United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10-K

[X]      Annual Report Pursuant to Section 13 or 15(d)of the Securities Exchange
         Act of 1934 for the fiscal year ended December 31, 1996.

[  ]     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  000-21642

                                   AMTRAN, INC.

             (Exact name of registrant as specified in its charter)

                   Indiana                              35-1617970
             ---------------------               ----------------------
               (State or other jurisdiction of       (I.R.S.  Employer
               incorporation or organization)       Identification No.)

                 7337 West Washington Street
                   Indianapolis, Indiana                  46231
          ------------------------------------  -----------------------
          (Address of principal executive offices)     (Zip  Code)

                                 (317) 247-4000

              (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:

                     Title of each class
                 Common Stock, No Par Value

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  periods that the registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes X No ______

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

                Applicable Only to Issuers Involved in Bankruptcy
                   Proceedings During the Preceding Five Years

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by the court. Yes ______ No ______
                      Applicable Only to Corporate Issuers

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practical date.

Common Stock,  Without Par Value - 11,614,852 shares as of February 28, 1997.

List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated:  (1) Any annual report
to  security  holders;  (2) Any  proxy  or  information  statement;  and (3) Any
prospectus  filed  pursuant  to Rule 424(b) or (c) under the  Securities  Act of
1933.

Portions of the Amtran Inc. and Subsidiaries' Proxy Statement dated
April 1, 1997, are incorporated by reference into Part III.



<TABLE>


<CAPTION>
                                TABLE OF CONTENTS
                         FORM 10-K ANNUAL REPORT - 1996
                          AMTRAN INC. AND SUBSIDIARIES


                                                                                                                     Page #

PART I
<S>           <C>                                                                                                         <C>
         Item 1.     Business...........................................................................................  3
         Item 2.     Properties......................................................................................... 17
         Item 3.     Legal Proceedings.................................................................................. 20
         Item 4.     Submission of Matters to a Vote of Security Holders................................................ 20

PART II
         Item 5.     Market for the Registrant's Common Stock and Related Security Holder Matters......................  20
         Item 6.     Selected Financial Data............................................................................ 21
         Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 22
         Item 8      Financial Statements and Supplementary Data........................................................ 46
         Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... 62

PART III
         Item 10.    Directors and Officers of the Registrant........................................................... 63
         Item 11.    Executive Compensation............................................................................. 63
         Item 12.    Security Ownership of Certain Beneficial Owners and Management..................................... 63
         Item 13.    Certain Relationships and Related Transactions..................................................... 63

PART IV
         Item 14.    Exhibits, Financial Statement Schedule and Reports on Form 8-K..................................... 64
</TABLE>


<PAGE>



PART I


Item 1.        Business

               General

                Amtran,  Inc. (the "Company") is a leading  provider of charter,
                and on a selective basis scheduled,  airline services to leisure
                and  other  value-oriented  travelers.   Through  its  principal
                subsidiary,  American Trans Air, Inc.  ("ATA"),  Amtran operates
                the eleventh  largest  airline in the United  States in terms of
                1996 revenue  passenger  miles.  ATA provides  charter  services
                throughout the world to independent  tour operators and the U.S.
                military.  In addition,  ATA provides  scheduled nonstop service
                primarily to vacation  destinations  such as Hawaii,  Las Vegas,
                Florida and the Caribbean  from  selected  gateway  cities.  ATA
                commenced  operations in 1973 as a provider of aircraft services
                to the  Ambassadair  Travel  Club,  was  certified  as a  public
                charter carrier in 1981 and commenced scheduled service in 1986.

                Overview of the Charter Airline Industry

                The charter  airline  industry  is  comprised  of (i)  passenger
                charter  airlines,  which provide passenger service primarily to
                tour  operators,  the  military  and  others  who  contract  for
                specific  services,  (ii) air freight  carriers,  which  provide
                cargo  service on either a scheduled or charter  basis and (iii)
                scheduled  airlines,  which provide charter service on a limited
                basis.

                Charter airlines have been in existence in the United States and
                Europe  since  the  earliest   days  of   commercial   aviation.
                Historically,  charter  airlines have  supplemented  the service
                provided by scheduled airlines by providing  specialized service
                at  times  of peak  demand.  U.S.  charter  airlines  have  also
                traditionally  provided service to the military both in times of
                peak  demand,  such as during  the  Persian  Gulf War,  and on a
                longer-term  basis to supplement  the  military's  own transport
                capacity.   Based  on  Department  of   Transportation   ("DOT")
                statistics,   total  charter   flights  by  all  U.S.   airlines
                represented  less than 3% of all available  seat miles  ("ASMs")
                flown within the United  States  during the twelve  months ended
                July 31, 1996.

                As a result of the increase in airline  capacity  since the late
                1980s,   the  opportunity   for  charter   airlines  to  provide
                supplemental  service in times of peak demand has been  reduced.
                In addition,  several  scheduled  airlines  have  increased  the
                number of discounted seats on regularly  scheduled  flights that
                they have made available to tour operators and thereby increased
                the amount of  competition  faced by charter  airlines on routes
                served by both types of carriers.

                Competition  for charter  carriers has further  increased due to
                the growth of  discounted  scheduled  airline  capacity  serving
                point to point markets,  which have been the traditional  source
                of seasonal opportunity for charter operations within the United
                States.  The success of some carriers in developing  their point
                to  point  markets  has  posed  a  competitive  threat  to  some
                established  large  carriers,  who have  responded by developing
                their own versions of highly  discounted  services using smaller
                jet aircraft, and sometimes bypassing their own hubs.



<PAGE>


Part I - Continued


                In the United States, the charter airline industry has consisted
                of a large number of relatively  small  airlines,  many of which
                operate a few older  aircraft.  In Mexico,  the charter  airline
                industry  consists of a few,  relatively  small  airlines  which
                generally  operate  only  narrow-body  aircraft.  In Europe,  by
                contrast, the charter airline industry has for a number of years
                included both large and small airlines.  In Europe, such charter
                airlines traditionally have been significant  competitors to the
                scheduled airlines for passenger traffic to leisure destinations
                such as the Mediterranean,  the United States and the Caribbean.
                Historically, this has been due in part to the fact that charter
                carriers were subject to fewer price and route  regulations than
                the scheduled airlines.  In addition,  this regulatory advantage
                has led some  European  scheduled  airlines  to form or  acquire
                charter airline affiliates,  and to devote significant resources
                toward  the   marketing  of  charter   services.   It  also  has
                contributed  to the  formation  of  companies  which  own both a
                charter airline and a significant tour operator business and, in
                some cases, retail travel agencies.

                In general,  charter  airlines have a lower cost  structure than
                scheduled  airlines.  Unlike most  scheduled  airlines,  charter
                airlines do not invest heavily in advertising and marketing, nor
                do they maintain a sizeable and complex  reservations  system or
                maintain extensive airport support facilities.  Charter airlines
                also generally  operate with lower overall  employment costs and
                higher average load factors than scheduled airlines.


                The Company's Airline Operations

                Background

                ATA flew its maiden flight on a Boeing 720 between  Indianapolis
                and Orlando in 1973 for  Ambassadair.  It was  certificated as a
                public charter carrier in 1981 and as a scheduled air carrier in
                1985.  ATA grew from flying  approximately  355 million  revenue
                passenger  miles  ("RPMs")  in 1982,  its  first  full year as a
                public charter  carrier,  to  approximately  9.2 billion RPMs in
                1996. In 1973, the Company's  fleet consisted of a single leased
                Boeing 720.  As of December  31,  1996,  the Company  operated a
                fleet of 45 aircraft. The following table illustrates the growth
                of the Company over the most recent ten years:

<TABLE>
<CAPTION>
                                           Year Ended December 31,

<S>                             <C>      <C>      <C>     <C>      <C>      <C>      <C>      <C>        <C>       <C>
                                1987     1988     1989    1990     1991     1992     1993     1994       1995      1996
                                            (Dollars in millions)
Operating revenues              $254.4   $253.9  $279.1   $371.4   $414.0   $421.8  $467.9     $580.5    $715.0   $ 750.9
Net income (loss)               $  3.2   $  7.0  $  4.4   $(2.0)   $  5.6   $(2.1)  $  3.0     $  3.5    $  8.5   $(26.7)

Total assets                    $183.0   $193.4  $238.4   $251.8   $237.4   $239.0  $269.8     $346.3    $413.1   $ 370.3
Block hours                     48,870   42,642  49,222   57,847   60,177   65,583  76,542    103,657   126,295   138,114
ASMs (in millions)               5,287    4,857   5,374    6,755    7,111    7,521   8,232     10,443    12,522    13,296
Employees (at period end)        1,675    1,789   2,134    2,310    2,205    2,412   3,418      4,136     4,830     4,435


</TABLE>


<PAGE>



                Services Offered

                The Company generally provides its airline  services to its
                customers in the form of charter and scheduled service sales.

                The following table provides a summary of the Company's total
                revenue for the periods indicated:


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

                                                       1992           1993           1994            1995            1996
                                                    -----------    -----------    ------------    ------------    -----------

                                                                             (Dollars in millions)
                    Charter
<S>                                                     <C>            <C>             <C>             <C>            <C>
                       Tour operator                    $271.5         $207.4          $196.1          $222.2         $218.2
                       Ambassadair (air only)              5.4            6.3             7.9             7.3            8.2
                       Military                           47.1           78.4            91.8            77.5           84.2
                                                    -----------    -----------    ------------    ------------    -----------

                    Total charter                        324.0          292.1           295.8           307.0          310.6
                    Scheduled service                     61.1          138.0           240.7           362.0          386.5
                    Other                                 36.7           37.8            44.0            46.0           53.8
                                                    -----------    -----------    ------------    ------------    -----------

                    Total                               $421.8         $467.9          $580.5          $715.0          750.9
                                                    ===========    ===========    ============    ============    ===========

</TABLE>

                Charter Sales

                As  illustrated  in the above table,  charter sales  represented
                41.4% of the Company's  total  revenues for 1996.  The Company's
                principal  customers  for  charter  sales  are  tour  operators,
                military and government  agencies,  sponsors of incentive travel
                packages and specialty charter customers.

                Tour  Operator  Programs.  Demand  from tour  operators  for the
                Company's  low-cost,  leisure services  declined by 1.4% in 1996
                over 1995. This segment accounted for approximately 30.2% of the
                Company's  total  revenues  and  32.8% of ASMs for  1996.  These
                leisure-market programs are generally contracted for repetitive,
                round-trip patterns, operating over extended periods of time. In
                such an  arrangement,  the tour  operator pays a fixed price for
                use of the aircraft  (which includes the services of the cockpit
                crew and flight  attendants,  together  with  check-in,  baggage
                handling and  maintenance  services,  catering and all necessary
                aircraft handling services) and assumes  responsibility and risk
                for the actual sale of the available aircraft seats. Because the
                Company operates  primarily on a contract basis, it can, subject
                to competitive constraints, structure the terms of each contract
                to reflect the costs of providing the specific service, together
                with an acceptable return.

                In general,  tour operators either package the Company's flights
                with traditional ground components (e.g.,  hotels,  rental cars,
                attractions) or sell only the airline passage  ("airfare only").
                Tickets on the Company's  flights  contracted to tour  operators
                are issued by the tour operator either directly to passengers or
                through retail travel  agencies.  Under current DOT  regulations
                with respect to charter transportation originating in the United
                States,  all charter  airline tickets must generally be paid for
                in cash and all funds  received  from the sale of charter  seats
                (and in some  cases  the  costs  of land  arrangements)  must be
                placed into escrow by the tour operator or protected by a surety
                bond satisfying certain prescribed standards. Funds paid by tour
                operators  to the  Company for  charter  transportation  must be
                escrowed  or  protected  by  a  similar   bonding   arrangement.
                Currently,  the Company  provides a third-party  bond,  which is
                unlimited  in amount in order to satisfy its  obligations  under
                these regulations.  Under the terms of its bonding arrangements,
                the  issuer of the bond has the right to  terminate  the bond at
                any time on 30 days notice and the current premium is subject to
                review and adjustment on June 30, 1997.  The Company  provides a
                letter  of  credit  to  secure  $2  million  of  its   potential
                obligations  to the  issuer of the bond.  If the bond were to be
                materially limited or canceled, the Company, like all other U.S.
                charter  airlines,  would be required to escrow  funds to comply
                with the DOT requirements summarized above. Compliance with such
                requirements would reduce the Company's liquidity and require it
                to  fund  higher  levels  of  working   capital  ranging  up  to
                approximately $10 million based on 1996 peak travel periods. See
                "Business -- Regulation".

                Although  the  Company  serves  tour  operator   programs  on  a
                worldwide  basis,  its  primary  customers  are  U.S.-based  and
                European-based  tour  operators.  For 1996,  the Company's  five
                largest tour operator customers represented  approximately 22.4%
                of the Company's consolidated revenues, and the ten largest tour
                operator  customers  represented   approximately  29.8%  of  the
                Company's consolidated revenues.

