equity (Deficiency) and Comprehensive Income (in thousands)    For the Years ended December 31, 2001, 2000, and 1999

|                                                                      |  | Common
Stock |     | Special
Preferred
Stock |   | Capital in
excess of
par value |  | Warrants |         | Notes
receivable from
Common Stock
sales |   | Accumulated
deficit |   | Accumulated
comprehensive
income (loss) |        | Total |  
|--------------------------------------------------------------------- |  | ------------ | --- | ----------------------- | - | ------------------------------ |  | -------- | ------- | ---------------------------------------- | - | ------------------- | - | --------------------------------------- | ------ | ----- | -
|Balance at December 31, 1998                                          |  | $            | 410 |                         | $ |                               |  | $        | 99,418  |                                          | $ | 3,153               |   | $                                       | (1,581 | )     | $
|Net loss                                                              |  |              |    |                         |   |                               |  |          |        |                                          |   |                    |   |                                         |       |       |  
|Minimum pension liability adjustment                                  |  |              |    |                         |   |                               |  |          |        |                                          |   |                    |   |                                         |       |       |  
|                                                                      |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  
|Comprehensive loss                                                    |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  
|                                                                      |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  
|Balance at December 31, 1999                                          |  |              | 410 |                         |   |                               |  |          | 99,418  |                                          |   | 3,153               |   |                                         | (1,581 | )     |  
|Net loss                                                              |  |              |    |                         |   |                               |  |          |        |                                          |   |                    |   |                                         |       |       |  
|Minimum pension liability adjustment                                  |  |              |    |                         |   |                               |  |          |        |                                          |   |                    |   |                                         |       |       |  
|                                                                      |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  
|Comprehensive loss                                                    |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  
|                                                                      |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  
|Repurchase of warrants to acquire 1,949,338 shares of Common Stock    |  |              |    |                         |   |                               |  |          | 522     |                                          |   | (3,153              | ) |                                         |       |       |  
|Repurchase of 7,293,470 shares of Common Stock                        |  |              |    |                         |   |                               |  |          | (16,522 | )                                        |   |                    |   |                                         |       |       |  
|                                                                      |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  
|Balance at December 31, 2000                                          |  |              | 410 |                         |   |                               |  |          | 83,418  |                                          |   |                    |   |                                         | (1,581 | )     |  
|Net income                                                            |  |              |    |                         |   |                               |  |          |        |                                          |   |                    |   |                                         |       |       |  
|Minimum pension liability adjustment                                  |  |              |    |                         |   |                               |  |          |        |                                          |   |                    |   |                                         |       |       |  
|Unrealized loss on hedge instruments                                  |  |              |    |                         |   |                               |  |          |        |                                          |   |                    |   |                                         |       |       |  
|                                                                      |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  
|Comprehensive loss                                                    |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  
|                                                                      |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  
|Exercise of options to acquire 15,000 shares of Common Stock          |  |              |    |                         |   |                               |  |          | 24      |                                          |   |                    |   |                                         | 21     |       |  
|Distribution to Pilots' 401(k) Plan of 518,910 shares of Common Stock |  |              | 5   |                         |   |                               |  |          | 1,335   |                                          |   |                    |   |                                         |       |       |  
|Repurchase of 90,700 shares of Common Stock                           |  |              |    |                         |   |                               |  |          | (185    | )                                        |   |                    |   |                                         |       |       |  
|                                                                      |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  
|Balance at December 31, 2001                                          |  | $            | 415 |                         | $ |                               |  | $        | 84,592  |                                          | $ |                    |   | $                                       | (1,560 | )     | $
|                                                                      |  |              |     |                         |   |                                |  |          |         |                                          |   |                     |   |                                         |        |       |  

See
accompanying Notes to Financial Statements

F-6

---

Hawaiian Airlines, Inc.        Statements of Cash Flows (in thousands)        For the Years ended December 31, 2001, 2000 and 1999

|                                                     |                                                                                          | 2001 |         | 2000 |   | 1999    |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------- | ---- | ------- | ---- | - | ------- | -
|Cash Flows From Operating Activities:                |                                                                                          |      |         |      |   |         |  
|Net income (loss)                                    |                                                                                          | $    | 5,069   |      | $ | (18,615 | )
|                                                     | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |      |         |      |   |         |  
|Depreciation                                         |                                                                                          |      | 10,813  |      |   | 12,137  |  
|Amortization                                         |                                                                                          |      | 3,170   |      |   | 4,184   |  
|Net periodic postretirement benefit cost             |                                                                                          |      | 1,555   |      |   | 914     |  
|Impairment loss                                      |                                                                                          |      |        |      |   |        |  
|Restructuring charges (credit)                       |                                                                                          |      | (3,600  | )    |   | 14,927  |  
|Loss on assets held for sale                         |                                                                                          |      |        |      |   | 7,575   |  
|Loss on disposition of equipment                     |                                                                                          |      | 32      |      |   | 85      |  
|Decrease (increase) in restricted cash               |                                                                                          |      | (26,910 | )    |   |        |  
|Decrease (increase) in accounts receivable           |                                                                                          |      | (9,815  | )    |   | (274    | )
|Decrease (increase) in inventories                   |                                                                                          |      | 166     |      |   | 1,453   |  
|Increase in prepaid expenses and other               |                                                                                          |      | (982    | )    |   | (2,461  | )
|Decrease (increase) in deferred taxes, net           |                                                                                          |      | 9,806   |      |   | 6,290   |  
|Increase in accounts payable                         |                                                                                          |      | 16,843  |      |   | 10,419  |  
|Increase in air traffic libability                   |                                                                                          |      | 35,652  |      |   | 24,563  |  
|Increase in other accrued liabilities                |                                                                                          |      | 28,234  |      |   | 8,763   |  
|Other, net                                           |                                                                                          |      | (13,229 | )    |   | (6,640  | )
|                                                     |                                                                                          |      |         |      |   |         |  
|Net cash provided by operating activities            |                                                                                          |      | 56,804  |      |   | 63,320  |  
|                                                     |                                                                                          |      |         |      |   |         |  
|Cash Flows From Investing Activities:                |                                                                                          |      |         |      |   |         |  
|Additions to property and equipment                  |                                                                                          |      | (16,147 | )    |   | (13,261 | )
|Progress payments on flight equipment                |                                                                                          |      | (5,256  | )    |   | (39,921 | )
|Net proceeds from disposition of equipment           |                                                                                          |      | 12,888  |      |   | 233     |  
|                                                     |                                                                                          |      |         |      |   |         |  
|Net cash used in investing activities                |                                                                                          |      | (8,515  | )    |   | (52,949 | )
|                                                     |                                                                                          |      |         |      |   |         |  
|Cash Flows From Financing Activities:                |                                                                                          |      |         |      |   |         |  
|Long-term borrowings                                 |                                                                                          |      | 1,426   |      |   | 22,839  |  
|Repayment of long-term debt                          |                                                                                          |      | (13,000 | )    |   | (9,277  | )
|Repayment of capital lease obligations               |                                                                                          |      | (1,547  | )    |   | (3,379  | )
|Repurchase of warrants                               |                                                                                          |      |        |      |   | (2,631  | )
|Issuance of Common Stock                             |                                                                                          |      | 24      |      |   |        |  
|Repurchase of Common Stock                           |                                                                                          |      | (185    | )    |   | (16,522 | )
|Proceeds on notes receivable from Common Stock sales |                                                                                          |      | 21      |      |   |        |  
|                                                     |                                                                                          |      |         |      |   |         |  
|Net cash provided by (used in) financing activities  |                                                                                          |      | (13,261 | )    |   | (8,970  | )
|                                                     |                                                                                          |      |         |      |   |         |  
|Net increase in cash and cash equivalents            |                                                                                          |      | 35,028  |      |   | 1,401   |  
|Cash and cash equivalentsBeginning of Year          |                                                                                          |      | 67,832  |      |   | 66,431  |  
|                                                     |                                                                                          |      |         |      |   |         |  
|Cash and cash equivalentsEnd of Year                |                                                                                          | $    | 102,860 |      | $ | 67,832  |  
|                                                     |                                                                                          |      |         |      |   |         |  

See
accompanying Notes to Financial Statements

F-7

---

Hawaiian Airlines, Inc.        Statements of Cash Flows (in thousands)        For the Years ended December 31, 2001, 2000, and 1999

|                                             |                                                       | 2001 |         | 2000 |   | 1999   
|-------------------------------------------- | ----------------------------------------------------- | ---- | ------- | ---- | - | -------
|Supplemental Cash Flow Information:          |                                                       |      |         |      |   |        
|                                             | Interest paid                                         |      | 3,237   |      | $ | 1,273  
|                                             | Income taxes paid                                     |      |        |      |   | 332    
|Supplemental Schedule of Noncash Activities: |                                                       |      |         |      |   |        
|                                             | Minimum pension liability adjustment                  |      | (41,501 | )    |   | (10,099
|                                             | Property and equipment financed through capital lease |      | 3,172   |      |   |       

See
accompanying Notes to Financial Statements

F-8

---



HAWAIIAN AIRLINES, INC.    NOTES TO FINANCIAL STATEMENTS

1.    BUSINESS AND ORGANIZATION

Hawaiian Airlines, Inc. ("Hawaiian" or the "Company") was incorporated in January 1929 under the laws of the Territory of Hawaii and, based on
operating revenues, is the largest airline headquartered in Hawaii. The Company is engaged primarily in the scheduled transportation of passengers, cargo and mail. The Company's passenger airline
business is its chief source of revenue.

