<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS

                     PURSUANT TO SECTIONS 13 OR 15(D) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934

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

                   For the fiscal year ended December 31, 1999
              ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

                     OF THE SECURITIES EXCHANGE ACT OF 1934

                          Commission file number 1-8836

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

         HAWAII                                              99-0042880
(State or other jurisdiction of                         (I.R.S. employer
incorporation or organization)                          identification no.)

3375 Koapaka Street, Suite G-350

         Honolulu, Hawaii                                     96819
(Address of principal executive offices)                    (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
     -------------------               -----------------------------------------
Preferred Stock Purchase Rights                    American Stock Exchange, Inc.
Common Stock ($.01  par value)                            Pacific Exchange, Inc.

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

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

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.                                                       Yes ( ) No (X )

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 ( X ) No ( )

As of March 1, 2000,  40,997,335  shares of Common Stock of the Registrant  were
outstanding.  The aggregate market value of voting stock held by  non-affiliates
(22,536,187 shares) of the Registrant is $42,255,351.

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's  Proxy Statement for the 2000 Annual Meeting of Shareholders is
incorporated herein by reference in Part III of this Form 10-K.

                            EXHIBIT INDEX ON PAGE 30







                                       2
<PAGE>

                                TABLE OF CONTENTS

                                                                         PAGE

COVER PAGE                                                                   1

                                     PART I

ITEM 1.   BUSINESS.                                                          4
ITEM 2.   PROPERTIES.                                                        11
ITEM 3.   LEGAL PROCEEDINGS.                                                 11
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.               11

                                     PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON  EQUITY AND RELATED
          SHAREHOLDER MATTERS.                                               11
ITEM 6.   SELECTED FINANCIAL DATA.                                           11
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS.                                         12
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.        23
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                       24
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.                                              24

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                24
ITEM 11.  EXECUTIVE COMPENSATION.                                            25
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.    25
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                    25

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.   26
          EXHIBIT INDEX.                                                     30
          SIGNATURES.                                                        31

                                         TABLE INDEX

          REPORT OF INDEPENDENT AUDITORS.                                  F-1a
          INDEPENDENT AUDITORS' REPORT.                                    F-1b
          BALANCE SHEETS.                                                  F-2
          STATEMENTS OF OPERATIONS.                                        F-4
          STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME.     F-6
          STATEMENTS OF CASH FLOWS.                                        F-7
          NOTES TO FINANCIAL STATEMENTS.                                   F-9
          SUPPLEMENTAL FINANCIAL INFORMATION.                              F-26
          SELECTED FINANCIAL AND STATISTICAL DATA.                         F-27
          REPORT OF INDEPENDENT AUDITORS.                                  S-1a
          INDEPENDENT AUDITORS' REPORT ON SCHEDULE.                        S-1b
          FINANCIAL STATEMENT SCHEDULE.                                    S-2


                                       3
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                                     PART I

ITEM 1.  BUSINESS.

                                   THE COMPANY

Hawaiian Airlines,  Inc.  ("Hawaiian  Airlines" or the "Company") is the largest
airline  headquartered in Hawaii,  based on operating revenues of $488.9 million
for 1999. The Company is engaged  primarily in the scheduled  transportation  of
passengers,  cargo and mail. The Company was  incorporated in January 1929 under
the laws of the Territory of Hawaii.  The Common Stock of the Company  trades on
the American Stock Exchange and the Pacific  Exchange under the symbol "HA." The
Company's  principal  offices are located at 3375 Koapaka  Street,  Suite G-350,
Honolulu,  Hawaii 96819. Its telephone and facsimile  numbers are (808) 835-3700
and (808) 835-3690, respectively. Its website address is www.hawaiianair.com.

                                   OPERATIONS

PASSENGER SERVICE

The Company's chief source of revenue is scheduled  passenger  airline  service.
Scheduled   passenger   service   consists  of,  on  average  and  depending  on
seasonality,  approximately  175 flights per day with (1) daily service  between
Hawaii and Las Vegas,  Nevada and the four key United States ("U.S.") West Coast
gateway cities of Los Angeles and San Francisco, California, Seattle, Washington
and Portland, Oregon ("Transpac"); (2) daily service among the six major islands
of the State of Hawaii ("Interisland"); and (3) twice weekly service from Hawaii
to each of Pago Pago,  American  Samoa and Papeete,  Tahiti in the South Pacific
("Southpac").  The Company also  provides  charter  service from Honolulu to Las
Vegas  and to  Anchorage,  Alaska  and  from  Los  Angeles  to  Papeete,  Tahiti
("Overseas  Charter").  As discussed below, the Company operates a fleet of DC-9
and DC-10 aircraft to service these routes.

During 1999, the Company's Transpac  operations served Honolulu,  Kahului,  Maui
and Kona,  Hawaii and Las Vegas and the U.S.  West Coast  gateway  cities of Los
Angeles, San Francisco, Seattle and Portland. DC-10 aircraft are used to service
Transpac routes. In 1999, the Transpac market represented approximately 52.7% of
the Company's total operating revenues.

Management  estimates that the entire Interisland market averages  approximately
nine to ten million passengers annually. Approximately two-thirds of Interisland
travelers  are  visitors to Hawaii while the balance are Hawaii  residents.  The
Company's  Interisland  operations  provide service to seven airports on the six
major Hawaiian  islands of Oahu,  Hawaii,  Maui,  Kauai,  Molokai and Lanai. The
Company's  Interisland routes are serviced with DC-9 aircraft.  During 1999, the
Interisland  market  represented  approximately  33.1 % of the  Company's  total
operating revenues.

Hawaiian Airlines currently is the sole carrier providing  scheduled air service
between  Honolulu and American  Samoa and Tahiti.  Fares are  relatively  stable
throughout  the year.  These Southpac  routes are serviced with DC-10  aircraft.
During 1999, the Southpac market represented approximately 4.6% of the Company's
total operating revenues.

In addition to its scheduled  service,  the Company  operated,  on average,  six
weekly charter flights between Honolulu and Las Vegas, two charter rotations per
week between Honolulu and Anchorage and commencing August 1999, approximately 20
round-trips  per month  between Los Angeles and Papeete,  Tahiti.  The Company's
Overseas  Charter  operation  utilized  DC-10  aircraft and produced 9.6% of the
Company's total operating revenues in 1999.

Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS  contained  in Part II,  Item 7 of this  Form  10-K  for  further
discussion on the Company's passenger service routes.


                                       4
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FUEL

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 Hawaiian  Airlines'  aircraft fuel
consumption and cost for each of the last three years:

                 Gallons          Total cost,         Average       % of
                 consumed       including taxes      cost per     operating
     Year     (in thousands)    (in thousands)        gallon      expenses
   --------------------------------------------------------------------------
     1999       120,894         $   76,148         63.0(cents)     14.4%
     1998       107,260         $   66,387         61.9(cents)     16.2%
     1997       103,271         $   77,948         75.5(cents)     19.4%

The single most important factor affecting  petroleum product prices,  including
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 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 the Company.

The cost of aircraft fuel increased throughout 1999 and continues to increase in
the year 2000. A one-cent change in the cost per gallon of fuel has an impact on
the Company's  operating expenses of approximately  $101,000 per month (based on
1999  consumption).  For  the  two  month  period  ended  February 29, 2000, the
Company's average cost per gallon was 80.2(cent) versus the 1999 average of 63.0
(cent)  listed above and 50.4(cent) for the comparable  period in 1999.  Changes
in fuel prices may have a greater  impact on the Company  than  certain  of  its
competitors  with more  modern,  fuel-efficient  aircraft.  Significant  changes
in  fuel  costs  or  continuation  of  high current fuel prices would materially
affect the Company's operating results.

Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS  contained  in Part II,  Item 7 of this  Form  10-K  for  further
discussion on aircraft fuel expense and the  financial  instruments  used by the
Company to manage market risks and hedge its financial  exposure  resulting from
fluctuations in its aircraft fuel costs.

AIRCRAFT

In 1999, the Company increased its flying and capacity systemwide.  As a result,
three DC-10s and two DC-9s were placed into revenue service. A fourth DC-10 will
be added to the fleet and placed into revenue service in April 2000.

At December  31, 1999,  the  Company's  fleet  consisted of 13 DC-10 and 15 DC-9
aircraft of which two DC-10s and four DC-9s were owned by the Company. One DC-10
is leased from  Continental  Micronesia,  Inc. until January 2002. The remaining
ten DC-10s are leased under long-term  operating leases with American  Airlines,
Inc.  ("American"),  which  expire in 2003.  Of the 11 leased  DC-9s  (including
related flight  equipment),  five are under  operating  leases and six are under
capital  leases.  The DC-9 leases expire at various times between 2000 and 2004.
The  average  age of the  Company's  DC-10 and DC-9  aircraft is 26 years and 23
years, respectively.

In September  1999, the Company  announced its intention to replace its existing
DC-9 fleet with The Boeing Company's  ("Boeing")  717-200  aircraft,  consistent
with its plans to replace some or all of its existing  aircraft with replacement
aircraft  in the next  decade in order to reduce  maintenance  costs and achieve
other operating efficiencies.  On December 31, 1999, the Company signed, subject
to approval by the Company's Board of Directors, a definitive purchase agreement
with Boeing to acquire 13 new Boeing 717-200  aircraft,  with rights to purchase
an additional seven aircraft. On March 2, 2000, the Company  announced  that the
Company's Board of Directors had approved the definitive purchase agreement with
Boeing. The agreement provides for monthly


                                       5
<PAGE>

deliveries of the thirteen  717-200 aircraft between February and December 2001,
with two units to be delivered in June and September 2001.

In the event one or more of the  Company's  aircraft  were to be out of service,
the Company may have difficulty  completing its scheduled or chartered  service.
Any  interruption  of service  caused by the  unavailability  of aircraft due to
unscheduled  servicing  or  repair  or  otherwise,  or lack of  availability  of
substitute  aircraft,  could have a  material  adverse  effect on the  Company's
service, reputation and profitability.  As is customary in the airline industry,
the Company does not have business interruption insurance.

Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS  contained  in Part II,  Item 7 of this  Form  10-K  for  further
discussion on the Company's  intended  narrow-body fleet transition and aircraft
fleet and the maintenance thereof.

                               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  the
operating   segment.   As  the  Company  offers  only  one  service  (i.e.,  Air
Transportation), management has concluded that it has only one segment. Refer to
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS  contained  in Part II,  Item 7 of this Form 10-K for  discussion  on
scheduled and chartered passenger revenues.

                                   SEASONALITY

The airline industry is a highly cyclical business with substantial  volatility.
Airlines  frequently  experience  short-term  cash  requirements  caused by both
seasonal fluctuations in traffic that often deplete cash during off-peak periods
and other factors that are not  necessarily  seasonal,  including the extent and
nature of fare  changes  and other  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
airline travel, both personal and to a lesser extent business, 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.  Working capital deficits are not
uncommon  in the  airline  industry  since  airlines  typically  have no product
inventories  and  sales of  tickets  not yet  flown  are  reflected  as  current
liabilities.

The  Company's  results  are  sensitive  to  seasonal  and  cyclical  volatility
primarily  due to  seasonal  leisure  and  holiday  travel.  Hawaii is a popular
destination  for  passengers  flying on frequent  flyer travel  awards and is in
general  a  popular  spot for  vacation  travelers.  Thus,  traffic  levels  are
typically  lowest in the first  quarter  of the year and strong  travel  periods
occur during June, July, August and December. Aggressive fare pricing strategies
that increase the  availability and size of ticket discounts are utilized during
weaker  travel  periods.  Because  certain  of the  Company's  costs do not vary
significantly  regardless  of traffic  levels,  such  seasonality  substantially
affects the Company's profitability and liquidity.

                              DEPENDENCE ON TOURISM

Since the  Company's  base  of  operations  principally  resides in Hawaii,  the
Company's  profitability is 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 with tourism  levels being  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.
In 1999,  the number of visitors to Hawaii totaled  approximately  6.8 million a
1.6% increase when compared to the previous year.  Preliminary  statistics  from
the Hawaii Visitors and Convention  Bureau (the "HVCB")  estimate that westbound
arrivals,  primarily from the U.S. mainland and European  markets,  increased by
6.1%,  while Eastbound  traffic,  primarily from Japan,  decreased by 5.9%. Year
over year, the islands of Oahu and Kauai experienced increased visitor counts of
0.3% and 4.9%,  respectively.  Maui, the Big Island of Hawaii, Lanai and Molokai
experienced decreased visitor counts of 1.8%, 0.8%, 3.9% and 6.2%, respectively.


                                       6
<PAGE>

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

                                   COMPETITION

The airline industry is highly competitive,  primarily due to the effects of the
Airline Deregulation Act of 1978,  recodified into the Transportation Act, which
has 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 and passenger demand.

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 U.S. domestic
market.  In  addition,  the airline  industry  has  experienced  in recent years
alliances  among U.S.  carriers  and between  large U.S.  and foreign  carriers,
allowing  those  carriers  within such  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 who have 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 the  Company's  competitors  are larger and have  substantially  greater
resources.  In  addition,  the  commencement  of service by new  carriers on the
Company's  routes  could  negatively  impact the  Company's  operating  results.
Competing airlines (including the Company) have, from time to time, reduced fare
levels and  increased  capacity  beyond  market  demand on routes  served by the
Company in order to maintain or generate  additional  revenues.  Such  activity,
which may occur in the future,  by  competing  airlines  could  reduce  fares or
passenger  traffic to levels where profitable  operations could not be achieved.
Due to its  relative  smaller  size,  the Company may be less able to  withstand
aggressive   marketing  tactics  or  a  prolonged  fare  war  initiated  by  its
competitors.

Vigorous price competition exists, with competitors  frequently offering reduced
discount fares and other  promotions to stimulate  traffic during normally slack
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 the Company's operating results.

 The nature of the airline industry requires substantial financial and operating
leverage.  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.
However, an increase in the number of passengers carried would have the opposite
effect.

TRANSPAC

On its Transpac routes,  the Company currently competes with major carriers such
as United Airlines, Inc. ("United"), Delta Airlines,  Inc., Northwest  Airlines,
Inc.  ("Northwest")  and,   to  a  lesser  extent,  Continental  Airlines,  Inc.
("Continental") and American. In addition,  the Company competes against charter
carriers   in  the  Transpac  market.  The  Company   believes   that   Transpac
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.


                                       7
<PAGE>

INTERISLAND

While there are several small commuter and air taxi companies  which provide air
transportation  to Hawaii airports that cannot be served by large aircraft,  the
Interisland  market  is  serviced  primarily  by the  Company  and  its  primary
competitor in the Interisland market,  Aloha Airlines,  Inc. ("Aloha").  Aloha's
competitive  position is  strengthened  through its marketing  affiliation  with
United,  the  largest  carrier  of  passengers  to  Hawaii.  Aloha  participates
in United's frequent  flyer  program  and also has a code sharing agreement with
United. Aloha principally utilizes 19 Boeing 737 aircraft with  a  schedule that
averages  approximately,  depending  on  seasonality,  180 daily flights,  which
service  the  same  basic  Interisland  routes  as  the  Company.   The  Company
has  approximately,  depending   on  seasonality, 160  Interisland  flights  per
day. Also, refer to the discussion below regarding the Company's major marketing
affiliations,  including code sharing  arrangements.  The Company  believes 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.

                            RELIANCE ON THIRD PARTIES

The Company has entered into agreements with  contractors,  including  American,
Northwest, Continental and certain other airlines, to provide certain facilities
and  services  required  for its  operations,  including  aircraft  leasing  and
maintenance,  code sharing,  reservations,  computer  services,  frequent  flyer
programs,  passenger processing,  ground facilities,  baggage and cargo handling
and  personnel  training.  This  reliance on third  parties to provide  services
subjects  the  Company  to the risk that  such  services  could be  discontinued
without adequate replacement services being available.

The Company leases ten DC-10  aircraft from  American.  In 1999, the Company and
American  agreed to extend lease terms on the ten DC-10  aircraft  leased by the
Company  from  American  from  September  11,  2001 to  December  31,  2003.  In
recognition  of the  extended  lease terms,  basic rents for the  aircraft  will
continue at their lower,  pre-February 1, 1999 levels.  Maintenance performed by
American  on  applicable  leased and owned DC-10  aircraft  of the Company  will
continue  during  the  extended  lease  term,  subject  to  American's  right to
terminate  such services at any time with 180 days prior notice.  As of December
31,  1999,  American  is  responsible  for  maintenance  on all  but  one of the
Company's  fleet of  DC-10  aircraft  with the  Company  having  access  through
American to spare  parts,  engines and  rotables  for the  maintenance  of these
aircraft.  As such,  the Company does not maintain  large  inventories  of spare
engines or parts to support the  operation  of the DC-10  aircraft.  The Company
pays a minimum  monthly  charge for  maintenance  services,  monthly in arrears.
During  1999,  the Company  incurred  approximately  $78.5  million of lease and
maintenance   expenses  under  the  American  leases  and  aircraft  maintenance
agreements.  If American  terminated the  maintenance  arrangement,  the Company
would have to seek an alternate  source of  maintenance  service or undertake to
maintain its DC-10s internally. No assurance can be given that the Company would
be  able  to  do  so on a  basis  that  is as  cost-effective  as  the  American
maintenance  arrangement.  Refer to  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF
FINANCIAL  CONDITION AND RESULTS OF  OPERATIONS  contained in Part II, Item 7 of
this Form 10-K for further discussion on the Company's DC-10 aircraft fleet.

The Company has code sharing  agreements  with American,  American Eagle carrier
Wings  West  Airlines,  Inc.,  Northwest  and  Continental.   The  Company  also
participates  in  the  frequent  flyer  programs  of  American,   Northwest  and
Continental.  These programs and services make the Company more competitive, but
increase its reliance on third parties.

In 1999,  1998 and 1997, a majority of the  Company's  ticket sales were made by
travel  agents,   including  approximately  35%,  40%  and  30%  by  nine  large
wholesalers.  In 1999, a particular Hawaii-based wholesaler,  Panda Travel Inc.,
constituted approximately 13% of the Company's total ticket sales. 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 the Company.  Although management
intends to continue to offer an  attractive  and  competitive  product to travel
agencies and to maintain favorable relations with travel agencies,  there can be
no assurance  that travel  agencies will not disfavor the Company or favor other
airlines  in the  future,  either of which  could have an adverse  effect on the
Company's operations and profitability.


                                       8
<PAGE>

                                   REGULATION

GENERAL

As a certificated  air carrier,  Hawaiian  Airlines is subject to the regulatory
jurisdiction  of the U.S.  Department  of  Transportation  (the  "DOT")  and the
Federal  Aviation  Administration  (the "FAA").  The DOT has  jurisdiction  over
certain aviation matters such as the carrier's 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 Airlines
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,  air  worthiness  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.  As are other carriers,
Hawaiian  Airlines is subject to  inspections by the FAA in the normal course of
its business on a routine  ongoing  basis.  Hawaiian  Airlines  operates under a
Certificate of Public  Convenience and Necessity  issued by the DOT (authorizing
it to  provide  commercial  aircraft  service)  as well as a Part 121  Scheduled
Carrier Operating Certificate issued by the FAA.

