<PAGE>

                                  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, 1999

    [ ] 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.)

                          2801 SLATER ROAD, SUITE 200
                       MORRISVILLE, NORTH CAROLINA 27560
                   (Address of principal executive offices)
                                  (Zip Code)
                                 919-595-6000
             (Registrant's telephone number, including area code)

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


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

                         Common stock, par
                         value $0.01
                         (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                           Yes ____X___  No ________

Indicate by 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
March 21, 2000 (based on the closing sale price for such shares as reported by
NASDAQ): $28.9 MILLION

As of March 21, 2000 there were 8,613,595 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 2000 Annual Meeting of Shareholders   Part III, Items 10-13
<PAGE>

                          MIDWAY AIRLINES CORPORATION
                                   FORM 10-K

For the year ended December 31, 1999

<TABLE>
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TABLE OF CONTENTS                                                   Page #
<S>                                                                 <C>
 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 7A. Quantitative and Qualitative Disclosures About Market Risk

 Item 8.  Financial Statements and Supplementary Data   F-1

 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

 SCHEDULE I - VALUATION AND QUALIFYING ACCOUNTS

 SIGNATURES

 EXHIBIT INDEX

</TABLE>
<PAGE>

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 21 destinations
in 13 states and the District of Columbia 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
organizes its business 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.

As of March 27, 2000, the Company operates one of the youngest all jet fleets in
the United States with eight 98-seat Fokker F-100s ("F100s"), 20 50-seat
Canadair Regional Jets ("CRJs") and two 128-seat Boeing 737-700s ("737s"). The
Company has firm orders for six additional CRJs to be delivered by December 2001
and fifteen 737s to be delivered by October 2002. The additional aircraft will
be utilized to replace some or all of the F100s, to serve existing Midway
destinations with greater frequency, and to enter new routes, providing Midway's
customers with more non-stop jet destinations. The Company has options to
acquire 14 additional CRJs and 10 additional 737 aircraft.  On February 29,
2000, the Company exercised its option to terminate four F100 leases prior to
their scheduled termination dates.  The Company will return these four aircraft
in the first half of 2001 at a pre-tax cost of $2.1 million per aircraft.

RDU has been the Company's base of operations since March 1995, when it
relocated from Chicago following American's reduction in service in the Raleigh-
Durham market. RDU offers modern facilities with room for the Company to grow.
The Company leases 19 of the 26 gates at one of RDU's two terminals, Terminal C.
The remaining seven gates in Terminal C are used or controlled by American.
Substantially all of the gates at RDU's other terminal are occupied.

The Company supplements its service pattern and supports its hub at RDU with
feeder service provided through a code share agreement with Corporate Flight
Management, Inc. d/b/a Corporate Airlines ("Corporate Airlines").  Corporate
Airlines began providing code share services using Midway's code in May 1997,
and now provides these services to seven cities using turboprop aircraft.  The
Company's agreement with Corporate Airlines is scheduled to run through March
2005 and covers eight aircraft.

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 other services, including yield management and
ground handling.

In 1997, the Company completed both a Recapitalization (the "Recapitalization")
and an initial public offering.  The Recapitalization resulted in expense
reductions in aircraft rent, facility rentals, and other expenses.  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:

 .    ATTRACT HIGH-YIELDING LOCAL BUSINESS TRAVELERS. Based on 1999 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.
<PAGE>

 .    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 are 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 2.3 years as of March 27, 2000, (ii) maintaining spare aircraft to
     ensure a high completion factor, and (iii) using high quality maintenance
     providers such as affiliates of Bombardier Inc. and Rolls-Royce.

 .    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, hot towel and mint service, gourmet
     coffee, quality snacks, and a quiet, modern all-jet fleet.

 .    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 continuously
     seeks 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,
     reduced certain insurance costs, lowered its average commission expenses,
     and implemented an automated voice-response flight information system. The
     Company further expects that its unit costs will be reduced with the
     introduction of the 737s into its fleet. The Company believes that the 737s
     have approximately the same cost per trip as the F100s they replace, but,
     with approximately 30 more seats per departure, they have 30% lower unit
     costs than the F100s.

GROWTH STRATEGY

The Company continues to believe that RDU remains relatively under-served with
respect to non-stop flights. The Company also believes that its RDU hub can
serve as a convenient connecting point for East Coast leisure and some business
travelers. To address these needs and to better serve its core business
customers, since December 1997, the Company has placed in service a net of 17
additional aircraft and has orders for 21 more aircraft.

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

 .    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 CRJs and 737s has enabled the Company to
     increase frequency and offer more convenient scheduling to current markets,
     while selectively increasing capacity in markets. With the delivery of the
     CRJs and 737s, the Company has increased its scheduled flights from
     typically three flights per day per market to typically five flights per
     day per market.

 .    INCREASE NUMBER OF MARKETS SERVED. The Company has identified a number of
     additional new market opportunities that it believes can support non-stop
     service from Raleigh-Durham. 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 has introduced CRJ jet service in several of these markets. Since
     the introduction of CRJs in late 1997, jet service has been initiated to
     Charleston, South Carolina; Columbus, Ohio; Indianapolis, Indiana;
     Jacksonville,Florida; Myrtle Beach, South Carolina; New Orleans,
     Louisiana; Louisville, Kentucky; Rochester, New York; and Wilmington, North
     Carolina. In some markets, the jet service supplements turboprop service.

 .    MAXIMIZE CONNECTING OPPORTUNITIES. The Company's growth at its RDU hub has
     resulted in, and will continue to result in, the addition of new markets
     and an increase of frequencies in current markets. As the hub expands and
     the Company's average seats per departure grows, the Company believes it
     can attract a larger share of passengers connecting over RDU.

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.
<PAGE>

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 1.4 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 11% per
year from 1995 to 1999, compared to 5% for the United States as a whole. The
Company believes that the area's growing business community offers opportunities
for the Company's expansion at RDU with regional jets and the larger 737s. The
Company's growth has focused and will likely 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 the
Company's share of the Raleigh-Durham market, reduced fares, 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 21
cities: Atlanta, Georgia; Boston, Massachusetts; Charleston, South Carolina;
Columbus, Ohio; Ft. Lauderdale, Florida; Hartford, Connecticut; Indianapolis,
Indiana; Jacksonville, Florida; Louisville, Kentucky; Myrtle Beach, South
Carolina; Newark, New Jersey; New Orleans, Louisiana; New York/LaGuardia, New
York; Orlando, Florida; Philadelphia, Pennsylvania; Rochester, New York;
Stewart/Newburgh, New York; Tampa, Florida; Washington, D.C.; West Palm Beach,
Florida; and Wilmington, North Carolina. 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 most of its 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.  The introduction of
the 737s has allowed the Company to increase frequency and capacity in several
markets at peak times of travel, maximizing the Company's revenue at times of
high demand.

The Company's commuter partner, Corporate Airlines, provides non-stop turboprop
aircraft service to the following seven cities from RDU:  Charleston, Columbia,
Greenville-Spartanburg, and Myrtle Beach, South Carolina; New Bern and
Wilmington, North Carolina; and Norfolk, Virginia.

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, gourmet coffee, quality
snacks, and a quiet, modern all jet fleet. Although the Company is not required
by regulation to 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 U.S Department of Transportation ("DOT"). For
example, for the 12 months ended December 31, 1999, using DOT statistics and
statistics compiled from its own reports, Midway's on-time performance and
baggage delivery performance ranked among the best in the industry.

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 affiliates of Bombardier Inc. and Rolls-Royce.

Eight of Midway's current 30 aircraft are Fokker F100s. Fokker Aircraft B.V., a
Dutch corporation, has ceased operations. As a result, the Fokker F100 is no
longer being manufactured. Further, the Company's cost to maintain F100 aircraft
generally exceeds the cost of similar aircraft that are presently in production.
Vendors and suppliers of key parts are generally fewer in number and their
products more expensive, and engineering is not as readily available.
<PAGE>

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, American provides yield management services to the Company. The
services have enabled the Company to significantly enhance its ability to
maximize revenues. The Company's contract for the services currently extends
through August 2001, and may be extended thereafter at market terms.

DISTRIBUTION

Midway sells approximately 65% 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. In October 1999,
several major carriers lowered their base commission rate from 8% to 5%.  The
Company announced on February 25, 2000 that it would restructure its travel
agency commission rate to a 5% base 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
distribution services offered by the Company include Midway's full-time staffing
of the "Carolina Desk" within its sales department to answer travel agent
questions or otherwise attend to the needs of these and other 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 leases from American the RDU facility and purchases a number of important
services, including yield management and ground handling.

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. A "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
lease 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 lease, 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.
<PAGE>

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 most current flights (other than those to and
from Columbus, Ohio; Indianapolis, Indiana; and Louisville, Kentucky).
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 or be obligated to develop its own frequent flyer program or participate
in an alternate program.

MARKETING

The Company markets its services through listings in global distribution 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.

SEASONALITY

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.

During January 2000, due to severe weather, the Company effectively lost five
business days of operations which will have an material impact on the first
quarter 2000 results.

EMPLOYEES AND LABOR RELATIONS

As of December 31, 1999, the Company had the number of full time equivalent
employees in the categories listed below:


<TABLE>
<S>                                              <C>
          Flight Operations                      328
          Inflight                               198
          Passenger Services                     390
          Maintenance                             81
          Reservations & Marketing               212
          Accounting & Finance                    31
          Administrative                          63
                                               -----
          Total                                1,303
                                               =====
</TABLE>

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.
<PAGE>

The Company's pilots, fleet service (ramp) agents, and flight attendants are
represented by labor unions. The pilots' representative, the Air Line Pilots
Association ("ALPA"), was elected in December 1997, the ramp employees'
representative, International Association of Machinists and Aerospace Workers,
AFL-CIO ("IAM"), was elected in June 1998, and the flight attendants'
representative, the Association of Flight Attendants, AFL-CIO ("AFA") was
elected in December 1998. Prior to those dates, none of the Company's employees
were represented by a union. The Company's pilots recently ratified a collective
bargaining agreement with the Company which will become effective on April 1,
2000. With respect to the fleet service employees, a contract proposal was
agreed upon by the IAM and the Company, and such agreement was submitted to the
employees for ratification on October 28, 1999; it was rejected. The IAM filed
an application for mediation with the National Mediation Board ("NMB") on
November 3, 1999, and the NMB appointed a mediator on November 8, 1999. In
February 2000, with the assistance of an NMB-appointed mediator, the Company
reached agreement with the IAM and members of the fleet service agent
negotiating committee on a collective bargaining agreement. The agreement was
then submitted to the fleet service agents for ratification. On March 20, 2000,
the company was informally advised that the fleet service agents voted not to
approve the agreement. The Company believes that a request for further mediation
will be made in this matter, but it has not yet received any information from
either the IAM or the NMB in this respect. Negotiations with the AFA have not
yet concluded.

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 periodic 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
Federal Aviation Administration ("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.

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.
<PAGE>

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 at Chicago's
O'Hare, New York's LaGuardia and Kennedy International, and  Ronald Reagan
Washington National airports.  A slot is an authorization to take off or land at
the designated airport within a specified time window.

The Company leases seven of its ten slots at New York's LaGuardia Airport and
ten of its twelve slots at Ronald  Reagan Washington National Airport from other
airlines.  The lease for two of the Company's slots at New York's LaGuardia
Airport is scheduled to expire in May 2000 and it may not be renewed. The
Company's inability to operate flights during these two slot times could have an
adverse impact on its financial results.  However, the DOT has the authority to
grant slot exemptions to airlines if certain conditions are met.  The Company
has filed an application for nine slot exemptions at LaGuardia Airport which, if
granted, would allow the Company to add a sixth round trip in the market and to
terminate its practice of leasing slots at LaGuardia Airport from other
airlines.  The Company believes that the DOT will issue its findings on the
Company's application in April 2000. The leases for the remaining five leased
slots at LaGuardia Airport and the six leased slots at Ronald Reagan Washington
National Airport are scheduled to expire April 1, 2001.   The lease for the
remaining four leased slots at Ronald Reagan Washington National Airport expires
in October 2000.  The Company believes it will be able to renew these leases on
terms which will be acceptable to the Company.

