FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

     [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 

                              EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

     For the transition period from __________________ to___________________

                        Commission file number: 000-23447

                           MIDWAY AIRLINES CORPORATION

             (Exact name of registrant as specified in its charter)

DELAWARE                                                              36-3915637
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)


                        300 WEST MORGAN STREET, SUITE 1200
                           DURHAM, NORTH CAROLINA 27701
                     (Address of principal executive offices)
                                    (Zip Code)
                                   919-956-4800
               (Registrant's telephone number, including area code)

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

       None                                                       None

(Title of Class)                                           (Names of exchange on
                                                               which registered)

Securities registered pursuant to Section 12(g) of the Act:    Common stock, par
                                                               value $0.01
                                                               (Title of class)

Indicate by checkmark 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 checkmark 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. 

Aggregate approximate market value of voting stock held by non-affiliates as of
February 19, 1999: $61.2 MILLION

As of February 19, 1999 there were 8,602,395 shares of Common Stock, $.01 par
value, of the registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Document Incorporated                                      Part of Form 10-K
-----------------------------                              -----------------
Proxy Statement for 1999 Annual Meeting of Shareholders    Part III, Items 10-13


                          MIDWAY AIRLINES CORPORATION
                                   FORM 10-K

For the year ended December 31, 1998

TABLE OF CONTENTS

  PART I                

  Item 1. Business

  Item 2. Properties

  Item 3. Legal Proceedings

  Item 4. Submission of Matters to a Vote of Security Holders

  PART II

  Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

  Item 6. Selected Financial Data

  Item 7. Management's Discussion and Analysis of Financial Condition and
          Results of Operations

  Item 8. Financial Statements and Supplementary Data

  Item 9. Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure

  PART III

  Item 10. Directors and Executive Officers of the Registrant

  Item 11. Executive Compensation

  Item 12. Security Ownership of Certain Beneficial Owners and Management

  Item 13. Certain Relationships and Related Transactions

  PART IV

  Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

  SIGNATURES

  SCHEDULE I - VALUATION AND QUALIFYING ACCOUNTS

  EXHIBIT INDEX

PART I

Item 1. Business

Midway Airlines Corporation ("Midway" or the "Company") was incorporated under
the laws of the State of Delaware in 1983 as Jet Express Inc. and renamed Midway
Airlines Corporation in November 1993 in connection with its commencement of jet
operations. The Company is an all jet aircraft operator serving 19 destinations
in 12 states from its hub at Raleigh-Durham International Airport ("RDU") in
North Carolina, where it currently carries more passengers and operates more
flights than any other airline. The Company focuses its operations to attract
and retain business travelers by providing frequent non-stop service from RDU to
major business destinations, maintaining a high level of service and offering
American Airlines Inc. ("American") AAdvantage(R) frequent flyer miles. The
Company currently operates one of the youngest all jet fleets in the United
States with ten 98-seat Fokker F-100s, 11 50-seat Canadair Regional Jets
("CRJs")and one 148-seat Airbus A320. The 11 CRJs were delivered to the Company
in the period from December 1997 through January 1999. To further serve its
market niche, the Company has firm orders for 12 additional CRJs to be delivered
by March 2000. The Company has options to acquire up to 17 additional CRJs with
later delivery dates. The Company removed from service two F-100s at the end of
their leases in November and December of 1998. The Company intends to remove
from service at the end of their lease terms two additional F-100s and the A320
in the first half of 1999. The Company anticipates that the 12 additional CRJs
will expand the Company's capacity as measured by departing seats by 15%, taking
into account the aircraft to be removed from service as described above. They
will be utilized to serve existing Midway destinations with greater frequency
and to enter new routes, providing Midway's customers with more non-stop jet
destinations.

In March 1995, the Company moved its base of operations from Chicago to RDU
following American's reduction in service in the Raleigh-Durham market. RDU
offers modern facilities with room for the Company to grow. The Company
subleases or has options to sublease 19 of the 27 gates at one of RDU's two
terminals, Terminal C. The remaining eight gates in Terminal C are used or
controlled by American and Corporate Airlines, the latter of which is Midway's
code sharing commuter partner. Substantially all of the gates at RDU's other
terminal are occupied.

The Company maintains a significant relationship with American. Part of this
relationship includes contractual arrangements with American that allow Midway
to offer AAdvantage(R) miles to, and accept AAirpass(R) tickets, American first
class upgrades and AAdvantage(R) reward travel from, its passengers. Midway also
contracts with American for important services, including yield management,
maintenance, ground handling and fueling.

In February 1997, the Company completed a Recapitalization (the
"Recapitalization"), resulting in a change in ownership and management. The
Recapitalization resulted in reductions of approximately $12 million in annual
expenses, including a decrease in aircraft rent expense, a decrease in facility
rentals, a decrease in the cost of certain services and a reduction in net
interest expense.

In addition to the Recapitalization, the Company discontinued flying certain
unprofitable long-haul routes. Since the Recapitalization, the Company has
experienced a significant improvement in profitability and financial condition.
The Company believes that its improved results are attributable to the benefits
realized from the Recapitalization, route restructuring, improved yield
management, increased capacity and passenger demand, and a generally strong
economic environment.

In December 1997, the Company completed an initial public offering of its common
stock at $15.50 per share. Of the 4,830,000 shares of common stock sold,
2,699,320 shares were sold by the Company and the remaining 2,130,680 shares
were sold by selling stockholders. Proceeds to the Company, net of underwriters'
discount and offering expenses, were approximately $37.7 million.

OPERATING STRATEGY

The principal elements of the Company's operating strategy are:

o  ATTRACT HIGH-YIELDING LOCAL BUSINESS TRAVELERS. Based on 1998 data, the
   Company's yields were higher than the yields of many other jet operators. To
   attract high-yielding passengers, the Company has designed its operations to
   serve the needs of business travelers flying to and from Raleigh-Durham. The
   Company has developed relationships with major corporations located in the
   Raleigh-Durham area, and offers these business travelers frequent non-stop
   jet service, as well as an attractive, high quality in-flight product and
   AAdvantage(R) frequent flyer miles. The Company believes this focus on the
   needs of business travelers has produced a loyal customer base and a higher
   percentage of business travelers than other carriers.

o  MAINTAIN HIGH QUALITY OPERATIONS. Because the Company's business customers
   require consistent, dependable performance, Midway is committed to meeting
   the highest operational standards. The Company believes its completion factor
   and on-time performance levels were higher than those of the major carriers.
   The Company achieved these performance measures by (i) operating one of the
   youngest all jet fleets in the United States, with an average age of 2.6
   years as of December 31, 1998, (ii) maintaining spare aircraft to ensure a
   high completion factor and (iii) using high quality maintenance providers
   such as American, affiliates of Bombardier Inc. and of Rolls-Royce.


o  PROVIDE QUALITY CUSTOMER SERVICE. The Company seeks to generate a high degree
   of loyalty and customer preference by providing high quality in-flight
   amenities and customer service. The Company emphasizes customer service from
   reservation to destination and offers tangible amenities such as greater leg
   room, leather seating (on all aircraft except the Company's single A320),
   gourmet coffee, quality snacks and a quiet, modern all-jet fleet.

o  CONTINUE TO REDUCE OPERATING COSTS. Because of its focus on business
   travelers and premium service, its small aircraft and its relatively short
   average stage length, the Company operates with yields and a cost per
   available seat mile that are higher than industry averages. The Company is
   committed to maintaining a competitive cost structure and has identified a
   number of cost reduction opportunities. In addition to the cost savings
   resulting from the Recapitalization, the Company has entered into new
   maintenance contracts, reduced dependence on third-party vendors for
   reservation call handling, reduced the cost of credit card processing and
   reduced certain insurance costs. The Company has also lowered the travel
   agency base commission rate and implemented an automated voice-response
   flight information system. Although the introduction of regional jet aircraft
   will shorten average stage length, the Company believes it should result in
   additional cost benefits, including greater economies of scale and more
   efficient utilization of facilities and personnel.

GROWTH STRATEGY

The Company believes that RDU is relatively under-served with respect to
non-stop flights. To address this need and to better serve its core business
customers, since December 1997, the Company has placed in service 11 recently
acquired 50-seat CRJs. The Company has firm orders for 12 additional CRJs, which
are scheduled to be delivered in 1999 and early 2000 and has options to
acquire up to 17 additional CRJs.

The principal elements of the Company's growth strategy are:

o  INCREASE FREQUENCIES TO CURRENT MARKETS. The Company's market share and route
   profitability are greatest on routes where it offers the same or higher
   frequency and better timing of flights compared to its competitors. The
   Company's core customers are business travelers who generally pay higher
   fares and select an airline primarily based on convenience of schedule.
   Introduction of the new CRJs has enabled the Company to increase frequency
   and offer more convenient scheduling to current markets, without necessarily
   increasing overall capacity in these markets. With the delivery of the eleven
   new CRJs, the Company has increased frequency to Boston, Ft. Lauderdale,
   Hartford, Newark, Newburgh, Orlando, Philadelphia and Tampa.

o  INCREASE NUMBER OF MARKETS SERVED. The Company has identified a number of new
   market opportunities that it believes can support service primarily on an
   "origination and destination" (i.e., local passenger) basis. In addition, the
   Company believes that existing demand on a number of routes currently served
   with 19-seat turboprop aircraft by Midway's code sharing commuter partner,
   Corporate Airlines, can support 50-seat CRJ service. The Company believes
   that some customers have a strong preference for jet service, and will pay a
   premium or choose a connecting flight to avoid flying on turboprop aircraft.
   The Company anticipates attracting these customers with the introduction of
   the CRJs in these markets. Four of the new CRJs were utilized to initiate
   service to Columbus, Ohio, Indianapolis, Indiana, Jacksonville, Florida and
   New Orleans, Louisiana. Available CRJ aircraft time has also been used to
   initiate supplemental (one round-trip per day) CRJ service to Charleston,
   Columbia and Myrtle Beach, South Carolina, all of which are served by
   Corporate Airlines at other times of the day.

Opening new markets requires the commitment of a substantial amount of
resources, both before the new services commence and throughout the early phases
of the new operation. There can be no assurance that the Company will be able to
identify and successfully establish new markets.

RALEIGH-DURHAM MARKET

The Company believes that it is well positioned to benefit from the rapidly
expanding Raleigh-Durham area. Raleigh-Durham's metropolitan population is
approximately 1.1 million.

The Company currently carries more passengers and operates more flights at RDU
than any other airline. Air travel at RDU has grown by an average of 9% per year
from 1991 to 1997, compared to 5% for the United States as a whole. The Company
believes that the area's growing business community offers opportunities for
expansion at RDU with regional jets. The Company's growth has focused and will
continue to focus on adding flights to and from its Raleigh-Durham base of
operations. Because all of Midway's current flights have Raleigh-Durham as the
origin or destination, it remains highly dependent upon the Raleigh-Durham
market. Thus a reduction in share of the Raleigh-Durham market or reduced
passenger traffic to or from Raleigh-Durham could have a material adverse effect
on the Company's financial condition and results of operations. In addition,
Midway's dependence on a single hub and on a route network operating largely on
the East Coast makes the Company more susceptible to adverse weather conditions
along the East Coast than some of its competitors that may be better able to
spread weather-related risks over larger route systems.

SERVICES

ROUTES AND SCHEDULE

The Company currently provides non-stop service from RDU to the following 19
cities: Atlanta, Georgia; Boston, Massachusetts; Charleston, South Carolina;
Columbia, South Carolina; Columbus, Ohio; Ft. Lauderdale, Florida; Hartford,
Connecticut; Indianapolis, Indiana; Jacksonville, Florida; Myrtle Beach, South
Carolina; Newark, New Jersey; New Orleans, Louisiana; New York/LaGuardia, New
York; Orlando, Florida; Philadelphia, Pennsylvania; Stewart/Newburgh, New York;
Tampa, Florida; Washington, D.C.; and West Palm Beach, Florida. The Company
believes that business travelers select an airline primarily based on
convenience of schedule, with a strong preference for frequent, non-stop
service. Midway believes that three flights per day is the minimum service
pattern necessary to successfully serve its core business customers, and
therefore currently offers between three and six flights per business day in all
but two of its all jet markets. The introduction of the CRJs has allowed the
Company to increase frequency in several markets without necessarily increasing
overall capacity in these markets.

HIGH QUALITY CUSTOMER SERVICE

The Company has consistently promoted, and been recognized by its customers for,
quality customer service that distinguishes Midway from other airlines. Midway
believes it has attained its superior level of customer service through the
efforts of its professional and personable employees and the provision of
amenities such as greater leg room, leather seating (on all aircraft except the
Company's single A320), gourmet coffee, quality snacks and a quiet, modern all
jet fleet. Although the Company does not report on-time statistics and
baggage delivery performance, it consistently ranks high relative to the
nation's ten largest airlines that do report these statistics to the DOT. For
example, for the 12 months ended December 31, 1998, using DOT statistics and
statistics compiled from its own reports, Midway's on-time performance and
baggage delivery performance exceeded that of all major carriers.

MAINTENANCE AND SUPPORT

The Company is dedicated to providing the highest level of maintenance quality
and reliability. The Company's emphasis on high quality maintenance is evidenced
by its experienced maintenance management, extensive and recurrent mechanic
training and selection of high quality maintenance providers. The Company
performs all low level checks (below "C" Check) and non-routine maintenance at
RDU or at a maintenance facility in Orlando, Florida. Major inspections and
overhauls of the airframes and engines are conducted by contract vendors whose
work and procedures are closely monitored by Midway maintenance management
personnel. The principal contract vendors currently engaged by the Company to
perform major inspections of the airframe and to perform engine overhauls
include American and affiliates of Bombardier Inc. and of Rolls-Royce.

Ten of Midway's current 22 aircraft are Fokker F-100s. Fokker Aircraft B.V., a
Dutch corporation, entered into insolvency proceedings in March 1996 and ceased
operations. As a result, the Fokker F-100 is no longer being manufactured and
the Company's cost to maintain this aircraft generally exceeds the cost of those
aircraft that continue to be produced. Vendors and suppliers of key parts are
generally fewer in number and their products more expensive, and engineering is
not as readily available.

SALES AND MARKETING

PRICING AND YIELD MANAGEMENT

The Company's strategy is designed to result in premium yields. The Company
believes its efforts to identify favorable markets and provide premium non-stop
service enables it to generate a high degree of loyalty among its passengers and
to attract a large percentage of business travelers on its flights. Pursuant to
an agreement with American, the Company began implementing a version of
American's yield management system in 1996, and it became fully operational in
February 1997. The system has enabled Midway to significantly enhance its
ability to maximize revenues. Midway's license to use the system and to obtain
related services from American personnel currently extends through August
2001, and may be extended thereafter at market terms or may be perpetually
licensed by Midway for a fixed price.

DISTRIBUTION

Midway approximately 66% of its tickets through travel agents. Travel agents
receive commissions from airlines based on the price of the tickets they sell.
In 1995, many airlines began limiting or capping the amount of commissions they
would pay to agents for certain higher priced tickets and in September 1997,
several major carriers lowered their base commission rate from 10% to 8%. At the
time Midway elected not to lower its base commission rate to 8%, but to further
study its base commission rate and its impact on sales growth. In March 1998,
following analysis, the Company elected to lower its base commission rate to 8%
with no cap.

Midway pays additional commissions, referred to as "overrides", to some travel
agents in connection with special revenue programs. The Company believes these
override programs result in incremental revenue to the Company. Special services
offered include Midway's full-time staffing of the "Carolina Desk" within its
sales department to answer questions or otherwise attend to the needs of these
important customers. The Company believes that the combination of higher
available commissions, the development of relationships between these travel
agents and senior management and the devotion of resources to meet the needs of
these agencies has resulted in strong support of Midway by travel agencies.

CORPORATE RELATIONSHIPS

The Company believes that it receives a substantial share of travel from the
local Raleigh-Durham business community on the routes that it serves. The
Company believes that this success is in part a result of its significant
efforts to meet the demands of its core business customers, its established
relationships with many local, national and international corporations in the
Raleigh-Durham area and the support it receives as the "hometown" airline.
Discounts are offered to a limited number of corporations in exchange for a
premium share of their travel. Employees of some of these corporations may also
be offered discounts for leisure weekend travel on flights that would otherwise
operate with empty seats. This program, called "Midway Weekend Madness", has
helped build loyalty in the Raleigh-Durham market. Midway sales agents visit
customers on a regular basis to solicit their input and to answer questions.
Each sales manager is supported by a help desk staffed full time by employees
trained to meet these customers' needs.

AMERICAN RELATIONSHIP

The Company maintains a significant relationship with American. Part of this
relationship includes contractual arrangements with American that allow Midway
to participate in the AAdvantage(R) frequent flyer program and accept
AAirpass(R) tickets and American first class upgrades from its passengers.
Midway also contracts with American for its sublease of the RDU facility and a
number of important services, including yield management, maintenance, ground
handling and fueling.

American may terminate Midway's participation in the AAdvantage(R) program under
several circumstances, including (i) the Company's commencement of a new
frequent flyer program or its participation in another frequent flyer program,
(ii) any person or group becoming the owner of 20% or more of the Company's
outstanding voting securities or any "Disqualified Investor" becoming the owner
of 10% or more of the Company's outstanding voting securities, (iii) the making
of a significant acquisition by the Company or (iv) the Company entering into
any marketing-oriented collaborative agreement with another airline which
American reasonably believes would likely materially adversely affect American's
interests or objectives under any of its or its affiliates' agreements with the
Company. "Disqualified Investor" is defined as (i) any other airline or
airline-related services company, (ii) any person or entity offering a frequent
traveler program or (iii) any person or entity that American believes would
likely, by virtue of its affiliation with the Company, materially adversely
affect American's interests or objectives under any of its or its affiliates'
agreements with the Company. In addition, American may terminate the Company's
sublease of the RDU facility and one other service agreement that the Company
has with American if any person or group acquires 30% or more of the Company's
voting securities. Finally, if the Company pays any dividends or makes any other
cash or asset distribution to its stockholders without American's consent at any
time prior to the Company's payment in full of a certain promissory note to
American, then American may terminate the RDU facility sublease, the Company's
right to offer AAdvantage(R) frequent flyer benefits, the Company's license of
the yield management system and one other service agreement.

FREQUENT FLYER PROGRAM

Midway has been a partner in American's AAdvantage(R) frequent flyer program
since March 1995. Upon its arrival at RDU, Midway's participation in this
program quickly facilitated its access to a large and loyal group of
AAdvantage(R) members in the Raleigh-Durham area and along the East Coast. For
payment of a per-mile fee, the Company is able to offer its passengers the
ability to obtain award mileage on every current flight (other than those to and
from Columbus, Ohio and Indianapolis, Indiana) and AAdvantage(R) award
certificates can be redeemed for travel on Midway, American or other
AAdvantage(R) partners. Midway's contract with American extends through April
30, 2001 and gives the Company the ability to offer AAdvantage(R) miles on
several additional routes, though the Company may add new routes without having
the ability to offer AAdvantage(R) miles. The ability to offer AAdvantage(R)
miles on additional routes and the extension of the term of the agreement are
the subject of ongoing discussions between the Company and American. The Company
believes its participation in the AAdvantage(R) program gives it access to a
flexible and extremely powerful marketing tool. However, due to the potential
limitations of the agreement (including the number of additional markets and the
term of the agreement), the Company may in the future choose to develop its own
frequent flyer program or participate in an alternate program.

MARKETING

The Company markets its services through listings in computer reservations
systems and the Official Airline Guide; through advertising and promotions in
newspapers, magazines, billboards and radio; and through direct contact with
travel agencies, corporate travel departments, wholesalers and consolidators.
The Company maintains a nationwide toll-free telephone number for use by
passengers to make reservations and purchase tickets and has sales
representatives assigned to all regions where Midway operates. The service mark
"Feel Like Flying Again" was adopted in 1995 when the Company began RDU
operations to communicate a level of service that is reminiscent of flying when
airlines generally provided higher quality service than is perceived today.