MAINTENANCE DIRECTIVES AND OTHER REGULATIONS

Hawaiian Airlines has developed extensive maintenance programs, which consist of
a series of phased checks of each aircraft  type.  These checks are performed at
specified  intervals  measured either by time flown or by the number of takeoffs
and  landings  ("cycles")  performed.  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, or continuous,
maintenance  programs  designed to detect and remedy  potential  problems before
they occur.  The service lives of certain parts and  components of both airframe
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.
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  airworthiness  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 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.  The
Company expects to continue to incur substantial expenditures for the purpose of
complying with these new regulations.

In 1990,  Congress  passed  legislation  (the Airport  Noise and Capacity Act of
1990) which  provided  for a reduction  in  commercial  aircraft  noise  levels.
Carriers were permitted to comply with the transitional  requirements  either by
1) phasing out, or retrofitting  with noise abatement  equipment,  certain older
aircraft known as Stage 2 aircraft, or 2) phasing in quieter aircraft,  known as
Stage 3 aircraft by December 31, 1999,  with the  possibility of certain waivers
until December 31, 2003, when full phase out is required.  Congress  provided an
exemption for air carriers operating  turnaround service in Hawaii, or between a
place in Hawaii and a place outside the 48 contiguous states, to operate as many
Stage 2 aircraft of a certain  weight as they operated on November 5, 1990.  Air
carriers  that  provided  flights  only  within  Hawaii on  November 5, 1990 may
include  in the  number  of Stage 2  aircraft  under the  exemption  all Stage 2
aircraft  owned or leased on November 5, 1990,  whether or not the aircraft were
operated  by the  carrier on that date.  However,  an air  carrier  may  provide
flights between places only in Hawaii using Stage 2 aircraft only if the carrier
provided the service on November 5, 1990. The Company  believes these exemptions
restrict air carriers  other than the Company and Aloha from  operating  Stage 2
aircraft in Hawaii.  Because Stage 2 aircraft are less expensive to acquire than
Stage 3 aircraft,  this exemption might provide limited  protection  against the
entry of another  carrier,  which  would be  required  to operate an all Stage 3
fleet.  This advantage is partially offset by the fact that Stage 3 aircraft are
generally  less  expensive to operate and maintain,  as well as the fact that in
any event over time, carriers will move toward having an all Stage 3 fleet.


                                       9
<PAGE>

Additional laws and regulations  have been proposed from time to time that could
significantly increase the cost of airline operations by, for example,  imposing
additional requirements or restrictions on operations. 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.  The Company  cannot  predict
what laws and regulations will be adopted or what changes to  international  air
transportation  treaties  will be effected,  if any, or how they will affect the
Company.

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

Several  aspects of airlines'  operations are subject to regulation or oversight
by Federal  agencies other than the FAA and DOT. The U.S.  Department of Defense
regulates  Civil Reserve Air Fleet and government  charters.  The 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 the Company's cargo  services.  Labor relations in the air
transportation industry are generally regulated under the Railway Labor Act. The
Company  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).

LIMITATION ON FOREIGN OWNERSHIP OF SHARES

The Transportation Act prohibits non-U.S.  citizens from owning more than 25% of
the voting interest of a U.S. air carrier.  The Company's  Restated  Articles of
Incorporation  prohibit  the  ownership  or  control  of  more  than  25% (to be
increased or decreased from time to time to that  percentage  permissible  under
the laws of the U.S.) of issued  and  outstanding  voting  capital  stock of the
Company by persons who are not "citizens of the U.S.".  As of December 31, 1999,
less than 25% of the Common Stock of the Company was held by non-U.S. citizens.

INSURANCE

The Company is 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. The Company is required by the DOT to carry liability  insurance on each
of its aircraft.  The Company  currently  maintains public  liability  insurance
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 the Company  will not bear  substantial  losses from
accidents.  Substantial  claims  resulting from an accident in excess of related
insurance coverage could have a material adverse effect on the Company.

LANDING FEES AND TICKET TAXES

Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  contained in Part II, Item 7 of this Form 10-K for  discussion on
landing fees in the State of Hawaii and Federal taxes on tickets.

                                    EMPLOYEES

As of December 31, 1999, Hawaiian Airlines had 3,091 active employees,  of which
2,569 were  employed on a full-time  basis.  The majority of Hawaiian  Airlines'
employees are covered by labor agreements with 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  Communications  Section
Employees  Union  ("CSE").  The amendable date of all five contracts is February
28, 2000. As of the date of this report,  the Company had commenced  discussions
with the IAM, ALPA and AFA.  Management cannot currently  estimate the timeframe
or  results  of the  ensuing  discussions.  There can be no  assurance  that the
discussions  will result in favorable  agreement  and  ratification  between the
Company and each labor  group.  Should the Company and the labor groups reach an
impasse, the Company could be adversely affected.


                                       10
<PAGE>


ITEM 2.  PROPERTIES.

         Information  provided in Notes 4, 5, 6 And 10 to the Financial
         Statements  contained in Part IV, Item 14 of this Form 10-K is
         incorporated herein by reference.

ITEM 3.  LEGAL PROCEEDINGS.

         Information  provided in Note 10 to the  Financial  Statements
         contained   in  Part  IV,   Item  14  of  this  Form  10-K  is
         incorporated herein by reference.

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

         None.

                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  SHAREHOLDER
         MATTERS.

         The Registrant's  Common Stock is traded on the American Stock
         Exchange  and  Pacific  Exchange  under  the  symbol  HA.  The
         following  table  sets forth the  reported  high and low sales
         prices for the Common  Stock for the  quarters  indicated,  as
         reported by the American Stock Exchange:

                           First      Second      Third      Fourth
               1999       Quarter     Quarter    Quarter    Quarter
              ------------------------------------------------------
               High        3-3/16        3        2-7/8       2-1/2
               Low         2-3/8       2-1/2      2-3/16       2

                           First      Second      Third      Fourth
               1998       Quarter     Quarter    Quarter    Quarter
              ------------------------------------------------------

               High       3-13/16      3-1/2        3         3-1/2
               Low         2-5/8      2-13/16     1-1/2       1-3/4

         As of March 1, 2000, there were approximately 1,061 holders of
         record of the Company's Common Stock.

         Under  the  terms  of  the  financing   arrangement  with  CIT
         Group/Business  Credit,  Inc., the Company is restricted  from
         paying any cash or stock dividends.  No dividends were paid by
         the Company in 1999 or 1998.

         In  March  2000,  the  Company  announced  that  its  Board of
         Directors approved a stock repurchase program  authorizing the
         Company  to buy up to 5 million  shares of its  Common  Stock.
         Under the  approved  stock  repurchase  plan,  the Company may
         repurchase  Common  Stock from time to time in the open market
         and in  private  transactions.  The  amount  and timing of any
         repurchases will be subject to a number of factors,  including
         the price and  availability of the Company's stock and general
         market conditions.

ITEM 6.  SELECTED FINANCIAL DATA.

         Information   under  the  caption   "Selected   Financial  and
         Statistical  Data" on pages F-27 to F-29 contained in Part IV,
         Item 14 of this Form 10-K is incorporated herein by reference.

                                        11
<PAGE>

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

Certain  statements  contained  here and  throughout,  that are not  related  to
historical  results,  including,  without limitation,  statements  regarding the
Company's  business  strategy  and  objectives,  future  financial  position and
estimated cost savings,  are  forward-looking  statements  within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
and involve  risks and  uncertainties.  Although the Company  believes  that the
assumptions on which these 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.  Factors  that could  cause or  contribute  to such
differences  include, but are not limited to, those discussed under Part I, Item
I, BUSINESS and heretofore,  as well as those  discussed  elsewhere in this Form
10-K. All forward-looking  statements  contained in this Form 10-K are qualified
in their entirety by this cautionary statement.

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 capacity,  load factors,
revenues, expenses and cash flows include the airline pricing environment,  fuel
costs,  labor union situations both at the Company and other carriers,  low-fare
carrier expansion, capacity decisions of other carriers, actions of the U.S. and
foreign governments, foreign currency exchange rate fluctuations, inflation, the
general economic environment and other factors discussed herein.

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

                              RESULTS OF OPERATIONS

                              1999 COMPARED TO 1998

For the year ended  December 31, 1999,  the Company  incurred  operating and net
losses of $40.5 million and $29.3 million,  respectively. As discussed below, in
1999 the Company recorded a $47  million  pretax  impairment loss in conjunction
with its intent to replace its narrow-body  Interisland fleet and a $772,000 net
charge for the cumulative effect of a change in accounting  principle related to
the sale of mileage  credits  under its frequent  flyer  program.  Excluding the
effects  of the  impairment  loss  and the  cumulative  effect  of a  change  in
accounting  principle,  the Company  generated  operating and net income of $6.4
million and $3.0 million, respectively. While total operating revenues increased
by $62.5  million,  primarily  as a result of  increased  passenger  and charter
revenues,  operating  expenses,  net of impairment loss, also increased by $73.4
million.   In  response  to  the  Company's   increased  flight  operations  and
investments  in  infrastructure  to support  the  Company's  growth  strategies,
operational  cost  increases  were incurred in wages and benefits,  maintenance,
aircraft fuel and certain general and administrative expense categories.


                                       12
<PAGE>

                               OPERATING REVENUES

Operating  revenues totaled $488.9 million in 1999 compared to $426.4 million in
1998, an increase of $62.5 million or 14.7%.

PASSENGER AND CHARTER

The following table compares  operating  passenger  revenues and statistics,  in
thousands, except as otherwise indicated, for the years ended 1999 and 1998:

<TABLE>
<CAPTION>
Operating Passenger                                                    Increase
Revenues and Statistics           1999               1998              (Decrease)          %
--------------------------------------------------------------------------------------------------------------
<S>                             <C>                <C>                    <C>            <C>
Scheduled:
      Passenger revenues ....   $  400,251         $  354,245             46,006         13.0
      Revenue passengers ....        5,425              5,010                415          8.3
      Revenue passenger miles    4,076,576          3,649,024            427,552         11.7
      Available seat miles ..    5,468,589          4,940,001            528,588         10.7
      Passenger load factor .         74.5%              73.9%               0.6          0.8
      Yield .................          9.8(cent)          9.7(cent)          0.1(cent)    1.2

Overseas Charter:
      Charter revenues ......   $   46,570         $   35,742             10,828         30.3
      Revenue passengers ....          283                250                 33         13.2
      Revenue passenger miles      803,524            689,578            113,946         16.5
      Available seat miles ..      852,155            733,735            118,420         16.1

Total Operations:
      Passenger revenues ....   $  446,821         $  389,987             56,833         14.6
      Revenue passengers ....        5,708              5,260                448          8.5
      Revenue passenger miles    4,880,100          4,338,602            541,498         12.5
      Available seat miles ..    6,320,744          5,673,736            647,008         11.4
</TABLE>

Significant year to year variances were as follows:

The introduction of additional DC-9 and DC-10 capacity,  efforts to improve fare
and passenger mix and  initiation  and  maintenance  of general price  increases
resulted in increased  scheduled  passenger revenues of $46 million or 13%. Year
over year, the Company experienced $5.5 million and $40 million increases in its
Interisland and Transpac passenger revenues,  respectively. These increases were
principally a result of (1) the Company  carrying  approximately 7% and 13% more
Interisland  and  Transpacific  revenue  passengers and (2) a 7% increase in its
Transpac yield.

Overseas  charter  revenues  increased  by $10.8  million or 30.3% in 1999.  The
increase is primarily  associated with the Company  commencing  charters between
Los Angeles and Tahiti and the flying of  additional  ad hoc charters  year over
year.

CARGO AND OTHER

Cargo and other operating revenues in 1999 totaled $42.1 million, an increase of
$5.6  million or 15.4%  over cargo and other  operating  revenues  in 1998.  The
increase is  primarily  due to (1)  additional  Transpac  capacity  resulting in
increased cargo revenues; (2) general increases in the Company's service charges
related to tickets;  and (3) continued promotion of the Company's frequent flyer
program.


                                       13
<PAGE>

                               OPERATING EXPENSES

Operating expenses totaled $529.4 million in 1999, an increase of $120.4 million
or 29.4% from total operating expenses of $409.0 million in 1998.

The following table compares  operating expenses per Available Seat Mile ("ASM")
by major category for 1999 with 1998:

<TABLE>
<CAPTION>
Operating                                                                Increase
Expenses Per ASM                            1999            1998         (Decrease)          %
-----------------------------------------------------------------------------------------------
<S>                                         <C>             <C>             <C>            <C>
Wages and benefits ...................      2.19(cent)      2.10(cent)      0.09(cent)     4.3
Maintenance materials and repairs ....      1.61            1.48            0.13           8.8
Aircraft fuel, including taxes and oil      1.21            1.17            0.04           3.4
Rentals and landing fees .............      0.50            0.54           (0.04)         (7.4)
Depreciation and amortization ........      0.27            0.22            0.05          22.7
Sales commissions ....................      0.20            0.21           (0.01)         (4.8)
Other ................................      1.65            1.49            0.16          10.7
                                            ----            ----            ----          ----
                                            7.63            7.21            0.42           5.8
Impairment loss ......................      0.74            --              0.74         100.0
                                            ----            ----            ----          ----
           Total .....................      8.37(cent)      7.21(cent)      1.16(cent)    16.1
                                            ====            ====            ====          ====
</TABLE>

All  fluctuations  in  operating  expenses  per ASM were  affected by an overall
increase in ASM of  approximately  11.4% in 1999 from 1998.  Significant year to
year variances were as follows:

Wages and benefits totaled $138.4 million in 1999 versus $118.9 million in 1998,
an  increase  of  $19.5  million  or  16.4%.  A  majority  of  the  increase  is
attributable  to (1) a 3% wage  increase  effective  December  1,  1998  and (2)
additional  wages and  benefits  from  implementation  of the  Company's  growth
strategies which resulted in increased flying operations. Additional labor costs
related to flight and inflight crews and ground  personnel,  including  airport,
maintenance  and  administrative  locations  approximated  $8.7 million and $7.7
million,  respectively.  The  additional  labor costs also resulted in increased
taxes and benefits of $3.7 million.

Maintenance  materials  and repairs  increased  by $17.8  million or 21.2%.  The
Company incurred $11.9 million more DC-10 maintenance expense in 1999 than 1998,
the result of increases  in the  maintenance  rates  charged by American and the
number of DC-10  aircraft  used and  hours  flown.  The  Company  also  incurred
additional DC-9 airframe and engine maintenance of $5.6 million in 1999.

Aircraft fuel,  including taxes and oil ("Aircraft  Fuel") totaled $76.4 million
in 1999 versus  $66.6  million in 1998.  Year over year,  Aircraft  Fuel expense
increased by $9.8 million or 14.7%, primarily due to a 12.7% increase in gallons
consumed  and a 1.8%  increase  in the net  average  cost of  aircraft  fuel per
gallon.  The cost of aircraft fuel  increased  throughout  1999 and continues to
increase in the year 2000. A one-cent  change in the cost per gallon of fuel has
an impact on the  Company's  operating  expenses of  approximately  $101,000 per
month  (based  on 1999 consumption). For the two month period ended February 29,
2000, the  Company's  average  cost  per  gallon  was 80.2(cent) versus the 1999
average of 63.0(cent) listed above and 50.4(cent) for the  comparable  period in
1999.  Significant  changes  in  fuel costs or continuation of high current fuel
prices would materially affect the Company's operating results.

Rentals and landing fees in 1999 increased by $1.1 million or 3.6% when compared
to 1998.  The  increase is a net of (1) $2.9  million  less in  aircraft  rental
expense as the Company  renegotiated  its leases of American  DC-10  aircraft in
second quarter 1999; (2) $1.4 million of additional  space and parking  rentals;
and (3) $2.6  million of  additional  landing  fees as the  two-year  moratorium
placed on landing fees at all airports in the State of Hawaii ended on September
1, 1999.

Depreciation  and  amortization  totaled $17.1 million in 1999 compared to $12.6
million in 1998.  A majority  of the $4.5  million or 35.9%  increase  is due to
additional  depreciation incurred from owned DC-9 and DC-10 aircraft and related
rotable parts placed into service in 1999.


                                       14
<PAGE>

Other operating expenses increased by $19.9 million or 23.5% in 1999 as compared
to 1998. The increase is due to a combination of additional expenses incurred in
1999 including (1) $5.4 million of aircraft service related  expenses;  (2) $2.4
million in passenger food and beverage;  (3) $2.5 million of personnel  expense;
(4) $1.6 million in  advertising  and promotion  costs;  and (5) $7.0 million in
general and administrative expenses, including professional and legal fees.

In September 1999, the Company  announced  that,  subject to the negotiation
and execution  of a  definitive  agreement,  it  intended  to  replace  its
present Interisland  DC-9 fleet.  On December 31, 1999, the Company  signed,
subject to approval by the Company's Board of Directors,  a definitive
purchase  agreement with Boeing to acquire 13 new Boeing 717-200  aircraft,
with rights to purchase an additional seven aircraft. On March 2, 2000, the
Company announced  that  the Board of Directors had approved the definitive
purchase agreement  with  Boeing. In connection with its decision to replace
these aircraft,  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 may incur  restructuring
charges  throughout  the year 2000 as it  proceeds  with its  narrow-body
fleet transition plan. The Company at this time cannot accurately  determine
the total restructuring charges, if any, that may be incurred.

               CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

Under the Company's  HawaiianMiles  frequent flyer program  described below, the
Company  sells mileage  credits to  participating  partners such as hotels,  car
rental  agencies and credit card  companies.  During 1999, as promulgated by the
Securities and Exchange Commissions' Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial  Statements," the Company changed the method it uses to
account  for  the  sale  of  these  mileage   credits.   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. 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.

                          NEW ACCOUNTING PRONOUNCEMENTS

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments and for hedging  activities.  SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  The  provisions of SFAS No. 133, as amended by SFAS No. 137, are
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The  Company  will  adopt  SFAS  No.  133 on  January  1,  2001  but has not yet
determined the impact of its adoption.

In March 1998, the American Institute of Certified Public Accountants Accounting
Standards  Executive  Committee  ("AcSEC")  issued Statement of Position ("SOP")
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal Use" which  requires that certain costs related to the  development  or
purchase  of  internal-use  software  be  capitalized  and  amortized  over  the
estimated useful life of the software.  The SOP also requires that costs related
to the preliminary project stage and the  post-implementation/operations  stage,
as defined, in an internal-use computer software development project be expensed
as incurred.


                                       15
<PAGE>

In April 1998,  the AcSEC issued SOP 98-5,  "Reporting  on the Costs of Start-up
Activities,"  which requires that costs  incurred  during  start-up  activities,
including organization costs, be expensed as incurred.