                In  general,   the  Company  enters  into  contracts  with  tour
                operators four to six months in advance of the  commencement  of
                the service to be provided.  Pursuant to these  contracts,  tour
                operators,  who  are  often  thinly  capitalized,  are  required
                generally  to pay to the  Company  at the time the  contract  is
                executed a deposit ranging from one week's revenue due under the
                contract (in the case of recurring pattern contracts) to 10%-30%
                of the  total  charter  payment  (in the  case  of  nonrecurring
                pattern  contracts).  Tour  operators  are  required  to pay the
                remaining balance of the charter payment to the Company at least
                two  weeks  prior to the  flight  date.  In the  event  the tour
                operator  fails to make the  remaining  payment  when  due,  the
                Company  must either  cancel such flight at least ten days prior
                to the flight  date or,  pursuant  to DOT  regulations,  perform
                under  the  contract  notwithstanding  the  breach  by the  tour
                operator.  In the event the tour  operator  cancels or  defaults
                under the contract  with the Company or  otherwise  notifies the
                Company that such tour operator no longer needs charter service,
                the  Company  is  entitled   under  the  contract  to  keep  the
                contractually  established  cancellation fees, which may be more
                or less than the deposit. Whether the Company elects to exercise
                this right in a  particular  case will  depend  upon a number of
                factors,   including  the  Company's  ability  to  redeploy  the
                aircraft,  the amount of money on deposit or secured by a letter
                of  credit,  the  relationship  the  Company  has  with the tour
                operator and the general market conditions existing at the time.
                The Company  may choose to  renegotiate  a contract  with a tour
                operator from time to time based on market  conditions.  As part
                of any such  renegotiations  a tour  operator may seek to reduce
                the per-seat  price or the number of flights or seats per flight
                which the tour operator is obligated to purchase.

                In  connection  with its sales to tour  operators,  the  Company
                seeks  to  minimize  its  exposure  to  unexpected   changes  in
                operating  costs.  The Company,  under its  contracts  with tour
                operators,  is able to pass  through  most  increases in average
                fuel costs.  Under these contracts,  if the fuel increase causes
                the total  contract  price to rise in  excess  of 10%,  the tour
                operator  has  the  option  of  canceling  the  contract.  These
                contracts  provide that the final fuel price is to be determined
                based on a blended average of the Company's fuel costs two weeks
                prior to the flight date. The Company is exposed to increases in
                fuel  costs  that occur  within 14 days of flight  time,  to all
                increases associated with its scheduled service and to increases
                affecting  any charter  contracts  that do not include fuel cost
                escalation provisions.

                The  Company  believes  that  although  price  is the  principal
                competitive  criterion,  product  quality  and  the  ability  to
                deliver a charter  service that is customized to the  customer's
                particular   needs  have  become   increasingly   important   to
                independent  tour operators.  Accordingly,  the Company seeks to
                differentiate  itself through increased  emphasis on its ability
                to deliver  customized  in-flight service (such as food service,
                foreign  language  flight  attendants  and  movie   selections),
                consistency of product  delivery,  customer  handling,  delivery
                support and operational  reliability for the tour operator.  The
                ability to deliver a tour product meeting the leisure traveler's
                quality and price expectations  provides a significant marketing
                advantage to the tour operator.

                Military/Government.  In  1996  military/government  sales  were
                11.2% of the Company's  total  revenues and 10.8% of total ASMs.
                Traditionally,  the  Company's  focus  has  been  on  short-term
                "contract  expansion" business which is routinely awarded by the
                U.S.  Government  based on price and availability of appropriate
                aircraft. The government  prenegotiates contract prices for each
                type of aircraft a carrier makes available to the military, with
                the airline responsible for virtually all costs other than fuel.
                The government  pays for the entire cost of fuel. The short-term
                expansion  business  is awarded  pro rata to the  carriers  with
                aircraft availability who have been awarded the most fixed-award
                business,  and then to any additional  carrier that has aircraft
                available.   As  discussed  below,  the  Company's   anticipated
                fixed-award business should also assist the Company in obtaining
                additional expansion business.

                Pursuant   to   the   military's    fixed-award   system,   each
                participating  airline  is  given  certain  "mobilization  value
                points" based on the number and type of aircraft then  available
                from such airline.  A participant may increase the number of its
                mobilization  value  points by teaming up with one or more other
                airlines  to increase  the total  number of  mobilization  value
                points of the team. Generally,  a charter passenger airline will
                seek to team up with one or more charter cargo airlines and vice
                versa,  as there  is  generally  not  enough  cargo  fixed-award
                business available for these types of carriers to utilize all of
                their  mobilization value points.  When the military  determines
                its carrier needs for a particular  period,  it  determines  how
                much of each  particular  type of  service  it will need  (e.g.,
                narrow-body, passenger service). It will then award each type of
                business to those  carriers or teams that have committed to make
                available that type of aircraft and service with the carriers or
                teams with the highest amount of mobilization value points given
                a preference.  When an award is presented to a team, the charter
                passenger  airline will generally  perform the passenger part of
                the award and the charter  cargo  airline will perform the cargo
                part of the award.

                In  1992,  the  Company  entered  into  a  "contractor   teaming
                arrangement"  with  four  other  cargo  and  passenger  airlines
                serving  the  military.   If  the  Company  used  only  its  own
                mobilization value points, it would be entitled to a fixed-award
                of approximately  1% of total awards under the system;  however,
                when all of the  Company's  team members are taken into account,
                their portion of the fixed-award is  approximately  34% of total
                awards under the system.  As a result,  the  contractor  teaming
                arrangement significantly increases the likelihood that the team
                will  receive a  fixed-award  contract,  and,  to the extent the
                award  includes  passenger  transport,  increases  the Company's
                opportunity   to  provide  such  service   because  the  Company
                represents  a  significant   portion  of  the  team's  passenger
                transport capacity. In addition, since the expansion business is
                also  awarded  as a  function  of the  fixed-award  system,  the
                Company, through its contractor teaming arrangement, should also
                receive  a  greater  percentage  of  the  short-term   expansion
                business.  As part of its participation in this contract teaming
                arrangement,  the Company pays certain utilization fees to other
                team members.


<PAGE>


                The Company is subject to biennial  inspections  by the military
                as a condition of retaining its eligibility to perform  military
                charter flights. The last such inspection was undertaken in 1995
                and the next is  scheduled  for the third or fourth  quarter  of
                1997.  As a result of such  inspections,  the  Company  has been
                required to implement measures beyond those required by the DOT,
                Federal  Aviation  Administration  ("FAA") and other  government
                agencies.

                Military and other government flight activity has recently been,
                and is expected to remain, a significant factor in the Company's
                business mix.  Because this business is generally  less seasonal
                than leisure travel, it should tend to have a stabilizing impact
                on the Company's  operations and earnings.  The Company believes
                its  fleet  of  aircraft   is  well  suited  for  the   changing
                requirements  of  military  passenger   service.   Although  the
                military  is  reducing  its troop  size at  foreign  bases,  the
                military  still  desires to maintain its  schedule  frequency to
                these  bases.  Therefore,  the  military  has a need for smaller
                capacity aircraft possessing long-range capability,  such as the
                Company's Boeing 757-200ER aircraft. In 1993, the Company became
                the first North American carrier to receive FAA certification to
                operate Boeing 757-200  aircraft with  180-minute  Extended Twin
                Engine Operation ("ETOPS"). This certification permits specially
                equipped  Boeing  757-200  aircraft to participate in long-range
                missions  over  water in which the  aircraft  may be up to three
                hours from the nearest alternate  airport.  All of the Company's
                Boeing  757-200s  are so  equipped  and  certified.  The Company
                believes that this 180-minute  ETOPS capability has enhanced the
                Company's  ability  to  obtain  awards  for  certain  long-range
                missions.

                Incentive Travel  Programs.  Many  corporations  offer travel to
                leisure  destinations or special events as incentive  awards for
                employees.  The Company has historically provided air travel for
                many corporate  incentive  programs.  Incentive travel customers
                range  from  national  incentive  marketing  companies  to large
                corporations  that handle their incentive  travel programs on an
                in-house basis.

                The  Company  believes  that its  flexibility,  versatility  and
                attention  to detail have helped to  establish  it as one of the
                leaders in providing  incentive  travel airline charter service.
                Incentive  travel  services  are  generally  customized  to  the
                customer  or sponsor,  vacation  destination  or special  event.
                Generally,  incentive  travel  operations  are a  demanding  and
                sophisticated  part of the charter airline  business.  Incentive
                travel  operations  can  vary  from a  single  round  trip to an
                extensive overseas pattern involving  thousands of employees and
                their families.

                Specialty Charters. The Company operates a significant number of
                specialty   charter   flights.   These   programs  are  normally
                contracted on a single  round-trip basis and vary extensively in
                nature,  from flying  university  alumni to a football  game, to
                transporting  political  candidates on campaign trips, to moving
                the NASA space shuttle ground crew to an alternate landing site.
                Traditionally,  these  flights are arranged on very short notice
                on a bid basis and, if the Company has aircraft available, allow
                the Company to increase  aircraft  utilization  during  off-peak
                periods.

                The Company  believes it is able to attract this business due to
                its fleet size and diversity of aircraft.  The size and location
                of  the  Company's  fleet  reduces  nonproductive  ferry  flight
                activity,  resulting in more competitive  pricing. The diversity
                of aircraft types in its fleet also allows the Company to better
                match a customer's particular charter requirements with the type
                of aircraft best suited to satisfy those requirements.


<PAGE>


                Scheduled Service Sales

                In  addition  to its  charter  sales,  the  Company  markets air
                travel, as well as packaged leisure travel products, directly to
                retail consumers in selected markets. In scheduled service,  the
                Company   focuses   primarily   on  serving   selected   leisure
                destinations  with  low-cost,  nonstop  or direct  flights  from
                cities  which do not have such  service  or where  there is only
                limited  competition.  The Company believes that it may be able,
                on a  selective  basis,  to expand  this  business  as the major
                scheduled airlines increasingly  consolidate their hub-and-spoke
                route systems.

                The   Company's    scheduled   service   operations   link   the
                Indianapolis,  Chicago-Midway and Milwaukee markets with several
                popular  leisure  destinations.  The  Company  seeks to maintain
                operational flexibility in its scheduled service. If the Company
                is unsatisfied with its return on a specific  scheduled  service
                route,  it will reduce or cancel the service and  reallocate the
                assets based on alternative market opportunities.

                The  Company's  strategy for its  scheduled  service is to offer
                routine,    low-frequency   service   which   stresses   nonstop
                convenience and a simplified  pricing structure  oriented to the
                buyer of leisure travel services. During 1996, scheduled service
                provided 51.5% of the Company's  consolidated revenues and 54.9%
                of ASMs.

                Included in the Company's scheduled service sales are bulk sales
                agreements with tour operators. Under these arrangements,  which
                are very similar to charter sales,  the tour operator may take a
                significant  portion of an aircraft  with a bulk-seat  purchase.
                The Company retains only a minor portion, which it sells through
                its own scheduled  service  distribution.  The advantage for the
                tour  operators  is that their  product  appears in the Computer
                Reservation  System ("CRS") and through other scheduled  service
                distribution  channels.  Under this arrangement,  the Company is
                ultimately responsible for the passenger's travel similar to any
                other  scheduled  service,  regardless of its ability to collect
                from  the tour  operator.  Bulk  seat  sales  amounted  to $67.3
                million in 1996,  which  represented  9.0% of the Company's 1996
                total consolidated revenue.

                Other Revenues

                Through its  industry  sales  operations,  the Company  offers a
                variety of aviation  services,  including  the "wet  leasing" of
                aircraft (or "subservice") and maintenance services,  management
                and technical  consulting  and various  training  services.  The
                Company's  customers for these services  include  established as
                well as start-up  airlines that lease  equipment and subcontract
                for aircraft  services.  During 1996,  subservice sales provided
                0.9%  of  the  Company's  total  consolidated  revenues.   Other
                industry sales revenues included in total operating revenues for
                1996 were not significant.

                The Company's aircraft leasing activities consist exclusively of
                "wet  leases" in which the lessor  supplies,  in addition to the
                aircraft,  the cockpit crew, insurance and maintenance,  and the
                lessee is responsible  for all other matters in connection  with
                the aircraft,  including  handling,  fuel and  catering.  Ad hoc
                subservices  for scheduled  carriers are typically  conducted as
                "public  charters"  pursuant to waivers  granted by the DOT from
                its public charter regulations.  In conducting  subservice,  the
                Company also  complies  with all  applicable  FAA  requirements,
                including those  pertaining to security  arrangements for flight
                operations conducted by U.S. carriers. The Company does not, and
                is  generally  not  permitted  under its  financing  and leasing
                arrangements,  to enter  into "dry  leases"  in which the lessee
                leases only the  aircraft  itself and the lessee is  responsible
                for cockpit crew,  insurance,  maintenance and all other matters
                in connection with the aircraft.

                The aircraft  subservice  market has  experienced  a significant
                decline over the past few years. This decline has been primarily
                the result of (i) slower  growth in  traffic  levels,  which has
                reduced the number of  occasions  when  airlines  have  required
                additional aircraft to cover peak capacity periods,  and (ii) an
                oversupply of available  aircraft as a result of the  deliveries
                of new aircraft and a consolidation of the airline industry.

                ATA  Vacations.   The  Company's   wholly-owned   ATA  Vacations
                subsidiary  markets  complete  vacation  packages (i.e.,  hotel,
                rental car, air) at destinations served by the Company both on a
                charter and  scheduled  service  basis.  These  packages  target
                customers  seeking the added value  associated with  "one-call"'
                vacation  planning.  Higher margins  associated with the sale of
                all-inclusive  packages enhance the earnings performance for the
                Company's single seat business.

                Travel Club. The Company owns Ambassadair  Travel Club, based in
                Indianapolis.  The  travel  club is  dues-based,  so that for an
                initiation  fee and annual  dues,  club  members,  who  together
                currently total  approximately  39,000 individuals and families,
                gain  access to a broad  variety  of  all-inclusive  travel  and
                vacation   packages.   During   1996,   the   Company   operated
                approximately  400 trip options  exclusively  for club  members.
                During  1996,  travel club  members  provided  $21.9  million of
                revenues from dues, air travel and ground packages.

                Aircraft Fleet

                As of December 31, 1996, the Company operated a fleet of 14
                Lockheed L-1011s, 24 Boeing 727-200ADVs and 7 Boeing 757-200s.