EMPLOYEES AND LABOR RELATIONS

As of December 31, 1998, the Company had the number of full time equivalent
employees in the categories listed below:

                  Flight Operations                   212
                  Inflight                            146
                  Passenger Services                  281
                  Maintenance                          65
                  Reservations & Marketing            136
                  Accounting & Finance                 26
                  Administrative                       59
                                                      ---
                  Total                               925
                                                      ===

The Railway Labor Act ("RLA") governs the labor relations of employers and
employees engaged in the airline industry. Comprehensive provisions are set
forth in the RLA establishing the right of airline employees to organize and
bargain collectively along craft or class lines and imposing a duty upon air
carriers and their employees to exert every reasonable effort to make and
maintain collective bargaining agreements. The RLA contains detailed procedures
which must be exhausted before a lawful work stoppage can occur.

The Company's pilots and fleet service (ramp) employees are represented by labor
unions. The pilots' representative, Air Line Pilots Association, was elected in
December 1997, and the ramp employees' representative, International Association
of Machinists & Aerospace Workers, AFL-CIO, was elected in June 1998. Prior to
those times, none of the Company's employees were represented by a union.
Although the Company believes mutually acceptable agreements can be reached with
the unions representing such employees, it has only recently begun negotiations
and, therefore, the ultimate outcome of such negotiations is unknown at this
time. In a December 1998 representation election the Association of Flight
Attendants, AFL-CIO ("AFA") obtained the votes necessary to represent Midway's
flight attendants. On December 18, 1998 Midway filed a motion with the National
Mediation Board ("NMB") alleging that the AFA interfered with the election. In
February 1999 the NMB found that the AFA had made misrepresentations during the
December 1998 election campaign but never-the-less certified the AFA as the
representative of Midway's flight attendants. No determination has yet been made
whether or not to seek judicial review of this decision by the NMB.

The Company believes its management and employees have a good relationship.
Management, including the Company's President and Chief Executive Officer, meet
with pilots, flight attendants, customer service agents and other employees on a
routine basis to discuss Company objectives as well as more specific labor
related issues such as scheduling, compensation and work rules. Management
believes it has addressed concerns in a timely and responsive manner.

GOVERNMENT REGULATION

GENERAL

The Company is subject to the jurisdiction of and regulation by the DOT, the FAA
and certain other governmental agencies. The DOT principally regulates economic
issues affecting air service such as air carrier certification and fitness,
insurance, authorization of proposed scheduled and charter operations, consumer
protection and competitive practices. In 1993, the Company was granted a
Certificate of Public Convenience and Necessity pursuant to Section 401 of the
Federal Aviation Act authorizing it to engage in air transportation. The DOT has
authority to investigate and institute proceedings to enforce its economic
regulations and may in certain circumstances assess civil penalties, revoke
operating authority and seek criminal sanctions.

The FAA primarily regulates flight operations, in particular matters affecting
air safety, such as airworthiness requirements for aircraft, and pilot and
flight attendant certification. The FAA requires each carrier to obtain an
operating certificate and operations specifications authorizing the carrier to
operate to specific airports using specified equipment. All of the Company's
aircraft must have and maintain certificates of airworthiness issued by the FAA.
The Company holds an FAA air carrier operating certificate under Part 121 of the
Federal Aviation Regulations. The FAA has the authority to modify, suspend
temporarily or revoke permanently the authority of the Company or its licensed
personnel, after notice and a hearing, for failure to comply with regulations
promulgated by the FAA and to assess civil penalties for such failures. 

In September 1997, the Civil Aviation Security Division of the FAA conducted an
investigation of the Company's compliance with certain regulations requiring the
Company to verify the accuracy of background information provided by its
employees who have access to secure airport areas. This investigation will
likely result in the finding of violations of these regulations. The Company
revised its background check procedures during the course of the FAA's
investigation and then obtained and verified the necessary background
information of those employees who had been identified by the FAA as having
insufficient background check documentation. While the Company is unable to
determine whether the FAA will pursue an assessment as a result of the findings
of this investigation, the Company believes that such an assessment would not
have a material effect on the Company.

In August 1998, the Compliance and Enforcement Branch of the Drug Abatement
Division of the FAA conducted an inspection of the Company's compliance with
certain regulations related to its alcohol and drug testing programs. In
September 1998, the FAA notified the Company that it was investigating alleged
violations discovered during the August 1998 inspection. The Company responded
to these alleged violations in October 1998 and has received no further
correspondence from the FAA in this respect. The Company is unable to determine
whether the FAA's investigation will result in the finding of violations of
these regulations and, if so, whether the FAA will pursue an assessment as a
result of any such findings or what the amount of any such assessment might be.
The Company believes that any such assessment would not have a material effect
on the Company.

The FAA also has authority to issue maintenance directives and other mandatory
orders relating to, among other things, inspection of aircraft and engines, fire
retardant and smoke detection devices, increased security precautions, collision
and windshear avoidance systems, noise abatement and the mandatory removal and
replacement of aircraft parts that have failed or may fail in the future.

The Company is regulated by the Environmental Protection Agency and state and
local agencies with respect to the protection of the environment and to the
discharge of materials into the environment. At its aircraft line maintenance
facilities, the Company uses materials that are regulated as hazardous
substances under federal and state law. The Company maintains programs to
protect the safety of its employees who use these materials and to manage and
dispose of any waste generated by the use of these materials, and believes that
it is in substantial compliance with all applicable laws and regulations.

In addition, the Immigration and Naturalization Service, the U.S. Customs
Service, and the Animal and Plant Health Inspection Service of the Department of
Agriculture have jurisdiction over inspection of the Company's aircraft,
passengers and cargo to ensure the Company's compliance with U.S. immigration,
customs and import laws.

The Company is also subject to other federal and state laws and regulations
relating to protection of the environment, radio communications, labor
relations, equal employment opportunity and other matters.

SAFETY

The Company has never had an accident, and is dedicated to ensuring its
customers' safety. The FAA monitors the Company's compliance with maintenance,
flight operations and safety regulations, maintains representatives on-site and
performs frequent spot inspections, and the Company believes it has a strong and
open relationship with its regional FAA office. The Company believes it is in
compliance with all requirements necessary to maintain in good standing its
operating authority granted by the DOT and its air carrier operating certificate
issued by the FAA. A modification, suspension or revocation of any of the
Company's DOT or FAA authorizations or certificates could have a material
adverse effect upon the Company.

SLOTS

The FAA's regulations currently limit the availability of, and permit the
buying, selling, trading and leasing of, certain airline slots, including those
at Chicago's O'Hare, New York's LaGuardia and Kennedy International and
Washington, D.C.'s National airports. A slot is an authorization to take off or
land at the designated airport within a specified time window. Midway uses ten
slots at New York's LaGuardia Airport, three of which are owned and seven of
which are leased from a third party airline. Midway uses eight slots at
Washington, D.C.'s National Airport, two of which are owned and six of which are
leased from a different third party airline. Although the Company's slot leases
at each of National Airport in Washington D.C. and LaGuardia Airport in New York
are currently scheduled to expire in April 2000, the Company believes it will be
able to renew these leases on terms that will be acceptable to the Company.

The FAA's slot regulations require the use of each slot at least 80% of the
time, measured on a bimonthly basis. Failure to meet this utilization threshold
without a waiver from the FAA, which is granted only under exceptional
circumstances, subjects the slot to recall by the FAA. In addition, the slot
regulations provide that slots may be withdrawn by the FAA at any time without
compensation to the carrier holding or operating the slot to meet the DOT's
operational needs, such as providing slots for international carriers or
essential air transportation.

FOREIGN OWNERSHIP

Pursuant to law and the regulations of the DOT, the Company must be effectively
controlled by United States citizens. In this regard, the Company's President
and at least two-thirds of the Company's Board of Directors must be United
States citizens and not more than 25% of the Company's voting stock may be owned
by foreign nationals (although subject to DOT approval the percent of foreign
economic ownership may be as high as 49%).

FUEL

The cost of fuel is a significant operating expense, constituting approximately
13.4%, 12.6% and 10.5% of total expenses for the years ended December 31, 1996,
1997 and 1998, respectively. Historically, jet fuel costs have been subject to
wide price fluctuations. Jet fuel availability is also subject to periods of
market surplus and shortage. Because of the effect of such events on price and
availability of oil, the cost and future availability of jet fuel cannot be
predicted with any degree of certainty.

The Company's fuel requirements are met by approximately a dozen different
suppliers. The Company contracts with these suppliers as fuel is needed, and the
terms vary as to price and quantity. The Company has not entered into any
agreement that fixes the price of fuel over any period of time.

COMPETITION

The airline industry is highly competitive and the Company competes with other
air carriers on many of its routes. Nearly all of these carriers have greater
financial resources than the Company, and most of them have lower unit costs
than the Company. Furthermore, the introduction of service or discounted fares
by a major U.S. airline or one of its low cost affiliates in markets served by
the Company could have an adverse impact upon its business, financial condition
and results of operation. Since late 1997, the Company has experienced, and
likely will continue to experience, increased competition in the Raleigh-Durham
market.

INSURANCE

The Company maintains insurance policies of types customary in the industry and
in amounts management believes are adequate to meet DOT requirements and to
protect the Company and its property against material loss. The policies
principally provide coverage for public liability, passenger liability, baggage
and cargo liability, property damage, including coverage for loss or damage to
its flight equipment, and worker's compensation insurance. There can be no
assurance, however, that the amount of insurance carried by the Company will be
sufficient to protect it from material loss.

CONTROL BY EXISTING SHAREHOLDERS

James H. Goodnight, Ph.D., and John P. Sall currently own approximately 31.9%
and 15.5%, respectively, of the Company's outstanding shares of Common Stock,
without giving effect to the shares that may be issued upon the exercise of
outstanding warrants and stock options. Although the Company is not aware of any
arrangement or understanding, contractual or otherwise, that obligates Dr.
Goodnight and Mr. Sall to act in concert with respect to the Company, such level
of stock ownership by Dr. Goodnight and Mr. Sall may allow them to elect all of
their designees to the Board of Directors and to control the outcome of
virtually all matters submitted for a vote of stockholders. The combined equity
interests of Dr. Goodnight and Mr. Sall in Midway may have the effect of making
certain transactions more difficult or of delaying, deferring or preventing a
change in control of the Company.

Item 2. Properties

FLIGHT EQUIPMENT

Midway operates as of January 31, 1999 a fleet of ten Fokker F-100s, 11 Canadair
CRJs and one Airbus A320, with an average age of 2.6 years. The F-100s are
configured with eight first class seats and 90 coach seats, the CRJs are
configured with 50 single class seats and the A320 is configured with ten first
class seats and 138 coach seats. All of the aircraft meet Stage 3 noise
requirements imposed by federal law. The Company believes that its young all-jet
fleet gives it a significant advantage in attracting and retaining business
travelers and improves its reliability statistics. However, the limited number
of aircraft operated by the Company involves financial risks not present for
larger carriers that are able to spread their operating costs over more
equipment and routes. The Company's fleet at January 31, 1999 was as follows:

                OWNED      LEASED       TOTAL      AVERAGE AGE

      A320s      --           1           1            3.6
      CRJs        5           6          11            0.5
      F-100s     --          10          10            4.6

The Company has firm orders for 12 additional newly manufactured CRJ-200ER
Canadair Regional Jet aircraft, all of which are scheduled to be delivered by
March 2000. Midway also has options to acquire up to 17 additional CRJs with
delivery dates for the first seven of these aircraft extending over a one year
period beginning in the first half of 2000 and with the delivery dates for the
remaining ten of these aircraft beginning in March 2002. Pursuant to an
agreement with GE Aircraft Engines, a division of General Electric
International, Inc., the Company intends to purchase two CF34-3B1 spare engines
to support the operation of its CRJ-200ER aircraft.

The Company's lease of its Airbus A320 is scheduled to terminate in June
1999. The Company does not plan to renew the lease.

The mix of Midway's fleet between 98-seat F-100s and 50-seat CRJs should allow
the Company to meet expected passenger volumes while maintaining a competitive
cost structure, and should enhance the Company's ability to more efficiently
match its aircraft to its route network requirements. While the relative
uniformity of the fleet should also minimize training and maintenance costs
(after the June 1999 retirement of the A320) the dependence on two aircraft
types for substantially all of the Company's flights could have a material
adverse effect.

The Company's ten F-100 leases expire in one group of two and two groups of four
during the following date ranges: March 1999-May 1999, October 2003-January
2004, and January 2013, respectively. Each F-100 lessor has the right to
terminate its lease on six months' prior notice, provided that no lease can be
terminated if it would result in a fourth termination of any F-100 lease in any
12-month period, including scheduled terminations. This staggered schedule of
lease expirations combined with the Company's options to acquire up to seventeen
additional CRJs will give the Company the ability to continually evaluate and
change the size and composition of its fleet over time as necessary to take
advantage of changing market conditions. To support its operation of F-100
aircraft the Company acquired 2 spare Rolls Royce Tay 650-15 Engines in 1998.

Pursuant to a March 1995 purchase agreement, Midway is obligated to purchase
four Airbus A320 aircraft with deliveries in 2005 and 2006. The Airbus purchase
agreement also gives Midway an option to purchase up to four additional Airbus
A320 or A319 aircraft with delivery dates in 2007. To support the operation of
the four A320 aircraft, the Company also agreed to purchase one IAE V2527-A5
spare engine scheduled for delivery in November 2005 from International Aero
Engines AG ("IAE"). The IAE engine purchase agreement gives Midway an option to
purchase one additional spare engine for delivery in November 2006. The purchase
of the A320s and the associated spare engine may not fit with the Company's
current strategy. The Company is considering several alternatives with respect
to the A320s, including restructuring its agreement with Airbus or selling its
positions.

FACILITIES

Of the 27 gates at the newer of RDU's two terminals, Terminal C, the Company
currently subleases 14 gates through February 2013 and has options expiring in
August 1999 to sublease through February 2013 five additional gates. The
Company's corporate headquarters and reservations facility are located in
Durham, NC, where it subleases approximately 30,000 square feet of space. The
Durham facility sublease expires on July 31, 1999. The Company has entered into
a lease for headquarters and reservations space in Morrisville, North Carolina,
approximately one mile from RDU. The Company expects to occupy this space in the
2nd Quarter of 1999. The Company also occupies space in Orlando, Florida, where
it performs aircraft maintenance.

At most airports other than RDU, Midway obtains the use of gates as part of
third party ground handling contracts.

Item 3. Legal Proceedings

   The Company is a party to routine litigation incidental to its business.
Management believes that none of this litigation is likely to have a material
adverse effect on the Company's consolidated financial position or results of
operations.

Item 4. Submission of Matters to a Vote of Security Holders

None

Part II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

   The Company's common stock is traded on The Nasdaq Stock Market under the
symbol "MDWY". Trading began in December 1997 upon the completion of Midway's
initial public offering of common stock, and the following table sets forth the
reported high and low closing sale prices of the common stock for the periods
indicated:

1997                      High              Low
------                    ----              ----
Fourth Quarter          $17.500           $14.000

1998                      High              Low
------                    ----              ----
First Quarter           $21.750           $16.125
Second Quarter           21.063            17.750
Third Quarter            21.750             9.875
Fourth Quarter           14.875             9.688

1999                      High              Low
------                    ----              ----
First Quarter*          $17.125           $12.750

*through February 19, 1999

As of February 19, 1999 there were 8,602,395 shares outstanding and
approximately 4,800 beneficial shareholders.

   The Company has not paid cash dividends since its formation and does not
anticipate that cash dividends will be paid in the foreseeable future, since the
Company intends to retain any future earnings to finance the expansion and
continuing development of its business. In addition, one of the Company's debt
instruments prohibits the payment of dividends until such debt has been repaid
and certain aircraft leases prohibit the payment of dividends to insiders until
other debt has been repaid. The declaration and payment in the future of any
cash dividends will be at the election of the Company's Board of Directors and
will depend upon the earnings, capital requirements and financial position of
the Company, future loan covenants, general economic conditions and other
pertinent factors.

Sales of Securities Other Than Sales of Equity Securities Pursuant to
Regulation S

The Initial Public Offering of Common Stock and Use of Proceeds

    The Company completed an initial public offering of common stock in
December 1997.

Through December 31, 1998, the net proceeds from the offering were used as
follows:

o $1.2 million paid in settlement of the Treasury Lock (see Footnote 2 of 
  the Audited Financial Statements),
o $7.0 million to secure the Company's performance of its obligations under a
  credit card processing agreement,
o $3.8 million for aircraft purchase deposits
o $17.9 million for down payments and other costs on debt-financed aircraft,
  and
o $7.8 million was invested in cash equivalents and marketable securities
  pending future use.

Item 6.  Selected Financial Data

The following selected financial data are derived from the audited financial
statements of the Company. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto included elsewhere in
this document.


<TABLE>
<CAPTION>
<S>                                                        <C>             <C>          <C>         <C>          <C>
                                                           Five months                     Year ended   
                                                              ended                        December 31, 
                                                            December 31,                            
                                                               1994(12)     1995(12)     1996(1)     1997          1998
                                                               ----         ----         ----        ----          ----
                                                                     (dollars in thousands except per share amounts)
Statement of Operations Data:
Operating revenues:
     Passenger                                            $   14,662     $ 118,568    $ 173,541   $ 179,000    $ 205,566
     Other                                                     1,213         4,034        6,493       7,275        5,873
                                                            ----------    ----------   ----------  ----------   ----------
        Total operating revenues                                15,875       122,602      180,034     186,275      211,439
Operating expenses:
     Wages, salaries and related costs                           3,659        19,874       24,619      25,757       31,822
     Aircraft fuel                                               3,514        16,782       27,300      21,499       19,623
     Aircraft and engine rentals                                 5,328        30,889       34,113      30,495       29,927
     Commissions                                                 1,205         9,382       13,728      13,978       15,071
     Maintenance, materials and repairs                          1,383        13,551       17,930      15,760       16,603
     Other rentals and landing fees                              1,760        11,924       12,711       9,812        9,640
     Depreciation and amortization                                 334         2,056        1,346       1,999        6,162
     Other operating expenses                                    7,548        43,769       54,603      51,108       54,047
     Restructuring (2)                                           4,900         6,004            -           -            -
     Impairment of long-lived assets (3)                             -             -       16,941           -            -
     Equipment retirement charges (4)                                -             -            -           -        2,413
     Recapitalization (5)                                            -             -            -         750            -
                                                            ----------    ----------   ----------  ----------   ----------
</TABLE>

<TABLE>
<CAPTION>
<S>                                                        <C>             <C>          <C>         <C>          <C>
        Total operating expenses                                29,631       154,231      203,291     171,158      185,308
                                                            ----------    ----------   ----------  ----------   ----------
Operating income (loss)                                        (13,756)      (31,629)     (23,257)     15,117       26,131
Interest income (expense)                                          (29)         (413)      (1,841)        114       (1,972)
Other income (expense)                                             (29)         (222)         834           -            -
                                                            ----------    ----------   ----------  ----------   ----------
Total other income (expense)                                       (58)         (635)      (1,007)        114       (1,972)
                                                            ----------    ----------   ----------  ----------   ----------
Income (loss) before income taxes and extraordinary gain       (13,814)      (32,264)     (24,264)     15,231       24,159
Income tax expense                                                   -             -            -       6,306        9,178
Income (loss) before extraordinary gain                        (13,814)      (32,264)     (24,264)      8,925       14,981
Extraordinary gain (6)                                               -             -            -      15,969            -
                                                            ----------    ----------   ----------  ----------   ----------
Net income (loss)                                              (13,814)      (32,264)     (24,264)     24,894       14,981
Preferred dividends                                               (600)       (1,440)           -           -            -
                                                            ----------    ----------   ----------  ----------   ----------
Net income (loss) available for
     common stockholders                                    $  (14,414)    $ (33,704)   $ (24,264)   $ 24,894     $ 14,981
                                                            ==========    ==========   ==========  ==========   ==========
</TABLE>