Adoption of the provisions of SOP 98-1 and SOP 98-5 by the Company as of January
1, 1999 did not have a material  impact on the Company's  financial  position or
results of operations.

                              1998 COMPARED TO 1997

For the year ended December 31, 1998, the Company generated  operating income of
$17.4 million,  a $14.9 million  improvement  from 1997 operating income of $2.5
million.  The Company also generated net income of $8.2 million,  a $9.2 million
improvement  from the $1.0 million net loss experienced in 1997. The improvement
is associated  with the Company's  generation of $22.2 million more of operating
revenues.  Decreases  of $11.5  million  and $3.9  million in  overall  fuel and
landing  fee  expenses,  respectively,  were offset by other  operating  expense
increases as a result of increased flight activity in 1998.

Included in the 1998 and 1997 results of operations  are  provisions  for income
taxes of $7.8 million and $1.7 million,  respectively.  While generally accepted
accounting  principles require that the provisions for income taxes be recorded,
most of the amounts recorded will not require cash outlay as the amounts will be
offset by net operating loss carryforwards available to the Company. As noted in
note 7 in notes to  financial  statements  contained in Part IV, Item 14 of this
Form 10-K,  the estimated  income tax benefit from the expected  utilization  of
these net  operating  loss  carryforwards  has been  applied as a  reduction  to
reorganization value in excess of amounts allocable to identifiable assets.


                                       16
<PAGE>

                               OPERATING REVENUES

Operating  revenues totaled $426.4 million in 1998 compared to $404.2 million in
1997,  an  increase  of $22.2  million or 5.5%,  driven  principally  by a $22.1
million or 6.7% increase in passenger revenues.

PASSENGER AND CHARTER

The following table compares  operating  passenger  revenues and statistics,  in
thousands, except as otherwise indicated, for the years ended 1998 and 1997:

<TABLE>
<CAPTION>
Operating Passenger                                                   Increase
Revenues and Statistics           1998                1997           (Decrease)           %
----------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                <C>                    <C>             <C>
Scheduled:
      Passenger revenues ....   $  354,245         $  332,154             22,091          6.7
      Revenue passengers ....        5,010              4,964                 46          0.9
      Revenue passenger miles    3,649,024          3,479,056            169,968          4.9
      Available seat miles ..    4,940,001          4,699,609            240,392          5.1
      Passenger load factor .         73.9%              74.0%              (0.1)         (0.1)
      Yield .................          9.7(cent)          9.5(cent)          0.2(cent)    2.1

Overseas Charter:
      Charter revenues ......   $   35,742         $   37,172             (1,430)         (3.8)
      Revenue passengers ....          250                253                 (3)         (1.2)
      Revenue passenger miles      689,578            683,384              6,194          0.9
      Available seat miles ..      733,735            739,619             (5,884)         (0.8)

Total Operations:
      Passenger revenues ....   $  389,987         $  369,326             20,661          5.6
      Revenue passengers ....        5,260              5,217                 43          0.8
      Revenue passenger miles    4,338,602          4,162,440            176,162          4.2
      Available seat miles ..    5,673,736          5,439,228            234,508          4.3
</TABLE>

Significant year to year variances were as follows:

Through  general price  increases  initiated by the Company  throughout 1998 and
improved  fare and  inventory  management  through  use of its yield  management
system,  the  Company  experienced  a  $22.1  million  or 6.7%  increase  in its
scheduled  passenger  revenues.  Interisland  passenger  revenues totaled $138.6
million in 1998  compared to $132.6  million in 1997.  The $6.0  million or 4.5%
increase  is in direct  correlation  to a 1.3(cent)  or 4.9%  increase in yield.
Transpac passenger revenues totaled $196.7 million in 1998, an increase of $16.3
million or 9.0% over 1997 Transpac  passenger  revenues of $180.4  million.  The
Company  experienced  increases of 3.9% and 6.0% in its  passengers  carried and
revenue  passenger miles,  respectively.  These increases were complemented by a
0.2(cent) or 3.1% increase in yield.

Overseas  charter  revenues  decreased  by $1.4  million  or 3.8% in  1998.  The
decrease is primarily due to, during the first half of 1998,  the Company flying
on average, two fewer charters per week to Las Vegas and general price decreases
charged for both its Las Vegas and Anchorage charter flights.

OTHER

Other  operating  revenues in 1998 totaled  $14.7  million,  an increase of $1.1
million or 8.2%,  primarily due to additional  revenues related to the promotion
of the Company's frequent flyer program.


                                       17
<PAGE>

                               OPERATING EXPENSES

Operating  expenses  totaled $409.0 million in 1998, an increase of $7.3 million
or 1.8% from total operating expenses of $401.7 million in 1997.

The following table compares  operating expenses per Available Seat Mile ("ASM")
by major category for 1998 with 1997:


<TABLE>
<CAPTION>
Operating                                                            Increase
Expenses Per ASM                            1999          1998       (Decrease)      %
-----------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>         <C>           <C>
Wages and benefits ...................      2.10(cent)   2.11(cent)  (0.01)(cent)  (0.5)
Maintenance materials and repairs ....      1.48         1.40         0.08          5.7
Aircraft fuel, including taxes and oil      1.17         1.44        (0.27)       (18.8)
Rentals and landing fees .............      0.54         0.60        (0.06)       (10.0)
Depreciation and amortization ........      0.22         0.20         0.02         10.0
Sales commissions ....................      0.21         0.24        (0.03)       (12.5)
Other ................................      1.49         1.40         0.09          6.4
                                            ----         ----        -----        -----
           Total .....................      7.21(cent)   7.39(cent)  (0.18)(cent)  (2.4)
                                            ====         ====        =====         ====
</TABLE>

All  fluctuations  in  operating  expenses  per ASM were  affected by an overall
increase in ASM of  approximately  4.3% in 1998 from 1997.  Significant  year to
year variances were as follows:

Wages and benefits per ASM remained relatively consistent from year to year. The
dilutive  effect of increased ASMs was offset by increased wages and benefits in
1998 of $4.3  million  or 3.8% over  1997.  Wages and  benefits  totaled  $118.9
million in 1998 versus  $114.6  million in 1997.  A majority of the  increase is
attributable to additional wages and benefits from increased  flying  operations
and the accrual for the Company's profit sharing program.

Maintenance  materials  and repairs per ASM  increased by  0.08(cent) or 5.7% in
1998 from 1997.  The Company  experienced  $7.7  million or 10.1% in  additional
maintenance principally due to 1) $5.3 million more in DC-10 maintenance expense
from increased  utilization  of DC-10 aircraft for long-haul  flying and 2) $2.3
million more in DC-9 engine repairs.

Aircraft  fuel   per  ASM  decreased  year  over  year  by  0.27(cent) or 18.8%.
The Company  incurred  $11.5 million or 14.8% less  Aircraft  Fuel cost in 1998,
the  combination of a 3.9% increase in  gallons  consumed,  a 19.8%  decrease in
the  average  cost  of  aircraft fuel per gallon and $2.3  million in  aggregate
realized  and  unrealized  losses  on  the   Company's  Aircraft Fuel derivative
financial instruments.

Rentals and landing fees per ASM decreased by  0.06(cent)  or 10.0%.  Commencing
September  1, 1997,  a  two-year  moratorium  was placed on landing  fees at all
airports in the State of Hawaii.  The  Governor of the State of Hawaii  reserved
the right,  however,  to reinstate  the landing fee charges  before the two-year
period ends. Under the current  moratorium,  the Company incurred  approximately
$3.9 million less for landing fees in 1998 than in 1997.

Depreciation  and  amortization  per  ASM  increased  by  0.02(cent)  or  10.0%.
Depreciation and amortization totaled $12.6 million in 1998 versus $10.7 million
in 1997. A majority of the $1.9 million or 18.2% increase is due to $1.1 million
and $700,000 in additional depreciation and amortization on ground equipment and
DC-9 overhauls in 1998.

Sales  commissions per ASM decreased by 0.03(cent) or 12.5%.  Sales  commissions
decreased by $1.4 million or 10.6% in 1998, principally due to a decrease in the
interline  commission  rate and an increase in the volume of  non-commissionable
tickets sold year over year.

Other  operating  expenses per ASM  increased by 0.09(cent) or 6.4% between 1998
and 1997. The Company incurred approximately $8.4 million or 11.0% of additional
other operating expenses in 1998 over 1997,  primarily as a result of additional
aircraft  service,  advertising  and  promotion  and general and  administrative
expenses, including professional and legal fees.


                                       18
<PAGE>

               CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

As promulgated by the FASB's Emerging Issues Task Force, in fourth quarter 1997,
the Company wrote off business  process  reengineering  costs it had  previously
capitalized.  The write-off totaled  approximately  $450,000,  net of income tax
benefit of approximately $300,000.


                                       19
<PAGE>

                         AIRCRAFT, ROUTES AND ALLIANCES

In September 1999, the Company  announced  that,  subject to the negotiation
and execution  of a  definitive  agreement,  it had accepted an offer from
Boeing to purchase up to 20 Boeing  717-200  aircraft  to replace its present
 Interisland fleet.  On December 31,  1999,  the Company  signed,  subject to
approval by the Company's  Board of Directors,  a definitive  purchase
agreement with Boeing to acquire 13 new Boeing  717-200  aircraft,  with
rights to purchase an additional seven  aircraft.  On  March  2,  2000,  the
Company announced that the Board of Directors had approved the definitive
purchase agreement with  Boeing.  The firm  order  is  valued at
approximately $430 million at Boeing's list price for the 717-200. The
agreement provides  for  monthly  deliveries  of the  thirteen 717-200
aircraft  between  February  and  December  2001,  with two units to be
delivered in June and September 2001. The agreement also requires the Company
to fund  through  June  2001,  a total of $20 million toward the acquisition
of the aircraft.  As  of  December  31,  1999,  the Company had made
approximately $7.2 million of these progress payments.  The  Company intends
to use lease financing provided through Boeing upon delivery of each aircraft.

The Company  currently  utilizes 15 DC-9-50  aircraft to service its Interisland
routes.  The 717s (1) have the same Type  Rating as the  DC-9,  allowing  easier
maintenance and crew training transitioning;  (2) seat eight passengers in first
class and 115 in coach;  (3) utilize  twin BMW  Rolls-Royce  BR715  engines that
generate  emissions 60% below existing federal  standards;  and (4) meet federal
Stage 3 and proposed Stage 4, as currently defined,  requirements.  The 717s are
reported to be 25% more  fuel-efficient  and less  costly to  maintain  than the
Company's current DC-9-50 fleet.

In  an  effort  to  build   infrastructure  and  implement  its  present  growth
strategies,  the Company  also  concluded  the  following  transactions  in 1999
related to its aircraft fleet:

(1)  took delivery of a used DC-9-50  aircraft in May 1999, the second and final
     respective  delivery of DC-9 aircraft  under a purchase  agreement  entered
     into by the Company in fourth quarter 1998;
(2)  took delivery of one used DC-10-30  aircraft during first quarter 1999, the
     second and final  respective  delivery under a purchase  agreement  entered
     into by the Company in fourth quarter 1998;
(3)  extended lease terms on the ten DC-10  aircraft  leased by the Company from
     American  from  September  11, 2001 to December 31, 2003 in April 1999.  In
     recognition of the extended lease terms,  basic rents for the aircraft will
     continue at their lower, pre-February 1, 1999 levels. Maintenance performed
     by American on  applicable  leased and owned DC-10  aircraft of the Company
     will continue during the extended lease term,  subject to American's  right
     to terminate such services at any time with 180 days prior notice;
(4)  entered into agreements to sublease two DC-10-30  aircraft from Continental
     Micronesia,  Inc. The Company took delivery of one of the DC-10-30 aircraft
     in fourth quarter 1999 and expects the second DC-10-30 aircraft to be added
     to the fleet and placed into revenue  service in April 2000.  The subleases
     expire in January 2002.

It also commenced the following to increase its passenger base and revenues:
(1)  expanded  its Transpac  operations  by adding four weekly  nonstop  flights
     between Los Angeles and Maui and three  weekly  flights from Los Angeles to
     Maui to Kona on the Big Island of Hawaii in first quarter 1999;
(2)  started a formal code share  arrangement  with  Continental in August 1999,
     which allows  passengers to book  connecting  travel  between points in the
     domestic U.S. mainland and any of the islands in the State of Hawaii;
(3)  began a  two-year  agreement  providing  for  approximately  20  round-trip
     charter flights per month between Los Angeles and Tahiti;
(4)  added a weekly second  roundtrip  between  Honolulu and Papeete,  Tahiti in
     December 1999;
(5)  announced plans  to  add a second daily roundtrip  between Honolulu and San
     Francisco starting June 1, 2000.

In line with the Company's strategies, in March 1999, the Company was awarded by
the U.S.  Department  of  Transportation  authority to commence  nonstop  flight
operations  between  Tokyo and Maui in January  2000.  This  authority  has been
extended  until January 2001. A decision by the Company to progress on operation
of the route remains subject to a number of future events,  the outcome of which
cannot be predicted at this time,  including obtaining takeoff and landing slots
at the Narita  International  Airport and given the recent decision by the State
of Hawaii not to extend  the  runway at the Maui  airport,  the  feasibility  of
servicing the route based on the current and anticipated makeup of the Company's
fleet.


                                       20
<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

The Company believes that it has various options  available to meet its capital,
debt and operating commitments,  including cash and liquid short-term investment
securities on hand at December 31, 1999 of $63.6 million,  internally  generated
funds and a credit  facility  with  total  availability  of $8.8  million  as of
December 31, 1999, with aggregate loans and letters of credit outstanding in the
amounts of $5.5 million and $3.2  million,  respectively.  The Company  believes
that  its  ability  to  generate  cash,  both  internally  from  operations  and
externally  from debt and equity  issues,  is adequate  to  maintain  sufficient
liquidity to fund its capital  expenditure  programs and to cover debt and other
cash requirements in the foreseeable future.

Cash and cash  equivalents  for the year ended  December  31, 1999  increased by
$32.6 million from December 31, 1998.  Operating  activities  for the year ended
December 31, 1999 provided $69.3 million in cash and cash equivalents, primarily
due to, (1)  disregarding  the  non-cash  effects of the  impairment  loss,  the
Company  generating $6.4 million in operating income; (2) the transition of $6.4
million  from  restricted  to  unrestricted  cash as the  Company,  while  still
required  to  maintain  defined  levels  of cash,  renegotiated  its  collateral
holdback  requirements  with its primary credit card processor in fourth quarter
1999; and (3) a $45.7 million increase in certain current liabilities, including
a $27.1 million increase in air traffic liability.  Investing activities for the
year ended  December 31, 1999 used $41.7  million of cash and cash  equivalents.
The Company incurred $41.9 million in capital expenditures and progress payments
of flight equipment, approximately $29.1 million of which is associated with the
acquisition  of  additional  DC-9 and DC-10  aircraft.  Capitalized  portions of
aircraft  improvements and continued  investments in improved software,  related
hardware  and ground  equipment  and other  assets  represent  a majority of the
remaining   capital   expenditures.   The  Company  had  estimated  its  capital
expenditures in 1999 to approximate $49.8 million.  Financing activities for the
year ended December 31, 1999 provided $5.0 million in cash and cash equivalents,
principally  the result of net borrowings  related to its debt and capital lease
obligations.

As discussed  above,  the Company  signed a definitive  purchase  agreement with
Boeing to acquire 13 new Boeing  717-200  aircraft,  with  rights to purchase an
additional seven aircraft,  valued at approximately $430 million. The Company is
required  to fund  through  June  2001,  a total of  $20.0  million  toward  the
acquisition of these Boeing 717-200 aircraft of which approximately $7.2 million
had been made as of  December  31,  1999.  The  agreement  provides  for monthly
deliveries of the 717-200 aircraft  throughout 2001, with the Company  intending
to use lease financing  provided  through Boeing upon delivery of each aircraft.
In addition to the  commitments  required for  acquisition of the Boeing 717-200
aircraft,  the  Company  estimates  that its capital  expenditures  in 2000 will
approximate  $27.8  million.  Approximately,  $7.1  million is  associated  with
improvements  to the  Company's  DC-10  aircraft.  The  remaining  $20.7 million
principally  represents (1)  improvements  in software and related  hardware and
airport and office  facilities  and (2) purchase of ground  equipment  and other
assets.  These authorized  expenditures  will be funded through use of available
cash and cash equivalents and internally generated funds.

In March 2000,  the Company  announced  that its Board of  Directors  approved a
stock repurchase  program  authorizing the Company to buy up to 5 million shares
of its Common Stock.  Under the approved stock  repurchase plan, the Company may
repurchase  Common  Stock  from time to time in the open  market  and in private
transactions.  The  amount and  timing of any  repurchases  will be subject to a
number of factors,  including the price and  availability of the Company's stock
and general market conditions.

                                    EMPLOYEES

The majority of Hawaiian  Airlines'  employees  are covered by labor  agreements
with the  IAM,  ALPA,  AFA,  TWU and CSE  with  the  amendable  date of all five
contracts  being  February 28, 2000. As of the date of this report,  the Company
had  commenced  discussions  with the  IAM,  ALPA  and  AFA.  Management  cannot
currently  estimate the timeframe or results of the ensuing  discussions.  There
can be no assurance that the discussions will result in favorable  agreement and
ratification  between the Company and each labor  group.  Should the Company and
the labor groups reach an impasse, the Company could be adversely affected.


                                       21
<PAGE>

                               DEFERRED TAX ASSETS

As of December  31, 1999,  the Company had net  deferred tax assets  aggregating
$22.0  million,  based  on  gross  deferred  tax  assets of $52.5 million less a
valuation  allowance  of  $18  million  and  deferred  tax  liablities  of $12.6
million.  Utilization of these deferred tax assets are predicated on the Company
being  profitable  in future  years.  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 an
adverse effect on the Company's income tax provision.

                        DERIVATIVE FINANCIAL INSTRUMENTS

The Company  utilizes  heating oil forward  contracts to manage market risks and
hedge its financial  exposure  resulting from  fluctuations in its aircraft fuel
costs.  When fully  implemented,  the Company plans to employ a strategy whereby
heating  oil  contracts  are used to cover  approximately  50% of the  Company's
anticipated  aircraft fuel needs on a rolling  six-month  basis. At December 31,
1999, the Company held petroleum  forward  contracts to purchase 384,000 barrels
of heating oil in the aggregate  amount of $9.2 million through July 2000. These
forward contracts  represented  approximately  25% of the Company's  anticipated
aircraft  fuel needs for the next six months.  A realized net gain on liquidated
contracts amounting to $673,000 is included as a component of Aircraft Fuel Cost
for the year ended December 31, 1999.

                          LANDING FEES AND TICKET TAXES

On  September  1, 1999,  a  two-year  moratorium  placed on landing  fees at all
airports in the State of Hawaii ended.