                Lockheed L-1011 Aircraft. The Company's Lockheed L-1011 aircraft
                are  wide-body  aircraft,  12 of  which  have a range  of  2,971
                nautical  miles  and 2 of which  have a range of 3,425  nautical
                miles.  These  aircraft  conform  to the  FAA's  Stage  3  noise
                requirements  and have a low  ownership  cost  relative  to most
                other wide-body aircraft types. (For information regarding Stage
                3 noise requirements,  see "Business -- Environmental Matters".)
                As a  result,  the  Company  believes  these  aircraft  offer  a
                competitive  advantage when operated on long-range routes,  such
                as on transatlantic,  Caribbean and West Coast-Hawaii routes. As
                of December 31, 1996,  twelve of these aircraft are owned by the
                Company and two are under  operating  leases that expire in June
                2000 and March 2001.

                Boeing  727-200ADV  Aircraft.  The Company's  Boeing  727-200ADV
                aircraft are  narrow-body  aircraft  equipped  with high thrust,
                JT8D-15/-15A/-17/-17A engines and have a range of 2,050 nautical
                miles.  These  aircraft,  23 of which have been leased,  have an
                average age of  approximately  16 years,  of which 16 conform to
                Stage 2 and eight  conform to Stage 3 noise  requirements  as of
                December 31, 1996.  The leases for these  aircraft  have initial
                terms that  expire  between  December  1997 and  November  2002,
                subject to the Company's  right to extend each lease for varying
                terms.  The Company may be required  prior to December 31, 1998,
                and  will be  required  prior  to  December  31,  1999,  to make
                expenditures  for engine  "hushkits"  or to acquire  replacement
                aircraft  so that its  entire  fleet  conforms  to Stage 3 noise
                requirements in accordance with FAA regulations. In general, the
                lessors  of the  Company's  Boeing  727-200ADVs  have  agreed to
                finance  hushkits for these aircraft  which,  if accepted by the
                Company, will result in an automatic extension of the lease term
                for each  aircraft.  Although  Boeing  727-200ADV  aircraft  are
                subject to the FAA's Aging  Aircraft  program,  the Company does
                not expect that its cost of compliance  for these  aircraft over
                the  next  two  years  will  be  material.   See   "Business  --
                Regulation".

                Boeing 757-200  Aircraft.  The Company's Boeing 757-200 aircraft
                are modern,  narrow-body aircraft,  all of which have a range of
                3,679 nautical miles.  These aircraft,  all of which are leased,
                have an average  age of  approximately  3 years and meet Stage 3
                noise  requirements.  The Company's  Boeing 757-200s have higher
                ownership  costs than the Company's  Lockheed  L-1011 and Boeing
                727-200ADV  aircraft,  but relatively low operational  costs. In
                addition, unlike most other aircraft of similar size, the Boeing
                757-200 has the  capacity to operate on  extended  flights  over
                water. The leases for the Company's Boeing 757-200 aircraft have
                initial  terms that expire on various  dates  between March 1997
                and March 2015,  subject to the  Company's  right to extend each
                lease for varying terms.

                All  of the  aircraft  and  most  of the  engines  owned  by the
                Company,  together with the Company's related inventory of spare
                parts,  are subject to mortgages  and other  security  interests
                granted  in favor of the  Company's  lenders  under  its  credit
                agreement  and  certain  loan  agreements.  The  terms  of  such
                security  arrangements  prohibit  any  sale  or  lease  of  such
                aircraft,  engines or other  assets  without  the consent of the
                secured  party,   subject,   however,   to  certain  exceptions,
                including in most cases leases not in excess of six months where
                the Company maintains  operational control of the property.  See
                "Management's Discussion and Analysis of Financial Condition and
                Results of  Operations  --  Liquidity  and Capital  Resources --
                Credit Facilities".

                Flight Operations

                Worldwide  flight  operations  are planned and controlled by the
                Company's   Flight   Operations   Group  operating  out  of  its
                facilities located in Indianapolis,  Indiana,  which are staffed
                on a  24-hour  basis  seven  days  a  week.  Logistical  support
                necessary for extended  operations away from the Company's fixed
                bases are coordinated through its global communications network.
                ATA's  complex  operating  environment  demands a high degree of
                skill and flexibility from its Flight Operations Group.

                In order to enhance the reliability of its service,  the Company
                seeks to maintain at least two spare  Lockheed  L-1011  aircraft
                and two spare Boeing  727-200  aircraft at all times.  The spare
                aircraft can be dispatched on short notice to most  locations in
                the world where a substitute  aircraft is needed for  mechanical
                or other  reasons.  The spare  aircraft  allows  the  Company to
                provide to its customers a dispatch reliability that is hard for
                an airline of comparable or smaller size to match.

                Maintenance and Support

                The Company's  Maintenance and Engineering  Center is located at
                Indianapolis  International  Airport.  The  120,000  square-foot
                facility  was  designed  to meet  the  maintenance  needs of the
                Company's  operations  as well as  provide  contract  control of
                purchased  services.  The Company performs  approximately 75% of
                its maintenance  work,  excluding  engine overhauls and Lockheed
                L-1011 and Boeing 727-200 heavy airframe checks.

                The  Company  currently  maintains  ten  permanent   maintenance
                facilities,  including its Indianapolis  facility.  In addition,
                the Company  utilizes  "Road  Teams",  which are  dispatched  as
                flight   operations   require  to  arrange  for  and   supervise
                maintenance services at temporary  locations.  The Company sends
                Road Teams to oversee the 25% of its  airframe  maintenance  not
                performed in house.


<PAGE>


                The  Indianapolis  Maintenance  and  Engineering  Center  is  an
                FAA-certificated repair station and has the expertise to perform
                routine, as well as nonroutine,  maintenance on Lockheed L-1011,
                Boeing 727-200, and Boeing 757-200 aircraft. Capabilities of the
                Maintenance and Engineering  Center include:  (i)  airworthiness
                directive and service bulletin compliance; (ii) modular teardown
                and buildup of Rolls Royce RB211-22B and -535E4  engines;  (iii)
                nondestructive   testing,   including   radiographics,    x-ray,
                ultrasound,  magnetic  particle and eddy current;  (iv) avionics
                component  repair;  (v) on-wing  engine  testing;  (vi) interior
                modification;  (vii)  repair and  overhaul  of  accessories  and
                components,  including  hydraulic  units  and  wheel  and  brake
                assemblies;  and (viii)  sheet metal repair with hot bonding and
                composite  material  capabilities.  The Company  contracts  with
                third parties for certain engine and airframe overhaul and other
                services   when  the  Company   does  not  have  the   technical
                capability,  facility  capacity,  or  if  the  services  can  be
                obtained on a more cost-effective basis from outside sources.

                In order to perform  maintenance  on its fleet,  the Company has
                established  three  different  types  of  maintenance  stations,
                depending upon the frequency of aircraft visits and the level of
                maintenance services available:

                Class I:  Stations  with assigned  Company  mechanics,  adequate
                facilities,  equipment  and parts to perform both  scheduled and
                unscheduled  maintenance on all aircraft normally operating into
                that station.

                Class II: Stations with assigned Company mechanics,  but limited
                facilities,  equipment  and parts that are capable of performing
                certain scheduled and unscheduled maintenance.

                Class III:  Stations  with on-call  maintenance  arranged by the
                Company  with  other   certificated   operators  or  maintenance
                facilities to perform both scheduled and unscheduled maintenance
                on the Company's aircraft  operating into the station.  All work
                is scheduled and controlled by the Company's Maintenance Control
                division.

                As  of  December   31,   1996,   the  Company  had   maintenance
                capabilities in ten locations. The Off-Line Maintenance group is
                responsible for aircraft  maintenance at all Class III stations.
                This group provides Road Teams and coordinates contract labor at
                stations  all around the world  where  maintenance  is needed to
                support short-term operations.  The technical representatives of
                the Company  supervise  the quality and  completion  of the work
                performed on the Company's aircraft.  During the last two years,
                the Company has operated Class III stations at five locations in
                the United States and one foreign location.

                Other Activities

                In addition to its  airline and travel  businesses,  the Company
                owns and operates or participates in several smaller  businesses
                that complement its airline  service,  including  American Trans
                Air Training  Corporation,  which provides professional training
                schools for pilots,  mechanics and flight attendants,  ExecuJet,
                an  executive  air charter  service,  and Amber Air  Freight,  a
                freight  forwarder.  In 1996,  revenues  from  these  businesses
                accounted  for less  than 1% of the  Company's  total  operating
                revenues.


<PAGE>


                American  Trans Air  Training  Corporation.  American  Trans Air
                Training Corporation (the "Training  Corporation") was organized
                in 1988 to service the  training  needs of airlines  and airline
                suppliers as well as individuals  desiring to pursue a career in
                aviation.  The Training  Corporation  has two distinct  areas of
                training:  Pilot and  Contract  Training  and Airframe and Power
                Plant Training.

                The Training Corporation provides training to airline personnel,
                including  cockpit crews,  flight  attendants,  ground  security
                coordinators,  dispatchers  and other support  personnel.  These
                services are arranged on a contractual basis with an airline and
                are  generally  completed  in  Indianapolis  where the  Training
                Corporation   has   its   educational   facilities,    including
                classrooms,   cabin  trainers  and  other  training  aides.  The
                Training  Corporation  is a  partner  with a  subsidiary  of LTU
                International  Airlines,  a German charter  airline,  in a joint
                venture  owning a Lockheed  L-1011  simulator  located in Miami,
                Florida.  The Training  Corporation is the managing  partner for
                the venture operating the simulator and markets training time to
                other  Lockheed  L-1011  operators.  The  flight  school  is FAR
                ('Federal  Air  Regulation')  Part 141  certified;  accordingly,
                graduates receive an FAA approved pilot's license.

                In July 1992, The Training  Corporation  opened its Airplane and
                Power Plant School in Indianapolis  providing training necessary
                for  licensing  graduates as airplane and power plant  mechanics
                ("A&Ps").  A&P  licenses are  required  for all  maintenance  on
                U.S.-registered  aircraft (private and commercial) including all
                scheduled and charter airlines.  ATA, Federal Express and United
                Airlines   have    maintenance    facilities   at   Indianapolis
                International Airport. These airlines should provide substantial
                demand for future  graduates  of the  Airframe  and Power  Plant
                School.

                ExecuJet. ExecuJet provides executive air charter services using
                a Citation jet aircraft,  as well as Bell 206B JetRanger III and
                Aerospatiale  355F2  helicopters.  ExecuJet's  customers include
                corporations and individuals requiring high-quality, private air
                transportation.

                The Company  acquired the  aircraft  used by ExecuJet to provide
                ATA with a prompt means to deliver  crews,  mechanics  and spare
                parts  to  its  aircraft  when  reasonable  alternatives  do not
                otherwise exist. The Company formed ExecuJet in order to utilize
                more fully these aircraft. ExecuJet has expanded its client base
                to include the entertainment  field and Fortune 500 companies as
                well as local corporate users.

                Amber Air Freight,  Inc.  Amber Air Freight,  Inc., is a general
                partner in Amber Air Freight,  an Indiana  general  partnership,
                with a third party that is the manager of the venture. Amber Air
                Freight markets the unused cargo capacity in ATA's scheduled and
                charter  operations.   Amber  Air  Freight's  customers  include
                freight   transporters,   such   as   freight   forwarders   and
                consolidators,  some of whom do not require year-round scheduled
                service but that can rely on the seasonal patterns which charter
                airlines develop. Amber Air Freight also markets this service to
                other charter airlines.


<PAGE>


                Insurance

                The Company carries types and amounts of insurance  customary in
                the charter  airline  industry,  including  coverage  for public
                liability,  passenger liability,  property damage, aircraft loss
                or   damage,   baggage   and  cargo   liability   and   workers'
                compensation. Under the Company's current insurance policies, it
                will not be covered by such insurance when it flies, without the
                consent of its insurance provider,  to the following  countries:
                Afghanistan, Angola, Chad, Columbia, Iraq, Liberia, Libya, Peru,
                Somalia,  Sudan,  the area  comprising  the former  Republic  of
                Yugoslavia  and  Zaire.   The  Company  does  not  consider  the
                inability to operate into or out of any of these countries to be
                a  significant  limitation  on its  business.  The Company  will
                support  certain U.S.  government  operations in areas where its
                insurance  policy does not provide  coverage for losses when the
                U.S.  government  provides  sufficient   replacement   insurance
                coverage.

                Employees

                As of December 31,  1996,  the Company had  approximately  4,435
                employees.  In June of 1991,  the  Company's  flight  attendants
                elected the Association of Flight  Attendants  ("AFA"') as their
                representative. In December 1994, the flight attendants ratified
                a four-year collective agreement. In June of 1993, the Company's
                cockpit crews elected the International Brotherhood of Teamsters
                ("IBT") as their representative. In September of 1996, following
                three years of negotiation, a four-year collective agreement was
                ratified by the cockpit crews.

                The Company  believes that its relations  with its employees are
                good.  However,  the existence of a significant dispute with any
                sizable  number of its employees  could have a material  adverse
                effect on the Company's operations.

                Competition

                The Company competes in a number of different markets because it
                offers  different  products  and  services,  and the  nature and
                intensity of such competition  varies from market to market.  In
                marketing  its  charter  and  scheduled  airline  services,  the
                Company  emphasizes its ability to provide a simplified  product
                designed to meet the primary  needs of leisure  travelers.  This
                includes offering low fares,  nonstop or direct flights from the
                customer's  city of  origin  and  in-flight  services  that  are
                comparable to standard coach service on scheduled  airlines.  By
                offering  air travel  products  that can be tailored to meet the
                particular needs of its customers, particularly independent tour
                operators,  the  Company  believes  it is able to  differentiate
                itself from most major scheduled airlines, whose principal focus
                is on frequent scheduled service on established  routes, as well
                as from  smaller  charter  airlines,  which  often  do not  have
                comparably  diverse  fleets or the  ability to  provide  similar
                support or customization.