<TABLE>
<CAPTION>
<S>                                                        <C>             <C>          <C>         <C>          <C>
Per Share Amounts (7):                                                                                                   
     Basic earnings per share:                                                                                           
        Income before extraordinary gain                                                               $ 1.47       $ 1.75
        Extraordinary gain                                                                               2.64            -
                                                                                                 -------------------------
        Net income                                                                                     $ 4.11       $ 1.75
                                                                                                 =========================
     Weighted average shares used in computing basic earnings per share                             6,059,051    8,574,972
                                                                                                 =========================
     Diluted earnings per share:                                                                                          
        Income before extraordinary gain                                                               $ 1.24       $ 1.54
        Extraordinary gain                                                                               2.22            -
                                                                                                 -------------------------
        Net income                                                                                     $ 3.46       $ 1.54
                                                                                                 =========================
     Weighted average shares used in computing diluted earnings per share                           7,193,794    9,731,527
                                                                                                 =========================
Other Financial Data:                                                                                           
Cash flows provided by (used in):
     Operating activities                                      (14,323)         (805)       5,784       8,765       20,894
     Investing activities                                         (354)       (6,876)      (2,614)    (25,219)      (8,872)
     Financing activities                                      (12,427)        3,571        4,836      60,158      (17,795)
</TABLE>

<TABLE>
<CAPTION>
Selected Operating Statistics(8):
                                                                                        Year ended December 31,  
                                                                      ----------------------------------------------------
                                                                           1995         1996 (1)       1997        1998     
                                                                      -------------- ------------ -----------  -----------
<S>                                                                        <C>          <C>         <C>          <C>      
Available seat miles (000s)                                                1,387,921    1,758,560   1,387,864    1,544,945 
Revenue passenger miles (000s)                                               692,681      998,959     875,752    1,008,567 
Load factor                                                                    49.9%        56.8%       63.1%        65.3% 
Break-even load factor (9)                                                     60.8%        59.2%       57.5%        56.8% 
Departures                                                                    24,403       29,192      26,898       35,990 
Block hours                                                                   38,933       48,682      42,867       55,783 
Passenger revenue per ASM (cents)                                               8.54         9.87       12.90        13.31 
Yield (cents)                                                                  17.12        17.37       20.44        20.38 
Average fare                                                                     $89          $99        $108         $103 
Cost per available seat mile (cents) (10)                                      10.70        10.66       12.28        11.97 
Onboard passengers                                                         1,338,438    1,742,957   1,660,140    1,995,117 
Average seats per departure                                                      108          104         101           88 
Average stage length                                                             532          571         524          475 
Aircraft (average during period)                                                11.0         13.7        13.0         18.1 
Aircraft utilization (hours per day)                                             9.9          9.8         9.0          8.4 
Fuel price per gallon (cents)                                                   69.0         80.6        73.4         57.3 
</TABLE>                                                               
                                                                         
<TABLE>                                                                    
<CAPTION>
                                                                    1995 (11)     1996 (11)   1997 (11)      1998     
                                                                 -------------- ------------ -----------  -----------
<S>                                                                  <C>          <C>           <C>          <C>      
Balance Sheet Data:                                                                                                        
Cash, cash equivalents, restricted cash and short-term                                                                     
  investments                                                        $  2,799    $  12,805    $ 58,071     $ 58,248 
Working capital                                                       (41,117)     (42,198)     20,826       32,880
Equipment and property, net                                             9,258        6,669      46,574      103,007 
Total assets                                                           56,010       38,384     139,810      203,581
Long-term debt and capital lease obligations (net of current                                                               
  maturities)                                                           7,307       11,704      39,187       78,764 
Stockholders' equity                                                  (18,385)     (40,569)     48,486       70,463
</TABLE>                                                          

(1) The Company reclassified certain balances to reflect classifications in 1997
and 1998 financial statements.

(2) The Company recorded restructuring charges for the five months ended
December 31, 1994 of $4.9 million, related to the Company's decision to move
from Chicago to RDU and in 1995 of $6.0 million related to the return of four
A320 aircraft and other related one-time charges.

(3) The Company recorded an impairment loss of $16.9 million from certain
long-lived assets, primarily intangible assets, that were determined by Company
management to be impaired in accordance with SFAS 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."

(4) The Company recorded equipment retirement charges related to the return of
four Fokker and one Airbus aircraft to their lessors.

(5) The Company recorded a one-time charge of $0.75 million in 1997 related to
the Recapitalization.

(6) Extraordinary gain includes one-time gains recognized in connection with the
Recapitalization.

(7) Since the Company was recapitalized in February 1997 and all prior capital
stock was cancelled at that time, per share amounts prior to 1997 are not
meaningful and thus are not presented.

(8) For definitions of the airline operating terms used in this table, see
"Glossary" below.

(9) "Break-even load factor" as represented above excludes restructuring,
impairment of long-lived assets, equipment retirement charges and
recapitalization expenses divided by the product of available seat miles and
yield. Had restructuring, impairment of long-lived assets, equipment retirement
charges and recapitalization expenses been included for the years ended December
31, 1995, 1996, 1997, and 1998 the break-even load factor would have been 63.3%,
64.6%, 57.8%, and 57.6%, respectively.

(10) "Cost per available seat mile" as represented above excludes restructuring,
impairment of long-lived assets, equipment retirement charges and
recapitalization expenses, divided by available seat miles. Had restructuring,
impairment of long-lived assets, equipment retirement charges and
recapitalization expenses been included for the years ended December 31, 1995,
1996, 1997, and 1998 cost per available seat mile would have been 11.1 cents,
11.6 cents, 12.3 cents, and 12.0 cents, respectively.

(11) Reflects prior period adjustment (see Footnote 14 of the Audited Financial
Statements)

(12) Does not reflect any possible adjustment due to the prior period adjustment
(see Footnote 14 of the Audited Financial Statements.) The net income statement
impact of any restatement for the 5 months ended 1994 and the year ended
December 31, 1995 would be approximately $1.3 million increase in the net loss.

Glossary

Certain terms included in this document have the meanings indicated below:

Aircraft (average during period)    The average number of aircraft owned or
                                    leased during the period.
Aircraft utilization                The average number of block hours operated
                                    in scheduled service per day per aircraft
                                    for the total fleet of aircraft.
Available seat miles (ASMs)         The number of seats available for scheduled
                                    passengers multiplied by the number of miles
                                    those seats were flown.
Average fare                        The average fare paid by a revenue
                                    passenger.
Average seats per departure         The average number of available seats per
                                    departing aircraft.
Average stage length                The average number of miles flown per
                                    flight.
Block hour                          The total time an aircraft is in motion from
                                    brake release at the origination to brake
                                    application at the destination.
Break-even load factor              The load factor at which scheduled passenger
                                    revenues would have been equal to operating
                                    plus non-operating expenses/(income)
                                    (holding yield constant).
Cost per available seat mile (CASM) Operating expenses plus non-operating
                                    expenses/(income) divided by ASMs.
Departure                           A scheduled aircraft flight.
Fuel price per gallon               The average price per gallon of jet fuel for
                                    the fleet (including fueling charges and
                                    taxes).
Load factor                         RPMs divided by ASMs.
Onboard passengers                  The number of revenue passengers carried.
Revenue passenger miles (RPMs)      The number of miles flown by revenue
                                    passengers.
Passenger revenue per available
seat mile(PRASM)                    Passenger revenues divided by ASMs.
Yield                               The average scheduled passenger fare paid
                                    for each mile a scheduled revenue passenger
                                    is carried.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS, THE NOTES THERETO AND THE OTHER FINANCIAL DATA INCLUDED
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

Results of Operations

For the year ended December 31, 1998 the Company's net income was $15.0 million.
Excluding the unusual items discussed below, net income was $17.4 million, up
96% from the net income of $8.9 million for the year ended December 31, 1997.
Operating income rose 73% in 1998 to $26.1 million from $15.1 million in 1997.
Revenue for 1998 was up 14% over 1997 to $211.4 million. Excluding the equipment
retirement and special recapitalization charges, the Company's operating margin
increased to 13.5% in 1998 from 8.5% in 1997.

Unusual Items

   Year Ended December 31, 1998

o  $2.4 million equipment retirement charge related to the retirement of five
   aircraft, two of which left the fleet in 1998. (The Company anticipates that
   it will incur an additional $1.5 million in charges in the first half of 1999
   as it retires the additional two F100s and one Airbus A320.)

   Year Ended December 31, 1997

o  Extraordinary gain of $16.0 million and a special recapitalization charge of
   $0.75 million related to the February 1997 recapitalization of the Company.

Earnings per diluted share for the year ended December 31, 1998 amounted to
$1.54 ($1.69 excluding unusual items) compared to $3.46 ($1.24 excluding unusual
items) for the year ended December 31, 1997.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

   Capacity. In 1998, the Company produced 1.545 billion ASMs, an increase of
157 million or 11.3% from 1997. The increase in ASM production was attributable
to 33.8% more departures (to 35,990), offset somewhat by a 9.4% shorter average
stage length (to 475 miles) and 12.9% fewer seats per departure (to 88 seats).
These changes resulted from the addition throughout 1998 of ten, 50-seat CRJs,
which added frequency to shorter routes and began flying new shorter haul
routes, as well as the Company's cancellation of service on certain longer haul
routes.

   Operating Revenues. The Company's operating revenues increased 13.5% to
$211.4 million for the year ended December 31, 1998 from $186.3 million for the
year ended December 31, 1997. The increase is attributable to a 20.2% increase
in the number of passengers boarded to 1.995 million from 1.660 million offset
by a 4.6% decrease in average fare paid to $103 from $108. Passenger revenue per
ASM increased 3.3% to 13.3 cents per ASM due to a 2.2 percentage point increase
in load factor to 65.3% partially offset by a 0.3% decrease in yield (revenue
per RPM) to 20.4 cents. Cargo revenue increased 9.5% to $2.1 million for the
year ended December 31, 1998 from $1.9 million for the year ended December 31,
1997. The increase is due to increased mail and other cargo carried during 1998.
Other revenue decreased 13.5% to $2.7 million for the year ended December 31,
1998 from $4.3 million for the year ended December 31, 1997, due primarily to
the revenue sharing agreement with the Company's commuter affiliate.

   Operating Expenses. The Company's operating expenses increased 8.3% to $185.3
million for the year ended December 31, 1998 from $171.2 million for the year
ended December 31, 1997. Total expenses increased primarily due to increases in
number of employees, wages, commissions, depreciation expense, and the recording
of $2.4 million of equipment retirement charges in 1998 partially offset by
reduction in fuel prices in 1998 and the absence of the special recapitalization
charge which was reflected in 1997. Total operating expense per ASM decreased
2.8% to 12.00 cents from 12.34 cents. Excluding the one-time charges for the
Recapitalization in 1997 and the equipment retirement charges in 1998, operating
expense per ASM decreased 3.7% to 11.84 cents from 12.29 cents. This decrease is
attributable to the reduction in fuel prices and the spreading of the Company's
fixed costs over the larger, more cost-efficient ASM base discussed above in
"Capacity", offset by increases in wages and salaries and related costs,
including profit sharing, and depreciation expenses.

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                 -------------------------------------------------------------------
                                                                           1997                                    1998
                                                                 ------------------------           --------------------------------
                                                                Percent of                          Percent of         Cost per 
                                                              Total Expenses  Cost per ASM (cents) Total Expenses     ASM (Cents)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>               <C>                <C>
Wages, salaries and related costs                                   15.1%            1.86              17.0%              2.06
Aircraft fuel                                                       12.6%            1.55              10.5%              1.27
Aircraft and engine rentals                                         17.8%            2.20              16.0%              1.94
Commissions                                                          8.2%            1.01               8.0%              0.98
Maintenance, materials and repairs                                   9.2%            1.14               8.9%              1.07
Other rentals and landing fees                                       5.7%            0.71               5.1%              0.62
Depreciation and amortization                                        1.2%            0.14               3.3%              0.40
Other operating expenses                                            29.9%            3.68              28.8%              3.50
                                                                   -----            -----             -----              -----
Sub-total operating expenses before recapitalization         
  charge and equipment retirement charge                            99.7%           12.29              97.6%             11.84
                                                                   -----            -----             -----              -----
Equipment retirement charges                                         0.0%            0.00               1.3%              0.16
Recapitalization charge                                              0.4%            0.05               0.0%              0.00
                                                                   -----            -----             -----              -----
Total operating expenses                                           100.1%           12.34              98.9%             12.00
                                                                   -----            -----             -----              -----
Other (income)expenses                                              (0.1%)          (0.01)              1.1%              0.13
                                                                   -----            -----             -----              -----
Total expenses                                                     100.0%           12.33             100.0%             12.13
                                                                   =====            =====             =====              =====
</TABLE>

   Wages, salaries and related costs increased $6.1 million or 23.5% to $31.8
million for the year ended December 31, 1998 from $25.8 million for the year
ended December 31, 1997. The increase is attributable to increased staffing
associated with the addition of new aircraft throughout the year, annual wage
increases for all personnel and general hiring to fill specific needs within the
Company throughout 1997 and 1998. Included in the 1998 expense are discretionary
bonuses amounting to $2.4 million versus $1.2 million in 1997. Wages,
salaries and related cost per ASM increased 0.20 cents or 10.8% to 2.06 cents.
The increase in unit costs is attributable to the items noted above as well as
the changes noted in "Capacity".

   Aircraft fuel expense decreased 8.7% to $19.6 million for the year ended
December 31, 1998 from $21.5 million for the year ended December 31, 1997. The
decrease was due to a 21.9% decrease in the average fuel price per gallon to
57.3 cents from 73.4 cents, partially offset by the 16.8% increase in gallons of
fuel consumed. Aircraft fuel expense per ASM decreased 18.1% to 1.27 cents
because of the fuel price reduction.

   Aircraft and engine rental expense decreased 1.9% to $29.9 million for the
year ended December 31, 1998 from $30.5 million for the year ended December 31,
1997. The decrease in expense is attributable to the lower lease rates for the
F-100s after the Recapitalization in February 1997, the return of two F-100s in
late 1998, and the reduced use of leased spare engines, offset by rent expense
on five new, leased CRJs. Aircraft and engine rentals expense per ASM decreased
11.8% to 1.94 cents from 2.20 cents. The decrease in cost per ASM primarily
resulted from the 11.3% increase in ASMs discussed above in "Capacity", largely
flown on five owned CRJs which did not incur lease expense.

   Commission expense increased 7.8% to $15.1 million for the year ended
December 31, 1998 from $14.0 million for the year ended December 31, 1997. This
was due to the 14.8% increase in passenger revenues partially offset by a
decrease of travel agency revenues as a percent of passenger revenue to 65.7%
from 69.2% and a reduction in commission rate paid from 10% to 8%. Commission
expense per ASM decreased 3.0% to 0.98 cents from 1.01 cents, primarily driven
by the decrease of travel agency revenues as a percent of passenger revenue and
the reduction in commission rate paid offset somewhat by the 3.2% increase in
passenger revenue per available seat mile to 13.3 cents from 12.9 cents.

   Maintenance, materials and repairs expense increased 5.3% to $16.6 million
for the year ended December 31, 1998 from $15.8 million in the year ended
December 31, 1997. The expense increase is largely attributable to the 30.1%
increase in block hours of aircraft operations offset by reductions in Fokker
maintenance rates and the impact of the acquisition of new CRJs with initially
low maintenance costs. Maintenance, materials and repairs expense per ASM
decreased 6.1% to 1.07 cents from 1.14 cents.

   Other rentals and landing fees expense decreased 1.8% to $9.6 million for the
year ended December 31, 1998 from $9.8 million for the year ended December 31,
1997. Other rentals and landing fees expense per ASM decreased 12.7% to 0.62
cents from 0.71 cents, due to decreased rents at certain facilities, lower
landing fees for the relatively lighter CRJ aircraft and lower landing fees at
RDU partially offset by increased landings.

   Depreciation and amortization expense increased 208.3% to $6.2 million for
the year ended December 31, 1998 from $2.0 million for the year ended December
31, 1997. Depreciation and amortization expense per ASM increased 185.7% to 0.40
cents from 0.14 cents in the year ended December 31, 1997. During 1998 the
Company increased its investment in fixed assets by $62.6 million, including the
acquisition of five owned CRJs, the acquisition of an inventory of F100 parts,
two newly acquired F100 spare engines, and CRJ parts to provision the new fleet
type.

   Other operating expense increased 5.8% to $54.0 million for the year ended
December 31, 1998 from $51.1 million for the year ended December 31, 1997. Other
operating expenses consist primarily of facility rentals, reservations, ground
handling, advertising, general and administrative expense and insurance. The
increase in expense is attributable to the 33.8% increase in departures and
20.2% increase in passengers, partially offset by savings in insurance and
marketing expenses. Other operating expense per ASM decreased 4.9% to 3.50 cents
from 3.68 cents in 1997.

Interest income increased $2.4 million to $4.2 million for year ending December
31, 1998 due to higher average cash balances throughout the year. Interest
expense increased $4.4 million to $6.1 million due to the debt service on the
five owned CRJs and the Fokker spare engine loans. Net interest expense per ASM
for year ending December 31, 1998 was 0.13 cents compared to net interest income
per ASM of 0.01 cents in the comparable prior period.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

CAPACITY. In 1997, the Company produced 1.388 billion ASMs, a reduction of 371
million or 21.1% from 1996. The reduction in ASM production was attributable to
7.9% fewer departures (to 26,898), an 8.2% shorter average stage length (to 524
miles) and 2.9% fewer seats per departure (to 101 seats). These changes resulted
from the Company's cancellation of service on certain longer haul routes and the
decision to return four (relatively larger) Airbus A320 aircraft to their
lessors, which were made to better position the Company by concentrating on
profitable operations and operations deemed to have a higher future return. This
change in capacity resulted in higher costs per ASM for the majority of the
Company's operating costs, as more particularly described below.

OPERATING REVENUES. The Company's operating revenues increased 3.5% to $186.3
million for the year ended December 31, 1997 from $180.0 million for the year
ended December 31, 1996. The increase is attributable to a 9.1% increase in
average fare paid to $108 from $99 offset by a 4.8% decline in the number of
passengers boarded to 1.66 million from 1.74 million. Revenue per ASM increased
31.1% to 13.4 cents per ASM due to a 17.2% increase in yield (revenue per RPM)
to 20.4 cents combined with a 6.3 percentage point increase in load factor to
63.1%.

OPERATING EXPENSES. The Company's operating expenses decreased 15.8% to $171.2
million for the year ended December 31, 1997 from $203.3 million for the year
ended December 31, 1996. Total expenses declined primarily due to the reduction
in the scope of the Company's operations and the benefits realized through the
Recapitalization, partially offset by increases in wage expense. Total operating
expense per ASM increased 6.7% to 12.34 cents from 11.56 cents. Excluding the
one-time charge for the Recapitalization in 1997 and charges for recognition of
the impairment of long-lived assets in 1996 in accordance with SFAS No. 121,
operating expense per ASM increased 15.9% to 12.29 cents from 10.6 cents. This
increase is attributable to the spreading of the Company's fixed costs over the
smaller, less cost-efficient ASM base discussed above in "Capacity", as well as
the cost impact of the 31.1% increase in unit revenues. The increase in revenue
per ASM drives related increases in passenger and revenue-related costs, the
impact of which was to raise operating expense per ASM by approximately 0.5
cents.