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 "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 correspondent increase in the "head
tax" from $2 to $2.25 per domestic flight segment. On January 1, 2000, the "head
tax"  further  increased  from $2.25 per  domestic  flight  segment to $2.50 per
domestic flight segment.

On March 3, 2000, it was also announced that the U.S. House and Senate agreed to
increase the $3.00 per head passenger facility charge somewhere between $1.00 to
$1.50.

                             FREQUENT FLYER PROGRAM

The Company's  HawaiianMiles frequent flyer program was initiated in 1983. As of
December  31,  1999 and 1998,  HawaiianMiles  had more than  796,000 and 693,000
members,  respectively,  including  approximately  620,000  and  518,000  active
members, respectively.

 The  HawaiianMiles  program allows passengers to earn mileage credits by flying
Hawaiian  Airlines and other carriers,  particularly  Continental and Northwest.
Members  may also  receive  mileage  credits  pursuant  to  exchange  agreements
maintained by Hawaiian with a variety of entities,  including hotels, car rental
firms,  credit card issuers and long distance telephone service  companies.  The
Company  also sells  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 certain free air travel
at a later date. Travel awards available in the HawaiianMiles program range from
a 5,000 mile award,  which offers a one-way  Interisland  flight,  to 60,000 and
75,000 mile awards,  which offer a round trip first-class  Transpac flight and a
round trip first-class Southpac flight,  respectively.  Miles traveled under the
HawaiianMiles  program are accounted for as revenue  passenger miles,  which, in
turn, are used in the calculation of the Company's yield.  Non-travel awards are
valued at the incremental cost of tickets exchanged for such awards.

The  Company  recognizes  a  liability  in the  period  in  which  members  have
accumulated  sufficient  mileage  points 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.


                                       22
<PAGE>

As of  December  31,  1999  and  1998,  HawaiianMiles  members  had  accumulated
approximately  3.9  billion  and  3.7  billion  miles  representing  liabilities
totaling  approximately  $1.4  million  and  $1.1  million,   respectively.  The
Company's  accruals assume full  redemption of mileage points.  During the years
ended December 31, 1999, 1998 and 1997, 1.7 billion, 1.2 billion and 736 million
award miles were redeemed, respectively.

The Company believes that the usage of free travel awards will not result in the
displacement of revenue customers and, therefore, such usage will not materially
affect the  Company's  liquidity  or operating  results.  The use of free travel
awards  is  subject  to  review  by the  Company  to limit  the  possibility  of
displacing revenue  passengers.  HawaiianMiles  travel redemption  accounted for
approximately  4.8%,  4.1%  and 2.4% of  Interisland  traffic  and a  negligible
percentage   of  Transpac  and  Southpac   traffic  in  1999,   1998  and  1997,
respectively.

             INFORMATION TECHNOLOGY SYSTEMS AND IMPACT OF YEAR 2000

In prior years, the Company  discussed the nature and progress of its efforts to
be Year 2000 ready.  In late 1999,  the Company  completed its  remediation  and
testing of systems.  As a result of those planning and  implementation  efforts,
the  Company   experienced  no  significant   disruptions  in  mission  critical
information technology and non-information technology systems and believes those
systems  successfully  responded  to the Year  2000  date  change.  The  Company
expensed  approximately  $1 million in connection with  remediating its systems.
This was in  addition  to the  approximate  $8 million  spent by the  Company to
either  replace  or  enhance  existing  systems,  including  local and wide area
networks,  yield  management  and  all or  portions  of  revenue  and  financial
accounting.  The Company is not aware of any material  problems  resulting  from
Year 2000  issues,  either  with its  products,  its  internal  systems,  or the
products and services of third parties. The Company will continue to monitor its
mission  critical  computer  applications and those of its suppliers and vendors
throughout  the Year 2000 to ensure that any latent year 2000  matters  that may
arise are addressed promptly.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is subject to certain market risks,  including  commodity price risk
(i.e.,  aircraft fuel prices) and price changes related to investments in equity
securities.  The adverse effects of potential  changes in these market risks are
discussed below. The sensitivity  analyses presented do not consider the effects
that such  adverse  changes may have on overall  economic  activity  nor do they
consider  additional  actions  management  may take to  mitigate  the  Company's
exposure  to such  changes.  Actual  results  may  differ.  See the notes to the
financial  statements for a description of the Company's accounting policies and
other information related to these financial instruments.

                                  AIRCRAFT FUEL

Refer to  BUSINESS,  OPERATIONS,  FUEL  Contained in Part I, Item 1 of This Form
10-K and  DERIVATIVE  FINANCIAL  INSTRUMENTS,  as  described  above for  further
discussion on aircraft fuel and related financial instruments.

                        INVESTMENTS IN EQUITY SECURITIES

At  December  31,  1999,  the  Company  owned  approximately  51,000  depository
certificates convertible, subject to certain restrictions, into the common stock
of Equant,  which  completed  an initial  public  offering  in July 1998.  As of
December 31, 1999, the estimated fair value of these depository certificates was
approximately  $5.7  million,  based upon the  publicly  traded  market value of
Equant  common stock.  Since the fair value of the  Company's  investment in the
depository  certificates  is not  readily  determinable  (i.e.,  the  depository
certificates are not traded on a securities exchange), the investment is carried
at cost, which was not material as of December 31, 1999 or 1998.


                                       23
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The  Company's financial  statements,  accompanying notes Report of  Independent
Auditors, Independent  Auditors'  Report and Selected  Financial and Statistical
Data are contained in Part IV, Item 14 of this Form  10-K  and  are incorporated
herein by reference.

                          INTEREST OF NAMED DIRECTORS

The  following  supplements  the description of named  experts for  the  purpose
of  updating  such  descriptions  and  registration statements filed by Hawaiian
Airlines under the Securities Act of 1933.

In  order  to obtain the consent of KPMG LLP ("KPMG") to  include KPMG's reports
on  the  Company's 1998 financial statements, included in  the December 31, 1999
annual report on Form 10-K and to be incorporated by reference in certain of the
Company's  registration  statements  on  Form  S-8,  the Company was required to
provide  KPMG  with  an indemnification.  The  Company  has indemnified KPMG for
the  payment  of  legal costs and expenses incurred in KPMG's successful defense
of  a  legal  action  or  proceeding  that  arises as a result of the consent of
KPMG  to  the  inclusion of their reports in such registration statements. Under
no  circumstances  shall  KPMG  be  indemnified  in  the  event there is a court
adjudication  that  KPMG  is guilty of professional malpractice, or in the event
that  KPMG  becomes  liable for any part of the plaintiff's damages by virtue of
settlement.

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

             None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information  provided  in  the  Company's  Proxy Statement  for the 2000  Annual
Meeting  of  Shareholders  is  incorporated herein  by reference  other than the
following,  which  comprise  the  Executive Officers of the Company.

JOHN W. ADAMS has been Chairman of the Board of Directors since February 2, 1996
and he is also  Chairman of the Executive  Committee.  He has been the President
since 1984 of Smith  Management LLC, a private  investment firm. He was a member
of the Board of Directors of Harvard  Industries,  Inc.  from October 1994 until
November  1998,  and was  Chairman of the Board and Chief  Executive  Officer of
Harvard  Industries  from  February 1997 until  November  1998. He served on the
Board of Directors of Servico,  Inc., a lodging  owner and  management  company,
from April 1994 until August  1997,  being  Chairman of the Board from  December
1995 until he resigned  from the Board.  Mr.  Adams was Chairman of the Board of
Directors of Regency Health Services, Inc., a health care services company, from
July 1994 until October 1997. Age 56.

PAUL J. CASEY has been President and Chief  Executive  Officer since April 1997.
He has also been a director and a member of the Executive  Committee of Hawaiian
Airlines since April 1997. He was the President and Chief  Executive  Officer of
the Hawaii  Visitors and  Convention  Bureau from 1995 until March 1997.  He was
Managing Director-Asia/Pacific of the Thomas Cook Group during 1994. He was Vice
President-International  Division of Continental  Airlines from 1991 until 1994,
and Vice President-Asia/Pacific of Continental Airlines from 1985 until 1991. In
1999,  he became a director of Outrigger  Hotels,  Inc., a Hawaii based  company
with hotel and resort properties throughout the Pacific area. Age 54.

JOHN L. GARIBALDI has been Executive Vice President and Chief Financial  Officer
since May 1996. He was Vice President and Chief Financial Officer of the Queen's
Health  Systems  from 1992  until  1996 and Senior  Vice  President-Finance  and
Planning and Chief  Financial  Officer of Aloha Airgroup,  Inc./Aloha  Airlines,
Inc. from 1985 until 1992. Age 47.

ROBERT W. ZOLLER,  JR. was appointed  Executive  Vice President - Operations and
Service effective December 1, 1999. He held Vice President positions at  AirTran
from  1996  to  1999,  including   most   recently   Senior  Vice  President  of
Maintenance  and  Engineering.  From  1991 to  1996,  he was Vice  President  of
Operations for AMR Eagle, Inc. and Managing Director of Eagle Aviation Services,
Inc. Age 53.

JOHN B. HAPP has been Senior  Vice  President-Marketing  & Sales since  December
1997. He served dual roles of Vice  President  Market  Planning for LTU Airlines
and Vice  President  Marketing for their  subsidiary,  Go America,  from 1996 to
1997.  From  1989 to  1996,  he  held  various  senior  marketing  and  business
development  positions at Continental  Airlines,  Inc.,  including most recently
Managing Director of the Newark Business Unit. Age 44.


                                       24
<PAGE>

RUTHANN S. YAMANAKA has been Senior Vice President-People Services  Group  since
March  1998.  She  was Senior Vice President-Assistant Director, Human Resources
for  Bank  of Hawaii from July 1994 through  February 1998 and Manager,  Quality
Assurance Administration from 1988 to 1994. Age 46.

LYN F. ANZAI has been Vice  President-General  Counsel and  Corporate  Secretary
since  July  1997.  She was Senior  Counsel  in the  Corporate/Investment  Legal
Division of Kamehameha Schools Bishop Estate from November 1990 until July 1997.
Age 57.

DAVID M. BOAZ was Vice  President-Flight  Operations  from  June 1997  until his
retirement and resignation effective December 15, 1999. He was Managing Director
of Delta Airlines,  Inc. in the People's Republic of China from 1996 to 1997. He
was Chief Pilot in Los Angeles for Delta  Airlines,  Inc.  from 1991 until 1996.
Age 63.

H. NORMAN DAVIES JR. has been Vice  President-Safety  and Security since January
6, 1997. He was Chief Pilot in New York for Delta  Airlines,  Inc. from November
1991 until June 1996. Age 63.

MICHAEL P. LOO has been Vice President-Controller  since 1996. He was Staff Vice
President-Controller   of  Hawaiian  Airlines  from  1994  until  1995.  He  was
previously with KPMG LLP until 1993. Age 35.

CLARENCE  K.  LYMAN has been Vice  President-Finance,  Treasurer  and  Assistant
Corporate Secretary since 1991. Age 54.

BLAINE  J.   MIYASATO  was  Vice   President-In-Flight,   Catering  and  Product
Development from February 1, 1999 until he was appointed to an expanded position
of Vice  President-Customer  Services  effective  January 16, 2000. From 1993 to
1998  he  held  various  senior  positions  at  the  Company   including  Senior
Director-In-Flight, Product Development & Catering. Age 37.

EDWARD W. PINION was appointed Vice President-Purchasing of Hawaiian Airlines on
March 1, 1999. He was manager of aviation fuels for  BHP/Tesoro  from March 1996
until 1999.  From 1994 to 1996,  he was  Commander  of the Defense  Fuel Region,
Pacific,  and Commander of the Defense Logistics Agency,  Pacific,  at Camp H.M.
Smith. Age 49.

GLEN L. STEWART was Vice  President-Transpacific and Southpacific Marketing from
1993 until his  retirement  effective  December  31,  1999.  He was Senior  Vice
President-Transpacific of Hawaiian Airlines from 1991 to 1993. Age 57.

GLENN G. TANIGUCHI has been Vice  President-Schedule  Planning and  Reservations
since 1995. He was Staff Vice  President-Schedule  Planning and  Reservations of
Hawaiian Airlines from 1991 until 1995. Age 57.

All  officers  are  appointed  annually by the Board of Directors at their first
meeting after the annual meeting of stockholders at which the Board of Directors
is elected.

No executive officer of the Company bears any relationship by blood, marriage or
adoption to any other executive officer or director,  except that John W. Adams'
sister is married to director Robert G. Coo.

Information  provided  in the  Company's  Proxy  Statement  for the 2000  Annual
Meeting of Shareholders is incorporated  herein by reference for Part III, Items
11 through 13 of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION.

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


                                       25
<PAGE>

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

(a)  Financial Statements.

               (1)  Report of Independent Auditors of Ernst & Young LLP.
               (2)  Independent Auditors' Report of KPMG LLP.
               (3)  Balance Sheets, December 31, 1999 and 1998.
               (4)  Statements  of Operations  for the Years ended  December 31,
                    1999, 1998 and 1997.
               (5)  Statements of Shareholders'  Equity and Comprehensive Income
                    for the Years ended December 31, 1999, 1998 and 1997.
               (6)  Statements  of Cash Flows for the Years ended  December  31,
                    1999, 1998 and 1997.
               (7)  Notes to Financial Statements.
               (8)  Quarterly Financial Information (Unaudited).
               (9)  Selected Financial and Statistical Data.

     Financial Statement Schedule.

               (1)  Report  of  Independent  Auditors  of  Ernst & Young  LLP on
                    Financial Statement Schedule for the Year Ended December 31,
                    1999.
               (2)  Independent  Auditors'  Report  of  KPMG  LLP  on  Financial
                    Statement Schedule for the Years Ended December 31, 1998 and
                    1997.
               (3)  Schedule of Valuation and Qualifying Accounts.

               Schedules not listed above are omitted  because of the absence of
               the  conditions  under  which they are  required  or because  the
               required  information is included in the financial  statements or
               notes thereto.

(b)  Reports on Form 8-K.

               (1)  Current  Report on Form 8-K dated  October  5, 1999 (date of
                    event  September  28, 1999)  reporting  Item 4,  "Changes in
                    Registrant's Certifying Accountant."
               (2)  Current Report on Form 8-K/A dated October 12, 1999 (date of
                    event  September  28, 1999)  reporting  Item 4,  "Changes in
                    Registrant's  Certifying  Accountant" and Item 7, "Financial
                    Statements, Proforma Financial Information and Exhibits."

(c)  Exhibits.

     Exhibit 3 Articles of Incorporation, Bylaws.
               (1)  Restated  Articles of  Incorporation of the Company filed as
                    Exhibit 3(a) to the Company's Registration Statement on Form
                    S-3 as filed  December  31, 1998 is  incorporated  herein by
                    reference.
               (2)  Amended and Restated  Bylaws of the Company filed as Exhibit
                    3.1 to the  Company's  Current  Report  on Form 8-K as filed
                    September 14, 1998 is incorporated herein by reference.

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

               (1)  Rights  Agreement  dated  December 23, 1994 filed as Exhibit
                    (1) to the Company's  current  report on Form 8-K during the
                    fourth  quarter of 1994 (date of report - December 23, 1994)
                    is incorporated herein by reference.
               (2)  The following Agreements filed as Exhibit 4 to the Company's
                    Quarterly Report on Form 10-Q for the quarter ended June 30,
                    1995 are incorporated herein by reference:


                                       26
<PAGE>

                    (a)  Amendment  No.  1 dated  as of May 4,  1995  to  Rights
                         Agreement  dated as of December 23, 1994 by and between
                         Hawaiian  Airlines,  Inc. and Chemical Trust Company of
                         California;
                    (b)  Amendment  No. 1 to 1994 Stock  Option Plan dated as of
                         May 4,  1995;
                    (c)  Amendment No. 1 dated  as  of  May 4,  1995 to Warrants
                         Nos. 1-10.
               (3)  1994 Stock  Option Plan,  as amended,  filed as Exhibit 4 to
                    the  Company's  Registration  Statement on Form S-8 as filed
                    November 15, 1995 is incorporated  herein by reference.
               (4)  The following Agreements filed as Exhibit 4 to the Company's
                    Annual  Report on Form 10-K for the year ended  December 31,
                    1995 are incorporated herein by reference:
                    (a)  Rightsholders  Agreement  dated as of January 31, 1996,
                         by and among Hawaiian Airlines, Inc., Airline Investors
                         Partnership, L.P., AMR Corporation, Martin Anderson and
                         Robert Midkiff;
                    (b)  Amendment  No. 2 to the Rights  Agreement,  as amended,
                         dated as of January 31,  1996 by and  between  Hawaiian
                         Airlines,   Inc.   and   Chemical   Trust   Company  of
                         California;
                    (c)  Amendment  No. 2 to 1994 Stock Option Plan, as amended,
                         dated as of December 8, 1995.
               (5)  1996 Stock Incentive Plan, as amended, filed as Exhibit 4 to
                    the Company's  Amendment No. 1 to Registration  Statement on
                    Form S-2 as filed July 12,  1996 is  incorporated  herein by
                    reference.
               (6)  Amendment No. 3 to the Rights Agreement,  as amended,  dated
                    as of May 21, 1998, by and between Hawaiian  Airlines,  Inc.
                    and ChaseMellon Shareholder Services, L.L., C., as successor
                    to Chemical Trust Company of California,  filed as Exhibit 4
                    to the Company's  Amendment No. 2 to Registration  Statement
                    on Form 8-A as filed May 22, 1998 in incorporated  herein by
                    reference.
               (7)  Amendment No. 4 to the Rights Agreement,  as amended,  dated
                    as of August 28,  1998,  by and between  Hawaiian  Airlines,
                    Inc. and  ChaseMellon  Shareholder  Services,  L.L.,  C., as
                    successor to Chemical Trust Company of California,  filed as
                    Exhibit 5 to the Company's  Amendment No. 3 to  Registration
                    Statement  on  Form  8-A as  filed  September  14,  1998  in
                    incorporated herein by reference.
           The Company agrees to provide the Securities and Exchange Commission,
           upon request, copies of instruments defining the  rights  of security
           holders of long-term debt of the Company.

     Exhibit 10 Material Contracts.

