<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, 1998
              ( ) 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, 1999, 40,997,335 SHARES OF COMMON STOCK OF THE REGISTRANT WERE
OUTSTANDING. THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES
(21,821,323 SHARES) OF THE REGISTRANT IS $54,553,308.

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's Notice of 1999 Annual Meeting of Shareholders and Proxy
Statement are incorporated herein by reference in Part III of this Form 10-K.


                            EXHIBIT INDEX ON PAGE 32

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                            PAGE
<S>                                                                                         <C>
COVER PAGE                                                                                   1

                                     PART I
ITEM 1.      BUSINESS.                                                                       4
ITEM 2.      PROPERTIES.                                                                     12
ITEM 3.      LEGAL PROCEEDINGS.                                                              12
ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                            12

                                     PART II
ITEM 5.      MARKET FOR THE REGISTRANT'S COMMON  EQUITY AND RELATED SHAREHOLDER
             MATTERS.                                                                        12
ITEM 6.      SELECTED FINANCIAL DATA.                                                        12
ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
             OF OPERATIONS.                                                                  13
ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                     25
ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                                    25
ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE.                                                           25

                                     PART III
ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                             25
ITEM 11.     EXECUTIVE COMPENSATION.                                                         27
ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.                 27
ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                                 27

                                     PART IV
ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.                28
             EXHIBIT INDEX.                                                                  32
             SIGNATURES.                                                                     33

                                  TABLE INDEX

             INDEPENDENT AUDITORS' REPORT                                                   F-1
             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-27
             SELECTED FINANCIAL AND STATISTICAL DATA.                                       F-28
             INDEPENDENT AUDITORS' REPORT ON SCHEDULE                                       S-1
             FINANCIAL STATEMENT SCHEDULE.                                                  S-2
</TABLE>


<PAGE>

                                     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 $426.4 million
for 1998. 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 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 passenger airline business is its chief source of revenue.
Scheduled passenger service consists of, on average and depending on
seasonality, approximately 130 to 150 flights per day among the six major
islands of the State of Hawaii ("Interisland"), daily service to Las Vegas and
the four key United States ("U.S.") West Coast gateway cities of Los Angeles,
San Francisco, Seattle and Portland ("Transpac"), twice weekly service to Pago
Pago, American Samoa and weekly service to Papeete, Tahiti in the South Pacific
("Southpac"). The Company also provides charter service from Honolulu to Las
Vegas and Anchorage, Alaska ("Overseas Charter"). As discussed below, the
Company operates a fleet of DC-9 and DC-10 aircraft to service these routes.

Management estimates that the entire Interisland market averages approximately
nine to ten million passengers annually. Management estimates that approximately
two-thirds of Interisland travelers are visitors to Hawaii while the balance are
Hawaii residents. Residents rely on Interisland flights in much the same way as
mainland residents rely on a state highway system. 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 1998, the Interisland market
represented approximately 36.3% of the Company's total operating revenues.

During 1998, the Company's Transpac operations served 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 1998, the Transpac market
represented approximately 50.1% of the Company's total operating revenues.

Hawaiian Airlines currently is the sole carrier providing air service from
Honolulu to American Samoa and Tahiti. Fares are relatively stable throughout
the year. These Southpac routes are serviced with DC-10 aircraft. During 1998,
the Southpac market represented approximately 5.1% of the Company's total
operating revenues.

In addition to its regular scheduled service, the Company operated, on average,
six weekly charter flights to Las Vegas and two charter rotations per week to
Anchorage. The Company's Overseas Charter operation utilized DC-10 aircraft and
produced 8.5% of the Company's total operating revenues in 1998.

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.

<PAGE>

FUEL

Aviation 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' aviation fuel
consumption and cost for each of the last three years:

<TABLE>
<CAPTION>
                 Gallons         Total cost,        Average         % of
                consumed       including taxes     cost per       operating
     Year    (in thousands)    (in thousands)       gallon         expenses
   ----------------------------------------------------------------------------
<S>          <C>               <C>                 <C>            <C>
   1998         107,260           $66,387           61.9 CENTS       16.2%

   1997         103,271           $77,948           75.5 CENTS       19.4%

   1996          98,729           $75,642           76.6 CENTS       19.8%
</TABLE>

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.

The single most important factor affecting petroleum product prices, including
the price of aviation 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, aviation fuel prices are affected by the markets for heating
oil, diesel fuel, automotive gasoline and natural gas. 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. In the event of a fuel supply shortage resulting from a
disruption of oil imports or otherwise, higher fuel prices or curtailment of
scheduled service could result. A one cent change in the cost per gallon of fuel
has an impact on the Company's operating expenses of approximately $89,000 per
month (based on 1998 consumption). Changes in fuel prices may have a greater
impact on the Company than certain of its Transpac competitors with more modern,
fuel efficient aircraft.

As discussed below, although Hawaiian Airlines has contracts with several
different fuel suppliers, almost all of its aviation fuel is purchased from
Northwest Airlines, Inc. ("Northwest").

AIRCRAFT 

At December 31, 1998 the Company's fleet consists of 11 DC-10 and 14 DC-9
aircraft of which one DC-10 and three DC-9s are owned by the Company. The
remaining ten DC-10s are leased under long-term operating leases with American
Airlines, Inc. ("American"), which expire in 2001. 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.

Aircraft maintenance costs represent a significant operating cost for the
Company (approximately 21%, 19% and 18% of total operating expenses for 1998,
1997 and 1996, respectively) which will increase as the Company's aircraft
increase in age. The average age of the Company's DC-10 and DC-9 aircraft is 26
years and 21 years, respectively. The Company intends 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, although no
assurance can be given that the Company will have the capital necessary to
replace such aircraft.

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 aircraft fleet and the maintenance thereof.


                                      5

<PAGE>

                               SEGMENT INFORMATION

Due to the centralization of the Company's operations in the State of Hawaii and
the interdependence of its routes, management considers its operations to be one
industry 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 Industry Segment Information and those certain operating
revenue products which constitute the segment.

                                   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 price 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. The Company believes that
Hawaii is one of the most popular destinations for passengers flying on frequent
flyer travel awards and is in general a popular spot for vacation travelers. As
such, traffic levels are typically lowest in the first quarter of the year with
strong travel periods 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 operations are limited almost exclusively to flights to,
from and among, the Hawaiian Islands, the Company's profitability is linked to
the number of travelers to, from and among the Islands and a material reduction
in the number of such travelers would have a material adverse effect on the
Company's operations. Tourism constitutes a majority of the visitor counts to
and from Hawaii. Because tourism levels are related to discretionary income, the
level of Hawaii tourism is affected by the strength of the local Hawaii economy
and economies in the areas from which tourists to Hawaii typically originate.
Hawaii tourism is also dependent upon the popularity of Hawaii as a tourist
destination and negative events reduce tourist interest in Hawaii. In addition,
from time to time, various events such as the Persian Gulf War and
industry-specific problems such as strikes have had a negative impact on tourism
in Hawaii.

In 1998, for the first time in five years, the total number of visitors to
Hawaii declined as compared to the previous year. Preliminary statistics from
the Hawaii Visitors and Convention Bureau (the "HVCB") estimate that Hawaii
ended the 1998 year with approximately 6.7 million visitors, a 1.6% decline from
1997. Westbound arrivals from the U.S. mainland and European markets increased
by 4.1% over 1997. However, the increase was offset by a decrease in Eastbound
traffic, primarily from Japan, of 10.8%. Year over year, the islands of Maui,
the Big Island of Hawaii and Kauai experienced increased visitor counts of 0.7%,
6.6% and 3.1%, respectively. The increase was countered by a 5.5% decrease for
Oahu, which has historically had the largest number of visitors.

Significant influences on passenger traffic to Hawaii have been and will
continue to be 1) the local Hawaii economy, which has stagnated in the 1990s due
to declines in outside capital investment, sluggish tourism, reduced military
spending and reduction in the sugar and pineapple industries, once the mainstays
of the Hawaii agricultural business; 2) the strength and growth of the U.S.
mainland economy; 3) the general economic crisis in Asia, especially Japan; and
4) the recent resurgence of the vacation cruise industry and more effective
promotion by areas such as Mexico, the Caribbean and Europe and domestic leisure
attractions, such as theme parks and Las Vegas. Also, the increased incidence of
tactical pricing sales for 


                                      6

<PAGE>

travel in and among the 48 contiguous states of the U.S., which have become 
more prevalent during the past two years, has resulted in the diversion of 
potential Hawaii discretionary travel.

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

                                   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, 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 between large U.S. and foreign carriers and between U.S. 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 smaller size and liquidity, 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
major 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.

Airlines are subject to a high degree of 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.

The airline industry is highly sensitive to general economic conditions. Because
a substantial portion of airline travel is discretionary, the operating and
financial results of the Company may be negatively impacted by any downturn in
national or regional economic conditions in the U.S., particularly California,
the Pacific Northwest and Hawaii, and certain Asian countries, particularly
Japan. Any prolonged general reduction in airline passenger traffic will
adversely affect the Company.

INTERISLAND

While there are several small commuter and air taxi companies, which provide air
transportation to Hawaii airports that cannot be served with large aircraft, the
Interisland market is serviced primarily by two carriers, 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 Airlines, Inc. ("United"), the largest carrier of passengers to
Hawaii. Aloha participates in United's 


                                      7

<PAGE>

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, 150 to 180 daily flights, 
which service the same basic Interisland routes as the Company. Hawaiian 
Airlines has approximately, depending on seasonality, 130 to 150 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, frequent flyer programs, customer service and aircraft type.

TRANSPAC

On its Transpac routes, the Company currently competes with major carriers 
such as United, Delta 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, frequent 
flyer programs, customer service and in-flight service.

                            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, fuel, 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 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 1998, the Company incurred approximately $69.6 million of lease
and maintenance expenses under the American leases and aircraft maintenance
agreements. American has the right to terminate its obligation to provide
aircraft maintenance services on and after January 1, 1999, upon 180 days' prior
notice. American has indicated to the Company its intent to provide maintenance
services through September 2001, although it may still exercise its right to
terminate upon 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. 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 also participates in American's
AAdvantage frequent flyer program and SABRE reservation system. Commencing March
2, 1998, the Company and American also effected a code sharing agreement. These
programs and services make the Company more competitive, but increase its
reliance on third parties.

The Company purchases almost all of its aviation fuel from Northwest pursuant to
an agreement which provides that, in case of shortages, Northwest will provide
fuel to its own fleet first and then a portion of the remaining fuel available
will be allocated between Hawaiian Airlines and any other applicable airlines.
The agreement requires Northwest to provide Hawaiian Airlines with aviation fuel
at Northwest's actual acquisition cost without markup for profit and with
reimbursement only for out-of-pocket costs. The agreement is renewed
automatically on December 31 of each year unless canceled by either of the
parties with 90 days' written notice. Hawaiian Airlines is prohibited from
reselling such fuel. No assurance can be given that the Company would be able to
secure an adequate supply of fuel from alternate sources if a fuel shortage were
to cause the supply from Northwest to be inadequate or if Northwest were to
cancel the agreement. The Company paid Northwest approximately $60.7 million,
$72.6 million and $70.9 million for the fuel supplied under this agreement in
1998, 1997 and 1996, respectively. Further, effective July 1996, the Company
entered into a cooperative marketing agreement 


                                      8

<PAGE>

with Northwest, which provides for extensive marketing cooperation, including 
a code sharing arrangement and frequent flyer participation. In 1998 and in 
both 1997 and 1996, a majority of the Company's ticket sales were made by 
travel agents, including approximately 40% and 30% by six large wholesalers. 
In 1998, a particular Hawaii-based wholesaler, Panda Travel Inc., 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.

                                   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 air worthiness directives, often in response to
specific incidents or reports by operators or manufacturers, requiring operators
of specified equipment to perform prescribed inspections, repairs or
modifications within stated time periods or numbers of 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, including, but not limited to:

1)   The Company anticipates that in the period 1999 through 2001, eight of its
     DC-9 aircraft will require heavy airframe overhaul checks (the "C5-Check",
     previously referred to as a D-Check). The C5-Check for a DC-9 requires more
     than 20,000 man-hours of maintenance work and includes stripping the
     airframe, extensively testing the airframe structure and a large number of
     parts and components, and reassembling the overhauled airframe with new or
     rebuilt components. The Company anticipates each C5-Check to cost
     approximately $1.0 million;


                                      9
<PAGE>

2)   The FAA has and is expected to continue to require structural modifications
     and the replacement of certain parts, as well as the implementation of
     additional maintenance programs or changes to current programs, with
     respect to various types of aircraft over a certain age. These requirements
     vary, depending on the type of aircraft covered. Based on information
     currently available, the Company estimates that the total cost of complying
     with the aging aircraft requirements over the 1999 through 2003 period will
     approximate $660,000 per DC-9 aircraft;

3)   The Company expects to incur approximately $100,000 per DC-9 aircraft per
     year for maintenance required under a corrosion prevention and control
     program. This program is anticipated to continue indefinitely in the
     future;

4)   The FAA has mandated the installation of smoke detection and fire
     suppression systems in the cargo compartments of both DC-10 and DC-9
     aircraft by December 2000. The cost for systems and installation is
     estimated to be $130,000 and $83,000 per each DC-10 and DC-9 aircraft,
     respectively;

5)   As a result of certain incidents where Digital Flight Data Recorder
     ("DFDR") information was insufficient to determine the cause of the
     accident, the FAA has also mandated additional recording parameters for the
     DC-10 and DC-9 aircraft by the first heavy maintenance check after August
     1999 but no later than August 2001. The DC-10 DFDR will be upgraded from 17
     to 22 parameters at an estimated cost of $60,000 per aircraft. The DC-9
     DFDR will be upgraded from 11 to 18 parameters at an estimated cost of
     $47,000 per aircraft;

6)   During the period from 1999 through 2003, the Company anticipates continued
     implementation of its supplemental inspection document program for certain
     of its DC-9 aircraft, which is estimated to range up to $27,000 per
     aircraft.

The estimated future cost of complying with FAA regulations as discussed in the
preceding paragraphs will be in addition to the costs of the Company's current
DC-10 and DC-9 fleet maintenance programs.

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 between places only in Hawaii on November 5, 1990
may include in the number of Stage 2 aircraft under the exemption all Stage 2
aircraft that it 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 provides 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. Although the Company and Aloha may operate Stage 2 aircraft in Hawaii
after December 31, 1999, the air carriers will be prohibited from transporting
Stage 2 aircraft to and from the 48 contiguous states for any purpose, including
heavy airframe overhaul and maintenance, unless an amendment to the Federal law
is enacted by Congress or an exemption is obtained from the FAA. No assurance
can be given that the Company can obtain the exemption from the FAA or that
Congress will pass legislation allowing non-revenue operations of Stage 2
aircraft to and from the contiguous 48 states. Should neither of these events
occur, the Company would have to seek alternatives, primarily with regard to
heavy maintenance service on its Stage 2 aircraft. No assurance can be given
that the Company would be able to do so on a cost-effective basis.