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                            -----------------------------------------------------------------------
                                                                          1996 (1)                                1997
                                                            ---------------------------------- ------------------------------------
                                                            Percent of                           Percent of
                                                          Total Expenses  Cost per ASM (cents) Total Expenses  Cost per ASM (Cents)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>                  <C>                   <C>
Wages, salaries and related costs                              12.0%             1.40                15.1%              1.86
Aircraft fuel                                                  13.4%             1.55                12.6%              1.55
Aircraft and engine rentals                                    16.7%             1.94                17.8%              2.20
Commissions                                                     6.7%             0.78                 8.2%              1.01
Maintenance, materials and repairs                              8.8%             1.02                 9.2%              1.14
Other rentals and landing fees                                  6.2%             0.72                 5.7%              0.71
Depreciation and amortization                                   0.7%             0.08                 1.2%              0.14
Other operating expenses                                       26.7%             3.11                29.9%              3.68
                                                              -----             -----               -----              -----

Sub-total operating expenses before impairment of long-lived
     assets and recapitalization charge                        91.2%            10.60                99.7%             12.29
                                                              -----             -----               -----              -----

Impairment of long-lived assets                                 8.3%             0.96                 0.0%              0.0
Recapitalization charge                                         0.0%             0.00                 0.4%              0.05
                                                              -----             -----               -----              -----

Total operating expenses                                       99.5%            11.56               100.1%             12.34
                                                              -----             -----               -----              -----

Other (income)expenses                                          0.5%             0.06                (0.1%)            (0.01)

Total expenses                                                100.0%            11.62               100.0%             12.33
                                                              =====             =====               =====              =====
</TABLE>

(1) Certain 1996 amounts were reclassified to reflect classifications
    in the December 31, 1997 and 1998 audited financial statements.

Wages, salaries and related costs increased $1.2 million or 4.6% to $25.8
million for the year ended December 31, 1997 from $24.6 million for the year
ended December 31, 1996. The increase is attributable to increased staffing
associated with the addition of new aircraft at year end, annual increases for
all personnel and general hiring to fill specific needs within the Company
throughout 1997. Included in the 1997 amounts are discretionary bonuses
amounting to $1.2 million or an average of 5.4% of each employee's annual
compensation. Wages, salaries and related cost per ASM increased 0.46 cents or
32.8% to 1.86 cents. The increase in unit costs is attributable to the items
noted above as well as the changes noted in "Capacity."

Aircraft fuel expense decreased 21.2% to $21.5 million for the year ended
December 31, 1997 from $27.3 million for the year ended December 31, 1996. The
decrease was due to an 8.9% decrease in the average fuel price per gallon to
73.4 cents from 80.6 cents and the 11.9% reduction in block hours. Aircraft fuel
expense per ASM remained stable at 1.55 cents because the fuel price reduction
was offset by the fewer number of relatively more fuel efficient A320s in the
fleet along with shorter stage lengths which increases fuel consumption on a
unit cost basis.

Aircraft and engine rental expense decreased 10.6% to $30.5 million for the year
ended December 31, 1997 from $34.1 million for the year ended December 31, 1996.
The decrease in expense is attributable to the 5.1% decrease in the average
number of aircraft to 13.0 from 13.7 and the lower lease rates for the F-100s
after the Recapitalization in February 1997. Aircraft and engine rentals expense
per ASM increased 13.4% to 2.20 cents from 1.94 cents. The increase in cost per
ASM resulted from the 21.1% decrease in ASMs discussed above in "Capacity,"
partially offset by the overall decrease in lease rates.

Commissions expense increased 1.8% to $14.0 million for the year ended December
31, 1997 from $13.7 million for the year ended December 31, 1996. This was due
to the 3.5% increase in operating revenues offset by a decrease of travel agency
revenues as a percent of passenger revenue to 69.2% from 71.4%. Commissions
expense per ASM increased 29.5% to 1.01 cents from 0.78 cents, primarily driven
by the 31.1% increase in revenue per available seat mile to 13.4 cents from 10.2
cents.

Maintenance, materials and repairs expense decreased 12.1% to $15.8 million for
the year ended December 31, 1997 from $17.9 million in the year ended December
31, 1996. The expense decrease is largely attributable to the 11.9% reduction in
block hours of aircraft operations. Maintenance, materials and repairs expense
per ASM increased 11.8% to 1.14 cents from 1.02 cents due to the return of the
four relatively more maintenance efficient A320s to their lessors in 1996.

Depreciation and amortization expense increased 48.5% to $2.0 million for the
year ended December 31, 1997 from $1.3 million for the year ended December 31,
1996. Depreciation and amortization expense per ASM increased 75% to 0.14 cents
from 0.08 cents in the year ended December 31, 1996. During 1997, the Company
increased its investment in fixed assets by $41.8 million, including the two
CRJs delivered in December (which had a minimal impact on depreciation expense
for the year) and the acquisition of an inventory of F-100 parts.

Other operating expense decreased 9.5% to $60.9 million for the year ended
December 31, 1997 from $67.3 million for the year ended December 31, 1996. Other
operating expenses consist primarily of landing fees and facility rentals,
reservations, ground handling, advertising, general and administrative expense
and insurance. The decrease in expense is attributable to the 7.9% decrease in
departures and 4.8% decrease in passengers, as well as expenses related to
unusually bad weather in the winter of 1996 and Hurricane Fran in September
1996. Other operating expense per ASM increased 14.6% to 4.39 cents from 3.83
cents. The increase in cost per ASM is the result of the items noted above and
the decrease in ASMs discussed in "Capacity" above.

In the last quarter of 1997, the Company fully reserved a receivable of $1.6
million due from a business partner. The Company made certain other adjustments
in the last quarter of 1997 related to physical inventory adjustments, changes
in estimates related to the special recapitalization charges and the
extraordinary gain. The net increase (decrease) of the adjustments is as
follows:

                                             INCOME BEFORE
                                          EXTRAORDINARY GAIN      NET INCOME
                                          ------------------      ----------
                                                 (DOLLARS IN THOUSANDS)
Physical inventory adjustments                  $706                $424
Accounts receivable reserve                   (1,551)               (931)
Special recapitalization charges                 475                 285
Extraordinary gain                                --                 676
                                                ----                ----
Total                                          $(370)               $454
                                               ======               ====

SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS

As is common in its industry, the Company experiences seasonal factors during
certain periods of the year that have combined in the past to reduce the
Company's traffic, profitability and cash generation in certain periods as
compared to the remainder of the year. The highest levels of traffic and revenue
are generally realized in the second quarter and the lowest levels of traffic
and revenue are generally realized in the third quarter. Given the Company's
high proportion of fixed costs, such seasonality affects the Company's
profitability from quarter to quarter. In addition, many of the Company's areas
of operations experience adverse weather during the winter, causing a greater
percentage of the Company's flights to be canceled and/or delayed than in other
quarters.

<TABLE>
<CAPTION>
                                                 1997                                   1998
                                 ------------------------------------- ------------------------------------
(dollars in thousands)           March 31  June 30  Sept. 30 Dec. 31   March 31  June 30  Sept. 30 Dec. 31
----------------------           --------- -------- -------- --------- --------  -------- -------- --------
<S>                               <C>      <C>      <C>       <C>      <C>       <C>      <C>      <C>
Operating revenues                $47,853  $47,238  $43,122   $48,062  $50,521   $55,708  $49,471  $55,739
Operating income (loss) (1)        $3,880   $6,443   $2,807    $2,737   $6,566    $9,440   $3,962   $8,576
Income (loss) before
     extraordinary gain            $1,342   $3,916   $1,722    $1,945   $3,855    $5,298   $2,375   $3,453
Net income (loss)                 $16,614   $3,916   $1,722    $2,641   $3,855    $5,298   $2,375   $3,453
ASMs (000s)                       366,944  343,933  331,190   345,797  373,166   387,752  389,544  394,483
RPMs (000s)                       221,157  219,355  212,443   222,797  232,067   261,474  256,411  258,615
Load factor                         60.3%    63.8%    64.1%     64.4%    62.2%     67.4%    65.8%    65.6%
Break-even load factor (1)          55.2%    54.8%    59.7%     60.6%    54.0%     56.4%    61.3%    55.9%
Yield (cents)                       20.81    20.81    19.40     20.69    21.15     20.73    18.78    20.93
PRASM (cents) (2)                   12.54    13.27    12.44     13.52    13.15     13.98    12.36    13.72
CASM (cents) (1)                    11.98    11.86    12.15     13.11    11.82     12.09    11.84    12.10
Aircraft (average during period)     13.0     13.0     13.0      13.0     15.1      17.2     18.5     21.0
</TABLE>

(1) Excludes recapitalization expenses and equipment retirement charges.
(2) Passenger revenue per ASM has been restated to reflect the change in formula
    to use passenger revenue instead of total revenue.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

The Company's working capital improved during the year ended December 31, 1998
compared to the year ended December 31, 1997. As of December 31, 1998, the
Company had cash, restricted cash, and short-term investments of $58.2 million
and working capital of $32.9 million compared to $58.1 million and $20.8 million
respectively as of December 31, 1997. During the year ended December 31, 1998,
cash, restricted cash and short-term investments increased $0.2 million from
December 31, 1997, reflecting net cash provided by operating activities of $27.6
million (excluding changes in restricted cash), net cash used in investing
activities of $9.6 million (excluding purchases and sales of short-term
investments), and net cash used in financing activities of $17.8 million. During
the year ended December 31, 1998, net cash provided by operating activities was
primarily due to net income; net cash used in investing activities was due to
purchases of equipment and property and equipment purchase deposits; and net
cash used in financing activities reflects repayment of long-term debt. During
the year ended December 31, 1997, cash, restricted cash and short-term
investments increased $45.3 million, reflecting net cash provided by operating
activities of $9.6 million (net of changes in restricted cash), net cash used in
investing activities of $24.5 million (excluding purchases and sales of
short-term investments), and net cash provided by financing activities of $60.2
million. During the year ended December 31, 1997, net cash provided by operating
activities was primarily due to net income partially offset by increases in
operating assets; net cash used in investing activities was due to purchases of
equipment and aircraft purchase deposits; and net cash provided by financing
activities was due to the proceeds of the Recapitalization and Initial Public
Offering.

CAPITAL RESOURCES

Since the February 1997 Recapitalization, the Company has been able to generate
sufficient funds from operations to meet its working capital requirements and
does not currently have any lines of credit. The Company believes that the
working capital available from ongoing operations, combined with financing for
the purchase of the spare engines for the CRJ fleet and certain assets
associated with the new headquarters facility and the financing commitments it
has for the 12 additional CRJ aircraft to be delivered in 1999 and 2000, will be
sufficient to meet its anticipated requirements for capital expenditures and
other cash requirements for the foreseeable future.

In August 1998, the Company completed an offering of $109,722,000 of 1998-1 Pass
Through Trust Certificates for lease financing of eight CRJ aircraft. The
Certificates are not direct obligations of, or guaranteed by, the Company and
therefore are not included in the Company's financial statements. The cash
proceeds from the sale of the Certificates enable the Company to finance
(through either leveraged leases or secured debt financings) the debt portion of
eight CRJ aircraft, the last of which is scheduled to be delivered in June 1999.
The Company has taken delivery of, and completed financing on, six of the eight
CRJ aircraft. The Company has obtained commitments for equity participation for
the remaining two CRJs, although there can be no assurance that such commitments
will close.

CAPITAL EXPENDITURES

The Company's cash outflows for capital expenditures in the year ended December
31, 1998 and 1997 were $7.3 million and $7.3 million, respectively, excluding
financed purchases. Debt financed purchases in the year ended December 31, 1998
and 1997 were $53.8 million and $34.5 million, respectively.

In September 1997 the Company agreed to acquire 10 Canadair CRJ aircraft between
December 1997 and December 1998, and took options on 20 more aircraft which
would be delivered 10 each in 1999 and 2000. Of the 20 options, 13 have been
exercised, bringing total firm orders to 23; eleven of the CRJs have been
delivered as of January 31, 1999 and placed in service. The Company has
additional options on 10 CRJ aircraft which would be delivered in 2002. Several
financing alternatives have been arranged for the remaining firm orders,
including standby or long-term lease financing, and short-term bridge financing.
The Company expects to arrange a combination of third party debt and leveraged
lease financing, but will use the standby lease financing in the event that it
is unable to arrange more attractive financing from third party sources. For
each aircraft that is purchased (as opposed to leased), the Company anticipates
an initial cash outlay of approximately $4 million. Five of the 11 delivered
aircraft have been debt financed; the remaining six have been leased.

The Company expects to arrange financing for two spare CRJ engines the Company
has agreed to acquire. To support its operation of F-100 aircraft, in August
1998, the Company purchased a refurbished Rolls Royce Tay 650-15 engine which
was funded from working capital plus bank debt, and a new spare Rolls
Royce Tay 650-15 engine which was financed through a lease purchase obligation.
The Company expects to arrange financing for telecommunications equipment and
office furnishings associated with the move to the new headquarters facility.

The Company's fixed costs will increase significantly with the introduction of
the CRJs. Based on the current interest rate environment, the Company estimates
that its fixed charges will increase by approximately $18.0 to $19.5 million per
year as a result of its debt-financed purchase or leveraged lease financing of
the 12 remaining CRJs on firm order and those CRJs recently delivered. However,
depending upon the financing method ultimately chosen, the Company's balance
sheet liabilities may or may not increase.

OTHER FINANCING

The Company has significant lease obligations for aircraft that are classified
as operating leases and therefore not reflected as liabilities on the Company's
balance sheet. The remaining terms of such leases range from less than three
months to approximately seventeen years. The Company's total rent expense for
the year ended December 31, 1998 and 1997 under all non-cancelable aircraft
operating leases was approximately $29.3 million and $29.1 million,
respectively.

CONTINGENCIES

In the fourth quarter of 1998, the Company retired two F-100 aircraft at the
expiration of the related lease terms. The Company and the lessor disagreed as
to the amount of certain life cycle costs required to maintain the aircraft and
as to the level of the Company's responsibility to pay for such costs. The
Company believes that it has met and exceeded its obligations. The lessor
believes that the Company has not met its obligations and that the Company owes
the lessor approximately $1.3 million in connection with the return of the first
F-100 aircraft and an unstated amount in connection with the return of the
second aircraft. The Company expects to negotiate with the lessor concerning
this dispute and further believes, that if necessary, it has meritorious legal
defenses to the lessor's claim. At this time, it is not possible to predict the
outcome of this dispute. The Company will be retiring two other F-100 aircraft
in the first half of 1999 and believes similar claims may be asserted by the
lessor with respect to each of those aircraft.

Year 2000

State of Readiness

      The Company's Year 2000 Project has been designed to ensure that the
Company's computer systems and embedded operating systems will function properly
beyond 1999. The Project involves five phases: Inventory, Assessment,
Remediation, Testing and Contingency Planning.

The Inventory Phase is essentially completed. During the Inventory Phase, the
Company identified six business-critical functions which rely heavily on
computer or embedded systems for safe or reliable operations. These six
functions include the operation of aircraft, the operation of the Company's
computer reservation system and related telephone systems, the transmission and
reconciliation of credit card and travel agency sales receipts and collection of
money, the operation of the Company's yield management systems, the operation of
the Company's aircraft dispatch and air traffic control systems as they
communicate with the FAA's air traffic controllers and other agencies and the
utilization of certain time-sensitive crew qualification and tracking systems,
and aircraft maintenance control and planning systems.

      The Assessment Phase of the Company's Year 2000 Project first began with a
detailed review of these six critical functions and the applicable systems used
by the Company or its vendors in performing these functions. This review has
concluded and the results are as follows:

o        With respect to its aircraft, the Company has received assurances and
         warranties that the embedded technology in such aircraft and parts will
         process date data correctly in the Year 2000. The manufacturers and
         suppliers of these aircraft and parts have provided the Company with
         regular updates of their investigation and testing of the component
         systems for Year 2000 compliance. To date, the information provided by
         these sources has not identified any aircraft or parts in the Company's
         projected Year 2000 fleet which are not now Year 2000 compliant.

o        With respect to its yield management systems and its computer
         reservation system, each of these systems is operated and maintained by
         American Airlines, Inc. and/or its affiliate, The SABRE Group. The
         SABRE Group has stated that the computer reservation system is now Year
         2000 compliant, with only testing of minor sub-systems remaining to be
         completed. The Company's computer reservation system has, in fact,
         begun taking reservations for travel in the Year 2000. The SABRE Group
         has also stated that substantially all of its core systems are either
         completed or in the final testing phases of its Year 2000 Project.

o        With respect to its telephone systems, the Company recently purchased a
         new phone switch and related systems/equipment scheduled for
         installation into its headquarters and reservations center in February
         1999. The new products and systems have been warranted as Year 2000
         compliant. The Company intends to begin testing and utilizing these new
         products and systems during the second quarter of 1999.

o        With respect to the systems used in the transmission and reconciliation
         of credit card and travel agency sales, the Company is reliant upon the
         systems of the credit card companies, the systems used by industry
         clearing houses and reporting agencies to transact business with travel
         agencies and credit card companies and the systems used by the
         Company's revenue accounting vendor. The Company has received written
         assurances from its revenue accounting vendor that its systems are Year
         2000 compliant and that it successfully completed Year 2000 testing in
         September 1998. The testing included the successful conversion of date
         data from the industry clearing houses and reporting agencies allowing
         the revenue accounting vendor to process transactions with these third
         parties. The Company has reviewed information made available by the
         credit card companies (such as MasterCard and American Express) and
         these companies have stated that cardmembers should not experience any
         problems using cards with expiration dates of the Year 2000 or beyond.

o        With respect to its primary maintenance control and planning system,
         the Company has determined that this system is not Year 2000 compliant.
         The Company and its third party consultants are currently working on
         the upgrade of this system and the Company intends to complete this
         upgrade in a timely manner. The Company has developed a contingency
         plan to utilize in the event that the current system fails to timely
         become Year 2000 compliant. With respect to its crew qualification and
         tracking systems, the vendor has warranted the systems should be Year
         2000 compliant when operated on an appropriate platform. The Company
         has been using these systems on its current platform and the systems
         are properly recording Year 2000 events.
         

o        With respect to the Company's aircraft dispatch and related air traffic
         control systems, the Company is largely dependent upon the systems
         operated by certain governmental entities such as the FAA that provide
         the aviation industry inflight management and control. The Company is
         reviewing and will continue to review the Year 2000 information and
         readiness reports issued by these entities.

      During the Inventory Phase, the Company also identified a number of other
Company functions which require the use of computer systems for operation, but
which are not business-critical. These functions include the preparation of
financial books and records, the scheduling of crew and aircraft, the processing
of payroll and similar functions. The Company has made an initial Year 2000
assessment with respect to approximately 75% of these systems and it intends to
complete the assessment and remediation/replacement of these non-compliant, non-
business-critical systems, if any, by the end of the second quarter of 1999.

      The Company's System-Testing Phase has already begun with respect to its
business critical functions. The Company's computer reservation and crew
qualification and tracking systems have already been tested and are working as
Year 2000 compliant. The Company has limited or no ability to independently test
the systems of third parties which support its operations and must rely on
testing completed and reported by these third parties. To the extent possible,
testing of the Company's systems which support its operations will be completed
in a timely manner.

      Although the Contingency Planning Phase of the Company's Year 2000 Project
has commenced in a number of select areas, it has not yet been completed. The
Company believes that most of its business-critical and other functions can be
performed manually or without aid of computer systems, but that the performance 
of these functions will be materially impacted should certain systems fail to
operate past 1999. To the extent reasonably possible, the Company intends to
develop contingency plans to ensure continued operations in the event certain
systems fail to operate after 1999.

Costs of Compliance:

      The total costs of the Company's Year 2000 Project are expected to be
immaterial and will be funded from available cash balances. To date, the Company
has incurred less than $100,000 in connection with the Project, all of which has
been expensed as incurred. The cost of the Company's Year 2000 Project is
limited by the substantial outsourcing of its systems, the relative youth of the
Company and its operating systems and the purchase of new technology which was
otherwise required in connection with the construction of its headquarters and
reservations center. The costs of the Company's Year 2000 Project and the date
on which the Company believes it will be completed are based on management's
best estimates and include assumptions regarding third-party modification plans.
Accordingly, there can be no assurance that these estimates will be achieved and
actual results could differ materially from those anticipated.

Risks of Non-Compliance:

      The Company believes that its Year 2000 Project will be completed prior to
there being any material impact on the operations of the Company, and that, with
modifications to its existing software and systems and/or conversions to new
software, the Year 2000 issue will not pose significant operational problems for
its computer systems. However, there can be no assurance that the systems of
third parties on which the Company's business relies (including those of its
customers, its vendors or the FAA) will be modified on a timely basis. The
Company's business, financial condition or results of operations could be
materially adversely affected by the failure of its systems or those operated by
other parties. To the extent reasonably possible, the Company will be developing
and executing contingency plans designed to allow continued operation in the
event of the failure of the systems of the Company or certain third parties.
These contingency plans have not yet been fully established and the Company has
not determined a reasonably estimated worst case scenario. The Company intends
to analyze these issues as part of its Year 2000 Project.