The
Company provides daily passenger and cargo service from Hawaii, principally Honolulu to Las Vegas, Nevada and the five key United States ("U.S.") West Coast gateway cities of Los
Angeles, San Diego and San Francisco, California, Seattle, Washington and Portland, Oregon ("transpacific"). The Company also provides daily service among the six major islands of the State of Hawaii
("interisland"), and weekly service to each of Pago Pago, American Samoa and Papeete, Tahiti in the South Pacific ("south pacific"). Charter service is provided from Honolulu to Las Vegas and
Anchorage, Alaska ("overseas charter"). The Company provided overseas charter service from Los Angeles to Papeete for Renaissance Cruises, Inc. until September 25, 2001, when Renaissance
Cruises, Inc. filed for Chapter 11 bankruptcy protection and ceased cruise operations.

During
2001, the Company transitioned from a fleet of DC-9-50 aircraft to a fleet of Boeing 717-200 aircraft for its interisland routes. The Company
operates DC-10 aircraft on its transpacific, south pacific and overseas charter routes. In the third quarter of 2001 and March of 2002, the Company took delivery of the first five of
sixteen Boeing 767-300ER aircraft which will replace the DC-10 aircraft on the transpacific, south pacific and overseas charter routes. Revenue service on the Boeing
767-300ER aircraft began in November 2001.

2.    AIR TRANSPORTATION SAFETY AND SYSTEM STABILIZATION ACT

On September 22, 2001, President Bush signed into law the Air Transportation Safety and System Stabilization Act ("the Stabilization Act"), which, for all
U.S. airlines and air cargo carriers (collectively, air carriers), provides for, among other things: (i) $5 billion in compensation for direct losses (including lost revenues) incurred
as a result of the federal ground stop order and for incremental losses incurred through December 31, 2001 as a direct result of the attacks; (ii) subject to certain conditions, the
availability of up to $10 billion in federal government guarantees of certain loans made to air carriers for which credit is not reasonably available as determined by a newly established Air
Transportation Stabilization Board; (iii) the authority of the Secretary of Transportation to reimburse air carriers (which authority expires 180 days after the enactment of the
Stabilization Act) for the increase in the cost of war risk insurance coverage for the first 30 days of reinstated coverage over the premium in effect prior to September 10, 2001;
(iv) at the discretion of the Secretary of Transportation, a $100 million limit on the liability of any air carrier to third parties with respect to acts of terrorism committed on or to
such air carrier during the 180-day period following the enactment of the Stabilization Act; and (v) the extension of the due date for the payment by air carriers of certain excise
taxes and payroll taxes until January 2002.

Under
the Stabilization Act, each air carrier is entitled to receive the lesser of (i) its direct and incremental losses for the period September 11, 2001 to
December 31, 2001 or (ii) its available seat mile allocation of the $5 billion compensation available under the Act. As of December 31, 2001, the Company received
$24.9 million from the U.S. Government under the Stabilization Act and anticipates receiving an additional $5.9 million in early 2002. In addition, subject to federal guidelines, the
Stabilization Act includes federal loan guarantees for airlines for which the Company expects to be eligible to apply. As of December 31, 2001, the Company recognized $30.8 million as a
special credit to operating expenses for the estimated allocation of proceeds from the federal government under the Stabilization Act.

F-9

---

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents.

RESTRICTED CASH

As of December 31, 2001, approximately $26.9 million of cash was restricted as to withdrawal and is classified as restricted cash in the
accompanying balance sheets. Restricted cash of $26.3 million serves as collateral to support a credit card holdback for advance ticket sales which funds are made available as air travel is
provided. The remaining $0.6 million serves as collateral for outstanding letters of credit in the same amount.

INVENTORIES

Inventories consists primarily of expendable parts for flight equipment and supplies which are stated at average cost, less an allowance for obsolescence.

PROPERTY AND EQUIPMENT

Owned property and equipment are stated at cost, except for assets determined to be impaired which are stated at fair market value. Costs of major improvements
are capitalized. Depreciation and amortization are provided on a straight-line basis over the following estimated useful lives:

Flight equipment

2-15 years, 15% residual valueGround equipment

5-15 yearsAirport terminal facility

30 yearsBuildings

15-20 yearsLeasehold improvements

Shorter of lease term or useful life


Maintenance
and repairs on B717-200, B767-300 and DC-10 aircraft are charged to operations as incurred, except that maintenance and repairs under
"power by the hour" maintenance contract agreements are accrued on the basis of hours flown.

Maintenance
and repairs on DC-9 aircraft were charged to operations as incurred, except that costs of overhauling engines were charged to operations in the year the engines
were removed for overhaul and scheduled heavy airframe overhauls and major structural modifications on DC-9 aircraft were recorded under the deferral method whereby the cost of overhaul
was capitalized and amortized over the shorter of the period benefited or the lease term. Additionally, provisions were made for the estimated cost of scheduled heavy airframe overhauls required to be
performed on leased DC-9 aircraft prior to their return to lessors. Commencing January 1, 2000, due to the Company's intentions to replace its DC-9 fleet in 2001 and the
resultant reduction of DC-9 flight equipment and related assets to fair market value as of December 31, 1999, heavy airframe overhauls and major structural modifications on
DC-9 aircraft were expensed.

REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS

The Company emerged from Chapter 11 bankruptcy on September 12, 1994 (the "Effective Date") with Hawaiian Airlines being the sole surviving corporation.
Under fresh start reporting, the reorganization value of the entity was allocated to the Company's assets and liabilities on a basis substantially consistent with the purchase method of accounting.
The portion of reorganization value not attributable to specific tangible or identifiable intangible assets of the Company is reflected as reorganization value in excess of amounts allocable to
identifiable assets ("Excess Reorganization

F-10

---

Value") in the accompanying balance sheets. Excess Reorganization Value is amortized on a straight-line basis over 20 years. Accumulated amortization at December 31, 2001
and 2000 totaled approximately $22.4 million and $20.1 million, respectively. The estimated income tax benefit from the expected utilization of net operating loss carryforwards arising
prior to the Effective Date has also been applied as a reduction to Excess Reorganization Value.

AIR TRAFFIC LIABILITY

Passenger fares are recorded as operating revenues when the transportation is provided. The value of unused passenger tickets is included as air traffic
liability. The Company performs periodic evaluations of this estimated liability, and any adjustments resulting therefrom, which can be significant, are included in results of operations for the
periods in which the evaluations are completed.

FREQUENT FLYER PROGRAM

The Company sponsors a frequent flyer program and records an estimated liability for the incremental cost associated with providing the related free
transportation during the period a free travel award is earned. Incremental costs primarily include fuel and catering.

Hawaiian
recognizes a liability in the period in which members have accumulated sufficient mileage points under its HawaiianMiles frequent flyer program to qualify for award redemption.
The liability is adjusted based on net mileage earned and utilized for award redemption on a monthly basis. The incremental cost method is used, computed primarily on the basis of fuel and catering
costs, exclusive of any overhead or profit margin. In estimating the amount of such incremental costs to be accrued in the liability for potential future HawaiianMiles free travel, a current average
cost per award mile is determined. Incremental fuel expended per passenger is based on engineering formulas to determine the quantity used for the weight of each added passenger and baggage. Such
incremental quantity of fuel is priced at current levels. Catering is based on average cost data per passenger for the most recent 12-month period.

