<PAGE>   1
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549    

                               ---------------

                                   FORM 10-K
(MARK ONE)
  [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996) 
       FOR THE FISCAL YEAR ENDED MARCH 31, 1997

                                     OR

 [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 
       FOR THE TRANSITION PERIOD FROM___________________________

                          COMMISSION FILE NO:  0-26432

                              AIRWAYS CORPORATION
             (Exact name of registrant as specified in its charter)

              DELAWARE                                59-3315474
   (State or other jurisdiction                    (I.R.S. Employer        
of incorporation or organization)                Identification No.)   
                              

                         6280 HAZELTINE NATIONAL DRIVE
                            ORLANDO, FLORIDA  32822
         (Address of principal executive offices, including zip code)
                                 (407) 859-1579
               (Registrant's phone number, including area code)

                               ---------------

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

      TITLE OF EACH CLASS             NAME OF EACH EXCHANGE ON WHICH REGISTERED 
-------------------------------      ------------------------------------------
 COMMON STOCK , $.01 PAR VALUE                         N/A

            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.  [X]

            THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT, COMPUTED BY REFERENCE TO THE LAST REPORTED PRICE AT WHICH
THE STOCK WAS SOLD ON JUNE 17, 1997, WAS $46,318,643.  FOR PURPOSES OF THE
ABOVE STATEMENT ONLY, ALL DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ARE ASSUMED TO BE AFFILIATES.

            THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR
VALUE, OUTSTANDING AS OF JUNE 17, 1997, WAS 9,067,937.



                      DOCUMENTS INCORPORATED BY REFERENCE:

            PORTIONS OF THE PROXY STATEMENT RELATING TO THE REGISTRANT'S 1997
ANNUAL SHAREHOLDERS MEETING ARE INCORPORATED BY REFERENCE INTO PART III OF THIS
REPORT.

================================================================================
EXHIBIT INDEX IS LOCATED ON PAGES 21-23.



<PAGE>   2

                              AIRWAYS CORPORATION

                            FORM 10-K ANNUAL REPORT
                       FOR THE YEAR ENDED MARCH 31, 1997


                                     PART I

ITEM 1.  BUSINESS

GENERAL

Airways Corporation ("Airways"), a Delaware corporation incorporated in 1995,
is the parent company of AirTran Airways, Inc. ("AirTran"), a domestic
commercial airline providing direct scheduled passenger air service from
Orlando, Florida to 23 locations in the eastern United States.  AirTran
Airways, Inc. was incorporated under the laws of Delaware on September 7, 1993
and was acquired by AirTran Corporation from Conquest Airlines Corporation on
June 16, 1994.

AirTran began flying commercially on July 2, 1994 with one Boeing 737-200
aircraft providing charter services and commenced scheduled flight operations
on October 6, 1994.  As of March 31, 1997, AirTran operated a fleet of ten
Boeing 737-200 aircraft.

In addition to owning AirTran, Airways operates a fixed base operation in Grand
Rapids, Minnesota (the "FBO"), which provides private aircraft services,
maintenance, fueling, hangar facilities, flight instruction, aircraft parts
sales and other ground services.  The FBO began operations in 1944 and was
owned by Mesaba Aviation, Inc.  Airways currently operates its FBO business
under a Federal Aviation Administration ("FAA") repair station certificate.

In May 1995, AirTran Corporation and Northwest Airlines, Inc. ("Northwest")
entered into an agreement to spin-off AirTran Corporation's Orlando-based jet
carrier and the FBO.  To facilitate the spin-off, AirTran Corporation
established Airways, on April 7, 1995, as a wholly owned subsidiary into which
it consolidated the above operations.  The spin-off, in the form of a dividend
of one share of Airways common stock for each share of AirTran Corporation to
the shareholders of AirTran Corporation (other than Northwest), was approved by
AirTran Corporation's shareholders on August 29, 1995.  The distribution was
made on September 7, 1995 to shareholders of record (other than Northwest) on
August 31, 1995.


BUSINESS STRATEGY - AIRTRAN

AirTran's strategy is based on a commitment to customer service, reliability
and affordable service.  AirTran sets its fares at a substantial discount to
stimulate demand, particularly by those who might otherwise have used ground
transportation.  AirTran's one-way fares currently range from $39 (for flights
between two of its outstations) to $229.

AirTran's affordable service strategy depends on maintaining competitive
operating cost levels.  In the year ended March 31, 1997 ("1997"), AirTran's
total cost per Available Seat Mile ("ASM") was $0.08, resulting in a 73%
break-even load factor.  AirTran's fixed aircraft expenses (including hull
insurance and 



                                      2
<PAGE>   3


depreciation expense) were 9.6% of operating expenses during 1997. The key
elements in AirTran's strategy are:

#     Reliable and Affordable Direct Jet Service.  AirTran serves
      primarily the leisure traveler seeking direct service to and from
      Orlando.  AirTran provides efficient service by: flying a single aircraft
      type, offering fares on a "ticketless" basis and eliminating extra costs
      such as first class seating, airport clubs, frequent flyer programs and
      ticket offices.  

#     Simple Fare Structure.  AirTran offers a simple, easy to understand 
      fare structure: tickets are sold on a one-way basis and priced by route,
      demand and availability.  Approximately 42% of AirTran's sales are made
      directly to passengers, using its computerized reservation system. 
      The direct bookings grew by over 50% this past year as AirTran's
      customers became more familiar with its 1-800-AIR-TRAN reservation line. 
      These seats are sold on a ticketless basis saving on the cost of
      producing tickets and time during the boarding process.  AirTran pays
      sales commissions only on tickets sold through travel agencies.

#     Motivated and Productive Work Force.  AirTran seeks to employ a skilled 
      work force of motivated, productive and enthusiastic employees. AirTran
      believes that its base wage and benefit levels are competitive and that   
      well-qualified candidates are available to meet its future hiring needs. 
      From time to time, AirTran's employees enter into discussions with
      various union groups and, at present, the mechanics and stores clerks are
      represented by the International Association of Machinists ("IAM").

#     Corporate Culture.  AirTran seeks to encourage and maintain a work
      environment that is enjoyable for its employees and that makes flying
      simple, inexpensive and fun for its customers. AirTran's advertising
      brochures, uniforms and aircraft paint schemes are in a colorful,
      distinctive style intended to create a relaxed tone and a unique identity
      to make the traveler feel as though the vacation started upon boarding
      AirTran's jet.  Employee training emphasizes friendly, helpful service
      intended to simplify the travel experience.


FARES, ROUTE SYSTEM AND SCHEDULING

AirTran provides direct scheduled passenger air service between Orlando and
cities principally in the eastern half of the United States.  AirTran's
strategy in developing its route system is to serve medium-sized cities from
which direct service to Orlando is not typically provided by the major
airlines.  This strategy involves flying long stage lengths to medium-sized
markets on a low frequency basis.  Stage lengths range from approximately 95
(for the interstation flights between Columbia and Charleston, South Carolina)
to 1,140 miles and service is provided to most markets on a one-flight-per-day
schedule.

AirTran generally offers four fare levels in each market.  The number of seats
available at each fare level is set according to market conditions.  AirTran
may also offer promotional fares in certain markets.  Tickets are
non-refundable but travel dates can be changed prior to departure for a $35
fee.  All fares are sold on a one-way basis without any minimum, maximum or
overnight stay.  The following table shows the expansion of AirTran's scheduled
route system and fleet through March 31, 1997.





                                      3
<PAGE>   4


<TABLE>
<CAPTION>
           AS OF                  TOTAL NUMBER           DEPARTURES
          MONTH END               OF AIRCRAFT            PER MONTH                   SCHEDULED CITIES ADDED
----------------------------------------------------------------------------------------------------------------
 <S>                          <C>                   <C>                   <C>
 FISCAL YEAR 1995:
   October                      2                      164                Orlando, Providence[*], Hartford [*],
                                                                          Huntsville[*], Knoxville, & Newburgh
   November                     2                      192                -
   December                     3                      317                Ft. Lauderdale[*] and Islip[*]
   January                      3                      326                -
   February                     3                      266                Cincinnati, Albany, and Syracuse
   March                        4                      362                Omaha

 FISCAL YEAR 1996:
   April                        4                      354                -
   May                          4                      428                Nashville[*]
   June                         4                      412                -
   July                         4                      426                -
   August                       6                      714                San Antonio [*], Dayton, Birmingham[*], and
                                                                          Buffalo
   September                    6                      642                -
   October                      7                      880                Dallas [*], Greenville/Spartanburg, Kansas
                                                                          City, and Norfolk
   November                     7                      874                -
   December                     8                      883                -
   January                      9                      929                -
   February                    10                    1,126                Allentown, Canton/Akron, and Rochester
   March                       10                    1,223                Richmond


 FISCAL YEAR 1997:
   April                      10                    1,209                 -
   May                        10                    1,135                 -
   June                       10                    1,106                 Greensboro
   July                       10                    1,315                 -
   August                     10                    1,280                 -
   September                  10                      963                 -
   October                    10                    1,045                 Chattanooga [*]
   November                   10                    1,020                 Toledo
   December                   10                    1,034                 Bloomington/Normal
   January                    10                    1,060                 -
   February                   10                    1,075                 Harrisburg, Charleston and Columbia
   March                      10                    1,437                 DesMoines and Moline

</TABLE>
[*] Service to these locations was discontinued.

AirTran is considering other routes that do not originate or terminate in
Orlando to determine whether such service can be provided on an efficient, cost
effective basis.  Strategically, AirTran's selection of 




                                      4
<PAGE>   5

routes includes an evaluation of the potential demand for service and the
existing level of service provided by other carriers.  Tactically, it also
considers the availability and cost of airport operations in determining its
route structure and expansion plans.


MAINTENANCE AND REPAIRS

Aircraft maintenance consists of routine maintenance and major overhauls.
Routine maintenance is performed in Orlando and at its newest maintenance
station in Greensboro, North Carolina by AirTran's employees.  In other cities,
that work is performed by FAA-approved contractors.  Major overhauls or heavy
checks are performed by a contractor approved by the FAA to work on Boeing
737-200 aircraft.

AirTran's aircraft were manufactured between 1968 and 1985.  AirTran believes
that its aircraft are mechanically reliable and although the maintenance costs
are higher (including costs to comply with FAA aging aircraft requirements and
procedures), it believes that total operating costs for the fleet will be
competitive with newer fleets because of the lower lease expenses and cost of
spare parts relative to newer aircraft.

AirTran maintains an inventory of rotable aircraft parts and supplies for
routine maintenance and obtains parts for major overhauls from vendors and
manufacturers when needed.  Due to the large number of 737 aircraft in
commercial operation, AirTran expects that a reliable supply of engines and
replacement parts will continue to be available at market prices.


AIRCRAFT

AirTran's fleet currently consists of six leased and four owned Boeing 737-200
aircraft with average capacities of 126 passengers.  The lease terms range from
three to seven years and require monthly lease payments of $45,000 to $142,000
as well as reserve payments for major engine and airframe overhauls.

According to FAA rules, the airline's fleet must comply with the FAA's Stage 3
noise level requirements according to the following schedule:


     #      50 % currently, 
     #      75% by December 31, 1998 and
     #      full compliance by December 31, 1999.

Five of AirTran's aircraft currently meet Stage 3 requirements.  AirTran
intends to remain in compliance with noise requirements through the acquisition
of Stage 3 aircraft and the installation of hush kits on Stage 2 aircraft
presently in its fleet.  Hush kits certified by the FAA for the Boeing 737-200
aircraft are available at an installed cost of approximately $1.5 million per
aircraft.

Increased demand for short-to-medium-range jet aircraft caused higher leasing
costs for AirTran.  Much of this demand was due to the entry of other low-cost
carriers which has abated somewhat recently.  Although the Boeing 737 is the
most common type of jet aircraft currently in operation worldwide and the entry
of other low-fare carriers has abated, there can be no assurance that AirTran
will continue to be able to obtain additional aircraft at favorable lease
rates.





                                      5
<PAGE>   6

AirTran currently operates only Boeing 737-200 aircraft and believes that
maintenance and operating expenses are generally lower for airlines whose fleet
consists of a single aircraft type. AirTran may, however, consider other
aircraft types if they are better suited to its future needs.