<PAGE>

Forward-Looking Statements

    The Private Securities Litigation Reform Act of 1995 (the Act) provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
The Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in the Company's
filings with the Securities and Exchange Commission and in reports to share
owners. All statements which address operational performance, events or
developments which are anticipated to occur in the future, including statements
relating to revenue growth, cost reductions and earnings growth or statements
expressing general optimism about future operating results, are forward-looking
statements within the meaning of the Act. The forward-looking statements are and
will be based on management's then current views and assumptions regarding
future events and operating performance.

      Some of the factors that could cause actual results to differ materially
from estimates contained in the Company's forward-looking statements include the
following:

o     The ability to generate sufficient cash flows to support capital expansion
      plans and general operating activities. See "Management's Discussion and
      Analysis of Financial Condition and Results of Operations - Seasonality
      and Quarterly Results of Operations, Liquidity and Capital Resources."
o     Change in laws and regulations, including changes in accounting standards,
      taxation requirements (including tax rate changes, new tax laws and
      revised tax law interpretations) and environmental laws.
o     Fluctuations in the cost and availability of materials, fuel, equipment
      and labor including the continued availability of landing slots at New
      York/LaGuardia and Washington National airports. See "Business -
      Maintenance and Support, Slots, Fuel, Flight Equipment, Employees and
      Labor Relations."
o     The ability to achieve earnings forecasts, which are based on projected
      traffic and fares in the different markets the Company serves, some of
      which are more profitable than others.
o     Interest rate fluctuations and other capital market conditions.
o     The reliance on a limited number of markets and the ability to enter and
      develop new markets. See "Business - Growth Strategy."
o     The effectiveness of and availability of resources to support
      advertising, marketing and promotional programs. See "Business -
      American Relationship, Competition."
o     The uncertainties of litigation and/or administrative proceedings. See
      "Business - Government Regulation, Employees and Labor Relations."
o     Adverse weather conditions, which could effect the Company's ability to
      operate. See "Business - Raleigh-Durham Market."
o     The Company's significant dependence on the Raleigh-Durham Market. See
      "Business - Raleigh-Durham Market."
o     Control by existing stockholders. See "Business - Ownership."
o     The Company's indebtedness (including capital lease obligations).  See
      "Management's Discussion and Analysis of Financial Condition and Results
      of Operations - Liquidity and Capital Resources." 

                          Audited Financial Statements

                           Midway Airlines Corporation

                  Years ended December 31, 1998, 1997 and 1996
                       with Report of Independent Auditors



Report of Independent Auditors..............................................F-1

Audited Financial Statements

Balance Sheets..............................................................F-2
Statements of Operations....................................................F-4
Statements of Stockholders' Equity (Deficit)................................F-6
Statements of Cash Flows....................................................F-7
Notes to Financial Statements...............................................F-8



                         Report of Independent Auditors


Board of Directors and Stockholders
Midway Airlines Corporation


We have audited the accompanying balance sheets of Midway Airlines Corporation
as of December 31, 1998 and 1997 and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1998. Our audits also included the related
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Midway Airlines Corporation as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.


                                             /s/ ERNST & YOUNG LLP

Raleigh, North Carolina
January 29, 1999


                           Midway Airlines Corporation

                                  Balance Sheets
                              (Dollars in Thousands)
<TABLE>
<CAPTION>

                                                             December 31
                                                          1998        1997
                                                       ------------------------
<S>                                                      <C>         <C>    

Assets
Current assets:
  Cash and cash equivalents                              $ 48,736    $ 54,509
  Restricted cash                                           9,512       2,811
  Short-term investments                                        -         751
  Accounts receivable:
   Credit cards and travel agencies (Note 14)               4,702       5,078
   Other (net)                                              1,946         674
  Inventories                                               2,916       2,109
  Deferred tax asset                                          457           -
  Prepaids and other                                       10,886       6,723
                                                       ------------------------
Total current assets                                       79,155      72,655

Equipment and property:
  Flight                                                  107,143      45,348
  Other                                                     6,657       5,834
  Less accumulated depreciation and amortization          (10,793)     (4,608)
                                                       ------------------------
Total equipment and property, net                         103,007      46,574

Other noncurrent assets:
  Equipment and aircraft purchase deposits                 18,103      17,133
  Aircraft lease deposits and other                         3,316       3,448
                                                       ------------------------
Total other noncurrent assets                              21,419      20,581

                                                       ------------------------
Total assets                                             $203,581    $139,810
                                                       ========================
</TABLE>


                                      F-2
  
<TABLE>
<CAPTION>
                                                               December 31
                                                             1998         1997
                                                        --------------------------
<S>                                                       <C>               <C>
Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                                        $   7,327       $ 6,777
  Accrued expenses                                            5,732         4,324
  Accrued income and excise taxes                               581         5,119
  Advance ticket sales                                       21,483        20,884
  Other current liabilities                                   5,803         5,709
  Current maturities of long-term debt and capital
  lease obligations                                           5,349         9,016
                                                        --------------------------
Total current liabilities                                    46,275        51,829

Noncurrent liabilities:
  Long-term debt and capital lease obligations               78,764        39,187
  Deferred tax liability                                      7,022             -
  Other                                                       1,057           308
                                                        --------------------------
Total noncurrent liabilities                                 86,843        39,495
                                                        --------------------------
Total liabilities                                           133,118        91,324

Stockholders' equity:
  Preferred stock                                                 -             -
  Common stock                                                   86            85
  Additional paid-in-capital                                 51,032        44,037
  Retained earnings ($51.1 million of accumulated
   deficit eliminated in the quasi-reorganization
   as of June 30, 1997) (Note 1)                             19,345         4,364
                                                        --------------------------
Total stockholders' equity                                   70,463        48,486

                                                        --------------------------
Total liabilities and stockholders' equity                $ 203,581      $139,810
                                                        ==========================
</TABLE>

See accompanying notes.


                                      F-3


                           Midway Airlines Corporation

                             Statements of Operations
                 (Dollars in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                        Year ended December 31
                                                    1998         1997         1996
                                                 --------------------------------------
<S>                                                <C>        <C>           <C>
Operating revenues:
  Passenger                                        $ 205,566  $  179,000    $ 173,541
  Cargo                                                2,121       1,936        2,214
  Contract and other                                   3,752       5,339        4,279
                                                 --------------------------------------
Total revenues                                       211,439     186,275      180,034

Operating expenses:
  Wages, salaries and related costs                   31,822      25,757       24,619
  Aircraft fuel                                       19,623      21,499       27,300
  Aircraft and engine rentals                         29,927      30,495       34,113
  Commissions                                         15,071      13,978       13,728
  Maintenance, materials and repairs                  16,603      15,760       17,930
  Other rentals and landing fees                       9,640       9,812       12,711
  Depreciation and amortization                        6,162       1,999        1,346
  Other                                               54,047      51,108       54,603
  Impairment of long-lived assets                          -           -       16,941
  Equipment retirement charges                         2,413           -            -
  Special recapitalization charges                         -         750            -
                                                 --------------------------------------
Total operating expenses                             185,308     171,158      203,291
                                                 --------------------------------------
Operating income (loss)                               26,131      15,117      (23,257)

Other income (expense):
  Interest income                                      4,151       1,783          630
  Interest expense                                    (6,123)     (1,669)      (2,471)
  Miscellaneous                                            -           -          834
                                                 --------------------------------------
Total other income (expense)                          (1,972)        114       (1,007)
                                                 --------------------------------------
Income (loss) before income taxes and
extraordinary gain                                    24,159      15,231      (24,264)
 Income tax expense                                    9,178       6,306            -
                                                 --------------------------------------
 Income (loss) before extraordinary gain              14,981       8,925      (24,264)
 Extraordinary gain                                        -      15,969            -
                                                 ======================================
 Net income (loss)                                  $ 14,981  $   24,894     $(24,264)
                                                 ======================================
</TABLE>

See accompanying notes.


                                      F-4


                           Midway Airlines Corporation

                       Statements of Operations (continued)
                 (Dollars in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                        Year ended December 31
                                                          1998         1997
                                                      ---------------------------
<S>                                                      <C>          <C>
 Basic earnings per share:
  Income before extraordinary gain                       $    1.75    $   1.47
  Extraordinary gain                                            -         2.64
                                                      ---------------------------
  Net income                                             $    1.75    $   4.11
                                                      ===========================
Weighted average shares used in computing basic
   earnings per share                                   8,574,972    6,059,051
                                                      ===========================
 Diluted earnings per share:
  Income before extraordinary gain                       $    1.54    $   1.24
  Extraordinary gain                                            -         2.22
                                                      ---------------------------
  Net income                                             $    1.54    $   3.46
                                                      ===========================
Weighted average shares used in computing
   diluted earnings per share                           9,731,527    7,193,794
                                                      ===========================
</TABLE>

See accompanying notes.

                                      

                                      F-5


                           Midway Airlines Corporation

                   Statements of Stockholders' Equity (Deficit)
                              (Dollars in Thousands)

<TABLE>
<CAPTION>

                                           Preferred Stock         Common Stock                     Retained
                                        -------------------------------------------- Additional     Earnings
                                                                                      Paid In     (Accumulated
                                          Shares     Amount      Shares     Amount    Capital        Deficit)      Total
                                        ----------------------------------------------------------------------------------
<S>                                     <C>           <C>      <C>            <C>      <C>           <C>         <C>
Balance at December 31, 1995            1,080,000     $ 11     10,000,000     $  100   $30,949       $(48,118)   $(17,058)
  Adjustments to record reduction in
    credit card receivables and
    advance ticket sales (Note 14)              -        -             -           -         -        (1,327)      (1,327)
                                        ----------------------------------------------------------------------------------
Balance at December 31, 1995, as
 restated                               1,080,000       11     10,000,000        100    30,949       (49,445)     (18,385)
  Issuance of common stock warrants             -        -             -           -        40             -           40
  Reversal of preferred stock
    dividends                                   -        -             -           -         -         2,040       2,040
  Net loss                                      -        -             -           -         -       (24,264)    (24,264)
                                        ----------------------------------------------------------------------------------
Balance at December 31, 1996            1,080,000       11     10,000,000        100    30,989       (71,669)    (40,569)
  Cancellation of prior stock in
    connection with recapitalization   (1,080,000)     (11)   (10,000,000)      (100)      111             -           -
  Issuance of preferred stock           3,728,693       37             -           -    14,963             -      15,000
  Issuance of common stock                      -        -     2,130,682          21     8,551             -       8,572
  Issuance of common stock warrants in
    connection with debt restructuring          -        -             -           -     1,571             -       1,571
  Contributed capital                           -        -             -           -     1,314             -       1,314
  Reclassification of accumulated
    deficit pursuant to
    quasi-reorganization                        -        -             -           -   (51,139)       51,139           -
  Conversion of preferred stock        (3,728,693)     (37)    3,728,693          37         -             -           -
  Issuance of common stock in
    connection with initial public
    offering                                    -        -     2,699,320          27    37,677             -      37,704
  Net income                                    -        -             -           -         -        24,894      24,894
                                        ----------------------------------------------------------------------------------
Balance at December 31, 1997                    -        -     8,558,695          85    44,037         4,364      48,486
  Issuance of common stock                      -        -        43,700           1       176             -         177
  Net operating loss carryforward       
    utilization credited to
    additional paid-in capital (Note 8)         -        -             -           -     6,819             -       6,819
  Net income                                    -        -             -           -         -        14,981      14,981
                                        ----------------------------------------------------------------------------------
Balance at December 31, 1998                    -    $   -     8,602,395      $   86   $51,032       $19,345     $70,463
                                        ==================================================================================
</TABLE>
See accompanying notes.


                                       F-6



                           Midway Airlines Corporation

                             Statements of Cash Flows
                              (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                        Year ended December 31
                                                    1998         1997        1996
                                                 ------------------------------------
<S>                                                 <C>         <C>        <C>
Operating activities
Net income (loss)                                   $14,981     $24,894    $(24,264)
Adjustments to reconcile net income (loss)
  to net cash provided by operating
  activities:
   Impairment of long-lived assets                        -          -       16,941
   Depreciation and amortization                      6,162      1,999        1,346
   Capitalized interest on purchase deposits           (809)         -            -
   Deferral of expense payments                           -          -        8,762
   Special recapitalization charges                       -        750            -
   Extraordinary gain                                     -    (15,969)           -
   Provision for deferred income taxes                6,565          -            -
   Loss on disposal of assets                            21          -            -
   Changes in operating assets and liabilities:
     Restricted cash                                 (6,701)      (811)           -
     Accounts receivable                               (896)    (1,760)       9,172
     Inventories                                       (807)    (1,714)         (99)
     Prepaids and other                              (1,267)      (226)      (2,331)
     Aircraft lease deposits and other                  959       (462)      (1,126)
     Accounts payable and accrued expenses            1,958        897       (1,089)
     Accrued excise and income taxes                   (714)    (1,505)       2,437
     Advance ticket sales                               599      2,708        1,131
     Other current liabilities                           94        243       (6,795)
     Other noncurrent liabilities                       749       (279)       1,699
                                                 ------------------------------------
Net cash provided by operating activities            20,894      8,765        5,784

Investing activities
Purchase of short-term investments                        -    (78,278)           -
Sale of short-term investments                          751     77,527            -
Purchase of equipment and property                   (7,332)    (7,335)      (1,692)
Aircraft and equipment purchase deposits            (19,752)   (17,133)        (922)
Refund of aircraft and equipment purchase
deposits                                             17,461          -            -
                                                 ------------------------------------
Net cash used in investing activities                (8,872)   (25,219)      (2,614)

Financing activities
Issuance of common and preferred stock                  177     60,257            -
Proceeds from issuance of long-term debt              1,800          -        8,795
Repayment of long-term debt and capital lease
obligations                                         (20,326)    (1,617)      (3,959)
Accreted interest on long-term debt                     554      1,518            -
                                                 ------------------------------------
Net cash (used in) provided by financing
activities                                          (17,795)    60,158        4,836
                                                 ------------------------------------
(Decrease) increase in cash and cash equivalents     (5,773)    43,704        8,006
Cash and cash equivalents at beginning of year       54,509     10,805        2,799
                                                 ====================================
Cash and cash equivalents at end of year            $48,736     $54,509     $10,805
                                                 ====================================
Supplemental cash flow information
Interest paid                                       $ 3,812     $  125      $   210
                                                 ====================================
Income taxes paid                                   $ 6,610     $2,600      $     -
                                                 ====================================
Schedule of non-cash activities
Issuance of debt in settlement of expenses          $     -     $    -      $14,934
                                                 ====================================
Issuance of debt for equipment purchases            $53,824     $34,531     $     -
                                                 ====================================
</TABLE>

See accompanying notes.


                                       F-7


                           Midway Airlines Corporation

                          Notes to Financial Statements

                                December 31, 1998

1. Business and Basis of Presentation

Midway Airlines Corporation ("Midway" or the "Company"), a Delaware corporation,
is an air carrier providing primarily passenger service and to a lesser extent,
cargo and mail services. The Company began operations in November 1993 and flies
primarily to East Coast and Mid-West locations from its hub at the
Raleigh-Durham International Airport ("Raleigh-Durham"), currently utilizing ten
Fokker F-100 aircraft, ten Canadair Regional Jets ("CRJs")and one Airbus A320
aircraft. The CRJs were added to the fleet beginning in December 1997 and their
initial operations began in January 1998. The Company has firm orders for
thirteen additional CRJ's to be delivered during 1999 and the first quarter of
2000. The Company has options to acquire up to seventeen additional CRJs with
delivery dates for the first seven of these aircraft extending over a one year
period beginning in the first half of 2000 and with delivery dates for the
remaining ten of these aircraft beginning in March 2002.

On February 11, 1997, the Company was recapitalized. Through the
recapitalization, debt was either extinguished or restructured, all of the
existing stock was canceled and new stock was issued, new terms for aircraft
leases and rent reductions for facilities were implemented, and agreements
reflecting revised maintenance arrangements were negotiated (Note 13).

On December 4, 1997, the Company completed an initial public offering of its
common stock at a price of $15.50 per common share. Proceeds to the Company, net
of underwriters discount and offering expenses, were $37.7 million (Note 5).

Quasi-Reorganization

As a result of the February 11, 1997 recapitalization, debt restructurings,
retention of a new chief executive officer, and new Board of Directors, the
Board of Directors approved a corporate readjustment of the accounts in the form
of a quasi-reorganization, which was effected on June 30, 1997.

A quasi-reorganization is an accounting procedure which results in eliminating
the accumulated deficit in retained earnings. This accounting procedure is
limited to a reclassification of accumulated deficit as a reduction of paid-in
capital. The Company believes the quasi-reorganization was appropriate because
on completion of the recapitalization, the debt restructurings, and the
installation of a new chief executive officer and Board of Directors, the
Company had substantially reduced its outstanding indebtedness, had formulated
revised operating plans and as a result thereof would be able to devote its
resources to its continuing operations. Because assets had been stated at
approximate fair values, the quasi-reorganization had no effect on recorded
assets.


                                       F-8


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)



2. Significant Accounting Policies and Other Matters

Use of Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during that reporting period.
Actual results could differ from those estimates.

Impairment of Long-Lived Assets

During 1996, as a result of ongoing operating losses, the Company evaluated the
carrying value of its long-lived assets in accordance with SFAS No. 121. SFAS
No. 121 requires the evaluation of recoverability based on the relationship of
undiscounted cash flows to the carrying value of the long-lived assets. As a
result of this analysis, the Company determined that certain long-lived assets
were impaired. During 1996, the Company recorded an impairment loss of $11.1
million to write down the goodwill from a 1994 acquisition and $5.8 million
related to rotable aircraft parts and certain purchase deposits. The impairment
loss was determined by comparing the carrying value of the Company's long-lived
assets to the Company's estimates of fair values of the assets.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include investments with an original maturity of three
months or less or which may be redeemed without penalty at any time. These
investments are stated at cost, which approximates market value. In addition, as
of December 31, 1998 and 1997, approximately $9.5 million and $2.8 million,
respectively, of cash was restricted as to withdrawal; these funds serve as
collateral to support letters of credits and a credit card holdback; and are
classified as restricted cash in the balance sheets.

Short-Term Investments

Short-term investments consist of highly liquid commercial paper, corporate
bonds, bankers' acceptances, certificates of deposit, eurodollar deposits, and
government securities. All mature between three months and one year of the
original investment date or can be redeemed without penalty within one year or
less. These investments are carried at cost, which approximates market value.


                                       F-9


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

2. Significant Accounting Policies and Other Matters (continued)

Concentrations

Midway's accounts receivable are primarily receivables from major credit card
companies, travel agencies, and other air carriers related to ticket sales for
passenger transportation. The Company does not believe it is subject to any
significant concentration of credit risk. The Company establishes an allowance
for doubtful accounts based upon factors surrounding credit risk. At December
31, 1998 and 1997, the allowance for doubtful accounts was approximately
$1,624,000 and $1,673,000, respectively.

Amounts charged by a related party vendor accounted for approximately 12.3%,
15.6% and 15% of operating expenses for the years ended December 31, 1998, 1997
and 1996, respectively. This vendor provided services related primarily to
maintenance, passenger services and subleasing of airport facilities and certain
aircraft landing slots. The Company does not believe, however, that there is a
significant risk associated with this vendor for the services provided, as
alternative sources are generally available at commercially reasonable prices.
Facilities are subleased from this vendor pursuant to lease agreements covering
various time periods (Note 4).

The Company maintains certain cash balances and investments with banks which are
in excess of insured limits. The Company does not believe that the risk of loss
is significant.