               (1)  The following contracts filed as Exhibit 10 to the Company's
                    Quarterly  Report on Form 10-Q for the  quarter  ended March
                    31, 1997 are incorporated herein by reference:
                    (a)  Code Share  Agreement,  dated January 6, 1997,  between
                         the  Company  and Wings West  Airlines,  Inc.  filed in
                         redacted  form since  confidential  treatment  has been
                         requested  pursuant to Rule 24.b-2 for certain portions
                         thereof;
                    (b)  Amendment  No. 1 to Code Share  Agreement,  dated as of
                         January  21,  1997,  between the Company and Wings West
                         Airlines, Inc.;
                    (c)  Aircraft Lease Agreement,  dated as of January 3, 1997,
                         between the Company and American  Airlines,  Inc. filed
                         in redacted form since confidential  treatment has been
                         requested  pursuant to Rule 24.b-2 for certain portions
                         thereof;
                    (d)  Separation   Agreement  and  Complete   Settlement  and
                         Release  of All  claims,  dated as of  February,  1997,
                         between the Company and Bruce R. Nobles;


                                       27
<PAGE>

               (e)  Employment  Agreement,  effective  as  of  April  14,  1997,
                    between  the  Company  and Paul John  Casey.
          (2)  Code Share Agreement,  dated July 15,  1997,  between the Company
               and American Airlines, Inc. filed as Exhibit 10 to  the Company's
               Quarterly Report on Form 10-Q for the quarter ended June 30, 1997
               are incorporated herein by reference.
          (3)  The  following  contracts  filed as Exhibit  10 to the  Company's
               Annual  Report on Form 10-K for the year ended  December 31, 1997
               are incorporated herein by reference:
               (a)  Employment  Agreement,  effective  as of December  15, 1997,
                    between the Company and John B. Happ;
               (b)  Employment Agreement, effective as of March 1, 1998, between
                    the Company and Ruthann S. Yamanaka;
               (c)  Form of warrant for the Purchase of 25,696 shares of Class A
                    Common Stock issued to AMR Corporation;
               (d)  Form of Addendum  to Warrant  for the  Purchase of Shares of
                    Common Stock;
               (e)  Form of Amendment  No. 1 to Warrant  Certificate  No. 12 for
                    the Purchase of Shares of Common Stock;
               (f)  Form of Amendment  No. 2 to Warrant  Certificate  No. 12 for
                    the Purchase of Shares of Common Stock;
               (g)  Form of Amendment  No. 1 to Warrant  Certificate  No. 23 for
                    the Purchase of Shares of Common Stock;
               (h)  Form of Amendment  No. 2 to Warrant  Certificate  No. 23 for
                    the Purchase of Shares of Common Stock;
               (i)  Aircraft Lease  Agreement  dated as of May 9, 1997,  between
                    American Airlines, Inc. and Hawaiian Airlines, Inc. filed in
                    redacted   form  since   confidential   treatment  has  been
                    requested  pursuant  to Rule  24.b-2  for  certain  portions
                    thereof;
               (j)  Aircraft  Lease  Agreement  dated as of December  12,  1997,
                    between American Airlines,  Inc. and Hawaiian Airlines, Inc.
                    filed in redacted form since confidential treatment has been
                    requested  pursuant  to Rule  24.b-2  for  certain  portions
                    thereof.
          (4)  The  following  contracts  filed as Exhibit  10 to the  Company's
               Annual  Report on Form 10-K for the year ended  December 31, 1998
               are incorporated herein by reference:

               (a)  Aircraft  Loan  Agreement  dated  December 29, 1998, between
                    Bank of Hawaii and Hawaiian Airlines, Inc. filed in redacted
                    form   since   confidential  treatment  has  been  requested
                    pursuant to Rule 24.b-2 for certain portions thereof;
               (b)  Aircraft  Sale and  Purchase  Agreement  dated  November 18,
                    1998, between  Fin 3  Limited  and  Hawaiian  Airlines, Inc.
                    filed in redacted form since confidential treatment has been
                    requested  pursuant  to  Rule  24.b-2  for  certain portions
                    thereof;
               (c)  Form   of   Passenger   Aircraft  Charter   Agreement  dated
                    November  9,   1997,  effective  February  1,  1998  between
                    Hawaiian Vacations, Inc. and Hawaiian Airlines, Inc;
               (d)  Form of Passenger Aircraft Charter Agreement dated  November
                    2, 1998 between Renaissance Cruises and  Hawaiian  Airlines,
                    Inc.
     (5)  Aircraft Loan Agreement,  dated March 29, 1999, between Bank of Hawaii
          and Hawaiian  Airlines,  Inc.  filed as Exhibit 99-1 to the  Company's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and
          in  redacted  form since  confidential  treatment  has been  requested
          pursuant to Rule 24.b-2 for certain portions thereof, are incorporated
          herein by reference.
     (6)  Sublease   Agreement   060  dated  as  of  October  26,  1999  between
          Continental  Micronesia,  Inc. and the Company, in redacted form since
          confidential  treatment has been requested pursuant to Rule 24.6-2 for
          certain portions thereof.


                                       28
<PAGE>

     (7)  Sublease   Agreement   061  dated  as  of  October  26,  1999  between
          Continental  Micronesia,  Inc. and the Company, in redacted form since
          confidential  treatment has been requested pursuant to Rule 24.6-2 for
          certain portions thereof.
     (8)  Aircraft  Maintenance  Services Agreement dated as of October 26, 1999
          by and between the Company and Continental Airlines, Inc., in redacted
          form since confidential  treatment has been requested pursuant to Rule
          24.6-2 for certain portions thereof.
     (9)  Agreement  between U.S.  Bank  National  Association  and the Company,
          effective date December 31, 1999, in redacted form since  confidential
          treatment  has been  requested  pursuant  to Rule  24.6-2 for  certain
          portions thereof.
     (10) Aircraft  General Terms Agreement  AGTA-HWI between The Boeing Company
          and the Company, dated as of December 31, 1999, in redacted form since
          confidential  treatment has been requested pursuant to Rule 24.6-2 for
          certain portions thereof.
     (11) Purchase  Agreement Number 2252 between McDonnell Douglas  Corporation
          and the Company  Relating to Model 717-22A  Aircraft and the following
          Letter  Agreements,  dated as of December 31, 1999,  in redacted  form
          since  confidential  treatment  has been  requested  pursuant  to Rule
          24.6-2 for certain portions thereof:
          (a)  Customer Services Matters;
          (b)  Spares Initial Provisioning;
          (c)  Aircraft Performance Guarantees;
          (d)  Promotional Support;
          (e)  Business Matters;
          (f)  Purchase Rights Aircraft and Aircraft Model Substitution;
          (g)  Liquidated Damages - Non-Excusable Delay;
          (h)  Guarantee Agreement;
          (i)  Other Matters;
          (j)  Financing Matters;
          (k)  Spares Commitments;
          (l)  Board Approval.

Exhibit 23 Consent of experts and counsel.

          (1)  Consent of Ernst & Young LLP.
          (2)  Consent of KPMG LLP.

Exhibit 24 Power of Attorney.

Exhibit 27 Financial data schedule.


                                       29
<PAGE>

                                  EXHIBIT INDEX

Exhibit Number                        Description
--------------                        -----------

    10 (6)     Sublease  Agreement  060 Dated as of  October  26,  1999  between
               Continental  Micronesia,  Inc. and the Company,  in redacted form
               since confidential  treatment has been requested pursuant to Rule
               24.6-2 for certain portions thereof.

    10 (7)     Sublease  Agreement  061 dated as of  October  26,  1999  between
               Continential  Micronesia,  Inc. and the Company, in redacted form
               since confidential treatement has been requested pursuant to Rule
               24.6-2 for certain portions thereof.

    10 (8)     Aircraft  Maintenance  Services Agreement dated as of October 26,
               1999 by and between Continental  Airlines,  Inc. and the Company,
               in redacted form since confidential  treatment has been requested
               pursuant to Rule 24.6-2 for certain portions thereof.

    10 (9)     Agreement between U.S. Bank National Association and the Company,
               effective   dated December  31,  1999,  in  redacted  form  since
               confidential treatment has been requested pursuant to Rule 24.6-2
               for certain portions thereof.

    10 (10)    Aircraft  General  Terms  Agreement  AGTA-HWI  between The Boeing
               Company  and the  Company,  dated as of  December  31,  1999,  in
               redacted form since  confidential  treatment  has been  requested
               pursuant to Rule 24.6-2 for certain portions thereof.

    10 (11)    Purchase   Agreement  Number  2252  between   McDonnell   Douglas
               Corporation  and the Company  relating to Model 717-22A  Aircraft
               and the  following  Letter  Agreements,  dated as of December 31,
               1999,  in redacted  form since  confidential  treatment  has been
               requested pursuant to Rule 24.6-2 for certain portions thereof:
               (a) Customer Services Matters;
               (b) Spares Initial Provisioning;
               (c) Aircraft Performance Guarantees;
               (d) Promotional Support;
               (e) Business Matters;
               (f) Purchase Rights Aircraft and Aircraft Model Substitution;
               (g) Liquidated Damages - Non-Excusable Delay;
               (h) Guarantee Agreement;
               (i) Other Matters;
               (j) Financing Matters;
               (k) Spares Commitments;
               (l) Board Approval.

      23       Consents of experts and counsel.
                   Consent of Ernst & Young LLP.
                   Consent of KPMG LLP.

      24       Power of Attorney.

      27       Financial data schedule.


                                       30
<PAGE>

                                   SIGNATURES

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


                                     HAWAIIAN AIRLINES, INC.

March 30, 2000                       By   /s/ JOHN L. GARIBALDI
                                          ----------------------------------
                                          John L. Garibaldi
                                          Executive Vice President and
                                          Chief Financial Officer
                                          (Principal Financial and Accounting
                                          Officer)


                                       31
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Hawaiian Airlines, Inc.:

We  have  audited  the  accompanying  balance  sheet  of Hawaiian Airlines, Inc.
(the  "Company")  as  of  December  31,  1999,  and  the  related  statements of
operations,  shareholders'  equity  and comprehensive income, and cash flows for
the year  then  ended. These  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is  to  express an opinion on these
financial statements based on our audit.

We   conducted  our  audit  in  accordance  with  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
audit provides 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,  1999,  and  the  results of its operations and its cash flows
for  the  year  then  ended,  in conformity with accounting principles generally
accepted in the United States.

As  discussed  in  Note  2  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.


/s/ ERNST & YOUNG LLP
Honolulu, Hawaii
March 21, 2000

                                       F-1a

<PAGE>
                                            INDEPENDENT AUDITORS' REPORT

The Board of Directors
Hawaiian Airlines, Inc.:

We have audited the accompanying balance sheet of Hawaiian Airlines,  Inc. as of
December 31,  1998,  and the related  statements  of  operations,  shareholders'
equity  and  comprehensive  income,  and cash flows for each of the years in the
two-year  period ended  December 31, 1998.  These  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Hawaiian Airlines,  Inc. as of
December 31, 1998, and the results of its operations and its cash flows for each
of the years in the two-year  period ended December 31, 1998, in conformity with
generally accepted accounting principles.


/s/ KPMG LLP

Honolulu, Hawaii
March 11, 1999


                                      F-1b
<PAGE>

Hawaiian Airlines, Inc.
Balance Sheets (in thousands)
December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                 1999         1998
                                                              ---------    ---------
<S>                                                           <C>          <C>
ASSETS
Current Assets:
     Cash and cash equivalents ............................   $  63,631    $  31,011
     Restricted cash ......................................          --        6,432
     Accounts receivable, net of allowance for doubtful
         accounts of $500 in 1999 and 1998 ................      24,921       29,995
     Inventories ..........................................      13,965        8,546
     Deferred tax assets, net .............................       9,625           --
     Prepaid expenses and other ...........................       6,521        5,923
                                                              ---------    ---------

         Total current assets .............................     118,663       81,907
                                                              ---------    ---------

Property and Equipment:
     Flight equipment .....................................      39,675       86,980
     Progress payments on flight equipment ................       7,158           --
     Ground equipment, buildings and leasehold improvements      30,980       23,526
                                                              ---------    ---------

         Total ............................................      77,813      110,506
     Accumulated depreciation and amortization ............     (12,541)     (25,584)
                                                              ---------    ---------

         Property and equipment, net ......................      65,272       84,922
                                                              ---------    ---------

Other Assets:
     Long-term prepayments and other ......................       8,930        8,232
     Deferred tax assets, net .............................      12,375           --
     Reorganization value in excess of amounts allocable to
         identifiable assets, net .........................      33,897       46,850
                                                              ---------    ---------

     Total other assets ...................................      55,202       55,082
                                                              ---------    ---------

     Total Assets .........................................   $ 239,137    $ 221,911
                                                              =========    =========
</TABLE>

See accompanying Notes to Financial Statements


                                      F-2
<PAGE>

Hawaiian Airlines, Inc.
Balance Sheets (in thousands, except share data)
December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                    1999         1998
                                                                                 ---------    ---------
<S>                                                                              <C>          <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Current portion of long-term debt .......................................   $   3,853    $   3,532
     Current portion of capital lease obligations ............................       3,379        4,614
     Accounts payable ........................................................      41,864       28,883
     Air traffic liability ...................................................      50,426       23,350
     Other accrued liabilities ...............................................      20,920       15,298
                                                                                 ---------    ---------

         Total current liabilities ...........................................     120,442       75,677
                                                                                 ---------    ---------

Long-Term Debt ...............................................................      23,858       14,454
                                                                                 ---------    ---------

Capital Lease Obligations ....................................................       2,790        5,966
                                                                                 ---------    ---------

Other Liabilities and Deferred Credits:
     Accumulated pension and other postretirement benefit obligations ........      16,397       25,968
     Other ...................................................................       9,524        8,959
                                                                                 ---------    ---------

         Total other liabilities and deferred credits ........................      25,921       34,927
                                                                                 ---------    ---------

Shareholders' Equity
     Common Stock - $.01 par value, 60,000,000 shares authorized,
       40,997,335 and 40,624,586 shares issued and outstanding
       in 1999 and 1998, respectively ........................................         410          410
     Special Preferred Stock - $.01 par value, 2,000,000 shares
       authorized, seven shares issued and outstanding .......................          --           --
     Capital inexcess of par value ...........................................      99,418       99,418
     Warrants ................................................................       3,153        3,153
     Notes receivable from Common Stock sales ................................      (1,581)      (1,581)
     Accumulated deficit .....................................................     (35,274)      (6,007)
     Accumulated other comprehensive income (loss) - minimum pension
         liability adjustment ................................................          --       (4,506)
                                                                                 ---------    ---------

         Shareholders' Equity ................................................      66,126       90,887
                                                                                 ---------    ---------

     Commitments and Contingent Liabilities (Notes 3, 4, 5, 6, 8, 9, 10 and 11)

         Total Liabilities and Shareholders' Equity ..........................   $ 239,137    $ 221,911
                                                                                 =========    =========
</TABLE>

See accompanying Notes to Financial Statements

                                      F-3
<PAGE>

Hawaiian Airlines, Inc.
Statements of Operations (in thousands)
For the Years ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                               1999          1998         1997
------------------------------------------------------------------------------------------------
<S>                                                          <C>          <C>          <C>
Operating Revenues:
     Passenger ...........................................   $ 400,251    $ 354,245    $ 332,154
     Charter .............................................      46,570       35,742       37,172
     Cargo ...............................................      22,836       21,682       21,272
     Other ...............................................      19,220       14,746       13,618
                                                             ---------    ---------    ---------
         Total ...........................................     488,877      426,415      404,216
                                                             ---------    ---------    ---------

Operating Expenses:
     Wages and benefits ..................................     138,418      118,885      114,571
     Maintenance materials and repairs ...................     101,801       84,004       76,267
     Aircraft fuel, including taxes and oil ..............      76,382       66,601       78,137
     Rentals and landing fees ............................      31,640       30,541       32,707
     Depreciation and amortization .......................      17,139       12,607       10,665
     Sales commissions ...................................      12,471       11,655       13,033
     Impairment loss .....................................      46,958           --           --
     Other ...............................................     104,605       84,717       76,334
                                                             ---------    ---------    ---------
         Total ...........................................     529,414      409,010      401,714
                                                             ---------    ---------    ---------

Operating Income (Loss) ..................................     (40,537)      17,405        2,502
                                                             ---------    ---------    ---------

Nonoperating Income (Expense)
     Interest and amortization of debt expense ...........      (3,448)      (2,042)      (2,439)
     Interest income .....................................       2,377        1,639        2,045
     Loss on disposition of equipment ....................      (1,013)        (831)        (140)
     Other, net ..........................................       2,708         (163)        (820)
                                                             ---------    ---------    ---------
         Total ...........................................         624       (1,397)      (1,354)
                                                             ---------    ---------    ---------

Income (Loss) Before Income Taxes and Cumulative Effect of
     Change in Accounting Principle ......................     (39,913)      16,008        1,148

Income Tax Benefit (Provision) ...........................      11,418       (7,803)      (1,720)
                                                             ---------    ---------    ---------

Net Income (Loss) Before Cumulative Effect of Change in
     Accounting Principle ................................     (28,495)       8,205         (572)

Cumulative Effect of Change in Accounting Principle,
     Net of Income Taxes .................................        (772)          --         (450)
                                                             ---------    ---------    ---------

Net Income (Loss) ........................................   $ (29,267)   $   8,205    $  (1,022)
                                                             =========    =========    =========
</TABLE>

See accompanying Notes to Financial Statements


                                      F-4
<PAGE>

Hawaiian Airlines, Inc.
Statements of Operations (in thousands, except per share data) For the Years
ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                     1999           1998           1997
------------------------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>           <C>
Net Income (Loss) Per Common Stock Share:

Basic
     Before cumulative effect of change in accounting principle    $    (0.70)   $     0.20    $    (0.02)
     Cumulative effect of change in accounting principle, net of
         income taxes ..........................................        (0.02)           --         (0.01)
                                                                    ---------     ---------     ---------
Net Income (Loss) Per Common Stock Share .......................   $    (0.72)   $     0.20    $    (0.03)
                                                                    =========     =========     =========

Diluted
     Before cumulative effect of change in accounting principle    $    (0.70)   $     0.19    $    (0.02)
     Cumulative effect of change in accounting principle, net of
         income taxes ..........................................        (0.02)           --         (0.01)
                                                                    ---------     ---------     ---------
Net Income (Loss) Per Common Stock Share .......................   $    (0.72)   $     0.19    $    (0.03)
                                                                    =========     =========     =========

Weighted Average Number of Common Shares Outstanding:
     Basic .....................................................       40,997        40,921*       40,361*
                                                                    =========     =========     =========
     Diluted ...................................................       40,997        42,205*       40,361*
                                                                    =========     =========     =========

     The following table shows a reconciliation of the weighted average shares
     outstanding used in computing basic and diluted net income (loss) per
     Common Stock share:

     Weighted average Common Stock shares outstanding                  40,997        40,921*       40,361*
     Incremental Common Stock shares issuable upon exercise of
         outstanding warrants and stock options (treasury stock
         method)                                                           --         1,284            --
                                                                    ---------     ---------     ---------
     Weighted average Common Stock shares and Common Stock share
         equivalents                                                   40,997        42,205*       40,361*
                                                                    =========     =========     =========
</TABLE>

*     Includes shares reserved for issuance under the Consolidated Plan of
      Reorganization dated September 21, 1993 as amended