FUEL

The cost of jet fuel, related taxes and fueling fees is AirTran's largest
operating expense, accounting for 19.5% of total operating costs during 1997.
Jet fuel costs are subject to wide fluctuations, primarily resulting from
changes in supply and the effects of world events.  These changes in supply and
world events make prediction of the cost of jet fuel difficult.  Increases in
fuel prices could have a materially adverse effect on AirTran's operating
results.  AirTran has not entered into any fixed-price or guaranteed delivery
contracts for fuel.

AirTran's fleet is not as fuel efficient as one comprised of new medium-sized
jet aircraft.  As a result, a significant increase in the price of jet fuel
would disproportionately affect AirTran's costs as compared to its competitors
using newer, more fuel efficient aircraft.  AirTran intends to pass on fuel
cost increases through increased fares although there can be no assurance that
AirTran's competitive fare advantage wouldn't be negatively impacted.


INSURANCE

AirTran carries the types of insurance customary in the airline industry,
including coverage for public liability, passenger liability, property damage,
aircraft loss or damage, baggage and cargo liability and workers' compensation.
AirTran believes that this insurance is adequate in amount and risk covered.
There can be no assurance, however, that the insurance coverage would be
sufficient to protect AirTran adequately in the event of a catastrophic
accident.


SEASONALITY AND CYCLICALITY

The airline industry generally is subject to cyclical changes in the economy.
Because both personal discretionary travel and business travel may be expected
to decline during economic downturns, the airline industry tends to experience
poorer financial results during such periods.  Further, because AirTran serves
primarily the leisure travel market, its results may be more affected by
declines in discretionary spending than airlines carrying more business
travelers.

Seasonal factors, primarily weather conditions and passenger demand, are
expected to affect AirTran's monthly passenger boardings.  AirTran experiences
diminished demand in late spring, early fall and in mid-winter.





                                      6
<PAGE>   7

COMPETITION AND INDUSTRY CONSIDERATIONS

The airline industry is highly competitive as a result of the Airline
Deregulation Act of 1978 (the "Deregulation Act").  In general, the
Deregulation Act increased competition by eliminating restrictions on fares and
route selection.  The removal of barriers to entry into new markets increased
the potential for competition by other carriers in AirTran's markets.  The
Deregulation Act also contributed to the withdrawal of national and major
carriers from small to medium-sized cities by allowing them to obtain
additional long-haul routes more easily, which has contributed to the
development of the concept of a "hub and spoke" network.

AirTran's competition includes carriers with substantially greater financial
resources.  Fare levels and passenger demand are negatively affected by a
number of factors, including the general state of the economy and intense fare
competition in the industry.

Competitive factors in the airline industry generally include fares, frequency
and dependability of service, convenience of flight schedules, frequent flier
programs, type of aircraft flown, airports served, control of a computerized
reservations system used by travel agencies, code-sharing relationships with
other airlines, relationships with travel agents, and efficiency and
reliability of reservations systems and ticketing services.

While AirTran chooses not to have a frequent flier program and does not control
a computerized reservations system used by travel agencies, it does have
affordable fares, the frequency demanded by its customer base, a strengthened
reliability performance over the past twelve months, a fleet of Boeing 737
aircraft which remain popular among the flying public, a schedule to airports
which are convenient to its customer base and a code sharing arrangement with
Comair which enables its customers to fly to nine other Florida destinations as
well as Nassau.  AirTran believes, consequently, that it is competitive with
respect to several of those factors.

GOVERNMENT REGULATION

U.S. Department of Transportation ("DOT") - All interstate air carriers are
subject to regulation by the DOT and the FAA under the Federal Aviation Act of
1958, as amended (the "Aviation Act").  The DOT's jurisdiction extends
primarily to the economic aspects of air transportation, while the FAA's
regulatory authority relates primarily to air safety, including aircraft
certification and operations, crew licensing and training and maintenance
standards.

In general, the amount of economic regulation over interstate air carriers in
terms of market entry and exit, pricing and inter-carrier acquisitions and
agreements has been greatly reduced since the enactment of the Deregulation
Act.  Consequently, barriers to entry into the domestic air transportation
business have been reduced and the post-entry regulation to which an airline is
subject has been simplified.

AirTran has a Certificate of Public Convenience and Necessity issued by the DOT
pursuant to Section 401 of the Aviation Act.  Each United States carrier must
qualify as a United States citizen, which requires that it be organized under
the laws of the United States or a state, territory or possession thereof, that
its president and at least two-thirds of its Board of Directors and other
managing officers be United States citizens, that not more than 25% of its
voting stock be owned by foreign nationals and that the carrier not be otherwise
subject to foreign control.





                                      7
<PAGE>   8

U.S. Federal Aviation Administration - AirTran also has an operating
certificate issued by the FAA pursuant to part 119 of the Federal Aviation
Regulations and operates in accordance with part 121 of those regulations.  The
FAA has jurisdiction over the regulation of the flight operations generally,
including the licensing of pilots, dispatchers and maintenance personnel; the
establishment of minimum standards for training and maintenance; and technical
standards for flight, in-flight, dispatch, communications and ground equipment.
AirTran must obtain and maintain FAA certificates of airworthiness for all its
aircraft.  AirTran's flight personnel, flight and emergency procedures,
aircraft, maintenance personnel and maintenance facilities are subject to
periodic inspections and tests by the FAA.  FAA inspectors have flown on many
AirTran flights and have subjected its other flight and ground personnel to
periodic announced and unannounced checks.  Since AirTran began operations,
issues raised by the FAA have been routine and have been addressed by immediate
correction or by ongoing changes in operational procedures.

The DOT and FAA also have authority under the Aviation Safety and Noise
Abatement Act of 1979, as amended, under the Airport Noise and Capacity Act of
1990 ("ANCA") and, along with the Environmental Protection Agency, under the
Clean Air Act, as amended, to monitor and regulate aircraft engine noise and
exhaust emissions.  To AirTran's knowledge, its aircraft comply with all
applicable FAA noise control regulations and with current emissions standards.

ANCA requires the phase-out of Stage 2 aircraft (which meet less stringent
noise emission standards than later Stage 3 aircraft) in the contiguous 48
states by December 31, 1999.  In September 1991, the FAA promulgated final
rules establishing interim compliance dates of December 31, 1994, December 31,
1996, and December 31, 1999, for phasing out Stage 2 aircraft.

Industry regulation:- The following are regulations and laws applicable to the
aviation industry:

#     The Federal excise tax on domestic air transportation was reinstated 
      on August 27, 1996 for tickets sold for travel before January 1, 1997. 
      This tax, 10 % of the cost of an airline ticket, had previously expired on
      January 1, 1996.  The Company believes that its passenger revenues were
      stimulated during the period the tax was not in effect although it is not
      possible to estimate the dollar impact of the lapse due to the complexity
      and number of factors affecting passenger revenue.  This tax expired again
      on January 1, 1997.  On February 28, 1997, President Clinton signed
      legislation reinstating the tax for tickets sold beginning March 7, 1997
      for travel through September 30, 1997.  Reinstatement of this tax may
      dampen demand for air transportation which, in turn, may have a material
      adverse effect on the Company's financial condition and results of
      operations.

#     Following the July 1996 accident involving a TWA aircraft and
      speculation that the cause of the accident may have been sabotage,
      President Clinton ordered new security measures related to passenger,
      baggage and cargo screening.  The increased security measures have
      increased the Company's operating expenses although the dollar effect is
      not considered material.  The President also formed a special committee
      which reviewed aviation safety and airport security as well as the air
      traffic control system.  The Committee made several recommendations in
      the areas of safety, air traffic control and security although it remains
      unclear whether and to what extent any of the recommendations will be
      adopted and what impact they may have on the Company's financial condition
      and results of operations.

#     All air carriers are also subject to certain provisions of the
      Communications Act of 1934, as amended, because of their extensive use of
      radio and other communication facilities, and are required to obtain 


                                      8
<PAGE>   9

      an aeronautical radio license from the Federal Communications Commission
      ("FCC").  To the extent AirTran is subject to FCC requirements, it has
      taken all necessary steps to comply with those requirements.  

#     AirTran's labor relations are covered under Title II of the Railway 
      Labor Act of 1926, as amended, and are subject to the jurisdiction of
      the National Mediation Board.  

#     During a period of fuel scarcity, air carrier access to jet fuel was 
      subject to allocation regulations promulgated by the Department of 
      Energy.  

#     The exemption from fuel tax for commercial aviation expired on October 1,
      1995 and AirTran then became subject to that $0.043 per gallon tax. 
      AirTran paid the tax from October 1, 1995 through March 31, 1997 and the
      impact is included in flight operations expense.  Had AirTran been subject
      to the tax for all of the prior year, operating expenses would have been
      higher in 1996 by approximately $260,000.  Various bills have been
      introduced in Congress from time to time to renew the exemption, however,
      none have been enacted and there can be no assurance that any will be
      enacted.  

#     AirTran is also subject to regulatory control by DOT and foreign 
      jurisdictions with regard to international air transportation it has 
      provided in the past and expects to provide in future.  

#     AirTran is also subject to state and local laws and regulations at 
      locations where it operates and the regulations of various local
      authorities that operate the airports it serves.

MARKETING

AirTran's marketing objective is to build on the growing awareness of its
service and benefits in the markets served.  The message is focused on leisure
travelers and travel agents.

To communicate with potential customers efficiently, AirTran uses TV, radio and
newspaper advertisements.  These marketing efforts highlight the destinations,
affordable fares and direct/nonstop jet service as well as the experienced
crews and AirTran's reliable service.  All of the marketing materials direct
customers to call 1-800-AIRTRAN to make a reservation or to call a travel
agent.

EMPLOYEES

As of March 31, 1997 and 1996 Airways had 592 and 429 full-time equivalent
employees, respectively.

Management personnel directly involved in the supervision of flight operations,
training, maintenance and aircraft inspection must meet certain experience
levels set by the FAA.  Under FAA regulations, pilots are required to be
licensed as commercial pilots, with specific ratings for the type of aircraft
flown, and must also be medically certified as physically fit.  In order to
maintain licenses and medical certifications, pilots must satisfy periodic
continuation requirements, including recurrent training and recent flying
experience.  Mechanics, quality control inspectors and flight dispatchers must
also be licensed and qualified for specific aircraft.  Flight attendants are
required to have initial and periodic competency fitness training and
certification.  As required by FAA regulations, all of these employees must
undergo pre-employment and periodic drug testing as well as employment and
background checks.




                                      9
<PAGE>   10

AIRPORT OPERATIONS

AirTran's operations are based largely at the Orlando International Airport,
where it maintains its aircraft fleet.  In Orlando, AirTran's employees provide
passenger services and catering and cleaning of the aircraft; all other ground
services are outsourced.  In most other cities served by AirTran, other
contractors, including major airlines, provide all ground handling services
including passenger services.  Ground handling services include greeting and
serving passengers at check-in, gate and baggage claim areas, catering, guiding
aircraft to and from gates, baggage handling services, aircraft cleaning,
lavatory and water servicing, de-icing and certain overnight aircraft
maintenance services.  AirTran has at least one employee at each of the cities
it serves to promote sales and oversee its operations.


ITEM 2.  PROPERTIES

REAL PROPERTY

AirTran's principal executive offices are located two miles from the Orlando
International Airport in a leased facility consisting of approximately 11,500
square feet of office space.  This facility houses the executive offices of
both Airways and AirTran as well as the general administrative staff,
reservations staff and computer systems of AirTran.  The lease agreement for
these premises expires in October 1998 and requires monthly lease payments of
$14,000. During 1996, AirTran entered into a ground lease with the Greater
Orlando Aviation Authority and a purchase agreement with Page AvJet to acquire
an aircraft hangar of approximately 70,000 square feet at the Orlando
International Airport for its operations staff, including flight operations and
station operations, and its maintenance staff, records, inventory and personnel
training facilities.  AirTran paid $3.6 million for the hangar, improved the
facilities, and makes monthly ground lease payments of $8,900.

The FBO's principal offices are located in one leased and one owned facility at
Grand Rapids Itasca County Airport in Grand Rapids, Minnesota.  The facilities
house the FBO's administrative offices and operations staff and systems.  The
office lease expired in December 1996 and was renewed January 1, 1997 for six
years and requires monthly lease payments of $1,400.  The other building is
owned, subject to a ground lease the term of which is concurrent with the
office lease, and is fully depreciated.