The Company purchases aircraft, rotable parts and expendable inventory, as well
as services including heavy maintenance checks and training, from one aircraft
manufacturer. This manufacturer maintains certain consignment inventory at the
Company's facilities in Raleigh-Durham. Deposits are held by the aircraft
manufacturer for ordered aircraft until the delivery of the aircraft, at which
time the Company is refunded the deposits in full. Management does not believe
that there is a significant concentration of risk associated with this vendor,
due to the vendor's excellent credit rating.

Inventories

The Company's inventories are carried at the lower of cost or market using the
first-in, first-out method. Inventories, which consist primarily of fuel,
consumable spare parts, materials and supplies relating to flight equipment, are
expensed as used.


                                      F-10


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

2. Significant Accounting Policies and Other Matters (continued)

Equipment and Property

Equipment and property are stated at cost and consist primarily of CRJ aircraft,
rotable spare parts for aircraft, leasehold improvements, and miscellaneous
equipment used in aircraft operations. Equipment and property are depreciated to
estimated residual values using the straight-line method over estimated useful
lives of 16.5 years for CRJ aircraft, 5 to 16.5 years for flight equipment and 3
to 5 years for other equipment. Depreciation expense charged to operations was
approximately $5.5 million, $1.8 million, and $1.1 million for the years ended
December 31, 1998, 1997 and 1996, respectively. Equipment and property also
includes office equipment financed by capital leases (Note 4).

Capitalized Interest

Interest on aircraft purchase deposits was capitalized at an amount
approximating the Company's incremental borrowing rate throughout 1998 for
similar type assets. All capitalized amounts are amortized over the term of the
respective long-term debt or lease obligations. The capitalized amount totaled
approximately $809,000 as of December 31, 1998.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, debt and other liabilities approximate fair value at December 31, 1998
and 1997. At December 31, 1996, debt, other liabilities and warrants were
reflected at historical value. In connection with the February 11, 1997
recapitalization (Note 13), debt, other liabilities and warrants with an
aggregate carrying value of $16.5 million were settled for approximately $1.5
million.

Hedged Loan Obligations

During December 1997, the Company entered into four Treasury Lock transactions
("Treasury Locks") with Bombardier, Inc., based on a 10 year US Treasury
Benchmark (the "Treasury rate"), to substantially eliminate the Company's
exposure to interest rate fluctuations on long-term financing for the purchase
of five CRJ aircraft that were placed into service during the first six months
of 1998. The Treasury Lock arrangements contemplated that the Company would
receive or pay upon certain dates (the intended financing date for each CRJ
aircraft) an amount equal to the present value of the difference between the
interest cost of a financing entered into at the


                                      F-11


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

2. Significant Accounting Policies and Other Matters (continued)

Hedged Loan Obligations (continued)

time of entry into the Treasury Lock arrangements and the interest cost of the
same financing entered into at a later date. The effect of such arrangements was
that the Company essentially agreed to borrow at fixed rates over periods
extending to 16.5 years. When the Treasury rate declined, the Company was
obligated to settle with the counterparty at the expiration of the
Treasury Lock arrangement. The Company is not a party to leveraged derivatives
and does not hold or issue financial instruments for speculative purposes.

The net cash amounts paid or received on the agreements are recorded and
recognized as an adjustment of interest expense over the life of the related
loans. During 1998, the Company settled the aforementioned Treasury Locks for
approximately $1.2 million.

Aircraft and Engine Maintenance and Repairs

Routine maintenance and repair costs for aircraft are charged to expense when
incurred, except for major airframe and engine maintenance. Depending on the
particular maintenance contract, these latter costs are either (i) expensed on
the basis of the number of hours flown or cycles incurred at contractual rates
or (ii) capitalized when incurred and amortized on a straight-line basis over
the period of time between overhauls.

Medical Self-Insurance

In June 1998, the Company replaced its medical self-insurance plan with a
traditionally insured medical plan. Prior to June 1, 1998, the Company provided
certain health and medical benefits to eligible employees, their spouses and
dependents pursuant to a benefit plan funded by the Company. Each participating
employee contributed to the Company's costs associated with such benefit plan.
The Company's obligation to fund this benefit plan and pay for these benefits
was capped through the Company's purchase of an insurance policy from a third
party insurer. The amount established as a reserve was intended to recognize the
Company's estimated obligations with respect to its payment of claims and claims
incurred but not yet reported under the benefit plan. Management believes that
the recorded liability for medical self-insurance at December 31, 1998 and 1997
is adequate to cover the losses and claims incurred, but these reserves are
necessarily based on estimates and the amount ultimately paid may be more or
less than such estimates. These estimates are based upon historical information
along with certain assumptions about possible unfiled claims for reimbursement.

                                      F-12


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

2. Significant Accounting Policies and Other Matters (continued)

Revenue Recognition and Advance Ticket Sales

Passenger revenues are recognized when transportation services are provided,
rather than when a ticket is sold. The amount of ticket sales not yet recognized
as revenue is reflected as a liability in the accompanying balance sheets as
"advance ticket sales". Travel agency commissions are recognized as expense when
transportation is provided and the related revenue is recognized. The amount of
commissions related to advance ticket sales is included in "Prepaids and other"
in the accompanying balance sheets.

Frequent Flyer Program

The Company participates in the American Airlines AAdvantage(R) frequent flyer
program, which allows members to earn mileage credits and redeem awards at
participating AAdvantage companies. Midway is billed monthly for AAdvantage
miles earned by its passengers participating in the program who fly on Midway.
The Company does not accrue any liability for award travel it may be required to
provide because the incremental cost of redemptions has not been, and is not
expected to be, material.

Advertising Expense

The Company expenses advertising costs as incurred. The Company recognized
advertising expense of $4.0 million, $5.1 million, and $5.7 million for the
years ended December 31, 1998, 1997 and 1996, respectively.

Income Taxes

The Company accounts for income taxes using the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities.

                                      F-13


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

 2. Significant Accounting Policies and Other Matters (continued)

Earnings Per Share

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("SFAS 128"). SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.

In accordance with SFAS 128, basic earnings per share is computed using the
weighted average number of shares of common stock outstanding and diluted
earnings per share is computed using the weighted average number of shares of
common stock and the dilutive effect of options and warrants outstanding, using
the "treasury stock" method.

At the time of the Company's initial public offering, a stock split of
682.9108392 for one was adopted and the holders of the Company's outstanding
preferred stock converted those into an equivalent number of common shares.
Since the Company was recapitalized in February 1997 and all prior capital stock
was canceled at that time, per share amounts prior to 1997 are not meaningful
and thus are not presented.

Stock-Based Compensation

The Company accounts for stock options in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Under the provisions of APB 25, no compensation expense is recognized for stock
or stock options issued at fair value.

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"), which provides an alternative to APB 25 in
accounting for stock-based compensation issued to employees. SFAS 123 provides
for a fair value based method of accounting for employee stock options and
similar equity instruments. However, for companies that continue to account for
stock-based compensation arrangements using APB 25, SFAS 123 requires disclosure
of the pro forma effect on net income (loss) and earnings (loss) per share as if
the fair value based method provided by SFAS 123 had been applied. The Company
accounts for stock-based compensation arrangements using APB 25 and has adopted
the pro forma disclosure requirements of SFAS 123 (Note 6).


                                      F-14


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

2. Significant Accounting Policies and Other Matters (continued)

Equipment Retirement Charges

In 1998, management decided to return certain leased aircraft as the leases
expire in 1998 and 1999. The Company recorded return costs associated with
aircraft leases that expired in 1998 in the year ended December 31, 1998 and is
amortizing expected return costs for leased aircraft for leases expiring in 1999
over the remaining revenue producing term of the related leases. Management
expects $3.9 million in costs to be incurred to return these aircraft. During
the year ended December 31, 1998, the Company recorded $2.4 million in equipment
retirement charges, of which $1.8 million is recorded as a liability at December
31, 1998.

Reclassifications

Certain 1996 amounts in the accompanying financial statements have been
reclassified to conform to the 1997 and 1998 presentation. These
reclassifications had no effect on previously reported net income (loss) or
stockholders' equity (deficit).


                                      F-15


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

3. Long-Term Debt

The Company's long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                December 31
                                                               1998       1997
                                                           -----------------------
<S>                                                          <C>         <C>
6.9% to 7% secured notes payable, principal and interest
  payable semi-annually beginning in 1998-1999 through
  2014-2015 (a)                                              $68,186     $     -
Variable rate notes payable, interest only at 30 day
  LIBOR plus 3%, due June 1998; 80% refinanced in
  February 1998 as 6.9% secured notes payable, principal
  and interest payments commencing August 1998 through
  August 2014 (a)                                                  -      34,531
8% secured notes payable, principal and interest payments
  commencing February 1998 through January 2004 (net of
  debt discount of $1,146, and $1,370 at December 31,
  1998 and December 31, 1997, respectively) (b)                7,824       8,796
8% unsecured note payable, principal payments
  commencing February 1998 through January 2004 (net of
  debt discount of $1,146, and $1,370 at December 31,
  1998 and December 31, 1997, respectively) (c)                4,032       4,499
Miscellaneous notes payable                                        -           6
6.9% lease purchase obligation, principal and
  interest payable monthly commencing April 1998
  through March 2005                                           2,227           -
8.4% secured note payable, principal payments
  commencing September 1998, due August 2001                   1,600           -
                                                           -----------------------
                                                              83,869      47,832
Less - amounts due within one year                             5,206       8,883
                                                           -----------------------
                                                             $78,663    $ 38,949
                                                           =======================
</TABLE>


                                      F-16

                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

3. Long-Term Debt (continued)

a) These notes are related to the purchase of CRJ aircraft. Each note is
   collateralized by the related aircraft.

b) As a part of the recapitalization on February 11, 1997, a note payable of $9
   million, plus accrued interest of $450,000 was converted into a note payable,
   collateralized by first and second security interests in most of the
   Company's assets. The note accreted interest until February 1998, when
   principal and interest payments began.

c) As a part of the recapitalization on February 11, 1997, the notes payable
   were restructured into long-term notes payable, accreting interest until
   February 1998 when principal and interest payments began.

d) The Company is prohibited from paying dividends under the terms of certain
   debt and lease agreements.

                                      F-17


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

3. Long-Term Debt (continued)

Certain of the Company's debt instruments prohibit the payment of dividends
until such debt has been repaid.

The aggregate principal maturities of long-term debt at December 31, 1998 are as
follows (in thousands):

    Year ended:
    -----------
    1999                                                   $ 5,206
    2000                                                     5,592
    2001                                                     5,876
    2002                                                     5,875
    2003                                                     6,358
    Thereafter                                              54,962
                                                         ------------
    Principal balance                                      $83,869
                                                         ============

Interest charged to expense was $6.1 million, $1.7 million and $2.5 million for
the years ended December 31, 1998, 1997 and 1996, respectively. Of these
amounts, $106,000 in 1998 and $1.1 million in 1997 were accreted to the
principal balance of the related long-term debt.


                                      F-18


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

4. Leases

As of December 31, 1998, the Company leased ten Fokker F-100 aircraft, five CRJ
aircraft, and one Airbus Industries A320 aircraft under operating leases with
terms ranging from 4 to 18 years of which the remaining terms range from 3
months to 16.5 years.

The Company's leases or subleases of gates at various airports, including
subleases for 14 gates at Raleigh-Durham Airport ("RDU"), expire at various
dates through 2013. The Company also leases 70% of its slots at New York's
LaGuardia Airport and 75% of its slots at Washington, D.C.'s National Airport
from certain airlines which are currently scheduled to expire in April 2000.

The Company currently subleases its corporate headquarters and reservation
facility in Durham, North Carolina under an operating lease agreement expiring
on July 31, 1999 with an option to extend the lease for one year. In 1998, the
Company entered into a new operating lease for a corporate headquarters and
reservation facility in Morrisville, North Carolina with an occupancy date in
the second quarter 1999. The new facility lease includes escalating rent
payments and a ten year term which expires December 31, 2008. Rent expense is
recognized on a straight-line basis over the lease term.

The Company leases certain furniture, machinery and equipment under capital
lease agreements that expire through 2000. Amortization expense of $213,000,
$149,000 and $109,000 is included in depreciation and amortization expense in
the statements of operations for the years ended December 31, 1998, 1997 and
1996, respectively.

Equipment and property includes the following amounts for capital leases (in
thousands):
                                                      December 31
                                                 1998           1997
                                            -------------------------------

Office equipment                               $ $669         $  669
Less accumulated amortization                    (523)          (310)
                                            ===============================
                                               $  146         $  359
                                            ===============================


                                      F-19


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

4. Leases (continued)

At December 31, 1998, the future minimum lease payments required under capital
leases and operating leases that have initial or remaining noncancelable lease
terms in excess of one year are as follows (in thousands):

                                                   Operating
                                             ----------------------
                                   Capital    Aircraft    Other       Total
                                  ---------------------------------------------
 Year ended:

  1999                               $ 165    $28,583     $ 4,195    $32,943
  2000                                 104     24,443       2,980     27,527
  2001                                   -     24,443       2,659     27,102
  2002                                   -     24,268       2,674     26,942
  2003                                   -     21,993       2,689     24,682
  Thereafter                             -    158,648      21,967    180,615
                                  ---------------------------------------------
 Total minimum lease payments          269   $282,378     $37,164   $319,811
                                             ==================================
 Amounts representing interest         (25)
                                  -----------
                                     $ 244
                                  ===========

Rent expense is recorded on a straight-line basis over the term of the leases.
Lease and rent expense charged to operations was approximately $36.6 million,
$36.7 million, and $41.1 million for the years ended December 31, 1998, 1997 and
1996, respectively.

Under the terms of certain aircraft leases, the Company had security deposits on
each related aircraft, which totaled approximately $1.5 million and $3.1 million
at December 31, 1998 and 1997, respectively. Certain aircraft leases also
require the Company to make payments for maintenance based on block hours and/or
cycles. The Company incurred expenses of $6.5 million, $4.2 million and $4.3
million related to these payments for the years ended December 31, 1998, 1997
and 1996, respectively.

The Company currently leases 10 Fokker F-100 aircraft. Pursuant to the terms of
the leases, the lessor has the right to terminate its lease on six months prior
notice beginning September 15, 1998, provided that no lease can be terminated if
it would result in a fourth lease termination in any 12 month period, including
scheduled terminations. The Company plans to return two Fokker F-100 aircraft in
the first six months of 1999 upon lease termination.

The Company plans to return its single Airbus Industries A320 aircraft in June
1999 upon lease termination. 

                                      F-20


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

5. Stockholders' Equity (Deficit)

Stock Split

Prior to the initial public offering of the Company's common stock, the
Company's Board of Directors authorized a division of common shares at the rate
of 682.9108392 to one. All earnings per share, option prices, share values, and
other share information for the year ended December 31, 1997 have been restated
to reflect the stock split. Since the Company was recapitalized in February 1997
and all prior capital stock was canceled at that time, it is not meaningful to
present share information prior to 1997.

Initial Public Offering

On December 4, 1997, the Company completed an initial public offering of
4,830,000 shares of common stock (the "Offering"). Of the 4,830,000 shares,
2,699,320 shares were sold by the Company and 2,130,680 shares were sold by
certain selling shareholders. The Offering price was $15.50 per common share
resulting in gross offering proceeds of $74.9 million. Proceeds to the Company,
net of underwriting discounts, offering expenses and amounts to selling
shareholders, were $37.7 million. Two shareholders holding all the Company's
outstanding preferred stock exercised their right to convert those shares into
an equivalent number of common shares.

Recapitalization

Effective with the recapitalization on February 11, 1997, the following equity
structure was established:

Up to 12 million shares of $.01 par value senior convertible preferred stock
with a $4.02 stated liquidation value per share were authorized, of which
3,728,693 shares were issued. Senior convertible preferred stockholders
("preferred stockholders") are entitled to dividends if any dividends are
declared or paid upon the common stock. Preferred stockholders are entitled to
70% of all votes in the aggregate. Senior convertible preferred stock may be
converted at any time at the election of the stockholder, on a basis of one
share of senior convertible preferred stock for one share of common stock. All
issued preferred shares were converted into an equal number of common shares
during 1997 and 12 million shares of preferred stock remain authorized.


                                      F-21


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

5. Stockholders' Equity (Deficit) (continued)

Up to 25 million shares of $.01 par value common stock were authorized. Common
stockholders are entitled to one vote per share of stock held. Common
stockholders' rights are subordinate to those of preferred stockholders.

Warrants were issued for the purchase of 390,625 shares of $.01 par value common
stock for $0.0015 per share. The warrants were valued at $4.02 per share, or
$1.57 million, and expire on February 11, 2002. The warrants may be exercised in
whole or in part at any time prior to expiration. The Company has reserved
390,625 shares of Common Stock for the possible exercise of these warrants. None
of the warrants have been exercised as of December 31, 1998.

In connection with the February 11, 1997 recapitalization, all of the following
series of stockholders' equity instruments were canceled and replaced with the
new equity structure (Note 13):

In connection with the 1994 acquisition by Zell/Chilmark, the previous
shareholders were granted junior preferred stock and approximately 10% of the
Company's outstanding common stock in return for their prior ownership
interests. Zell/Chilmark received 480,000 shares of $.01 par value prior
preferred stock, with $50 stated liquidation value and 1 million shares
authorized, and approximately 90% of the Company's outstanding common stock for
an investment of $25 million. At December 31, 1996, there were 1 million shares
of prior preferred stock, $.01 par value, authorized and 480,000 shares issued
and outstanding. The Company's common stock consisted of Class A, Class B, and
Class C series, $.01 par value, common stock with 9 million, 2 million, and 25
million shares authorized, respectively. At December 31, 1996, there were
8,872,200, 0, and 1,127,800 shares of Class A, Class B, and Class C issued and
outstanding, respectively.

Prior preferred stockholders were entitled to cumulative dividends, which
accrued at $3 per share per year. At December 31, 1995, the Company had accrued
$2,040,000 of cumulative dividends. At December 31, 1996, the Company reduced
this accrual to $0 because the dividends were forgiven in connection with the
recapitalization.

Junior preferred stockholders were entitled to cumulative dividends, only after
the redemption of significantly all of the prior preferred stock, at a rate of
$.60 per share per year. At December 31, 1996, 600,000 shares of junior
preferred stock were authorized, issued and outstanding with $.01 par value and
$10 stated liquidation value. The junior preferred stock was canceled in
connection with the recapitalization.


                                      F-22


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

5. Stockholders' Equity (Deficit) (continued)

Common stockholders rights were subordinate to those of preferred stockholders.
The Class A, Class B and Class C common stock was canceled in connection with
the recapitalization.

In conjunction with certain subordinated debt offerings during 1995 and 1996
(forgiven during the recapitalization (Note 13)), the Company issued warrants to
purchase 7.5 million shares of the Company's Class C common stock at an initial
exercise price of $.01 per share. These warrants were canceled in connection
with the recapitalization.

The following table presents each class of the Company's issued and outstanding
capital stock for the period subsequent to the February 1997 recapitalization:

                                      December 31, 1998     December 31, 1997
                                      Shares       Par      Shares      Par
                                      Issued     Amount     Issued     Amount
                                    --------------------------------------------

Common stock (1)                    8,602,395   $86,024    8,558,695  $85,587

(1) Common stock, $.01 par value, 25,000,000 shares authorized.

The Company also has authorized 12 million shares of preferred stock, $.01 par
value, none of which is issued.

6. Stock Options

During 1997, the Company granted stock options to acquire 1,340,590 shares of
common stock to employees of the Company at prices not less than the fair value
at the date of grant. The options granted have seven to ten year terms with some
options vesting fifty percent immediately and twenty-five percent per year over
the two years subsequent to the grant date and others vesting twenty percent per
year over five years.