The
Company also sells mileage credits to participating partners such as hotels, car rental agencies and credit card companies. During 1999, the Company changed the method it uses to
account for the sale of these mileage credits in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". Under
the new accounting method, revenue from the sale of mileage credits is deferred and recognized when transportation is provided. Previously, the resulting revenue was recorded in the period in which
the credits were sold. The Company believes the new method is preferable as it results in a better matching of revenues with the period in which services are provided. This change, applied
retroactively to January 1, 1999, totaled approximately $772,000, net of income tax benefit of approximately $515,000 and is reflected as a cumulative effect of change in accounting principle
in the accompanying statements of operations. This change also increased the Company's net loss for the year ended December 31, 1999 by $1.0 million, pre-tax. The amounts
resulting from the change being applied retroactively to January 1, 1998 and 1997 were not material.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes heating oil forward contracts to manage market risks and hedge its financial exposure to fluctuations in its aircraft fuel costs. The Company
employs a strategy whereby heating oil contracts may be used to hedge up to 50% of Hawaiian's anticipated aircraft fuel needs. At December 31, 2001, the Company held forward contracts to
purchase barrels of heating oil in the aggregate amount of $22.9 million through January 2003.

As
of January 1, 2001, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging

F-11

---

Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company measures fair value of its derivatives based on quoted market prices. Derivatives
that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will be either
offset against the change in the fair
value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.

The
Company is required to account for its fuel hedging program under SFAS No. 133. For the year ended December 31, 2001, realized net losses on liquidated contracts of
$1.7 million are included as a component of aircraft fuel cost. Based upon the Company's derivative positions, realized losses of $1.2 million, net of taxes of $0.5 million, and
unrealized losses of $3.5 million have been recognized as other comprehensive losses on the balance sheet as of December 31, 2001 related to hedging instruments included in the
assessment of hedge effectiveness. Hawaiian expects to reclassify losses on derivative instruments from accumulated other comprehensive losses to operations during the next twelve months when the
hedged fuel expenses are recognized. A realized net gain on liquidated contracts amounting to $11.7 million is included as a component of aircraft fuel cost for the year ended
December 31, 2000.

SALES COMMISSIONS

Commissions from the sale of passenger traffic are recognized as expense when the transportation is provided and the related revenue is recognized. The amount of
sales commissions not yet recognized as expense is included in prepaid expenses and other current assets in the accompanying balance sheets.

ADVERTISING COSTS

The Company expenses the costs of advertising as incurred. Advertising expense was $6.3 million, $5.3 million and $5.7 million for the years
ended December 31, 2001, 2000 and 1999, respectively.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

STOCK OPTION PLANS

The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued
to Employees," in accounting for its fixed stock options. As such, compensation cost is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise
price.

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share represents income (loss) available to common shareholders divided by the weighted average number of Common Stock shares
outstanding for the period. Diluted earnings

F-12

---

per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock shares were exercised or converted into Common Stock shares or resulted in the
issuance of Common Stock shares that then shared in the earnings of the Company. Outstanding rights, warrants and options to purchase shares of the Company's Common Stock are not included in the
computation of diluted earnings per share if inclusion of these rights, warrants and options is antidilutive. Options and warrants to purchase approximately 1.3 million, 2.5 million, and
1.4 million shares of Common Stock in 2001, 2000, and 1999, respectively, were outstanding, but not included in the computation of diluted earnings per share as inclusion of these options and
warrants would be antidilutive. See Note 9.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

Material
estimates that are particularly susceptible to significant change relate to the determination of asset impairment, air traffic liability, frequent flyer liability and the
amounts reported for accumulated pension and other postretirement benefit obligations. Management believes that such estimates have been appropriately established in accordance with accounting
principles generally accepted in the United States.

SEGMENT INFORMATION

Principally all operations of the Company either originate or end in the State of Hawaii. The management of such operations is based on a system-wide
approach due to the interdependence of the Company's route structure in its various markets. The Company operates as a matrix form of organization as it has overlapping sets of components for which
managers are held responsible. Managers report to the Company's chief operating decision-maker on both the Company's geographic components and the Company's product and service components, resulting
in the components based on products and services constituting one operating segment. As the Company offers only one service (i.e., air transportation), management has concluded that it has only one
segment.

RECLASSIFICATIONS

Certain prior year amounts were reclassified to conform to the 2001 presentation. Such reclassifications had no effect on previously reported financial condition
and/or results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations", and
No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful
lives.

The
Company will apply the new rules on accounting for goodwill and other intangible assets deemed to have indefinite lives beginning in the first quarter of 2002 and will perform the
required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. The Company has not yet determined what the effect of these tests will be on its net earnings
and financial position. Application of the non-amortization provisions of the Statement is expected to result in an increase in net earnings of $2.3 million per year.

F-13

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4.    FINANCIAL INSTRUMENTS AND FAIR VALUES

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair value due to the short
maturity of those instruments. The carrying amount of notes receivable from Common Stock sales approximates fair value as the terms of such instruments are reflective of terms offered for similar
instruments of comparable maturities.

The
estimated fair value of our long-term debt at December 31, 2001 was as follows, in thousands:

Carrying Value

Fair ValueSecured notes payable through 2006

$
4,527

$
4,487Floating rate notes


2,509


2,509Other


106


106


The
fair values of the secured notes payable were estimated based on the discounted future cash flows using our current incremental rate of borrowing for a similar liability. All other
debt carrying values was estimated to be their fair value.

5.    FLIGHT EQUIPMENT

At December 31, 2001 and 2000, the Company's aircraft fleet in service was as follows:

2001

2000Aircraft TypeLeased

Owned

Leased

OwnedB-767

3





B-717

13





DC-10

15



13

2DC-9





6

9Total

31



19

11


The
fleet of 15 McDonnell Douglas DC-9-50 aircraft, previously utilized by the Company on its interisland routes, has been replaced by the B717 aircraft and
retired from service. Fourteen of the DC-9-50 aircraft have been placed for storage with Avtel Services in Mojave, California, pending negotiations for return to lessors or
sale. Two of these aircraft have been returned to the respective lessors, by way of lease terminations, but are still parked at Avtel Services under Hawaiian's agreement with Avtel Services. One
DC-9-50 aircraft remains in Honolulu.

6.    LEASES

AIRCRAFT LEASES

BOEING 767-300ER AIRCRAFT. The Company has executed lease agreements for 16 Boeing 767-300ER aircraft, including three new Boeing
767-300ER aircraft under 15-year operating leases with Ansett Worldwide Aviation that were delivered in the fourth quarter of 2001. The first two of four Boeing
767-300ER aircraft under seven-year operating leases with International Lease Finance Corporation were received in March 2002, and the remaining two are scheduled to be
delivered during
the first half of 2002. Nine new Boeing 767-300ER aircraft under 18-year lease financing arranged through Boeing Capital Corporation and Ansett Worldwide Aviation are scheduled
to be delivered during the second half of 2002 and the first half of 2003. On November 6, 2001, the FAA granted the Company's application for extended-range twin-engine operations
certification for Boeing 767-300ER aircraft. The Boeing 767-300ER aircraft have been introduced in the Company's transpacific routes.

BOEING
717-200 AIRCRAFT. During 2001, the Company took delivery of and introduced into service on its interisland routes 13 new Boeing 717-200 aircraft, all under
15-year leveraged lease

F-14

---

financing provided by Boeing affiliates. These aircraft replaced the DC-9-50 fleet previously utilized on the interisland routes.

DC-10
AIRCRAFT. The DC-10 aircraft are utilized in the Company's transpacific and south pacific routes. Of the 15 DC-10 aircraft, 10 are leased from
American Airlines on long-term operating leases expiring at various times in 2002 and the first half of 2003. One of the 10 DC-10 aircraft was returned to American Airlines in
January 2002 and another in March 2002. Three DC-10-30 aircraft were leased from Continental Airlines, two of which were returned in January 2002 and the
remaining aircraft is on a lease which expires in May 2002. In January 2001, the Company completed sale-leaseback transactions on the remaining two DC-10 aircraft
with BCI Aircraft Leasing, Inc. and will continue to utilize the two aircraft under operating leases expiring in early 2004. As of December 31, 2000, $7.6 million was recognized
as a loss on assets held for sale to reduce the book value of these aircraft to net realizable value; the net realizable value of these aircraft of $12.8 million was included as assets held for
sale on the Company's balance sheet; and the balance of the notes payable secured by the two aircraft of $7.1 million was classified as current portion of long-term debt on the
Company's balance sheet. Upon closing of the transaction in January 2001, proceeds from the sale of the aircraft were used to pay off the notes.