                In the United  States,  there are few barriers to entry into the
                airline  business,  apart from the need for  certain  government
                licenses  and  the  need  for  and  availability  of  financing,
                particularly  for those seeking to operate on a small scale with
                limited  infrastructure and other support systems.  As a result,
                the  Company  may  face  increased   competition  from  start-up
                airlines in selected  markets from time to time.  In the leisure
                travel market, the Company's principal business, the competition
                for airline passengers is significant. The Company competes with
                both  scheduled  and  charter  airlines,  both in the  U.S.  and
                internationally.  The Company generally competes on the basis of
                price,  distribution  effectiveness,  availability of equipment,
                quality of service and convenience.


<PAGE>


                Competition from Scheduled Airlines

                The  Company  competes   against  U.S.,   European  and  Mexican
                scheduled airlines,  most of which are significantly larger than
                the  Company  and many of which have  greater  access to capital
                than the  Company.  These  airlines  compete for leisure  travel
                customers in a variety of ways,  including  wholesaling  to tour
                operators  discounted  seats  on  scheduled  flights,  promoting
                prepackaged  tours to travel agents for sale to retail customers
                and selling discounted,  excursion  airfare-only products to the
                public.  As  a  result,  all  charter  airlines,  including  the
                Company, generally are required to compete for customers against
                the lowest revenue-generating seats of the scheduled airlines.

                Charter airlines generally have a lower cost structure than most
                scheduled airlines. The major scheduled airlines typically incur
                higher costs related to labor,  marketing,  reservation  systems
                and airport facilities, among other items. Because of their cost
                structures,  the  scheduled  airlines  generally  do not compete
                directly with charter airlines on a price basis. However, during
                periods of dramatic  fare cuts by the  scheduled  airlines,  the
                Company is forced to compete  against  these  deeply  discounted
                seats.  The scheduled  airlines do compete with charter airlines
                by selling excess  capacity to tour operators and  consolidators
                at bulk rates and also  selling  charter  services  on a limited
                basis.

                The  Company's   charter  service  also  competes   against  the
                scheduled  airlines on the basis of  convenience  and quality of
                service.   As  the   U.S.   scheduled   airline   industry   has
                consolidated,  the traffic  patterns  have  evolved into what is
                commonly referred to as the 'hub-and-spoke' system. Partially as
                a  result  of  the  creation  of  numerous  hub-and-spoke  route
                systems, many smaller cities are not served by direct or nonstop
                flights  to leisure  destinations,  and many  secondary  leisure
                destinations  do not receive direct or nonstop service from more
                than  a  few  major  U.S.  cities.  The  Company,  through  tour
                operators,  targets these markets by offering nonstop service to
                leisure  destinations on a  limited-frequency  basis designed to
                appeal to the leisure  traveler and to provide  relatively  high
                load factors.  The Company believes that a significant amount of
                its charter flights provide nonstop  convenience to destinations
                not available to passengers through scheduled airlines.

                The Company competes directly with several scheduled airlines on
                certain  leisure  routes,   particularly  in  the  Indianapolis,
                Chicago-Midway and Milwaukee markets.  Although several airlines
                serve these markets,  historically, the Company has been able to
                compete  successfully for the leisure  customer.  The Company is
                continually evaluating these markets for their future potential.

                Competition from Charter Airlines

                In addition to competing with the major  domestic,  European and
                Mexican scheduled  airlines,  the Company also faces competition
                in the U.S. from two smaller U.S. charter airlines.  This is the
                lowest number of charter carriers competing for business in many
                years,  a situation that could promote  additional  entries into
                the charter market. In Europe, the Company competes with several
                large  European  charter  airlines,  many of  which  are part of
                entities  which also own tour  operators and travel  agencies or
                scheduled  airlines.  To date,  the  Company  has  been  able to
                compete  successfully against both the U.S. and European charter
                airlines.  In the case of the  European  charter  airlines,  the
                Company  believes that its success has been primarily due to the
                higher operating costs of such European airlines. In Mexico, the
                Company   competes  against  several  Mexican  charter  airlines
                operating charters between the U.S. and Mexico.

                Based upon bilateral  aviation  agreements  between the U.S. and
                other nations,  and, in the absence of such  agreements,  comity
                and reciprocity  principles,  the Company, as a charter carrier,
                is generally not restricted as to the number or frequency of its
                flights to and from most destinations in Europe.  However, these
                agreements  generally  restrict  the Company to the  carriage of
                passengers  and cargo on flights  which either  originate in the
                U.S.  and  terminate  in a  single  European  nation,  or  which
                originate in a single  European nation and terminate in the U.S.
                Proposals for any additional  charter  service must generally be
                specifically  approved by the civil  aeronautics  authorities in
                the relevant countries. Approval of such a proposal is typically
                based on  considerations of comity and reciprocity and cannot be
                guaranteed.

                Regulation

                The Company is an air carrier subject to the jurisdiction of and
                regulation  by the  DOT  and  the  FAA.  The  DOT  is  primarily
                responsible  for  regulating   consumer   protection  and  other
                economic  issues   affecting  air  services  and  determining  a
                carrier's fitness to engage in air transportation.  In 1981, 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 Company is
                also subject to the  jurisdiction of the FAA with respect to its
                aircraft  maintenance  and  operations.  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 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.

                The FAA has issued a series of  Airworthiness  Directives  under
                its  "Aging  Aircraft"  program  which  are  applicable  to  the
                Company's  Lockheed  L-1011 and  Boeing  727-200  aircraft.  The
                Company  does not  currently  expect  the  future  cost of these
                directives to be material.

                Several aspects of airline  operations are subject to regulation
                or oversight by Federal agencies other than the DOT and FAA. The
                United  States  Postal  Service has  jurisdiction  over  certain
                aspects  of the  transportation  of mail  and  related  services
                provided  by the  Company  through  its cargo  affiliate.  Labor
                relations  in the  air  transportation  industry  are  generally
                regulated  under  the  Railway  Labor  Act,  which  vests in the
                National  Mediation Board certain regulatory powers with respect
                to disputes  between  airlines  and labor unions  arising  under
                collective bargaining agreements.  The Company is subject to the
                jurisdiction of the Federal Communications  Commission regarding
                the  utilization  of its  radio  facilities.  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 Commerce  Department  also  regulates  the export and
                reexport  of  the  Company's   U.S.-manufactured   aircraft  and
                equipment.


<PAGE>


                In addition to various Federal  regulations,  local  governments
                and  authorities  in certain  markets have  adopted  regulations
                governing  various  aspects of  aircraft  operations,  including
                noise  abatement,  curfews and use of airport  facilities.  Many
                U.S.  airports  have  adopted  or  are  considering  adopting  a
                "Passenger  Facility Charge" of up to $3.00 generally payable by
                each passenger  departing from the airport.  This charge must be
                collected from passengers by transporting air carriers,  such as
                ATA, and must be remitted to the applicable  airport  authority.
                Airport  operators  must obtain  approval of the FAA before they
                may implement a Passenger Facility Charge.

                Environmental Matters

                Under the Airport Noise and Capacity Act of 1990 and related FAA
                regulations,  the  Company's  aircraft  fleet must  comply  with
                certain  Stage  3  noise   restrictions  by  certain   specified
                deadlines.  These regulations require that the Company achieve a
                55% Stage 3 fleet by December  31,  1994, a 65% Stage 3 fleet by
                December 31, 1996, and a 75% Stage 3 fleet by December 31, 1998.
                In general,  the Company would be prohibited  from operating any
                Stage 2 aircraft  after  December 31,  1999.  As of December 31,
                1996, 65% of the Company's fleet met Stage 3 requirements.

                In addition to the aircraft noise  regulations  administered  by
                the FAA, the  Environmental  Protection Agency ("EPA") regulates
                operations,  including air carrier operations,  which affect the
                quality of air in the United  States.  The  Company has made all
                necessary   modifications   to  its  operating   fleet  to  meet
                fuel-venting requirements and smoke-emissions standards.

                The Company maintains on its property in Indiana two underground
                storage  tanks which  certain  quantities  of deicing  fluid and
                emergency generator fuel. These tanks are subject to various EPA
                and State of Indiana regulations.  The Company believes it is in
                substantial  compliance with applicable regulatory  requirements
                with respect to these storage facilities.

                At its aircraft line  maintenance  facilities,  the Company uses
                materials which are regulated as hazardous under Federal,  state
                and local 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.


Item 2.         Properties

                The  Company   leases  three   adjacent   office   buildings  in
                Indianapolis,  consisting of approximately  136,000 square feet.
                These  buildings  are  located  approximately  one mile from the
                Indianapolis International Airport and are used for headquarters
                staff and for the  operation  of the  Indianapolis  reservations
                center.

                The Company's  Maintenance and Engineering  Center is located at
                Indianapolis  International  Airport.  This 120,000  square foot
                facility was designed to meet the base maintenance  needs of the
                Company's operations, as well as to provide support services for
                other maintenance  locations.  The Indianapolis  Maintenance and
                Engineering Center is an FAA-certificated repair station and has
                the  capability  to  perform  routine,  as well as  non-routine,
                maintenance on the Company's aircraft.

                In 1995,  the  Company  completed  the lease of Hangar  No. 2 at
                Chicago's Midway Airport for an initial lease term of ten years,
                subject to two five-year renewal options.  With the reduction in
                scheduled  service in 1996,  the  Company is  reconsidering  the
                option for the use of this hangar.

                Also in 1995,  the Company  relocated  and  expanded its Chicago
                area reservations unit to an 18,700 square foot facility located
                near Chicago's O'Hare Airport.  This new property is expected to
                accommodate the Company's scheduled service into the foreseeable
                future.


<PAGE>


                At December 31, 1996, the Company operated a fleet of 45
                aircraft. Two additional Lockheed L-1011 aircraft, not currently
                on the Company's operating certificate, were also subject to
                operating leases at the end of 1996. The following table
                summarizes the ownership, lease term (where applicable),
                standard seating configuration, and Stage 2/Stage 3 noise
                characteristics of each aircraft operated by the Company as of
                the end of 1996.

<TABLE>

<CAPTION>
                Aircraft                              Owned/Leased       Lease Expiration        Seats          Stage
                                                                           (month/year)
                ---------------------------------- -------------------- -------------------- --------------- ------------
<S>             <C>                                      <C>                   <C>                <C>            <C>
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-50                        Owned                 n/a               362             3
                Lockheed L-1011-100                      Leased               06/2000             362             3
                Lockheed L-1011-100                      Leased               03/2001             362             3
                Boeing 727-200ADV                         Owned                 n/a               173             3
                Boeing 727-200ADV                        Leased               09/2002             173             3
                Boeing 727-200ADV                        Leased               12/1997             173             2
                Boeing 727-200ADV                        Leased               12/1997             173             2
                Boeing 727-200ADV                        Leased               03/1998             173             2
                Boeing 727-200ADV                        Leased               11/1998             173             2
                Boeing 727-200ADV                        Leased               11/1998             173             2
                Boeing 727-200ADV                        Leased               11/1998             173             2
                Boeing 727-200ADV                        Leased               01/1999             173             2
                Boeing 727-200ADV                        Leased               12/1999             173             2
                Boeing 727-200ADV                        Leased               02/2000             173             2
                Boeing 727-200ADV                        Leased               02/2000             173             2
                Boeing 727-200ADV                        Leased               02/2000             173             2
                Boeing 727-200ADV                        Leased               02/2000             173             2
                Boeing 727-200ADV                        Leased               03/2000             173             2
                Boeing 727-200ADV                        Leased               03/2000             173             2
                Boeing 727-200ADV                        Leased               03/2000             173             2
                Boeing 727-200ADV                        Leased               03/2000             173             2
                Boeing 727-200ADV                        Leased               12/2001             173             3
                Boeing 727-200ADV                        Leased               03/2002             173             3
                Boeing 727-200ADV                        Leased               05/2002             173             3
                Boeing 727-200ADV                        Leased               08/2002             173             3
                Boeing 727-200ADV                        Leased               11/2002             173             3
                Boeing 727-200ADV                        Leased               11/2002             173             3
                Boeing 757-2Q8                           Leased               03/1997             216             3
                Boeing 757-23N                           Leased               10/1997             216             3
                Boeing 757-2Q8                           Leased               05/2002             216             3
                Boeing 757-23N                           Leased               04/2008             216             3
                Boeing 757-23N                           Leased               12/2010             216             3
                Boeing 757-23N                           Leased               06/2014             216             3
                Boeing 757-28AER                         Leased               03/2015             216             3

</TABLE>


<PAGE>


Item 3.   Legal Proceedings

          Various claims,  contractual disputes and lawsuits against the Company
          arise   periodically   involving   complaints  which  are  normal  and
          reasonably  foreseeable  in  light  of the  nature  of  the  Company's
          business. The majority of these suits are covered by insurance. In the
          opinion of management,  the resolution of these claims will not have a
          material  adverse  effect  on  the  business,   operating  results  or
          financial condition of the Company.


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

          No matter  was  submitted  to a vote of  security  holders  during the
quarter ended December 31, 1996.


Part II


Item 5.   Market for the Registrant's Common Stock and Related Security Holder
          Matters

          The Company's  common stock trades on the Nasdaq  National Market tier
          of The Nasdaq Stock  Market  under the symbol  "AMTR." The Company had
          371 registered shareholders at December 31, 1996.