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 

                                      10
<PAGE>

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.

Hawaiian Airlines 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 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, 1998,
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

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
State of Hawaii landing fees from September 1, 1997 to September 1, 1999.

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
ticket taxes.

                                    EMPLOYEES

As of December 31, 1998, Hawaiian Airlines had 2,577 employees, of which 
2,147 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), the Air Line Pilots 
Association International, the Association of Flight Attendants, the 
Transport Workers Union and the Communications Section Employees Union. The 
amendable date of all five contracts is February 28, 2000. 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 employees.


                                      11

<PAGE>

ITEM 2.  PROPERTIES.

         Information provided in Notes 4, 5 and 6 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.

(a)      Market Information.

         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:

<TABLE>
<CAPTION>
                              First     Second    Third     Fourth
              1998           Quarter   Quarter   Quarter   Quarter
           -----------------------------------------------------------
           <S>               <C>       <C>       <C>       <C>
              High           3-13/16    3-1/2      3         3-1/2
              Low             2-5/8    2-13/16    1-1/2      1-3/4
</TABLE>
<TABLE>
                              First     Second    Third     Fourth
              1997           Quarter   Quarter   Quarter   Quarter
           -----------------------------------------------------------
           <S>               <C>       <C>       <C>       <C>
              High           3-15/16      5       5-1/4     4-13/16
              Low             3-1/8     3-1/8     4-1/4      3-1/2
</TABLE>

(b)      Holders.

         As of March 1, 1999, there were approximately 1,061 holders of record
         of the Company's Common Stock.

(c)      Dividends.

         Under the terms of the financing arrangement with CIT Group/Credit
         Finance, Inc., the Company is restricted from paying any cash or stock
         dividends. No dividends were paid by the Company in 1998 or 1997.

ITEM 6.  SELECTED FINANCIAL DATA.

         Information under the caption "Selected Financial and Statistical Data"
         on pages F-28 to F-30 contained in Part IV, Item 14 of this Form 10-K
         is incorporated herein by reference.


                                      12

<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

                              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.


                                      13

<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>
   Interisland:
      Passenger revenues. . . . . . .      $  138,614       $  132,626            5,988           4.5
      Revenue passengers. . . . . . .           3,734            3,735               (1)            -
      Revenue passenger miles . . . .         495,323          497,137           (1,814)         (0.4)
      Available seat miles. . . . . .         885,682          859,545           26,137           3.0
      Passenger load factor . . . . .           55.9%            57.8%             (1.9)         (3.3)
      Yield . . . . . . . . . . . . .           28.0 CENTS       26.7 CENTS         1.3 CENTS     4.9
   
   Transpac:
      Passenger revenues. . . . . . .      $  196,670       $  180,424           16,246           9.0
      Revenue passengers. . . . . . .           1,214            1,168               46           3.9
      Revenue passenger miles . . . .       2,988,341        2,819,783          168,558           6.0
      Available seat miles. . . . . .       3,783,287        3,569,138          214,149           6.0
      Passenger load factor . . . . .           79.0%            79.0%                -             -
      Yield . . . . . . . . . . . . .            6.6 CENTS        6.4 CENTS         0.2 CENTS     3.1
   
   Southpac:
      Passenger revenues. . . . . . .       $  18,961        $  19,104             (143)         (0.7)
      Revenue passengers. . . . . . .              62               61                1           1.6
      Revenue passenger miles . . . .         165,360          162,136            3,224           2.0
      Available seat miles. . . . . .         271,032          270,926              106             -
      Passenger load factor . . . . .           61.0%            59.9%              1.1           1.8
      Yield . . . . . . . . . . . . .           11.5 CENTS       11.8 CENTS        (0.3) CENTS   (2.5)
   
   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)
</TABLE>
   
Significant year to year variances were as follows:

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
1.3CENTS or 4.9% increase in yield. Year over year, revenue passengers carried
and revenue passenger miles ("RPM") were relatively comparable. The increase in
yield is attributed to 1) general price increases initiated by the Company
throughout 1998 and 2) improved fare and inventory management through use of the
Company's relatively new yield management system.

Transpac passenger revenues totaled $196.7 million in 1998, an increase of $16.3
million or 9.0% over 1997 Transpac 


                                      14

<PAGE>

passenger revenues of $180.4 million. The Company experienced increases of 
3.9% and 6.0% in its passengers carried and RPM, respectively. These 
increases were complemented by a 0.2CENTS or 3.1% increase in yield, again 
reflecting improved fare and inventory management and general price increase 
initiatives by the Company throughout 1998.

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 OPERATING

Other operating revenues in 1998 totaled $14.7 million, an increase of $1.1
million or 8.3%, primarily due to additional revenues related to the promotion
of the Company's frequent flyer program.

                               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                                  1998           1997       (Decrease)       %
--------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>           <C>            <C>
Wages and benefits . . . . . . . . . . . .     2.10 CENTS     2.11 CENTS    (0.01) CENTS    (0.5)
Aircraft fuel, including taxes and oil . .     1.17           1.44          (0.27)         (18.8)
Maintenance materials and repairs. . . . .     1.48           1.40           0.08            5.7 
Rentals and landing fees . . . . . . . . .     0.54           0.60          (0.06)         (10.0)
Sales commissions. . . . . . . . . . . . .     0.21           0.24          (0.03)         (12.5)
Depreciation and amortization. . . . . . .     0.22           0.20           0.02           10.0 
Other. . . . . . . . . . . . . . . . . . .     1.49           1.40           0.09            6.4 
                                               ----------     ----------    ------------   ------
   Total . . . . . . . . . . . . . . . . .     7.21 CENTS     7.39 CENTS    (0.18) CENTS    (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.

Aircraft fuel, including taxes and oil ("Aircraft Fuel"), per ASM decreased year
over year by 0.27CENTS 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.

Maintenance materials and repairs per ASM increased by 0.08CENTS 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.


                                      15

<PAGE>

Rentals and landing fees per ASM decreased by 0.06CENTS 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.

Sales commissions per ASM decreased by 0.03CENTS 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.

Depreciation and amortization per ASM increased by 0.02CENTS 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 17.8% increase is due to $1.1 million
and $700,000 in additional depreciation and amortization on ground equipment and
DC-9 overhauls in 1998.

Other operating expenses per ASM increased by 0.09CENTS 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.

                          NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 requires reclassification of financial
statements for earlier periods provided for comparative purposes.

In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 requires restatement of comparative information
presented for earlier periods.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employer's Accounting for Pensions," No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." SFAS No. 132 addresses
disclosure only and does not change any of the measurement or recognition
provisions provided for in SFAS Nos. 87, 88 or 106. SFAS No. 132 requires
restatement of comparative information presented for earlier periods.

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. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.

In March 1998, the American Institute of Certified Public Accountants Accounting
Standards Executive Committee (the "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. SOP 98-1 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. SOP 98-1 is effective for fiscal years beginning after December 15,
1998.

In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which requires that 


                                      16

<PAGE>

costs incurred during start-up activities, including organization costs, be 
expensed as incurred. The provisions of SOP 98-5 are effective for fiscal 
years beginning after December 15, 1998.

The Company adopted the provisions of SFAS Nos. 130, 131 and 132 effective
January 1, 1998. Adoption of SFAS No. 130 did not result in the reclassification
of comparative financial statement information presented for earlier periods.
Adoption of SFAS No. 131 did not result in a modification to the Company's
reporting segment and accordingly, comparative financial statement information
presented for earlier periods was not restated. The Company's disclosures
regarding pension and other postretirement benefits for prior periods have been
restated to comply with the provisions of SFAS No. 132. Further, management does
not expect the adoption of SFAS No. 133, SOP 98-1 or SOP 98-5 by the respective
required dates to have a material impact on the Company's financial condition,
results of operations, liquidity and/or previously reported financial
information.


                              1997 COMPARED TO 1996

For the year ended December 31, 1997, the Company generated operating income of
$2.5 million, a $475,000 improvement from 1996 operating income of $2.0 million.
The Company also reduced its net loss before extraordinary items and cumulative
effect of change in accounting principle by $1.7 million to $572,000 in 1997
from $2.3 million in 1996. The Company incurred a net loss of $1.0 million for
the year ended December 31, 1997, a $511,000 improvement from the net loss of
$1.5 million in 1996.


                                      17

<PAGE>

                               OPERATING REVENUES

Operating revenues totaled $404.2 million in 1997 compared to $384.5 million in
1996, an increase of $19.7 million or 4.9%. Significant year to year variances
were as follows:

PASSENGER AND CHARTER

The following table compares operating passenger revenues and statistics, in
thousands, except as otherwise indicated, for the years ended 1997 and 1996:

<TABLE>
<CAPTION>

   Operating Passenger                                                           Increase
   Revenues and Statistics                      1997           1996             (Decrease)          %
   ----------------------------------------------------------------------------------------------------
   <S>                                     <C>              <C>                 <C>               <C>
   Interisland:
      Passenger revenues. . . . . . .      $  132,626       $  133,019             (393)          (0.3)
      Revenue passengers. . . . . . .           3,735            3,828              (93)          (2.4)
      Revenue passenger miles . . . .         497,137          508,286          (11,149)          (2.2)
      Available seat miles. . . . . .         859,545          921,752          (62,207)          (6.7)
      Passenger load factor . . . . .           57.8%            55.1%              2.7            5.0
      Yield . . . . . . . . . . . . .           26.7 CENTS       26.2 CENTS         0.5 CENTS      1.9
   
   Transpac:
      Passenger revenues. . . . . . .      $  180,424       $  173,419            7,005            4.0
      Revenue passengers. . . . . . .           1,168            1,080               88            8.1
      Revenue passenger miles . . . .       2,819,783        2,647,869          171,914            6.5
      Available seat miles. . . . . .       3,569,138        3,371,049          198,089            5.9
      Passenger load factor . . . . .           79.0%            78.5%              0.5            0.5
      Yield . . . . . . . . . . . . .            6.4 CENTS        6.5 CENTS        (0.1) CENTS    (1.5)
   
   Southpac:
      Passenger revenues. . . . . . .       $  19,104        $  19,828             (724)          (3.7)
      Revenue passengers. . . . . . .              61               63               (2)          (3.2)
      Revenue passenger miles . . . .         162,136          167,850           (5,714)          (3.4)
      Available seat miles. . . . . .         270,926          279,154           (8,228)          (2.9)
      Passenger load factor . . . . .           59.9%            60.1%             (0.2)          (0.3)
      Yield . . . . . . . . . . . . .           11.8 CENTS       11.8 CENTS           -              -
   
   Overseas Charter:
      Charter revenues. . . . . . . .       $  37,172        $  27,835            9,337           33.5
      Revenue passengers. . . . . . .             253              190               63           33.2
      Revenue passenger miles . . . .         683,384          515,982          167,402           32.4
      Available seat miles. . . . . .         739,619          528,787          210,832           39.9
</TABLE>

Interisland passenger revenues decreased by $393,000 or 0.3% to $132.6 million
in 1997 from $133.0 million in 1996. Interisland passenger revenues were
impacted by softness in tourism throughout the State of Hawaii, principally
through the first six months of 1997. The decrease in Interisland passenger
revenues was also caused by less ASM as evidenced by the 6.7% decrease in
available seat miles year over year. The decrease in revenue passengers carried
and RPM, however were offset by a 0.5CENTS or 1.9% increase in yield, the result
of certain price increases initiated in the Interisland market by the Company in
the latter months of 1997.

Transpac passenger revenues totaled $180.4 million in 1997, an increase of $7.0
million or 4.0% over 1996 Transpac passenger revenues of $173.4 million. In
1997, the Company adjusted its Transpac frequencies to particular Transpac


                                      18

<PAGE>

destinations depending on market demand. The Company experienced increases of
8.1% and 6.5% in its passengers carried and RPM, respectively. However, these
increases were offset by a 0.1CENTS or 1.5% decrease in yield reflecting more
aggressive pricing actions taken by the Company to stimulate travel demand and
be competitive, primarily in the second and third quarters of 1997. These
pricing strategies, combined with cooperative advertising and promotions, were
targeted at Transpac markets in which the Company had increased its level of
service and those in which the Company maintained code share alliances.

Overseas charter revenues in 1997 totaled $37.2 million, an increase of $9.3
million from 1996 Overseas charter revenues of $27.8 million. The increase is
attributable to the Company operating on average, eight charters per week to Las
Vegas throughout the first six months of 1997 versus six per week throughout the
first six months of 1996, and from February 1997 to April 1997 and from May 1997
to December 1997, on average, two and one charter rotations per week,
respectively, to Anchorage, Alaska. The Anchorage charters were not operated in
1996.

CARGO

Transpac cargo revenues increased by $1.1 million or 9.2% to $13.0 million in
1997 from $11.9 million in 1996. The increase was primarily due to increased
frequencies in Transpac routes which allowed the Company to transport 1,783 or
9.2% more tons of freight in 1997 compared to 1996.

OTHER OPERATING

Other operating revenues in 1997 totaled $13.6 million, an increase of $3.4
million or 32.9%, primarily due to approximately $2.3 million in additional
revenues related to the promotion of the Company's frequent flyer program and
inflight media and service products.

                               OPERATING EXPENSES

Operating expenses totaled $401.7 million in 1997, an increase of $19.3 million
or 5.0% from total operating expenses of $382.4 million in 1996.

The following table compares operating expenses per ASM by major category for
1997 with 1996:

<TABLE>
<CAPTION>

Operating                                                                  Increase
Expenses Per ASM                               1997           1996        (Decrease)        %
------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>          <C>             <C>
Wages and benefits . . . . . . . .            2.11 CENTS     2.13 CENTS    (0.02) CENTS    (0.9)
Aircraft fuel, including taxes and oil        1.44           1.49          (0.05)          (3.4)
Maintenance materials and repairs.            1.40           1.35           0.05            3.7 
Rentals and landing fees . . . . .            0.60           0.69          (0.09)         (13.0)
Sales commissions. . . . . . . . .            0.24           0.26          (0.02)          (7.7)
Depreciation and amortization. . .            0.20           0.17           0.03           17.6 
Other. . . . . . . . . . . . . . .            1.40           1.41          (0.01)          (0.7)
                                              ----------     ----------    ------------   ------
   Total . . . . . . . . . . . . .            7.39 CENTS     7.50 CENTS    (0.11) CENTS    (1.5)
                                              ----------     ----------    ------------   ------
                                              ----------     ----------    ------------   ------
</TABLE>

All fluctuations in operating expenses per ASM were affected by an overall
increase in ASM of approximately 6.6% in 1997 from 1996. Significant year to
year variances were as follows:

Wages and benefits per ASM decreased by 0.02CENTS or 0.9%. The dilutive effect
of increased ASM was offset by increased wages and benefits in 1997 of $6.0
million or 5.5% over 1996. Wages and benefits totaled $114.6 million in 1997
versus $108.6 million in 1996. The Company incurred additional customer service,
crew and inflight wages and benefits primarily due to increased long-haul
flying.