Lease
rent for all aircraft has been expensed under the straight-line method.

OTHER LEASES

The Company leases office space for its headquarters, airport facilities, ticket offices and certain ground equipment in varying terms through 2013.

GENERAL

Rent expense for aircraft, office space, real property and other equipment during 2001, 2000, and 1999 was $53.2 million, $30.4 million, and
$26.9 million, respectively, net of sublease rental income.

Scheduled
future minimum lease commitments under operating and capital leases for the Company as of December 31, 2001, in thousands, are as follows:

|           |                                                                        | Operating
Leases |         | Capital
Leases
|---------- | ---------------------------------------------------------------------- | ---------------- | ------- | --------------
|2002       |                                                                        | $                | 80,779  |               
|2003       |                                                                        |                  | 66,210  |               
|2004       |                                                                        |                  | 65,175  |               
|2005       |                                                                        |                  | 57,935  |               
|2006       |                                                                        |                  | 57,935  |               
|Thereafter |                                                                        |                  | 560,343 |               
|           |                                                                        |                  |         |               
|           | Total minimum lease payments                                           |                  | $       | 888,377       
|           |                                                                        |                  |         |               
|           | Less amount representing interest (rates ranging from 7.75% to 11.12%) |                  |         |               
|           |                                                                        |                  |         |               
|           | Present value of capital lease obligations                             |                  |         |               
|           | Less current portion of capital lease obligations                      |                  |         |               
|           |                                                                        |                  |         |               
|           | Capital lease obligations, excluding current portion                   |                  |         |               
|           |                                                                        |                  |         |               

The
above table does not include the minimum payments resulting from leasing the 13 767-300ER aircraft which are scheduled to be delivered during 2002 and 2003. Additionally,
the minimum lease payments for 2002 includes $20 million for advance rents paid prior to December 31, 2001 related to B717 operating leases.

F-15

---

The
net book value of property held under capital leases as of December 31, 2001 and 2000 totaled $4.3 million and $2.1 million, respectively. Amortization of
property held under capital leases is included in depreciation and amortization expense in the accompanying statements of operations.

7.    DEBT

At December 31, 2001 and 2000, the Company's long-term debt consisted of the following, in thousands:

2001

2000Secured obligations due 2002-2006

$
7,142

$
41,273Current portion


(5,469
)

(30,510
)Long-term debt obligations, excluding current portion

$
1,673

$
10,763


Secured obligations due 2002-2006 are as follows:

On
January 10, 2002, the Company received a notice of acceleration from the lender. The lender claims that a default exists under the loan because of a late payment made by the Company two days
after the applicable cure period. In addition to making the late payment of $70,000, the Company has continued to make its monthly payments of $70,000 under the loan. The loan has been classified as a
current obligation for financial statement purposes as of December 31, 2001.

The
Credit Facility is secured by a first lien on substantially all of the Company's property, excluding the Company's owned and leased aircraft, the Company's aircraft engines while installed on
aircraft and certain security deposits. In addition, terms of the Credit Facility restrict the Company from paying any cash or stock dividends on its Common Stock.

The
acceleration of the DC-9-50 loan in January 2002 resulted in a cross default under the Company's Credit Facility. In addition, the Company was not in compliance with
a specified financial covenant in the Credit Facility. The Company notified CIT of the cross default and default of the financial covenant which have been waived.

F-16

---

Maturities
of long-term debt for the Company, including those estimated for the Credit Facility, as of December 31, 2001, in thousands, are as follows:

2002

$
5,4692003


8492004


3842005


4192006


21Thereafter





8.    IMPAIRMENT LOSS AND RESTRUCTURING CHARGES

In connection with its decision to replace the present interisland DC-9-50 fleet with the Boeing 717-200s, the Company
performed an evaluation to determine, in accordance with the Financial Accounting Standards Board (the "FASB") Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," whether future cash flows (undiscounted and without interest charges) expected to result from the
use and eventual disposition of these aircraft would be less than the aggregate carrying amounts of these aircraft and the related assets. As a result of the evaluation, management determined that the
estimated future cash flows expected to be generated by these aircraft would be less than their carrying amount, and therefore these aircraft are impaired as defined by SFAS No. 121.
Consequently, the original cost basis of these aircraft and related items was reduced to reflect the fair market value as of December 31, 1999. In determining the fair market value of these
assets, the Company considered recent transactions involving sales of similar aircraft and market trends in aircraft dispositions. The evaluation performed under the guidelines of SFAS No. 121
resulted in a $47 million pre-tax, non-cash impairment loss being recorded in fourth quarter 1999. The Company also recorded a $14.9 million pre-tax
restructuring charge in 2000, of which $6.8 million was related to estimated costs to comply with the return condition provisions and early termination provisions of the five
DC-9-50 aircraft under operating leases, and $8.1 million to reduce the DC-9-50 expendable inventory to fair market value as of
December 31, 2000. During the year ended December 31, 2001, the Company recorded a $3.6 million credit to restructuring charges related to a change in estimate on the return
condition provisions and early termination provisions of the five DC-9-50 aircraft under operating leases. The change in estimate is based on renegotiation of the return
provisions with the respective lessors. In addition, during 2001, the Company completed an impairment analysis of its DC-10 fleet which did not result in any additional impairment charges.

9.    INCOME TAXES

Income tax expense is based on an estimated annual effective tax rate, which differs from the federal statutory rate of 35% in 2001, 2000 and 1999, primarily due
to state income taxes and certain nondeductible expenses. The Company's reorganization and the associated implementation of fresh

F-17

---

start reporting gave rise to significant items of expense for financial reporting purposes that are not deductible for income tax purposes.

|                |                                      | 2001 |        | 2000   |  | 1999  |      
|--------------- | ------------------------------------ | ---- | ------ | ------ |  | ----- | -----
|Deferred taxes  |                                      |      |        |        |  |       |      
|                | Federal                              |      | $      | 9,762  |  | $     | 5,095
|                | State                                |      |        | 1,474  |  |       | 1,195
|                |                                      |      |        |        |  |       |      
|                |                                      |      | 11,236 |        |  | 6,290 |      
|Current payable |                                      |      |        |        |  |       |      
|                | Federal                              |      |        | 1,683  |  |       |     
|                | State                                |      |        | 851    |  |       |     
|                |                                      |      |        |        |  |       |      
|                |                                      |      | 2,534  |        |  |      |      
|                |                                      |      |        |        |  |       |      
|                | Provision (benefit) for income taxes |      | $      | 13,770 |  | $     | 6,290
|                |                                      |      |        |        |  |       |      

The
estimated income tax benefit from the expected utilization of net operating loss carryforwards arising prior to the Effective Date has been, and will continue to be, applied as a
reduction to Excess Reorganization Value, not as a reduction to income tax expense. While accounting principles generally accepted in the United States require that a provision for income tax be
recorded, a majority of the provision for 2001 and 2000 did not require cash outlay as it was offset by net operating loss carryforwards available to the Company. In 2001 and 1999, approximately
$1.0 million and $1.3 million, respectively, of estimated income tax benefit from the expected utilization of these net operating loss carryforwards has been applied as a reduction to
Excess Reorganization Value.