                                      F-5
<PAGE>

Hawaiian Airlines, Inc.
Statements of Shareholders' Equity and Comprehensive Income (in thousands)
For the Years ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                                    Special   Capital in
                                                       Common      Preferred   excess of
                                                         Stock       Stock     par value   Warrants
-----------------------------------------------------------------------------------------------------
<S>                                                   <C>        <C>        <C>        <C>
Balance at December 31, 1996 ......................   $    393   $     --   $ 95,827   $  1,557
Net loss ..........................................         --         --         --         --
Issuance of warrants to acquire 974,669 shares of
     Common Stock .................................         --         --         --      2,328
Exercise of options to acquire 307,500 shares of
     Common Stock .................................          3         --        495         --
Exercise of warrants to acquire 1,318,972 shares of
     Common Stock .................................         13         --      2,915       (732)
                                                      --------   --------   --------   --------

Balance at December 31, 1997 ......................        409         --     99,237      3,153
Net income ........................................         --         --         --         --
Minimum pension liability adjustment ..............         --         --         --         --
Comprehensive income ..............................
Exercise of options to acquire 112,500 shares of
     Common Stock .................................          1         --        181         --
                                                      --------   --------   --------   --------

Balance at December 31, 1998 ......................        410         --     99,418      3,153
Net income ........................................         --         --         --         --
Minimum pension liability adjustment ..............         --         --         --         --
Comprehensive income ..............................
                                                      --------   --------   --------   --------

Balance at December 31, 1999 ......................   $    410   $     --   $ 99,418   $  3,153
                                                      ========   ========   ========   ========

<CAPTION>
                                                      Notes
                                                 receivable from               Accumulated
                                                   Common Stock   Accumulated  comprehensive
                                                      sales        deficit      income (loss)      Total
                                                 ---------------------------------------------------------------
<S>                                                   <C>         <C>           <C>               <C>
Balance at December 31, 1996 ......................   $ (1,714)   $(13,190)         --           $ 82,873
Net loss ..........................................         --      (1,022)         --             (1,022)
Issuance of warrants to acquire 974,669 shares of
     Common Stock .................................         --          --          --              2,328
Exercise of options to acquire 307,500 shares of
     Common Stock .................................         --          --          --                498
Exercise of warrants to acquire 1,318,972 shares of
     Common Stock .................................         --          --          --              2,196
                                                      --------    --------     -------           --------

Balance at December 31, 1997 ......................     (1,714)    (14,212)         --             86,873
Net income ........................................         --       8,205          --              8,205
Minimum pension liability adjustment ..............         --          --      (4,506)            (4,506)
                                                                                                 --------
Comprehensive income ..............................                                                 3,699
                                                                                                 --------
Exercise of options to acquire 112,500 shares of
     Common Stock .................................        133          --          --                315
                                                      --------    --------     -------           --------

Balance at December 31, 1998 ......................     (1,581)     (6,007)     (4,506)            90,887
Net loss ..........................................         --     (29,267)         --            (29,267)
Minimum pension liability adjustment ..............         --          --       4,506              4,506
                                                                                                 --------
Comprehensive loss ................................                                               (24,761)
                                                      --------    --------     -------           --------

Balance at December 31, 1999 ......................   $ (1,581)   $(35,274)         --           $ 66,126
                                                      ========    ========     =======           ========
</TABLE>

See accompanying Notes to Financial Statements


                                      F-6
<PAGE>

Hawaiian Airlines, Inc.
Statements of Cash Flows (in thousands)
For the Years ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                               1999          1998           1997
------------------------------------------------------------------------------------------------------
<S>                                                        <C>           <C>         <C>
Cash Flows From Operating Activities:
     Net income (loss) ..................................  $ (29,267)    $  8,205    $ (1,022)
     Adjustments to reconcile net income (loss) to net
         cash provided by operating activities:

     Depreciation .......................................     12,591       7,663       5,533

     Amortization .......................................      4,548       4,944       5,132

     Net periodic postretirement benefit cost ...........        752         915         935

     Impairment loss ....................................     46,958          --          --

     Loss on disposition of equipment ...................      1,013         831         140

     Decrease (increase) in restricted cash .............      6,432      (1,738)         --

     Decrease (increase) in accounts receivable .........      5,074      (5,040)     (3,365)

     Decrease (increase) in inventories .................     (5,419)        804      (2,300)

     Decrease (increase) in prepaid expenses and other ..       (598)       (234)        501

     Increase in deferred taxes, net ....................    (22,000)         --          --

     Increase in accounts payable .......................     12,981       1,296         788

     Increase (decrease) in air traffic liability .......     27,076         962      (4,355)

     Increase (decrease) in other accrued liabilities ...      5,622       1,583       2,311

     Other, net .........................................      3,567      10,002        (211)
                                                            --------    --------    --------


         Net cash provided by operating activities ......     69,330      30,193       4,087
                                                            --------    --------    --------

Cash Flows From Investing Activities:

     Additions to property and equipment ................    (34,776)    (27,946)    (18,468)

     Progress payments on flight equipment ..............     (7,158)         --          --

     Net proceeds from disposition of equipment .........        260       1,153       1,422

     Sale of investment securities ......................         --       4,001          --

     Purchase of investment securities ..................         --          --      (4,003)
                                                            --------    --------    --------


         Net cash used in investing activities ..........    (41,674)    (22,792)    (21,049)
                                                            --------    --------    --------

Cash Flows From Financing Activities:

     Issuance of long-term debt .........................     12,704      13,359         792

     Repayment of long-term debt ........................     (2,979)     (1,533)     (3,141)

     Repayment of capital lease obligations .............     (4,761)     (4,244)     (4,907)

     Issuance of Common Stock ...........................         --         182       2,694

     Proceeds on notes receivable from Common Stock sales         --         133          --
                                                            --------    --------    --------

         Net cash provided by (used in) financing
              activities ................................      4,964       7,897      (4,562)
                                                            --------    --------    --------

         Net increase (decrease) in cash and cash
              equivalents ...............................     32,620      15,298     (21,524)


Cash and cash equivalents - Beginning of Year ...........     31,011      15,713      37,237
                                                            --------    --------    --------

Cash and cash equivalents - End of Year .................   $ 63,631    $ 31,011    $ 15,713
                                                            ========    ========    ========

</TABLE>

See accompanying Notes to Financial Statements


                                      F-7
<PAGE>

Hawaiian Airlines, Inc.
Statements of Cash Flows (in thousands)
For the Years ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                1999      1998      1997
-----------------------------------------------------------------------------------------
<S>                                                             <C>      <C>      <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
     Interest paid ..........................................   $3,197   $1,864   $2,267
     Income taxes paid ......................................      163      761     --

SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
     Minimum pension liability adjustment ...................    4,506   (4,506)    --
     Property and equipment financed through capital lease ..      350     --      9,432
     Issuance of warrants to acquire 974,669 shares of Common
         Stock ..............................................     --       --      2,328
</TABLE>

See accompanying Notes to Financial Statements


                                      F-8
<PAGE>

Hawaiian Airlines, Inc.
Notes to Financial Statements

1. BUSINESS AND ORGANIZATION

Hawaiian Airlines,  Inc. ("Hawaiian Airlines" or the "Company") was incorporated
in January  1929 under the laws of the  Territory  of Hawaii and is the  largest
airline  headquartered in Hawaii,  based on operating revenues of $488.9 million
for 1999. 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. Scheduled passenger service consists of, on average and
depending on seasonality,  approximately  175 flights per day with daily service
from Hawaii,  principally  Honolulu to Las Vegas, Nevada and the four key United
States  ("U.S.")  West Coast  gateway  cities of Los Angeles and San  Francisco,
California, Seattle, Washington and Portland, Oregon ("Transpac"), daily service
among the six major  islands  of the State of Hawaii  ("Interisland")  and twice
weekly  service to Pago Pago,  American  Samoa and Papeete,  Tahiti in the South
Pacific ("Southpac"). The Company also provides charter service from Honolulu to
Las  Vegas  and  Anchorage,  Alaska  and from Los  Angeles  to  Papeete,  Tahiti
("Overseas  Charter").  The Company operates a fleet consisting of DC-9 aircraft
and DC-10 aircraft.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The Company  considers all  investments  purchased with an original  maturity of
three  months  or  less  to be  cash  equivalents.  Short-term  cash  equivalent
investments  at December  31, 1999 and 1998 were valued at cost and  amounted to
$41.0 million and $27.0 million, respectively.

As of December 31, 1999, the Company had no cash  restricted to withdrawal as in
fourth  quarter  1999,  the  Company   renegotiated   its  collateral   holdback
requirements  with its primary credit card  processor.  Under the new agreement,
the Company is required to maintain  defined levels of cash in lieu of providing
defined collateral holdbacks. In prior years, certain funds served as collateral
to support a credit card holdback for advance ticket sales and was classified as
restricted cash in the accompanying balance sheets. Funds were made available as
air travel was provided. As of December 31, 1998,  approximately $6.4 million of
cash was restricted as to withdrawal.

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
                                                       value
        Ground equipment.............................  5-15 years
        Airport terminal facility....................  30 years
        Buildings....................................  15-20 years
        Leasehold improvements.......................  Shorter of lease term or
                                                       useful life

Maintenance  and repairs are charged to operations as incurred,  except that (1)
costs of  overhauling  engines are charged to operations in the year the engines
are removed for overhaul and (2) scheduled  heavy  airframe  overhauls and major
structural modifications on DC-9 aircraft are recorded under the deferral method
whereby the cost of overhaul is  capitalized  and amortized  over the shorter of
the period benefited or the lease term. Additionally,  provision is 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 will be expensed. See Note 10.

Maintenance  and repairs on DC-10 aircraft are charged to operations on a flight
hour basis. See Notes 5 and 11.


                                      F-9
<PAGE>

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  Value") in the  accompanying
balance  sheets.  Excess  Reorganization  Value is amortized on a  straight-line
basis over 20 years.  Accumulated  amortization  at  December  31, 1999 and 1998
totaled  approximately  $17.8  million  and  $15.0  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.  The Company will continue to assess
and evaluate  whether the remaining  useful life of the asset requires  revision
or,  through  the use of  estimated  future  undiscounted  cash  flows  over the
remaining  life of the  asset,  whether  the  remaining  balance of the asset is
recoverable. The assessment of the recoverability of the unamortized amount will
be impacted if estimated future operating cash flows are not achieved.

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.

The Company also sells mileage credits to participating partners such as hotels,
car rental  agencies and credit card  companies.  During 1999, as promulgated by
the  Securities and Exchange  Commissions'  Staff  Accounting  Bulletin No. 101,
"Revenue Recognition in Financial Statements," the Company changed the method it
uses to account for the sale of these  mileage  credits.  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.  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.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes derivative financial  instruments  principally comprised of
heating oil forward  contracts to manage  market risks and hedge its exposure to
fluctuations  in its  aircraft  fuel costs.  These  contracts  qualify for hedge
accounting treatment as they manage risk, identify firm commitments for set time
periods and meet correlation  criteria for  effectiveness.  The Company accounts
for its derivative  contracts on a deferral basis. Initial and subsequent margin
deposit  requirements  are  reflected  in  prepaid  expenses  and other  assets.
Realized and unrealized gains and losses,  fees and commissions are deferred and
recognized upon settlement of the underlying contract. The Company's practice is
to not hold or issue financial instruments for trading purposes.

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.


                                      F-10
<PAGE>

ADVERTISING COSTS

The Company expenses the costs of advertising as incurred.  Advertising  expense
was $5.7 million, $4.5 million and $4.0 million for the years ended December 31,
1999, 1998 and 1997, respectively.

IMPAIRMENT

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,"  the  Company  records  impairment  losses  on  long-lived  assets  used in
operations  when  events and  circumstances  indicate  that the assets  might be
impaired  and the  undiscounted  cash flows  estimated  to be generated by those
assets are less than the carrying amount of those assets.

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.

BUSINESS PROCESS REENGINEERING COSTS

The Company  adopted the  guidelines  promulgated  by the  Financial  Accounting
Standards Board's (the "FASB") Emerging Issues Task Force in fourth quarter 1997
and wrote off business process  reengineering  costs which had been incurred and
capitalized  in the  implementation  of  information  technology  projects.  The
write-off  totaled  approximately   $450,000,  net  of  income  tax  benefit  of
approximately  $300,000 and is  reflected  as a  cumulative  effect of change in
accounting principle in the accompanying statements of operations.

STOCK OPTION PLANS

The Company applies the intrinsic value-based method of accounting prescribed by
Accounting  Principles Board (the "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 per share  represents  income  available to common  shareholders
divided by the weighted  average number of Common Stock shares  outstanding  for
the period.  Diluted  earnings 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 3.6 million, 1.4 million and 2.5 million shares of Common
Stock in 1999, 1998 and 1997, 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 generally  accepted
accounting principles 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  air  traffic  liability,  accruals  for  loss
contingencies  and the  amounts  reported  for  accumulated  pension  and  other
postretirement benefit obligations. Management believes that such estimates have
been appropriately  established in accordance with generally accepted accounting
principles.


                                      F-11
<PAGE>

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  the
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  1999
presentation.  Such  reclassifications  had no  effect  on  previously  reported
financial condition and/or results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

In  June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for Derivative
Instruments and Hedging Activities, "which establishes accounting  and reporting
standards  for derivative instruments and for hedging activities.  SFAS No.  133
requires   that  an  entity  recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  The  provisions of SFAS No. 133, as amended by SFAS No. 137, are
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The  Company  will  adopt  SFAS  No.  133 on  January  1,  2001  but has not yet
determined the impact of its adoption.

In March 1998, the American Institute of Certified Public Accountants Accounting
Standards  Executive  Committee  ("AcSEC")  issued Statement of Position ("SOP")
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal Use" which  requires that certain costs related to the  development  or
purchase  of  internal-use  software  be  capitalized  and  amortized  over  the
estimated useful life of the software.  The SOP also requires that costs related
to the preliminary project stage and the  post-implementation/operations  stage,
as defined, in an internal-use computer software development project be expensed
as incurred.

In April 1998,  the AcSEC issued SOP 98-5,  "Reporting  on the Costs of Start-up
Activities,"  which requires that costs  incurred  during  start-up  activities,
including organization costs, be expensed as incurred.

Adoption of the provisions of SOP 98-1 and SOP 98-5 by the Company as of January
1, 1999 did not have a material  impact on the Company's  financial  position or
results of operations.

3.   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 values of long-term debt amounted to $26.5 million and $17.6
million at  December  31,  1999 and 1998,  respectively.  These fair values were
estimated by discounting the future cash flow requirements of each instrument at
rates  currently  offered at the  respective  year-end  dates to the Company for
similar debt instruments of comparable maturities.

The Company  utilizes  heating oil forward  contracts to manage market risks and
hedge its financial  exposure  resulting from  fluctuations in its aircraft fuel
costs.  When fully  implemented,  the Company plans to employ a strategy whereby
heating  oil  contracts  are used to cover  approximately  50% of the  Company's
anticipated  aircraft fuel needs on a rolling  six-month  basis. At December 31,
1999, the Company held petroleum  forward  contracts to purchase 384,000 barrels
of heating oil in the aggregate  amount of $9.2 million through July 2000. These
forward contracts  represented  approximately  25% of the Company's  anticipated
aircraft  fuel needs for the next six months.  A realized net gain on liquidated
contracts  amounting  to $673,000 is  included as a component  of aircraft  fuel
expense for the year ended  December  31, 1999.  The  contracts  generally  have
maturities  of one  year or  less  and  are  either  exchanged  or  traded  with
counterparties of high credit quality; therefore, the risk of non-performance by
the counterparties is considered to be negligible.


                                      F-12
<PAGE>

At  December  31,  1999,  the  Company  owned  approximately  51,000  depository
certificates convertible, subject to certain restrictions, into the common stock
of Equant,  which  completed  an initial  public  offering  in July 1998.  As of
December 31, 1999, the estimated fair value of these depository certificates was
approximately  $5.7  million,  based upon the  publicly  traded  market value of
Equant  common stock.  Since the fair value of the  Company's  investment in the
depository  certificates  is not  readily  determinable  (i.e.,  the  depository
certificates are not traded on a securities exchange), the investment is carried
at cost, which was not material as of December 31, 1999 or 1998.

4. FLIGHT EQUIPMENT

All of the  Company's  aircraft are leased except for two DC-10s and four DC-9s.
At December 31, 1999 and 1998, the  composition of the Company's  aircraft fleet
is as follows:

                                  1999                     1998
          Aircraft Type     Leased      Owned       Leased      Owned
          -------------   --------   ----------    --------  ---------
          DC-10             11           2          10           1
          DC-9              11           4          11           3
                          --------------------------------------------
          Total             22           6          21           4
                          ============================================



The Company intends to replace its Interisland  DC-9 fleet in 2001. See Note 10.
The Company also anticipates delivery of a DC-10-30 in April 2000. See Note 5.

5. LEASES

AIRCRAFT LEASES

Ten DC-10 aircraft are leased from American  Airlines,  Inc.  ("American") under
operating leases. In 1999, the Company and American agreed to extend lease terms
on the ten DC-10 aircraft leased by the Company from American from September 11,
2001 to December 31, 2003. In  recognition  of the extended  lease terms,  basic
rents for the  aircraft  will  continue  at their  lower,  pre-February  1, 1999
levels.  Rent has been expensed under the straight line method. In third quarter
1999, the Company entered into agreements to sublease two used DC-10-30 aircraft
from  Continental  Micronesia,  Inc.  The  Company  took  delivery of one of the
DC-10-30  aircraft  in fourth  quarter  1999 and  expects  the  second  DC-10-30
aircraft to be added to the fleet and placed into revenue service in April 2000.
The subleases expire in January 2002.

Five and six DC-9  aircraft  and  related  flight  equipment  are  leased  under
operating and capital leases, respectively, for various periods through the year
2004. Most of the operating leases for DC-9 aircraft include renewal options and
fair market value purchase options at the end of the lease period.

OTHER LEASES

The Company leases office space for its headquarters, airport facilities, ticket
offices and certain ground equipment in varying terms to 2008.

GENERAL

Rent expense for  aircraft,  office  space,  real  property and other  equipment
during 1999,  1998 and 1997 was $26.9 million,  $28.4 million and $26.6 million,
respectively, net of sublease rental income.

Scheduled  future minimum lease  commitments  under operating and capital leases
for the Company as of December 31, 1999, in thousands, are as follows:


                                      F-13
<PAGE>

<TABLE>
<CAPTION>
                                                               Operating     Capital
                                                                Leases        Leases
      -------------------------------------------------------------------------------------
<S>   <C>                                                      <C>           <C>
      2000................................................     $   17,552    $    3,704
      2001................................................         15,586           928
      2002................................................         13,428           842
      2003................................................         13,228           242
      2004................................................          1,848           242
      Thereafter..........................................          6,548         1,562
                                                               ----------    ----------

             Total minimum lease payments.................     $   68,190    $    7,520

             Less amount representing interest
                 (rates ranging from 8.0% to 10.25%)                              1,351
                                                                             ----------
             Present value of capital lease obligations...                        6,169

             Less current portion of capital lease obligations                    3,379
                                                                             ----------

             Capital lease obligations, excluding current
             portions.....................................                   $    2,790
                                                                             ==========
</TABLE>

In addition to scheduled future minimum lease payments,  the Company is required
to pay for, under agreement with American,  monthly DC-10  maintenance  charges.
These  charges  are based on flight  hours  for the  month and are  expensed  as
incurred. See Note 11. For the years ended December 31, 1999, 1998 and 1997, the
Company incurred $66.3 million,  $55.4 million and $50.9 million,  respectively,
in maintenance charges under such agreement.