                                      19

<PAGE>

Aircraft Fuel per ASM decreased year over year by 0.05CENTS or 3.4%. The effect
of increased ASM was offset by an overall increase in Aircraft Fuel costs of
$2.2 million or 2.9% to $78.1 million in 1997 from $75.9 million in 1996. The
Company incurred $3.5 million in additional costs from the consumption of
approximately 4.5 million or 4.6% more gallons of fuel in 1997 than in 1996 and
$1.1 million in aggregate realized and unrealized losses on the Company's
Aircraft Fuel derivative financial instruments. These additional costs were
offset by a decrease in Aircraft Fuel expense year over year of $2.2 million
resulting from a decrease in the average cost per gallon of 2.2CENTS or 2.9%.

Maintenance materials and repairs per ASM increased by 0.05CENTS or 3.7% in 1997
from 1996. The Company experienced $7.3 million or 10.6% in additional
maintenance principally due to 1) $5.7 million more in DC-10 maintenance expense
as the Company utilized between nine and ten DC-10 aircraft throughout 1997
versus a varying fleet of eight to ten DC-10 aircraft in 1996 due to increased
long-haul frequencies and 2) $1.2 million more in DC-9 airframe and engine
repairs.

Rentals and landing fees per ASM were primarily affected by decreased landing
fees of $2.2 million in 1997. A two-year moratorium was placed on landing fees
at all airports in Hawaii commencing September 1, 1997. The Company had averaged
approximately $500,000 per month in landing fees at airports in the State of
Hawaii prior to the moratorium.

Depreciation and amortization per ASM increased by 0.03CENTS or 17.6%.
Depreciation and amortization totaled $10.7 million in 1997 versus $8.7 million
in 1996. A majority of this $2.0 million or 23.0% increase in 1997 is due to 1)
$1.2 million in additional depreciation and amortization on DC-9 and DC-10
capitalized parts and overhauls and 2) $548,000 in additional depreciation on
DC-9 flight equipment financed through capital leases.

Other operating expenses per ASM is comparable between 1997 and 1996. Other
operating expenses increased by $4.5 million or 6.2% in 1997 compared to 1996
primarily due to $3.7 million in additional catering, ground handling and
personnel expenses from increased long-haul flying.

                               EXTRAORDINARY ITEMS

In 1996, the Company paid approximately $4.7 million to GPA Group plc and its
affiliate AeroUSA, Inc. to repurchase 827,221 shares of Common Stock and to
repay approximately $4.5 million of long-term debt at a 15.0% discount,
including any deferred costs and other expenses owed. These transactions
resulted in an extraordinary gain, net of income taxes, of approximately
$409,000.

Further, in December 1996, the Company exercised its option to prepay to
American a $10.25 million promissory note secured by certain assets of the
Company (the "American Note"). The Company paid American $9.15 million plus
accrued interest with all liens securing the American Note being released. Early
extinguishment of the American Note resulted in an extraordinary gain, net of
income taxes, of approximately $357,000.

               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. As discussed below in INFORMATION TECHNOLOGY SYSTEMS AND YEAR 2000,
the Company has commenced and committed significant resources to upgrading its
business processes and information technology for strategic and year 2000
positioning. The write-off totaled approximately $450,000, net of income tax
benefit of approximately $300,000.


                                      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, 1998 of $31.0 million, internally generated
funds and a credit facility with total availability of $11.1 million as of
December 31, 1998, with aggregate term loans and letters of credit outstanding
in the amounts of $4.9 million and $1.1 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, 1998 increased by
$15.3 million from December 31, 1997. Operating activities for the year ended
December 31, 1998 provided $30.2 million in cash and cash equivalents, primarily
due to the Company generating $17.4 million in operating income. Investing
activities for the year ended December 31, 1998 used $22.8 million of cash and
cash equivalents primarily to acquire property and equipment, including two used
aircraft as discussed below, continued investments in improved software,
hardware and implementation costs and capitalized portions of DC-9 checks and
overhauls. Including the effects of the two used aircraft discussed below, the
Company had estimated its capital expenditures in 1998 to approximate $29.6
million. Financing activities for the year ended December 31, 1998 provided $7.9
million in cash and cash equivalents, principally the result of $7.6 million in
net borrowings related to its debt and capital lease obligations.

The Company estimates that its capital expenditures in 1999 will approximate
$49.8 million. Approximately, $20.8 million is associated with the acquisition
of additional aircraft as discussed below. The remaining $29.0 million
principally represents (1) capitalized portions of DC-9 and DC-10 checks,
overhauls and configurations; (2) improvements in software and related hardware
and airport and office facilities; and (3) purchase of ground equipment and
other assets. Acquisition of additional aircraft is anticipated to be funded
primarily through debt financings. Other authorized expenditures will be funded
through use of available cash and cash equivalents and internally generated
funds.

                         ROUTES, AIRCRAFT AND EMPLOYEES

In September 1998, the Company announced plans to expand its Transpac operations
by adding in first quarter 1999 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. Further, in November 1998, a charter agreement was entered
into with Renaissance Cruises. The two-year agreement provides for approximately
20 round-trip charter flights per month between Los Angeles and Tahiti,
commencing in August 1999. The agreement is estimated to be worth more than $70
million in incremental passenger charter revenue to the Company.

Additional wide-body aircraft will be required to service the additional
Transpac frequencies discussed immediately above. In November 1998, the Company
entered into a purchase agreement for two used DC-10-30 aircraft. As of December
31, 1998, the Company had taken delivery of one of the used DC-10-30 aircraft.
Delivery of the second used DC-10-30 aircraft took place during the first
quarter 1999. Efforts have also commenced to acquire a third DC-10-30 aircraft.
It is anticipated that approximately 280 to 380 additional employees will be
hired to service the new routes.

In December 1998, the Company entered into a purchase agreement to acquire 
two used DC-9-50 aircraft in an attempt to maximize its code sharing 
arrangements with American and Northwest. The aircraft will be used in the 
Interisland market. As of December 31, 1998, one of the used DC-9-50 aircraft 
had been acquired. Delivery of the second used DC-9-50 is anticipated in 
first quarter 1999.

As stated earlier, the aircraft purchases discussed above have and will be
primarily funded through debt financing. Management continues to assess the
status and alternatives with regard to its DC-10 and DC-9 fleet, including, but
not limited to, the extension of existing leases, exercise of purchase options
and replacement of aircraft.

The Company also has been provisionally awarded authority to commence nonstop
flight operations between Tokyo 


                                      21

<PAGE>

and Maui in January 2000. No estimate can be given as to when or if a final 
decision awarding the route will be issued by the DOT. A decision by the 
Company to progress on operation of the route is subject to a number of 
future events, the outcome of which cannot be predicted at this time, 
including, in addition to the issuance of a final order from the DOT, 
obtaining takeoff and landing slots at the Narita International Airport and 
the resolution of litigation over lengthening of the runway in Maui.

                                    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 which, subject to certain conditions and as adjusted
pursuant to applicable anti-dilution provisions, entitled AMR to purchase up to
1,949,338 shares of the Company's Common Stock (the "AMR Warrant Shares") at
$1.07 per share. If not exercised, the warrants expire on September 11, 2001.
AMR also retained the right to require the Company, on two occasions, to use its
best efforts to register, at the Company's expense subject to certain
conditions, some or all of the AMR Warrant Shares under the Securities Act of
1993, as amended.

Pursuant to its reorganization in 1994, the Company granted warrants to certain
individuals, which, as adjusted for anti-dilution provisions, entitled such
individuals to purchase 1,618,972 shares of Common Stock (the "Reorganization
Warrant Shares") at $1.67 per share. As of December 31, 1997, all of the
warrants had been exercised.

The AMR Warrant Shares have been included in a registration statement filed by
the Company with the Securities and Exchange Commission, which became effective
on December 31, 1998. Pursuant to piggyback rights, the registration statement
also includes the Reorganization Warrant Shares and 2.2 million shares of Common
Stock owned by Airline Investors Partnership, L.P.

                        DERIVATIVE FINANCIAL INSTRUMENTS

As of December 31, 1998, the Company utilized crude oil forward contracts to
manage market risks and hedge its financial exposure resulting from fluctuations
in its aircraft fuel costs. The Company employs a strategy whereby crude oil
contracts are used to cover up to 45% of the Company's anticipated aircraft fuel
needs on a rolling 12 month basis.

At December 31, 1998, the Company had petroleum forward contracts to purchase
45,000 barrels of crude oil in the aggregate amount of $722,000 through February
1999. These forward contracts represented approximately 1% of the Company's
anticipated 1999 aircraft fuel needs. At December 31, 1998, the estimated fair
value and carrying value of these outstanding contracts was a net receivable of
$200,000. Included as a component of Aircraft Fuel Cost are net realized and
unrealized losses on such contracts amounting to $2.3 million and $1.1 million
for the years ended December 31, 1998 and 1997, respectively.

                                   TICKET TAX

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, 1998, the passenger
excise tax decreased from 9% to 8%, with a correspondent increase in the "head
tax" from $1 to $2 per domestic flight segment. The Company has and will adjust
its fares accordingly due to these enacted tax changes based upon prevailing
market conditions. There can be no assurance that the Company will be able to
maintain its current fare levels or predict with any certainty the effects on
its fares should the taxes again be adjusted, lapse and/or be reinstated.


                                      22

<PAGE>

                             FREQUENT FLYER PROGRAM

The Company's HawaiianMiles frequent flyer program was initiated in 1983. As of
December 31, 1998 and 1997, HawaiianMiles had more than 693,000 and 642,000
members, respectively, including approximately 518,000 and 432,000 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 allow 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.

As of December 31, 1998 and 1997, HawaiianMiles members had accumulated
approximately 3.7 billion and 3.0 billion miles, respectively, representing
liabilities totaling approximately $1.1 million. The Company's accruals assume
full redemption of mileage points. During the years ended December 31, 1998,
1997 and 1996, 1.2 billion, 736 million and 857 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 4.1%, 2.4% and 2.9% of Interisland traffic and a negligible
percentage of Transpac and Southpac traffic in 1998, 1997 and 1996,
respectively.

                  INFORMATION TECHNOLOGY SYSTEMS AND YEAR 2000

The Company is currently in the process of bringing a number of major
information technology systems on line for strategic purposes as well as to
address issues associated with the year 2000. These information technology
projects are designed to either replace or enhance existing systems, including
local and wide area networks, yield management and all or portions of revenue
and financial accounting. Estimated external costs associated with these efforts
is estimated to approximate $10 to $12 million, of which approximately $8
million had been incurred as of December 31, 1998.

In addition to replacing a number of core information systems, the Company has
recognized the potential impact of the year 2000 on its operations and has
established a dedicated director and Year 2000 Project Office to oversee the
Company's compliance efforts. The Year 2000 Project Office operates on four
tracks including 1) information and communication systems; 2) hardware; 3)
business partnerships; and 4) government and externalities. Each track utilizes
the Federal General Accounting Office methodology and available best practices.
The strategy is to create a comprehensive review of mission critical systems as
they apply to the continuum of Hawaiian Airlines' business operations.


                                      23

<PAGE>

STATE OF READINESS

The Company has and continues to perform constant awareness activities through
regular informational briefings and newsletter updates, formal briefs of
management and senior management, and the development of "personal Y2K kits" for
all employees to address their concerns. The Company has initiated public
relations activities, and is working with the Air Transport Association (the
"ATA") on a coordinated industry effort.

The Company has inventoried all of its hardware and software applications and is
in the process of formally documenting its inventory assessments. Applications
and hardware configurations of computers operating on the Company's networks
have been audited using automated tools, and standalone machines will be
subjected to the same detailed audits.

Remediation of legacy systems is well underway with completion of all
remediation expected before April 30, 1999. Hawaiian has contracted with
external vendors to assist in its testing efforts and is currently developing
the requisite background information prior to testing.

The Company continues an aggressive business partner management program and is
in the process of following up with vital and important vendors via telephone
survey. Critical vendors not covered under the ATA effort are planned for site
visit by Hawaiian Airlines personnel.

Hardware assessments have found a very small amount of equipment being date
aware, with no systems yet identified as requiring remediation. Currently, the
Company believes that all mission critical systems will be remediated and tested
by a target milestone of mid-1999.

ESTIMATED COSTS TO ADDRESS YEAR 2000 ISSUES

Because a substantial portion of the Company's information systems are being
replaced by new applications that are represented to be Year 2000 compliant, the
Company's remaining Year 2000 issues are primarily related to remediation of
legacy code and assistance in conducting Year 2000 testing. The Company
estimates that it will expend $1 to $2 million for such remediation and testing.
This will be in addition to the $10 to $12 million for replacement of the
Company's information systems as described above.

CONTINGENCY PLANS FOR HAWAIIAN AIRLINES

In addition to its normal operational disaster recovery plans, Hawaiian Airlines
will be including Year 2000 specific activities. To this end, the Company has
established a dedicated position for the coordination of contingency plans.
While the Company believes that all systems will be Year 2000 ready, all
critical, vital, and important systems will have appropriate contingency plans
developed to address complete and partial systems failure. Contingency plans are
expected to be completed in May of 1999.

RISKS OF YEAR 2000 ISSUES

Preliminary reviews of flight systems have found little potential impact of Year
2000 issues, and existing contingency plans and training address the loss of
most affected operations systems. The primary risks to Hawaiian Airlines are
those of business continuity. The Company is aggressively addressing both its
supply and revenue chains to assess, to the best of the Company's knowledge,
that both products and business operations of its partners are not adversely
affected by the Year 2000 problem.

Notwithstanding the foregoing, the Company's business, financial condition or
results of operations could be materially adversely affected by the failure of
its systems or, which the Company believes is the most reasonably likely worst
case scenario, failure of those systems operated by third parties on which the
Company's business relies (including those of the Federal Aviation
Administration) to operate properly beyond 1999. There can be no assurance that
such systems will be modified for Year 2000 operational requirements on a timely
basis. Because of the variables associated with the year 2000 date problem,
management cannot give assurance that in-progress 


                                      24

<PAGE>

system transitions will be sufficient or assure that the Company will not be 
affected by the year 2000 issue in some form or manner.

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

The Company is subject to certain market risks related to its 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.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Company's Financial Statements, accompanying Notes and related 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.


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 1999 Proxy Statement 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 of Hawaiian Airlines
since February 2, 1996 and he is also Chairman of the Executive Committee. He
has been the President since 1984 of Smith Management Company, 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 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. from July
1994 until October 1997. Age 55.

PAUL J. CASEY has been President and Chief Executive Officer of Hawaiian
Airlines 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. Age 53.

JOHN L. GARIBALDI has been Executive Vice President and Chief Financial Officer
of Hawaiian Airlines 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 46.

JOHN B. HAPP has been Senior Vice President-Marketing & Sales of Hawaiian
Airlines since December 15, 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 43.