The DOT'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 DOT, which is granted only under exceptional
circumstances, subjects the slot to recall by the DOT. In addition, the slot
regulations provide that slots may be withdrawn by the DOT 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
12.6%, 10.5% and 11.2% of total expenses for the years ended December 31, 1997,
1998, and 1999, respectively. The Company's fuel costs increased approximately
115% for the quarter ending March 31, 2000, from the quarter ending March 31,
1999.  This increase in the cost of fuel will adversely impact the Company's
results of operations in 2000 compared to 1999. 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 either directly or indirectly on all 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
<PAGE>

operation. Since late 1997, the Company has experienced, and likely will
continue to experience, increased competition in the Raleigh-Durham market.

In 1999, both Southwest Airlines and MetroJet, the low-fare division of US
Airways, initiated service at RDU.  Southwest began service to five cities from
RDU with 12 daily flights and will, by April 2000, operate service to six cities
with 16 daily flights.  Although MetroJet announced plans to serve six cities
from RDU with 17 daily flights, the Company anticipates that MetroJet will have
withdrawn all of its services from RDU by the end of the second quarter of 2000.

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.

In November 1999, Dr. Goodnight and Mr. Sall submitted to the Company a proposal
to merge the Company with a company owned by Mssrs. Goodnight and Sall.  In the
merger proposal, all of the shares of the Company not owned by Messrs. Goodnight
and Sall would have been exchanged for cash at $8.00 per share.  A Special
Committee comprised of independent members of the Board of Directors was
appointed to review the proposal.  In December 1999, the Company announced that
the Special Committee and Messrs. Goodnight and Sall were unable to reach an
agreement with respect to the value of the Company's common stock, and that the
merger proposal had been withdrawn by Messrs. Goodnight and Sall.

In March 2000, the Company entered into a commitment letter relating to a $30
million revolving loan (the "Credit Facility") to be provided by Reedy Creek
Investments, L.L.C., an entity which is wholly owned by Messrs. Goodnight and
Sall.

Proceeds from the Credit Facility will be used to fund the payment of certain
pre-aircraft delivery deposit obligations, for capital expenditures and for
general working capital purposes. Outstanding loans made under the Credit
Facility, if any, will be prepaid and the remaining available loan commitment
will be reduced on pre-aircraft delivery to not more than $10 million on the
earlier of September 30, 2000 and the date on which the Company completes the
rights offering of securities described below.

Pursuant to the Credit Facility commitment letter, the Company is obligated to
undertake a rights offering of securities on the following terms:

        .  a right ("Right") to purchase a share of common stock in the Company
           will be issued to each holder of common stock in the Company on a
           share for share basis. The Rights will be issued to holders of common
           stock on the date which is 10 days after the filing of the
           registration statement covering such Rights (the "Record Date"). The
           Record Date may be postponed pending the effectiveness of the
           registration statement covering such Rights. The Rights will be
           issued immediately following the effectiveness of the registration
           statement covering such Rights (the "Issuance Date").

        .  each Right shall entitle the holder thereof to purchase one share of
           common stock in the Company for $5.20 per common share (the
           "Subscription Price").

        .  Rights to purchase shares of common stock in the Company will not be
           listed on NASDAQ or any other exchange and will not be transferable
           or assignable.

        .  Rights will be exercisable for 30 days from the Issuance Date.

        .  Messrs. Goodnight and Sall have each agreed to exercise their
           respective Rights.

        .  Messrs. Goodnight and Sall have also each agreed to purchase, and all
           other holders of common stock on the Record Date who have timely
           exercised all of their Rights will also have the right to purchase at
           the Subscription Price, such shares of common stock subject to Rights
           issued on the Issuance Date which have not been timely exercised
           multiplied by their percentage ownership interests in the Company's
           common stock on the Record Date.

Item 2. Properties

FLIGHT EQUIPMENT

As of March 27, 2000, Midway operates a fleet of eight F100s, twenty CRJs and
two 737s, with an average age of 2.3 years. The F100s are configured with eight
first class seats and 90 coach seats, the CRJs are configured with 50 single
class coach seats, and the 737s are configured with eight first class seats and
120 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 age of the Company's fleet and those aircraft owned and leased, at March 30,
2000, was as follows:

<TABLE>
<CAPTION>
                 OWNED      LEASED      TOTAL      AVERAGE AGE
<S>              <C>        <C>         <C>        <C>

     737s           --           2          2      0.2 years
     CRJs            5          15         20      1.1 years
     F100s          --           8          8      5.7 years
</TABLE>

The Company has firm orders for six additional newly manufactured CRJ aircraft,
all of which are scheduled to be delivered by December 2001. The Company also
has options to acquire up to 14 additional CRJs with delivery dates for the
first seven of these aircraft extending over a one year period beginning in
2002. The Company has firm orders to purchase fifteen additional 737 aircraft
with deliveries scheduled to begin in September 2000 and end in October 2002,
however, this delivery schedule could be impacted by a recently ended strike of
The Boeing Company's engineers.  The Company has options to acquire 10
additional 737 aircraft. To support its operations, the Company acquired two
spare Rolls Royce Tay 650-15 engines in 1998 for the F100 fleet, and two General
Electric CF34-3B1 spare engines to support the CRJ fleet.  The Company intends
to acquire up to four CFM 56-7B spare engines to support the operation of the
737-700 fleet.
<PAGE>

The mix of Midway's fleet between 98-seat F100s, 50-seat CRJs, and 128-seat
737s 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.
<PAGE>

The Company currently leases eight F100s.  In December 1999, the Company
settled a pending lawsuit with the lessor of four F100 aircraft previously
operated by the Company.  As a result of this settlement, the Company recorded a
pre-tax charge of approximately $700,000 during the fourth quarter of 1999 and
obtained an option to terminate leases on four other F100s. On February 29,
2000, the Company exercised this option to terminate the leases on these four
F100s prior to their scheduled expirations in 2003 and 2004, resulting in a
revised scheduled return date of these aircraft in the first half of 2001.  The
Company is required to pay the lessor $2,125,000 upon the termination of each of
these four leases.  In addition, the Company is required to perform certain
maintenance tasks on these aircraft prior to their return.

Pursuant to a March 1995 purchase agreement, Midway is obligated to purchase
four Airbus A320 aircraft with deliveries in 2005 and 2006. 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 purchase of the A320s and the associated spare
engine no longer 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 26 gates at the newer of RDU's two terminals, Terminal C, the Company
currently leases 19 gates through February 2013. The Company's corporate
headquarters and reservations facility are located in Morrisville, NC, where it
leases approximately 32,000 square feet of space. The Morrisville facility lease
expires in 2008. 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.

The Company currently has a sufficient number of leased gates and other airport
facilities, but operations of the Company may be constrained at certain airports
by insufficient availability of gates on attractive terms or other factors.


<PAGE>

Item 3. Legal Proceedings

In August 1998, the Compliance and Enforcement Branch of the Drug Abatement
Division of the Federal Aviation Administration ("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.
In May 1999,  the FAA requested that the Company provide the FAA with an update
of certain matters raised during the investigation.  The Company promptly
provided this information to the FAA.  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.

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 the 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 a finding by the
FAA of violations of these regulations.   The Company has received no
communications from the FAA in this respect since 1998.

The Company is involved in various legal proceedings that are incidental to the
conduct of its business.  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.

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

None
<PAGE>

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:

<TABLE>
<CAPTION>
1998                         High           Low
----                         ----           ---
<S>                          <C>            <C>

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        $11.000
Second Quarter              12.625          9.000
Third Quarter                9.875          6.125
Fourth Quarter               7.375          6.125

</TABLE>

As of March 21, 2000, there were 8,613,595 shares outstanding and approximately
5,150 beneficial shareholders of record.

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.
<PAGE>

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>

                                                                                        Year ended
                                                                                        December 31,
<S>                                                           <C>             <C>           <C>           <C>         <C>

                                                                  1995        1996(1)       1997(1)       1998(1)        1999
                                                                  ----        -------       -------       -------        ----

                                                                        (dollars in thousands except per share amounts)
Statement of Operations Data:
Operating revenues:
   Passenger                                                    $118,568      $173,541      $179,000      $205,566    $213,018
   Other                                                           4,034         6,493         7,275         5,873       4,928
                                                                --------      --------      --------      --------    --------

     Total operating revenues                                    122,602       180,034       186,275       211,439     217,946
Operating expenses:
   Wages, salaries and related costs                              19,874        24,619        25,757        31,822      38,875
   Aircraft fuel                                                  16,782        27,300        21,499        19,623      22,738
   Aircraft and engine rentals                                    30,889        34,113        30,495        29,927      31,429
   Commissions                                                     9,382        13,728        13,978        15,071      14,229
   Maintenance, materials and repairs                             13,551        17,930        17,006        17,103      13,388
   Other rentals and landing fees                                 11,924        12,711         9,812         9,646      10,098
   Depreciation and amortization                                   2,056         1,346         1,999         6,162       7,938
   Other operating expenses                                       43,769        54,603        49,862        53,541      59,773
   Restructuring (2)                                               6,004             -             -             -           -
   Impairment of long-lived assets (3)                                 -        16,941             -             -           -
   Equipment retirement charges (4)                                    -             -             -         2,413       2,765
   Recapitalization (5)                                                -             -           750             -           -
                                                                --------      --------      --------      --------    --------
     Total operating expenses                                    154,231       203,291       171,158       185,308     201,233
                                                                --------      --------      --------      --------    --------

Operating income (loss)                                          (31,629)      (23,257)       15,117        26,131      16,713

Interest income (expense), net                                      (413)       (1,841)          114        (1,972)     (1,621)
Other income (expense)                                              (222)          834             -             -           -
                                                                --------      --------      --------      --------    --------
Total other income (expense)                                        (635)       (1,007)          114        (1,972)     (1,621)
                                                                --------      --------      --------      --------    --------

Income (loss) before income taxes and extraordinary gain         (32,264)      (24,264)       15,231        24,159      15,092
Income tax expense                                                     -             -         6,306         9,178       5,736
Income (loss) before extraordinary gain                          (32,264)      (24,264)        8,925        14,981       9,356
Extraordinary gain (6)                                                 -             -        15,969             -           -
                                                                --------      --------      --------      --------    --------

Net income (loss)                                                (32,264)      (24,264)       24,894        14,981       9,356
Preferred dividends                                               (1,440)            -             -             -           -
                                                                --------      --------      --------      --------    --------

Net income (loss) available for common stockholders             $(33,704)     $(24,264)     $ 24,894      $ 14,981    $  9,356
                                                                ========      ========      ========      ========    ========
Per Share Amounts (7):
   Basic earnings per share:
    Income before extraordinary gain                                                        $   1.47      $   1.75    $   1.09
    Extraordinary gain                                                                          2.64             -           -
                                                                                               -----         -----       -----
    Net income                                                                              $   4.11      $   1.75    $   1.09
                                                                                               =====         =====       =====

  Weighted average shares used in computing basic
    earnings per share                                                                     6,059,051     8,574,972   8,602,395
                                                                                           =========     =========   =========

  Diluted earnings per share:
    Income before extraordinary gain                                                       $    1.24     $    1.54    $   0.98
    Extraordinary gain                                                                          2.22             -           -
                                                                                           ---------     ---------    --------
    Net income                                                                             $    3.46     $    1.54    $   0.98
                                                                                           =========     =========    ========

  Weighted average shares used in computing
    diluted earnings per share                                                             7,193,794     9,731,527   9,507,175
                                                                                           =========     =========   =========
Other Financial Data:
Cash flows provided by (used in):
   Operating activities                                           $ (805)       $5,784       $10,283       $22,257     $21,979
   Investing activities                                           (6,876)       (2,614)      (25,219)       (9,681)    (51,345)
   Financing activities                                            3,571         4,836        58,640       (18,349)      7,981

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                           Year ended December 31,
                                                                                           -----------------------