Income
tax expense in 2001, 2000, and 1999 differs from the "expected" tax expense (benefit) for that year computed by applying the respective year's U.S. federal corporate income tax
rate to income (loss) before income taxes and cumulative effect of change in accounting principle as follows:

|                                                      |  | 2001 |        | 2000 |   | 1999   |  
|----------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | -
|Computed "expected" tax expense (benefit)             |  | $    | 6,594  |      | $ | (4,314 | )
|Amortization of Excess Reorganization Value           |  |      | 807    |      |   | 807    |  
|State income taxes, net of federal income tax benefit |  |      | 1,067  |      |   | (478   | )
|Change in deferred tax valuation allowance            |  |      | 5,331  |      |   | 10,579 |  
|Other                                                 |  |      | (29    | )    |   | (304   | )
|                                                      |  |      |        |      |   |        |  
|                                                      |  | $    | 13,770 |      | $ | 6,290  |  
|                                                      |  |      |        |      |   |        |  

F-18

---

The
tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets and deferred tax liabilities at December 31, 2001 and 2000 are
presented below, in thousands:

|                          |                                                                         | 2001                                                                          |        | 2000   |        
|------------------------- | ----------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------ | ------ | -------
|Deferred tax assets:      |                                                                         |                                                                               |        |        |        
|                          | Net operating loss carryforwards                                        |                                                                               | $      | 5,381  |        
|                          | Impairment loss                                                         |                                                                               |        | 3,429  |        
|                          | Accumulated pension and other postretirement benefit obligations        |                                                                               |        | 26,980 |        
|                          | Section 467 rent                                                        |                                                                               |        | 2,696  |        
|                          | Accrued vacation                                                        |                                                                               |        | 3,878  |        
|                          | Airframe return provision                                               |                                                                               |        | 2,060  |        
|                          | Excise tax                                                              |                                                                               |        | 5,360  |        
|                          | Merger costs                                                            |                                                                               |        | 1,280  |        
|                          | Unrealized loss on hedge                                                |                                                                               |        | 1,416  |        
|                          | Accounts receivable, principally due to allowance for doubtful accounts |                                                                               |        | 522    |        
|                          | Alternative minimum tax credit                                          |                                                                               |        | 2,352  |        
|                          | Other                                                                   |                                                                               |        | 7,553  |        
|                          |                                                                         |                                                                               |        |        |        
|                          |                                                                         | Total gross deferred tax assets                                               |        |        | 62,907 
|                          |                                                                         | Less valuation allowance allocated to pre-reorganization deferred tax assets  |        |        | (12,289
|                          |                                                                         |                                                                               |        |        |        
|                          |                                                                         |                                                                               | 50,618 |        |        
|                          |                                                                         | Less valuation allowance allocated to post-reorganization deferred tax assets |        |        | (41,762
|                          |                                                                         |                                                                               |        |        |        
|                          | Net deferred tax assets                                                 |                                                                               |        | 8,856  |        
|Deferred tax liabilities: |                                                                         |                                                                               |        |        |        
|                          | Plant and equipment, principally due to differences in depreciation     |                                                                               |        | (2,952 | )      
|                          |                                                                         |                                                                               |        |        |        
|                          |                                                                         | Total deferred tax liabilities                                                |        |        | (2,952 
|                          |                                                                         |                                                                               |        |        |        
|                          |                                                                         | Net deferred taxes                                                            |        | $      | 5,904  
|                          |                                                                         |                                                                               |        |        |        

F-19

---

As of December 31, 2001, the Company had net deferred tax assets aggregating $5.9 million, based on gross deferred tax assets of $62.9 million less a valuation
allowance of $54.1 million and deferred tax liabilities of $2.9 million. The valuation allowance for deferred tax assets as of December 31, 2001, 2000, and 1999 was
$54.1 million, $28.6 million, and $18.0 million, respectively.

The
net change in the total valuation allowance was an increase of $25.5 million and $10.6 million for the years ended December 31, 2001 and 2000, respectively, and
a decrease of $6.5 million for the year ended December 31, 1999. For 2001, a component of deferred tax assets was increased, along with an equal amount of increase in the valuation
allowance, due to other comprehensive losses. Any reduction to the pre-reorganization valuation allowance presented above will result in a reduction of Excess Reorganization Value.

Utilization
of the Company's deferred tax assets is predicated on the Company being profitable in future years. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. The Company will continually assess the adequacy of its financial performance in determination of its valuation allowance which, should
there be an adjustment required, may result in a positive effect on the Company's income tax provision. An adjustment was made to the deferred tax assets in 2001, which resulted in a negative impact
on the Company's income tax provision.

The
Company underwent an ownership change in January 1996, as defined under Section 382 of the Internal Revenue Code ("IRC Section 382"). IRC Section 382
places an annual limitation on the amount of income that can be offset by net operating loss carryforwards generated in pre-ownership change years. The ownership change resulted in an IRC
Section 382 limitation of approximately $1.7 million plus certain "built-in" income items. This new limitation applies to all net operating losses incurred prior to the
ownership change. As of December 31, 2001, the Company has total net operating loss carryovers of approximately $13.4 million to offset future taxable income. If not utilized to offset
future taxable income, the net operating loss carryforwards will expire between the years 2003 and 2009. Utilization of approximately $1.4 million of net operating loss carryforwards will first
result in a $0.4 million reduction of deferred tax assets. Utilization of the remaining $12 million of net operating loss carryforwards will result in a $5 million reduction in
Excess Reorganization Value.

10.  BENEFIT PLANS

DEFINED BENEFIT PENSION PLANS

The Company sponsors three defined benefit pension plans covering its Air Line Pilots Association, International, International Association of Machinists and
Aerospace Workers (AFL-CIO) and other personnel (salaried, Transport Workers Union, Employees of the Communications Section). The plans for the IAM and other employees were frozen
effective October 1, 1993. As a result of the freeze, there will be no further benefit accruals. The pilots plan is funded based on minimum Employee Retirement Income Security Act of 1974
(ERISA) requirements, but not less than the normal cost plus the 20-year funding of the past service liability. Funding for the ground personnel plans is based on minimum (ERISA)
requirements. Plan assets consist primarily of common stocks, government and convertible securities, insurance contract deposits and cash management and mutual funds.

In
addition to providing pension benefits, the Company sponsors two unfunded defined benefit postretirement medical and life insurance plans. Employees in the Company's pilot group are
eligible for certain medical, dental and life insurance benefits under one plan if they become disabled or reach normal retirement age while working for the Company. Employees in the Company's
non-pilot group

F-20

---

are eligible for certain medical benefits under another plan if they meet specified age and service requirements at the time of retirement.

The
following tables summarize changes to benefit obligations, plan assets, funded status and amounts included in the accompanying balance sheets as of December 31, 2001 and 2000,
in thousands:

|                                                      |  | Pension Benefits |          | Other Benefits |  
|----------------------------------------------------- |  | ---------------- | -------- | -------------- | -
|
|Change in benefit obligation                          |  |                  |          |                |  
|Benefit obligation at beginning of year               |  | $                | 205,441  |                | $
|Service cost                                          |  |                  | 6,166    |                |  
|Interest cost                                         |  |                  | 15,296   |                |  
|Amendments                                            |  |                  |         |                |  
|Actuarial (gain) loss                                 |  |                  | 10,268   |                |  
|Benefits paid                                         |  |                  | (10,014  | )              |  
|                                                      |  |                  |          |                |  
|Benefit obligation at end of year                     |  |                  | 227,157  |                |  
|                                                      |  |                  |          |                |  
|Change in plan assets                                 |  |                  |          |                |  
|Fair value of assets at beginning of year             |  |                  | 178,723  |                |  
|Actual return on plan assets                          |  |                  | (9,796   | )              |  
|Employer contribution                                 |  |                  | 5,004    |                |  
|Benefits paid                                         |  |                  | (10,014  | )              |  
|Fair value of assets at end of year                   |  |                  | 163,917  |                |  
|Funded status                                         |  |                  | (63,240  | )              |  
|Unrecognized actuarial net (gain) loss                |  |                  | 75,172   |                |  
|Unrecognized prior service cost                       |  |                  |         |                |  
|                                                      |  |                  |          |                |  
|Prepaid (accrued) benefit cost at end of year         |  | $                | 11,932   |                | $
|                                                      |  |                  |          |                |  
|Amounts recognized in the accompanying balance sheets |  | $                |         |                | $
|Prepaid benefit cost Accrued benefit liability        |  |                  | (39,668  | )              |  
|Accumulated other comprehensive loss                  |  |                  | 51,600   |                |  
|                                                      |  |                  |          |                |  
|Prepaid (accrued) benefit cost at end of year         |  | $                | 11,932   |                | $
|                                                      |  |                  |          |                |  
|Weighted average assumptions at end of year           |  |                  |          |                |  
|Discount rate                                         |  |                  | 7.25     | %              |  
|Expected return on plan assets                        |  |                  | 9.0      | %              |  
|Rate of compensation increase                         |  |                  | Various* |                |  

---

At
December 31, 2001, the health care cost trend rate was assumed to increase by 9.0% for 2002 and decrease gradually to 4.25% over 7 years and remain level thereafter. At
December 31, 2000, the health care cost trend rate was assumed to increase by 7.0% for 2001 and decrease gradually to 4.0% over 6 years and remain level thereafter.

The
projected benefit obligation, accumulated benefit obligation and fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were
$227.2 million, $203.6 million and $163.9 million, respectively, as of December 31, 2001, and $147.7 million, $128.0 million and $110.5 million,
respectively, as of December 31, 2000.