                                      25

<PAGE>

RUTHANN S. YAMANAKA has been Senior Vice President-Human Resources of Hawaiian
Airlines since March 1, 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 45.

LYN F. ANZAI has been Vice President-General Counsel and Corporate Secretary of
Hawaiian Airlines 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 56.

DAVID M. BOAZ has been Vice President-Flight Operations of Hawaiian Airlines
since June 1997. 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 62.

H. NORMAN DAVIES JR. has been Vice President-Safety and Security of Hawaiian
Airlines since January 6, 1997. He was Chief Pilot in New York for Delta
Airlines, Inc. from November 1991 until June 1996. Age 62.

MICHAEL P. LOO has been Vice President-Controller of Hawaiian Airlines since
1996. He was Staff Vice President-Controller of Hawaiian Airlines from 1994
until 1995. He was previously with KPMG LLP until 1993. Age 34.

CLARENCE K. LYMAN has been Vice President-Finance, Treasurer and Assistant
Corporate Secretary of Hawaiian Airlines since 1991. Age 53.

GLEN L. STEWART has been Vice President-Transpacific and Southpacific Marketing
of Hawaiian Airlines since 1993. He was Senior Vice President-Transpacific of
Hawaiian Airlines from 1991 to 1993. Age 56.

GLENN G. TANIGUCHI has been Vice President-Schedule Planning and Reservations of
Hawaiian Airlines since 1995. He was Staff Vice President-Schedule Planning and
Reservations of Hawaiian Airlines from 1991 until 1995. Age 56.

Effective February 1, 1999, Blaine J. Miyasato was appointed Vice
President-In-Flight, Catering and Product Development of Hawaiian Airlines. From
1993 to 1998 he held various senior positions at the Company including most
recently Senior Director-In-Flight, Product Development & Catering. Age 36.

Effective March 1, 1999, Edward W. Pinion was appointed Vice
President-Purchasing of Hawaiian Airlines. 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 48.

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.

In September 1993, the Company, HAL, INC. and West Maui Airport, Inc. filed a
voluntary petition for relief under Chapter 11. At the time or within two years
before the time of the Chapter 11 filing, Messrs. Lyman and Stewart were
executive officers of the Company, HAL, INC. and/or West Maui Airport, Inc.


                                      26

<PAGE>

Information provided in the Company's 1999 Proxy Statement 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.


                                      27

<PAGE>

                                     PART IV

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

(a)       1.   Financial Statements.

               Independent Auditors' Report.

               Balance Sheets, December 31, 1998 and 1997.

               Statements of Operations for the Years ended December 31, 1998,
               1997 and 1996.

               Statements of Shareholders' Equity and Comprehensive Income for
               the Years ended December 31, 1998, 1997 and 1996.

               Statements of Cash Flows for the Years ended December 31, 1998,
               1997 and 1996.

               Notes to Financial Statements.

               Quarterly Financial Information (Unaudited).

               Selected Financial and Statistical Data.

          2.   Financial Statement Schedule.

               Independent Auditors' Report on Financial Statement Schedule for
               the Years Ended December 31, 1998, 1997 and 1996.

               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.

          None.

(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:

                                  (a)  Amendment No. 1 dated as of May 4, 1995
                                       to Rights Agreement dated 

                                      28

<PAGE>


                                       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;

                                  (b)  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.

                             (8)  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

                             (a)  The following contracts filed as Exhibit 10 to
                                  the Company's Amendment No. 1 to Registration
                                  Statement on Form S-2 as filed July 12, 1996
                                  are incorporated herein by reference:

                                  (1)  Aircraft Lease Agreement dated as of May
                                       15, 1996 between American Airlines, Inc.
                                       and Hawaiian Airlines, Inc. filed in
                                       redacted form since confidential
                                       treatment has been requested pursuant to
                                       Rule 406 for certain portions thereof;

                                  (2)  Cooperative Marketing Agreement between
                                       Northwest Airlines, Inc. and Hawaiian
                                       Airlines, Inc. filed in redacted form
                                       since confidential treatment has been
                                       requested pursuant to Rule 406 for
                                       certain portions thereof;

                             (b)  The following contracts filed as Exhibit 10 to
                                  the Company's Annual Report on Form 10-K for
                                  the year ended December 31, 1996 are
                                  incorporated herein by reference:

                                  (1)  Code Sharing Agreement dated November 26,
                                       1996 by and between Hawaiian Airlines,
                                       Inc. and Reno Air filed in redacted form
                                       since confidential treatment has been
                                       requested pursuant to Rule 24b-2 for
                                       certain portions thereof;

                                      29

<PAGE>


                                  (2)  Software Development, Maintenance, and
                                       License Agreement dated as of December
                                       31, 1996 by and between SABRE Decision
                                       Technologies, a division of The SABRE
                                       Group, Inc. and Hawaiian Airlines, Inc.;

                                  (3)  Hawaiian Airlines, Inc. 1996 Nonemployee
                                       Director Stock Option Plan;

                                  (4)  Employment Agreement dated as of May 1,
                                       1996 by and between John L. Garibaldi and
                                       the Company;

                                  (5)  Form of Secured Promissory Note dated
                                       September 12, 1996;

                                  (6)  Form of Stock Pledge Agreement dated as
                                       of September 12, 1996.

                             (c)  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:

                                  (1)  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;

                                  (2)  Amendment No. 1 to Code Share Agreement,
                                       dated as of January 21, 1997, between the
                                       Company and Wings West Airlines, Inc.;

                                  (3)  Information Technology Services
                                       Agreement, dated as of February 1, 1997,
                                       between the Company and Electronic Data
                                       Systems Corporation filed in redacted
                                       form since confidential treatment has
                                       been requested pursuant to Rule 24.b-2
                                       for certain portions thereof;

                                  (4)  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;

                                  (5)  Separation Agreement and Complete
                                       Settlement and Release of All claims,
                                       dated as of February, 1997, between the
                                       Company and Bruce R. Nobles;

                                  (6)  Employment Agreement, effective as of
                                       April 14, 1997, between the Company and
                                       Paul John Casey.

                             (d)  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.

                             (e)  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:

                                  (1)  Employment Agreement, effective as of
                                       December 15, 1997, between the Company
                                       and John B. Happ;

                                  (2)  Employment Agreement, effective as of
                                       March 1, 1998, between the Company and
                                       Ruthann S. Yamanaka;

                                  (3)  Form of warrant for the Purchase of
                                       25,696 shares of Class A Common Stock
                                       issued to AMR Corporation;

                                  (4)  Form of Addendum to Warrant for the
                                       Purchase of Shares of Common Stock;

                                  (5)  Form of Amendment No. 1 to Warrant
                                       Certificate No. 12 for the Purchase of
                                       Shares of Common Stock;

                                  (6)  Form of Amendment No. 2 to Warrant
                                       Certificate No. 12 for the Purchase of
                                       Shares of Common Stock;

                                  (7)  Form of Amendment No. 1 to Warrant
                                       Certificate No. 23 for the Purchase of
                                       Shares of Common Stock;

                                  (8)  Form of Amendment No. 2 to Warrant
                                       Certificate No. 23 for the Purchase of
                                       Shares of Common Stock;

                                      30

<PAGE>


                                  (9)  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;

                                  (10) 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.

                             (f)  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;

                             (g)  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.

                             (h)  Form of Passenger Aircraft Charter Agreement
                                  dated November 9, 1997, effective 
                                  February 1, 1998 between Hawaiian Vacations,
                                  Inc. and Hawaiian Airlines, Inc.

                             (i)  Form of Passenger Aircraft Charter Agreement
                                  dated November 2, 1998 between Renaissance 
                                  Cruises and Hawaiian Airlines, Inc.

              Exhibit 23     Consent of KPMG LLP.

              Exhibit 24     Power of Attorney.

              Exhibit 27     Financial data schedule.


                                      31

<PAGE>


                                  EXHIBIT INDEX


<TABLE>
<CAPTION>

Exhibit Number              Description
--------------              ------------
<S>               <C>
     10(f)         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;

     10(g)         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;

     10(h)         Form of Passenger Aircraft Charter Agreement dated 
                   November 9, 1997, effective February 1, 1998 between 
                   Hawaiian Vacations, Inc. and Hawaiian Airlines, Inc.

     10(i)         Form of Passenger Aircraft Charter Agreement dated 
                   November 2, 1998 between Renaissance Cruises and Hawaiian 
                   Airlines, Inc.

     23            Consent of KPMG Marwick LLP.

     24            Power of Attorney.

     27            Financial data schedule.

</TABLE>


                                      32

<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.

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

                             HAWAIIAN AIRLINES, INC.



March 29, 1999                   By    /s/ PAUL J. CASEY                    
                                      --------------------------------------
                                       Paul J. Casey
                                       President and Chief Executive Officer
                                       (Principal Executive Officer)



March 29, 1999                   By    /s/ JOHN L. GARIBALDI            
                                      --------------------------------------
                                       John L. Garibaldi
                                       Executive Vice President
                                       and Chief Financial Officer
                                       (Principal Financial and
                                       Accounting Officer)




                                      33

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
Hawaiian Airlines, Inc.:

We have audited the accompanying balance sheets of Hawaiian Airlines, Inc. as of
December 31, 1998 and 1997, and the related statements of operations,
shareholders' equity and comprehensive income, and cash flows for each of the
years in the three-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 1997, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.



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


                                      F-1

<PAGE>

HAWAIIAN AIRLINES, INC.
BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                      1998           1997
                                                                   ----------    -----------
<S>                                                              <C>             <C>
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents . . . . . . . . . . . . . . . . . .   $   31,011     $   15,713
   Investment securities . . . . . . . . . . . . . . . . . . . .            -          4,003
   Accounts receivable, net of allowance for doubtful
       accounts of $500 in 1998 and 1997 . . . . . . . . . . . .       36,427         31,387
   Inventories . . . . . . . . . . . . . . . . . . . . . . . . .        8,546          9,350
   Assets held for sale. . . . . . . . . . . . . . . . . . . . .        1,345          1,344
   Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . .        4,578          4,344
                                                                   ----------    -----------

       TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . .       81,907         66,141
                                                                   ----------    -----------

PROPERTY AND EQUIPMENT:
   Flight equipment. . . . . . . . . . . . . . . . . . . . . . .       86,980         65,796
   Ground equipment, buildings and leasehold
       improvements. . . . . . . . . . . . . . . . . . . . . . .       23,526         17,612
                                                                   ----------    -----------

       Total . . . . . . . . . . . . . . . . . . . . . . . . . .      110,506         83,408
   Accumulated depreciation and amortization . . . . . . . . . .      (25,584)       (17,165)
                                                                   ----------    -----------

       PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . .       84,922         66,243
                                                                   ----------    -----------

OTHER ASSETS:
   Assets held for sale. . . . . . . . . . . . . . . . . . . . .        2,167          3,970
   Long-term prepayments and other . . . . . . . . . . . . . . .        6,065          6,920
   Reorganization value in excess of amounts
       allocable to identifiable assets, net . . . . . . . . . .       46,850         57,550
                                                                   ----------    -----------

       TOTAL OTHER ASSETS. . . . . . . . . . . . . . . . . . . .       55,082         68,440
                                                                   ----------    -----------

       TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . .   $  221,911     $  200,824
                                                                   ----------    -----------
                                                                   ----------    -----------

</TABLE>


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      F-2

<PAGE>

HAWAIIAN AIRLINES, INC.
BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                      1998           1997
                                                                   ----------    -----------
<S>                                                              <C>            <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Current portion of long-term debt . . . . . . . . . . . . . .   $    3,532     $    2,260
   Current portion of capital lease obligations. . . . . . . . .        4,614          4,244
   Accounts payable. . . . . . . . . . . . . . . . . . . . . . .       28,883         27,587
   Air traffic liability . . . . . . . . . . . . . . . . . . . .       22,131         21,169
   Other accrued liabilities . . . . . . . . . . . . . . . . . .       16,517         14,934
                                                                   ----------    -----------

       TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . .       75,677         70,194
                                                                   ----------    -----------

LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . .       14,454          3,991
                                                                   ----------    -----------

CAPITAL LEASE OBLIGATIONS. . . . . . . . . . . . . . . . . . . .        5,966         10,580
                                                                   ----------    -----------

OTHER LIABILITIES AND DEFERRED CREDITS:
   Accumulated pension and other postretirement
       benefit obligations . . . . . . . . . . . . . . . . . . .       25,968         23,353
   Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .        8,959          5,833
                                                                   ----------    -----------

       TOTAL OTHER LIABILITIES AND DEFERRED CREDITS. . . . . . .       34,927         29,186
                                                                   ----------    -----------

SHAREHOLDERS' EQUITY:
   Common Stock - $.01 par value, 60,000,000 shares authorized,
       40,997,335 and 40,624,586 shares issued and outstanding
       in 1998 and 1997, respectively (263,983 shares issuable
       in 1997). . . . . . . . . . . . . . . . . . . . . . . . .          410            409
   Special Preferred Stock - $.01 par value, 2,000,000 shares
       authorized, seven shares issued and outstanding . . . . .            -              -
   Capital in excess of par value. . . . . . . . . . . . . . . .       99,418         99,237
   Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . .        3,153          3,153
   Notes receivable from Common Stock sales. . . . . . . . . . .       (1,581)        (1,714)
   Accumulated deficit . . . . . . . . . . . . . . . . . . . . .       (6,007)       (14,212)
   Accumulated other comprehensive loss -
       minimum pension liability adjustment. . . . . . . . . . .       (4,506)             -
                                                                   ----------    -----------

       SHAREHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . .       90,887         86,873
                                                                   ----------    -----------

   COMMITMENTS AND CONTINGENT LIABILITIES
       (NOTES 3, 4, 5, 6, 8, 9, 10 AND 11)

       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . . . .   $  221,911     $  200,824
                                                                   ----------    -----------
                                                                   ----------    -----------

</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                      F-3

<PAGE>

HAWAIIAN AIRLINES, INC.
STATEMENTS OF OPERATIONS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
                                                                      1998           1997           1996
                                                                   ----------     ----------     ----------
<S>                                                                <C>           <C>           <C>
OPERATING REVENUES:
   Passenger . . . . . . . . . . . . . . . . . . . . . . . . . .   $  354,245     $  332,154     $  326,266
   Charter . . . . . . . . . . . . . . . . . . . . . . . . . . .       35,742         37,172         27,835
   Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . .       21,682         21,272         20,123
   Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .       14,746         13,618         10,249
                                                                   ----------     ----------     ----------
       TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . .      426,415        404,216        384,473
                                                                   ----------     ----------     ----------