                                      F-23


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

6. Stock Options (continued)

The following table summarizes common stock options granted at $4.02 and $15.50
per share in connection with the Company's 1997 option plan:

<TABLE>
<CAPTION>
                                                                       Weighted
                                                                        Average
                                    Shares                             Exercise
                                   Available    Options                  Price
                                   for Grant  Outstanding  Exercisable Per Share
                                  -----------------------------------------------
<S>                               <C>         <C>          <C>          <C>
  Shares reserved for grant       1,562,500           -            -      $  -
    Granted                      (1,340,590)  1,340,590            -       6.89
    Became exercisable                    -           -      390,625       4.02
                                  ------------------------------------
  Balance at December 31, 1997      221,910   1,340,590      390,625       6.89
    Became exercisable                    -           -      293,703       6.11
    Exercised                             -     (43,700)     (43,700)      4.02
    Canceled                              -     (91,224)           -      12.68
                                  ------------------------------------
  Balance at December 31, 1998      221,910   1,205,666      640,628      $6.56
                                  ====================================
</TABLE>

The following summarizes information about the exercise prices of the Company's
stock options outstanding:

                                              December 31
              Exercise Price               1998         1997
              ---------------------------------------------------
                $4.02                     939,146    1,005,245
               $15.50                     266,520      335,345
                                       --------------------------
                                        1,205,666    1,340,590
                                       ==========================


                                      F-24


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

6. Stock Options (continued)

Pro forma information regarding net income and earnings per share is required by
SFAS 123 (Note 2), and has been determined as if the Company had accounted for
its employee stock options using the fair value method provided by that
Statement. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions:

                                            Year ended
                                            December 31
                                               1997
                                         ----------------
Risk free interest rate                         6%
Expected dividend yield                         0%
Expected volatility                            55.1%
Average expected life of options              2-6 yrs.

The contractual weighted-average life of the options at December 31, 1998 and
1997 were 7.66 and 7.75 years, respectively. The weighted-average grant date
fair value of options outstanding at December 31, 1998 and 1997 was
approximately $4.5 and $5.0 million, respectively. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the vesting period of the options.

The Company's pro forma information follows:

                                                      Year ended December 31
                                                        1998          1997
                                                    ---------------------------

Net income as reported                              $14,981,000   $24,894,000
  Pro forma net income                               14,164,000    23,701,000

Basic earnings per share:
  As reported                                             $1.75         $4.11
  Pro forma                                                1.65          3.91
Diluted earnings per share:
  As reported                                             $1.54         $3.46
  Pro forma                                                1.46          3.29



                                      F-25


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

7. Earnings Per Share of Common Stock

The following table sets forth the computation of basic and diluted earnings per
share:

                                                     Year ended December 31
                                                        1998       1997 (1)
                                                    --------------------------
Numerator:
  Net income (2)                                    $14,981,000  $24,894,000

Denominator:
  Denominator for basic earnings per share -
  weighted average shares                             8,574,972    6,059,051
  Effect of dilutive securities (3):
   Employee stock options                               765,965      744,155
   Warrants                                             390,590      390,588
                                                    --------------------------
  Dilutive common shares                              1,156,555    1,134,743
Denominator for diluted earnings per share -
  adjusted weighted average shares                    9,731,527    7,193,794
                                                    ==========================
Basic earnings per share                                  $1.75         $4.11
                                                    ==========================
Diluted earnings per share                                $1.54         $3.46
                                                    ==========================

(1) Options to purchase 335,345 shares of common stock at $15.50 per share were
    outstanding during 1997 but were not included in the computation of diluted
    earnings per share for the year ended December 31,1997 because the exercise
    price of the options was greater than the average market price of the common
    shares and, therefore, the effect would be antidilutive.

(2) Numerator for basic and diluted earnings per share.

(3) Shares calculated using the "Treasury Stock" Method under SFAS 128.

                                      F-26


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

8. Income Taxes

The components of the Corporation's taxes on income are as follows:

                                         1998      1997
                                         ----      ----
Federal income taxes:
     Current                            $2,391    $6,096
     Deferred                            6,008         -
                                        ------    ------
          Total federal income taxes    $8,399    $6,096
                                        ------    ------

State income taxes:
     Current                            $  222    $  210
     Deferred                              557         -
                                        ------    ------
          Total state income taxes      $  779    $  210
                                        ------    ------
Total provision for income taxes        $9,178    $6,306
                                        ======    ======

Differences between reported tax expense computed by applying the statutory
federal income tax rate to income (loss) before income taxes and reported tax
expense are as follows (in thousands):

<TABLE>
<CAPTION>
                                                Year ended December 31
                                        1998            1997            1996
                                 ------------------------------------------------
                                      $       %      $       %        $       %
                                 ------------------------------------------------
<S>                                <C>      <C>   <C>       <C>   <C>      <C>
Computed tax expense               $8,456   35.0  $5,331    35.0  $(7,899) (34.0)
State taxes, net of federal benefit   785    3.3     184     1.2        -      -
Permanent items and Other             (63)  (0.3)     64      .4        -      -
Valuation allowance for deferred
  tax assets                          -      -       727     4.8    7,899   34.0
                                 ================================================
Reported tax expense               $9,178   38.0  $6,306    41.4  $     -      -
                                 ================================================
</TABLE>

Income taxes are calculated using the liability method, which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Deferred income taxes arise from temporary
differences between the income tax basis and financial reporting basis of assets
and liabilities. The components of the Company's deferred taxes are as follows
(in thousands):

                                                        December 31
                                                    1998          1997
                                                 -----------------------
   Deferred tax assets - noncurrent
     Operating loss carryforwards                  $14,417      $17,281
     Accrued liabilities and other miscellaneous       457        3,955
     Valuation allowance                           (14,417)     (21,236)
                                                 -----------------------
   Net deferred tax asset                              457            -

   Deferred tax liabilities - noncurrent
     Depreciation and amortization                  (7,022)           -
                                                 -----------------------
   Net deferred taxes                              $(6,565)     $     -
                                                 =======================


                                      F-27


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

8. Income Taxes (continued)

As of December 31, 1998 and 1997, the Company had approximately $30.1 million
and $51.0 million, respectively, of available net operating loss carryforwards
(NOLs) to offset future taxable income of the Company. The NOLs expire by 2012
if not used. Under Section 382 of the Internal Revenue Code, as amended, the
Company's ability to utilize such loss carryforwards in any one year, which were
generated prior to a change in ownership may be limited or eliminated as a
result of the February 11, 1997 recapitalization.

The valuation allowance of $14.4 and $21.2 million at December 31, 1998 and
1997, respectively, was provided because, in the Company's assessment, it is
uncertain whether the net deferred tax assets will be realized due to the recent
ownership changes.

Net operating loss carry forward tax benefits which originated prior to the
quasi-reorganization are credited to additional paid-in capital, when utilized,
in accordance with the provisions of Statement of Financial Accounting Standards
No. 109.

9.  Commitments and Contingencies

In the fourth quarter of 1998, the Company retired two F-100 aircraft at the
expiration of the related lease terms. The Company and the lessor disagreed as
to the amount of certain life cycle costs required to maintain the aircraft and
as to the level of the Company's responsibility to pay for such costs. The
Company believes that it has met and exceeded its obligations. The lessor
believes that the Company has not met its obligations and that the Company owes
the lessor approximately $1.3 million in connection with the return of the first
F-100 aircraft and an unstated amount in connection with the return of the
second aircraft. The Company expects to negotiate with the lessor concerning
this dispute and further believes, that if necessary, it has meritorious legal
defenses to the lessor's claim. At this time, it is not possible to predict the
outcome of this dispute. The Company will be retiring two other F-100 aircraft
in the first half of 1999 and believes similar claims may be asserted by the
lessor with respect to each of those aircraft.

In August 1998, the Compliance and Enforcement Branch of the Drug Abatement
Division of the FAA conducted an inspection of the Company's compliance with
certain regulations related to its alcohol and drug testing programs. In
September 1998, the FAA notified the Company that it was investigating alleged
violations discovered during the August 1998 inspection. The Company responded
to these alleged violations in October 1998 and have received no further
correspondence from the FAA in this respect. The Company is unable to determine
whether the FAA's investigation will result in the finding of violations of
these regulations and, if so, whether the FAA will pursue an assessment as a
result of any such findings or what the amount of any such assessment might be.

The Company has entered into a lease for new headquarters facilities closer to
the Raleigh-Durham airport. In conjunction with the lease, certain contracts for
the buildout and furnishing of the facility have been executed which are
expected to total approximately $3 million, which will be amortized over periods
of 3 to 7 years. The move to the new facility is expected to take place in the
second quarter of 1999.


                                      F-28


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

9.  Commitments and Contingencies (continued)

The Company has firm orders for 12 additional newly manufactured CRJ-200ER
Canadair Regional Jet aircraft, all of which are scheduled to be delivered by
March 2000. Midway also has options to acquire up to 17 additional CRJs with
delivery dates for the first seven of these aircraft extending over a one year
period beginning in the first half of 2000 and with the delivery dates for the
remaining ten of these aircraft beginning in March 2002. For each aircraft that
is purchased (as opposed to leased), the Company anticipates an initial cash
outlay of approximately $4 million. Pursuant to an agreement with GE Aircraft
Engines, a division of General Electric International, Inc., the Company intends
to purchase two CF34-3B1 spare engines to support the operation of its CRJ-200ER
aircraft.

In September 1997, the Civil Aviation Security Division of the Federal Aviation
Administration ("FAA") conducted an investigation of the Company's compliance
with certain regulations requiring the Company to verify the accuracy of
background information provided by its employees who have access to secure
airport areas. The Company revised its background check procedures during the
course of the FAA's investigation and then obtained and verified the necessary
background information of those employees who had been identified by the FAA as
having insufficient background check documentation. This investigation will
likely result in the finding of violations of these regulations. While the
Company is unable to determine whether the FAA will pursue an assessment as a
result of the findings of this investigation, or what the amount of any such
assessment might be, an assessment could have a material adverse effect on the
Company's results of operations.

The Company has been named as a defendant in certain pending litigation. The
outcome of these matters cannot be predicted, but it is management's belief that
whatever the outcome, the results will not, either individually or in the
aggregate have a material adverse effect on the Company's financial position,
results of operations or cash flows.

                                      F-29


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

9.  Commitments and Contingencies (continued)

In March 1995, Midway reached an agreement with Airbus for the acquisition of
four firm Airbus A320 and four option A319 or A320 aircraft with deliveries
beginning in 1998. Pursuant to the recapitalization, the delivery dates of these
aircraft have been moved to 2005 and later. The Company is required to make
deposits on the four firm aircraft in amounts to be determined beginning in
2003. The Company is considering several alternatives with respect to the A320s,
including restructuring its agreement with Airbus or selling its position.

The Company's pilots and fleet service (ramp) employees are represented by labor
unions. The pilots' representative, Air Line Pilots Association, was elected in
December 1997, and the ramp employees' representative, International Association
of Machinists & Aerospace Workers, AFL-CIO, was elected in June 1998. Prior to
those times, none of the Company's employees were represented by a union.
Although the Company believes mutually acceptable agreements can be reached with
the unions representing such employees, it has only recently begun negotiations
and, therefore, the ultimate outcome of such negotiations is unknown at this
time. In a December 1998 representation election the Association of Flight
Attendants, AFL-CIO ("AFA") obtained the votes necessary to represent Midway's
flight attendants. On December 18, 1998 Midway filed a motion with the National
Mediation Board ("NMB") alleging that the AFA interfered with the election. In
February 1999 the NMB found that the AFA had made misrepresentations during the
December 1998 election campaign but never-the-less certified the AFA as the
representative of Midway's flight attendants. No determination has yet been made
whether or not to seek judicial review of this decision by the NMB. Although the
Company believes mutually acceptable agreements can be reached with the unions
representing such employees, it has only recently begun negotiations and,
therefore, the ultimate outcome of such negotiations is unknown.

10.   Benefit Plans

Effective October 1995, the Company established a savings plan (the "Plan")
pursuant to Section 401(k) of the Internal Revenue Code. All employees were
eligible for enrollment in the 401(k) Plan after six months of employment.
Effective April 1999, all employees who are not covered by a collective
bargaining agreement are eligible for enrollment in the 401(k) Plan after three
months of employment. The Company, at its discretion, may match up to 50% of
employee contributions up to a maximum of $1,000 in any given calendar year. The
Company made no contributions to the Plan for the years ended December 31, 1998,
1997 and 1996.

In January 1998, the Company announced its intention to distribute a portion of
its profits to employees. The Company has expensed $2.4 million for such
distributions for the year ended December 31, 1998.


                                      F-30


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

11.    Restructuring Charges

In December 1994, the Company reached a decision to relocate its main base of
operations from Chicago to Raleigh-Durham. The Company began operations at
Raleigh-Durham in March 1995. In conjunction with the decision to move, the
Company recorded a restructuring charge of $4.9 million for estimated exit costs
related to its Chicago Midway Airport headquarters. This liability was settled
for $1.2 million in the February 11, 1997 recapitalization. The resulting
extraordinary gain of $2.7 million is included in the extraordinary gain
reported for 1997.

12.    Transactions with Related Parties

In August of 1996, the then majority shareholder, Zell/Chilmark executed a
guaranty and pledge agreement in favor of a credit card intermediary (the
"Intermediary"). The execution of this guaranty and pledge agreement, and
Zell/Chilmark's deposit of $7 million with the Intermediary, allowed the
Intermediary to release $7 million of cash to Midway out of the credit card
holdback account maintained by the Intermediary in connection with its
processing of Midway's credit card sales. Midway executed a Subordinated Demand
Note to Zell/Chilmark in the event the Intermediary exercised its rights under
the guaranty and pledge agreement with respect to Zell/Chilmark's $7.0 million
cash collateral. Zell/Chilmark's guaranty and pledge agreement was terminated,
and Midway's note to Zell/Chilmark was canceled in connection with the
recapitalization on February 11, 1997 (Note 13). The Zell/Chilmark guaranty was
replaced by a letter of credit from the new majority owner. In February 1998,
the Company funded the credit card holdback and the letter of credit was
released.

Until the contract was canceled effective May 15, 1997, the Company purchased
certain reservation services from a related party. The expenses incurred were
approximately $850,000 and $2.1 million for the years ended December 31, 1997
and 1996, respectively.

The Company incurred legal expenses from a related party law firm totaling
approximately $362,000 and $445,000 for the years ended December 31, 1998 and
1997, respectively.


                                      F-31


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

13. Recapitalization

On February 11, 1997, the Company was recapitalized. Through the
recapitalization, debt was either extinguished or restructured; all of the
existing stock was canceled and new stock was issued; new terms for aircraft
leases and rent reductions for facilities were implemented; and agreements
reflecting revised maintenance arrangements were negotiated. As a result of the
foregoing items and other related transactions, for the year ended December 31,
1997 the Company recorded an extraordinary gain of approximately $16.0 million
and recapitalization charges of approximately $750,000.

The following transactions were recorded as a result of the recapitalization:

(a) All existing shares of capital stock were canceled. New shares of capital
    stock were issued (a) to James H. Goodnight, Ph.D, for consideration of
    $10.1 million in cash, (b) to John P. Sall for consideration of $4.9 million
    in cash and (c) to Zell/Chilmark for consideration of $7.0 million in cash.
    Additional shares of common stock and a warrant to purchase common stock
    with an aggregate value of $3.1 million were issued to certain key vendors.
    Additionally, current assets were reduced to settle various liabilities for
    amounts substantially less than the carrying value at February 11, 1997.

(b) Agreements were negotiated to allow for approximately $3.4 million in
    aircraft lease deposits to be offset against amounts owed to the holders of
    those deposits. Equipment purchase deposits of $1.8 million were offset
    against related current liabilities.

(c) Current debt, accrued lease expense, accrued prior restructuring costs (Note
    11) and related accrued interest totaling approximately $6.7 million were
    settled for amounts substantially less than the carrying value at December
    31, 1996. Additionally, $750,000 of expenses were incurred in connection
    with the recapitalization.

(d) Long-term debt and related interest of approximately $10.9 million were
    forgiven and current maturities of approximately $14.9 million were
    restructured to long-term debt.


                                      F-32


                           Midway Airlines Corporation

                    Notes to Financial Statements (continued)

14.  Prior Period Adjustment

The accompanying financial statements have been restated in accordance with
Statement of Financial Accounting Standards No. 16 for revisions to amounts
recorded at December 31, 1995. The restatement adjusts 1995 accumulated deficit,
credit card receivables and advance ticket sales for revisions to the previously
recorded amounts. These revisions reduced credit card receivables and advance
ticket sales by $2,302,000 and $975,000, respectively.

This adjustment had no effect on the Company's previously reported results of
operations for 1996 and 1997.


                                      F-33


Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

       None.

PART III

     The information required in this PART III (Items 10, 11, 12 and 13) is
hereby incorporated by reference from the Company's definitive proxy statement
which is expected to be filed pursuant to Regulation 14A of the Securities and
Exchange Act of 1934 not later than 120 days after the end of the fiscal year
covered by this report.

 PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

  (a)(1)  Financial Statements:

See Item 8 for audited financial statements.

  (a)(2)  Financial Statement Schedules

Schedule II - Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                                Additions
                                   Balance at   Charged to   Deductions   Balance
                                   Beginning    Costs and      from      at End of
                                   of Period    Expenses     Reserves     Period
                                   -----------------------------------------------
                                              (dollars in thousands)
<S>                                <C>              <C>          <C>     <C>
Year ended December 31, 1998       $ 1,673          26           75      $ 1,624
  Allowance for doubtful accounts
Year ended December 31, 1997       $    58       2,254          639      $ 1,673
  Allowance for doubtful accounts
Year ended December 31, 1996       $    75         177          194      $    58
  Allowance for doubtful accounts
</TABLE>

Other schedules have been omitted because they are inapplicable, immaterial, or
not required, or the information is included in the audited financial statements
or notes thereto.

  (b) Reports on Form 8-K:

            Date                   Subject
            -----------------      ---------------------------------------------
           
            December 10, 1998      Item 5: Announcement of exercise of options
                                   to purchase three (3) new Canadair Regional
                                   Jet Aircraft and certain contingencies
                                   related to aircraft returns and engines.


  (c) Exhibits:

    The Exhibits filed or incorporated by reference herewith are as specified in
the Exhibit Index.

SIGNATURES

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

                                          Midway Airlines
Corporation
                                          Registrant

February 24, 1999                         By /s/ STEVEN WESTBERG
                                          Steven Westberg
                                          Sr. Vice President and CFO

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on February 24, 1999.

Signature                                 Capacity

/s/ ROBERT R. FERGUSON, III*              Chairman of the Board of Directors,
----------------------------              President and Chief Executive Officer 
Robert R. Ferguson, III                   (Principal Executive Officer)         
                                          

/s/ STEVEN WESTBERG*                      Senior Vice President and Chief
----------------------------              Financial Officer (Principal Financial
Steven Westberg                           and Accounting Officer)               
                                          

/s/ GREGORY HARDING-BROWN*                Director
----------------------------
Gregory Harding-Brown                     

/s/ W. GREYSON QUARLES*                   Director
----------------------------
W. Greyson Quarles

/s/ GREGORY J. ROBITAILLE*                Director
----------------------------
Gregory J. Robitaille

/s/ HOWARD WOLF*                          Director
----------------------------
Howard Wolf

* Steven Westberg hereby signs on behalf of each of the indicated persons for
whom he is attorney-in-fact pursuant to a Power of Attorney filed herewith.