FLIGHT EQUIPMENT

As of March 31, 1997, AirTran's fleet consisted of ten Boeing 737-200 aircraft.
Of these, six were leased and four were owned. All aircraft in use are
maintained in airworthy condition in accordance with procedures approved by the
FAA.  Three of the four owned aircraft were held subject to financing
arrangements pursuant to which liens on the aircraft were placed as of March
31, 1997.

Subsequent to the year end, the Company entered into a loan agreement under
which the fourth owned aircraft, which had been unencumbered, was used for
collateral to secure the loan.

ITEM 3.  LEGAL PROCEEDINGS

Neither Airways nor AirTran is a party to any pending legal proceedings that
either believe would have a materially adverse effect on the financial
condition or results of operations of the consolidated companies.




                                      10

<PAGE>   11

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

No matters were submitted to a vote of security holders during the fourth
quarter ended March 31, 1997.


                                    PART II

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

MARKET INFORMATION AND RELATED MATTERS

Airways' common stock is traded on the National Market System of The NASDAQ
Stock Market under the symbol "AAIR".  The number of shareholders of record as
of June 17, 1997 was 908 and the closing price per share on that date was
$5.375.  The number of shareholders is calculated, for this purpose, based on
number of record holders not the individual participants in security positions.

The table below sets forth information, for each quarter in 1996 and 1997
during which Airways' common stock was traded, concerning the high and low
sales prices.  Airways has not paid cash dividends in the past and does not
intend to pay cash dividends in the foreseeable future.  Airways presently
intends to retain any earnings it generates in the future for use in its
business with any future decision to pay cash dividends dependent on its
growth, profitability, financial condition and other factors the Board of
Directors may deem relevant.  Quotations for such periods are as reported by
NASDAQ for National Market issues.

<TABLE>
<CAPTION>
                                                                     STOCK PRICE RANGE IN 1996
                                                                 -----------------------------------
                                                                     HIGH                      LOW
                                                                 ----------                 --------
                    <S>                                          <C>                         <C>
                    First Quarter                                        (1)                       (1)
                    Second Quarter                                $   9.000                  $  7.250
                    Third Quarter                                 $  10.750                  $  7.250
                    Fourth Quarter                                $  11.000                  $  8.125

</TABLE>

<TABLE>
<CAPTION>
                                                                     STOCK PRICE RANGE IN 1997
                                                                 -------------------------------------
                                                                    HIGH                       LOW
                                                                 ----------                  ---------
                    <S>                                          <C>                         <C>
                    First Quarter                                $   10.750                  $  6.750
                    Second Quarter                               $    7.250                  $  3.500
                    Third Quarter                                $    5.625                  $  2.875
                    Fourth Quarter                               $    6.375                  $  2.875
</TABLE>

(1)  Airways stock was not publicly traded prior to August 31, 1995 and,
therefore, there is no data for the First Quarter 1996 or for any quarters in
1995.

The transfer agent for Airways' common stock is Norwest Bank Minnesota, N.A.,
161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738, telephone:
(612) 450-4064.

On January 8, 1997, the Company issued to a vendor, Aviation Management
Systems, Inc., a common stock purchase warrant for 50,000 shares of the
Company's common stock, exercisable at $3.82 per 




                                      11
<PAGE>   12

share commencing immediately and expiring after two years.  The warrant was
issued to the vendor in connection with its meeting certain cost savings
provisions contained in the vendor's contract with the Company.  The warrant was
issued by the Company in reliance on Section 4 (2) of the Securities Act of 1933
("the Act").  The vendor was sophisticated in that it had such knowledge and
experience in financial and business matters so as to be capable of evaluating
the risks of such investment.  The vendor was provided information about the
Company or had access to such information and was provided opportunities to ask
questions about the information provided or made available.  Information
concerning restrictions on transfer of the securities was also provided and the
warrants bear a legend accordingly.

ITEM 6.  SELECTED FINANCIAL DATA

FINANCIAL DATA:

          (Operating results are in thousands, except per share data)




<TABLE>
<CAPTION>
                                                                                     FISCAL YEARS ENDED MARCH 31
                                                                                ----------------------------------------      
                                                                                  1997          1996             1995
                                                                                --------      --------         ---------
 <S>                                                                          <C>             <C>              <C>
 Total operating revenues .  .  .  .  .                                         $  102,624     $  68,361       $   9,607         
 Operating income (loss)  .  .  .  .  .                                            (12,122)        1,494          (6,421)
                                                                                ----------     ---------       --------- 
 Net (loss) income  .  .  .  .  .  .  .                                         $   (6,991)    $   1,187       $  (3,496)
                                                                                ==========     =========       =========      
 Net (loss) income per share .  .  .  .                                         $     (.77)    $     .13       $    (.39)  
                                                                                ==========     =========       =========
 Weighted average shares outstanding. .                                              9,029         9,230           8,927
 Total assets .  .  .  .  .  .  .  .  .                                             73,948        69,654          13,544
 Long term liabilities .  .  .  .  .  .                                             16,497        13,828              71

</TABLE>

Note: Inasmuch as AirTran only commenced operations in 1995, results prior
thereto are not included herein.  Share information for the year ended March
31, 1995 is on a pro-forma basis as Airways was incorporated in April 1995 and
prior thereto was a division of AirTran Corporation.


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

Airways generated operating (loss) income of ($12,122,000) and $1,494,000 for
the years ended March 31, 1997 ("1997") and March 31, 1996 ("1996"),
respectively, a reduction of $13,616,000.  Pre-tax (loss) income, as a
percentage of total revenues, was (12.4%) in 1997 and 2.9% in 1996.  The
dramatic reduction, year over year, is the result of four separate factors.
First, demand in AirTran's segment of the travel industry was negatively
affected by the accident on May 11, 1996 of a ValuJet aircraft.  Second, the
Company initiated an intensive and costly review of maintenance and other
operations systems and processes to enhance system safety, reliability and
efficiency.  Third, fuel prices increased dramatically during the year and
last, the Company realigned its route system partly in response to the entry
into Orlando of other competing major airlines and partly to leave
underperforming markets.

Airways achieved operating income (loss) of $1,494,000 and ($6,421,000) for the
years ended 1996 and March 31, 1995 ("1995"), respectively, an improvement of
$7,915,000.  Pre-tax income, as a percentage of total revenues, was 2.9% in
1996 and (66.8)% in 1995.  The dramatic change, year over year, is principally
the result of AirTran's move from startup mode to full fledged operations.





                                      12

<PAGE>   13


SELECTED OPERATING DATA

The table below sets forth selected operating data for AirTran for 1997, 1996
and 1995.

<TABLE>
<CAPTION>
                                                                                YEARS ENDED MARCH 31,
                                                              ------------------------------------------------------
                                                                1997                 1996                 1995
                                                              --------------       ------------          -----------
 <S>                                                         <C>                   <C>                   <C>
 Available seat miles  (1)                                    1,426,873,000        974,642,000           180,480,000
 Revenue passenger miles  (2)                                   932,305,000        605,130,000            80,783,000
 Load factor  (3)                                                     65.3%              62.1%                 44.8%
 Yield per revenue passenger mile  (4)                       $        0.107       $      0.107          $      0.098         
 Passenger enplanements                                           1,089,000            685,000                87,000
 Departures                                                          13,569              8,861                 1,627
 Miles                                                           11,295,000          7,739,000             1,432,000
 Block Hours  (5)                                                    30,578             21,078                 3,405
 Average stage length (miles)  (6)                                      832                873                   880
 Average daily aircraft utilization (hours)                             8.4                8.9                   4.9
 Aircraft (end of period)                                                10                 10                     4
 Full-time equivalent employees (end of period)                         592                429                   194
</TABLE>

(1)  The number of seats available for passengers multiplied by the number of
     scheduled miles those seats are flown.
(2)  The number of scheduled miles flown by revenue passengers.
(3)  Revenue passenger miles divided by available seat miles.  Year over year
     percent change is measured only as percentage points difference.
(4)  Passenger revenue divided by revenue passenger miles.
(5)  The number of hours aircraft were flown as measured from the time of
     pushback from the gate to the time of arrival at the next airport's gate.
(6)  The average length of the routes flown on AirTran's scheduled route
     system.





                                      13

<PAGE>   14

The table below sets forth the major components of operating revenue and
expenses per ASM for the Company as a comparison among the three years 1997,
1996 and 1995.

<TABLE>
<CAPTION>
                                                                         YEARS ENDED MARCH 31,
                                                           ---------------------------------------------------    
                                                              1997                1996               1995
                                                           -------------      ------------      --------------
            <S>                                           <C>                <C>                <C>
            Operating Revenue:
              Passenger                                   $       0.070      $       0.067      $       0.044
              Charter                                             0.000              0.002              0.007
              Other                                               0.002              0.001              0.003
                                                          -------------      -------------      -------------
                    Total operating revenue                       0.072              0.070              0.053
                                                          -------------      -------------      -------------
            Operating expenses:
              Flight operations                                   0.032              0.024              0.036
              Maintenance                                         0.018              0.012              0.016
              Aircraft and traffic services                       0.012              0.014              0.013
              Reservations, sales, and marketing                  0.012              0.012              0.010
              General and administrative                          0.004              0.003              0.011
              Depreciation and amortization                       0.003              0.002              0.003
                                                          -------------      -------------      -------------
                   Total operating expense                        0.080              0.067              0.089
                                                          -------------      -------------      -------------
                        Operating income                  $      (0.008)     $       0.003      $      (0.035)
                                                          =============      =============      =============
</TABLE>


RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995

OPERATING REVENUES

Total passenger revenues were $100,077,000 and $64,894,000 in 1997 and 1996, an
increase of $35,183,000 or 54.2%.  The increase is a result of having the
entire fleet for twelve months of 1997 whereas in 1996, the fleet was building
up to that level through February 1996.

ASMs were 1,426,873,000 and 974,642,000 in 1997 and 1996, respectively, an
increase of 452,231,000 or 46.4%.  This was principally the result of the
growth in departures and AirTran's fleet and mitigated somewhat by shorter
stage lengths in 1997.  Revenue Passenger Miles ("RPM"s) were 932,305,000 and
605,130,000 in 1997 and 1996, respectively, an increase of 327,175,000 or 
54.1%.  This was driven by the increased capacity and improved load factor in
1997.  Load factors were 65.3% and 62.1% in 1997 and 1996, respectively, an
increase of 3.2 percentage points.

AirTran also had charter revenue which is derived from making its airplanes
available to charter operators when they would otherwise not be efficiently
used.  Charter revenues were $ 402,000 and $1,692,000 in 1997 and 1996,
respectively, a decrease of $1,290,000 or 76.2%.  Often when the fleet is
expanded and additional aircraft are delivered, there is a period of adjustment
for the schedule during which aircraft utilization would drop; during such
times, the Company endeavors to use the aircraft in charter operations to
minimize this cost.  During 1996, four aircraft were delivered whereas none were
delivered during 1997 accounting for the reduction in 1997.

In addition, the consolidated operations include other revenues, principally
cancellation revenue, change fees, liquor sales and the sales of the FBO which,
collectively, were $2,144,000 and $1,775,000 in 1997 and 1996, respectively, an
increase of $369,000 or 20.8%. The increase in other revenues is the result of




                                      14
<PAGE>   15


increased sales by the FBO and reduced cancellation revenue for AirTran.  The
FBO sold one of the aircraft that it had been holding for sale for $175,000 and
continued to market its inventory of spare parts successfully during 1997.
AirTran experienced lower cancellation revenue in 1997 as a result of offering
vouchers for later travel to passengers who otherwise would have had to forfeit
their fare.

Total passenger revenues were $64,894,000 and $7,896,000 in 1996 and 1995,
respectively.  The increase of $56,998,000 or 721.9% in 1996 reflects the fact
that AirTran had just commenced scheduled operations in the third quarter of
1995.

ASMs were 974,642,000 and 180,480,000 in 1996 and 1995, respectively, an
increase of 794,162,000 or 440.0%.  This was principally the result of the
growth in departures and AirTran's fleet. RPMs were 605,130,000 and 80,783,000
in 1996 and 1995, respectively, an increase of 524,347,000 or 649.1%.  This
was the result of the increased ASMs as well as stronger load factors on
existing routes in 1996.  Load factors were 62.1% and 44.8% in 1996 and 1995,
respectively, an increase of 17.3 percentage points.