                                                                         1995        1996 (1)       1997         1998       1999
                                                                         ----        --------       ----         ----       ----
<S>                                                                   <C>          <C>          <C>          <C>          <C>
Selected Operating Statistics (8):
Available seat miles (000s)                                           1,387,921    1,758,560    1,387,864    1,544,945    1,565,781
Revenue passenger miles (000s)                                          692,681      998,959      875,752    1,008,567    1,031,583
Load factor                                                                49.9%        56.8%        63.1%        65.3%        65.9%
Break-even load factor (9)                                                 60.8%        59.2%        57.5%        56.8%        60.4%
Departures                                                               24,403       29,192       26,898       35,990       46,751
Block hours                                                              38,933       48,682       42,867       55,783       71,705
Passenger revenue per ASM (cents)                                          8.54         9.87        12.90        13.31        13.60
Yield (cents)                                                             17.12        17.37        20.44        20.38        20.65
Average fare                                                         $       89   $       99   $      108   $      103   $      103
Operating Cost per available seat mile (cents) (10)                       10.68        10.60        12.28        11.84        12.68
Onboard passengers                                                    1,338,438    1,742,957    1,660,140    1,995,117    2,063,192
Average seats per departure                                                 108          104          101           88           68
Average stage length (miles)                                                532          571          524          475          471
Aircraft (average during period)                                           11.0         13.7         13.0         18.1         22.8
Aircraft utilization (hours per day)                                        9.9          9.8          9.0          8.4          8.6
Fuel price per gallon (cents)                                              69.0         80.6         73.4         57.3         61.7


                                                                                             as of December 31,
                                                                                             ------------------

                                                                           1995       1996         1997          1998          1999
                                                                           ----       ----         ----          ----          ----
                                                                                               (dollars in thousands)
Balance Sheet Data
Cash, cash equivalents, restricted cash and short-term investments   $    2,799   $   12,805   $   58,071   $   58,248   $   38,564
Working capital                                                         (41,117)     (42,198)      20,826       32,880        4,414
Equipment and property, net                                               9,258        6,669       46,574      103,007      120,405
Equipment purchase deposits, net                                          7,749        1,846       17,133       18,103       61,824
Total assets                                                             56,010       38,384      139,810      203,581      256,689
Long-term debt and capital lease obligations (net of current
 maturities)                                                              7,307       11,704       39,187       78,764      103,349
Stockholders' equity                                                    (18,385)     (40,569)      48,486       70,463       83,136
</TABLE>

(1) The Company reclassified certain balances to reflect classifications in
1997, 1998 and 1999 financial statements.

(2) The Company recorded restructuring charges 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 the
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. (See Note 2 of Notes to
Financial Statements)

(5) The Company recorded a one-time charge of $0.75 million in 1997 related to
the Recapitalization. (See Note 12 of Notes to Financial Statements)

(6) Extraordinary gain consists of one-time gains recognized in connection with
the Recapitalization. (See Note 12 of Notes to Financial Statements)

(7) 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.

(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, 1998 and 1999 the break-even load factor would have been
63.3%, 64.6%, 57.8%, 57.6% and 61.2%, respectively.

(10) "Operating cost per available seat mile" as represented above equals total
operating costs less 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, 1998 and 1999 cost per available seat mile would have been
11.11 cents, 11.56 cents, 12.33 cents, and 11.99 cents and 12.85 cents,
respectively.
<PAGE>

Glossary

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

<TABLE>
<S>                                    <C>
Aircraft (average during period)       The average number of aircraft operated
                                       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 (excluding into plane fees)

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.
</TABLE>
<PAGE>

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 REPORT.


YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

OVERVIEW

Results of Operations

For the year ended December 31, 1999 the Company's net income was $9.4 million.
Excluding the unusual items discussed below, net income was $11.0 million, down
33% from the net income of $16.5 million for the year ended December 31, 1998.
Excluding the unusual items, operating income declined 32% in 1999 to $19.5
million from $28.5 million in 1998. Revenue for 1999 was up 3% over 1998 to
$217.9 million. Excluding the unusual items, the Company's operating margin
decreased to 8.9% in 1999 from 13.5% in 1998. Earnings per diluted share for the
year ended December 31, 1999 amounted to $0.98 ($1.16 excluding unusual items)
compared to $1.54 ($1.69 excluding unusual items) for the year ended December
31, 1998.

Unusual Items

Year Ended December 31, 1999

 .    $2.8 million ($1.7 million after taxes) equipment retirement charge related
     to the retirement of three aircraft during the first half of 1999 and $0.7
     million ($0.4 million after taxes) related to settlement of litigation with
     an aircraft lessor.

Year Ended December 31, 1998

 .    $2.4 million ($1.5 million after taxes) equipment retirement charge related
     to the retirement of five aircraft, two of which were returned at the end
     of their lease terms in 1998 and three of which were returned at the end of
     their lease terms in the first half of 1999.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Capacity.  In 1999, the Company produced 1.566 billion ASMs, an increase of 20.8
million or 1.3% from 1998. The increase in ASM production was attributable to
29.9% more departures (to 46,751), offset somewhat by a 0.8% shorter average
stage length (to 471 miles) and 22.7% fewer seats per departure (to 68 seats).
These changes resulted from the change in the Company's fleet (see below) and
changes in schedules and routes during the year.

<TABLE>
<CAPTION>
                               As of December 31,
          Aircraft             1999          1998
          --------             ----          ----
      <S>                        <C>          <C>
      F100 (98 seats)            8            10
      A320 (148 seats)           0             1
      CRJ (50 seats)            18            10
      Boeing (128 seats)         1             0
                                --            --
                                27            21
</TABLE>

Operating Revenues. The Company's operating revenues increased 3.1% to $217.9
million for the year ended December 31, 1999 from $211.4 million for the year
ended December 31, 1998. The increase is attributable to a 3.4% increase in the
number of passengers boarded to 2.063 million from 1.995 million with a stable
average fare.  Passenger revenue per ASM increased 2.2% to 13.6 cents per ASM
due to a 0.6 percentage point increase in load factor to 65.9% and a 1.3%
increase in passenger yield (revenue per RPM) to 20.7 cents. Cargo revenue
decreased 9.9% to $1.9 million for the year ended December 31, 1999 from $2.1
million for the year ended December 31, 1998. The decrease is due to a 36%
decrease in mail partially offset by a 16.5% increase in non-mail cargo carried
during 1999. Other revenue decreased 19.6% to $3.0 million for the year ended
December 31, 1999 from $3.8 million for the year ended December 31, 1998, due
primarily to the decrease in charters, an increase in revenue shared from the
revenue sharing agreement with the Company's commuter affiliate, and decreases
in other miscellaneous revenues.

Operating Expenses. The Company's operating expenses increased 8.6% to $201.2
million for the year ended December 31, 1999
<PAGE>

from $185.3 million for the year ended December 31, 1998. Total expenses
increased primarily due to increases in number of employees, wages, fuel,
depreciation expense, and the recording of $2.8 million of equipment retirement
charges in 1999 partially offset by reduction in maintenance costs and
commissions in 1999. Total operating expense per ASM increased 7.1% to 12.85
cents from 12.00 cents. Excluding the one-time equipment retirement charges in
1999 and 1998, operating expense per ASM increased 7.1% to 12.68 cents from
11.84 cents. This increase is attributable to higher fuel prices, increases in
wages and salaries and related costs, and depreciation and amortization
expenses.
<PAGE>

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                     -----------------------

                                               1998                           1999
                                               ----                           ----
                                    Percent of     Cost per        Percent of      Cost per
                                  Total Expenses  ASM (cents)    Total Expenses   ASM (Cents)
                                  --------------  -----------    --------------   -----------
<S>                               <C>             <C>           <C>               <C>

Wages, salaries and related costs      17.0%         2.06              19.1%         2.48
Aircraft fuel                          10.5          1.27              11.2          1.45
Aircraft and engine rentals            16.0          1.94              15.5          2.01
Commissions                             8.0          0.98               7.0          0.91
Maintenance, materials and repairs      9.1          1.11               6.6          0.86
Other rentals and landing fees          5.1          0.62               5.0          0.64
Depreciation and amortization           3.3          0.40               3.9          0.51
Other operating expenses               28.6          3.46              29.5          3.82
                                       -----         ----             -----         -----
Sub-total operating expenses before
 equipment retirement charge           97.6         11.84              97.8         12.68
                                       -----         ----             -----         -----

Equipment retirement charges            1.3          0.16               1.4          0.18

Total operating expenses               98.9         12.00              99.2         12.86
                                      -----         -----             -----         -----

Other (income) expenses                 1.1          0.13               0.8          0.10
                                      -----          ----             -----         -----

Total expenses                        100.0%        12.13             100.0%        12.96
                                      =====         =====             =====         =====
</TABLE>

Wages, salaries and related costs increased $7.1 million or 22.2% to $38.9
million for the year ended December 31, 1999 from $31.8 million for the year
ended December 31, 1998. 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 1999 and 1998. Included in the 1999 expense are discretionary
bonuses amounting to $1.2 million versus $2.4 million in 1998. Wages, salaries
and related cost per ASM increased 0.42 cents or 20.4% to 2.48 cents. The
increase in unit costs is attributable to the items noted above as well as the
changes noted in "Capacity".

Aircraft fuel expense increased 15.9% to $22.7 million for the year ended
December 31, 1999 from $19.6 million for the year ended December 31, 1998. The
increase was due to a 7.7% increase in the average fuel price per gallon to 61.7
cents from 57.3 cents, and a 6.2% increase in gallons of fuel consumed due to
the increased number of flights, partially offset by a shift to more fuel
efficient aircraft. Aircraft fuel expense per ASM increased 14.2% to 1.45 cents
because of the fuel price increase and the 4.8% increase in fuel consumed due to
the changes in the Company's fleet mix.

Aircraft and engine rental expense increased 5.0% to $31.4 million for the year
ended December 31, 1999 from $29.9 million for the year ended December 31, 1998.
The increase in expense is attributable to the rent expense on additional leased
CRJs and a partial month of rent for the 737-700, offset by return of four F-
100s in late 1998 and the first half of 1999, the return of the A320 in 1999,
and the reduced use of leased spare engines. Aircraft and engine rentals expense
per ASM increased 3.6% to 2.01 cents from 1.94 cents. The increase in cost per
ASM primarily resulted from the increase in the number of leased CRJ aircraft in
1999, partially offset by the return of the four F100 and one A320 aircraft in
late 1998 and the first half of 1999.

Commission expense decreased 5.6% to $14.2 million for the year ended December
31, 1999 from $15.1 million for the year ended December 31, 1998. This was due
to an 8.9% reduction in average commission paid partially offset by the 3.6%
increase in passenger revenues. Commission expense per ASM decreased 7.2% to
0.91 cents from 0.98 cents, primarily driven by the reduction in commission rate
paid and the decrease of travel agency revenues as a percent of passenger
revenue, partially offset by the 2.2% increase in passenger revenue per ASM.

Maintenance, materials and repairs expense decreased 21.7% to $13.4 million for
the year ended December 31, 1999 from $17.1 million in the year ended December
31, 1998. The expense decrease is largely attributable to the return of the five
leased aircraft partially offset by the 28.5% increase in block hours flown by
new, lower maintenance CRJs.  Maintenance, materials and repairs expense per ASM
decreased 22.6% to 0.86 cents from 1.11 cents.

Other rentals and landing fees expense increased 4.7% to $10.1 million for the
year ended December 31, 1999 from $9.6 million for the year ended December 31,
1998. Other rentals and landing fees expense per ASM increased 3.2% to 0.64
cents from 0.62 cents, due to increased rents at certain facilities and a 3.2%
increase in landing weight partially offset by a 17.4% decline in landing fee
rates at RDU.

Depreciation and amortization expense increased 28.8% to $7.9 million for the
year ended December 31, 1999 from $6.2 million for the year ended December 31,
1998. Depreciation and amortization expense per ASM increased 27.5% to 0.51
cents from 0.40 cents in the year ended December 31, 1998.  During 1999 the
Company increased its investment in fixed assets by 19.8%.
<PAGE>

Acquisitions included an engine for the CRJ fleet, parts for the 737-700 fleet,
F100 fleet, and CRJ fleet, ground service equipment, computer equipment, and the
new corporate headquarters.