<TABLE>
<CAPTION>
                                                                               Year Ended December 31, 1996
           Market Prices of Common Stock                          High                    Low                     Close
                                                              --------------       -------------------       -----------------
<S>                                                              <C>                     <C>                      <C>
           First quarter                                         13-1/4                  11-5/8                   11-3/4
           Second quarter                                        12-3/8                  8-1/4                    8-1/4
           Third quarter                                          9-1/4                  6-3/4                    8-3/4
           Fourth quarter                                         8-3/4                  6-5/8                      7

</TABLE>

          No dividends have been paid on the Company's common stock since
          becoming publicly held.




<PAGE>


PART II - Continued




                                                           - 45 -

 - (Unaudited)cted Financial Data

           The  financial  data  in  this  table  have  been  derived  from  the
           consolidated  financial  statements of the Company for the respective
           periods  presented.  The data should be read in conjunction  with the
           consolidated financial statements and related notes.

<TABLE>
<CAPTION>
                                                               Amtran, Inc.
                                                             Five-Year Summary
                                                          Year Ended December 31,
               ---------------------------------------------------------------------------------------------------------------
<S>                                                            <C>           <C>          <C>         <C>          <C>
                                                               1996          1995         1994        1993         1992
               (In thousands, except per share data and
               ratios)
               ---------------------------------------------------------------------------------------------------------------

               Statement of Operations Data:
                   Operating revenues                         $  750,851    $  715,009  $  580,522  $  467,909     $  421,790
                   Operating expenses                            786,907       697,073     572,107     461,289        419,198
                   Operating income (loss)                      (36,056)        17,936       8,415       6,620          2,592
                   Income (loss) before taxes                   (39,581)        14,653       5,879       3,866        (2,643)
                   Net income (loss)                            (26,674)         8,524       3,486       3,035        (2,140)
                   Net income (loss) per share (1)                (2.31)          0.74        0.30        0.28         (0.24)

               Balance Sheet Data:
                   Property and equipment, net                $  224,540    $  240,768  $  223,104  $  172,244     $  166,882
                   Total assets                                  370,287       413,137     346,288     269,830        239,029
                   Total debt                                    150,057       138,247     118,106      79,332         87,949
                   Shareholders' equity                           54,744        81,185      72,753      69,941         32,469
                   Ratio of total debt  to shareholders'
                     equity                                                                   1.62        1.13           2.71
                   Ratio of total liabilities to                    2.74          1.70
                   shareholders'                                                              3.76        2.86           6.36
                     equity                                         5.76          4.09
               Selected Operating Statistics for
               Consolidated Passenger Services:
                   Revenue passengers carried (thousands)        5,680.5       5,368.2     4,237.9     2,971.8        2,658.0
                   Revenue passenger miles (millions)            9,172.4       8,907.7     7,158.8     5,593.5        5,547.1
                   Available seat miles (millions)              13,295.5      12,521.4    10,443.1     8,232.5        7,521.2
                   Passenger load factor                           69.0%         71.1%       68.6%       67.9%          73.8%




              (1) Net income (loss) per share is based on the weighted number of
                  common shares outstanding during the period. Amounts have been
                  restated to reflect a 1-for-8 stock dividend in March 1993.

</TABLE>

<PAGE>


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


Overview

During 1996, the Company  incurred  operating and net losses of $(36.1)  million
and $(26.7)  million,  respectively,  as compared to operating and net income of
$17.9 million and $8.5 million in 1995.  As discussed in more detail below,  the
losses  in 1996  reflected  a number of  factors,  including  (i) a  significant
increase in competition  from larger  carriers in the scheduled  service markets
served by the Company,  (ii) the effects of the ValuJet accident in Florida that
occurred at the same time as a  decompression  incident on one of the  Company's
flights,  (iii) a significant increase in fuel prices, (iv) a Federal excise tax
on jet fuel that became effective on October 1, 1995, and (v) certain charges in
the third and fourth  quarters  of 1996  relating  to fleet  restructuring.  The
Company believes that competition will remain intense for the foreseeable future
on many of the routes where the Company has  provided  scheduled  service.  As a
result,  and as described  further below,  beginning in August 1996, the Company
significantly reduced its scheduled service operations and completed a reduction
in its overall  fleet size in order to  concentrate  on its charter  operations,
which may produce as much as two-thirds of the Company's  operating  revenues in
1997.


Restructuring of Scheduled Service Operations and Fleet Types

Beginning  in May 1996,  and  continuing  into the third  quarter,  the  Company
undertook  a  detailed  study of the  profitability  of its  scheduled  service,
military and tour operator business  segments.  This analysis  initially covered
the six quarters ended June 30, 1996, and disclosed that a significant number of
scheduled  service  markets being served by the Company had become  increasingly
unprofitable.  Although some markets had been  unprofitable  during 1995, a more
significant deterioration in profitability in Boston,  intra-Florida and certain
other  markets  occurred  during  late  1995 and the  first  half of 1996.  This
analysis also showed that the  Company's  charter and military  operations  were
generally  profitable  during  the same  periods,  although  results  from these
operations  in 1996 were also  adversely  affected by some of the  factors  that
affected scheduled service.

The  Company   believes  that  several  key  factors  had   contributed  to  the
deteriorating  profitability  of  scheduled  service  over these  time  periods.
Beginning in January  1996,  a growing  amount of low-fare  competition  entered
Boston-Florida and  midwest-Florida  markets,  which increased total capacity in
these markets and  decreased the average fares earned by the Company.  Operating
revenues in all scheduled service markets were further adversely affected by the
ValuJet  accident  in  Florida  on May 11,  which  was  followed  on May 12 by a
decompression incident on one of the Company's own flights. These events focused
significant  negative media attention on airline safety and on low-fare carriers
in particular.  In spite of the Company's  excellent safety record over almost a
quarter century of operation, during which no serious injuries or fatalities had
ever occurred,  the Company estimates that it lost significant scheduled service
revenues in the second and third  quarters of 1996 from  canceled  reservations,
and reservations which were never received.  Additionally,  effective October 1,
1995, the Company became subject to a Federal excise tax on jet fuel consumed in
domestic  use which added  approximately  3.5 cents to the average  cost of each
gallon of jet fuel.  During 1996, the market price  (excluding  tax) of jet fuel
also  increased  significantly  as compared to prices  paid in  comparable  1995
periods, largely due to tight jet fuel inventories relative to demand throughout
this period.  These trends  continued  and, as discussed  below,  intensified in
certain respects in the fourth quarter of 1996.  Moreover,  the Company believes
that intense  competitive  pressures from larger  carriers will continue for the
foreseeable  future  on many of the  routes  served by the  Company's  scheduled
service operations.


<PAGE>


On August 26, the Company announced a significant reduction in scheduled service
business.  More than  one-third of scheduled  service  departures  and ASMs were
included in this schedule reduction. Boston operations and intra-Florida flights
were  completely   eliminated.   Other  selected   markets  from   Indianapolis,
Chicago-Midway  and  Milwaukee  were also exited  completely  or were reduced in
frequency.  Exited  operations  ended  between  September 4 and  December 2. The
Company continues to evaluate its scheduled  service  operations and may further
reduce or potentially restore some of its scheduled operations.

In association with its schedule reduction, the Company announced a reduction in
force of 15%. A significant  portion of this reduction in force was accomplished
through furloughs of cockpit and cabin crews,  with the remainder  consisting of
reductions  in  base  station  and  administrative   staff.   Maintenance  staff
reductions were  accomplished  primarily  through the reduction of base and line
maintenance  contract  labor.  This  reduction  commenced  during  September and
resulted  in the  recognition  of $135,000  in  severance  expense for the third
quarter of 1996,  and  $48,000 in  additional  severance  expense for the fourth
quarter of 1996.

A separate aspect of the Company's 1996 study of business segment  profitability
was directed toward the relative economics of the Company's three aircraft fleet
types as they were being used in scheduled service, charter and military flying.
Although  all fleet types were being used  profitably  in some  operations,  the
Company determined that in many scheduled service markets the Boeing 727-200 was
a more profitable  alternative aircraft than the Boeing 757-200. As a result, on
July 29, 1996,  the Company  entered into a Letter of Intent with a major lessor
to reduce the Company's  Boeing  757-200 fleet by five units,  and in the fourth
quarter of 1996 the Company entered into an additional transaction with the same
lessor to further  reduce the number of Boeing  757-200  aircraft  by two units.
These  transactions  were  completed  by  December  16,  1996,  and  reduced the
Company's  fleet  of  Boeing  757-200  aircraft  as of the  end of  1996  from a
previously  planned  thirteen  units to seven actual units.  In addition,  these
transactions eliminated all Pratt-&-Whitney-powered Boeing 757-200 aircraft from
the Company's fleet, which became solely Rolls-Royce-powered by the end of 1996.

In addition to the  adjustments  to the  Company's  Boeing  757-200  fleet,  the
reduction in existing scheduled service operations  resulted in the reallocation
of five Boeing  727-200  aircraft to  alternative  uses in the fourth quarter of
1996. These aircraft were used to meet additional charter demand and to increase
scheduled  service  flights in several  markets  which the Company  continues to
serve.  Two Lockheed  L-1011  aircraft  which were used for  seasonal  scheduled
service to Ireland during the summer of 1996 were returned to charter operations
in the fourth quarter of 1996.

In 1996,  the  Company  recorded  a $4.5  million  loss on  disposal  of  assets
associated with Boeing 757-200 aircraft (see Disposal of Assets).


Results of Operations

The Company's  operating  revenues  increased 5.0% to $750.9 million in 1996, as
compared to $715.0 million in 1995.  Operating revenues for 1996 were 5.65 cents
per ASM, a reduction of 1.1% from 5.71 cents per ASM in 1995. Between these same
periods, ASMs increased 6.2% to 13.30 billion from 12.52 billion, RPMs increased
2.9% to 9.17 billion from 8.91 billion,  and passenger  load factor  declined to
69.0% as compared to 71.1%. The yield on revenues in 1996 increased 2.1% to 8.19
cents per RPM,  as  compared  to 8.02  cents per RPM in 1995.  Total  passengers
boarded  increased  5.8% to 5.68 million in 1996, as compared to 5.37 million in
1995,  and total  departures  increased  8.4% to 46,400  from 42,800 in the same
comparable periods.


<PAGE>


The Company's  operating  revenues increased 23.2% to $715.0 million in 1995, as
compared to $580.5 million in 1994.  Operating revenues for 1995 were 5.71 cents
per ASM, an increase of 2.7% from 5.56 cents per ASM in 1994. Between these same
periods,  ASMs  increased  19.9% to  12.52  billion  from  10.44  billion,  RPMs
increased  24.4% to 8.91 billion from 7.16 billion,  and  passenger  load factor
increased to 71.1% as compared to 68.6%.  The yield on revenues in 1995 declined
1.1% to 8.02 cents per RPM,  as  compared  to 8.11 cents per RPM in 1994.  Total
passengers  boarded increased 26.7% to 5.37 million in 1995, as compared to 4.24
million in 1994, and total  departures  increased 23.3% to 42,800 from 34,700 in
the same comparable periods.

Operating  expenses  increased  12.9% to $786.9  million in 1996, as compared to
$697.1 million in 1995, and operating expenses increased 21.8% to $697.1 million
in 1995,  as  compared to $572.1  million in 1994.  Operating  expenses  per ASM
increased  6.5% to 5.92 cents in 1996, as compared to 5.56 cents in 1995,  while
operating  expenses per ASM increased 1.5% to 5.56 cents in 1995, as compared to
5.48 cents in 1994.

The following table sets forth, for the periods  indicated,  operating  revenues
and expenses expressed as cents per ASM.

<TABLE>
<CAPTION>
                                                                                  Cents Per ASM
                                                                             Year Ended December 31,
<S>                                                                <C>                  <C>                 <C>
                                                                   1996                 1995                1994

Operating revenues:                                                5.65                 5.71                5.56

Operating expenses:
    Salaries, wages and benefits                                   1.23                 1.13                1.09
    Fuel and oil                                                   1.21                 1.03                1.02
    Handling, landing and navigation fees                          0.53                 0.59                0.58
    Aircraft rentals                                               0.49                 0.44                0.46
    Depreciation and amortization                                  0.47                 0.45                0.44
    Aircraft maintenance, materials and repairs                    0.42                 0.44                0.44
    Crew and other employee travel                                 0.27                 0.25                0.25
    Passenger service                                              0.25                 0.28                0.29
    Commissions                                                    0.20                 0.20                0.17
    Ground package cost                                            0.14                 0.13                0.14
    Other selling expenses                                         0.13                 0.12                0.08
    Advertising                                                    0.08                 0.07                0.07
     Facility and other rents                                      0.07                 0.06                0.05
    Disposal of assets                                             0.03                    -                   -
    Other operating expenses                                       0.40                 0.37                0.40
        Total operating expenses                                   5.92                 5.56                5.48

    Operating income (loss)                                       (0.27)                0.15                0.08


    ASMs (in thousands)                                         13,295,505           12,521,405          10,443,123


</TABLE>

<PAGE>



Year Ended December 31, 1996, Versus Year Ended December 31, 1995


Operating Revenues

Total  operating  revenues in 1996  increased 5.0% to $750.9 million from $715.0
million in 1995. This increase was due to a $24.5 million  increase in scheduled
service revenues,  a $3.5 million increase in charter  revenues,  a $1.9 million
increase  in ground  package  revenues,  and a $6.0  million  increase  in other
revenues.

Scheduled Service Revenues. Scheduled service revenues in 1996 increased 6.8% to
$386.5 million from $362.0 million in 1995. Scheduled service revenues comprised
51.5% of total  operating  revenues in 1996,  as compared to 50.6% of  operating
revenues in 1995.  Scheduled  service RPMs  increased 5.2% to 4.918 billion from
4.673 billion,  while ASMs increased  10.6% to 7.305 billion from 6.605 billion,
resulting in a reduction in passenger load factor to 67.3% in 1996 from 70.9% in
1995.  Yield on scheduled  service in 1996  increased 1.4% to 7.86 cents per RPM
from 7.75 cents per RPM in 1995.  Scheduled service departures in 1996 increased
14.1% to 31,467 from 27,573 in 1995,  while  passengers  boarded  increased 7.5%
over such period to 3,551,141, as compared to 3,304,369.