                                  EXHIBIT INDEX
                           MIDWAY AIRLINES CORPORATION
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998


                                  EXHIBIT INDEX

  NO.       DESCRIPTION
  ---       -----------
  3.1+      Amended and Restated Certificate of Incorporation.
  3.2+      Amended and Restated By-laws.
  4.1+      Form of Common Stock Certificate.
  4.2+      See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
            Certificate of Incorporation and Amended and Restated By-laws of
            Midway defining the rights of the holders of Common Stock.
  4.3+++    Form of Trust Indenture and Security Agreement between Midway 
            Airlines Corporation and The First National Bank of Maryland as 
            Indenture Trustee.
  4.4+++    Form of Promissory Note from Midway Airlines Corporation to 
            Canadian Regional Aircraft Finance Transaction No. 1 Limited.
  4.5+      Stockholders Agreement dated February 11, 1997.
  4.6++     Pass Through Trust Agreement, (1A-S), dated as of August 13, 1998,
            between Midway Airlines Corporation and The First National Bank of
            Maryland, as Trustee, made with respect to the formation of Midway
            Airlines Pass Through Trust, Series 1998-1 (1A-S) and the issuance
            of 7.14% Midway Airlines Corporation Pass Through Trust, Series
            1998-1 (1A-S) Pass Through Certificate representing fractional
            undivided interests in the Trust (including form of Class A
            Certificate).
  4.7++     Pass Through Trust Agreement, (1A-O), dated as of August 13, 1998,
            between Midway Airlines Corporation and The First National Bank of
            Maryland, as Trustee, made with respect to the formation of Midway
            Airlines Pass Through Trust, Series 1998-1 (1A-O) and the issuance
            of 7.14% Midway Airlines Corporation Pass Through Trust, Series
            1998-1 (1A-O) Pass Through Certificate representing fractional
            undivided interests in the Trust (including form of Class A
            Certificate).
  4.8++     Pass Through Trust Agreement, (1B-S), dated as of August 13, 1998,
            between Midway Airlines Corporation and The First National Bank of
            Maryland, as Trustee, made with respect to the formation of Midway
            Airlines Pass Through Trust, Series 1998-1 (1B-S) and the issuance
            of 8.14% Midway Airlines Corporation Pass Through Trust, Series
            1998-1 (1B-S) Pass Through Certificate representing fractional
            undivided interests in the Trust (including form of Class B
            Certificate).
  4.9++     Pass Through Trust Agreement, (1B-O), dated as of August 13, 1998,
            between Midway Airlines Corporation and The First National Bank of
            Maryland, as Trustee, made with respect to the formation of Midway
            Airlines Pass Through Trust, Series 1998-1 (1B-O) and the issuance
            of 8.14% Midway Airlines Corporation Pass Through Trust, Series
            1998-1 (1B-O) Pass Through Certificate representing fractional
            undivided interests in the Trust (including form of Class B
            Certificate).
  4.10++    Pass Through Trust Agreement, (1C-S), dated as of August 13, 1998,
            between Midway Airlines Corporation and The First National Bank of
            Maryland, as Trustee, made with respect to the formation of Midway
            Airlines Pass Through Trust, Series 1998-1 (1C-S) and the issuance
            of 8.92% Midway Airlines Corporation Pass Through Trust, Series
            1998-1 (1C-S) Pass Through Certificate representing fractional
            undivided interests in the Trust (including form of Class C
            Certificate).
  4.11++    Pass Through Trust Agreement, (1C-O), dated as of August 13, 1998,
            between Midway Airlines Corporation and The First National Bank of
            Maryland, as Trustee, made with respect to the formation of Midway
            Airlines Pass Through Trust, Series 1998-1 (1C-O) and the issuance
            of 8.92% Midway Airlines Corporation Pass Through Trust, Series
            1998-1 (1C-O) Pass Through Certificate representing fractional
            undivided interests in the Trust (including form of Class C
            Certificate).
  4.12++    Pass Through Trust Agreement, (1D-S), dated as of August 13, 1998,
            between Midway Airlines Corporation and The First National Bank of
            Maryland, as Trustee, made with respect to the formation of Midway
            Airlines Pass Through Trust, Series 1998-1 (1D-S) and the issuance
            of 8.86% Midway Airlines Corporation Pass Through Trust, Series
            1998-1 (1D-S) Pass Through Certificate representing fractional
            undivided interests in the Trust (including form of Class D
            Certificate).
  4.13++    Pass Through Trust Agreement, (1D-O), dated as of August 13, 1998,
            between Midway Airlines Corporation and The First National Bank of
            Maryland, as Trustee, made with respect to the formation of Midway
            Airlines Pass Through Trust, Series 1998-1 (1D-O) and the issuance
            of 8.86% Midway Airlines Corporation Pass Through Trust, Series
            1998-1 (1D-O) Pass Through Certificate representing fractional
            undivided interests in the Trust (including form of Class D
            Certificate).
  4.14++    Note Purchase Agreement, dated as of August 13, 1998, between Midway
            Airlines Corporation and The First Bank of Maryland, as Trustee, The
            First National Bank of Maryland, as Pass Through Trustee under each
            of the Pass Through Trust Agreements, The First National Bank of
            Maryland, as Subordination Agent, First Union Trust Company,
            National Association, as Escrow Agent and The First National Bank of
            Maryland, as Paying Agent.
  4.15++    Deposit Agreement, (Class A), dated as of August 13, 1998, between
            First Union Trust Company, National Association as Escrow Agent and
            First Union National Bank as Depositary.
  4.16++    Deposit Agreement, (Class B), dated as of August 13, 1998, between
            First Union Trust Company, National Association as Escrow Agent and
            First Union National Bank as Depositary.
  4.17++    Deposit Agreement, (Class C), dated as of August 13, 1998, between
            First Union Trust Company, National Association as Escrow Agent and
            First Union National Bank as Depositary.
  4.18++    Deposit Agreement, (Class D), dated as of August 13, 1998, between
            First Union Trust Company, National Association as Escrow Agent and
            First Union National Bank as Depositary.
  4.19++    Irrevocable Revolving Credit Agreement, (Class-A Certificates),
            dated as of August 13, 1998, between The First National Bank of
            Maryland, not in its individual capacity but solely as Subordination
            Agent, as agent and trustee for the Midway Airlines 1998-1A Pass
            Through Trust, as Borrower and ABN AMRO Bank N.V., Chicago Branch as
            Liquidity Provider.
  4.20++    Irrevocable Revolving Credit Agreement, (Class-B Certificates),
            dated as of August 13, 1998, between The First National Bank of
            Maryland, not in its individual capacity but solely as Subordination
            Agent, as agent and trustee for the Midway Airlines 1998-1B Pass
            Through Trust, as Borrower and ABN AMRO Bank N.V., Chicago Branch as
            Liquidity Provider.
  4.21++    Irrevocable Revolving Credit Agreement, (Class-C Certificates),
            dated as of August 13, 1998, between The First National Bank of
            Maryland, not in its individual capacity but solely as Subordination
            Agent, as agent and trustee for the Midway Airlines 1998-1C Pass
            Through Trust, a Borrower and ABN AMRO Bank N.V., Chicago Branch as
            Liquidity Provider.
  4.22++    Intercreditor Agreement, dated as of August 13, 1998 among The First
            National Bank of Maryland, not in its individual capacity but solely
            as Trustee under the Midway Airlines Pass Through Trust 1998-1A,
            Midway Airlines Pass Through Trust 1998-1B, Midway Airlines Pass
            Through 1998-1C and Midway Airlines Pass Through Trust 1998-1D, ABN
            AMRO Bank, N.V. Chicago Branch as Class A Liquidity Provider, Class
            B Liquidity Provider and Class C Liquidity Provider and The First
            National Bank of Maryland not in its individual capacity except as
            expressly set forth herein but solely as Subordination Agent and
            trustee thereunder.
  4.23++    Escrow and Paying Agent Agreement, (Class A), dated as of August 13,
            1998 among First Union Trust Company, National Association as Escrow
            Agent, Morgan Stanley & Co. Incorporated and Credit Suisse First
            Boston Corporation as Initial Purchasers, The First National Bank of
            Maryland not in its individual capacity, but solely as Pass Through
            Trustee for and on behalf of Midway Airlines Pass Through Trust
            1998-Paying Agent.
  4.24++    Escrow and Paying Agent Agreement, (Class B), dated as of August 13,
            1998 among First Union Trust Company, National Association as Escrow
            Agent, Morgan Stanley & Co. Incorporated and Credit Suisse First
            Boston Corporation as Initial Purchasers, The First National Bank of
            Maryland not in its individual capacity, but solely as Pass Through
            Trustee for and on behalf of Midway Airlines Pass Through Trust
            1998-1B-O as Pass Through Trustee and The First National Bank of
            Maryland as Paying Agent.
  4.25++    Escrow and Paying Agent Agreement, (Class C), dated as of August 13,
            1998 among First Union Trust Company, National Association as Escrow
            Agent, Morgan Stanley & Co. Incorporated and Credit Suisse First
            Boston Corporation as Initial Purchasers, The First National Bank of
            Maryland not in its individual capacity, but solely as Pass Through
            Trustee for and on behalf of Midway Airlines Pass Through Trust
            1998-1C-O as Pass Through Trustee and The First National Bank of
            Maryland as Paying Agent.
  4.26++    Escrow and Paying Agent Agreement, (Class D), dated as of August
            13, 1998 among First Union Trust Company, National Association as
            Escrow Agent, Morgan Stanley & Co. Incorporated and Credit Suisse
            First Boston Corporation as Initial Purchasers, The First National
            Bank of Maryland not in its individual capacity, but solely as Pass
            Through Trustee for and on behalf of Midway Airlines Pass Through
            Trust 1998-1D-O as Pass Through Trustee and The First National Bank
            of Maryland as Paying Agent.
  4.27++    Registration Rights Agreement, dated as of August 13, 1998, among
            Midway Airlines Corporation, a Delaware corporation, The First
            National Bank of Maryland, as Trustee under each of the Trust
            Agreements, Morgan Stanley & Co. Incorporated and Credit Suisse
            First Boston Corporation.
  10.1++    See Exhibits 4.3 and 4.4 for Form of Promissory Note and Form of
            Trust Indenture and Security Agreement.
  10.2+++   Midway Airlines Corporation 1997 Stock Option Plan and Form of Stock
            Option Agreement related thereto.
  10.3*+    Aircraft Operating Lease Agreement No. AOLAF-111 dated as of
            November 11, 1993 between First Security Bank of Utah, N.A. ("FSBU")
            and Midway, with amendments attached thereto.
  10.4*+    Aircraft Operating Lease Agreement No. AOLAF-112 dated as of
            November 11, 1993 between FSBU and Midway, with amendments attached
            thereto.
  10.5*+    Aircraft Operating Lease Agreement No. AOLAF-113 dated as of
            November 11, 1993 between FSBU and Midway, with amendments attached
            thereto.
  10.6*+    Aircraft Operating Lease Agreement No. AOLAF-114 dated as of
            November 11, 1993 between FSBU and Midway, with amendments attached
            thereto.
  10.7*+    Aircraft Operating Lease Agreement No. AOLAF-115-A dated as of July
            10, 1995 between Wings Aircraft Finance, Inc. ("Wings") and Midway,
            with amendments attached thereto.
  10.8*+    Aircraft Operating Lease Agreement No. AOLAF-116-A dated as of July
            10, 1995 between Wings and Midway, with amendments attached thereto.
  10.9*+    Aircraft Operating Lease Agreement No. AOLAF-117-A dated as of July
            10, 1995 between Wings and Midway, with amendments attached thereto.
  10.10*+   Aircraft Operating Lease Agreement No. AOLAF-118-A dated as July 10,
            1995 between Wings and Midway, with amendments attached thereto.
  10.11*+   Aircraft Operating Lease Agreement No. AOLAF-135 dated as of July
            20, 1995 between FSBU and Midway, with amendments thereto.
  10.12*+   Aircraft Operating Lease Agreement No. AOLAF-524 dated as August 1,
            1995 between FSBU and Midway, with amendments thereto.
  10.13*+   Aircraft Operating Lease Agreement No. AOLAF-525 dated as of October
            15, 1995 between FSBU and Midway, with attached thereto.
  10.14*+   Aircraft Operating Lease Agreement No. AOLAF-136 dated as of
            December 15, 1995 between FSBU and Midway, with amendments attached
            thereto.
  10.15*+   Aircraft Lease Agreement dated as of May 24, 1995 between Wilmington
            Trust Company and Midway.
  10.16*+   Airbus A-320-200 Purchase Agreement dated as of March 17, 1995
            between AVSA. S.A.R.L. ("AVSA") and Midway with Amendment Nos. 1
            through 6 thereto.
                  Letter Agreement No. 2 Re: Purchase Incentives and
                     Miscellaneous Matters, as amended
                  Letter Agreement No. 3 Re: Option Aircraft, as amended
                  Letter Agreement Re: Financial Matters with Amendment No. 4
                     thereto.
  10.17*+   Agreement of Sublease dated as of January 18, 1995 between American
            Airlines, Inc. ("AA") and Midway, with amendments attached thereto.
  10.18*+   AAdvantage(R) Participating Carrier Agreement dated as of January
            18, 1995 between AA and Midway, with amendments attached thereto.
  10.19*+   Secured Promissory Note dated February 7, 1997 from Midway to AA.
  10.20*+   February 10, 1997 Letter Agreement between American Airlines, Inc.
            and Midway with Exhibits A and C through I thereto.
  10.21*+   Agreement Relating to Repair and Overhaul of Rolls Royce Engines
            dated as of May 10, 1996 between Rolls Royce Aero Engine Services
            Limited and Midway.
  10.22*+   Purchase Agreement between Bombardier Inc. and Midway dated
            September 17, 1997 with Letter Agreements 001 through 011.
  10.23*+   Services and Licenses Agreement between Midway and Airline
            Management Services, Inc. dated as of December 7, 1995 with Annex A
            thereto.
  10.24*+   Letter Agreement dated as of July 1, 1996 between Fokker Services,
            Inc. and Midway.
  10.25     [Intentionally Omitted.]
  10.26+    Warrant to Purchase Shares of Common Stock of Midway Airlines
            Corporation dated February 11, 1997 issued by Midway in favor of AMR
            Corporation.
  10.27     [Intentionally Omitted.]
  10.28*+   General Terms of Sale between IAE International Aero Engines AG and
            Midway dated May 17, 1995 with Side Letter Number 1 and Side Letter
            Number 2 thereto.
  10.29*+   Promissory Note dated February 11, 1997 made by Midway to debis
            AirFinance B.V.
  10.30*+   Promissory Note dated February 11, 1997 made by Midway to Daimler
            Benz Aerospace A.G.
  10.31+    Severance Agreement and Other Matters made as of February 11, 1997
            between Robert R. Ferguson III and Midway.
  10.32+    Employment Agreement dated as of July 15, 1996 between Steven
            Westberg and Midway, with amendments attached thereto.
  10.33+    Employment Agreement dated as of July 15, 1996 between Jonathan S.
            Waller and Midway, with amendments attached thereto.
  10.34     [Intentionally Omitted.]
  10.35     [Intentionally Omitted.]
  10.36+    Option to Purchase Shares of Common Stock of Midway Airlines
            Corporation dated as of February 11, 1997 issued by Midway in favor
            of Robert R. Ferguson III.
  10.37+    Agreement and Plan of Merger dated as of January 17, 1997 by and
            among Midway, GoodAero, Inc., James H. Goodnight, Ph.D, John P. Sall
            and the Zell/Chilmark Fund L.P., with amendments attached thereto.
  10.38     [Intentionally Omitted.]
  10.39*+   Sublease dated June 30, 1995 between Peoples Security Life Insurance
            Company and Midway.
  10.40     [Intentionally Omitted.]
  10.41*+   AAirpass Agreement dated as of March 2, 1995 between American
            Airlines Inc. and Midway.
  10.42*+   Engine Lease Agreement dated September 11, 1997 between RRPF Engine
            Leasing Limited and Midway.
  10.43+    Option to Purchase Shares of Common Stock of Midway Airlines
            Corporation dated as of February 11, 1997 issued by Midway in favor
            of Steven Westberg.
  10.44+    Option to Purchase Shares of Common Stock of Midway Airlines
            Corporation dated as of February 11, 1997 issued by Midway in favor
            of Jonathan S. Waller.
  10.45     [Intentionally Omitted.]
  10.46+    Option to Purchase Shares of Common Stock of Midway Airlines
            Corporation dated as of February 11, 1997 issued by Midway in favor
            of Thomas Duffy, Jr.
  10.47+    Option to Purchase Shares of Common Stock of Midway Airlines
            Corporation dated as of February 11, 1997 issued by Midway in favor
            of David Vance.
  10.48*+   Agreement, executed September and November 1997, between Rolls-Royce
            Canada Limited and Midway.
  10.49++   Purchase Agreement, dated as of August 6, 1998, by and among Midway
            Airlines Corporation, Morgan Stanley & Co. Incorporated and Credit
            Suisse First Boston Corporation.
  10.50@    Participation Agreement dated as of September 10, 1998 among Midway
            Airlines Corporation as Lessee, NCC Charlie Company as Owner
            Participant, First Union Trust Company, National Association not in
            its individual capacity (except as otherwise expressly set forth
            herein) but solely as Owner Trustee, The First National Bank of
            Maryland as Indenture Trustee, The First National Bank of Maryland
            as Pass-Through Trustee and The First National Bank of Maryland as
            Subordination Agent. Midway Airlines Corporation is a party to five
            additional Participation Agreements which are substantially
            identical in all material respects except as indicated on the
            exhibit.
  10.51@    Trust Agreement dated as of September 10, 1998 between NCC Charlie
            Company as Owner Participant and First Union Trust Company, National
            Association as Owner Trustee. There are five additional Trust
            Agreements which are substantially identical in all material
            respects except as indicated on the exhibit.
  10.52@    Trust Indenture and Security Agreement dated as of September 10,
            1998 between First Union Trust Company, National Association not in
            its individual capacity except as expressly provided herein but
            solely as Owner Trustee and The First National Bank of Maryland as
            Indenture Trustee. There are five additional Trust Indenture and
            Security Agreements which are substantially identical in all
            material respects except as indicated on the exhibit.
  10.53@    Indenture Supplement No. 1 dated as of September 30, 1998 of First
            Union Trust Company, National Association, a national banking
            association, not in its individual capacity but solely as Owner
            Trustee. There are five additional Indenture Supplements No. 1 which
            are substantially identical in all material respects except as
            indicated on the exhibit.
  10.54*@   Lease Agreement dated as of September 10, 1998 between First Union
            Trust Company, National Association as Owner Trustee and Lessor and
            Midway Airlines Corporation as Lessee. Midway Airlines Corporation
            is a party to five additional Leases which are substantially
            identical in all material respects except as indicated on the
            exhibit.
  10.55@    Lease Supplement No. 1 dated as of September 10, 1998 between First
            Union Trust Company, National Association not in its individual
            capacity but solely as Owner Trustee except as otherwise provided
            therein, the Lessor and Midway Airlines Corporation, as Lessee.
            Midway Airlines Corporation is a party to five additional Lease
            Supplements No. 1 which are substantially identical in all material
            respects except as indicated on the exhibit.
  10.56@    Purchase Agreement Assignment and Aircraft Manufacturer's Consent
            dated as of September 10, 1998 between Midway Airlines Corporation
            as Assignor and First Union Trust Company, National Association as
            Assignee. Midway Airlines Corporation is a party to five additional
            Purchase Agreement Assignment and Aircraft Manufacturer's Consents
            which are substantially identical in all material respects except as
            indicated on the exhibit.
  10.57@    Engine Warranty Assignment and Engine Manufacturer's Consent dated
            as of September 10, 1998 between Midway Airlines Corporation, First
            Union Trust Company, National Association not in its individual
            capacity but solely as Owner Trustee and General Electric Company.
            Midway Airlines Corporation is a party to five additional Engine
            Warranty Assignment and Engine Manufacturer's Consents which are
            substantially identical in all material respects except as indicated
            on the exhibit.
  10.58++   General Terms Agreement between General Electric Company and Midway
            Airlines Corporation.
  10.59++   Concourse Lakeside Lease Agreement by and between Concourse Lakeside
            I, LLC, as Landlord, and Midway Airlines Corporation, as Tenant.
  24.1      Powers of Attorney of Certain Officers and Directors of the Company.
  27        Financial Data Schedule.

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  *         Portions have been omitted pursuant to a request for confidential
            treatment. The confidential portions have been separately filed with
            the Securities and Exchange Commission.
  +         Filed as Exhibit to Form S-1, Registration No. 333-37375, effective
            December 4, 1997, incorporated herein by reference.
  ++        Filed as Exhibit to the Company's Quarterly Report on Form 10-Q for
            the quarter ended September 30, 1998.
  +++       Filed as Exhibit to the Company's Annual Report on Form 10-K for the
            fiscal year ended December 31, 1997.
  @         Exhibit containing differences filed herewith.