The net book value of property held under capital leases as of December 31, 1999
and 1998 totaled $6.8 million and $19.8 million,  respectively.  Amortization of
property held under capital leases is included in depreciation  and amortization
expense in the accompanying statements of operations.

6. DEBT

At December 31, 1999 and 1998,  the  Company's  long-term  debt  consists of the
following, in thousands:

<TABLE>
<CAPTION>
                                                                       1999             1998
----------------------------------------------------------------------------------------------------
<S>                                                                 <C>               <C>
     Secured obligations due 2000-2006........................      $   27,711        $   17,986

     Current portion..........................................          (3,853)           (3,532)
                                                                    ----------        ----------
         Long-term debt obligations, excluding current portion      $   23,858        $   14,454
                                                                    ==========        ==========
</TABLE>

                                      F-14
<PAGE>

Secured obligations due 2000-2006 are as follows:

(1)   A promissory  note executed in 1999 for the acquisition of a used DC-10-30
      aircraft. The note is secured by lien on the aircraft, as described in the
      security  agreement.  The note is due in 2006 and is  payable  in  monthly
      installments  of principal and interest of $132,436.  Interest  accrues at
      8.56% per annum. As of December 31, 1999, $7.7 million was outstanding;

(2)   A promissory  note executed in 1999 for the  acquisition of a used DC-9-50
      aircraft.  The note is secured by first  priority  liens on the  aircraft,
      other collateral as described in the security agreement and a $2.1 million
      letter of credit issued under the Credit Facility  defined below. The note
      is due in 2005 and is payable in monthly  installments  of  principal  and
      interest  ranging from $70,000 to $61,857.  Interest  accrues at 9.95% per
      annum. At December 31, 1999, $3.3 million was outstanding;

(3)   A promissory  note executed in 1998 for the acquisition of a used DC-10-30
      aircraft. The note is secured by lien on the aircraft, as described in the
      security  agreement.  The note is due in 2005 and is  payable  in  monthly
      installments  of principal and interest of $131,553.  Interest  accrues at
      8.15% per annum.  As of December 31, 1999 and 1998,  $7.5 million and $8.4
      million was outstanding, respectively;

(4)   A promissory  note executed in 1998 for the  acquisition of a used DC-9-50
      aircraft.  The note is secured by first  priority  liens on the  aircraft,
      other collateral as described in the security agreement and a $1.0 million
      letter of credit issued under the Credit Facility  defined below. The note
      is due in 2005 and is payable in monthly  installments  of  principal  and
      interest  ranging from $78,039 to $34,673.  Interest  accrues at 8.95% per
      annum.  At December  31, 1999 and 1998,  $3.7 million and $4.3 million was
      outstanding, respectively;

(5)   The Company  maintains a Credit Facility with CIT  Group/Business  Credit,
      Inc. (the "Credit Facility").  The Credit Facility consists of two secured
      term loans and a secured  revolving  line of credit  including  up to $6.0
      million  of letters of  credit.  The term  loans  will  amortize  in equal
      installments  over  periods  of  48  and  60  months,  respectively.   The
      outstanding  principal  amounts  of the term  loans  will  become  due and
      payable  upon  termination  of the Credit  Facility.  Available  credit is
      subject to change  determined  by  recalculation  of the  borrowing  base,
      repayments  due  under  the term  loans and  repayments  arising  from the
      disposition  and other  changes in the  related  collateral  securing  the
      Credit  Facility.  The Credit  Facility has an initial term of three years
      from April 29, 1996 and renews  automatically  for successive terms of two
      years each,  unless  terminated by either party on at least 60 days notice
      prior  to the end of the  then-current  term.  Interest  accrues  at prime
      (8.50% at December  31,  1999) plus 2.0%.  The Company may  terminate  the
      Credit Facility at any time, on 30 days notice.

      As of December 31, 1999, the total  availability under the Credit Facility
      was $8.8 million with aggregate loans and letters of credit outstanding in
      the amounts of $5.5 million and $3.2 million, respectively. As of December
      31,  1998,  the total  availability  under the Credit  Facility  was $11.1
      million  with  aggregate  loans and letters of credit  outstanding  in the
      amounts of $4.9 million and $1.1 million, respectively.

      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 an 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.

Maturities of long-term debt for the Company,  including those estimated for the
Credit Facility, as of December 31, 1999, in thousands, are as follows:


                       2000...................         $   3,853
                       2001...................             3,513
                       2002...................             3,680
                       2003...................             3,970
                       2004...................             3,788
                       Thereafter.............             8,907


                                      F-15
<PAGE>

7. INCOME TAXES

Income tax expense is based on an estimated  annual  effective  tax rate,  which
differs from the federal statutory rate of 35% in 1999 and 1998 and 34% in 1997,
primarily  due to state income  taxes and certain  nondeductible  expenses.  The
Company's  reorganization  and the  associated  implementation  of  fresh  start
reporting  gave rise to  significant  items of expense for  financial  reporting
purposes that are not deductible for income tax purposes.



<TABLE>
<CAPTION>
                                                         1999           1998           1997
        ----------------------------------------      ---------        ---------    ---------
<S>                                                   <C>               <C>          <C>
        Deferred taxes
             Federal............................      $   (9,249)       $   6,005    $   1,322
             State..............................          (2,169)           1,408          320
                                                       ---------        ---------    ---------
                                                      $  (11,418)       $   7,413    $   1,642

        Current payable
             Federal............................               -              316           63
             State..............................               -               74           15
                                                       ---------        ---------    ---------
                                                               -              390           78
                                                       ---------        ---------    ---------
             Provision (benefit) for income taxes      $ (11,418)       $   7,803    $   1,720
                                                       =========        =========    =========
</TABLE>

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 generally accepted accounting principles
require that a provision for income tax be recorded, a majority of the provision
for 1998 and 1997 did not require cash outlay as it was offset by net  operating
loss  carryforwards   available  to  the  Company.   In  1999,  1998  and  1997,
approximately  $1.3  million,  $7.4 million and $1.6 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 1999,  1998 and 1997  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:

<TABLE>
<CAPTION>
                                                              1999            1998            1997
------------------------------------------------------    -----------        ---------     ---------
<S>                                                       <C>                <C>            <C>
      Computed "expected" tax expense (benefit).......    $   (13,969)       $   5,600      $    400
      Amortization of Excess Reorganization Value.....            983            1,200         1,200
      State income taxes, net of federal income
          tax benefit.................................         (2,096)             800            20
      Change in deferred tax valuation allowance......          3,569                -             -
      Other...........................................             95              203           100
                                                          -----------        ---------     ---------
                                                          $   (11,418)       $   7,803     $   1,720
                                                          ===========        =========     =========
</TABLE>

                                      F-16
<PAGE>

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, 1999 and 1998 are presented below, in thousands:


<TABLE>
<CAPTION>
                                                                         1999                1998
      -------------------------------------------------------------------------------------------------
      <S>                                                                    <C>                 <C>
      Deferred tax assets:
           Net operating loss carryforwards...................         $   15,062          $   16,402
           Impairment loss....................................             18,783                   -
           Accumulated pension and other postretirement benefit
               obligations....................................              8,159              10,185
           Provision for loss on devalued assets..............              2,805               2,724
           Accrued vacation...................................              2,638               2,263
           Airframe return provision..........................              2,437               1,271
           Accounts receivable, principally due to allowance
               for doubtful accounts..........................                200                 200
           Alternative minimum tax credit.....................                446
           Other..............................................              2,049               1,027
                                                                       ----------        ------------
               Total gross deferred tax assets................             52,579              34,072

               Less valuation allowance allocated to
                  pre-reorganization deferred tax assets......            (14,047)            (24,114)
                                                                       ----------        ------------
                                                                           38,532               9,958


               Less valuation allowance allocated to
                  post-reorganization deferred tax assets                  (3,970)               (401)
                                                                       ----------        ------------
               Net deferred tax assets........................             34,562               9,557


        Deferred tax liabilities:


           Plant and equipment, principally due to
               differences in depreciation....................            (12,562)             (9,557)
                                                                       ----------        ------------
               Net deferred taxes.............................         $   22,000        $          -
                                                                       ==========        =============
</TABLE>

As of December  31, 1999,  the Company had net  deferred tax assets  aggregating
$22.0  million  based on gross  deferred  tax  assets  of $52.5  million  less a
valuation  allowance  of $18  million  and  deferred  tax  liabilities  of $12.5
million.  The  valuation  allowance  for  deferred tax assets as of December 31,
1999,  1998  and  1997  was  $18  million,  $24.5  million  and  $34.1  million,
respectively.  The net change in the total valuation allowance was a decrease of
$6.5  million,  $9.6 million and $1.2  million for the years ended  December 31,
1999,  1998 and 1997,  respectively.  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 are 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 an  adverse  effect  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,
1999, the Company has total net operating loss carryovers of approximately $37.6
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  $25 million of net operating
loss  carryforwards will first result in a $10 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.


                                      F-17
<PAGE>

8. BENEFIT PLANS

DEFINED BENEFIT PENSION PLANS

The Company  sponsors three defined  benefit pension plans covering its Air Line
Pilots  Association,   International  ("ALPA"),   International  Association  of
Machinists and Aerospace Workers (AFL-CIO) ("IAM") and salaried  personnel.  The
plans for the IAM and salaried  employees were frozen effective October 1, 1993.
As a result of the  freeze,  there will be no further  benefit  accruals  and no
additional  participants  in those  plans.  Pension  cost for the pilots plan is
funded on a current basis based on the  amortization  of prior service cost over
20 years.  Funding for the ground  personnel plans is based on minimum  Employee
Retirement  Income  Security  Act of  1974  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 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 are
eligible for certain medical  benefits under another plan if they meet specified
age and service requirements at the time of retirement.


                                      F-18
<PAGE>

The following  tables  summarize  changes to benefit  obligations,  plan assets,
funded  status and amounts  included in the  accompanying  balance  sheets as of
December 31, 1999 and 1998, in thousands:



<TABLE>
<CAPTION>
                                                           Pension Benefits                Other Benefits
Change in benefit obligation                              1999          1998           1999              1998
-----------------------------------------------------   ---------     ---------     ---------        ---------
<S>                                                     <C>           <C>          <C>              <C>
Benefit obligation at beginning of year .........       $ 183,014     $ 163,792    $   14,139       $   13,909
Service cost.....................................           4,172         4,047           730              739
Interest cost....................................          12,656        12,078           950            1,037
Actuarial (gain) loss............................          (8,023)       11,857          (639)            (901)
Benefits paid....................................          (9,246)       (8,760)         (632)            (645)
                                                        ---------     ---------     ---------        ---------
Benefit obligation at end of year................         182,573       183,014        14,548           14,139
                                                        ---------     ---------     ---------        ---------

Change in plan assets
-----------------------------------------------------
Fair value of assets at beginning of year........         158,684       160,770             -                -
Actual return on plan assets.....................          20,981         1,869             -                -
Employer contribution............................           8,221         4,805           632              645
Benefits paid....................................          (9,246)       (8,760)         (632)            (645)
                                                        ---------     ---------     ---------        ---------
Fair value of assets at end of year..............         178,640       158,684             -                -
                                                        ---------     ---------     ---------        ---------
Funded status....................................          (3,933)      (24,330)      (14,548)         (14,139)
Unrecognized actuarial net (gain) loss...........          10,228        25,435       (12,145)         (12,434)
                                                        ---------     ---------     ---------        ---------
Prepaid accrued benefit cost at end of year......       $   6,295     $   1,105    $  (26,693)      $  (26,573)
                                                        =========     =========     =========        =========
Amounts recognized in the
     accompanying balance sheets
-----------------------------------------------------
Prepaid benefit cost.............................       $  17,642     $  14,120     $       -         $      -
Accrued benefit liability........................         (11,347)      (17,521)      (26,693)         (26,573)
Intangible asset.................................               -                           -                -
Accumulated other comprehensive loss.............               -         4,506             -                -
                                                        ---------     ---------     ---------        ---------
Prepaid (accrued benefit cost at end of year.....       $   6,295     $   1,105     $ (26,693)       $ (26,573)
                                                        =========     =========     =========        =========

Weighted average assumptions at end of year
-----------------------------------------------------
Discount rate....................................             7.5%          7.0%          7.0%             7.0%
Expected return on plan assets...................             9.0%          9.0%  Not applicable   Not applicable
Rate of compensation increase....................             4.5%          4.5%          4.5%             4.5%
</TABLE>

At December 31, 1997, the discount rate, expected return on plan assets and rate
of  compensation  increase  for  pension  benefits  was  7.5%,  9.0%  and  4.5%,
respectively.  At December 31, 1997, the discount rate and rate of  compensation
increase  for  other  benefits  was 7.0%  and  4.5%,  respectively.  The rate of
compensation  increase is not  applicable to the frozen  plans.  At December 31,
1999,  the health  care cost trend rate was assumed to increase by 7.3% for 2000
and  decrease  gradually to 4.0% over 7 years and remain  level  thereafter.  At
December  31,  1998,  the health care cost trend rate was assumed to increase by
7.3% for 1999 and  decrease  gradually  to 4.0%  over 8 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 $124.8 million, $114.7 million and $106.7 million,  respectively, as
of December  31, 1999 and $136.1  million,  $122.7  million and $105.2  million,
respectively, as of December 31, 1998.


                                      F-19
<PAGE>

The following table sets forth the net periodic benefit cost for the years ended
December 31, 1999, 1998 and 1997:


<TABLE>
<CAPTION>
                                                    Pension Benefits                            Other Benefits
                                                    ----------------                            --------------
Components of Net Periodic
Benefit Cost                                1999          1998          1997           1999          1998          1997
-------------------------------------      --------      --------      --------       --------      --------      --------
<S>                                        <C>           <C>           <C>            <C>           <C>           <C>
Service cost.....................          $  4,172      $  4,047      $  3,609       $    730      $    739      $    714
Interest cost....................            12,656        12,078        11,506            950         1,037         1,044
Expected return on plan assets...           (14,342)      (13,473)      (12,607)             -             -             -
Recognized net actuarial (gain) loss            544             -             -           (928)         (861)         (823)
                                           --------      --------      --------       --------      --------      --------
    Net periodic benefit cost...           $  3,030      $  2,652      $  2,508       $    752      $    915      $    935
                                           ========      ========      ========       ========      ========      ========
</TABLE>

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:



<TABLE>
<CAPTION>
                                                               1-Percentage-        1-Percentage-
                                                              Point Increase       Point Decrease
                                                              --------------       ---------------
<S>                                                              <C>              <C>
      Effect on total of service and interest cost
          components...................................          $   251,000      $     (206,000)
      Effect on postretirement benefit obligation......          $ 1,859,000      $   (1,558,000)
</TABLE>

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  $1.4
million, $1.3 million and $1.1 million in 1999, 1998 and 1997, respectively. The
Company is also required to contribute  4.0% 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 $2.1  million,  $2.0 million and
$1.8 million in 1999, 1998 and 1997, respectively.

The Company further sponsors a profit sharing plan, which provides all employees
(other than senior management) with cash bonuses if the Company achieves certain
pre-tax  profit  levels.  At December  31,  1998,  the Company had  provided for
approximately  $760,000 under the  provisions of the profit  sharing plan,  with
distribution of the amounts, as defined by the plan, made in first quarter 1999.

9. CAPITAL STOCK, WARRANTS, RIGHTS AND OPTIONS

AUTHORIZED CAPITAL STOCK

As of December 31, 1999 and 1998,  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 1999 or
1998.

In March 2000,  the Company  announced  that its Board of  Directors  approved a
stock repurchase  program  authorizing the Company to buy up to 5 million shares
of its Common Stock.  Under the approved stock  repurchase plan, the Company may
repurchase  Common  Stock  from time to time in the open  market  and in private
transactions.  The  amount and  timing of any  repurchases  will be subject to a
number of factors,  including the price and  availability of the Company's stock
and general market conditions.


                                      F-20
<PAGE>

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
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. If not  exercised,  the warrants  expire on September
11, 2001. 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 warrants and 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 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 were
reserved  for  issuance  of  discretionary  grants of options  to the  Company's
employees.  The Company also has a 1996  Nonemployee  Director Stock Option Plan
which reserves 500,000 shares of Common Stock for issuance and grants of options
to 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  of four  years  and  expire,  if not  previously
exercised, 10 years from the date of grant.


                                      F-21
<PAGE>

Stock option activity during the periods indicated is as follows:





<TABLE>
<CAPTION>
                                                                                                 Weighted
                                                                                                average of
                                                                                                 exercise
                                                                 Shares of Common Stock          price of
                                                               Available for      Under        shares under
                                                                options           Plan             plan
                                                             ------------------------------    ---------------
<S>                                                            <C>                <C>               <C>
Balance at December 31, 1996                                   1,618,500          774,000           $    2.36
                                                                                                    =========
     Granted
        1996 Stock Incentive Plan                               (150,000)         150,000                4.06
     Exercised
        1994 Stock Option Plan                                         -         (307,500)               1.62
     Forfeited
        1996 Stock Incentive Plan                                 72,000          (72,000)               3.56
                                                               ---------          --------
Balance at December 31, 1997                                   1,540,500          544,500           $    3.09
                                                                                                    =========
     Authorized
        1996 Stock Incentive Plan                              2,500,000                -                -
     Granted
        1996 Stock Incentive Plan                             (1,035,000)       1,035,000                3.50
        1996 Nonemployee Director Stock Option Plan              (56,000)          56,000                3.50
     Exercised
        1994 Stock Option Plan                                         -         (112,500)               1.62
     Forfeited
        1996 Stock Incentive Plan                                 28,000          (28,000)               3.56
                                                               ---------        ---------
Balance at December 31, 1998                                   2,977,500        1,495,000           $    3.49
                                                                                                    =========
     Granted
        1996 Stock Incentive Plan                               (200,000)         200,000                2.34
        1996 Nonemployee Director Stock Option Plan              (32,000)          32,000                2.31

     Forfeited
        1996 Stock Incentive Plan                                 45,000          (45,000)               3.50
        1996 Nonemployee Director Stock Option Plan               25,000          (25,000)               3.69
                                                               ---------        ---------
Balance at December 31, 1999                                   2,815,500        1,657,000           $    3.33
                                                               =========        =========           =========
</TABLE>

As of December 31, 1999,  vesting  requirements  and exercise periods under each
respective plan are as follows:


                                            Vesting           Exercise Period
                                            -------           ---------------

         1994 Stock Option Plan           Fully vested          Through 2005

       1996 Stock Incentive Plan          Various from          Various from
                                       2000 through 2003     2000 through 2009

       1996 Nonemployee Director          Through 2000          Various from
           Stock Option Plan                                 2000 through 2009

At  December  31,  1999,  the  range of  exercise  prices  and  weighted-average
remaining  contractual  lives of outstanding  options was $1.62 to $4.06 and 7.3
years, respectively.