OPERATING EXPENSES:
   Wages and benefits. . . . . . . . . . . . . . . . . . . . . .      118,885        114,571        108,626
   Aircraft fuel, including taxes and oil. . . . . . . . . . . .       66,601         78,137         75,884
   Maintenance materials and repairs . . . . . . . . . . . . . .       84,004         76,267         68,984
   Rentals and landing fees. . . . . . . . . . . . . . . . . . .       30,541         32,707         34,995
   Sales commissions . . . . . . . . . . . . . . . . . . . . . .       11,655         13,033         13,369
   Depreciation and amortization . . . . . . . . . . . . . . . .       12,607         10,665          8,731
   Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .       84,717         76,334         71,857
                                                                   ----------     ----------     ----------
       TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . .      409,010        401,714        382,446
                                                                   ----------     ----------     ----------

OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . .       17,405          2,502          2,027
                                                                   ----------     ----------     ----------

NONOPERATING INCOME (EXPENSE):
   Interest and amortization of debt expense . . . . . . . . . .       (2,042)        (2,439)        (3,887)
   Interest income . . . . . . . . . . . . . . . . . . . . . . .        1,639          2,045          1,455
   Loss on disposition of equipment. . . . . . . . . . . . . . .         (831)          (140)          (729)
   Other, net. . . . . . . . . . . . . . . . . . . . . . . . . .         (163)          (820)          (297)
                                                                   ----------     ----------     ----------
       TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . .       (1,397)        (1,354)        (3,458)
                                                                   ----------     ----------     ----------

INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEMS
   AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE . . .       16,008          1,148         (1,431)

INCOME TAXES:
   Currently payable . . . . . . . . . . . . . . . . . . . . . .         (390)           (78)           (43)
   Reduction to Excess Reorganization Value. . . . . . . . . . .       (7,413)        (1,642)          (825)
                                                                   ----------     ----------     ----------
       TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . .       (7,803)        (1,720)          (868)
                                                                   ----------     ----------     ----------

NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND
   CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE . . . . .        8,205           (572)        (2,299)

Extraordinary Gains, Net of Income Taxes
    (Currently payable of $26, Reduction to Excess
   Reorganization Value of $485) . . . . . . . . . . . . . . . .            -              -            766
                                                                   ----------     ----------     ----------

NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE. . . . . . . . . . . . . . . . . . . . .        8,205           (572)        (1,533)

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

NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . .     $  8,205      $  (1,022)     $  (1,533)
                                                                   ----------     ----------     ----------
                                                                   ----------     ----------     ----------

</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, 1998, 1997 AND 1996

NET INCOME (LOSS) PER COMMON STOCK SHARE:

<TABLE>
<S>                                                                 <C>           <C>            <C> 
BASIC
   Before extraordinary items and cumulative effect
       of change in accounting principle . . . . . . . . . . . .      $  0.20       $  (0.02)      $  (0.08)
   Extraordinary items, net of income taxes. . . . . . . . . . .            -              -           0.03
   Cumulative effect of change in accounting
       principle, net of income taxes. . . . . . . . . . . . . .            -          (0.01)             -
                                                                      -------       --------       --------
NET INCOME (LOSS) PER COMMON STOCK SHARE . . . . . . . . . . . .      $  0.20       $  (0.03)      $  (0.05)
                                                                      -------       --------       --------
                                                                      -------       --------       --------

DILUTED
   Before extraordinary items and cumulative effect
       of change in accounting principle . . . . . . . . . . . .      $  0.19       $  (0.02)      $  (0.08)
   Extraordinary items, net of income taxes. . . . . . . . . . .            -              -           0.03
   Cumulative effect of change in accounting
       principle, net of income taxes. . . . . . . . . . . . . .            -          (0.01)           -  
                                                                      -------       --------       --------
NET INCOME (LOSS) PER COMMON STOCK SHARE . . . . . . . . . . . .      $  0.19       $  (0.03)      $  (0.05)
                                                                      -------       --------       --------
                                                                      -------       --------       --------


WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
   Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .       40,921       40,361 *       29,032 *
                                                                      -------       --------       --------
                                                                      -------       --------       --------
   Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .       42,205       40,361 *       29,032 *
                                                                      -------       --------       --------
                                                                      -------       --------       --------


   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. . . . . . .       40,921       40,361 *       29,032 *
   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. . . . . . . . . . . . . .       42,205       40,361 *       29,032 *
                                                                      -------       --------       --------
                                                                      -------       --------       --------

</TABLE>


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

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      F-5

<PAGE>

HAWAIIAN AIRLINES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>

                                                                                                                      NOTES  
                                                                                                                   RECEIVABLE
                                                                        SPECIAL      CAPITAL IN                      FROM      
                                                           COMMON      PREFERRED      EXCESS OF                  COMMON STOCK  
                                                            STOCK        STOCK        PAR VALUE       WARRANTS       SALES     
------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>        <C>              <C>              <C>     
BALANCE AT DECEMBER 31, 1995 . . . . . . . . . . . .        $  94           $  -      $  41,193         $  900        $     -  
Net loss . . . . . . . . . . . . . . . . . . . . . .            -              -              -              -              -  
Minimum pension liability adjustment . . . . . . . .            -              -              -              -              -  
Comprehensive loss . . . . . . . . . . . . . . . . .         
Amortization of unearned compensation on options
     to acquire 592,500 shares of Common Stock . . .            -              -              -              -              -  
Remeasurement of compensation on options
     to acquire shares of Common Stock . . . . . . .            -              -          1,071              -              -  
Repurchase and retirement of 827,221 shares
     of Common Stock . . . . . . . . . . . . . . . .           (8)             -           (902)             -              -  
Sale of 18,181,818 shares of Common Stock,
     net of $2.2 million of transaction costs. . . .          182              -         17,638              -              -  
Issuance of warrants to acquire 974,669
     shares of Common Stock. . . . . . . . . . . . .            -              -              -            825              -  
Issuance of seven shares of Special Preferred Stock.            -              -              -              -              -  
Sale of 12,092,500 shares of Common Stock,
     net of $3.2 million of transaction costs. . . .          121              -         35,977              -         (1,926) 
Exercise of options to acquire 415,000 shares of
     Common Stock. . . . . . . . . . . . . . . . . .            4              -            850           (168)           212  
                                                           -------           ---       --------        -------         ------

BALANCE AT DECEMBER 31, 1996 . . . . . . . . . . . .          393              -         95,827          1,557         (1,714) 
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         (1,714) 
Net income . . . . . . . . . . . . . . . . . . . . .            -              -              -              -              -  
Minimum pension liability adjustment . . . . . . . .            -              -              -              -              -  
Comprehensive income . . . . . . . . . . . . . . . .
Exercise of options to acquire 112,500 shares of
     Common Stock. . . . . . . . . . . . . . . . . .            1              -            181              -            133  
                                                           -------           ---       --------        -------         ------

BALANCE AT DECEMBER 31, 1998 . . . . . . . . . . . .       $  410           $  -      $  99,418       $  3,153      $  (1,581) 
                                                           -------           ---       --------        -------         ------
                                                           -------           ---       --------        -------         ------

<CAPTION>

                                                                                           ACCUMULATED                
                                                              UNEARNED      ACCUMULATED  COMPREHENSIVE                
                                                            COMPENSATION      DEFICIT         LOSS              TOTAL 
----------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>          <C>             <C>           <C>        
BALANCE AT DECEMBER 31, 1995 . . . . . . . . . . . .             $  (182)    $  (11,657)     $  (1,170)     $  29,178 
Net loss . . . . . . . . . . . . . . . . . . . . . .                   -         (1,533)             -         (1,533)
Minimum pension liability adjustment . . . . . . . .                   -              -          1,170          1,170 
                                                                                                            ---------
Comprehensive loss . . . . . . . . . . . . . . . . .                                                             (363)
                                                                                                            ---------
Amortization of unearned compensation on options                                                                      
     to acquire 592,500 shares of Common Stock . . .                 182              -              -            182 
Remeasurement of compensation on options                                                                              
     to acquire shares of Common Stock . . . . . . .                   -              -              -          1,071 
Repurchase and retirement of 827,221 shares                                                                           
     of Common Stock . . . . . . . . . . . . . . . .                   -              -              -           (910)
Sale of 18,181,818 shares of Common Stock,                                                                            
     net of $2.2 million of transaction costs. . . .                   -              -              -         17,820 
Issuance of warrants to acquire 974,669                                                                               
     shares of Common Stock. . . . . . . . . . . . .                   -              -              -            825 
Issuance of seven shares of Special Preferred Stock.                   -              -              -              - 
Sale of 12,092,500 shares of Common Stock,                                                                            
     net of $3.2 million of transaction costs. . . .                   -              -              -         34,172 
Exercise of options to acquire 415,000 shares of                                                                      
     Common Stock. . . . . . . . . . . . . . . . . .                   -              -              -            898 
                                                                --------     ----------       --------      ----------
BALANCE AT DECEMBER 31, 1996 . . . . . . . . . . . .                   -        (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 . . . . . . . . . . . .                   -        (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. . . . . . . . . . . . . . . . . .                   -              -              -            315 
                                                                --------     ----------       --------      ----------
BALANCE AT DECEMBER 31, 1998 . . . . . . . . . . . .                $  -      $  (6,007)     $  (4,506)     $  90,887 
                                                                --------     ----------       --------      ----------
                                                                --------     ----------       --------      ----------

</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, 1998, 1997 AND 1996

<TABLE>
<CAPTION>


                                                                            1998           1997           1996
---------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . .  $  8,205      $  (1,022)     $  (1,533)
     Adjustments to reconcile net income (loss) to
          net cash provided by operating activities:
          Depreciation and amortization. . . . . . . . . . . . . . . .    12,607         10,665          8,731
          Net periodic postretirement benefit cost . . . . . . . . . .     1,473            935            726
          Loss on disposition of equipment . . . . . . . . . . . . . .       831            140            729
          Income tax benefit recognized as a reduction to Excess
               Reorganization Value. . . . . . . . . . . . . . . . . .     7,413          1,342          1,310
          Stock option compensation. . . . . . . . . . . . . . . . . .         -              -          1,253
          Extraordinary gains, net of income taxes currently payable .         -              -         (1,251)
          Increase in accounts receivable. . . . . . . . . . . . . . .    (5,040)        (3,365)       (10,485)
          Decrease (increase) in inventories . . . . . . . . . . . . .       804         (2,300)           598
          Decrease (increase) in prepaid expenses. . . . . . . . . . .      (234)           501            959
          Increase in accounts payable . . . . . . . . . . . . . . . .     1,296            788          1,867
          Increase (decrease) in air traffic liability . . . . . . . .       962         (4,355)        (4,937)
          Increase (decrease) in other accrued liabilities . . . . . .     1,583          2,311         (3,106)
          Other, net . . . . . . . . . . . . . . . . . . . . . . . . .       293         (1,553)         6,138
                                                                       ---------      ---------      ---------
               NET CASH PROVIDED BY OPERATING ACTIVITIES.. . . . . . .    30,193          4,087            999
                                                                       ---------      ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Sale of investment securities.. . . . . . . . . . . . . . . . . .     4,001              -              -
     Purchase of investment securities.. . . . . . . . . . . . . . . .         -         (4,003)             -
     Additions to property and equipment . . . . . . . . . . . . . . .   (27,946)       (18,468)        (9,677)
     Net proceeds from disposition of equipment. . . . . . . . . . . .     1,153          1,422          2,780
                                                                       ---------      ---------      ---------

               NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . .   (22,792)       (21,049)        (6,897)
                                                                       ---------      ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Issuance of Common Stock. . . . . . . . . . . . . . . . . . . . .       182          2,694         52,846
     Issuance of long-term debt. . . . . . . . . . . . . . . . . . . .    13,359            792          7,564
     Repayment of long-term debt.. . . . . . . . . . . . . . . . . . .    (1,533)        (3,141)       (19,258)
     Repayment of capital lease obligations. . . . . . . . . . . . . .    (4,244)        (4,907)        (2,708)
     Proceeds on notes receivable from Common Stock sales. . . . . . .       133              -            212
     Repurchase and retirement of Common Stock . . . . . . . . . . . .         -              -           (910)
                                                                       ---------      ---------      ---------

               NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . .     7,897         (4,562)        37,746
                                                                       ---------      ---------      ---------

               NET INCREASE (DECREASE) IN CASH AND CASH
                    EQUIVALENTS. . . . . . . . . . . . . . . . . . . .    15,298        (21,524)        31,848

Cash and cash equivalents - Beginning of Year. . . . . . . . . . . . .    15,713         37,237          5,389
                                                                       ---------      ---------      ---------

CASH AND CASH EQUIVALENTS - END OF YEAR. . . . . . . . . . . . . . . . $  31,011      $  15,713      $  37,237
                                                                       ---------      ---------      ---------
                                                                       ---------      ---------      ---------

</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, 1998, 1997 AND 1996

<TABLE>
<CAPTION>

                                                                            1998           1997           1996
------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>            <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
     Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . .  $  1,864       $  2,267       $  3,579
     Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . .       761              -            250

SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
     Minimum pension liability adjustment. . . . . . . . . . . . . . .     4,506              -         (1,170)
     Property and equipment financed
          through capital lease. . . . . . . . . . . . . . . . . . . .         -          9,432              -
     Issuance of warrants to acquire 974,669
          shares of Common Stock . . . . . . . . . . . . . . . . . . .         -          2,328            825
     Reclassification of accounts payable to
          long-term debt . . . . . . . . . . . . . . . . . . . . . . .         -              -         10,250
     Remeasurement of compensation on options
          to acquire shares of Common Stock. . . . . . . . . . . . . .         -              -          1,071
     Receipt of notes receivable from Common Stock sales . . . . . . .         -              -          1,926

</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 $426.4 million
for 1998.  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 130 to 150 flights per day among the
six major islands of the State of Hawaii ("Interisland"), daily service to Las
Vegas and four key United States ("U.S.") West Coast gateway cities
("Transpac"), twice weekly service to Pago Pago, American Samoa and weekly
service to Papeete, Tahiti in the South Pacific ("Southpac"). In 1998, the
Company also operated, on average, six charter flights per week to Las Vegas and
two charter rotations per week to Anchorage ("Overseas Charter").  The Company
operates a fleet consisting of DC-9 aircraft and DC-10 aircraft.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents.  Short-term cash equivalent
investments at December 31, 1998 and 1997 were valued at cost and amounted to
$27.0 million and $11.6 million, respectively.

INVESTMENT SECURITIES

Investment securities at December 31, 1997 consist of U.S. Treasury and
mortgage-backed securities.  The Company classifies its debt securities as
available-for-sale with such securities recorded at cost, which approximates
fair-value.  Unrealized holding gains and losses, net of the related tax effect,
on available-for-sale securities are excluded from earnings and are reported as
a separate component of accumulated other comprehensive income (loss) until
realized.  Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis.  A decline in the
market value of any available-for-sale security below cost that is deemed to be
other than temporary results in a reduction in carrying amount to fair value. 
The impairment is charged to earnings and a new cost basis for the security is
established.  Premiums and discounts are amortized or accreted over the life of
the related available-for-sale security as an adjustment to yield using the
effective interest method.  Dividend and interest income are recognized when
earned.