Other operating expense increased 11.6% to $59.8 million for the year ended
December 31, 1999 from $53.5 million for the year ended December 31, 1998.
Other operating expenses consist primarily of reservations, ground handling,
advertising, general and administrative expense and insurance.  The increase in
expense is attributable to the 29.9% increase in departures and 3.4% increase in
passengers, partially offset by savings in insurance and efficiencies created by
growth.  Other operating expense per ASM increased 10.4% to 3.82 cents from 3.46
cents in 1998.

Interest income decreased $1.1 million to $2.2 million for the year ending
December 31, 1999 due to lower average cash balances due to predelivery deposits
for the CRJ and Boeing fleets. Interest expense decreased $1.5 million to $3.8
million due to the offset of interest expense by the capitalized interest on
aircraft deposits. Interest expense per ASM for year ending December 31, 1999
was 0.10 cents compared to interest expense per ASM of 0.13 cents in the
comparable prior period.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

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 $16.5 million, up
75% from the net income of $9.4 million for the year ended December 31, 1997.
Operating income, excluding the unusual items, rose 80% in 1998 to $28.5 million
from $15.9 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. Earnings per diluted share for the year ended December 31, 1998 amounted
to $1.54 ($1.69 excluding unusual items) compared to $3.46 ($1.34 excluding
unusual items) for the year ended December 31, 1997.

Unusual Items

Year Ended December 31, 1998

 .    $2.4 million ($1.5 million after taxes) equipment retirement charge related
     to the retirement of five aircraft, two of which left the fleet in 1998.

Year Ended December 31, 1997

 .    Extraordinary gain of $16.0 million and a special recapitalization charge
     of $0.75 million ($0.45 million after taxes), both related to the February
     1997 recapitalization of the Company.

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 3.2% 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 29.7% to $3.8 million for the year ended December 31, 1998
from $5.3 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
<PAGE>

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, ground handling, 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.
<PAGE>

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                              -----------------------

                                                                      1997                              1998
                                                                      ----                              ----
                                                            Percent of       Cost per       Percent of       Cost per
                                                          Total Expenses    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                                   9.9          1.23               9.1          1.11
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                                            29.2          3.59              28.6          3.46
                                                                   -----         -----             -----         -----

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 F100s
after the Recapitalization in February 1997, the return of two F100s 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 0.6% to $17.1 million for
the year ended December 31, 1998 from $17.0 million in the year ended December
31, 1997. The expense increase is largely attributable to the 30.1% increase in
block hours by the new, lower maintenance CRJs offset by reductions in Fokker
maintenance rates and the disposition of two Fokkers at the end of their lease
terms in 1998. Maintenance, materials and repairs expense per ASM decreased 9.8%
to 1.11 cents from 1.23 cents.

Other rentals and landing fees expense decreased 1.7% 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
<PAGE>

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 7.4% to $53.5 million for the year ended
December 31, 1998 from $49.9 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,
marketing expenses and efficiencies created by growth. Other operating expense
per ASM decreased 3.6% to 3.46 cents from 3.59 cents in 1997.

Interest income increased $1.6 million to $3.3 million for the year ending
December 31, 1998 due to higher average cash balances throughout the year.
Interest expense increased $3.6 million to $5.3 million due to the debt service
on the five owned CRJs and the Fokker spare engine loans. Interest expense per
ASM for the year ending December 31, 1998 was 0.13 cents compared to interest
income per ASM of 0.01 cents in the comparable prior period.
<PAGE>

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 resulted in a
decrease in income before extraordinary gain of $0.4 million and an increase in
net income of $0.5 million.

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>


                                                                 1998                                     1999
                                    ---------------------------------------------   ---------------------------------------------
(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 (000s)           $ 50,521    $ 55,708    $ 49,471    $ 55,739    $ 54,986    $ 55,551    $ 49,508    $ 57,901
Operating income (000s) (1)         $  6,566    $  9,440    $  3,962    $  8,576    $  8,248    $  8,112    $    797    $  2,321
Net income (000s)                   $  3,855    $  5,298    $  2,375    $  3,453    $  4,006    $  4,010    $    229    $  1,111
ASMs (000s)                          373,166     387,752     389,544     394,483     375,649     375,476     381,540     433,116
RPMs (000s)                          232,067     261,474     256,411     258,615     238,624     251,675     252,243     289,041
Load factor                             62.2%       67.4%       65.8%       65.6%       63.5%       67.0%       66.1%       66.7%
Break-even load factor (1)              54.0%       56.4%       61.3%       55.9%       54.8%       57.7%       65.5%       63.0%
Passenger Yield (cents)                21.15       20.73       18.78       20.93       23.04       21.61       19.08       20.65
PRASM (cents)                          13.15       13.98       12.36       13.72       14.64       14.48       12.71       13.60
CASM (cents) (1)                       11.82       12.09       11.84       12.11       12.67       12.78       12.88       12.78
Aircraft (average during period)        15.1        17.2        18.5        21.0        21.5        20.9        22.7        25.8
Net income per share, basic             0.45        0.62        0.28        0.40        0.47        0.47        0.03        0.13
Net income per share, diluted           0.39        0.54        0.24        0.36        0.42        0.42        0.02        0.12
</TABLE>

(1)  Excludes equipment retirement charges.

During January 2000, due to severe weather, the Company effectively lost five
business days of operations which will have an material impact on the first
quarter 2000 results.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

The Company's working capital decreased during the year ended December 31, 1999
compared to the year ended December 31, 1998.  As of December 31, 1999, the
Company had cash, restricted cash, and short-term investments of $38.6 million
and working capital of $4.4 million compared to $58.2 million and $32.9 million
respectively as of December 31, 1998.  During the year ended December 31, 1999,
cash, restricted cash, and short-term investments decreased $19.7 million,
reflecting net cash provided by operating activities of $23.1 million (excluding
changes in restricted cash), net cash used in investing activities of $50.8
million (excluding purchases and sales of short-term investments), and net cash
provided by financing activities of $8.0 million.  During the year ended
December 31, 1999, net cash provided by operating activities was primarily due
to net income and depreciation and amortization; net cash used in investing
activities was due to purchases of equipment and property and equipment purchase
deposits; and net cash provided by financing activities was due to proceeds from
issuance of long-term debt.

The Company's working capital increased 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 $29.0 million (excluding changes in restricted cash), net cash
used in investing activities of $10.4 million (excluding purchases and sales of
short-term investments), and net cash used in financing activities of $18.3
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 $11.1 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 $58.6
<PAGE>

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 from the Recapitalization and the
Initial Public Offering.

CAPITAL RESOURCES

The Company's aircraft purchase obligations amount to approximately $625 million
as of December 31, 1999. The Company's remaining pre-delivery deposit
obligations amount to approximately $36 million. The Company's anticipated near-
term, non-aircraft capital expenditures amount to approximately $20 million.
Together, these obligations exceed the Company's internal capital resources and
accordingly, the Company will be required to obtain capital from external
sources. A substantial portion of the required external capital has been
committed to the Company by the aircraft and engine manufacturers, subject to
satisfaction of certain conditions. Additionally, the Company has entered into a
commitment letter relating to a $30 million revolving credit facility to be
provided by an entity owned by James H. Goodnight, Ph.D. and John P. Sall.
Pursuant to this commitment letter, the Company is obligated to undertake a
rights offering of common stock. Messrs. Goodnight and Sall have agreed to
exercise their rights to purchase shares of Common Stock in the Company and to
purchase additional shares of common stock in the offering. Accordingly, the
rights offering is expected to raise a minimum of approximately $32 million. The
Company continues to pursue external financing for remaining unfinanced
obligations and capital expenditures including aircraft purchase obligations,
pre-delivery deposit obligations and anticipated capital expenditures, although
no assurances can be given that such financing will be available on a timely
basis. See "Control By Exiting Shareholders."

CAPITAL EXPENDITURES

The Company's cash outflows for capital expenditures in the year ended December
31, 1999 and 1998 were $23.9 million and $8.1 million, respectively, excluding
financed purchases. Debt financed purchases in the year ended December 31, 1999
and 1998 were $1.5 million and $53.8 million, respectively.

As of March 27, 2000, the Company has in place firm orders to purchase six
additional newly manufactured CRJ-200ER Canadair Regional Jet aircraft, all of
which are scheduled to be delivered by December 2001.  The Company also has
options to acquire up to fourteen additional CRJs. The Company expects to
arrange a combination of third party debt and leveraged lease financing, but
will use available 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.

The Company has placed firm orders to purchase fifteen 737 aircraft, and has
leased two additional 737s. Deliveries of the two leased 737 aircraft occurred
in December 1999 and January 2000, and delivery for the other fifteen 737
aircraft are scheduled to begin in September 2000 and end in October 2002.  The
Company has options to acquire ten additional 737s. The Company expects to
arrange a combination of third party debt and leveraged lease financing, but
will use available standby lease financing in the event that it is unable to
arrange more attractive financing from third party sources. The Company intends
to purchase up to four CFM 56-7B spare engines to support the operation of its
737 aircraft.

In August 1998, the Company completed an offering of $109,722,000 of 1998-1 Pass
Through Trust Certificates. 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
enabled the Company to finance (through either leveraged leases or secured debt
financings) the debt portion of eight CRJ aircraft.

OTHER FINANCING

The Company has significant lease obligations for aircraft that are classified
as operating leases and therefore are not reflected as liabilities on the
Company's balance sheet. The remaining terms of such leases range from less than
one year to approximately seventeen years. The Company's total rent expense for
the year ended December 31, 1999 and 1998 under all non-cancelable aircraft
operating leases was approximately $31.2 million and $29.3 million,
respectively.

CONTINGENCIES

SUBSEQUENT EVENTS

On February 29, 2000, the Company exercised an option to terminate the leases on
four of the F100s prior to their scheduled expirations in 2003 and 2004,
resulting in a revised scheduled return date of these aircraft in the first half
of 2001. The Company

In March 2000, the Company entered into a commitment letter relating to a $30
million revolving loan (the "Credit Facility") to be provided by Reedy Creek
Investments, L.L.C., an entity which is wholly owned by Messrs. Goodnight and
Sall.

Proceeds from the Credit Facility will be used to fund the payment of certain
pre-aircraft delivery deposit obligations, for capital expenditures and for
general working capital purposes. Outstanding loans made under the Credit
Facility, if any, will be prepaid and the remaining available loan commitment
will be reduced on pre-aircraft delivery to not more than $10 million on the
earlier of September 30, 2000 and the date on which the Company completes the
rights offering of securities described below.

Pursuant to the Credit Facility commitment letter, the Company is obligated to
undertake a rights offering of securities on the following terms:

        .  a right ("Right") to purchase a share of common stock in the Company
           will be issued to each holder of common stock in the Company on a
           share for share basis. The Rights will be issued to holders of common
           stock on the date which is 10 days after the filing of the
           registration statement covering such Rights (the "Record Date"). The
           Record Date may be postponed pending the effectiveness of the
           registration statement covering such Rights. The Rights will be
           issued immediately following the effectiveness of the registration
           statement covering such Rights (the "Issuance Date").

        .  each Right shall entitle the holder thereof to purchase one share of
           common stock in the Company for $5.20 per common share (the
           "Subscription Price").

        .  Rights to purchase shares of common stock in the Company will not be
           listed on NASDAQ or any other exchange and will not be transferable
           or assignable.

        .  Rights will be exercisable for 30 days from the Issuance Date.

        .  Messrs. Goodnight and Sall have each agreed to exercise their
           respective Rights.

        .  Messrs. Goodnight and Sall have also each agreed to purchase, and all
           other holders of common stock on the Record Date who have timely
           exercised all of their Rights will also have the right to purchase at
           the Subscription Price, such shares of common stock subject to Rights
           issued on the Issuance Date which have not been timely exercised
           multiplied by their percentage ownership interests in the Company's
           common stock on the Record Date.
<PAGE>

is required to pay the lessor $2,125,000 upon the termination of each of these
four leases. In addition, the Company is required to perform certain maintenance
tasks on these aircraft prior to their return.

YEAR 2000

The Company experienced no significant problems with the changeover from 1999 to
2000.  Total expense related to the Company's Year 2000 project was less than
$100,000.

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:

The ability to generate sufficient cash flows and/or sufficient financing 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".

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.