Charter revenues were $1,692,000 and $1,241,000 in 1996 and 1995, respectively,
an increase of $451,000 or 36.3%.  The increase reflects full year operations
and more aircraft during the year but the relatively small increase also
reflects the deliberate shift to scheduled service in 1996.

Other revenues were $1,775,000 and $470,000 in 1996 and 1995, respectively, an
increase of $1,305,000 or 277.7%.  The increase in other revenues is
principally the result of full year operations.


OPERATING EXPENSES

Flight operations expense includes expenses related directly to the operation
of aircraft except for depreciation and amortization of aircraft and aircraft
improvements.  Expenses for hull insurance, crew salaries and their overnight
expenses, aircraft fuel and flight operations administration are all included
in flight operations.  Flight operations expenses were $45,507,000 and
$26,913,000 in 1997 and 1996, respectively, an increase of $18,594,000 or 
69.1%.  Departures were 13,569 and 8,861 in 1997 and 1996, respectively, an
increase of 4,708 or 53.1% which, together with the increased ASMs, drove a
significant portion of the increase in flight operations expense.  Flight
operations expense increased significantly more than operating activity because
of several factors. Fuel prices escalated dramatically during 1997 causing fuel
expense to increase by $3,500,000 more than it otherwise would have.  Also, the
Company embarked upon a program of intense scrutiny of its aircraft and its
maintenance and operational procedures during 1997.  In order to facilitate
that work without disrupting its schedule of operations, the Company entered
into wet leases of aircraft for use during the periods when the Company's
aircraft weren't available.  The wet leases cost the Company $3,322,000.

Flight operations expenses were $26,913,000 and $6,429,000 in 1996 and 1995,
respectively, an increase of $20,484,000 or 318.6%.  Departures were 8,861 and
1,627 in 1996 and 1995, respectively, an increase of 7,234 or 444.6% which,
together with the increased ASMs, drove the increase in flight operations
expense.  Better aircraft utilization and reduced fleet ownership costs
mitigated the increase, year over year, in flight operations expense.  AirTran
purchased four aircraft in 1996 which shifts fleet ownership costs to
depreciation from flight operations expense.





                                      15
<PAGE>   16

Maintenance expense includes all expenses related to the upkeep of aircraft.
Such expenses include labor, parts, supplies and contract maintenance.  The
direct cost of airframe and engine overhauls are generally expensed and, for
leased aircraft, paid monthly to the lessors in the form of reserves.  For
owned aircraft, AirTran reserves on a per flight hour basis for future
maintenance that becomes due in the ordinary course.  These reserves are
recorded on AirTran's balance sheet each month as the aircraft are flown.  The
reserves are then available for major overhauls when they occur.  When aircraft
are first delivered to the Company and shortly thereafter, the cost of
overhauls of engines and airframes that may be required to render them fully
serviceable is capitalized and amortized over the period remaining until the
next scheduled overhaul.  Maintenance expenses were $25,851,000 and $12,112,000
in 1997 and 1996, respectively, an increase of $13,739,000 or 113.4%. Three
cost drivers pushed maintenance expense dramatically higher during 1997.
Firstly, block hours (which are a cost driver for maintenance) were 30,578 and
21,078 in 1997 and 1996, respectively, an increase of 9,500 or 45.1%.  The
increased block hours, year over year, would have contributed to increased
maintenance expense of approximately $5,500,000.  Secondly, the Company
invested heavily in overhauling engines, airframes and related equipment.  Much
of its equipment has been substantially improved and serviceable lives
extended.  To that extent, those expenditures were capitalized and are recorded
in Fixed Assets on the balance sheet.  Nonetheless, $3,400,000 more was spent
on repairs that were identified and necessary in the circumstances but which
did not significantly extend the useful lives of the underlying assets.  Those
repairs were charged to expense in 1997.  Thirdly, to facilitate the engine
overhauls, the Company entered into short term leases for replacement engines
which cost the Company $950,000 more in 1997 than in 1996. Lastly, the
previously mentioned independent review of the aircraft and the maintenance
procedures and records cost the Company $2,700,000.

Maintenance expenses were $12,112,000 and $2,845,000 in 1996 and 1995,
respectively, an increase of $9,267,000 or 325.7%.  Maintenance expense is a
semi-variable cost, facilities and administrative salaries for which are
relatively fixed while reserve expense is driven principally by block hours.
Block hours were 21,078 and 3,405 in 1996 and 1995, respectively, an increase
of 17,673 or 519.0%.  The increased block hours, year over year, contributed
substantially to the increased maintenance expense.

Aircraft and traffic servicing expense includes all expenses incurred at
airports, including landing fees, facilities rental, station labor, passenger
liability insurance, ground handling services and catering expenses.  Aircraft
and traffic servicing expenses were $16,742,000 and $10,169,000 in 1997 and
1996, respectively, an increase of $6,573,000 or 64.6%.  The increase is driven
largely by the increased number of flights, passengers, block hours and higher
load factors.  As a consequence of the Company's extensive internal reviews and
renovations of aircraft, the operating reliability suffered during parts of
1997.  This triggered the need to purchase alternative transportation, costing
$1,700,000 more in 1997, for passengers who would have otherwise not been able
to travel to their destinations.

Aircraft and traffic servicing expenses were $10,169,000 and $2,390,000 in 1996
and 1995, respectively, an increase of $7,779,000 or 325.5%.  The increase was
driven by the increased number of flights, markets served, passengers, block
hours and higher load factors.

Reservations and sales expense includes all sales, marketing and advertising
expenses as well as the cost of reservations.  Reservation expense includes
salaries of reservations personnel, computer reservation system expenses and
travel agent commissions.  Reservations and sales expenses were $16,739,000 and
$11,901,000 in 1997 and 1996, respectively, an increase of $4,838,000 or 40.7%.
Although travel agency commission, advertising expense and reservation expenses
increased, they did not increase proportionately with revenue.  The increases
were mitigated by the shift of customer mix toward 




                                      16
<PAGE>   17

passengers booking directly with AirTran on its toll-free 1-800-AIR-TRAN
reservations line as opposed to a travel agency.  This reduced the Company's CRS
fees and commissions by nearly $1,000,000 compared to what it would have been if
the shift in bookings had not occurred.   In addition, the Company's marketing
department established several cooperative advertising arrangements with other
companies to moderate its advertising expense in 1997.

Reservations and sales expenses were $11,901,000 and $1,830,000 in 1996 and
1995, respectively, an increase of $10,071,000 or 550.3%.  The increase was due
to increased travel agent commissions, advertising and reservation activity
associated with higher passenger volume and increased sales of future tickets.
The increased activity was caused by the expansion of AirTran's service into
new markets and higher load factors on existing routes in 1996.  AirTran had
passenger volume of 685,000 and 87,000 in 1996 and 1995, respectively, an
increase of 598,000 or 687.4%.

General and administrative expense includes the wages and benefits for both
companies' executive officers and various other administrative personnel.  Also
included are costs for office supplies, legal expenses, accounting and
miscellaneous expenses.  General and administrative expenses were $5,185,000
and $3,623,000 in 1997 and 1996, respectively, an increase of $1,562,000 or
43.1%.  The principal cause of the increased expense in 1997 was the continued
development of headquarters and administrative infrastructure to support
AirTran's full and expanding operation.

General and administrative expenses were $3,623,000 and $2,012,000 in 1996 and
1995, respectively, an increase of $1,611,000 or 80.1%.  The principal cause of
the increased expense in 1996 was the development of headquarters and
administrative infrastructure to support AirTran's full and expanding
operation.  In addition, AirTran introduced a program of profit sharing for all
full time employees during 1996 which, due to Airtran's profitability,
contributed to the increase.

Depreciation and amortization expense includes depreciation on equipment,
aircraft and aircraft improvements and amortization of leasehold improvements,
goodwill and aircraft and loan acquisition costs.  Depreciation and amortization
expense were $4,721,000 and $2,149,000 in 1997 and 1996, respectively, an
increase of $2,572,000 or 119.7%.  Purchases of four aircraft, largely completed
in the latter part of 1997, were the principal cause of the increase.

Depreciation and amortization expense were $2,149,000 and $522,000 in 1996 and
1995, respectively, an increase of $1,627,000 or 311.7%.  Purchases of aircraft
completed in the latter part of 1996 were the principal cause of the increased
depreciation expense.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $2,354,000 and $16,437,000 at March 31, 1997 and
1996, respectively, a decrease of $14,083,000 or 85.7%.  The use of cash and
cash equivalents from operating activities was $1,879,000.  The principal uses
of cash and cash equivalents were for purchases of property and equipment of
$11,126,000 and payments on long-term debt of $1,405,000.

Cash and cash equivalents were $16,437,000 and $961,000 at March 31, 1996 and
1995, respectively, an increase of $15,476,000 or 1,610.4%.  Prior to the
distribution, AirTran Corporation ("Mesaba") contributed cash and property to
Airways having a book value of approximately $20,250,000 in 1996 in addition to
$8,750,000 invested in Airways in 1995.  The principal sources of cash and cash
equivalents were Mesaba's capital contribution, proceeds of long-term debt of
$16,800,000 and cash generated from 




                                      17
<PAGE>   18

operating activities of $14,326,000.  The principal uses of cash and cash
equivalents were for purchases of property and equipment of $28,380,000,
acquisition of other assets (excluding deferred loan costs) of $1,390,000 and
payments on long-term debt of $1,142,000.

Restricted cash were $12,670,000 and $11,309,000 at March 31, 1997 and 1996,
respectively, an increase of $1,361,000 or 12.1%.  The increase of restricted
cash related to the advance bookings year over year and follows the increase in
air traffic liability.

Airways' consolidated current ratio was 0.82 to 1.0 and 1.1 to 1.0 at March 31,
1997 and 1996, respectively.  The decrease in the ratio at March 31, 1997 was
principally the result of investing in property and equipment during the year.

During 1997, AirTran entered into the following financing arrangements:

#   One installment loan with the seller to purchase aircraft equipment.  The
    loan amount was $1,250,000 and is secured by the equipment.  The loan
    carries a fixed interest rate of 10%.  The note requires payment of
    principal and interest monthly which will amortize the loan by November
    2002.

#   One short term installment loan with the seller to purchase jet engines.
    The loan amount was $1,200,000 and is secured by the equipment.  The loan   
    carries a fixed interest rate of 10%.  The note requires payment of
    principal and interest monthly which will amortize the loan by September
    1997.

During 1996, AirTran entered into the following financing arrangements:

#   Four long term loans with a major commercial financing company to finance
    the purchase of three Boeing 737-200 aircraft.  The aggregate financing
    amount of the loans was $13,800,000 and is secured by the aircraft. 
    The loans carry fixed interest rates ranging from 5.85% to 11.67%.  The
    loans require payments of principal and interest on a monthly basis which
    amortize the borrowing by December 2000.

#   One short-term note with the seller to finance the purchase of one Boeing
    737-200 aircraft.  The loan amount was $1,000,000 and was secured by the
    aircraft.  The note carried a variable interest rate of LIBOR rate plus
    4.1%. The note required payment of principal and interest on a monthly basis
    which amortized the borrowing by December 1996.  

#   One long term loan with a major bank to finance part of the purchase of a 
    hangar at the Orlando International Airport.  The loan amount was $2,000,000
    and is secured by the hangar as well as security interests granted in
    AirTran's leasehold improvements as well as $214,000 in cash.  The loan
    carries a variable interest rate equal to the prime rate plus 1%.  The loan
    requires repayment of principal in the amount of $25,000 monthly plus
    interest accrued and, at various intervals, can require repayments of
    greater amounts depending on Airways' cash flow.

#   One long term loan with the seller to purchase aircraft equipment.  The
    loan amount was $400,000 and is secured by the equipment.  The loan carries
    a fixed interest rate of 10%.  The loan requires payment of principal and
    interest monthly which will amortize the loan by February 1999.