INVENTORIES

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

ASSETS HELD FOR SALE

Assets held for sale consisting of expendable inventory parts and rotable flight
equipment are stated at the lower of average cost or net realizable value for
expendable inventory parts and the lower of average cost or fair value less cost
to sell for rotable flight equipment.  As of December 31, 1998 and 1997, the
Company had approximately $3.5 million and $5.3 million, respectively, of
expendable inventory parts and rotable flight equipment held for sale internally
or on a consignment basis with a third party. 


                                     F-9

<PAGE>

PROPERTY AND EQUIPMENT

Owned property and equipment are stated at cost.  Costs of major improvements
are capitalized.  Depreciation and amortization are provided on a straight-line
basis over the following estimated useful lives:

<TABLE>
     <S>                                  <C>
     Flight equipment. . . . . . . . . .  4-15 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
</TABLE>

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

In 1997, the Company commenced concentrated efforts to update its information
technology systems for strategic reasons.  Direct external costs subsequent to
the preliminary stage of these projects are capitalized as property and
equipment.  Capitalized costs are amortized on a straight-line basis over the
estimated useful life of each installation or module once it is complete and
ready for its intended use.

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,
1998 and 1997 totaled approximately $15.0 million and $11.7 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.

ACCRUED VACATION LIABILITY

Accrued vacation in excess of the amount expected to be taken by employees
during the following year is classified as a noncurrent liability.

FREQUENT FLYER AWARDS

A liability for frequent flyer awards is recognized on the incremental cost
basis in the period during which passengers have accumulated sufficient mileage
for award redemption.  Incremental costs primarily include fuel and catering.

PASSENGER  REVENUES

Passenger fares are recorded as operating revenues when the transportation is
provided.  The value of unused passenger tickets is included as air traffic
liability.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes derivative financial instruments comprised of crude oil
forward and options contracts to manage market risks and hedge its exposure to
fluctuations in its aircraft fuel costs.  Realized and unrealized changes 


                                     F-10

<PAGE>

in the fair value of the derivative financial instruments are recognized in 
income in the period in which the change occurs.  The Company's practice is 
to not hold or issue financial instruments for trading purposes.

INCOME TAXES

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

STOCK OPTION PLANS

The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board (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. 

EARLY EXTINGUISHMENT OF DEBT

In 1996, the Company paid approximately $4.7 million to GPA Group plc and its
affiliate AeroUSA, Inc. to repurchase 827,221 shares of Common Stock and to
repay approximately $4.5 million of long-term debt at a 15.0% discount,
including any deferred costs and other expenses owed.  These transactions
resulted in an extraordinary gain, net of income taxes, of approximately
$409,000.  
     
Further, in December 1996, the Company exercised its option to prepay to
American Airlines, Inc. ("American") a $10.25 million promissory note secured by
certain assets of the Company (the "American Note").  The Company paid American
$9.15 million plus accrued interest with all liens securing the American Note
being released.  Early extinguishment of the American Note resulted in an
extraordinary gain, net of income taxes, of approximately $357,000.

BUSINESS PROCESS REENGINEERING COSTS

As promulgated by the Financial Accounting Standards Board's (the "FASB")
Emerging Issues Task Force, in fourth quarter 1997, the Company 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.

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.  For 1998,
1997 and 1996, options and warrants to purchase approximately 1.4 million, 2.5
million and 4.0 million shares of Common Stock, 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 reported amounts of assets and liabilities and disclosure 


                                     F-11

<PAGE>

of contingent assets and liabilities at the date of the financial statements 
and the reported amounts of revenues and expenses during the reporting 
period. Actual results could differ 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.

SEGMENT INFORMATION

Due to the centralization of the Company's operations in the State of Hawaii and
the interdependence of its routes, management considers its operations to be one
industry segment.

RECLASSIFICATIONS

Certain prior year amounts were reclassified to conform to the 1998
presentation.  Such reclassifications had no effect on previously reported
financial condition and/or results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. SFAS No. 130 requires
reclassification of financial statements for earlier periods provided for
comparative purposes. 

In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 requires restatement of comparative information
presented for earlier periods.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employer's Accounting for Pensions," No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions."  SFAS No. 132 addresses
disclosure only and does not change any of the measurement or recognition
provisions provided for in SFAS Nos. 87, 88 or 106.  SFAS No. 132 requires
restatement of comparative information presented for earlier periods.

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.  SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.

In March 1998, the American Institute of Certified Public Accountants Accounting
Standards Executive Committee (the "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.  SOP 98-1 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.  SOP 98-1 is effective for fiscal years beginning after
December 15, 1998.

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.  The provisions of SOP
98-5 are effective for fiscal years beginning after December 15, 1998. 


                                     F-12

<PAGE>

The Company adopted the provisions of SFAS Nos. 130, 131 and 132 effective
January 1, 1998.  Adoption of SFAS No. 130 did not result in the
reclassification of comparative financial statement information presented for
earlier periods.  Adoption of SFAS No. 131 did not result in a modification to
the Company's reporting segment and accordingly, comparative financial statement
information presented for earlier periods was not restated.  The Company's
disclosures regarding pension and other postretirement benefits for prior
periods have been restated to comply with the provisions of SFAS No. 132. 
Further, management does not expect the adoption of SFAS No. 133, SOP 98-1 or
SOP 98-5 by the respective required dates to have a material impact on the
Company's financial condition, results of operations, liquidity and/or
previously reported financial information.

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 cost of investment securities held at December 31, 1997, consisting of U.S.
Treasury and mortgage-backed securities amounted to $3.0 million and $1.0
million, respectively, which approximates fair value.  Investment securities
held at December 31, 1997 are classified as available-for-sale and were sold
during 1998.  Realized gains and losses from the sale of such securities were
not material in 1998 or 1997.
 
The estimated fair values of long-term debt amounted to $17.6 million and $6.3
million at December 31, 1998 and 1997, 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.

In 1997, the Company began utilizing derivative financial instruments comprised
of crude oil forward and options contracts to hedge its financial exposure
resulting from fluctuations in its aircraft fuel costs.  At December 31, 1998,
the Company had petroleum forward contracts to purchase 45,000 barrels of crude
oil in the aggregate amount of $722,000 through February 1999.  The estimated
fair value and carrying value of these outstanding contracts was a net
receivable of $200,000 at December 31, 1998.  Realized and unrealized losses on
such contracts amounted to $2.3 million and $1.1 million in 1998 and 1997,
respectively, and are included as a component of aircraft fuel expense.  The
estimated fair value of these contracts are based on quoted market prices and
generally have maturities of one year or less.  The contracts 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.

4.   FLIGHT EQUIPMENT

All of the Company's aircraft are leased except for one DC-10 and three DC-9s. 
At December 31, 1998 and 1997, the composition of the Company's aircraft fleet
is as follows:

<TABLE>
<CAPTION>
                                 1998                           1997
                        ------------------------------------------------------
   Aircraft Type         Leased        Owned            Leased       Owned
   -------------------  ------------------------------------------------------
   <S>                  <C>            <C>              <C>          <C>
   DC-10                       10            1                 9            -
   DC-9                        11            3                11            2
                        ------------------------------------------------------
   
   Total                       21            4                20            2
                        ------------------------------------------------------
                        ------------------------------------------------------
</TABLE>

In November 1998, the Company entered into a purchase agreement for two used
DC-10-30 aircraft.  As of December 31, 1998, the Company had taken delivery of
one DC-10-30 aircraft.  Delivery of the second DC-10-30 aircraft took place
during the first quarter 1999, subject to long term debt financing to be in
place by the end of the first quarter 1999.  Efforts have also commenced to
acquire a third DC-10-30. 

In December 1998, the Company entered into a purchase agreement to acquire two
used DC-9-50 aircraft.  The aircraft will be used in the Interisland market.  At
December 31, 1998, the first DC-9-50 had been delivered.  Delivery of the second
DC-9-50 is anticipated in first quarter 1999.


                                      F-13

<PAGE>

At December 31, 1998, the Company had purchase commitments for one DC-10-30
aircraft and one DC-9-50 aircraft in an aggregate amount of approximately $15
million.

5.   LEASES

AIRCRAFT LEASES 

Ten DC-10 aircraft are leased from American under operating leases which expire
in 2001.  Effective January 31, 1996, the Company and American agreed to a
reduction in basic rents due on DC-10 operating leases by approximately 28%
through January 31, 1999, at which time such rents revert to their original
levels.  Rent has been expensed under the straight line method.  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 1998, 1997 and 1996 was $28.4 million, $26.6 million and $26.7 million,
respectively, net of sublease rental income from operating leases of $66,000,
$50,000 and $102,000, respectively.

Scheduled future minimum lease commitments under operating and capital leases
for the Company as of December 31, 1998, in thousands, are as follows:

<TABLE>
<CAPTION>
                                                                   Operating    Capital
                                                                    Leases      Leases
----------------------------------------------------------------------------------------
<S>                                                                <C>         <C>
1999.............................................................. $ 20,695    $  5,365
2000..............................................................   18,787       3,572
2001.......................................................;......   12,785         842
2002..............................................................    2,248         842
2003..............................................................    2,237         242
Thereafter........................................................    8,285       1,804
                                                                   ---------   ---------

         Total minimum lease payments............................  $ 65,037    $ 12,667
                                                                   ---------
                                                                   ---------

         Less amount representing interest
              (rates ranging from 8.0% to 10.25%)................                 2,087
                                                                               ---------

         Present value of capital lease
         obligations.............................................                10,580

         Less current portion of capital lease
         obligations.............................................                 4,614
                                                                               ---------

         Capital lease obligations, excluding
         current portion.........................................              $  5,966
                                                                               ---------
                                                                               ---------
</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, 1998, 1997 and 1996,
the Company incurred $55.4 million, $50.9 million and $45.2 million,
respectively, in maintenance charges under such agreement.


                                      F-14

<PAGE>

The net book value of property held under capital leases as of December 31, 1998
and 1997 totaled $19.8 million and $21.4 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, 1998 and 1997, the Company's long-term debt consists of the
following, in thousands:

<TABLE>
<CAPTION>
                                                                                1998                     1997
         -----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                      <C>
         Secured obligations due 1999-2005..........................          $ 17,986                  $ 6,161

         Other obligations paid in 1998.............................                 -                       90
                                                                          -----------------        -----------------

                                                                                17,986                    6,251

         Current portion............................................            (3,532)                  (2,260)
                                                                          -----------------        -----------------

              Long-term debt obligations, excluding current portion           $ 14,454                  $ 3,991
                                                                          -----------------        -----------------
                                                                          -----------------        -----------------
</TABLE>

Secured obligations due 1999-2005 are as follows:

(1)  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.  At December 31, 1998, $8.4 million was outstanding;

(2)  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, 1998, $4.3 million was outstanding;

(3)  A secured note executed in 1993 for the purchase of a DC-9 aircraft from a
     lessor.  The mortgage note is due in 1999 and is payable in monthly
     installments of principal and interest of $59,876.  Interest accrues at
     10.315% per annum.  At December 31, 1998 and 1997, $405,000 and $1.0
     million, respectively, were outstanding;

(4)  The Company maintains a Credit Facility with CIT Group/Credit Finance, 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 plus 2.0% (8.16% at December 31, 1998).  The
     Company may terminate the Credit Facility at any time, on 30 days notice
     and payment of certain early termination fees during the initial term and
     without termination fees during any renewal term.   

     As of December 31, 1998, the total availability under the Credit Facility
     was $11.1 million with aggregate term loans and letters of credit
     outstanding in the amounts of $4.9 million and $1.1 million, respectively.
     As of December 31, 1997, the total availability under the Credit Facility
     was $11.9 million with aggregate term loans and letters of credit
     outstanding in the amounts of $5.2 million and $100,000, 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


                                      F-15

<PAGE>

     security deposits.  In addition, terms of the Credit Facility restrict the
     Company from paying any cash or stock dividends on its Common Stock.

Other obligations paid in 1998 represented priority tax claims for various
taxing jurisdictions recognized upon the Company's emergence from Chapter 11
bankruptcy.  The obligations bore interest at 7.0% per annum and were payable in
24 quarterly installments commencing on the first anniversary of the Effective
Date.

Maturities of long-term debt for the Company, including those estimated for the
Credit Facility, as of December 31, 1998, in thousands, are as follows:

<TABLE>
<S>                           <C>
1999.......................... $3,532
2000..........................  3,259
2001..........................  3,404
2002..........................  2,016
2003..........................  2,112
Thereafter....................  3,663
</TABLE>

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 1998 and 34% in 1997 and 1996,
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.   

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, 1997 and 1996 will not require cash outlay as it will be offset by net
operating loss carryforwards available to the Company.  As noted, in 1998 and in
1997 and 1996, approximately $7.4 million and $1.3 million, respectively, of
estimated income tax benefit from the expected utilization of these net
operating loss carryforwards has been applied as a reduction to Excess
Reorganization Value.

Income tax expense in 1998, 1997 and 1996 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,
extraordinary items and cumulative effect of change in accounting principle as
follows:

<TABLE>
<CAPTION>
                                                               1998               1997               1996
                                                          ---------------    ---------------    ---------------
<S>                                                       <C>                <C>                <C>
 Computed "expected" tax expense (benefit).............     $ 5,600            $   400             $ (500)
 Amortization of Excess Reorganization Value...........       1,200              1,200              1,200
 State income taxes, net of federal income             
       tax benefit.....................................         800                 20                100
 Other.................................................         203                100                 68
                                                          ---------------    ---------------    ---------------

                                                            $ 7,803            $ 1,720             $  868
                                                          ---------------    ---------------    ---------------
                                                          ---------------    ---------------    ---------------
</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, 1998 and 1997 are presented below, in thousands:

<TABLE>
<CAPTION>
                                                                              1998                     1997
    ----------------------------------------------------------------------------------------------------------
    <S>                                                             <C>                      <C>
    Deferred tax assets:                                     
    
          Net operating loss carryforwards...................               $ 13,366                 $ 21,921
          Accumulated pension and other                      
              postretirement benefit obligations.............                  8,585                    9,341
          Provision for loss on devalued assets..............                  2,724                    2,442
          Accrued vacation...................................                  2,263                    2,085
          Airframe return provision..........................                  1,271                      932
          Accounts receivable, principally due to            
              allowance for doubtful accounts................                    200                      200
          Other..............................................                  2,627                    4,760
                                                                    -----------------        -----------------
    
                   Total gross deferred tax assets...........                 31,036                   41,681
    
                   Less valuation allowance..................                (21,479)                 (34,127)
                                                                    -----------------        -----------------
    
                   Net deferred tax assets...................                  9,557                    7,554
    
          Deferred tax liabilities:                          
              Plant and equipment, principally due to        
                   differences in depreciation...............                 (9,557)                  (7,554)
                                                                    -----------------        -----------------
                   Net deferred taxes........................                $     -                 $      -
                                                                    -----------------        -----------------
                                                                    -----------------        -----------------
</TABLE>
    
The valuation allowance for deferred tax assets as of January 1, 1998, 1997 and
1996 was $34.1 million, $35.3 million and $47.2 million, respectively.  The net
change in the total valuation allowance for the years ended December 31, 1998,
1997 and 1996 were decreases of $12.6 million, $1.2 million and $11.9 million,
respectively.  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 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, 1998, the Company has total net operating loss carryovers of approximately
$33.4 million to offset future taxable income.  If not utilized to offset future
taxable income, the net operating loss carryforwards will expire between the
years 2003 and 2009.  If, in future years, the Company were to recognize income
tax benefit from the utilization of net operating loss carryforwards arising
prior to the Effective Date, such benefit will be applied as a reduction to
Excess Reorganization Value.