F-21

---

The
following table sets forth the net periodic benefit cost for the years ended December 31, 2001, 2000, and 1999:

|                                     |                           | Pension Benefits |         | Other Benefits |  
|------------------------------------ | ------------------------- | ---------------- | ------- | -------------- | -
|
|
|Service cost                         |                           | $                | 6,166   |                | $
|Interest cost                        |                           |                  | 15,296  |                |  
|Expected return on plan assets       |                           |                  | (16,802 | )              |  
|Amortization of prior service cost   |                           |                  |        |                |  
|Recognized net actuarial (gain) loss |                           |                  | 758     |                |  
|                                     |                           |                  |         |                |  
|                                     | Net periodic benefit cost |                  | $       | 5,418          |  
|                                     |                           |                  |         |                |  

Assumed
health care cost trend rates have a significant impact on the amounts reported for other benefits. A one-percentage point change in the assumed health care cost trend
rates would have the following effects:

1-Percentage-
Point Increase

1-Percentage-
Point DecreaseEffect on total of service and interest cost components

$
323,000

$
(265,000
)Effect on postretirement benefit obligation

$
2,803,000

$
(2,348,000
)


OTHER BENEFIT PLANS

The Company sponsors separate deferred compensation plans (401(k)) for its pilots, flight attendants and ground and salaried personnel. Participating employer
cash contributions are not required under the terms of the pilots' plan. The Company is required to contribute up to 7.0% of defined compensation pursuant to the terms of the flight attendants' plan.
Contributions to the flight attendants' plan are funded currently and totaled approximately $2.1 million, $1.7 million, and $1.4 million in 2001, 2000, and 1999, respectively. The
Company is also required to contribute 4.04% of eligible earnings to the ground and salaried plan for eligible employees as defined by the plan. Contributions to the ground and salaried 401(k) plan
totaled $2.5 million, $2.3 million, and $2.1 million in 2001, 2000, and 1999, respectively.

11.  CAPITAL STOCK, WARRANTS, RIGHTS AND OPTIONS

AUTHORIZED CAPITAL STOCK

As of December 31, 2001 and 2000, the authorized capital stock of the Company consists of 60,000,000 shares of Common Stock, par value $.01 per share, and
2,000,000 shares of Special Preferred Stock, par value $.01 per share.

Under
the terms of the Credit Facility, the Company is restricted from paying any cash or stock dividends. No dividends were paid by the Company in 2001 or 2000.

In
March 2000, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 5 million shares of its
Common Stock. In August 2000, the Board of Directors increased the authorization to 10 million shares. Under the approved stock repurchase plan, the Company may repurchase Common Stock
from time to time in the open market and in private transactions. Including the effect of the repurchase of certain warrants, as of December 31, 2001, 9,333,508 shares of Common Stock had been
repurchased by the Company for approximately $19.3 million. In March 2002, the Board of Directors approved a stock repurchase program authorizing the repurchase of up to 5 million
shares of the Company's Common Stock from time to time in the open market or privately negotiated transactions, to be implemented in the event

F-22

---

that the proposed merger is formally terminated. The amount and timing of any repurchases will be subject to a number of factors, including the "trading practices rules" promulgated under the
Securities Exchange Act of 1934, the price and availability of the Company's stock and general market conditions. See Note 17Subsequent Events regarding discussion of the proposed
merger.

SPECIAL PREFERRED STOCK

Four shares of Series B Special Preferred Stock are owned by Airline Investors Partnership, L.P. ("AIP") with such shares entitling AIP to nominate
directors. The Association of Flight Attendants ("AFA"), IAM and ALPA each hold one share of Series C Special Preferred Stock, Series D Special Preferred Stock and Series E
Special Preferred Stock, respectively, (collectively the "Special Preferred Stock") which entitle each union to nominate one director. The holders of each series of the Special Preferred Stock are
entitled to fill a vacancy on the Board of Directors caused by the removal, resignation or death of a director nominated by that series if the Board fails to fill such vacancy within 30 days.
AIP has agreed with each of IAM, ALPA and AFA that so long as the right to have a representative on the Board is in its respective collective bargaining agreement, AIP will vote its shares in favor of
such union's nominee for the Board of Directors. In addition to the rights described above, the Special Preferred Stock (1) is senior to Common Stock and each series is PARI PASSU with each
other with respect to rights on liquidation, dissolution and winding up and will be entitled to receive $.01 per share, and no more, before any payments are made to holders of any stock ranking junior
to the Special Preferred Stock; (2) has no dividend rights other than at any time that a dividend is declared and paid on the Common Stock dividends in an amount per share equal to twice the
dividend per share paid on the Common Stock will be paid on the Special Preferred Stock; (3) is entitled to one vote per share and votes with the Common Stock as a single class on all matters
submitted to the shareholders of the Company; (4) automatically converts into one share of Common Stock upon the transfer of such share from the person to whom originally issued to any person
that is not an affiliate of such person; and (5) does not have preemptive rights in connection with future issuances of the Company's capital stock.

SHAREHOLDER RIGHTS PLAN

In December 1994, the Board of Directors of the Company authorized adoption of a shareholder rights plan (the "Rights Plan") pursuant to which there would
be attached to each share of Common Stock of the Company one preferred stock purchase right (a "PSP Right"). The Rights Plan, as amended, provides that in the event any person (with certain
exceptions) becomes the beneficial owner of 15.0% or more of the outstanding common shares, each PSP Right (other than a PSP Right held by the 15.0% shareholder) will be exercisable, on and after the
close of business on the tenth business day following such event, to purchase Hawaiian Airlines Common Stock at 50% of the market value of such stock. The Rights Plan further provides that if, on or
after the occurrence of such event, the Company is merged into any other corporation or 50.0% or more of the Company's assets or earning power are sold, each PSP Right (other than a PSP Right held by
the 15.0% shareholder) will be exercisable to purchase common shares of the acquiring corporation at 50% of the market value of such stock. The PSP Rights expire on December 1, 2004 (unless
previously triggered) and are subject to redemption by the Company at $0.01 per PSP Right at any time prior to the first date upon which they become exercisable.

WARRANTS

In January 1996, due to its participation in certain recapitalization efforts of the Company, American's parent company, AMR Corporation ("AMR"), received,
among other things, warrants (the "AMR Warrants") which, subject to certain conditions, entitled AMR to purchase up to 1,949,338 shares of the Company's Common Stock at $1.07 per share, as adjusted
pursuant to applicable

F-23

---

anti-dilution provisions. One-half of the warrants were exercisable immediately and the remaining one-half were to become exercisable only if American and the
Company entered into a code sharing arrangement. In July 1997, the Company consummated the code share marketing agreement with American. All of the warrants became exercisable upon
implementation of the code share agreement with American on March 2, 1998. On June 20, 2000, the Company repurchased from AMR all of the outstanding warrants for approximately
$2.6 million. The 1,949,338 shares associated with the warrants have been counted toward the 10 million shares of Common Stock that the Company was authorized to repurchase under the
stock repurchase program in 2000. The estimated fair value of the codeshare agreement and the underlying warrants approximated $2.3 million and has been reflected in the accompanying balance
sheets as other assets. The amount included in other assets is being amortized on a straight-line basis over five years from the implementation date of the code share agreement.

STOCK COMPENSATION

As part of the collective bargaining agreement negotiated with ALPA in December 2000, the Company agreed to distribute 1,685,380 shares of its common stock
to the individual 401(k) accounts of ALPA pilots in the Company's employment during 2001 and 2002. The Company distributed 832,425 shares to Vanguard Group, Inc. as trustee for the Hawaiian
Airlines, Inc. Pilots' 401(k) Plan between
September 2001 and February 2002 for pilots employed during 2001. The Company recognized compensation expense related to the stock distribution of $2.6 million for the year ended
December 31, 2001.