Fluctuations in the cost and availability of materials, fuel, equipment and
labor including the continued availability of landing slots at New
York/LaGuardia and Ronald Reagan Washington National airports. See "Business -
Maintenance and Support, Slots, Fuel, Flight Equipment, Employees and Labor
Relations".

Unexpected delays in the delivery of new aircraft now scheduled for delivery in
2000, 2001, and 2002.  See "Properties - Flight Equipment".

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.

Interest rate fluctuations and other capital market conditions.

The reliance on a limited number of markets and the ability to enter and develop
new markets. See "Business - Growth Strategy".

The effectiveness of and availability of resources to support advertising,
marketing and promotional programs. See "Business - American Relationship".

The uncertainties of litigation and/or administrative proceedings. See "Business
- Government Regulation, Employees and Labor Relations" and "Legal Proceedings".

Adverse weather conditions, which could effect the Company's ability to operate.
See "Business - Raleigh-Durham Market".

The Company's significant dependence on the Raleigh-Durham Market. See "Business
- Raleigh-Durham Market".

Control by existing stockholders. See "Business - Control by Existing
Shareholders".

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".
<PAGE>

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Market Risk Sensitive Instruments and Positions

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

Aircraft Fuel.  The Company's results of operations are significantly impacted
by changes in the price of aircraft fuel. During 1999, 1998 and 1997, aircraft
fuel accounted for 11.5%, 10.7%, and 12.6% , respectively, of the Company's
operating expenses (excluding equipment retirement charges).  The Company
estimates that at December 31, 1999, a ten percent increase in the price per
gallon of aircraft fuel would increase the total operating expenses of the
Company (excluding equipment retirement charges) by 1.1%.

Interest Rates.  The Company's results of operations are not signficantly
affected by fluctuations in interest rates (e.g., interest expense on debt and
interest income on short-term investments). The Company is exposed to market
risk from changes in interest rates for the financing of the pre-delivery
deposits.  Such changes in interest rates impact interest cost on the Company's
interest rate sensitive liabilities.  Interest rate sensitive liabilities are
assumed to be those for which the stated interest rate is not contractually
fixed for the next 12-month period.  Thus, liabilities which have a market-based
index, such as the prime rate, are rate sensitive.  As of December 31, 1999, the
only interest rate sensitive liabilities of the Company relate to the
pre-delivery deposit financing.  Assuming a hypothetical, immediate 100 basis
point increase in the interest rate, the Company's capitalized interest for the
deposits financed at December 31, 1999 over the following 12-month period would
be increased by approximately $431,000. The hypothetical model assumes that the
balance of interest rate sensitive liabilities at fiscal year-end will remain
constant over the next 12-month period.  Thus, this model represents a static
analysis, which cannot adequately portray how the Company would respond to
significant changes in market conditions.  Furthermore, the analysis does not
necessarily reflect the Company's expectations regarding the movement of
interest rates in the near term, including the likelihood of an immediate 100
basis point change in the interest rates nor the actual effect on interest cost
if such a rate change were to occur.  The Company does not use financial
instruments to hedge interest rate exposure, does not use financial instruments
for trading purposes, and is not a party to any leveraged derivatives.
<PAGE>

                          Midway Airlines Corporation

                          Audited Financial Statements

                  Years ended December 31, 1999, 1998 and 1997



                                    Contents

Report of Independent Auditors...........................................  F-2

Audited Financial Statements

Balance Sheets...........................................................  F-3
Statements of Income.....................................................  F-5
Statement of Stockholders' Equity........................................  F-7
Statements of Cash Flows.................................................  F-8
Notes to Financial Statements............................................  F-9


                                      F-1
<PAGE>

                         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, 1999 and 1998 and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999.  Our audits also included the financial statement
schedule listed in the Index at Item 14(a).  These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Midway Airlines Corporation as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

                                        /s/ Ernst & Young LLP

Raleigh, North Carolina
February 1, 2000, except for the last
  paragraph of Note 3 and Note 13,
  as to which the date is February 29, 2000

                                      F-2
<PAGE>

                          Midway Airlines Corporation

                                 Balance Sheets
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                      December 31
                                                   1999          1998
                                             ---------------------------
<S>                                          <C>             <C>
Assets
Current assets:
 Cash and cash equivalents                        $ 27,351      $ 48,736
 Restricted cash                                    10,668         9,512
 Short-term investments                                545             -
 Accounts receivable:
  Credit cards and travel agencies                   4,311         4,702
  Other (net)                                        2,719         1,946
 Inventories                                         3,638         2,916
 Deferred income tax asset                           1,172           457
 Prepaids and other                                  9,878        10,886
                                             ---------------------------
Total current assets                                60,282        79,155

Equipment and property:
 Flight                                            124,808       107,143
 Other                                              11,485         6,657
 Less accumulated depreciation and
  amortization                                     (15,888)      (10,793)
                                             ---------------------------
Total equipment and property, net                  120,405       103,007

Other noncurrent assets:
 Equipment and aircraft purchase deposits           61,824        18,103
 Aircraft lease deposits and other                   9,306         3,316
 Deferred income tax asset                           4,872             -
                                             ---------------------------
Total other noncurrent assets                       76,002        21,419


                                             ---------------------------
Total assets                                      $256,689      $203,581
                                             ===========================
</TABLE>



See accompanying notes.

                                      F-3
<PAGE>

<TABLE>
<CAPTION>
                                                     December 31
                                                  1999         1998
                                             --------------------------
<S>                                            <C>          <C>
Liabilities and stockholders' equity
Current liabilities:
 Accounts payable                                 $ 11,574     $  7,327
 Accrued expenses                                    6,385        5,732
 Accrued income and excise taxes                     2,267          581
 Advance ticket sales                               25,486       21,483
 Other current liabilities                           2,686        5,803
 Current maturities of long-term debt and
  capital lease obligations                          7,470        5,349
                                             --------------------------
Total current liabilities                           55,868       46,275

Noncurrent liabilities:
 Long-term debt and capital lease obligations      103,349       78,764
 Deferred income tax liability                      14,336        7,022
 Other                                                   -        1,057
                                             --------------------------
Total noncurrent liabilities                       117,685       86,843
                                             --------------------------
Total liabilities                                  173,553      133,118

Stockholders' equity:
 Preferred stock, $0.01 par value; 12
  million shares authorized; none issued and
  outstanding                                            -            -
 Common stock, $0.01 par value; 25 million
  shares authorized; 8,602,395 shares issued
  and outstanding at December 31, 1999 and
  1998                                                  86           86
 Additional paid-in-capital                         54,349       51,032
 Retained earnings ($51.1 million of
  accumulated deficit eliminated in the
  quasi-reorganization as of June 30, 1997)
  (Note 1)                                          28,701       19,345
                                             --------------------------
Total stockholders' equity                          83,136       70,463
                                             --------------------------
Total liabilities and stockholders' equity        $256,689     $203,581
                                             ==========================
</TABLE>



See accompanying notes.

                                      F-4
<PAGE>

                          Midway Airlines Corporation

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


<TABLE>
<CAPTION>
                                             Year ended December 31
                                        1999          1998          1997
                                  -----------------------------------------
<S>                                 <C>           <C>           <C>
Operating revenues:
 Passenger                             $213,018      $205,566      $179,000
 Cargo                                    1,912         2,121         1,936
 Contract and other                       3,016         3,752         5,339
                                  -----------------------------------------
Total revenues                          217,946       211,439       186,275

Operating expenses:
 Wages, salaries and related costs       38,875        31,822        25,757
 Aircraft fuel                           22,738        19,623        21,499
 Aircraft and engine rentals             31,429        29,927        30,495
 Commissions                             14,229        15,071        13,978
 Maintenance, materials and
  repairs                                13,388        17,103        17,006
 Other rentals and landing fees          10,098         9,646         9,812
 Depreciation and amortization            7,938         6,162         1,999
 Other                                   59,773        53,541        49,862
 Equipment retirement charges             2,765         2,413             -
 Special recapitalization charges             -             -           750
                                  -----------------------------------------
Total operating expenses                201,233       185,308       171,158
                                  -----------------------------------------
Operating income                         16,713        26,131        15,117

Other income (expense):
 Interest income                          2,201         3,342         1,783
 Interest expense                        (3,822)       (5,314)       (1,669)
                                  -----------------------------------------
Total other income (expense)             (1,621)       (1,972)          114
                                  -----------------------------------------

Income before income taxes and
 extraordinary gain                      15,092        24,159        15,231
Income tax expense                        5,736         9,178         6,306
                                  -----------------------------------------
Income before extraordinary gain          9,356        14,981         8,925
Extraordinary gain                            -             -        15,969
                                  -----------------------------------------
Net income                             $  9,356      $ 14,981      $ 24,894
                                  =========================================
</TABLE>



See accompanying notes.

                                      F-5
<PAGE>

                          Midway Airlines Corporation

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


<TABLE>
<CAPTION>
                                              Year ended December 31
                                         1999          1998          1997
                                   ------------------------------------------

<S>                                  <C>           <C>           <C>
Basic earnings per share:
 Income before extraordinary gain      $     1.09    $     1.75    $     1.47
 Extraordinary gain                             -             -          2.64
                                   ------------------------------------------
 Net income                            $     1.09    $     1.75    $     4.11
                                   ==========================================

Weighted average shares used in
 computing basic earnings per share     8,602,395     8,574,972     6,059,051
                                   ==========================================

Diluted earnings per share:
 Income before extraordinary gain      $     0.98    $     1.54    $     1.24
 Extraordinary gain                             -             -          2.22
                                   ------------------------------------------
 Net income                            $     0.98    $     1.54    $     3.46
                                   ==========================================

Weighted average shares used in
 computing diluted earnings per
 share                                  9,507,175     9,731,527     7,193,794
                                   ==========================================
</TABLE>



See accompanying notes.

                                      F-6
<PAGE>

                          Midway Airlines Corporation

                       Statement of Stockholders' Equity
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                                             Retained
                                                   Preferred Stock           Common Stock       Additional   Earnings
                                               ----------------------------------------------    Paid-in  (Accumulated
                                                   Shares     Amount        Shares     Amount    Capital      Deficit)     Total
                                               -----------------------------------------------------------------------------------

<S>                                              <C>          <C>        <C>           <C>      <C>          <C>         <C>
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
 Net operating loss carryforward utilization
  credited to additional paid-in capital (Note
  8)                                                      -        -               -        -        3,317           -       3,317
 Net income                                               -        -               -        -            -       9,356       9,356
                                               -----------------------------------------------------------------------------------
Balance at December 31, 1999                              -   $    -       8,602,395    $  86     $ 54,349    $ 28,701    $ 83,136
                                               ===================================================================================
</TABLE>


See accompanying notes.