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 


                                      F-17

<PAGE>

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.

The following tables summarize changes to benefit obligations, plan assets,
funded status and amounts included in the accompanying balance sheets as of
December 31, 1998 and 1997, in thousands:

<TABLE>
<CAPTION>
                                                                  Pension Benefits                          Other Benefits
                                                        ----------------------------------    -------------------------------------
Change in benefit obligation                                 1998               1997               1998               1997
----------------------------------------------------    ---------------    ---------------    ---------------    ---------------
<S>                                                     <C>                <C>                <C>                <C>
Benefit obligation at beginning of year...........           $ 163,792          $ 151,691           $ 13,909          $  14,460
Service cost......................................               4,047              3,609                739                714
Interest cost.....................................              12,078             11,506              1,037              1,044
Actuarial (gain) loss.............................              11,857              5,701               (901)            (1,631)
Benefits paid.....................................              (8,760)            (8,715)              (645)              (678)
                                                        ---------------    ---------------    ---------------    ---------------
Benefit obligation at end of year.................             183,014            163,792             14,139             13,909
                                                        ---------------    ---------------    ---------------    ---------------
Change in plan assets
----------------------------------------------------
Fair value of assets at beginning of year.........             160,770            145,884                  -                  -
Actual return on plan assets......................               1,869             19,798                  -                  -
Employer contribution.............................               4,805              3,803                645                678
Benefits paid.....................................              (8,760)            (8,715)              (645)              (678)
                                                        ---------------    ---------------    ---------------    ---------------
Fair value of assets at end of year...............             158,684            160,770                  -                  -
                                                        ---------------    ---------------    ---------------    ---------------

Funded status.....................................             (24,330)            (3,022)           (14,139)           (13,909)
Unrecognized actuarial net (gain) loss............              25,435              1,973            (12,434)           (12,395)
                                                        ---------------    ---------------    ---------------    ---------------
Prepaid (accrued) benefit cost at end of year.....           $   1,105          $  (1,049)          $(26,573)         $ (26,304)
                                                        ---------------    ---------------    ---------------    ---------------
                                                        ---------------    ---------------    ---------------    ---------------
Amounts recognized in the
      accompanying balance sheets
----------------------------------------------------
Prepaid benefit cost..............................           $  14,120          $  14,018           $      -          $       -
Accrued benefit liability.........................             (17,521)           (15,067)           (26,573)           (26,304)
Intangible asset..................................                   -                  -                  -                  -
Accumulated other comprehensive loss..............               4,506                  -                  -                  -
                                                        ---------------    ---------------    ---------------    ---------------
Prepaid (accrued) benefit cost at end of year.....           $   1,105          $  (1,049)          $(26,573)         $ (26,304)
                                                        ---------------    ---------------    ---------------    ---------------
                                                        ---------------    ---------------    ---------------    ---------------
Weighted average assumptions at end of year
---------------------------------------------------- 
Discount rate.....................................                7.0%                7.5%              7.0%                7.5%
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, 1996, the discount rate, expected return on plan assets and 
rate of compensation increase for pension benefits was 7.75%, 9.0% and 4.5%, 
respectively.  At December 31, 1996, the discount rate and rate of 
compensation increase for other benefits was 7.75% and 4.5%, respectively.  
The rate of compensation increase is not applicable to the frozen plans.  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 7 years and remain level 
thereafter.  


                                      F-18

<PAGE>

The projected benefit obligation, accumulated benefit obligation and fair 
value of plan assets for plans with accumulated benefit obligations in excess 
of plan assets, in thousands, were  $136,087, $122,719 and $105,197, 
respectively, as of December 31, 1998 and $107,009, $95,440 and $91,107, 
respectively, as of December 31, 1997.

The following table sets forth the net periodic benefit cost for the years ended
December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                  Pension Benefits                  Other Benefits
                                           -----------------------------    -----------------------------
Components of Net Periodic Benefit Cost     1998       1997        1996         1998       1997     1996
---------------------------------------    --------------------------------------------------------------
<S>                                        <C>        <C>         <C>         <C>        <C>      <C>
Service cost.........................      $ 4,047    $ 3,609     $ 3,857     $  739     $  714    $  923
Interest cost........................       12,078     11,506      10,882      1,037      1,044     1,153
Expected return on plan assets.......      (13,473)   (12,607)    (11,982)         -          -         -
Recognized net actuarial (gain) loss.            -          -         198       (861)      (823)     (418)
                                           --------   --------    --------    -------    -------     -----
   Net periodic benefit cost               $ 2,652     $ 2,508    $ 2,955     $  915     $  935    $1,658
                                           --------   --------    --------    -------    -------     -----
                                           --------   --------    --------    -------    -------     -----
</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....................................      $   262,000             $   (216,000)
   Effect on postretirement benefit obligation.........      $ 1,905,000             $ (1,585,000)
</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 $1.3
million in 1998 and $1.1 million in 1997 and 1996, 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 $2.0 million, $1.8 million and $1.6 million in
1998, 1997 and 1996, 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 has provided for
approximately $760,000 under the provisions of the profit sharing plan, with
distribution of the amounts, as defined by the plan, to occur in first quarter
1999.

9.   CAPITAL STOCK, WARRANTS, RIGHTS AND OPTIONS

AUTHORIZED CAPITAL STOCK

As of December 31, 1998 and 1997, 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 1998 or
1997.  


                                      F-19

<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.

Pursuant to its reorganization in 1994, the Company granted warrants to 
certain individuals (the "Reorganization Warrants"), which entitled such 
individuals to purchase 1,618,972 shares of Common Stock at an exercise price 
of $1.67 per share, as adjusted for applicable anti-dilution provisions.  As 
of December 31, 1997, all Reorganization Warrants to purchase 1,618,972 
shares of Common Stock had been exercised.


                                      F-20

<PAGE>

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.

Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
                                                                                                    Weighted
                                                              Shares of Common Stock               average of
                                                      --------------------------------------     exercise price
                                                        Available for            Under             of shares
                                                           options               plan              under plan
                                                      --------------------------------------     --------------
<S>                                                     <C>                      <C>             <C>
 Balance at December 31, 1995                                    7,500              592,500       $      1.62
                                                                                                 --------------
                                                                                                 --------------

       Authorized
           1996 Stock Incentive Plan                         2,000,000                    -                -
           1996 Nonemployee Director Stock
                 Option Plan                                   500,000                    -                -
       Granted
           1994 Stock Option Plan                               (7,500)               7,500              1.62
           1996 Stock Incentive Plan                          (807,500)             807,500              3.33
           1996 Nonemployee Director Stock
                 Option Plan                                   (89,000)              89,000              3.69
       Exercised
           1994 Stock Option Plan                                    -             (115,000)             1.62
           1996 Stock Incentive Plan                                 -             (592,500)             3.25
       Forfeited
           1996 Stock Incentive Plan                            15,000              (15,000)             3.25
                                                      -----------------    -----------------

 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
                                                      -----------------    -----------------     --------------
                                                      -----------------    -----------------     --------------
</TABLE>


                                      F-21

<PAGE>

As of December 31, 1998, vesting requirements and exercise periods under each 
respective plan are as follows:

<TABLE>
<CAPTION>
                                                Vesting           Exercise Period
                                           -----------------     -----------------
      <S>                                  <C>                   <C>
      1994 Stock Option Plan                 Fully vested           Through 2005

      1996 Stock Incentive Plan              Various from           Various from
                                           1999 through 2002      1999 through 2008

      1996 Nonemployee Director
          Stock Option Plan                  Fully vested           Various from
                                                                  1999 through 2008
</TABLE>

At December 31, 1998, the range of exercise prices and weighted-average 
remaining contractual lives of outstanding options was $1.62 to $4.06 and 7.8 
years, respectively.

At December 31, 1998, 1997 and 1996, the number of options exercisable was 
252,000, 322,500 and 485,000, respectively, with weighted-average exercise 
prices of $3.14, $2.53 and $2.36, respectively.

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:

<TABLE>
<CAPTION>
                                                  1998             1997            1996
                                             --------------   --------------  --------------
          <S>                                <C>              <C>             <C>
          Net Income (Loss)
               As reported                      $    8,205      $    (1,022)     $   (1,533)
               Pro forma                        $    7,146      $    (1,322)     $   (1,935)


          Basic earnings per share
               As reported                      $     0.20      $     (0.03)     $    (0.05)
               Pro forma                        $     0.17      $     (0.03)     $    (0.07)


          Diluted earnings per share
               As reported                      $     0.19      $     (0.03)     $    (0.05)
               Pro forma                        $     0.17      $     (0.03)     $    (0.07)
</TABLE>

The per share weighted-average fair value of stock options granted during 
1998, 1997 and 1996 was $1.78, $1.81 and $0.79, respectively, on the date of 
grant using a Black Scholes option-pricing model with the following 
weighted-average assumptions:

<TABLE>
<CAPTION>
                                            1998                  1997                  1996
                                       --------------        --------------        --------------
     <S>                               <C>                   <C>                   <C>
     Expected dividend yield                0.0%                 0.0%                  0.0%
     Expected volatility                   40.0%                 40.0%                 50.0%
     Risk-free interest rate               5.76%             6.30% to 6.40%        4.05% to 7.55%
     Expected life                     Up to 7 years         Up to 6 years         Up to 7 years
</TABLE>

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, 1996 is not considered.


                                      F-22

<PAGE>

10.  COMMITMENTS AND CONTINGENT LIABILITIES

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.  Also, the 
Company is involved in discussions with the State of Hawaii regarding general 
excise tax as it relates to leased aircraft.  The matter is subject to 
continued discussion with no discernable amounts and/or arguments at this 
time.  In the opinion of management, and after consultation with legal 
counsel, the Company believes that the ultimate disposition of these matters 
will not have a material adverse effect on the Company's operations or 
financial condition.

AIRCRAFT MAINTENANCE

Maintenance on the Company's DC-10 aircraft fleet is performed by American in 
accordance with the Federal Aviation Administration's (the "FAA") regulations 
and Hawaiian Airlines' approved maintenance program.

The Company anticipates that in the period 1999 through 2001, eight of its 
DC-9 aircraft will require heavy airframe overhaul checks (the "C5-Check", 
previously referred to as a D-Check).  The C5-Check for a DC-9 requires more 
than 20,000 man-hours of maintenance work and includes stripping the 
airframe, extensively testing the airframe structure and a large number of 
parts and components, and reassembling the overhauled airframe with new or 
rebuilt components.  The Company anticipates each C5-Check to cost 
approximately $1.0 million.

The FAA has and is expected to continue to require structural modifications 
and the replacement of certain parts, as well as the implementation of 
additional maintenance programs or changes to current programs, with respect 
to various types of aircraft over a certain age.  These requirements vary, 
depending on the type of aircraft covered. Based on information currently 
available, the Company estimates that the total cost of complying with the 
aging aircraft requirements over the 1999 through 2003 period will 
approximate $660,000 per DC-9 aircraft.

The Company expects to incur approximately $100,000 per DC-9 aircraft per 
year for maintenance required under a corrosion prevention and control 
program.  This program is anticipated to continue indefinitely in the future.

The FAA has mandated the installation of smoke detection and fire suppression 
systems in the cargo compartments of both DC-10 and DC-9 aircraft by December 
2000.  The cost for systems and installation is estimated to be $130,000 and 
$83,000 per each DC-10 and DC-9 aircraft, respectively.

As a result of certain incidents where Digital Flight Data Recorder ("DFDR") 
information was insufficient to determine the cause of the accident, the FAA 
has also mandated additional recording parameters for the DC-10 and DC-9 
aircraft by the first heavy maintenance check after August 1999 but no later 
than August 2001.  The DC-10 DFDR will be upgraded from 17 to 22 parameters 
at an estimated cost of $60,000 per aircraft.  The DC-9 DFDR will be upgraded 
from 11 to 18 parameters at an estimated cost of $47,000 per aircraft.

During the period from 1999 through 2003, the Company anticipates continued 
implementation of its supplemental inspection document program for certain of 
its DC-9 aircraft, which is estimated to range up to $27,000 per aircraft. 

The estimated future cost of complying with FAA regulations as discussed in 
the preceding paragraphs will be in addition to the costs of the Company's 
current DC-10 and DC-9 fleet maintenance programs.

LOS ANGELES AIRPORT OPERATING TERMINAL

On December 1, 1985, the Company entered into an interline agreement with 
other airlines 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


                                      F-23

<PAGE>

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, 1998 
amounting to approximately $214.5 million.  Rent expense relating to these 
operating leases totaled $4.9 million, $5.0 million and $4.8 million in 1998, 
1997 and 1996, 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 $592,000, $338,000 and $750,000 
of rent expense in 1998, 1997 and 1996, respectively.

FREQUENT FLYER PROGRAM

The Company's HawaiianMiles frequent flyer program was initiated in 1983.  As 
of December 31, 1998 and 1997, HawaiianMiles had more than 693,000 and 
642,000 members, respectively, including approximately 518,000 and 432,000 
active members, respectively.

The HawaiianMiles program allows passengers to earn mileage credits by flying 
Hawaiian Airlines and other carriers, particularly Continental Airlines, Inc. 
and Northwest Airlines, Inc. ("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 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 allow 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.

As of December 31, 1998 and 1997, HawaiianMiles members had accumulated 
approximately 3.7 billion and 3.0 billion miles, respectively, representing 
liabilities totaling approximately $1.1 million.  The Company's accruals 
assume full redemption of mileage points. During the years ended December 31, 
1998, 1997 and 1996,  1.2 billion, 736 million and 857 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 4.1%, 2.4% and 2.9% of Interisland 
traffic and a negligible percentage of Transpac and Southpac traffic in 1998, 
1997 and 1996, respectively.

11.  RELIANCE ON THIRD PARTIES

The Company has entered into agreements with contractors, including American,
Northwest and certain other airlines, to provide certain facilities and services
required for its operations, including aircraft, code sharing, reservations,
computer services, frequent flyer programs, aircraft maintenance, passenger
processing, fuel, ground facilities, baggage and cargo handling and personnel
training.  This reliance on third parties to provide


                                      F-24

<PAGE>

services subjects the Company to various risks, including 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 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 1998, the Company incurred 
approximately $69.6 million of lease and maintenance expenses under the 
American DC-10 aircraft leases.  American has the right to terminate its 
obligation to provide aircraft maintenance services on and after January 1, 
1999, upon 180 days prior notice. American has indicated to the Company its 
intent to provide maintenance services through September 2001, although it 
may still exercise its right to terminate upon 180 days prior notice.  If 
American terminated the maintenance arrangement, the Company would have to 
seek an alternate source of maintenance service or maintain its DC-10s by 
itself.  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.  The Company also participates in American's AAdvantage 
frequent flyer program and SABRE reservation system. Commencing March 2, 
1998, the Company and American also effected a code sharing agreement.  These 
programs and services make the Company more competitive, but increases its 
reliance on third parties.