                                      18


<PAGE>   19

Airways had consolidated current assets of $32,666,000 and $35,969,000 as of
March 31, 1997 and 1996, respectively.  Management believes that such assets,
along with internally generated funds as well as financing which management
believes is or will be made available, will satisfy projected operating and
capital needs.  If AirTran increases its rate of growth over current
projections, acquires another company, purchases more aircraft (rather than
leasing additional aircraft) than is presently planned, sustains further
losses, or otherwise requires additional capital, other sources of funds will
need to be secured and there is no assurance that such funds will be secured.
During 1997, the Company invested heavily in its aircraft and engines.  Much of
this investment was paid for from funds generated the year before or from the
Company's working capital.  As a consequence, the Company has initiated several
undertakings which are designed to continue improving its profitability as well
as strengthening its working capital position.  They are as follows:

#   On June 13, 1997, the Company entered into a code-sharing agreement with 
    Comair, a large regional airline operating flights in Florida.  The
    code-sharing agreement permits AirTran Airways to sell tickets to its
    passengers allowing them to connect in Orlando with Comair flights
    continuing on to nine other Florida destinations other than Orlando. These
    tickets will be sold to passengers under the tradename "AirTran's Florida
    Connection".  The Company began taking reservations on June 19 and carried
    its first passenger that same day.

#   On May 14, 1997, the Company entered into a five year loan agreement with 
    a financing company for a $1,600,000 loan secured by one of its aircraft.

#   The Company intends to sell or refinance one of its aircraft in a
    transaction which will likely generate in excess of $4,000,000 of 
    unrestricted cash. That transaction is expected to close on or around the 
    end of the first quarter of fiscal 1998.

#   In addition, the Company has engaged an investment banker for the purpose 
    of refinancing the maintenance hangar it acquired at Orlando        
    International Airport last year.  The hangar has an appraised value of
    $7,100,000 and the Company's indebtedness is, at present, only $1,500,000. 
    A refinancing is expected to take place during the second quarter of the
    Company's fiscal year.

#   Lastly, the Company has a proposal from one of its major lenders to
    refinance its two other owned aircraft.

The effect of inflation on either company is not considered material.





                                      19

<PAGE>   20

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data are included in Part IV, Item
14 hereof.


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

As a consequence of the relocation of the Company's headquarters to Orlando,
Florida in 1995, Airways terminated its relationship with the independent
public accounting firm of Arthur Andersen LLP ("AA") on September 28, 1995 AA's
report on Airways' financial statements for the fiscal year ended March 31,
1996, did not contain an adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
From the time AA was engaged by Airways through the date of AA's dismissal,
there were no disagreements with AA on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of AA, would have
caused it to make reference to the subject matter of the disagreements in
connection with its report.

Airways hired the independent public accounting firm of KPMG Peat Marwick LLP
("KPMG") for the purpose of conducting audits for 1996 and 1997.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information contained under the caption "Management" in Airways' Proxy
Statement for its 1997 Annual Meeting of Shareholders is incorporated herein by
reference.


ITEM 11.  EXECUTIVE COMPENSATION

Information contained under the caption "Executive Compensation" in Airways'
Proxy Statement for its 1997 Annual Meeting of Shareholders is incorporated
herein by reference; provided, however, the report of the Compensation
Committee on executive compensation and the stock performance graph contained
therein shall not be deemed to be incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

Information contained under the caption "Security Ownership of Management and
Certain Beneficial Owners" in Airways' Proxy Statement for its 1997 Annual
Meeting of Shareholders is incorporated herein by reference.





                                      20
<PAGE>   21


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information contained under the caption "Transactions with Management" and in
Airways' Proxy Statement for its 1997 Annual Meeting of Shareholders is
incorporated herein by reference.


                                    PART IV

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

(a) A listing of financial statements and financial statement schedules filed
as part of this report is set forth in the "Index to Financial Statements"
following Part IV hereof.

(b) Reports on Form 8-K: None

(c) Exhibit Index - 1996 Annual Report on Form 10-K.

<TABLE>
<CAPTION>
EXHIBIT NO.                                             TITLE
-----------                                           -----------
<S>                    <C>
       3.1             Certificate of Incorporation of Airways Corporation. (1)

       3.2             Bylaws of Airways Corporation. (1)

       4.1             Form of Stock Certificate of common stock of Airways Corporation. (1)

       4.2             Warrant Agreement between Airways Corporation and Aviation Management Systems, Inc. 
                       dated January 8, 1997.

      10.1             Air Carrier Certificate issued to AirTran Airways, Inc. effective June 6, 1994. (1)

      10.2             Certificate of Public Convenience and Necessity for Interstate Air Transportation issued 
                       to AirTran Airways, Inc., d/b/a AirTran Airways, effective November 30, 1994. (1)

      10.3             FAA Repair Station Certificate. (1)

      10.4.8           Secured Loan Agreement dated August 28, 1995 between Finova Capital Corporation, as Lender, and
                       AirTran Airways, Inc., as borrower. (2)

      10.5             Distribution Agreement between AirTran Corporation, Mesaba Aviation, Inc. AirTran Airways, Inc. and
                       Airways Corporation. (2)

      10.6             Agreement, dated May 18, 1995, between Northwest Airlines, Inc., Northwest Aircraft, Inc., Mesaba
                       Aviation, Inc. and AirTran Corporation. (2)

      10.7             Lease of headquarters of Airways in Orlando, Florida. (1)

      10.8             Airways Corporation 1995 Stock Option Plan. (1)



</TABLE>


                                      21
<PAGE>   22


<TABLE>          
<S>              <C>  
       10.9      Airways Corporation 1995 Directors Stock Option Plan. (1)

       10.10     Severance Agreement between Robert D. Swenson and AirTran Corporation, Mesaba Aviation, Inc.
                 and Airways Corporation dated April 28, 1995. (1)

       10.11     Lease of headquarters of Airways in Orlando, Florida, dated November 1, 1995. (3)

       10.13     Security Agreement dated December 28, 1995 between C. I. T. Leasing Corporation, as lender and AirTran
                 Airways, Inc., as borrower. (3)

       10.15     Security Agreement dated December 20, 1995 between Finova Capital Corporation, as lender and AirTran
                 Airways, Inc., as borrower. (3)

       10.16     Security Agreement dated December 20, 1995 between Finova Capital Corporation,
                 as lender and AirTran Airways, Inc., as borrower. (3)

       10.17.1   Orlando Tradeport Maintenance Hangar Lease Agreement by and between Greater Orlando
                 Aviation Authority and Page AvJet Corporation dated December 11, 1989.

       10.17.2   Amendment No. 1 to Orlando Tradeport Maintenance Hangar Lease Agreement by
                 and between Greater Orlando Aviation Authority and Page AvJet Corporation dated
                 June 22, 1990.

       10.17.3   Agreement and Second Amendment to Orlando Tradeport Maintenance Hangar Lease
                 Agreement by and between Greater Orlando Aviation Authority and AirTran Airways, Inc.
                 dated January 25, 1996.

       10.18     Agreement between AirTran Airways, Inc. and MarketLink, Inc. dated January 26, 1996.

       10.19     Letter of Credit Facility Agreement between SunTrust Bank, Central Florida, N.A. and AirTran Airways, Inc. 
                 and Airways Corporation dated March 7, 1996.

       10.20     Term Note between SunTrust Bank, Central Florida, N.A. and AirTran Airways, Inc. and Airways Corporation dated
                 March 7, 1996.

       10.21     Leasehold Mortgage and Security Agreement between AirTran Airways, Inc. and SunTrust Bank, Central Florida, N.A.
                 dated March 7, 1996. 

       10.22     Security Agreement between AirTran Airways, Inc. and SunTrust Bank, Central Florida, N.A., dated March 7, 1996.

       11.0      Statement of Computation of Weighted Average Shares and Per Share Earnings.

       16.0      Letter re: Change in Independent Public Accountants. (4)

       18.1      Preference letter re:  Change in accounting principles re: credit card processing fee
                 expense

       18.2      Preference letter re:  Change in accounting principles re: CRS fee expense.

       21.0      Subsidiary of Airways Corporation.

       23.1      Letter  re:  Consent of Arthur Andersen LLP.


</TABLE>

                                      22
<PAGE>   23

<TABLE>
<S>               <C>

       23.2       Letter re:  Consent of KPMG Peat Marwick LLP.

       27.0       Financial Data Schedule (submitted only in electronic format).
</TABLE>

(1) Incorporated by reference to Airways Corporation's Form S-4 Registration
    Statement (File No. 33-93104).

(2) Incorporated by reference to the Airways Corporation's Form 10-Q for the
    quarter ended September 30, 1995.

(3) Incorporated by reference to Airways Corporation's Form 10-Q for the
    quarter ended December 31, 1995.

(4) Incorporated by reference to Airways Corporation's Form 8-K filed on
    September 28, 1995.





                                      23
<PAGE>   24

                                   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.

                                        AIRWAYS CORPORATION
                                        REGISTRANT

                                        By: /s/  Robert D. Swenson
                                           --------------------------------
                                           Robert D. Swenson
                                           Chairman of the Board, President and
                                                  Chief Executive Officer

Date:  June 27, 1997





                                      24
<PAGE>   25



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


<TABLE>
<CAPTION>

                SIGNATURE                                        TITLE                          DATE
                ---------                                        -----                          ----
<S>                                            <C>                                          <C>       
      /s/  Robert D. Swenson                          
-------------------------------------
            Robert D. Swenson                 Chairman of the Board, Chief                 June 27, 1997 
                                                Executive Officer and Director of
                                                Airways and Chairman of the
                                                Board, President and Chief
                                                Executive Officer of AirTran
                                                Airways, Inc.
                                                (Principal Executive Officer)


        /s/  Mark B. Rinder
-------------------------------------
         Mark B. Rinder                       Vice President of Finance and Chief          June 27, 1997 
                                                Financial Officer of Airways
                                                Corporation and Vice President of
                                                Finance and Chief Financial
                                                Officer of AirTran Airways, Inc.
                                                (Principal Financial and Accounting
                                                Officer)

      /s/  Lawrence Brinker
-------------------------------------
         Lawrence Brinker                     General Counsel and Secretary,               June 27, 1997 
                                                Airways Corporation and AirTran 
                                                Airways, Inc.

      /s/  John K. Ellingboe 
-------------------------------------
        John K. Ellingboe                     Director                                     June 27, 1997 


     /s/  Roger T. Munt
-------------------------------------
        Roger T. Munt                         Director                                     June 27, 1997 


     /s/  Alan R. Stephen
-------------------------------------
      Alan R. Stephen                         Director                                     June 27, 1997 



</TABLE>


                                      25
<PAGE>   26

                              AIRWAYS CORPORATION


        INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
                                                                                                                 PAGE
                                                                                                                 NO.
                                                                                                               -------
 <S>                                                                                                           <C>
 FINANCIAL STATEMENTS:


 Independent Auditors' Reports  .  .  .  .  .  .  .  .  .  .  .  .  .   .  .  .  .  .  .  .  .  .  .  .  .  .   27

 Consolidated Balance Sheets, March 31, 1997 and 1996.  .  .  .  .  .   .  .  .  .  .  .  .  .  .  .  .  .  .   29

 Consolidated Statements of Operations for the years ended March 31, 1997, 1996 and 1995. .  .  .  .  .  .  .   31

 Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996 and  1995 .  .  .  .  .  .  .   32

 Consolidated Statements of Changes in Shareholders' Equity and Group Equity for the years ended March 31,
    1997, 1996 and 1995.   .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .   34

 Notes to Consolidated Financial Statements.  .   .  .  .  .  .  .  .  .  .  .  .  .  .   .  .  .  .  .  .  .   35

 SCHEDULE:

 Schedule II -  Valuation and Qualifying  Accounts - Schedule not filed herewith is omitted because 
 of the absence of conditions under which it is required.                                                      N/A

</TABLE>


                                      26
<PAGE>   27


                          INDEPENDENT AUDITORS REPORT

Board of Directors
Airways Corporation:


We have audited the accompanying consolidated balance sheets of Airways
Corporation and subsidiary (the "Company") as of March 31, 1997 and 1996, and
the related consolidated statements of operations, changes in stockholders'
equity and group equity and cash flows for the years then ended.  These
consolidated financial statements are the responsibility of Airways
Corporation's management.  Our responsibility is to express an opinion on these
consolidated 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 provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Airways Corporation
and subsidiary as of March 31, 1997 and 1996 and the results of its operations
and its cash flows for the years ended March 31, 1997 and 1996, in conformity
with generally accepted accounting principles.