                                      F-7
<PAGE>

                          Midway Airlines Corporation

                            Statements of Cash Flows
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                              Year ended December 31
                                                                       1999            1998            1997
                                                                -----------------------------------------------
<S>                                                               <C>             <C>             <C>
Operating activities
Net income                                                             $  9,356        $ 14,981        $ 24,894
Adjustments to reconcile net income to net cash provided by
 operating activities:
  Depreciation and amortization                                           7,938           6,162           1,999
  Special recapitalization charges                                            -               -             750
  Extraordinary gain                                                          -               -         (15,969)
  Deferred income taxes                                                   5,736           6,565               -
  Loss on disposal of assets                                                 97              21               -
  Accreted interest and amortization of discount on debt                    448             554           1,518
  Changes in operating assets and liabilities:
   Restricted cash                                                       (1,156)         (6,701)           (811)
   Accounts receivable                                                     (382)           (896)         (1,760)
   Inventories                                                             (722)           (807)         (1,714)
   Prepaids and other                                                       859          (1,267)           (226)
   Aircraft lease deposits and other                                     (6,046)            959            (462)
   Accounts payable and accrued expenses                                  4,900           1,958             897
   Accrued excise and income taxes                                          994            (714)         (1,505)
   Advance ticket sales                                                   4,003             599           2,708
   Other current liabilities                                             (2,989)             94             243
   Other noncurrent liabilities                                          (1,057)            749            (279)
                                                                -----------------------------------------------
Net cash provided by operating activities                                21,979          22,257          10,283

Investing activities
Purchase of short-term investments                                       (7,820)              -         (78,278)
Sale of short-term investments                                            7,275             751          77,527
Purchase of equipment and property                                      (23,945)         (8,141)         (7,335)
Proceeds from sale of equipment and property                                357               -               -
Aircraft and equipment purchase deposits                                (41,648)        (19,752)        (17,133)
Refund of aircraft and equipment purchase deposits                       14,436          17,461               -
                                                                -----------------------------------------------
Net cash used in investing activities                                   (51,345)         (9,681)        (25,219)

Financing activities
Issuance of common and preferred stock                                        -             177          60,257
Proceeds from issuance of long-term debt                                 14,095           1,800               -
Repayment of long-term debt and capital lease obligations                (6,114)        (20,326)         (1,617)
                                                                -----------------------------------------------
Net cash provided by (used in) financing activities                       7,981         (18,349)         58,640
                                                                -----------------------------------------------
(Decrease) increase in cash and cash equivalents                        (21,385)         (5,773)         43,704
Cash and cash equivalents at beginning of year                           48,736          54,509          10,805
                                                                -----------------------------------------------
Cash and cash equivalents at end of year                               $ 27,351        $ 48,736        $ 54,509
                                                                ===============================================
Supplemental cash flow information
Interest paid                                                          $  6,131        $  3,812        $    125
                                                                ===============================================
Income taxes paid                                                      $  2,191        $  6,610        $  2,600
                                                                ===============================================
Schedule of non-cash activities
Issuance of debt and capital leases for equipment purchases            $  1,529        $ 53,824        $ 34,531
                                                                ===============================================
Debt issued for aircraft purchase deposits                             $ 16,845        $      -        $      -
                                                                ===============================================
</TABLE>

See accompanying notes.

                                      F-8
<PAGE>

                          Midway Airlines Corporation

                         Notes to Financial Statements

                               December 31, 1999


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 Midwest locations from its hub at the Raleigh-Durham
International Airport ("Raleigh-Durham"), utilizing eight Fokker F-100 aircraft,
eighteen Canadair Regional Jets ("CRJs"), and one Boeing 737-700 aircraft as of
December 31, 1999. As of December 31, 1999, the Company has purchase commitments
for eight additional CRJ's and fifteen Boeing 737-700 aircraft and options to
acquire up to fourteen additional CRJs and ten additional Boeing 737-700
aircraft.

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 (see Note 12).

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 (see 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-9
<PAGE>

                          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.

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, 1999 and 1998, approximately $10.7 million and $9.5 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 certificates of deposits which 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.

Concentrations

Midway's accounts receivable are primarily receivables from major credit card
issuing 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, 1999 and 1998, the allowance for doubtful accounts was
approximately $1,613,000 and $1,624,000, respectively.

Amounts charged by a related party vendor accounted for approximately 7.5%,
12.3% and 15.6% of operating expenses for the years ended December 31, 1999,
1998 and 1997, respectively. This vendor provided services related primarily to
maintenance, passenger services and leasing of its Raleigh-Durham airport
facilities and certain aircraft landing slots.

                                      F-10
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


2. Significant Accounting Policies and Other Matters (continued)

Concentrations (continued)

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 leased
from this vendor pursuant to lease agreements covering various time periods (see
Note 4). The Company also has a note payable with this vendor with an
outstanding balance of $6.6 million at December 31, 1999 (Note 3). If the
Company pays any dividends or makes any other cash or asset distribution to its
stockholders without this vendor's consent at any time prior to the Company's
payment in full of its note payable to the vendor, then the vendor may terminate
the Raleigh-Durham facility lease, the Company's right to offer AAdvantage(R)
frequent flyer benefits, and certain other service agreements.  In addition,
this vendor may terminate the Company's lease of the Raleigh-Durham facility and
one other service agreement that the Company has with this vendor if any person
or group acquires 30% or more of the Company's voting securities.

The Company maintains certain cash balances and investments with banks 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 aircraft
manufacturers. One of these manufacturers maintains certain consignment
inventory at the Company's facilities in Raleigh-Durham. Deposits are held by
the aircraft manufacturers for ordered aircraft until the delivery and payment
for 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 these vendors, due to the vendors' excellent credit ratings.

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. Allowances for obsolescence are provided over the estimated
useful life of the related aircraft and engines for spare parts expected to be
on hand at the date the aircraft are retired from service.

                                      F-11
<PAGE>

                          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 $7.5 million, $5.5 million, and $1.8 million for the years ended
December 31, 1999, 1998 and 1997, respectively. Equipment and property also
includes office equipment financed by capital leases (see Note 4).

The Company monitors the recoverability of the carrying value of its long-lived
assets.  Under the provisions of Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121), the Company recognizes an "impairment
charge" when the expected net undiscounted future cash flows from an asset's use
(including any proceeds from disposition) are less than the asset's carrying
value and the asset's carrying value exceeds its fair value.

Capitalized Interest

Interest on aircraft purchase deposits was capitalized at an amount
approximating the Company's incremental borrowing rate for similar type assets
throughout 1999 and 1998. All capitalized amounts are amortized over the term of
the respective service life of the related equipment. Capitalized interest
totaled $3,952,000, $809,000 and $0 for the years ended December 31, 1999, 1998
and 1997, respectively.

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, 1999
and 1998. At December 31, 1996, debt, other liabilities and warrants were
reflected at historical value.  In connection with the February 11, 1997
recapitalization (Note 12), debt, other liabilities and warrants with an
aggregate carrying value of $16.5 million were settled for approximately $1.5
million.

                                      F-12
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


2. Significant Accounting Policies and Other Matters (continued)

Derivatives

The Company is not a party to leveraged derivatives and does not hold or issue
financial instruments for speculative purposes.  The Company does not hedge
fuel.

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 in connection with
the purchase of five CRJ aircraft that were placed into service during the first
six months of 1998. 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 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 flown or operated at
contractual rates or (ii) capitalized when incurred and amortized on a straight-
line basis over the period of time between overhauls.

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.

                                      F-13
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


2. Significant Accounting Policies and Other Matters (continued)

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(R) companies. Midway is billed monthly for
AAdvantage(R) 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, $4.0 million, and $5.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively.

Income Taxes

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

Earnings Per Share

In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") 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.


                                      F-14
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


2. Significant Accounting Policies and Other Matters (continued)

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.

SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS 123") 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 and earnings
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 (see
Note 6).

Equipment Retirement Charges

Exit costs are estimated at the time a decision to return aircraft is made, and
to the extent the costs are not in the normal maintenance cycle, an exit cost is
recorded in the period the decision is made.  Leases expired on five of the
aircraft utilized by the Company in 1998 and 1999.  During the years ended
December 31, 1999 and 1998, the Company recorded $2.8 million and $2.4 million
in equipment retirement charges.

Recently Issued Accounting Standards

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Investments and Hedging Activities," ("SFAS 133"), as amended, which establishes
a new model for accounting for derivatives and hedging activities and supersedes
several existing standards. SFAS 133, as amended by SFAS 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect that the adoption of SFAS 133 will have a material impact on its
financial statements.

                                      F-15
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


2. Significant Accounting Policies and Other Matters (continued)

Segment Reporting

As of January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131").  SFAS 131
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company has determined that it does not have any separately
reportable operating segments as of December 31, 1999.

Reclassifications

Certain 1998 and 1997 amounts in the accompanying financial statements have been
reclassified to conform to the 1999 presentation. These reclassifications had no
effect on previously reported net income or stockholders' equity.

                                      F-16
<PAGE>

                          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
                                                                         1999             1998
                                                                  ----------------------------------
<S>                                                                 <C>              <C>
6.9% to 7% secured notes payable, principal and interest payable
 semi-annually beginning in 1998-1999 through 2014-2015 (a)                $ 65,777          $68,186
8% secured note payable, principal and interest payments
 commencing February 1998 through January 2004 (net of debt
 discount of $921, and $1,146 at December 31, 1999 and December
 31, 1998, respectively) (b)                                                  6,558            7,824
8% unsecured notes payable, principal payments commencing
 February 1998 through January 2004 (net of debt discount of
 $921, and $1,146 at December 31, 1999 and December 31, 1998,
 respectively) (c)                                                            3,396            4,032
6.9% lease purchase obligation, principal and interest payable
 monthly commencing April 1998 through March 2005                             1,932            2,227
8.4% secured note payable, principal payments commencing
 September 1998, due August 2001                                              1,000            1,600
Variable rate secured note payable, principal due on delivery of
 aircraft commencing September 2000 (d)                                      28,875                -
9.2% secured note payable, principal payments commencing January
 2000, due December 2006                                                      2,065                -
                                                                  ----------------------------------
                                                                            109,603           83,869
Less amounts due within one year                                              7,048            5,206
                                                                  ----------------------------------
                                                                           $102,555          $78,663
                                                                  ==================================
</TABLE>

(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.

                                      F-17
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)



3. Long-Term Debt (continued)

(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. These notes
     payable contain certain default provisions whereby the Company is
     prohibited from making any prepayments on or otherwise amending an existing
     note payable (b) which would provide more favorable terms to the lender. In
     the event of such default, every liability of the Company to the lenders of
     these notes shall become payable in full.

(d)  In conjunction with the acquisition of four Boeing 737-700 aircraft, the
     Company entered into interim short-term financing arrangements ("interim
     note") for the pre-delivery deposits related to those four aircraft. Under
     the terms of the interim note, the Company can borrow up to $45.3 million
     for the required pre-delivery deposits for these aircraft. The interim note
     will be replaced, upon delivery of the aircraft, with long-term operating
     leases. Therefore, the principal due at December 31, 1999 of $28.9 million
     is included in long-term debt on the balance sheets. Interest for the
     interim note is payable monthly.

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 are as
follows (in thousands):

               2000                             $  7,048
               2001                                5,722
               2002                                5,706
               2003                                6,169
               2004                                4,319
               Thereafter                         80,639
                                            ------------
               Principal balance                $109,603
                                            ============

Interest charged to expense, net of capitalized interest, was $3.8 million, $5.3
million and $1.7 million for the years ended December 31, 1999, 1998 and 1997,
respectively.


                                      F-18
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


3. Long-Term Debt (continued)

During December 1999, the Company entered into an Option Agreement with the
lessor of four of its F100 aircraft and lender of a note payable with an
outstanding balance of $2.0 million as of December 31, 1999. Under the terms of
the Option Agreement, a receivable for prepaid maintenance on returned aircraft
has been recorded for $1.3 million at December 31, 1999, which will be applied
against principal as of March 1, 2000. The Option Agreement also resulted in a
$2 million payment to the lessor for settlement of litigation between the
companies and the option to early terminate the leases for four of its F100
aircraft. The amount to be settled in March 2000 is reflected in current
maturities of long-term debt (Note 13).

4. Leases

As of December 31, 1999, the Company has eight Fokker F-100 aircraft, thirteen
CRJ aircraft, and one Boeing 737-700 aircraft under operating leases with
remaining terms ranging from 4 to 16.5 years.

The Company leases gates at various airports, including a lease for 19 gates at
Raleigh-Durham International Airport ("RDU"), which expire in 2013. The Company
leases 70% of its slots at New York's LaGuardia Airport and 83% of its slots at
Washington, D.C.'s Reagan National Airport from certain airlines. Two of the
Company's slots at New York's LaGuardia Airport are scheduled to expire in May
2000, and the Company has received notification that those slot leases at
LaGuardia will not be renewed. The remainder of all its leased slots at
LaGuardia Airport and six slots at Reagan National Airport are scheduled to
expire April 1, 2001. The remaining four leased slots at Reagan National Airport
expire in October 2000.

The Company leases its corporate headquarters and reservation facility in
Morrisville, North Carolina under an operating lease agreement. The lease
includes escalating rent payments and a ten year term which expires December 31,
2008.

The Company leases certain office equipment under capital lease agreements that
expire through 2004. Amortization expense under these leases of $253,000,
$213,000 and $149,000 is included in depreciation and amortization expense in
the statements of income for the years ended December 31, 1999, 1998 and 1997,
respectively.