The Company purchases almost all of its aviation fuel from Northwest pursuant 
to an agreement which provides that, in case of shortages, Northwest will 
provide fuel to its own fleet first and then a portion of the remaining fuel 
available will be allocated between Hawaiian Airlines and any other 
applicable airlines. The agreement requires Northwest to provide Hawaiian 
Airlines with aviation fuel at Northwest's actual acquisition cost without 
markup for profit and with reimbursement only for out-of-pocket costs. The 
agreement is renewed automatically on December 31 of each year unless 
canceled by either of the parties with 90 days, written notice. Hawaiian 
Airlines is prohibited from reselling such fuel. No assurance can be given 
that the Company would be able to secure an adequate supply of fuel from 
alternate sources if a fuel shortage were to cause the supply from Northwest 
to be inadequate or if Northwest were to cancel the agreement. The Company 
paid Northwest approximately $60.7 million, $72.6 million and $70.9 million 
for the fuel supplied under this agreement in 1998, 1997 and 1996, 
respectively. Further, effective July 1996, the Company entered into a 
cooperative marketing agreement with Northwest, which provides for extensive 
marketing cooperation, including a code sharing arrangement and frequent 
flyer participation.

In 1998 and in both 1997 and 1996, a majority of the Company's ticket sales 
were made by travel agents, including approximately 40% and 30% by six large 
wholesalers. In 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.

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.


                                      F-25

<PAGE>

13.  SEGMENT INFORMATION

Due to the centralization of the Company's operations in the State of Hawaii 
and the interdependence of its routes, management considers its operations to 
be one industry segment.   The Company is engaged principally in one line of 
business, the scheduled and chartered transportation of passengers, which 
constitutes more than 90% of its operating revenues.  The following table 
delineates scheduled and chartered passenger revenue of the Company, in 
thousands:

<TABLE>
<CAPTION>
                                         1998                1997                1996
                                     ------------        ------------        ------------
              <S>                    <C>                 <C>                 <C>
              Transpac                  $196,670            $180,424            $173,419
              Interisland                138,614             132,626             133,019
              Southpac                    18,961              19,104              19,828
              Overseas Charter            35,742              37,172              27,835
                                     ------------        ------------        ------------

                                        $389,987            $369,326            $354,101
                                     ------------        ------------        ------------
                                     ------------        ------------        ------------
</TABLE>


                                      F-26

<PAGE>

HAWAIIAN AIRLINES, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
UNAUDITED QUARTERLY FINANCIAL
INFORMATION (IN THOUSANDS, EXCEPT
FOR PER SHARE DATA)

<TABLE>
<CAPTION>

                                                       First           Second             Third           Fourth
                                                     Quarter          Quarter           Quarter          Quarter
--------------------------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>               <C>             <C>
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

<CAPTION>
                                                       First           Second             Third           Fourth
                                                     Quarter          Quarter           Quarter          Quarter
--------------------------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>               <C>             <C>
1997:
     Operating revenues. . . . . . . . . . . .     $  99,766       $  103,860        $  105,357        $  95,233
     Operating income (loss).. . . . . . . . .        (4,504)           1,999             5,253             (246)
     Net income (loss) . . . . . . . . . . . .        (2,396)           1,203             1,439           (1,268)
     Net income (loss) per Common Stock share
          Basic. . . . . . . . . . . . . . . .         (0.06)   *        0.03    *         0.04    *       (0.03)   *
          Diluted. . . . . . . . . . . . . . .         (0.06)   *        0.03    *         0.03    *       (0.03)   *

</TABLE>

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


                                      F-27

<PAGE>


HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA (IN THOUSANDS)

<TABLE>
<CAPTION>


                                                                           REORGANIZED COMPANY                          PREDECESSOR
                                                               --------------------------------------------------------------------

                                                                                                      PERIOD FROM    PERIOD FROM
                                                                                                       SEPTEMBER 12,   JANUARY 1,
                                                                                                         1994 TO        1994 TO  
                                                                                                       DECEMBER 31,   SEPTEMBER 11,
                                                                   1998      1997      1996      1995     1994          1994    
-----------------------------------------------------------------------  --------  --------  --------  -------        -----------
<S>                                                           <C>       <C>        <C>      <C>       <C>            <C>
Summary of Operations:
   Operating revenues. . . . . . . . . . . . . . . . . . . . . $426,415  $404,216  $384,473  $346,904  $89,157           $216,823
   Operating expenses. . . . . . . . . . . . . . . . . . . . .  409,010   401,714   382,446   348,805   95,425            223,244
                                                              ---------  --------  --------  --------  -------        -----------
   Operating income (loss) . . . . . . . . . . . . . . . . . .   17,405     2,502     2,027    (1,901)  (6,268)            (6,421)
   Interest expense, net . . . . . . . . . . . . . . . . . . .     (403)     (394)   (2,432)   (3,579)    (968)              (850)
   Gain (loss) on disposition of equipment . . . . . . . . . .     (831)     (140)     (729)     (233)     558                 45
   Other, net. . . . . . . . . . . . . . . . . . . . . . . . .     (163)     (820)     (297)      207      527                502
   Reorganization expenses . . . . . . . . . . . . . . . . . .        -         -         -         -        -            (13,950)
                                                              ---------  --------  --------  --------  -------        -----------
   Income (loss) before income taxes, extraordinary items                                                                
       and cumulative effect of change in accounting principle   16,008     1,148    (1,431)   (5,506)  (6,151)           (20,674)
   Income taxes. . . . . . . . . . . . . . . . . . . . . . . .   (7,803)   (1,720)     (868)        -        -                  -
                                                              ---------  --------  --------  --------  -------        -----------
   Net income (loss) before extraordinary items and                                                                      
       cumulative effect of change in accounting principle . .    8,205      (572)   (2,299)   (5,506)  (6,151)           (20,674)
   Extraordinary items, net of income taxes. . . . . . . . . .        -         -       766         -        -            190,063
                                                              ---------  --------  --------  --------  -------        -----------
   Net income (loss) before cumulative effect of change in                                                               
       accounting principle. . . . . . . . . . . . . . . . . .    8,205      (572)   (1,533)   (5,506)  (6,151)           169,389
   Cumulative effect of change in accounting principle,                                                                  
       net of income taxes . . . . . . . . . . . . . . . . . .        -      (450)        -         -        -                  -
                                                              ---------  --------  --------  --------  -------        -----------
   Net income (loss) . . . . . . . . . . . . . . . . . . . . . $  8,205  $ (1,022) $ (1,533) $ (5,506) $(6,151)          $169,389
                                                              ---------  --------  --------  --------  -------        -----------
                                                              ---------  --------  --------  --------  -------        -----------

</TABLE>


                                      F-28

<PAGE>


HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)

<TABLE>
<CAPTION>


                                                                           REORGANIZED COMPANY                          PREDECESSOR
                                                               --------------------------------------------------------------------

                                                                                                        PERIOD FROM     PERIOD FROM
                                                                                                        SEPTEMBER 12,    JANUARY 1,
                                                                                                          1994 TO         1994 TO  
                                                                                                        DECEMBER 31,  SEPTEMBER 11,
                                                                  1998      1997      1996       1995        1994           1994
----------------------------------------------------------------------    ------    ------     ------     -------    -----------
<S>                                                           <C>       <C>        <C>        <C>        <C>           <C>
Net Income (Loss) per Common Stock Share:
Basic
   Before extraordinary items and cumulative effect
       of change in accounting principle . . . . . . . . . . . $  0.20   $ (0.02)   $ (0.08)   $ (0.59)    $ (0.65)   $    N/M*
   Extraordinary items, net. . . . . . . . . . . . . . . . . .       -         -       0.03          -           -         N/M*
   Cumulative effect of change in accounting principle, net. .       -     (0.01)         -          -           -         N/M*
                                                               -------   -------    -------    -------     -------    ---------
   Net income (loss) per Common Stock share. . . . . . . . . . $  0.20   $ (0.03)   $ (0.05)   $ (0.59)    $ (0.65)   $    N/M*
                                                               -------   -------    -------    -------     -------    ---------
                                                               -------   -------    -------    -------     -------    ---------
Diluted                                                                                                                 
   Before extraordinary items and cumulative effect                                                                     
       of change in accounting principle . . . . . . . . . . . $  0.19     (0.02)     (0.08)   $ (0.59)    $ (0.65)   $    N/M*
   Extraordinary items, net. . . . . . . . . . . . . . . . . .       -         -       0.03          -           -         N/M*
   Cumulative effect of change in accounting principle, net. .       -     (0.01)         -          -           -         N/M*
                                                               -------   -------    -------    -------     -------    ---------
   Net income (loss) per Common Stock share. . . . . . . . . . $  0.19     (0.03)     (0.05)   $ (0.59)    $ (0.65)   $    N/M*
                                                               -------   -------    -------    -------     -------    ---------
                                                               -------   -------    -------    -------     -------    ---------

Weighted Average Shares Outstanding:
   Basic.. . . . . . . . . . . . . . . . . . . . . . . . . . .  40,921    40,361**   29,032**     9,400**    9,400**    7,137
   Diluted.. . . . . . . . . . . . . . . . . . . . . . . . . .  42,205    40,361**   29,032**     9,400**    9,400**    7,137

Shareholders' Equity Per Share (Without Dilution). . . . . . . $  2.22   $  2.12    $  2.11    $   3.10   $   3.60       N/M*
Shares Outstanding at End of Period. . . . . . . . . . . . . .  40,997    40,889**   39,262**     9,400**    9,400**    7,137
   
Balance Sheet Items:
   Total assets. . . . . . . . . . . . . . . . . . . . . . . . $221,911  $200,824   $196,289   $161,640   $163,301   $167,211
   Property and equipment, net . . . . . . . . . . . . . . . .   84,922    66,243     45,794     41,391     37,756     33,312
   Long-term debt, excluding current portion . . . . . . . . .   14,454     3,991      6,353      5,523     14,152     11,421
   Capital lease obligations, excluding current portion. . . .    5,966    10,580      7,387     10,102     12,764     12,591
   Shareholders' equity. . . . . . . . . . . . . . . . . . . .   90,887    86,873     82,873     29,178     33,849     40,000

</TABLE>

*    Not Meaningful   -   Per share data is not meaningful as the Predecessor
was recapitalized and adopted fresh start reporting as of September 12, 1994.
**   Includes shares reserved for issuance under the Consolidated Plan of
Reorganization dated September 21, 1993, as amended.


                                      F-29

<PAGE>

HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA (IN THOUSANDS, EXCEPT AS OTHERWISE
INDICATED) (CONTINUED)

<TABLE>
<CAPTION>


                                                        1998           1997           1996           1995           1994
------------------------------------------------------------      ---------      ---------      ---------     ----------
<S>                                               <C>            <C>            <C>            <C>            <C>
SCHEDULED OPERATIONS:
   Revenue passengers. . . . . . . . . . . . . .       5,010          4,964          4,971          4,781          4,584
   Revenue passenger miles . . . . . . . . . . .   3,649,024      3,479,056      3,324,005      3,171,366      2,880,339
   Available seat miles. . . . . . . . . . . . .   4,940,001      4,699,609      4,571,955      4,238,319      3,995,649
   Passenger load factor . . . . . . . . . . . .       73.9%          74.0%          72.7%          74.8%          72.1%
   Passenger revenue per passenger mile. . . . .   9.7 CENTS      9.5 CENTS      9.8 CENTS      9.4 CENTS      9.7 CENTS

OVERSEAS CHARTER OPERATIONS:
   Revenue passengers. . . . . . . . . . . . . .         250            253            190            155              1
   Revenue passenger miles . . . . . . . . . . .     689,578        683,384        515,982        425,797          2,202
   Available seat miles. . . . . . . . . . . . .     733,735        739,619        528,787        439,142          4,141

TOTAL OPERATIONS:
   Revenue passengers. . . . . . . . . . . . . .       5,260          5,217          5,161          4,936          4,585
   Revenue passenger miles . . . . . . . . . . .   4,338,602      4,162,440      3,839,987      3,597,163      2,882,541
   Available seat miles. . . . . . . . . . . . .   5,673,736      5,439,228      5,100,742      4,677,461      3,999,790
   Passenger load factor . . . . . . . . . . . .       76.5%          76.5%          75.3%          76.9%          72.1%
   Revenue Per ASM . . . . . . . . . . . . . . .  7.52 CENTS     7.43 CENTS     7.54 CENTS     7.42 CENTS     7.65 CENTS
   Cost Per ASM. . . . . . . . . . . . . . . . .  7.21 CENTS     7.39 CENTS     7.50 CENTS     7.46 CENTS     7.97 CENTS

</TABLE>


                                      F-30


<PAGE>




                    INDEPENDENT AUDITORS' REPORT ON SCHEDULE


The Board of Directors
Hawaiian Airlines, Inc.:


Under date of March 11, 1999, we reported on the balance sheets of Hawaiian
Airlines, Inc. as of December 31, 1998 and 1997, and the related statements of
operations, shareholders' equity and comprehensive income and cash flows for
each of the years in the three-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 as listed
in item 14(a)(2). 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-1

<PAGE>




HAWAIIAN AIRLINES, INC.
VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<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
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>           <C>            <C>              <C>     
ALLOWANCE FOR DOUBTFUL ACCOUNTS:

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

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

   1996. . . . . . . . . . . . . . . . . . . . . . . . .        $  800            641              -            941  (a)    $  500
                                                        ---------------------------------------------------------------------------
                                                        ---------------------------------------------------------------------------


ALLOWANCE FOR OBSOLESCENCE OF FLIGHT EQUIPMENT
   EXPENDABLE PARTS AND SUPPLIES:

   1998. . . . . . . . . . . . . . . . . . . . . . . . .        $  120              -              -              -         $  120
                                                        ---------------------------------------------------------------------------
                                                        ---------------------------------------------------------------------------

   1997. . . . . . . . . . . . . . . . . . . . . . . . .        $  315              -              -            195  (b)    $  120
                                                        ---------------------------------------------------------------------------
                                                        ---------------------------------------------------------------------------

   1996. . . . . . . . . . . . . . . . . . . . . . . . .        $  315              -              -              -         $  315
                                                        ---------------------------------------------------------------------------
                                                        ---------------------------------------------------------------------------

</TABLE>

(a)  Doubtful accounts written off, net of recoveries

(b)  Obsolete parts and supplies written off



                                      S-2