During the second and third quarters of 1996, and prior to the  restructuring of
scheduled  service  operations  as further  described  below,  the Company added
direct or connecting flights through the Company's four major domestic cities of
Indianapolis,  Chicago-Midway,  Milwaukee and Boston to  west-coast  and Florida
markets already being served.  New seasonal  scheduled service was also operated
during the summer  months  from New York to Shannon  and  Dublin,  Ireland,  and
Belfast,  Northern  Ireland,  and from the  midwest to Seattle.  New  year-round
service was also added to San Diego, California,  in the second quarter of 1996.
Second and third quarter 1995 scheduled service in St. Louis was discontinued in
August 1995.

In  association  with  the  restructuring  of the  Company's  scheduled  service
operations, a significant reduction in scheduled service was announced on August
26.  Between  September  4 and  December  2, 1996,  more than  one-third  of the
scheduled  service  capacity   operating  during  the  1996  summer  months  was
eliminated.  All scheduled service flights to and from Boston were eliminated by
December 2, 1996,  including service to West Palm Beach, San Juan,  Montego Bay,
St. Petersburg,  Las Vegas, Orlando and Ft. Lauderdale.  Intra-Florida  services
connecting  the  cities  of  Ft.  Lauderdale,   Orlando,  Miami,  Sarasota,  St.
Petersburg and Ft. Myers were eliminated as of October 27, 1996.  Other selected
services  from  Indianapolis,  Chicago-Midway  and  Milwaukee  to Florida and to
west-coast destinations were also reduced or eliminated by October 27, 1996. The
Company's   scheduled   service  between   Chicago-Midway   and  the  cities  of
Indianapolis and Milwaukee was replaced with a code share agreement with Chicago
Express on October 27, 1996. In  association  with this service  reduction,  all
scheduled service ceased at Seattle, Grand Cayman, West Palm Beach, Montego Bay,
Miami and San Diego.

After this scheduled  service  reduction,  the Company's core scheduled  service
flying included  flights  between  Chicago-Midway  and five Florida cities,  Las
Vegas,  Phoenix,  Los Angeles and San  Francisco;  Indianapolis  to four Florida
cities, Las Vegas and Cancun;  Milwaukee to three Florida cities; Hawaii service
to San Francisco,  Los Angeles and Phoenix;  and service between Orlando and San
Juan and Nassau.

The Company's  strategy for restructuring  scheduled  service  operations in the
manner described above is to eliminate service in unprofitable scheduled service
markets, to enhance the profit potential of remaining scheduled service markets,
to  reallocate  aircraft  to  alternative  operations  and to dispose of surplus
aircraft.   Through  this  process,   the  Company  intends  to  strengthen  its
competitive  position and to improve both  passenger  load factors and yields in
remaining  scheduled service  operations.  Based upon the Company's  analysis of
scheduled  service  profitability  through  the  final  months  of 1996,  it has
determined  that the  performance  of this  operation  improved  in  December as
compared  to  August,  which  was the  last  full  month  of  scheduled  service
operations  conducted prior to the implementation of the restructuring  plan. In
addition,  the  Company  has  noted  early in the  first  quarter  of 1997  that
scheduled service bookings, passenger load factors and yields are all performing
better  than they did early in the  first  quarter  of 1996.  The  Company  will
continue to evaluate the profit and loss performance of scheduled service during
1997, and the Company may take further steps to restructure this operation.

Charter Revenues.  The Company's  charter revenues are derived  principally from
independent  tour operators and from the United States  military.  Total charter
revenues increased 1.1% to $310.6 million in 1996, as compared to $307.1 million
in 1995.  Charter revenue growth,  prior to scheduled  service  restructuring in
late 1996, was  constrained  by the  dedication of a significant  portion of the
Company's fleet to scheduled service expansion, including the utilization of two
Lockheed L-1011 aircraft for scheduled  services to Ireland and Northern Ireland
between May and September 1996.

The analysis of profitability  by business  component which was performed by the
Company for the six quarters  ended June 30, 1996,  disclosed that both military
and tour operator  components  had produced  consistent  profits over the period
studied.  The  Company's  Lockheed  L-1011  fleet  performed  well in a  charter
environment  based upon relatively low frequency of operation and high passenger
load factors,  and the Boeing 757-200  performed  well in the military  business
component while the Boeing 727-200 worked well with certain tour operators.  The
Company began to implement  strategies to improve the financial  performance  of
charter  operations  in the third and  fourth  quarters  of 1996,  and both tour
operator and military flying are expected to play a role of growing significance
in the Company's future business operations.

Charter  revenues  derived  from  independent  tour  operators   (including  the
Ambassadair  Travel Club)  decreased 1.4% to $226.4 million in 1996, as compared
to $229.5 million in 1995. Tour operator  revenues  comprised 30.2% of operating
revenues  in 1996,  as  compared to 32.1% of  operating  revenues in 1995.  Tour
operator ASMs decreased 2.0% to 4.363 billion from 4.450 billion and the revenue
per ASM (RASM) on tour operator  revenues in 1996  increased 0.6% to 5.19 cents,
as compared to 5.16 cents in 1995. Tour operator  passengers  boarded  increased
0.8% to 1,854,262 in 1996,  as compared to 1,839,386 in 1995,  and tour operator
departures decreased 3.6% to 10,920 in 1996, as compared to 11,324 in 1995.

The Company operates in two principal  components of the tour operator business,
known as "track  charter" and  "specialty  charter".  The larger  track  charter
business   component  is  generally   comprised  of   repetitive   domestic  and
international   flights  between  designated  city  pairs,  which  support  high
passenger  load  factor  and  low  frequency  rotations  marketed  through  tour
operators,  and which provide  value-priced  and  convenient non stop service to
these vacation  destinations.  The track charter  business  component allows the
Company to attain  reasonable  levels of aircraft and crew utilization and often
provides significant protection to the Company from fuel price increases through
the use of fuel  escalation  reimbursement  clauses.  The Company's  analysis of
profitability for track charter operations in 1996 and 1995, however,  disclosed
only  modest  average  profit  margins for those  periods.  During the late 1996
restructuring  of  scheduled  service  operations,  therefore,  the Company also
sought to  negotiate  changes in existing  track  charter  contracts  to provide
better  profit  performance  for  this  business  segment.  Although  some  tour
operators  were not able to maintain  existing  programs  with the Company under
required economics, other tour operators, and new tour operators, have agreed to
new contracts  under which the Company  expects to improve track charter  profit
performance in future periods.  These new agreements  generally become effective
for the spring and summer of 1997.

Specialty  charter  flying  is a  product  which  is  highly  customized  to the
requirements of the buyer,  but is generally  operated with much lower frequency
than track charter.  For example,  the Company operates an increasing  number of
"around the world" trips in all-first-class  configuration for certain corporate
clients. The Company's  profitability  analysis for 1996 and 1995 disclosed that
specialty charter  contracts  provided a superior profit margin when compared to
track charter,  even though these operations were  cost-disadvantaged by a lower
achievable  utilization  rate for aircraft and crews. In order to leverage these
attractive  margins,  the Company has increased the number of specialty  charter
contracts in its business mix for 1997 and continues to aggressively  seek these
relationships  with potential  clients by marketing the Company's unique ability
to package and deliver highly specialized  products to customers with particular
requirements.

The Company  believes  that  improved  track  charter  economics,  combined with
expanded high-margin  specialty charter programs,  offer a unique opportunity to
the  Company to improve  the  overall  financial  performance  of this  business
segment in 1997 and future years.

Charter revenues derived from the U.S. military increased 8.6% to $84.2 million
in 1996, as compared to $77.5 million in 1995. Military revenues comprised 11.2%
of total operating revenues in 1996, as compared to 10.8% of total operating
revenues in 1995.  U.S.  military  ASMs  increased  4.3% to 1.442  billion from
1.382  billion.  The RASM on U.S.  military revenues  in 1996  increased 4.1% to
5.84 cents as compared to 5.61 cents in 1995. U.S. military passengers boarded
decreased 6.6% to 185,575 in 1996, as compared to 198,711 in 1995, and U.S.
military departures decreased 8.1% to 3,414 in 1996, as compared to 3,713 in
1995.

The  Company's  1996 and 1995  profitability  analysis of the military  business
disclosed that although this operation was generally profitable, more attractive
margins were available  from the use of the Boeing  757-200  aircraft in certain
military rotations,  principally as a result of the lower operating cost of this
aircraft type as compared to alternative aircraft types in similar applications.
The Company  believes that the U.S.  military  often prefers the Boeing  757-200
aircraft  for its  smaller  capacity  and  longer  range  when used to  maintain
existing  frequencies to foreign military bases with reduced troop  deployments.
The  Company  also  believes  that its  Boeing  757-200  fleet is  competitively
advantaged by its FAA  certification  to operate with  180-minute  ETOPS,  which
enhances  opportunities  for the Company to obtain awards of certain  long-range
military missions over water.

As a result of these factors,  for the military  contract year ending  September
30, 1997, the Company has committed four of its seven  remaining  Boeing 757-200
aircraft to the military business, while the other three Boeing 757-200 aircraft
are deployed to mission-specific uses within scheduled service.

Ground Package  Revenues.  The Company earns ground package revenues through the
sale of hotel,  car rental and cruise  accommodations  in  conjunction  with the
Company's air transportation  product. The Company markets these ground packages
through its Ambassadair  Travel Club subsidiary  exclusively to club members and
through its ATA  Vacations  subsidiary  to the general  public.  Ground  package
revenues  increased  9.3% to $22.3 million in 1996, as compared to $20.4 million
in 1995.

The Company's 24-year-old  Ambassadair Travel Club offers hundreds of choices of
tour-guide-accompanied  vacation packages to its approximately 39,000 individual
and family  members  annually.  In 1996,  total  packages sold increased 2.4% as
compared to 1995,  and the average price of each ground  package sold  increased
18.0% as compared to the prior year.

ATA Vacations offers numerous ground package  combinations to the general public
for use on the Company's  scheduled service flights throughout the United States
and to selected Mexico and Caribbean  destinations.  These packages are marketed
through  travel  agents,  as well as directly by the Company's  own  reservation
centers.  During 1996,  the number of ground  packages sold  increased  21.8% as
compared to 1995,  but the average price of each ground  package sold  decreased
16.9% as compared to the prior year.

The average price paid to the Company for a ground package sale is a function of
the mix of  vacation  destinations  served,  the  quality  and  types of  ground
accommodations  offered,  and  general  competitive  conditions  with  other air
carriers offering similar products in the Company's markets.  Some ATA Vacations
markets  have  experienced  price  reductions  in  1996  due  to  intense  price
competition.  The average gross margin on ATA Vacations  ground packages sold in
1996  declined to 21.6% as compared  to 26.6% in 1995,  while the average  gross
margin on  Ambassadair  Travel Club ground  package  sales  declined to 14.5% in
1996, as compared to 15.9% in the prior year.

Other  Revenues.  Other revenues are comprised of the  consolidated  revenues of
affiliated  companies,   together  with  miscellaneous   categories  of  revenue
associated  with the  scheduled  and charter  operations  of the Company.  Other
revenues  increased 23.5% to $31.5 million in 1996, as compared to $25.5 million
in 1995.  Approximately  $3.8 million of the revenue  increase between years was
attributable  to an increase in the number of block hours of substitute  service
provided  by the  Company to other  airlines.  A  substitute  service  agreement
typically  provides for the Company to operate an aircraft with its own crews on
routes  designated  by the  customer  airline  to carry the  passengers  of that
airline for a limited period of time.  The remaining  increase in other revenues
between  periods was primarily due to revenue growth in several of the Company's
affiliated businesses.


Operating Expenses

Salaries,  Wages and Benefits.  Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees,  together with the Company's
cost of employee benefits and payroll-related state and Federal taxes. Salaries,
wages and  benefits  expense for 1996  increased  16.2% to $164.0  million  from
$141.1 million in 1995.  Approximately $15.9 million of the increase in 1996 was
attributable  to the addition of cockpit and cabin crews,  reservations  agents,
base station  staff and  maintenance  staff to support the  Company's  growth in
capacity between  periods,  and  approximately  $3.6 million of the increase was
attributable to the related growth in employee  benefits costs.  Average Company
full-time-equivalent  employees  increased  by 11.7% in 1996 as  compared to the
prior year, although the reduction-in-force implemented in late 1996 resulted in
approximately 6.1% fewer full-time-equivalent employees in the fourth quarter of
1996 as  compared  to the fourth  quarter  of 1995.  The  Company  substantially
completed  this  reduction in force in the fourth  quarter of 1996, and recorded
$183,000 in related severance costs in 1996.

Salaries, wages and benefits expense in 1996 was 1.23 cents per ASM, an increase
of 8.8% from a cost of 1.13  cents per ASM in 1995.  The cost per ASM  increased
partially  as a result of a 3.4%  increase  in the  average  rate of pay for the
Company's employees as compared to the prior year. In addition,  the Company has
increased  employment in several  maintenance and base station locations in lieu
of continuing the use of third-party contractors,  as it believes it can provide
more reliable  operations and better  customer  service at a lower total cost by
using its own employees in these selected locations. The Company has experienced
related savings in the expense lines of handling,  landing and navigation  fees,
and in aircraft  maintenance,  materials  and repairs,  as further  described in
those following sections.