As discussed in Notes 10 and 11 to the consolidated financial statements, the
Company changed its methods of accounting for Computer Reservation System fee
expense in 1997 and Credit card processing fee expense in 1996.




                                                           KPMG PEAT MARWICK LLP



Orlando, Florida
June 6, 1997





                                      27
<PAGE>   28


                          INDEPENDENT AUDITORS REPORT

To Airways Corporation:


We have audited the combined statements of operations, changes in group equity
and cash flows of the Airways Group for the year ended March 31, 1995.  These
financial statements are the responsibility of The Airways Group's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects the results of operations and cash flows of the Airways
Group for the year ended March 31, 1995, in conformity with generally accepted
accounting principles.





                                                ARTHUR ANDERSEN LLP


Minneapolis, Minnesota,
May 19, 1995





                                      28
<PAGE>   29

                              AIRWAYS CORPORATION

                          CONSOLIDATED BALANCE SHEETS

                            March 31, 1997 and 1996
                                 (In thousands)



<TABLE>
<CAPTION>

        ASSETS                                           1997            1996
        ------                                           ----            ----
  <S>                                                   <C>             <C>

  Current assets:
        Cash and cash equivalents                       $ 2,354         $16,437
        Restricted cash                                  12,670          11,309
        Account receivable, net                           4,212           3,135
        Inventory, expendable parts and supplies          1,034           1,847
        Prepaid expenses                                  4,020           1,947
        Deferred Tax Asset                                8,376           1,294
                                                        -------         -------
        Total current assets                             32,666          35,969
                                                        -------         -------
  Property and equipment                               
        Flight equipment                                 34,485          24,943
        Other property and equipment                      9,405           6,587
           Less: Accumulated depreciation                (6,192)         (2,072)
                                                        -------         -------
                                                         37,698          29,458
                                                        -------         -------

  Other assets:
        Goodwill, net                                     1,749           1,891
        Lease and equipment deposits                      1,244           1,339
        Other assets, net                                   591             997
                                                        -------         -------
  Total assets                                          $73,948         $69,654
                                                        =======         =======
</TABLE>

See accompanying notes to consolidated financial statements.    (Continued)


                                       29

<PAGE>   30



                              AIRWAYS CORPORATION

                          CONSOLIDATED BALANCE SHEETS

                            March 31, 1997 and 1996
                                 (In thousands)



<TABLE>
<CAPTION>

        LIABILITIES AND STOCKHOLDERS' EQUITY             1997            1996
        ------------------------------------             ----            ----
  <S>                                                   <C>             <C>

  Current liabilities:
        Accounts Payable                                $18,022         $ 9,362
        Air traffic liability                            16,198          14,912
        Accrued expenses                                    908           2,775
        Current portion of long-term debt                 3,157           3,574
        Current portion of maintenance reserves           1,525             307
        Income taxes payable                                  -             533
                                                        -------         -------
        Total current liabilities                        39,810          31,463
                                                        -------         -------

  Long-term debt, less current portion                   10,539          10,277
  Maintenance Reserves                                    3,186           2,207
  Deferred income taxes                                   2,772           1,344
                                                        -------         -------
  Total liabilities                                      56,307          45,291
                                                        -------         -------

  Stockholders' equity
        Preferred stock, $.01 par value per shares,
          1,000,000 shares authorized, no shares
          issued or outstanding                               -               -
        Common stock, $.01 par value per shares,
          19,000,000 shares authorized, 9,061,937
          and 8,966,937 shares issued and
          outstanding at March 31, 1997 and 1996,
          respectively                                       91              90
        Additional paid-in capital                       26,618          26,350
        Accumulated deficit                              (9,068)         (2,077)
                                                        -------         -------
  Total stockholders' equity                             17,641          24,363
                                                        -------         -------
  Total liabilities and stockholders' equity            $73,948         $69,654
                                                        =======         =======
  Commitments and contingencies
</TABLE>

See accompanying notes to consolidated financial statements.


                                       30


<PAGE>   31

                              AIRWAYS CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS

               For the years ended March 31, 1997, 1996 and 1995
                  (In thousands, except per share information)


<TABLE>
<CAPTION>
                                                             1997            1996           1995              
                                                             ----            ----           ----              
<S>                                                        <C>             <C>            <C>                 
Operating revenues:                                                                                           
     Passenger                                             $ 100,077       $64,894        $  7,896            
     Charter                                                     402         1,692           1,241            
     General aviation and other                                2,144         1,775             470            
                                                           ---------       -------        --------            
       Total operating revenues                              102,623        68,361           9,607            
                                                           ---------       -------        --------            
                                                                                                              
Operating expenses:                                                                                           
     Flight operations                                        45,507        26,913           6,429            
     Maintenance                                              25,851        12,112           2,845            
     Aircraft and traffic servicing                           16,742        10,169           2,390            
     Reservations, sales and marketing                        16,739        11,901           1,830            
     General and administrative                                5,185         3,623           2,012            
     Depreciation and amortization                             4,721         2,149             522            
                                                           ---------       -------        --------            
       Total operating expenses                              114,745        66,867          16,028            
                                                           ---------       -------        --------            
       Operating (loss) income                               (12,122)        1,494          (6,421)           
                                                                                                              
Interest (income) and other                                     (984)       (1,007)            (59)           
Interest expense                                               1,507           524               -            
                                                           ---------       -------        --------            
          (Loss) income before income taxes                  (12,645)        1,977          (6,362)           
                                                                                                              
Income tax (benefit) expense                                  (5,654)          790          (2,866)           
                                                           ---------       -------        --------            
         Net (loss) income                                 $  (6,991)      $ 1,187        $ (3,496)           
                                                           =========       =======        ========            
                                                                                                              
Net (loss) income per share (pro-forma in 1996 and 1995)   $   (0.77)      $   .13        $  (0.39)
                                                           =========       =======        ========

Weighted average shares outstanding (pro-forma in 1996     
     and 1995)                                                 9,029         9,230           8,927
                                                           =========       =======        ========
</TABLE>

See accompanying notes to consolidated financial statements.                  



                                      31
<PAGE>   32

                              AIRWAYS CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

               For the years ended March 31, 1997, 1996 and 1995
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                     1997            1996         1995           
                                                                     ----            ----         ----           
<S>                                                                 <C>            <C>          <C>              
Operating activities:                                                                                            
                                                                                                                 
Net (loss) income                                                   $ (6,991)      $ 1,187      $ (3,496)        
       Adjustments to reconcile net (loss) income to               
         net cash provided by (used for) operating activities:
          Depreciation and amortization                                4,721         2,146           522
          Maintenance Reserves                                         2,197         2,229           285
          Deferred taxes                                              (5,654)           21             -
          Compensation expense incurred in connection           
           with stock options granted and issued                           -           224             -
          Change in current operating items:              
           Restricted cash                                            (1,361)       (7,544)       (3,765)
           Accounts receivable, net                                   (1,077)       (2,722)         (333)
           Inventories                                                   813           435           (68)
           Prepaid expenses and deposits                              (2,073)       (1,527)         (357)
           Accounts payable and accrued liabilities                    6,793         8,060         1,839
           Air traffic liability                                       1,286        11,284         3,628
           Income tax payable                                           (533)          533            -
                                                                    --------      --------      --------
            Net cash flows (used for) provided by         
             operating activities                                     (1,879)       14,326        (1,745)

Investing activities:
      Purchase of Conquest Sun Airlines, Inc.                              -             -        (2,500)
      Purchase of property and equipment, net                        (11,126)      (28,380)       (2,277)
      Increase (decrease) in other assets                                 58        (1,390)       (1,356)
                                                                    --------      --------      --------
             Net cash flows used for investing activities           (11,068)       (29,770)       (3,633)
</TABLE>

See accompanying notes to consolidated financial statements.         (Continued)



                                      32


<PAGE>   33

                              AIRWAYS CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

               For the years ended March 31, 1997, 1996 and 1995
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                           1997        1996        1995     
                                                                           ----        ----        ----     
<S>                                                                       <C>          <C>          <C>     
Financing activites:                                                                                       
        Capital contributions                                                -         15,154       8,831   
        Proceeds from long-term debt                                         -         16,800         -     
        Repayments of long-term debt                                      (1,405)      (1,142)        -     
        Proceeds from issuance of common stock                               269          108         -     
        Borrowings from former parent                                        -            -           458   
        Repayments to former parent                                          -            -          (458)  
                                                                      ----------    ---------    --------   
        Net cash flows (used) provided by financing activities            (1,136)      30,920       8,831   
                                                                                                        
        Net (decrease) increase in cash and short-term investments    $  (14,083)   $  15,476    $    953

Cash and short-term investments at begining of year                   $   16,437    $     961    $      8
                                                                      ----------    ---------    -------- 
Cash and short-term investments at end of year                        $    2,354    $  16,437    $    961
                                                                      ==========    =========    ========


Supplemental disclosures of cash flow activities:

        Cash paid for interest                                        $    1,459    $     501    $    -
                                                                      ==========    =========    ========

        Cash paid for income taxes                                    $      533    $     278    $    -
                                                                      ==========    =========    ========


Supplemental disclosure of non-cash investing and financing activities:
        During the year ended March 31, 1997 and 1996, the Company
           purchased $1,250 and $400 of flight equipment with 
           long-term debt.
</TABLE>





                                      33
<PAGE>   34

                              AIRWAYS CORPORATION

 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND GROUP EQUITY
                                      
               For the years ended March 31, 1997, 1996 and 1995
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                              Retained 
                                                                                Additional    Earnings         Total
                                 Group                    Common    Preferred    Paid-in    (Accumulated    Stockholders'
                                 Equity       Shares       Stock      Stock      Capitol      Deficit)         Equity
                                 ------       ------      ------    ---------   ----------  ------------    -------------
<S>                             <C>           <C>      <C>               <C>  <C>           <C>             <C>
Balance, April 1, 1994          $  2,123          -          -           -             -    $     232       $     2,355
Net Loss                               -          -          -           -             -       (3,496)           (3,496)
Capitol Contributions              8,831          -          -           -             -            -             8,831
                                -----------------------------------------------------------------------------------------
Balance, March 31, 1995           10,954          -          -           -             -       (3,264)            7,690
Net Income                             -          -          -           -             -        1,187             1,187
Stock options granted
   and exercised under
   stock option plan                   -         40          1           -           331            -               332
Shares issued and
   contribution of group
   equity                        (10,954)     8,927         89           -        26,019            -            15,154
                                -----------------------------------------------------------------------------------------
Balance, March 31, 1996                -      8,967         90           -        26,350       (2,077)           24,363
Net Loss                               -          -          -           -             -       (6,991)           (6,991)
Stock options granted 
   and exercised under
   stock option plan                   -         99          1           -           268            -               269
                                -----------------------------------------------------------------------------------------
Balance, March 31, 1997                -       9066    $    91           -    $   26,618    $   9,068       $    17,641
                                -----------------------------------------------------------------------------------------

</TABLE>




See accompanying notes to consolidated financial statements.





                                      34
<PAGE>   35

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               For the years ended March 31, 1997, 1996 and 1995
           (Dollars in thousands, except share and per share amounts)


(1)      CORPORATE ORGANIZATION AND BUSINESS

In June 1994, AirTran Corporation, former parent company, now doing business as
Mesaba Holdings, Inc. ("Mesaba"), acquired the common stock of Conquest Sun
Airlines, Inc. ("Conquest") for $2,500 in a transaction accounted for under the
purchase method of accounting.  At the time of the acquisition, Conquest had
recently obtained U.S. Department of Transportation ("DOT") approval to operate
a jet airline.  Conquest's name was subsequently changed to AirTran Airways,
Inc. ("AirTran") and scheduled passenger service commenced on October 6, 1994.

In March 1995,   Mesaba and Northwest Airlines, Inc. ("Northwest") entered into
an agreement to spin off AirTran Airways, Inc. and a fixed-base operation
("FBO") in Grand Rapids, Minnesota. Under the terms of the spin-off, on April 7,
1995, Mesaba established a new wholly-owned subsidiary, Airways Corporation (the
"Company") into which the above operations were consolidated (and previously
referred to as The Airways Group) in order to facilitate the distribution of the
Company common stock to Mesaba shareholders (other than Northwest).  In
connection with the spin-off, Mesaba made a contribution in cash and certain
assets to the Company prior to the spin-off date.  The distribution was approved
by Mesaba's shareholders on August 29, 1995 and was made on September 7, 1995 to
the shareholders of record (other than Northwest) on August 31, 1995.