STOCK OPTION PLANS

Under the 1994 Stock Option Plan, 600,000 shares of Common Stock were reserved for grants of options to officers and key employees of the Company. Under the 1996
Stock Incentive Plan, As Amended, 4,500,000 shares of Common Stock have been reserved for issuance of discretionary grants of options to the Company's employees. The Company also has a 1996
Nonemployee Director Stock Option Plan under which 500,000 shares of Common Stock were reserved for issuance and grants of options to nonemployee members of the Board of Directors. Stock options are
granted with an exercise price equal to the Common Stock's fair market value at the date of grant, generally vest over a period

F-24

---

of four years and expire, if not previously exercised, 10 years from the date of grant. Stock option activity during the periods indicated is as follows:

|                             |           | Shares of Common Stock                      |  | Weighted
average of
exercise price
of shares
under plan
|---------------------------- | --------- | ------------------------------------------- |  | -------------------------------------------------------
|
|Balance at December 31, 1998 |           | 2,977,500                                   |  | 1,495,000                                              
|                             |           |                                             |  |                                                        
|                             | Granted   |                                             |  |                                                        
|                             |           | 1996 Stock Incentive Plan                   |  | (200,000                                               
|                             |           | 1996 Nonemployee Director Stock Option Plan |  | (32,000                                                
|                             | Forfeited |                                             |  |                                                        
|                             |           | 1996 Stock Incentive Plan                   |  | 45,000                                                 
|                             |           | 1996 Nonemployee Director Stock Option Plan |  | 25,000                                                 
|                             |           |                                             |  |                                                        
|Balance at December 31, 1999 |           | 2,815,500                                   |  | 1,657,000                                              
|                             |           |                                             |  |                                                        
|                             | Granted   |                                             |  |                                                        
|                             |           | 1996 Stock Incentive Plan                   |  | (975,000                                               
|                             |           | 1996 Nonemployee Director Stock Option Plan |  | (56,000                                                
|                             | Forfeited |                                             |  |                                                        
|                             |           | 1996 Stock Incentive Plan                   |  | 35,000                                                 
|                             |           | 1996 Nonemployee Director Stock Option Plan |  | 24,000                                                 
|                             |           |                                             |  |                                                        
|Balance at December 31, 2000 |           | 1,843,500                                   |  | 2,629,000                                              
|                             |           |                                             |  |                                                        
|                             | Granted   |                                             |  |                                                        
|                             |           | 1996 Stock Incentive Plan                   |  | (600,000                                               
|                             | Exercised |                                             |  |                                                        
|                             |           | 1994 Stock Option Plan                      |  |                                                       
|                             | Forfeited |                                             |  |                                                        
|                             |           | 1996 Stock Incentive Plan                   |  | 180,000                                                
|                             |           | 1996 Nonemployee Director Stock Option Plan |  | 16,000                                                 
|                             |           |                                             |  |                                                        
|Balance at December 31, 2001 |           | 1,439,500                                   |  | 3,018,000                                              
|                             |           |                                             |  |                                                        

As
of December 31, 2001, vesting requirements and exercise periods under each respective plan are as follows:

Vesting

Exercise Period1994 Stock Option Plan

Fully vested

Through 20051996 Stock Incentive Plan

Various from
2002 through 2005

Various from
2002 through 20111996 Nonemployee Director Stock Option Plan

Fully vested

Various from
2002 through 2011


At
December 31, 2001, the range of exercise prices and weighted-average remaining contractual lives of outstanding options was $1.62 to $4.06 and 7.1 years, respectively.

At
December 31, 2001, 2000, and 1999, the number of options exercisable was 1,738,000, 1,143,000, and 646,500, respectively, with weighted-average exercise prices of $3.16, $3.38,
and $3.42, respectively.

F-25

---

The
Company applies APB Opinion No. 25 in accounting for stock options. Had the Company determined compensation cost based on the fair value at the grant date of the respective
options under SFAS No. 123, the Company's net income (loss) would have been reduced or increased to the pro forma amounts indicated below:

2001

2000

1999Net income (loss)As reported

$
5,069

$
(18,615
)
$
(29,267
)Pro forma

$
4,002

$
(19,475
)
$
(29,933
)Basic earnings per shareAs reported

$
0.15

$
(0.48
)
$
(0.72
)Pro forma

$
0.12

$
(0.51
)
$
(0.73
)Diluted earnings per shareAs reported

$
0.15

$
(0.48
)
$
(0.72
)Pro forma

$
0.12

$
(0.50
)
$
(0.73
)


The
per share weighted-average fair value of stock options granted during 2001, 2000, and 1999 was $1.57, $1.22, and $1.22, respectively, on the date of grant using a Black Scholes
option-pricing model with the following weighted-average assumptions:

2001

2000

1999Expected dividend yield

0.00%

0.00%

0.00%Expected volatility

55.00%

34.00%

34.00%Risk-free interest rate

4.95% to 5.41%

5.19%

5.38% to 6.36%Expected life

Up to 7 years

Up to 7 years

Up to 7 years


Pro
forma net income (loss) reflects only options granted since December 31, 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income (loss) amounts presented above because compensation cost is reflected over the various options' vesting periods and compensation cost for
options granted prior to January 1, 1997 is not considered.

12.  COMMITMENTS AND CONTINGENT LIABILITIES

AIRCRAFT COMMITMENTS

In 2001, the Company entered commitments to take delivery of 16 Boeing 767-300 aircraft, and took delivery of three in the fourth quarter of 2001. As
of December 31, 2001, the Company had commitments for the additional 13 Boeing 767-300 aircraft to be delivered in 2002 and 2003. These aircraft are expected to replace the
Company's DC-10 aircraft. Future payments for the additional 13 Boeing 767-300 aircraft will approximate $25 million and $78 million in 2002 and 2003,
respectively, and approximately $82.0 million per year for the remainder of the lease term. In addition to the delivery of
the Boeing 767-300 aircraft, the Company will take delivery of two Pratt & Whitney spare aircraft engines in September 2002 and one in March 2003. Future commitments for these
engines are approximately $0.9 million and $2.1 million in 2002 and 2003 and approximately $2.1 million per year for the remainder of the lease term.

F-26

---

LITIGATION AND CONTINGENCIES

From time to time, the Company is subject to legal proceedings arising in the normal course of its operations. Management does not anticipate that the disposition
of such proceedings would have a material effect upon the Company's financial statements.

LOS ANGELES AIRPORT OPERATING TERMINAL

On December 1, 1985, the Company entered into an interline agreement with other airlines, which agreement was amended and restated as of
September 1, 1989 for, among other things, the sharing of costs, expenses and certain liabilities related to the acquisition, construction and renovation of certain passenger terminal
facilities at the Los Angeles International Airport ("Facilities"). Current tenants and participating members of LAX Two Corporation (the "Corporation"), a mutual benefit corporation, are jointly and
severally obligated to pay their share of debt service payments related to Facilities Sublease Revenue Bonds issued to finance the acquisition, construction and renovation of the Facilities which
totaled $111.9 million at completion. The Corporation leases the Facilities from the Regional Airports Improvement Corporation under a lease agreement. In addition, the Corporation is also
obligated to make annual payments to the city of Los Angeles for charges related to its terminal ground rental. All leases of the Corporation are accounted for as operating leases with related future
commitments as of December 31, 2001 amounting to approximately $215.3 million. Rent expense relating to these operating leases totaled $4.1 million, $5.6 million, and
$4.7 million in 2001, 2000, and 1999, respectively.

Member
airlines pay the expenses associated with the Facilities on a prorata share basis calculated primarily upon their respective numbers of passengers utilizing the Facilities. The
Company accounts for its obligation under this agreement as an operating lease and incurred $800,000, $1,068,000, and $605,000 of rent expense in 2001, 2000, and 1999, respectively.

UNION CONTRACT NEGOTIATIONS

The majority of Hawaiian's employees are covered by labor agreements with the International Association of Machinists and Aerospace Workers (AFL-CIO),
the Air Line Pilots Association
International, the Association of Flight Attendants, the Transport Workers Union and the Employees of the Communications Section. All contracts, other than the contract with the seven-member Employees
of the Communications Section, were renegotiated in 2001 and Hawaiian is currently in direct negotiations with the Employees of the Communications Section. If an agreement is not reached in direct
negotiations, federally-mandated mediation will occur and could last for an unspecified period of time. Although the overwhelming majority of labor negotiations in the airline industry are resolved in
mediation, there can be no assurance that the discussions will result in an agreement and ratification. The time required to negotiate a contract under the Railway Labor Act varies. Therefore,
management cannot currently estimate the time frame or results of these negotiations. Should Hawaiian and the Employees of the Communications Section be unable to reach an agreement, the Company could
be adversely affected.

13.  RELATED PARTY TRANSACTIONS

From July 17, 2000 through February 28, 2001, William F. Loftus served as Executive Vice President, Chief Financial Officer and Treasurer of the
Company. During this period, the Company paid Mr. Loftus a base salary of $152,000. During this same period, the Company paid The Loftus Group, a financial and management consulting firm of
which more than ten percent (10%) is owned by Mr. Loftus, $638,535 in fees for financial consulting services, plus expenses.