In December  1994,  the Company  implemented a four-year  collective  bargaining
agreement with its flight attendants, which was the first of the Company's labor
groups  to  elect  union  representation.  An  additional  four-year  collective
bargaining  agreement was ratified by the  Company's  cockpit crews on September
23,  1996.  The  pay-related  terms  of the  new  cockpit  crew  agreement  were
implemented  retroactively to August 6, 1996,  including,  among other things, a
rate  increase of  approximately  7.5% to cockpit  crew pay scales for the first
year of the new contract.

Fuel and Oil. Fuel and oil expense for 1996  increased  24.4% to $161.2  million
from $129.6  million in 1995, due to an increase in fuel consumed to operate the
Company's  expanded block hours of flying, an increase in the average price paid
per gallon of fuel consumed and the imposition of a  4.3-cent-per-gallon  excise
tax on jet fuel consumed for domestic use effective October 1, 1995.

During  1996,  the  Company  consumed  7.4% more  gallons of jet fuel for flying
operations  and flew 9.4% more block  hours than in 1995,  which  accounted  for
approximately  $9.1 million in  additional  fuel and oil expense  between  years
(excluding  price and tax  changes).  The growth in gallons of fuel consumed was
lower than the growth in block hours flown  between years due to a change in the
mix of block hours flown by fleet type.  Of greatest  significance  was the 4.1%
reduction  of total block  hours  flown by the  Lockheed  L-1011  fleet  between
periods,  since the fuel  burn per block  hour for this  wide-body  aircraft  is
approximately  twice as high as the burn  rates for the  Company's  other  fleet
types.

During  1996,  the  Company's  average  price paid per  gallon of fuel  consumed
(excluding  the excise tax  described in the following  paragraph)  increased by
12.8% as compared to 1995.  Fuel price  increases paid by the Company  reflected
generally   tighter  supply   conditions  for  aviation  fuel,  which  persisted
throughout  most of 1996 as compared to the prior  year.  The Company  estimates
that the year-over-year  increase in average price paid for jet fuel resulted in
approximately $16.1 million in additional fuel and oil expense between periods.

On October 1, 1995, the Company became subject to a  4.3-cent-per-gallon  excise
tax on jet fuel consumed for domestic use by commercial air carriers. The effect
of this tax in the first three  quarters of 1996, as compared to the first three
quarters  of  1995,   was  to  increase  the  Company's  cost  of  jet  fuel  by
approximately $6.4 million.

Fuel and oil  expense  for 1996 was 1.21 cents per ASM,  an increase of 17.5% as
compared to 1.03 cents per ASM in 1995. The increase in the cost per ASM of fuel
and oil expense was  primarily a result of higher prices and the new excise tax,
partially  offset by the  expanded  use of the more fuel  efficient  twin-engine
Boeing  757-200  aircraft in the  Company's  fleet.  During 1996,  the Company's
Boeing  757-200  aircraft  accounted  for 29.4% of total block hours  flown,  as
compared to 27.8% of total block hours flown in 1995.  Due to the  reduction  of
the  Company's  Boeing  757-200  fleet in late 1996,  the Company's mix of block
hours  flown in  future  years is  expected  to  reflect a lower  proportion  of
fuel-efficient  Boeing  757-200  block  hours,  and a higher  proportion  of the
less-fuel-efficient Boeing 727-200 and Lockheed L-1011 fleet types.

Handling,  Landing and  Navigation  Fees.  Handling and landing fees include the
costs  incurred by the Company at airports to land and service its  aircraft and
to handle passenger  check-in,  security and baggage where the Company elects to
use third-party  contract services in lieu of its own employees.  Air navigation
fees are assessed when the Company's aircraft fly over certain foreign airspace.
Handling,  landing and  navigation  fees  decreased by 6.1% to $70.1  million in
1996,  as compared to $74.4 million in 1995.  During 1996,  the average cost per
system departure for third-party aircraft handling declined 15.0% as compared to
the prior  year,  and the  average  cost of landing  fees per  system  departure
decreased 12.2% between the same periods.

Because  each  airport  served by the Company has a different  schedule of fees,
including  variable prices for different  aircraft types,  average  handling and
landing fee costs are a function  of the mix of  airports  served as well as the
fleet composition of departing aircraft. On average, these costs for narrow-body
aircraft are less than for wide-body aircraft, and the average costs at domestic
U.S. airports are less than the average costs at most foreign airports. In 1996,
80.6% of the Company's  departures were operated with narrow-body  aircraft,  as
compared to 77.6% in 1995, and 81.1% of the Company's  departures were from U.S.
domestic locations, as compared to 79.6% in 1995.

Handling  costs also vary from period to period  according to decisions  made by
the Company to use  third-party  handling  services at some  airports in lieu of
using the Company's own employees. During 1996, the Company implemented a policy
of "self-handling"  at four domestic U.S. airports with significant  operations,
which had been substantially handled using third-party  contractors in the prior
year.  This change  resulted in lower  absolute  third-party  handling costs for
these locations and contributed to lower system average contract  handling costs
per  departure  for 1996,  as compared  to 1995.  The  Company  incurred  higher
salaries, wages and benefits expense as a result of this policy change, as noted
in "Salaries, Wages and Benefits".

The cost per ASM for handling,  landing and navigation  fees decreased  11.3% to
0.53 cents in 1996 from 0.59 cents in 1995.

Aircraft  Rentals.  Aircraft  rentals  expense for 1996 increased 17.4% to $65.4
million from $55.7 million in 1995. This increase was  attributable to continued
growth in the size of the Company's leased aircraft fleet,  although the Company
significantly reduced the size of its Boeing 757-200 fleet in the fourth quarter
of 1996, as is more fully described in "Disposal of Assets".

The addition of three leased Boeing 757-200 aircraft in the first three quarters
of 1996 resulted in  approximately  $10.6 million of increased  aircraft rentals
for that time period, as compared to the prior year. The subsequent reduction of
this fleet type by a net four units (after including two new deliveries from the
manufacturer  in December  1996)  resulted in a  year-over-year  fourth  quarter
reduction of aircraft rent expense of approximately $3.6 million.  The reduction
in the  size of the  Boeing  757-200  fleet  was an  integral  component  of the
Company's  restructuring of scheduled service, based upon profitability analysis
which  disclosed  that for some  uses of the  Boeing  757-200  in the  Company's
markets prior to  restructuring,  it was more  profitable  to  substitute  other
aircraft with lower ownership costs.

Several  additional  Boeing 727-200 and Lockheed  L-1011 aircraft leased in 1996
contributed $2.8 million and $0.5 million, respectively, in incremental aircraft
rentals between years.  Aircraft rentals expense was reduced by $0.7 million for
the first  four  months of 1996,  as  compared  to the  prior  year,  due to the
purchase  of four  Pratt & Whitney  spare  engines  in May 1995,  which had been
previously leased. Due to the elimination of all Pratt-&-Whitney- powered Boeing
757-200 aircraft from the Company's  fleet,  the Company has reclassified  these
owned spare engines as "Assets Held for Sale" in the accompanying balance sheet,
and is  actively  marketing  these  assets  to users of  Pratt-&-Whitney-powered
aircraft.

Aircraft  rentals  expense for 1996 was 0.49 cents per ASM, an increase of 11.4%
from 0.44 cents per ASM in 1995. The period-over-period  increase in the size of
the Boeing  757-200  fleet was a  significant  factor in this change,  since the
rental cost of ASMs produced by this fleet type is significantly higher than for
the Company's  other aircraft.  With the reduction in the  higher-ownership-cost
Boeing 757-200 aircraft in late 1996, the Company  anticipates that the cost per
ASM produced by its leased  aircraft fleet will be lower in future years than it
was in 1996.

Depreciation and Amortization.  Depreciation  reflects the periodic expensing of
the recorded cost of owned Lockheed L-1011 airframes,  engines and rotable parts
for all fleet types,  together with other  property and  equipment  owned by the
Company.  Amortization  is the periodic  expensing of  capitalized  airframe and
engine  overhauls  for all  fleet  types on a  units-of-production  basis  using
aircraft   flight  hours  and  cycles   (landings)  as  the  units  of  measure.
Depreciation and amortization  expense for 1996 increased 10.6% to $61.7 million
from $55.8 million in 1995.

Depreciation  expense  attributable  to owned  airframes and engines,  and other
property and equipment  owned by the Company,  increased $2.9 million in 1996 as
compared to the prior year. The Company increased its  year-over-year  ownership
of engines and rotable  aircraft  components to support the expanding fleet, and
increased its investment in computer  equipment and furniture and fixtures.  The
Company  also  placed  the West bay of the  renovated  Midway  Hangar No. 2 into
service in  mid-1996  and  incurred  increased  debt issue costs  between  years
related to debt facility and aircraft lease negotiations completed in 1996.

Amortization of capitalized engine and airframe overhauls increased $1.9 million
in  1996  as  compared  to  the  prior  year,  after  including  the  offsetting
amortization of approximately $1.0 million in associated manufacturers' credits.
The increasing cost of overhaul amortization reflects the increase in the number
of aircraft  added to the  Company's  fleet and the increase in cycles and block
hours flown between  years.  New aircraft  introduced  into the Company's  fleet
generally do not require  airframe or engine  overhauls  until one or more years
after first entering  service.  Therefore,  the resulting  amortization of these
overhauls  generally  occurs on a delayed  basis from the date the  aircraft  is
placed into service.  Accordingly, the Company anticipates that the average cost
of engine and airframe  amortization  per block hour and cycle will  increase in
future years for all fleet types,  as all aircraft  receive their initial engine
and airframe overhauls after being placed into service.

The cost of engine overhauls that become worthless due to early engine failures,
and which  cannot be  economically  repaired,  is  charged to  depreciation  and
amortization   expense  in  the  period  the  engine  fails.   Depreciation  and
amortization  expense  attributable to these  write-offs  increased $1.1 million
between years.  When these engine  failures can be  economically  repaired,  the
related  repairs  are  charged to aircraft  maintenance,  materials  and repairs
expense.

Depreciation and amortization cost per ASM increased 4.4% to 0.47 cents in 1996,
as compared to 0.45 cents in 1995.

Aircraft Maintenance, Materials and Repairs. This expense line includes the cost
of expendable  aircraft spare parts,  repairs to repairable and rotable aircraft
components,  contract labor for base and line maintenance activities,  and other
non-capitalized  direct  costs  related to fleet  maintenance,  including  spare
engine  leases,  parts loan and  exchange  fees,  and  related  shipping  costs.
Aircraft  maintenance,  materials and repairs  expense  decreased  0.4% to $55.2
million  in 1996,  as  compared  to  $55.4  million  in  1995.  The cost per ASM
decreased by 4.8% to 0.42 cents in 1996,  as compared to 0.44 cents in the prior
year.

Although the cost of repairs for  repairable  and rotable  components  increased
$3.8 million between periods,  the cost of expendable  parts consumed  decreased
$2.0 million,  and the cost of parts loans and exchanges decreased $0.6 million.
Aircraft  maintenance,  materials  and  repairs  cost was also  reduced  by $0.8
million in 1996, as compared to 1995,  due to a planned  reduction in the use of
third-party  maintenance  staff  in  favor of  using  more  Company  maintenance
employees for both base and line  maintenance  activities.  The Company incurred
higher  salaries,  wages and benefits expense as a result of this policy change,
as noted in a preceding section.

The  cost  of  the  Company's   maintenance,   materials  and  repairs  remained
essentially  unchanged  in 1996,  as  contrasted  to the 6.2%  increase  in ASMs
between years, and the 9.4% increase in block hours.  This favorable  comparison
is partly due to the  significant  expansion of the Company's fleet during 1996.
When used aircraft are initially  brought into the Company's  fleet, the cost of
maintenance,  materials  and repairs  required to bridge that  aircraft into the
Company's maintenance program are capitalized. Such expenditures normally extend
the available  flying hours for that aircraft before routine heavy  maintenance,
materials and repairs  expenses  begin to be incurred,  although  those aircraft
begin producing both ASMs and block hours immediately upon acquisition. The more
favorable  comparison  to block hours  between  years is also  indicative of the
faster  growth in the  Company's  twin-engine  Boeing  757-200  fleet,  which is
composed  of newer and more  technologically  advanced  aircraft  which  require
relatively  less  routine  maintenance  than the  Company's  older  three-engine
Lockheed  L-1011 and Boeing 727-200  fleets.  The Boeing 757-200 fleet accounted
for 29.4% of block hours in 1996,  as  compared to 27.8% in 1995.  Nevertheless,
due to the reduction of the  Company's  Boeing  757-200 fleet in late 1996,  the
Company's  mix of block  hours  flown in future  years is  expected to reflect a
lower proportion of Boeing 757-200 block hours, and a higher proportion of block
hours flown by the older three-engine Lockheed L-1011 and Boeing 727-200 fleets.

All of the  Company's  aircraft  under  operating  leases  have  certain  return
conditions  applicable to the maintenance  status of airframes and engines as of
the termination of the lease.  The Company accrues  estimated  return  condition
costs as a component of maintenance,  materials and repairs expense,  based upon
the actual  condition of the aircraft as each lease  termination date approaches
and based upon the Company's ability to estimate the expected cost of conforming
to these conditions. Return condition expenses accrued in 1996 were $1.1 million
more than in 1995.  This  increase  was  primarily  due to changes in the mix of
aircraft leases and associated  return  conditions which became effective during
1996, offset by both the extensive restructuring of the Boeing 757-200 fleet and
the  sale/leaseback  of six hushkitted Boeing 727-200 aircraft during 1996 under
new lease terms and conditions.