The FBO has historically operated as a division of Mesaba. The accompanying
consolidated financial statements present the results of the combined entities
whereby significant intercompany accounts and transactions are eliminated.

AirTran serves 23 cities from Orlando, operating as AirTran Airways. The FBO
sells aircraft parts, provides fueling and other aircraft servicing, rentals and
flight training.


(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (a)   CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash equivalents consist primarily of U.S. government securities and
interest-bearing deposits with maturities of less than 90 days and are stated
at cost, which approximates market.  Restricted cash represents amounts
escrowed relating to the Company's air traffic liability and to cash
collateralizing the Company's long-term debt.





                                      35
<PAGE>   36


                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

(2),     CONTINUED

      (b)   INVENTORY

Inventory parts held for sale by the FBO are stated at the lower of average cost
or market and consist of expendable aircraft service parts and fuel.  Consumable
spare parts, materials and supplies relating to flight equipment are expensed as
purchased.

      (c)   PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and depreciated on a straight-line
basis for financial reporting purposes with no residual values except for the
aircraft which are assumed to have 10% residual value. The depreciable lives
used for the principal depreciable asset classifications are:


<TABLE>
<CAPTION>
                                                                    Depreciable Lives
                                                                    -----------------
      <S>                                                           <C>
      Aircraft                                                      5-12 years
      Rotable parts                                                 5 years
      Leasehold improvements                                        Shorter of useful life or lease term
      Buildings                                                     20 years
      Other equipment                                               3-5 years
</TABLE>

Equipment and property under capital leases are amortized over the term of the
leases and such amortization is included in depreciation and amortization.

      (d)   GOODWILL

The excess of purchase price paid for Conquest over the fair market value of net
tangible assets acquired totaled $2,141 and is being amortized over 15 years.
Accumulated amortization totaled $393 and $250 at March 31, 1997 and 1996,
respectively.

      (e)   OTHER ASSETS

Certain costs incurred in connection with the acquisition of aircraft and the
start-up of AirTran's airline service have been deferred.  As of March 31, 1997
and 1996, such costs totaled $1,335 and $1,297 respectively, and consisted of
initial flight crew training,





                                      36
<PAGE>   37

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

(2),     CONTINUED

aircraft rent and insurance expenses incurred prior to AirTran's scheduled
airline service.  Pre-operating costs are being amortized over three years and
accumulated amortization totaled $743 and $300 at March 31, 1997 and 1996,
respectively.  Development costs relating to new routes, obtaining regulatory
approval, and administrative and promotional costs are charged to expense as
incurred.

        (f)   REVENUE RECOGNITION

Passenger and charter revenues are recorded as income when the respective
services are rendered or the passenger ticket otherwise expires.  Cash received
on advance ticket and charter sales is deferred and recorded as air traffic
liability.

        (g)   INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, which is an asset and liability approach to
financial accounting and reporting for income taxes.  Deferred income tax assets
and liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.


        (h)   INCENTIVE COMPENSATION

In October, 1995 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123 - "Accounting for
Stock-Based Compensation" (SFAS 123), effective for financial statements with
fiscal years beginning after December 15, 1996.  SFAS 123 establishes the
financial accounting and reporting standard for stock-based employee
compensation plans as well as transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees.  This statement
defines a fair value-based method of accounting for employee based stock options
and encourages all entities to adopt this method of accounting for all employee
stock compensation plans.  However, it does allow an entity to continue applying





                                      37
<PAGE>   38

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

(2),  CONTINUED

Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("Opinion 25") to measure the intrinsic value-based compensation
cost.  Entities electing to remain with the accounting method prescribed by
Opinion 25 must make pro forma disclosures of net income and earnings per share,
as if the fair valued-based method of accounting as prescribed by SFAS 123 had
been applied.  The Company has elected to continue accounting for its stock-
based compensation plans prescribed by Opinion 25 and has included in the Notes
to the Consolidated Financial Statements the pro forma disclosures required by
SFAS 123.

        (i)   AIRFRAME AND ENGINE OVERHAUL EXPENSE

The Company has adopted the accrual method for recognizing the estimated cost
of future airframe and engine overhaul expenses.  The accrual method provides
for estimating the cost of such overhauls, when they occur in the ordinary
course, and recording the estimated cost, based on an hourly rate, in
maintenance expense.  Costs associated with overhauls of airframes and engines
which occur at or near the aircraft's introduction into the fleet are
capitalized and amortized over the period to the next overhaul.  The actual
expenditures of ongoing overhauls not incurred at inception are charged to the
accrual and any deficiency or excess is charged or credited to expense in the
period incurred.

        (j)   NET (LOSS) INCOME PER SHARE

Net (loss) income per share is computed based on the weighted average number of
common shares and, if dilutive, common stock equivalent shares (options)
outstanding in 1997 and for the prior years is on a pro-forma basis.

        (k)   CONSOLIDATION POLICY

The accompanying consolidated financial statements include the accounts of the
Company and AirTran, a wholly-owned subsidiary of the Company.  All material
intercompany transactions have been eliminated.

        (l)   CONCENTRATION OF CREDIT RISK

At March 31, 1997, most of the Company's receivables related to tickets sold to
individual passengers through the use of major credit cards on the Company's
flights.  These receivables are short-term, generally being settled within 14
days after sale. The Company does not believe it is subject to any significant
concentration of credit risk.





                                      38
<PAGE>   39

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

(2),     CONTINUED

        (m)   USE OF ESTIMATES

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

        (n)  RECLASSIFICATIONS

Certain amounts in the 1996 and 1995 consolidated financial statements have been
reclassified to conform with the 1997 presentation.  These reclassifications had
no impact on net income or shareholder's or group equity as previously reported.

        (o)   FUTURE APPLICATION ACCOUNTING STANDARDS

On March 3, 1997 the FASB issued Statement of Financial Accounting Standards No.
128 (SFAS 128) "Earnings per Share".  The new statement is effective for fiscal
years beginning after December 15, 1997 and applies to all entities that have
issued common stock or potential common stock (e.g. options, warrants,
convertible securities etc.) if those securities trade in a public market or in
a stock exchange or over-the-counter market.  SFAS 128 replaces primary Earnings
Per Share ("EPS") with Basic EPS.  Basic EPS will be computed by dividing
reported earnings available to common stockholders by weighted average shares
outstanding.  No dilution for any potentially dilutive securities is included. 
Fully diluted EPS, now called diluted EPS is still required.

(3)       PROPERTY AND EQUIPMENT

The Company's aircraft fleet consisted of ten Boeing 737-200s, of which six are
held under operating leases as of March 31, 1997.  The remaining four aircraft
are owned by the Company and had a net book value of $17,716 at March 31, 1997.
Approximately $4,380 and $2,514 has been accrued for major airframe and engine
overhauls as of March 31, 1997 and 1996, respectively.  The Company estimates
that the costs of major engine and airframe overhauls due in 1998 will total
approximately $6,500, virtually all of which is either reserved and on the
balance sheet, will be reversed during 1998 pursuant to the Company's
accounting policies for leased and owned aircraft or will be reimbursable from
lessors.





                                      39
<PAGE>   40


                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

(3),     CONTINUED

The aircraft operating leases require future minimum rental payments as follows
at March 31, 1997:


<TABLE>
                     <S>                <C>      
                     1998               $  5,443
                     1999                  4,558
                     2000                  3,002
                     2001                  3,002
                     2002                  2,893
                     Thereafter            1,278
                                         -------
                                        $ 20,176
                                        ========
</TABLE>

Rent expense under aircraft operating leases totaled approximately $5,984 and
$4,535 in 1997 and 1996, respectively and is included in flight operations in
the accompanying consolidated statements of operations. In addition, the Company
spent $3,322 and $54 on subservice aircraft rentals which was also charged to
expense in 1997 and 1996, respectively.

 (4)      COMMITMENTS AND CONTINGENCIES

          LEASE COMMITMENTS

As detailed in Note 3 the Company leases six aircraft under operating leases. 
In addition, the Company leases office and hangar facilities and certain
terminal facilities under operating leases which are all month to month lease
terms.  Rent expense under all facility operating leases totaled approximately
$554 in 1997, $365 in 1996 and $360 in 1995.

          CREDIT FACILITY

The Company has negotiated with a bank to issue eleven letters of credit
totaling $1,100 which were outstanding at March 31, 1997.  In the event advances
under the facility are drawn, the borrowings would bear interest at the bank's
prime rate plus 1-1/4%.  No amounts were drawn under this facility as of or
during the year ended March 31, 1997.





                                       40
<PAGE>   41

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

(4),     CONTINUED

         LITIGATION

The Company is a party to ongoing legal proceedings arising in the ordinary
course of business. In the opinion of management, the resolution of these
matters will not have a materially adverse effect on the Company's financial
position, results of operations, or its cash flows.

          AIRCRAFT COMMITMENTS

In order to comply with the Airport Noise and Capacity Act (ANCA) requirements,
the Company is required to purchase hush kits for its aircraft to convert them
from Stage 2 to Stage 3.  The installation of these hush kits will bring the
aircraft into compliance with FAA Stage 3 noise level requirements.  The
projected payments associated with the purchase of the hush kits are $0 in
fiscal year 1998 and $3,000 in 1999 and based on those purchases combined with
AirTran's current plans for aircraft acquisitions and upcoming aircraft lease
expirations, it will continue to meet the Stage 3 requirements.  The Company
has contracted to purchase four hush kits for its aircraft at its installed
cost of $6,000 of which two have already been purchased during fiscal 1997.





                                       41
<PAGE>   42

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

(5)       LONG-TERM DEBT

Long-term debt as of March 31, 1997 is summarized as follows:

<TABLE>
<S>                                                                                                <C>
Installment loan, dated August 1995, collateralized by flight equipment,
      payments of $100 plus interest at 11.67%, maturing August 2000                              $      3,332

Installment loan, dated August 1995, collateralized by flight equipment,
      payments of $23 including interest at 5.85%, maturing August 2000                                    834

Installment loan, dated December 1995, collateralized by flight equipment,
      payments of $85 including interest at 10.04%, maturing December 2000                               3,182

Installment loan, dated December 1995, collateralized by flight equipment,
      payments of $85 including interest at 10.04%, maturing December 2000                               3,182

 Installment loan, dated February 1996, collateralized by flight equipment,
      payments of $13 including interest at 10%, maturing February 1999                                    269

Term loan, dated March 1996, collateralized by a hangar, payments of $25
      plus interest at prime + 1% (9.25% as of March 31, 1996), maturing
      October 2002                                                                                       1,700

Installment loan, dated December 1996, collateralized by flight equipment,
      payments of $23 including interest of 10%, maturing November 2002                                  1,198

                                                                                                  ------------
                  Total long-term debt                                                                  13,697

      Less current installments of long-term debt                                                        3,157 
                                                                                                  ------------  
                        Net long-term debt                                                        $     10,540
                                                                                                  ============

</TABLE>



                                      42
<PAGE>   43

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)


(5),   CONTINUED

The aggregate amounts of principal maturities of debt outstanding at March 31,
1997, for the five subsequent years are as follows:

<TABLE>
                  <S>                                                 <C>
                 1998                                                 $   3,157
                 1999                                                     3,452
                 2000                                                     3,642
                 2001                                                     2,520
                 2002                                                       546
                 Thereafter                                                 380
                                                                      ---------
                                                                      $  13,697
                                                                      =========
                                               
</TABLE>
(6)       INCOME TAXES

Income tax (benefit) expense attributable to (loss) income for the years ended
March 31, 1997, 1996 and 1995 consist of the following:


<TABLE>
<CAPTION>
                                                 Current                 Deferred                  Total
                                                 -------                 --------                  -----
<S>                                            <C>                      <C>                       <C>
1997
     Federal                                           -                $ (3,931)                $ (3,931)               
     State                                             -                  (1,723)                  (1,723)
                                               ---------                --------                 --------
                                                       -                $ (5,654)                $ (5,654)
                                               =========                ========                 ========                

1996
     Federal                                   $     722                $    (52)                $    670                
     State                                            89                      31                      120
                                               ---------                --------                 --------
                                               $     811                $    (21)                $    790
                                               =========                ========                 ========                