                                      F-19
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


4. Leases (continued)

Equipment and property includes the following amounts for capital leases (in
thousands):

                                             December 31
                                          1999          1998
                                    ---------------------------

Office equipment                           $1,833         $ 669
Less accumulated amortization                (427)         (523)
                                    ---------------------------
                                           $1,406         $ 146
                                    ===========================

At December 31, 1999, 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):

<TABLE>
<CAPTION>
                                                           Operating
                                              --------------------------------
                                       Capital         Aircraft          Other          Total
                                   -----------------------------------------------------------

<S>                                    <C>             <C>             <C>            <C>
2000                                    $  519         $ 43,978        $ 4,501        $ 48,998
2001                                       480           44,843          3,156          48,479
2002                                       227           43,850          2,933          47,010
2003                                       142           41,459          2,950          44,551
2004                                        59           35,907          2,967          38,933
Thereafter                                   -          265,975         21,009         286,984
                                   -----------------------------------------------------------
Total minimum lease payments             1,427         $476,012        $37,516        $514,955
                                              ================================================
Amounts representing interest             (211)
                                   -----------
Present value of future minimum
lease payments                           1,216
Less current portion                      (422)
                                   -----------
Long-term portion                       $  794
                                   ===========
</TABLE>

Rent expense is recorded on a straight-line basis over the term of the leases.
Lease and rent expense charged to operations was approximately $39.5 million,
$36.6 million, and $36.7 million for the years ended December 31, 1999, 1998 and
1997, respectively.

                                      F-20
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


4. Leases (continued)

Under the terms of certain aircraft leases, the Company had security deposits on
each related aircraft, which totaled approximately $1.5 million at December 31,
1999 and 1998. Certain aircraft leases also require the Company to make payments
for maintenance based upon accumulated block hours and/or cycles. The Company
incurred expenses of $3.9 million, $6.5 million and $4.2 million related to
these obligations for the years ended December 31, 1999, 1998 and 1997,
respectively.

The Company currently leases eight Fokker F-100 aircraft. On February 29, 2000,
the Company exercised an option to terminate four leases prior to their
scheduled expirations in 2003 and 2004, resulting in a revised scheduled return
date of these aircraft in the first half of 2001 (see Note 13).

5. Stockholders' Equity

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") were entitled to dividends if any dividends were
declared or paid upon the common stock. Preferred stockholders were entitled to
70% of all votes in the aggregate. The senior convertible preferred stock was
convertible at

                                      F-21
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


5. Stockholders' Equity (continued)

Recapitalization (continued)

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.

Up to 25 million shares of $.01 par value common stock are 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, 1999.

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-22
<PAGE>

                          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
 Became exercisable                                  -                -          279,980            5.88
 Canceled                                            -          (56,427)               -           12.08
                                       ------------------------------------------------------
Balance at December 31, 1999                   221,910        1,149,239          920,608          $ 6.29
                                       ======================================================
</TABLE>

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

<TABLE>
<CAPTION>
                                              December 31
       Exercise Price               1999          1998          1997
      ---------------------------------------------------------------------

      <S>                     <C>             <C>              <C>
        $ 4.02                       922,346       939,146     1,005,245
        $15.50                       226,893       266,520       335,345
                              ---------------------------------------------
                                   1,149,239     1,205,666     1,340,590
                              =============================================
</TABLE>

                                      F-23
<PAGE>

                          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 (see 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 for 1997:

Risk free interest rate                                      6%
Expected dividend yield                                      0%
Expected volatility                                       55.1%
Average expected life of options                         5 yrs.

The contractual weighted-average life of the options at December 31, 1999 and
1998 was 4.69 and 5.75 years, respectively. The weighted average grant date fair
value of options granted during 1997 was $5.0 million. 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:

<TABLE>
<CAPTION>
                                         Year ended December 31
                                    1999          1998          1997
                              ------------------------------------------

<S>                             <C>           <C>           <C>
Net income as reported            $9,356,000   $14,981,000   $24,894,000
 Pro forma net income              8,812,000    14,164,000    23,701,000
Basic earnings per share:
 As reported                           $1.09         $1.75         $4.11
 Pro forma                              1.02          1.65          3.91
Diluted earnings per share:
 As reported                           $0.98         $1.54         $3.46
 Pro forma                              0.93          1.46          3.29
</TABLE>

                                      F-24
<PAGE>

7. Earnings Per Share of Common Stock

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

<TABLE>
<CAPTION>
                                                 Year ended December 31
                                        1999 (1)         1998          1997(1)
                                    -------------------------------------------
<S>                                   <C>            <C>           <C>
Numerator:
 Net income (2)                         $9,356,000    $14,981,000   $24,894,000
Denominator:
 Denominator for basic earnings per
  share--weighted average shares         8,602,395      8,574,972     6,059,051
 Effect of dilutive securities (3):
  Employee stock options                   514,232        765,965       744,155
  Warrants                                 390,548        390,590       390,588
                                    -------------------------------------------
 Dilutive common shares                    904,780      1,156,555     1,134,743
Denominator for diluted earnings
 per share--weighted average shares      9,507,175      9,731,527     7,193,794
                                    ===========================================

Basic earnings per share                $     1.09    $      1.75   $      4.11
                                    ===========================================
Diluted earnings per share              $     0.98    $      1.54   $      3.46
                                    ===========================================
</TABLE>

(1)  Options to purchase 226,893 and 335,345 shares of common stock at $15.50
     per share were outstanding during 1999 and 1997, respectively, which were
     not included in the computation of diluted earnings per share for the years
     ended December 31, 1999 and 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-25
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


8. Income Taxes

The components of the Company's taxes on income are as follows (in thousands):

<TABLE>
<CAPTION>
                                   1999         1998         1997
                              ---------------------------------------
<S>                             <C>          <C>          <C>
Federal income taxes:
 Current                        $         -       $2,391       $6,096
 Deferred                             5,228        6,008            -
                              ---------------------------------------
Total federal income taxes            5,228        8,399        6,096
                              ---------------------------------------

State income taxes:
 Current                                  -          222          210
 Deferred                               508          557            -
                              ---------------------------------------
Total state income taxes                508          779          210
                              ---------------------------------------
Total provision for income
 taxes                               $5,736       $9,178       $6,306
                              =======================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                 1999                      1998                     1997
                                     ----------------------------------------------------------------------------
                                            $            %            $            %           $            %
                                     ----------------------------------------------------------------------------

<S>                                    <C>          <C>          <C>          <C>          <C>         <C>
Computed tax expense                       $5,283         35.0%      $8,456         35.0%      $5,331        35.0%
State taxes, net of federal benefit           513          3.4          785          3.3          184         1.2
Permanent items and other                     (60)        (0.4)         (63)        (0.3)          64          .4
Valuation allowance for deferred tax
 assets                                         -            -            -            -          727         4.8
                                     ----------------------------------------------------------------------------
Reported tax expense                       $5,736         38.0%      $9,178         38.0%      $6,306        41.4%
                                     ============================================================================
</TABLE>

                                      F-26
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


8. Income Taxes (continued)

Income taxes are calculated using the liability method, which requires the
recognition of deferred income 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 income taxes are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                  December 31
                                              1999           1998
                                        -----------------------------
<S>                                       <C>            <C>
Deferred income tax assets-current:
 Accrued liabilities and other
  miscellaneous                               $  1,172       $    457
Deferred income tax asset-noncurrent:
 Operating loss carryforwards                   13,368         11.440
Accrued liabilities and other                    1,381          2,977
 Equipment and property                            228              -
 Alternative minimum tax credit
  carryforwards                                    995              -
 Valuation allowance                           (11,100)       (14,417)
                                        -----------------------------
Net deferred income tax assets                   6,044            457
                                        -----------------------------

Deferred income tax liability-current:
 Prepaid commissions                              (589)             -
Deferred income tax
 liabilities-noncurrent:
 Depreciation and amortization                 (14,336)        (7,022)
                                        -----------------------------
Net deferred income tax liabilities            (14,925)        (7,022)
                                        -----------------------------
Net deferred income taxes                     $ (8,881)      $ (6,565)
                                        =============================
</TABLE>

As of December 31, 1999 and 1998, the Company had approximately $35.2 million
and $30.1 million, respectively, of available net operating loss carryforwards
(NOLs) to offset future taxable income of the Company. The NOLs expire by 2019
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. Of the $35.2 million of NOLs
as of December 31, 1999, $25.6 million were generated prior to the
recapitalization.

                                      F-27
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)



8. Income Taxes (continued)

The valuation allowance of $11.1 million and $14.4 million at December 31, 1999
and 1998, respectively, was provided because, in the Company's assessment, it is
uncertain whether certain net deferred tax assets will be realized due to the
1997 ownership changes.

Net operating loss carryforward tax benefits which originated prior to the
quasi-reorganization are credited to additional paid-in capital, when utilized,
in accordance with the provisions of SFAS No. 109, "Accounting for Income
Taxes".

9. Commitments and Contingencies

Purchase Commitments

As of December 31, 1999, the Company had firm orders to purchase eight newly
manufactured CRJ-200ER Canadair Regional Jet (CRJ) aircraft, all of which are
scheduled to be delivered by December 2001. The Company's remaining obligation
for pre-delivery deposits for these aircraft is approximately $1.2 million.
Midway also has options to acquire up to 14 additional CRJ aircraft.

The Company has placed firm orders to purchase 15 Boeing 737-700 aircraft, and
has agreed to lease a total of two Boeing 737-700s. The two leased Boeing 737-
700 aircraft were delivered in December 1999 and January 2000, and deliveries of
the other 15 Boeing 737-700 aircraft are scheduled to begin in September 2000
and end in October 2002. The Company has options to acquire 10 additional Boeing
737-700 aircraft. The Company intends to purchase up to four CFM 56-7B spare
engines to support the operation of its Boeing 737-700 aircraft.

The Boeing purchase agreement requires the Company to make pre-delivery deposits
with respect to each aircraft. The pre-delivery deposits to be made will, in the
aggregate, reach a peak of $117.1 million by August 2000. Thereafter, these
deposits will begin to decrease and monies will be returned to Midway assuming
financing of the aircraft is obtained as the aircraft are delivered. The
aircraft manufacturer has agreed to defer a portion of this deposit obligation
with interest at the three-month LIBOR plus 3%. The total amount of deferred
deposits was $14.2 million as of December 31, 1999. Interest on these deferred
deposits totaling $1.1 million has been capitalized in flight equipment and will
be amortized over the useful life of the related assets. Midway has secured
financing for the pre-delivery deposits for the first four aircraft. Midway's
unfinanced obligation for the pre-delivery deposits on the remaining aircraft
will peak at about $55.0 million in January of 2001. As of December 31, 1999,
Midway had paid $19.1 million of the pre-delivery deposits and its net remaining
obligation is approximately $35.9 million. This obligation is due in monthly
installments.

                                      F-28
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)



9. Commitments and Contingencies (continued)

Purchase Commitments (continued)

In March 1995, Midway entered into an agreement for the acquisition of four
Airbus A320 aircraft with deliveries beginning in 1998. The Company also agreed
to purchase one IAE V2527-A5 spare engine to support the operation of the four
A320 aircraft. The delivery dates of these aircraft and the spare engine have
been extended to 2005 and later. The Company is required to make deposits on the
four A320 aircraft and the spare engine in amounts to be determined beginning in
2003. The Company is considering several alternatives with respect to the A320s,
including restructuring its purchase agreement or selling its position. A loss
contingency has been estimated at December 31, 1999 and is included in other
current liabilities on the balance sheet.

Other Contingencies

In August 1998, the Compliance and Enforcement Branch of the Drug Abatement
Division of the Federal Aviation Administration ("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.
In May 1999, the FAA requested that the Company provide the FAA with an update
of certain matters raised during the investigation. The Company promptly
provided this information to the FAA. 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.

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 the
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 a finding by the FAA of violations of these regulations. The
Company has received no communications from the FAA in this respect since 1998.

                                      F-29
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


9. Commitments and Contingencies (continued)

Other Contingencies (continued)

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.