At December  31,  1999,  1998 and 1997,  the number of options  exercisable  was
646,500,  316,000 and  322,500,  respectively,  with  weighted-average  exercise
prices of $3.42, $3.14 and $2.53, respectively.


                                      F-22
<PAGE>

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:


                                   1999         1998        1997
                                -------------------------------------
Net Income (Loss)
     As reported                  $(29,267)      $ 8,205    $(1,022)
     Pro forma                    $(29,933)      $ 7,146    $(1,322)

Basic earnings per share
     As reported                  $  (0.72)      $ 0.20    $ (0.03)
     Pro forma                    $  (0.73)      $ 0.17    $ (0.03)

Diluted earnings per share
     As reported                  $  (0.72)      $ 0.19    $ (0.03)
     Pro forma                    $  (0.73)      $ 0.17    $ (0.03)

The per share  weighted-average fair value of stock options granted during 1999,
1998 and 1997 was  $1.22,  $1.78 and $1.81,  respectively,  on the date of grant
using a Black Scholes  option-pricing model with the following  weighted-average
assumptions:

                                  1999             1998              1997
                           -----------------------------------------------------
Expected dividend yield           0.0%             0.0%              0.0%
Expected volatility              34.0%             40.0%             40.0%
Risk-free interest rate      5.38% to 6.36%        5.76%        6.30% to 6.40%
Expected life                Up to 7 years     Up to 7 years     Up to 6 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.

10. COMMITMENTS AND CONTINGENT LIABILITIES

AIRCRAFT COMMITMENTS

As discussed in Note 4, in September 1999, the Company  announced that,
subject to the negotiation and execution of a definitive  agreement,  it had
accepted an offer from The Boeing  Company  ("Boeing")  to purchase up to 20
Boeing  717-200 aircraft to replace its present  Interisland  DC-9 fleet.  On
December 31, 1999, the Company signed,  subject to approval by the Company's
Board of Directors,  a definitive  purchase  agreement  with  Boeing to
acquire  13 new Boeing  717-200 aircraft,  with rights to purchase an
additional  seven  aircraft.  On March 2, 2000,  the  Company announced that
the Board  of  Directors had approved  the  definitive  purchase agreement
with Boeing. The firm order is valued at approximately $430 million at
Boeing's  list  price  for the  717-200.  The  agreement  provides  for
monthly deliveries of the thirteen  717-200 aircraft between February and
December 2001, with two units to be delivered in June and September  2001.
The agreement  also requires the Company to fund through June 2001, a total
of $20.0 million  toward the  acquisition of the aircraft.  As of December
31, 1999, the Company had made approximately  $7.2 million of these progress
payments.  The Company intends to use lease financing provided through Boeing
upon delivery of each aircraft.

In connection with its decision to replace these aircraft, the Company performed
an evaluation to determine, in accordance with SFAS No. 121, 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  may incur  restructuring  charges  throughout  the year 2000 as it
proceeds with its narrow-body  fleet  transition  plan. The Company at this time
cannot determine the total restructuring charges, if any, that may be incurred.


                                      F-23
<PAGE>

LITIGATION AND CONTINGENCIES

All  claims  asserted  against  the  Company  for  alleged   prepetition  and/or
administrative  claims  on  or  before  the  Effective  Date  of  the  Company's
reorganization have been resolved utilizing reserved Common Stock shares and the
Company's Chapter 11 Bankruptcy proceeding has been closed.

The Company is party to several  other claims and legal  actions.  In 1999,  the
Department  of  Taxation of the State of Hawaii  informally  advised the Company
that it was prepared to issue proposed tax  assessment  notices to the Company's
lessors of DC-9 aircraft under operating leases for general excise tax liability
on the lease rent paid to such  lessors.  Pursuant  to the  leases,  the Company
would,  subject to certain defenses,  including but not limited to the Company's
prior discharge in bankruptcy of certain  obligations,  be liable to the lessors
for such taxes and possibly  interest and penalties  thereon.  In the opinion of
management, an adequate reserve for this contingency has been established in the
accompanying   balance  sheets  and,  after  consultation  with  legal  counsel,
management believes that the ultimate disposition of this matter will not have a
material adverse effect on the Company's operations or financial condition.

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, 1999
amounting  to  approximately  $232.9  million.  Rent  expense  relating to these
operating  leases  totaled $4.7 million,  $4.9 million and $5.0 million in 1999,
1998 and 1997, 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 $605,000,  $592,000 and $338,000 of
rent expense in 1999, 1998 and 1997, respectively.

11. RELIANCE ON THIRD PARTIES

The Company has entered into agreements with  contractors,  including  American,
Northwest    Airlines,    Inc.   ("Northwest"),   Continental   Airlines,   Inc.
("Continental")  and  certain  other  airlines,  to  provide  certain facilities
and  services  required  for its  operations,  including  aircraft  leasing  and
maintenance,  code sharing,  reservations,  computer  services,  frequent  flyer
programs,  passenger processing,  ground facilities,  baggage and cargo handling
and  personnel  training.  This  reliance on third  parties to provide  services
subjects  the  Company  to the risk that  such  services  could be  discontinued
without adequate replacement services being available.

The Company leases ten DC-10 aircraft from American. American is responsible for
maintenance on all but one of the Company's  DC-10  aircraft  (leased and owned)
with the Company  having  access to spare  parts,  engines and  rotables for the
maintenance  of these  aircraft.  As such,  the Company does not maintain  large
inventories  of spare  engines or parts to support  the  operation  of the DC-10
aircraft.  The Company pays a minimum monthly charge for  maintenance  services,
monthly in arrears.  During  1999,  the  Company  incurred  approximately  $78.5
million of lease and maintenance expenses under the American leases and aircraft
maintenance  agreements.  Maintenance performed by American on applicable leased
and owned  DC-10  aircraft  of the  Company is subject  to  American's  right to
terminate  such  services  at any time with 180 days prior  notice.  If American
terminated  the  maintenance  arrangement,  the  Company  would  have to seek an
alternate  source of  maintenance  service or  undertake  to maintain its DC-10s
internally. No assurance can be given that the Company would be able to do so on
a basis that is as cost-effective as the American maintenance arrangement.
See Notes 4 and 5.


                                      F-24
<PAGE>


The Company has code sharing  agreements  with American,  American Eagle carrier
Wings  West  Airlines,  Inc.,  Northwest  and  Continental.   The  Company  also
participates  in  the  frequent  flyer  programs  of  American,   Northwest  and
Continental.  These programs and services make the Company more competitive, but
increase its reliance on third parties.

In  1999  and  1998,  one   particular   Hawaii-based   wholesaler   constituted
approximately  13% of the  Company's  total  operating  revenues.  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 the Company.  Although management
intends to continue to offer an  attractive  and  competitive  product to travel
agencies and to maintain favorable relations with travel agencies,  there can be
no assurance  that travel  agencies will not disfavor the Company or favor other
airlines  in the  future,  either of which  could have an adverse  effect on the
Company's operations and profitability.

12. 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.

13. 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:




                               1999        1998        1997
                           ------------------------------------

     Transpac                 $236,234    $196,670    $180,424
     Interisland               144,131     138,614     132,626
     Southpac                   19,886      18,961      19,104
     Overseas Charter           46,570      35,742      37,172
                              --------    --------    --------
                              $446,821    $389,987    $369,326
                              ========    ========    ========


                                      F-25
<PAGE>

<TABLE>
<CAPTION>
Hawaiian Airlines, Inc.
Supplemental Financial Information
Unaudited Quarterly Financial Information (in thousands, except for per
share data)

                                                         First Quarter  Second Quarter   Third Quarter Fourth Quarter
-----------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>            <C>           <C>
1999:*
     Operating revenues                                    $109,675          $121,973       $134,826        $122,403
     Operating income (loss)                                  1,139             4,008          6,925         (52,609)
     Net income (loss)                                         (169)            1,708          3,382         (34,188)
     Net income (loss) per Common Stock share
         Basic                                                   --              0.04           0.08           (0.83)
         Diluted                                                 --              0.04           0.08           (0.83)

                                                         First Quarter  Second Quarter   Third Quarter Fourth Quarter
-----------------------------------------------------------------------------------------------------------------------
1998:
     Operating revenues                                    $100,245          $109,003       $115,532        $101,635
     Operating income (loss)                                 (1,918)            6,063         11,510           1,750
     Net income (loss)                                       (1,100)            2,940          6,134             231
     Net income (loss) per Common Stock share
         Basic                                                (0.03) **          0.07 **        0.15 **         0.01
         Diluted                                              (0.03) **          0.07 **        0.15 **         0.01
</TABLE>

*    During fourth quarter of 1999, the Company changed its method of accounting
     for  the  sale  of  mileage  credits  under  its  frequent  flyer  program.
     Therefore,  effective  January 1,  1999,  the  Company  recorded a $772,000
     cumulative effect of a change in accounting principle,  net of tax, and has
     restated the quarterly information for 1999 presented herein.

**   Includes  shares  reserved  for  issuance  under the  consolidated  Plan of
     Reorganization dated September 21, 1993, as amended.


                                      F-26
<PAGE>

Hawaiian Airlines, Inc.
Selected Financial and Statistical Data (in thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------

                                                                     1999         1998          1997        1996         1995
                                                                   ---------    ---------    ---------    ---------    ---------
<S>                                                                <C>          <C>          <C>          <C>          <C>
Summary of Operations:

     Operating revenues ........................................   $ 488,877    $ 426,415    $ 404,216    $ 384,473    $ 346,904

     Operating expenses ........................................     529,414      409,010      401,714      382,446      348,805
                                                                   ---------    ---------    ---------    ---------    ---------

     Operating income (loss) ...................................     (40,537)      17,405        2,502        2,027       (1,901)

     Interest expense, net .....................................      (1,071)        (403)        (394)      (2,432)      (3,579)

     Gain (loss) on disposition of equipment ...................      (1,013)        (831)        (140)        (729)        (233)

     Other, net ................................................       2,708         (163)        (820)        (297)         207
                                                                   ---------    ---------    ---------    ---------    ---------
     Income (loss) before income taxes, extraordinary items and
         cumulative effect of change in accounting principle ...     (39,913)      16,008        1,148       (1,431)      (5,506)

     Income taxes ..............................................      11,418       (7,803)      (1,720)        (868)        --
                                                                   ---------    ---------    ---------    ---------    ---------
     Net income (loss) before extraordinary items and cumulative
         effect of change in accounting principle ..............     (28,495)       8,205         (572)      (2,299)      (5,506)

     Extraordinary items, net of income taxes ..................        --           --           --            766         --
                                                                   ---------    ---------    ---------    ---------    ---------
     Net income (loss) before cumulative effect of change in
         accounting principle ..................................     (28,495)       8,205         (572)      (1,533)      (5,506)
     Cumulative effect of change in accounting principle, net of
         income taxes ..........................................        (772)        --           (450)        --           --
                                                                   ---------    ---------    ---------    ---------    ---------
     Net income (loss) .........................................   $ (29,267)   $   8,205    $  (1,022)   $  (1,533)   $  (5,506)
                                                                   =========    =========    =========    =========    =========
</TABLE>


                                      F-27
<PAGE>

<TABLE>
<CAPTION>
Hawaiian Airlines, Inc.
Selected Financial and Statistical Data (in thousands, except per share data) (continued)
-----------------------------------------------------------------------------------------------------------------------------------

                                                                     1999       1998         1997        1996        1995
                                                                -------------------------------------------------------------------
<S>                                                             <C>          <C>         <C>          <C>          <C>
Net Income (Loss) per Common Stock Share:
Basic
     Before extraordinary items and  cumulative effect of
         change in accounting principle .....................   $   (0.70)   $    0.20   $   (0.02)   $   (0.08)   $   (0.59)
     Extraordinary items, net ...............................        --           --          --           0.03         --
     Cumulative effect of change in accounting principle, net       (0.02)        --         (0.01)        --           --
                                                                ---------    ---------   ---------    ---------    ---------
     Net income (loss) per Common Stock share ...............   $   (0.72)   $    0.20   $   (0.03)   $   (0.05)   $   (0.59)
                                                                =========    =========   =========    =========    =========
Diluted
     Before extraordinary items and  cumulative effect of
         change in accounting principle .....................   $   (0.70)   $    0.19   $   (0.02)   $   (0.08)   $   (0.59)
     Extraordinary items, net ...............................        --           --          --           0.03         --
     Cumulative effect of change in accounting principle, net       (0.02)        --         (0.01)        --           --
                                                                ---------    ---------   ---------    ---------    ---------
     Net income (loss) per Common Stock share ...............   $   (0.72)   $    0.19   $   (0.03)   $   (0.05)   $   (0.59)
                                                                =========    =========   =========    =========    =========

Weighted Average Shares Outstanding:
     Basic ..................................................      40,997       40,921*     40,361*      29,032*       9,400*
     Diluted ................................................      40,997       42,205*     40,361*      29,032*       9,400*

Shareholders' Equity Per Share (Without Dilution) ...........   $    1.61    $    2.22   $    2.12    $    2.11    $    3.10
Shares Outstanding at End of Period .........................      40,997       40,997*     40,889*      39,262*       9,400*

Balance Sheet Items:
     Total assets ...........................................   $ 239,137    $ 221,911   $ 200,824    $ 196,289    $ 161,640
     Property and equipment, net ............................      65,272       84,922      66,243       45,794       41,391
     Long-term debt, excluding current portion ..............      23,858       14,454       3,991        6,353        5,523
     Capital lease obligations, excluding current portion ...       2,790        5,966      10,580        7,387       10,102
     Shareholders' equity ...................................      66,126       90,887      86,873       82,873       29,178
</TABLE>

*  Includes  shares  reserved  for  issuance  under  the  Consolidated  Plan  of
   Reorganization dated September 21, 1993, as amended.

                                      F-28
<PAGE>

<TABLE>
<CAPTION>
Hawaiian Airlines, Inc.
Selected Financial and Statistical Data (in thousands, except as otherwise indicated) (unaudited) (continued)
----------------------------------------------------------------------------------------------------------------------------------

                                                1999            1998            1997                 1996          1995
----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>            <C>              <C>                  <C>
Scheduled Operations:
     Revenue passengers .................       5,425             5,010          4,964            4,971                4,781

     Revenue passenger miles ............   4,076,576         3,649,024      3,479,056        3,324,005            3,171,366

     Available seat miles ...............   5,468,589         4,940,001      4,699,609        4,571,955            4,238,319

     Passenger load factor ..............        74.5%             73.9%          74.0%            72.7%                74.8%
     Passenger revenue per passenger mile         9.8(cent)         9.7(cent)      9.5(cent)        9.8(cent)            9.4(cent)

Overseas Charter Operations:
     Revenue passengers .................         283               250            253              190                  155
     Revenue passenger miles ............     803,524           689,578        683,384          515,982              425,797

     Available seat miles ...............     852,155           733,735        739,619          528,787              439,142


Total Operations:
     Revenue passengers .................       5,708             5,260          5,217            5,161                4,936
     Revenue passenger miles ............   4,880,100         4,338,602      4,162,440        3,839,987            3,597,163
     Available seat miles ...............   6,320,744         5,673,736      5,439,228        5,100,742            4,677,461

     Passenger load factor ..............        77.2%             76.5%          76.5%            75.3%                76.9%
     Revenue Per ASM ....................        7.73(cent)        7.52(cent)     7.43(cent)       7.54(cent)           7.42(cent)
     Cost Per ASM .......................        8.38(cent)        7.21(cent)     7.39(cent)       7.50(cent)           7.46(cent)
</TABLE>


                                      F-29
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS


The Board of Directors
Hawaiian Airlines, Inc.:

We  have  audited  the  financial  statements  of  Hawaiian  Airlines, Inc. (the
"Company")  as  of  December  31,  1999,  and  for  the  year ended December 31,
1999,  and  have  issued  our  report  thereon  dated  March  21, 2000 (included
elsewhere  in  this  Form 10-K). Our audit also included the financial statement
schedule for  the  year  ended  December  31, 1999 listed in item 14(a)(2). 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.



/s/ ERNST & YOUNG LLP
Honolulu, Hawaii
March 21, 2000

                                      S-1a

<PAGE>
                    Independent Auditors' Report On Schedule

The Board of Directors
Hawaiian Airlines, Inc.:

Under date of March 11,  1999,  we  reported  on the  balance  sheet of Hawaiian
Airlines,  Inc.  as  of  December  31,  1998,  and  the  related  statements  of
operations,  shareholders'  equity and comprehensive  income, and cash flows for
each of the years in the  two-year  period ended  December  31, 1998,  which are
included herein. In connection with our audits of the  aforementioned  financial
statements, we also audited the related financial statement schedule of Hawaiian
Airlines,  Inc. for the two-year  period ended  December 31, 1998. The financial
statement  schedule  is the  responsibility  of the  Company's  management.  Our
responsibility  is to express an opinion  on the  financial  statement  schedule
based on our audits.

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


/s/ KPMG LLP
Honolulu, Hawaii
March 11, 1999


                                      S-1b

<PAGE>

Hawaiian Airlines, Inc.
Valuation and Qualifying Accounts (in thousands)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------

                       COLUMN A                           COLUMN B               COLUMN C            COLUMN D     COLUMN E
                                                                                ADDITIONS
                                                                      ------------------------------
                                                                            (1)             (2)
                                                         Balance at      Charged to     Charged to                Balance
                                                          Beginning      Costs and         Other                   at End
                      Description                          of Year        Expenses       Accounts   Deductions    of Year
----------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts:

<S>  <C>                                                      <C>            <C>                   <C>              <C>
     1999                                                     $   500        1,060          -      1,060 (a)        $   500
                                                        ====================================================================

     1998                                                     $   500          350          -        350 (a)        $   500
                                                        ====================================================================

     1997                                                     $   500          456          -        456 (a)        $   500
                                                        ====================================================================

Allowance for Obsolescence of Flight Equipment
     Expendable Parts and Supplies:

     1999                                                     $   120            -          -              -        $   120
                                                        ====================================================================

     1998                                                     $   120            -          -              -        $   120
                                                        ====================================================================

     1997                                                     $   315            -          -        195 (b)        $   120
                                                        ====================================================================
</TABLE>

(a)      Doubtful accounts written off, net of recoveries

(b)      Obsolete parts and supplies written off


                                        S-2