Since
May 19, 2000, the Company has invested $3.0 million in certificates of deposit with Liberty Bank, SSB, of Austin, Texas. Liberty Bank is majority owned by John W.
Adams and another individual.

F-27

---

John W. Adams is an employee of the Company, Chairman of the Company's board of directors and the sole shareholder of AIP General Partner, Inc., the general partner of Airline Investors
Partnership, L.P., which is the majority shareholder of the Company. Current directors of the Company include Edward Z. Safady and Thomas J. Trzanowski, both of whom are also employees and/or
directors of Liberty Bank, SSB.

On
December 19, 2001, the Company executed an Advisory Services Agreement with Smith Management LLC and John W. Adams, pursuant to which the Company or its successor will pay,
upon the completion of the proposed merger, $4 million in cash to John W. Adams and $1 million in cash, one million shares of Holdco common stock and Holdco notes with an aggregate
principal amount of $2 million to Smith Management. The Advisory Services Agreement provides that it will be terminated automatically upon the formal termination of the Merger Agreement.
John W. Adams is an affiliate of Smith Management.

14.  CONCENTRATION OF BUSINESS RISK

The Company's scheduled service operations are primarily focused on providing air transportation service to, from, or throughout the Hawaiian Islands. Therefore,
the Company's operations, including its ability to collect its outstanding receivables, are significantly affected by economic conditions in the State of Hawaii and by other factors affecting the
level of tourism in Hawaii. In 2001 and 2000, one particular Hawaii-based wholesaler constituted approximately 21% and 17% of the Company's total operating revenues, respectively.

15.  SEGMENT INFORMATION

The Company operates as a matrix form of organization and offers only one service (i.e., air transportation), resulting in management concluding that it
operates one industry segment. The Company's principal line of business, the scheduled and chartered transportation of passengers, constitutes more than 90% of its operating revenues. The following
table delineates scheduled and chartered passenger revenue of the Company, in thousands:

2001

2000

1999Transpacific

$
295,391

$
286,765

$
236,234Interisland


172,584


167,048


144,131South Pacific


20,325


21,662


19,886Overseas Charter


75,632


82,358


46,570$
563,932

$
557,833

$
446,821


16.  SUBSEQUENT EVENTS

On December 19, 2001, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") among the Company, Aloha Airgroup, Inc.
("Aloha"), TurnWorks Acquisition III, Inc. ("Holdco") and TurnWorks, Inc. ("TurnWorks"), pursuant to which each of the Company and Aloha has agreed to become a wholly owned subsidiary of
Holdco and the existing shareholders of the Company and Aloha would become, along with TurnWorks, shareholders of Holdco (the "proposed merger"). On February 14, 2002, Holdco and its
subsidiaries filed a Registration Statement on Form S-4 with the Securities and Exchange Commission with respect to the proposed merger.

When
it became clear to the parties that the April 18, 2002 outside date agreed to by the parties in the Merger Agreement would not be satisfied due to the expected timing of
regulatory approvals and reviews and other matters, TurnWorks requested that the Company extend the outside date. After considering the request, the Company announced on March 16, 2002 that it
had determined not to

F-28

---

extend the outside date. The parties conducted discussions with respect to potential revisions to the Merger Agreement and a potential formal termination of the Merger Agreement, but no resolution
was reached. As the parties have now publicly announced their intentions to pursue other courses of action, the Company has treated the Merger Agreement as having been effectively terminated. The
Company believes the other parties are taking the same position. In 2001, the Company recognized $3.2 million in expenses related to the proposed merger.

17.  SUPPLEMENTAL FINANCIAL INFORMATION

Unaudited Quarterly Financial Information (in thousands, except for per share data)

|            |                                           | First
Quarter |   | Second
Quarter |      | Third
Quarter |         | Fourth
Quarter |  
|----------- | ----------------------------------------- | ------------- | - | -------------- | ---- | ------------- | ------- | -------------- | -
|As Reported |                                           |               |   |                |      |               |         |                |  
|2001:       |                                           |               |   |                |      |               |         |                |  
|            | Operating revenues                        |               | $ | 148,045        |      | $             | 156,038 |                | $
|            | Operating income (loss)                   |               |   | 725            |      |               | 1,259   |                |  
|            | Net income (loss)                         |               |   | 216            |      |               | 2,964   |                |  
|            | Net income (loss) per Common Stock share: |               |   |                |      |               |         |                |  
|            |                                           | Basic         |   |                | 0.01 |               |         | 0.09           |  
|            |                                           | Diluted       |   |                | 0.01 |               |         | 0.09           |  

In
connection with reviewing the results of the first full year of operating its new revenue accounting system, the Company did an extensive year-end analysis of all activity
and reconciliation of air traffic liability as of December 31, 2001. The results of this analysis showed that ticket spoilage occurred in prior quarters and that additional revenue needed to be
recognized in the first three quarters. At year end, the Company also analyzed its excise taxes and with all data available determined that an additional accrual was necessary. The impact of these
adjustments is shown below:

First
Quarter

Second
Quarter

Third
QuarterIncrease in operating revenues

$
4,205

$
3,257

$
5,119Increase in operating expenses





(1,959
)

(660
)Decrease in nonoperating income





(3,213
)

(5,758
)Change in income before taxes


4,205


(1,915
)

(1,299
)Income tax effect


(1,893
)

862


584Change in net income


2,312


(1,053
)

(715
)


|      |                                           | First
Quarter |   | Second
Quarter |       | Third
Quarter |         | Fourth
Quarter |  
|----- | ----------------------------------------- | ------------- | - | -------------- | ----- | ------------- | ------- | -------------- | -
|2000: |                                           |               |   |                |       |               |         |                |  
|      | Operating revenues                        |               | $ | 136,033        |       | $             | 154,557 |                | $
|      | Operating income (loss)                   |               |   | (4,455         | )     |               | 7,509   |                |  
|      | Net income (loss)                         |               |   | (2,598         | )     |               | 4,618   |                |  
|      | Net income (loss) per Common Stock share: |               |   |                |       |               |         |                |  
|      |                                           | Basic         |   |                | (0.06 | )             |         | 0.11           |  
|      |                                           | Diluted       |   |                | (0.06 | )             |         | 0.11           |  

F-29

---

The Board of Directors
Hawaiian Airlines, Inc.

We
have audited the financial statements of Hawaiian Airlines, Inc. (the "Company") as of December 31, 2001 and 2000, and for each of the three years in the period ended
December 31, 2001, and have issued our report thereon dated March 25, 2002 (included elsewhere in this Form 10-K). Our audits also included the financial statement
schedule for these related periods listed in item 14(a) (Schedule of Valuation and Qualifying Accounts) of this Form 10-K. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial statement schedule based on our audit.

In
our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

Honolulu,
Hawaii
March 25, 2002

S-1a

---



Hawaiian Airlines, Inc.        Valuation and Qualifying Accounts (in thousands)        Years Ended December 31, 2001, 2000 and 1999

|COLUMN A                                                                      |      | COLUMN B |   | COLUMN C
ADDITIONS |  | COLUMN D |     | COLUMN E
|----------------------------------------------------------------------------- | ---- | -------- | - | ------------------ |  | -------- | --- | --------
|
|Allowance for Doubtful Accounts:                                              |      |          |   |                    |  |          |     |         
|                                                                              | 2001 |          | $ | 500                |  | 1,320    |     |        
|                                                                              |      |          |   |                    |  |          |     |         
|                                                                              | 2000 |          | $ | 500                |  | 795      |     |        
|                                                                              |      |          |   |                    |  |          |     |         
|                                                                              | 1999 |          | $ | 500                |  | 1,060    |     |        
|                                                                              |      |          |   |                    |  |          |     |         
|Allowance for Obsolescence of Flight Equipment Expendable Parts and Supplies: |      |          |   |                    |  |          |     |         
|                                                                              | 2001 |          | $ | 8,004              |  |         |     |        
|                                                                              |      |          |   |                    |  |          |     |         
|                                                                              | 2000 |          | $ | 120                |  | 8,080    | (b) |        
|                                                                              |      |          |   |                    |  |          |     |         
|                                                                              | 1999 |          | $ | 120                |  |         |     |        
|                                                                              |      |          |   |                    |  |          |     |         

---

S-2

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