1995
     Federal                                   $  (2,423)               $    (59)                $ (2,482)                
     State                                          (514)                     12                     (502) 
                                               ---------                --------                 --------
                                               $  (2,937)                $   (47)                $ (2,984)
                                               =========                ========                 ========                
</TABLE>



                                      43
<PAGE>   44

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)


(6),       CONTINUED

Total income tax (benefit) expense for the years ended March 31, 1997, 1996 and
1995 differed from amounts computed by applying the U.S. federal income tax rate
of 35% to (loss) income before income taxes as a result of the following:

<TABLE>
<CAPTION>

                                                          1997             1996              1995
                                                          ----             ----              ----
<S>                                                      <C>              <C>               <C>
Computed "expected" tax (benefit) expense                $ (4,425)        $    672          $ (2,163)
(Increase) decrease in income tax expense (benefit)
     resulting from:
        Nondeductible expenses                                  5                -               (60)
        State income tax (benefit) expense
             net of federal income taxes                   (1,120)              72              (502)  
        Reorganization costs                                                    42
        Other, net                                           (114)               4              (141)
                                                         --------         --------          --------
                                                         $ (5,654)        $    790          $ (2,866)   
                                                         ========         ========          ========
</TABLE>



                                      44
<PAGE>   45

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

(6),       CONTINUED

The tax effects of temporary differences that give rise to a significant portion
of the deferred tax assets and deferred tax liabilities as of March 31, 1997 and
1996 are as follows:

<TABLE>
<CAPTION>

                                                            1997                 1996
                                                            ----                 ----
<S>                                                       <C>                  <C>
Deferred tax assets:
Workers' compensation                                          -                $   11
Alternative minimum tax credit carry forwards                  -                   337
Deferred maintenance costs                                 1,730                   946
Vacation Pay                                                 139                     -
Net Operating Loss carry forward                           6,507                     -
                                                          ------                ------
     Total gross deferred tax assets                      $8,376                $1,294    
                                                          ------                ------

Deferred tax liabilities:
   Property, plant and equipment, principally
     due to differences in depreciation                   $2,602                $  996
   Deferred pre-operating costs                              170                   267
   Prepaid expenses, principally due to prepaid 
     commissions                                               -                    46 
   Other                                                       -                    35
                                                          ------                ------
    Total gross deferred tax liabilities                   2,772                 1,344
                                                          ------                ------

Net deferred tax (liabilities)                            $5,604                $  (50)
                                                          ======                ====== 
Presented as:
   Current deferred income tax asset                      $5,604
                                                          ======
   Noncurrent deferred tax (liability)                                          $   50
                                                                                ------
</TABLE>
    
 
The valuation allowance for deferred tax assets as of March 31, 1997 and 1996
was $0. The net change in the total valuation allowance for the years ended
March 31, 1997 and 1996 was $0.  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 or the reversal of deferred tax liabilities during the periods
in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. Based upon
management's projections for future taxable income over the periods which the
deferred tax assets are deductible,





                                      45
<PAGE>   46

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)


(6), CONTINUED

management believes it is more likely than not that the Company will realize the
benefits of these deductible differences as of March 31, 1997.  See Note 14 to
the Consolidated Financial Statements for subsequent events which have a bearing
on the Company's operating plan under which these estimates were made.

As of March 31, 1997, the Company has alternative minimum tax credit
carryforwards of $0.

(7)       BENEFIT PROGRAM

The Company introduced a profit sharing arrangement during 1996 covering
substantially all employees. Profit sharing expense was $0 in 1997 and $338 in
1996.

(8)      FINANCIAL INSTRUMENTS

The fair value of the Company's long-term debt is estimated using the present
value of discounted cash flows based on the borrowing rate currently available
to the Company for debt with similar remaining terms and maturity. The carrying
amounts reported in the consolidated financial statements for cash and cash
equivalents, restricted cash, accounts receivable, accounts payable and accrued
expenses approximate fair value due to their immediate or short-term maturities.
The carrying amounts of the Company's long-term debt with variable interest
rates approximate fair value as these instruments are repriced regularly.

The carrying amount and fair value of the Company's fixed long-term debt at
March 31, 1997 is as follows:


<TABLE>
<CAPTION>

                                                    CARRYING AMOUNT      FAIR VALUE
                                                    ---------------      ----------
   <S>                                                 <C>                <C>                           
   Long-term debt                                       $13,696            $13,649


</TABLE>

(9)     EFFECT OF FOURTH QUARTER RESULTS

Adjustments were made to the air traffic liability during the fourth quarters
of 1997 and 1996 which totaled $1,742 and $1,197, respectively, of which $1,742
and $886 were recorded as additional passenger revenue in 1997 and 1996,
respectively, and $311 was recorded as other revenue in 1996.  These
adjustments were made to record passenger, cancellation and change fee revenue
not previously recognized by the Company.  The Company has put into place
accounting processes, during fiscal 1998, which will enable it to record these
revenues more closely in line with when they are earned.





                                      46

<PAGE>   47
                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)

(9), CONTINUED

In addition, other adjustments were made in 1996 to operating expenses for
costs incurred which were under accrued in prior periods totaling $1,515.
Adjustments were made to flight operations expense - $660, maintenance - $490,
aircraft and traffic services - $85 and reservations and sales expense - $280.

(10)   CHANGE IN ACCOUNTING METHOD FOR CREDIT CARD PROCESSING FEE EXPENSE IN
       1996

Credit card processing fees paid are deferred and recognized when the passenger
travel has been completed. Prior to 1996, these fees were expensed when paid.
The new method was adopted to match the credit card processing fee expense more
appropriately with the related revenue and to make treatment consistent with the
Company's standard revenue recognition policies. The effect of the change was to
increase income by approximately $165 or $0.02 per share net of the effect of
income taxes in 1996.  The cumulative effect of the change in accounting
principle on prior years is immaterial.

(11)   CHANGE IN ACCOUNTING METHOD FOR CRS FEE EXPENSE IN 1997

Computer Reservation System (CRS) fees, the fees charged for travel agents' use
of the computer reservation systems owned by others, are deferred and
recognized when the passenger travel has been completed.  Prior to 1997, these
fees were expensed when paid. The new method was adopted to match the CRS fee
expense more appropriately with the related revenue and to make treatment
consistent with the Company's standard revenue recognition policies. The effect
of the change was to increase income by approximately $144 or $0.02 per share
net of the effect of income taxes in 1997.  The cumulative effect of the change
in accounting principle on prior years is immaterial.

(12)   STOCK-BASED COMPENSATION

In 1995, the Airways Corporation Stock Option Plan and Director Stock Option
Plan (the "Plans") were established.  The Plans provide for the granting to
directors, officers and key employees of the Company qualified and non-qualified
stock options and incentive stock options.  Options are granted at the fair
market value of the Company's common stock at the time of grant for a period not
in excess of ten years.  Generally, options vest over a one year period from
the date of grant. The purchase price of the stock may not be less than 110% of
the fair market value of the Company's common stock on the date of the grant for
participants owning 10% or more of the outstanding common stock or 100% of the
fair market value for all other participants.  As of March 31, 1996, 40,000
options had been exercised pursuant to a change made to the Plan resulting in
$224 of compensation expense during the year ended March 31, 1996. A total of
1,300,000 shares of the Company's common stock have been reserved for issuance
pursuant to options





                                      47
<PAGE>   48

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)


granted under the Plans.  At March 31, 1997 the number of shares available for
future grant was 358,000.

Information with respect to stock options granted under the Plans is as
follows:


<TABLE>
<CAPTION>

                                                       1997                         1996
                                                ----------------------        --------------------- 
                                                              Weighted                     Weighted
                                                               Average                      Average
                                                              Exercise                     Exercise
                                               Shares          Price         Shares          Price        
                                               ------          -----         ------          -----
<S>                                          <C>             <C>             <C>            <C>
Balance, beginning of fiscal year             610,000          $  4.60             0              -
Granted                                       344,000             5.22       820,000         $ 4.13
Lapsed                                        119,000             5.43       103,000           2.81
Exercised                                      32,000             2.70       107,000           2.70
                                              -------          -------       -------         ------
Outstanding at 3/31                           803,000          $  4.82       610,000         $ 4.60
                                              =======          =======       =======         ======
Exercisable at
  year end March 31                           503,000                -             0              -
                                              =======          =======       =======         ======

</TABLE>



                                      48
<PAGE>   49

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)


(12),     CONTINUED

The following table summarizes information about stock options outstanding at
March 31, 1997:

<TABLE>
<CAPTION>
                                 Options Outstanding                         Options Exercisable
                 ---------------------------------------------------      -----------------------
                                      Weighted              Weighted                     Weighted
 Range of                              Average               Average                      Average
 Exercise          Number             Remaining             Exercise        Number       Exercise
  Prices         Outstanding       Contractual Life          Price        Exercisable     Price
 -------         -----------       ----------------         --------      -----------    --------
<S>              <C>               <C>                     <C>            <C>            <C>
  $0-5             496,000             4.6 years              $  3.04        350,000         $ 2.70
 $5-10             282,000             5.1 years              $  7.43        128,000         $ 8.73
$10-15              25,000             4.9 years              $ 10.75         25,000         $10.75
                   -------                                                   -------
 $0-15             803,000             4.8 years              $  4.82        503,000         $ 4.63
                   -------                                                   -------      
</TABLE>


The Company applies Opinion 25 in accounting for the Plans.  Since stock
options under the Plans are issued at fair market value on the date of award,
no compensation cost has been recognized.

SFAS 123 provides an alternative to Opinion 25 whereby values may be ascribed
to options using a valuation model and amortize to compensation expense over
the vesting period of the options.  Had the Company applied SFAS 123 in
accounting for stock options, net income and net income per share would have
been the pro forma amounts indicated below:


<TABLE>
<CAPTION>
                                                 1997                                 1996
                                   ----------------------------          ----------------------------
                                   In Thousands       Per Share          In Thousands       Per Share
                                   ------------       ---------          ------------       ---------
<S>                                <C>                <C>                <C>               <C>
Net Income                          $  (6,991)           (.77)            $   1,187           0.13
SFAS No. 123 pro-forma        
   adjustment after tax             $    (620)           (.07)            $    (298)         (0.03)
                                    ---------           -----             ---------         ------
Net Income pro-forma                $  (7,611)           (.84)            $     889           0.10
                                    ---------           -----             ---------         ------
</TABLE>



                                      49
<PAGE>   50

                              AIRWAYS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)


(12),    CONTINUED

The pro forma adjustments relate to options granted during 1997 and 1996 for
which a fair value on the date of grant was determined using the Black-Schole
option pricing model.  Valuation and related assumption information are
presented below:





<TABLE>
<CAPTION>

                                                         1997            1996
                                                         ----            ----
<S>                                                  <C>              <C>
Valuation Assumption:
   Expected life                                            4               4
   Expected volatility                                  69.00%          69.00%
   Risk free interest rate                               6.53%           5.97%
   Expected annual dividend per share                       0               0
   Expected annual forfeitures                              0               0

</TABLE>

                                                        




                                      50
<PAGE>   51


INDEX TO EXHIBITS

 EXHIBIT #      NAME

        4.1     Warrant Agreement between Airways Corporation and Aviation
                Management Systems, Inc. dated January 8, 1997

       10.19    Letter of Credit Facility Agreement between SunTrust Bank, 
                Central Florida, N.A. and AirTran Airways, Inc. 
                and Airways Corporation dated March 7, 1996.

       10.20    Term Note between SunTrust Bank, Central Florida, N.A. and 
                AirTran Airways, Inc. and Airways Corporation dated
                March 7, 1996.

       10.21    Leasehold Mortgage and Security Agreement between AirTran 
                Airways, Inc. and SunTrust Bank, Central Florida, N.A.
                dated March 7, 1996. 

       10.22    Security Agreement between AirTran Airways, Inc. and 
                SunTrust Bank, Central Florida, N.A., dated March 7, 1996.

       11.0     Statement of Computation of Weighted Average Shares and Per
                Share Earnings.

       18.0     Preference letter re:  Change in accounting principles.

       21.0     Subsidiary of Airways Corporation.

       23.1     Letter re:  Consent of Arthur Andersen LLP.

       23.2     Letter re:  Consent of KPMG Peat Marwick LLP.

       27.0     Financial Data Schedule (submitted only in electronic format).





                                      51