The Company's pilots, fleet service (ramp) agents, and flight attendants are
represented by labor unions. The pilots' representative, the Air Line Pilots
Association ("ALPA"), was elected in December 1997, the ramp employees'
representative, International Association of Machinists and Aerospace Workers,
AFL-CIO ("IAM"), was elected in June 1998, and the flight attendants'
representative, the Association of Flight Attendants, AFL-CIO ("AFA") was
elected in December 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,
negotiations have not yet concluded with ALPA, AFA, or the IAM, and the ultimate
outcome of such negotiations cannot be predicted. With respect to the IAM
negotiations, a contract proposal was agreed upon by the IAM and the Company,
and such agreement was submitted to the covered employees for ratification on
October 28, 1999; it was rejected. The IAM filed an application for mediation
with the National Mediation Board("NMB") on November 3, 1999 and the NMB
appointed a mediator on November 8, 1999. A further agreement was reached with
the IAM in late February by the IAM, the Company, and representatives of the
ramp agents. It will be voted upon by the ramp agents in March 2000.

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, 1999,
1998 and 1997.

In January 1998, the Company announced its intention to distribute a portion of
its profits to employees. The Company expensed $1.2 million and $2.4 million for
such distributions during years ended December 31, 1999 and 1998.

                                      F-30
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)



11. Transactions with Related Parties

The Company incurred legal expenses from a related party law firm totaling
approximately $617,000, $362,000, and $445,000 for the years ended December 31,
1999, 1998 and 1997, respectively.

12. 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
after tax and recapitalization charges of approximately $750,000 before tax.

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 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-31
<PAGE>

                          Midway Airlines Corporation

                   Notes to Financial Statements (continued)


13. Subsequent Events

On February 29, 2000, the Company exercised its option to terminate four F100
leases prior to their scheduled lease termination dates under the terms of a
settlement and option agreement. The Company is required to pay the lessor
$2,125,000 for each aircraft to be returned under the agreement. In addition,
the Company is required to perform certain maintenance tasks on these aircraft
prior to their return.

                                      F-32
<PAGE>

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
                                    ---------   ----------    ----------   --------
<S>                                  <C>        <C>            <C>          <C>
Year ended December 31, 1999
  Allowance for doubtful accounts    $1,624       $  147        $158        $1,613
Year ended December 31, 1998
  Allowance for doubtful accounts     1,673           26          75         1,624
Year ended December 31, 1997
  Allowance for doubtful accounts        58        2,254         639         1,673

</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:

<TABLE>
<CAPTION>
           Date                 Subject
           ----                 -------
<S>                             <C>
           March 15, 2000       Early Lease Termination of Four F100 Leases
           February 14, 2000    Winter Storms
           January 6, 2000      Law Suit Settlement and Option Agreement
</TABLE>

  (c) Exhibits:

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

Pursuant to the requirements of Section 13 and 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

March 30, 2000                     By /s/ STEVEN WESTBERG
                                   Steven Westberg
                                   Executive Vice President and General Manager

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 March 30, 2000.

<TABLE>
<CAPTION>

Signature                           Capacity

<S>                                 <C>
/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*                Executive Vice President and General Manager
--------------------                (Principal Financial and Accounting Officer)
Steven Westberg


/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/ TIM SMITH*                      Director
--------------
Timothy Smith

</TABLE>

*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.

<PAGE>

                                 EXHIBIT INDEX
                          MIDWAY AIRLINES CORPORATION
                           ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 NO.      DESCRIPTION
 ---      -----------
<S>       <C>
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
</TABLE>
<PAGE>

<TABLE>
<S>       <C>
          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
</TABLE>

<PAGE>

<TABLE>
<S>       <C>
          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.
</TABLE>
<PAGE>

<TABLE>
<S>       <C>
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.
</TABLE>
<PAGE>

<TABLE>
<S>       <C>
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 seven
          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 seven 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 seven 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 seven 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 seven 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 seven additional
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          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 seven 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 seven 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.

10.60     Participation Agreement [N586ML] dated as of December 10, 1999 among
          Midway Airlines Corporation, as Lessee, ICX Corporation, as Owner
          Participant and First Union Trust Company, National Association, not
          in its individual capacity (except as otherwise expressly set forth
          herein) but solely as Owner Trustee.

10.61     Trust Agreement [N586ML] dated as of December 10, 1999 between ICX
          Corporation, as Owner Participant and First Union Trust Company, as
          Owner Trustee.

10.62*    Lease Agreement [N586ML] dated as of December 10, 1999 between First
          Union Trust      Company, National Association, as Owner Trustee and
          Lessor and Midway Airlines Corporation, as Lessee.

10.63     Lease Supplement No. 1 [N586ML] dated as of December 15, 1999 between
          First Union Trust Company, National Association, not in its individual
          capacity (except as otherwise expressly set forth herein) but solely
          as Owner Trustee, the Lessor and Midway Airlines Corporation, as
          Lessee.

10.64     Purchase Agreement Assignment and Aircraft Manufacturer's Consent and
          Agreement [N586ML] dated as of December 10, 1999 between Midway
          Airlines Corporation, as Assignor and First Union Trust Company,
          National Association, not in its individual capacity by solely as
          owner Trustee, as Assignee.

10.65     Engine Warranty Assignment and Engine Manufacturer's Consent and
          Agreement [N586ML] between Midway Airlines Corporation, as Assignor
          and First Union Trust Company, National Association, not in its
          individual capacity but solely as Owner Trustee, as Assignee.

10.66*    Lease Agreement [N587ML] dated as of December 30, 1999 between Fleet
          National Bank, as Lessor and Midway Airlines Corporation, as Lessee.

10.67     Lease Supplement No. 1 [N587ML] dated as of December 30, 1999 between
          Fleet  National Bank.

10.68     Supplemental Agreement [N587ML] dated as of December 30, 1999 between
          Midway Airlines Corporation, as Lessee and Fleet National Bank, as
          Lessor.

10.69     Purchase Agreement Assignment and Aircraft Manufacturer's Consent and
          Agreement [N587ML] dated as of December 30, 1999 between Midway
          Airlines Corporation, as Assignor and Fleet National Bank, as
          Assignee.

10.70     Engine Warranty Assignment and Engine Manufacturer's Consent and
          Agreement [N587ML] dated as of December 30, 1999 between Midway
          Airlines Corporation, as Assignor and Fleet National Bank, as
          Assignee.

10.71*    Loan Agreement dated as of December 30, 1999 between Midway Airlines
          Corporation, as Borrower and Fleet Capital Corporation, as Lender.

10.72     Engine Security Agreement dated as of December 30, 1999 between Midway
          Airlines Corporation, as Borrower and Fleet Capital Corporation, as
          Lender.
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10.73     Engine Security Agreement Supplement dated as of January 25, 2000
          between Midway Airlines Corporation as Borrower and Fleet Capital
          Corporation, as Lender.

10.74*    Loan Agreement dated as of December 22, 1999 between Midway Airlines
          Corporation, as Borrower and General Electric Capital Corporation, as
          Lender.

10.75*    Consent and Agreement dated as of December 22, 1999 among Midway
          Airlines Corporation, General Electric Capital Corporation, as
          Assignee and The Boeing Company, as Manufacturer.

10.76*    Security Agreement and Collateral Assignment of Purchase Agreement
          dated as of December 22, 1999 between Midway Airlines Corporation, as
          Assignor and General Electric Capital Corporation, as Assignee.

10.77*    Return Compensation Agreement dated as of December 6, 1999 between
          First Security Bank, N.A. not in its individual capacity , but solely
          as Owner Trustee, as Lessor, Midway Airlines Corporation, as Lessee
          and debis AirFinance B.V., as Beneficial Owner.

10.78*    Option Agreement dated as of December 6, 1999 between First Security
          Bank, N.A. not in its individual capacity, but solely as Owner
          Trustee, as Lessor, Midway Airlines Corporation, as Lessee, and debis
          AirFinance B.V. as Beneficial Owner.

10.79*    Lease Termination and Compensation Agreement between First Security
          Bank, N.A. not in its individual capacity but solely as Owner Trustee,
          as Lessor, Midway Airlines Corporation, as Lessee, and debis
          AirFinance B.V. as Beneficial Owner.

10.80*    Letter Agreement No. 6-1162-CPJ-385 dated as of December 15, 1999
          between The Boeing Company and Midway Airlines Corporation.

10.81     Fifth Amendment of Agreement of Sublease between American Airlines,
          Inc. and Midway Airlines Corporation, as Lessee.

10.82*    Contract Change orders No. 1, No. 3, No. 4, No. 5, No. 6, No. 7, No. 8
          and No. 9 between Bombardier Inc. and Midway Airlines Corporation.

10.83*    Secured Promissory Note dated December 30, 1999 from Midway Airlines
          Corporation to Fleet Capital Corporation.

10.84*    Secured Promissory Note dated January 25, 2000 from Midway Airlines
          Corporation to Fleet Capital Corporation.

10.85#    Participation Agreement [N583ML] dated as of August 10, 1999 among
          Midway Airlines Corporation as Lessee, Polaris Holding Company as
          Owner Participant, First Union Trust Company, National Association not
          in its individual capacity (except otherwise expressly set forth
          herein) but solely as Owner Trustee, Allfirst Bank as Indenture
          Trustee, and Canadian Regional Aircraft Finance Transaction No. 1
          Limited, as Loan Participant. Midway Airlines Corporation is a party
          to two additional Participation Agreements which are substantially
          identical in all material respects except as indicated on the exhibit.

10.86#    Trust Agreement [N583ML] dated as of August 10, 1999 between Polaris
          Holding Company as Owner Participant and First Union Trust Company,
          National Association as Owner Trustee. There are two additional Trust
          Agreements which are substantially identical in all material respects
          except as indicated on the exhibit.

10.87#    Trust Indenture and Security Agreement [N583ML] dated as of August 10,
          1999 between First Union Trust Company, National Association as Owner
          Trustee and Allfirst Bank as Indenture Trustee. There are two
          additional Trust Indenture and Security Agreements which are
          substantially identical in all material respects except as indicated
          on the exhibit.

10.88#    Indenture Supplement [N583ML] dated as of August 16, 1999 of First
          Union Trust Company, National Association, a national banking
          association, not in its individual capacity but solely as Owner
          Trustee. There are two additional Indenture Supplements which are
          substantially identical in all material respects except as indicated
          on the exhibit.
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10.89*#   Lease Agreement [N583ML] dated as of August 10, 1999 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 two additional Lease Agreements which are substantially
          identical in all material respects except as indicated on the exhibit.

10.90#    Lease Supplement No.1 [N583ML] dated as of August 10, 1999 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 two additional Lease Supplements
          No.1 which are substantially identical in all material respects except
          as indicated on the exhibit.

10.91#    Purchase Agreement Assignment and Aircraft Manufacturer's Consent
          [N583ML] dated as of August 10, 1999 between Midway Airlines
          Corporation as Assignor and First Union Trust Company, National
          Association as Assignee. Midway Airlines Corporation is a party to two
          additional Purchase Agreement Assignment and Aircraft Manufacturer's
          Consents which are substantially identical in all material respects
          except as indicated on the exhibit.

10.92#    Engine Warranty Assignment and Engine Manufacturer's Consent [N583ML]
          dated as of August 10, 1999 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 two additional Engine
          Warranty Assignment and Engine Manufacturer's Consents which are
          substantially identical in all material respects except as indicated
          on the exhibit.

10.93*#   General Terms Agreement No. 6-13593 dated as of June 11, 1999 by and
          between CFM International, Inc. and Midway Airlines Corporation.

10.94#    Aircraft Lease Common Terms Agreement dated as of September 10, 1999
          between General Electric Capital Corporation and Midway Airlines
          Corporation.

10.95*#   Aircraft Lease Agreement (serial no. 28613) dated as of September 10,
          1999 between General Electric Capital Corporation, as Lessor, and
          Midway Airlines Corporation, as Lessee.

10.96*#   Aircraft Lease Agreement (serial no. 30051) dated as of September 10,
          1999 between General Electric Capital Corporation, as Lessor, and
          Midway Airlines Corporation, as Lessee.

23.1      Consent of Independent Auditors

24.1      Powers of Attorney of Certain Officers and Directors of the Company.

27        Financial Data Schedule.

*         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 as Exhibit to the Company's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
#         Filed as Exhibit to the Company's Quarterly Report on Form 10-Q for
          the quarter ended September 30, 1999.
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