<PAGE>


Crew and Other Employee Travel.  Crew and other employee travel is primarily the
cost of air  transportation,  hotels and per diem  reimbursements to cockpit and
cabin crew members  that is incurred to position  crews away from their bases to
operate all Company flights throughout the world. The cost of air transportation
is generally  more  significant  for the charter  business  segment  since these
flights  often  operate  between  cities in which Company crews are not normally
based and may involve extensive  international  positioning of crews.  Hotel and
per diem expenses are incurred for both scheduled and charter services, although
higher per diem and hotel rates generally apply to international assignments.

The cost of crew and other employee  travel  increased 14.0% to $35.9 million in
1996, as compared to $31.5 million in 1995.  During 1996, the Company  increased
its  average  full-time-equivalent  crew head count by 4.1% as  compared  to the
prior year, even though  departures  increased by 8.4% and block hours increased
by 9.4% between periods.  In the first quarter of 1996, the Company  experienced
crew shortages,  which were  exacerbated by severe winter weather,  which caused
significant  flight  delays,  diversions and  cancellations.  The Company's crew
complement in the third quarter of 1996 was again  insufficient  to  effectively
operate the flying schedule and resulted in more crew time being spent away from
base during that quarter.

The cost per ASM for crew and other employee travel increased 8.0% to 0.27 cents
in 1996, as compared to 0.25 cents in the prior year. This increase in unit cost
was  approximately  equivalent  to a 9.0% average  increase in the cost per crew
member of hotel, positioning and per diem expenses between years.

Passenger Service.  Passenger service expense includes the onboard costs of meal
and  non-alcoholic  beverage  catering,  the  cost of  alcoholic  beverages  and
headsets  sold and the cost of onboard  entertainment  programs,  together  with
certain costs incurred for mishandled baggage and passengers  inconvenienced due
to flight delays or cancellations. For 1996 and 1995, catering represented 80.4%
and 84.9%, respectively, of total passenger service expense.

The  cost of  passenger  service  decreased  6.0% in 1996 to $32.7  million,  as
compared to $34.8 million in 1995.  Although total passengers  boarded increased
by 5.8% to 5.68  million in 1996,  as  compared  to 5.37  million  in 1995,  the
average  cost to cater each  passenger  declined  19.1%  between  years due to a
planned  reduction in catering  service  levels in select  charter and scheduled
service markets beginning in the second quarter of 1995. This cost reduction was
partially  offset by a 6.6%  increase in  military  passengers  boarded  between
years, who are the most expensive  passengers to cater in the Company's business
mix.

The cost of servicing  passengers who were  inconvenienced by trip interruptions
increased  by $1.4 million  between  years.  Approximately  $0.7 million of this
increase  was  incurred  in  association  with the  severe  winter  weather  and
consequent  flight schedule  disruptions  which occurred in the first quarter of
1996.

The cost per ASM of passenger  service decreased 12.0% to 0.25 cents in 1996, as
compared to 0.28 cents in the prior year.  The lower cost per ASM was  primarily
due to the lower cost of catering per passenger boarded, partially offset by the
higher cost per ASM of servicing inconvenienced passengers.

Commissions.  The Company incurs significant  commissions expense in association
with the  sale by  travel  agents  of  single  seats on  scheduled  service.  In
addition, the Company pays commissions to secure some tour operator and military
business.  Commissions  expense  increased  7.7% to $26.7  million  in 1996,  as
compared to $24.8 million in 1995. The primary  reason for the increase  between
years was the  corresponding  increase in  scheduled  service  revenues  earned,
approximately  two-thirds of which was  generated  through  travel  agencies who
received a commission on such sales. The cost per ASM of commissions expense was
unchanged at 0.20 cents for both 1996 and 1995.


<PAGE>


Ground Package Cost.  Ground package cost includes the expenses  incurred by the
Company for hotels,  car rental  companies,  cruise lines and similar vendors to
provide  ground and  cruise  accommodations  to  Ambassadair  and ATA  Vacations
customers.  Ground  package cost  increased  14.5% to $18.2  million in 1996, as
compared to $15.9 million in 1995. This increase in cost is primarily due to the
increase  in the  number of  ground  packages  sold  between  periods.  In 1996,
Ambassadair  sold 2.4% more ground  packages,  and ATA Vacations sold 21.8% more
ground  packages,  than in 1995. The average cost of each ground package sold by
Ambassadair  increased  19.9%  between  years,  while the average  price of each
ground package sold by ATA Vacations decreased by 12.6% between periods.

Ground package cost per ASM increased by 7.7% to 0.14 cents in 1996, as compared
to 0.13 cents in 1995, which reflects the comparatively  faster growth in ground
package  sales  produced by  Ambassadair  and ATA  Vacations  as compared to the
overall ASM growth of the Company between years.

Other Selling Expenses. Other selling expenses are comprised of (i) booking fees
paid to the CRSs to reserve single-seat sales for scheduled service; (ii) credit
card discount expenses incurred when selling single seats and ground packages to
customers  using credit cards for  payment;  (iii) costs of providing  toll-free
telephone services,  primarily to single-seat and vacation package customers who
contact the Company directly to book reservations;  and (iv) miscellaneous other
selling  expenses that are primarily  associated with single-seat  sales.  Other
selling expenses  increased 18.1% to $17.6 million in 1996, as compared to $14.9
million in 1995. Approximately $1.1 million and $0.3 million,  respectively,  of
this  increase  was  attributable  to more  credit card  discounts  and CRS fees
incurred to support the growth in scheduled service between years.  Another $1.2
million of the increase was due to higher usage of toll-free  telephone  service
between  periods,  some of  which  was  associated  with  the  accommodation of
passengers  onto other  carriers'  flights  due to  the  Company's  reduction of
scheduled service in the third and fourth quarters of 1996.

Other selling cost per ASM increased  8.3% to 0.13 cents in 1996, as compared to
0.12 cents in 1995.

Advertising.  Advertising  expense  increased 15.7% to $10.3 million in 1996, as
compared to $8.9 million in 1995. The Company incurs advertising costs primarily
to support single-seat  scheduled service sales and the sale of ground packages.
Advertising  support for this line of  business  increased  consistent  with the
growth in associated  revenues and the need to meet  competitive  actions in the
Company's markets.

The cost  per ASM of  advertising  increased  14.3%  to 0.08  cents in 1996,  as
compared to 0.07 cents in 1995.

Facilities and Other Rentals. Facilities and other rentals includes the costs of
all ground  facilities  that are leased by the  Company  such as airport  space,
regional  sales offices and general  offices.  The cost of facilities  and other
rentals  increased 29.7% to $9.6 million in 1996, as compared to $7.4 million in
1995.

The  increase  in  expense  noted  for 1996 was  partly  attributable  to higher
facility  costs  resulting  from the  Company  becoming a  signatory  carrier at
Orlando  International  Airport,  together  with a  year-over-year  increase  in
facility  costs for Boston  operations  prior to the  elimination  of  scheduled
service at Boston in the fourth quarter of 1996. The increased facility costs at
Orlando  International  Airport have  associated  savings in lower  handling and
landing fees for the Company's flights at Orlando International Airport.

Also in 1996, the Company  incurred  facility rental expense in association with
the  late  1995  sale/leaseback  of  the  Indianapolis  hangar  to the  City  of
Indianapolis,  for the  Chicago-Midway  Hangar  No.  2 and  for the new  Chicago
Reservations facility, which was first occupied in September 1995.

The cost per ASM for facility and other rents increased 16.7% to 0.07 cents in
1996, as compared to 0.06 cents in 1995.

Disposal of Assets. During the third quarter of 1996, the Company committed to a
plan to dispose of up to seven Boeing 757-200  aircraft.  A Letter of Intent was
signed  with a major  lessor on July 29,  which  included  the  cancellation  of
operating leases on five aircraft and the return of those aircraft to the lessor
before the end of 1996.  Negotiations  also commenced with a major lessor during
the third quarter for the  cancellation  of operating  leases on two  additional
aircraft in 1996.

During the third quarter, the Company recorded a loss on disposal of the initial
five aircraft according to the terms and conditions negotiated and agreed in the
Letter of Intent. An estimate of the expected loss on disposal of the additional
two aircraft was also recorded in the third quarter,  although a specific Letter
of Intent had not yet been  signed.  The total loss on disposal  recorded in the
third quarter was $4.7 million for all  aircraft.  These  aircraft  transactions
were  all  completed  during  the  fourth  quarter  of 1996,  at which  time the
estimated loss on disposal was reduced by $0.2 million to an actual loss of $4.5
million.

The source of the loss on the termination of these aircraft leases was primarily
from the write-off of the unused net book value of the  associated  airframe and
engine  overhauls.  For  several  aircraft,  the  Company  was  required to meet
additional  maintenance return conditions associated with airframes and engines,
the  cost of which  was  charged  to the  loss on  disposal.  These  costs  were
partially  offset  by  cash  proceeds  received  from  the  lessor  and  by  the
application  of associated  deferred  aircraft  rent credits and  manufacturers'
credits.

In addition to these costs, the Company owns four spare Pratt & Whitney engines,
together with consumable, repairable and rotable components that are specific to
the Pratt-&-Whitney-powered Boeing 757-200s. The net book value of these engines
and parts  approximates  $14.1  million as of December 31, 1996.  The Company is
actively seeking to sell these assets and has therefore  reclassified  their net
book value as Assets  Held For Sale  under  current  assets in the  accompanying
balance sheet.

Other  Expenses.  Other operating  expenses  increased 15.2% to $53.8 million in
1996,  as  compared  to $46.7  million in 1995.  Significant  components  of the
year-over-year  variances include increases in substitute  service and passenger
reprotection  costs,  professional fees, data  communications  costs,  insurance
costs and consulting  fees in connection  with the detailed route  profitability
study.

Other  operating  cost per ASM increased 8.1% to 0.40 cents in 1996, as compared
to 0.37 cents in 1995.


Income Tax Expense

In 1996, the Company recorded  ($12.9) million in tax credits  applicable to the
loss before income taxes for that year, while income tax expense of $6.1 million
was  recognized  pertaining to income  before taxes for 1995.  The effective tax
rate applicable to tax credits in 1996 was 32.6%, and the effective tax rate for
income earned in 1995 was 41.8%.  The Company's  effective  income tax rates are
unfavorably affected by the permanent  non-deductibility  from taxable income of
50% of crew per diem  expenses  incurred  in both  years.  The  impact  of these
permanent  differences on effective tax rates becomes more pronounced as taxable
income declines or losses increase.



<PAGE>



Year Ended December 31, 1995, Versus Year Ended December 31, 1994

Operating Revenues

Total operating revenues for 1995 increased $134.5 million,  or 23.2%, to $715.0
million.  This  increase  from  1994 was due to a  $121.3  million  increase  in
scheduled service revenues, a $11.2 million increase in charter revenues, a $0.2
million  increase in ground  package sales and a $1.8 million  increase in other
revenues.

Operating  revenues  for 1995 were 5.71 cents per ASM,  an increase of 2.7% from
1994 revenues of 5.56 cents per ASM.

Scheduled  Service  Revenues.  Scheduled  service revenues  increased 50.4% from
$240.7  million in 1994 to $362.0 million in 1995. The majority of this increase
was due to strong  scheduled  service traffic growth between  periods,  together
with an improvement in scheduled service yield.

Scheduled  service RPMs  increased  46.9% in 1995 compared to 1994 on a capacity
increase of 39.5% in ASMs between years, resulting in an improved passenger load
factor  of 70.8% in 1995 as  compared  to  67.2%  in  1994.  Passengers  boarded
increased  47.3% from 2.24  million in 1994 to 3.30  million in 1995.  Scheduled
service  departures  increased  39.4% from 19,800 in 1994 to 27,600 in 1995. The
Company increased  scheduled service traffic from Indianapolis,  Chicago-Midway,
Milwaukee  and Boston to  Florida,  Las Vegas,  Hawaii  and  selected  Caribbean
destinations.  Scheduled  service flown in 1995 from St. Louis and Boston had no
comparable  service in 1994. The Company ceased scheduled service  operations in
St. Louis in August 1995, but continues to serve important  charter markets from
St. Louis.

Scheduled service yield in 1995 was 7.75 cents per RPM, an increase of 2.4% over
the 1994 scheduled  service yield of 7.57 cents per RPM. This yield  improvement
was  achieved  gradually  throughout  1995  as the  result  of  several  revenue
enhancement initiatives. During the first quarter of 1995, the Company installed
a yield  management  system which allowed for the  introduction of multiple fare
levels for various  classes of the  Company's  inventory  of  scheduled  service
seats.   These  yield   management   procedures  were  applied  with  increasing
effectiveness  through the final three  quarters of 1995.  Whereas first quarter
1995 yields were 15.2% lower than the first quarter of 1994, second quarter 1995
yields were 4.8%  higher than the second  quarter of 1994;  third  quarter  1995
yields were 10.0% higher than the third quarter of 1994; and fourth quarter 1995
yields were 9.7% higher than the fourth quarter of 1994.

In the third quarter of 1994, the Company  increased its level of  participation
and  effectiveness of schedule display in several  important CRSs used by travel
agencies.  In May 1995,  the  Company  also  introduced  connecting  fares which
offered new displays of  multiple-city  pairs for sale in CRS systems  which had
previously not been offered against competing  carriers serving those connecting
markets.

Charter Revenues. Charter revenues increased 3.8% from $295.9 million in 1994 to
$307.1 million in 1995.  The Company's  charter  revenues are derived  primarily
from  independent  tour  operators  and from the  United  States  military.  The
Company's charter product provides  full-service air  transportation to hundreds
of customer-designated destinations throughout the world.

Charter revenues  derived from  independent tour operators  increased 13.3% from
$196.1 million in 1994 to $222.2 million in 1995. Most of this revenue  increase
was derived from  stronger  tour  operator  traffic  between  years,  while tour
operator  yield  improved 0.8% from 6.21 cents per RPM in 1994 to 6.26 cents per
RPM in 1995.  Tour  operator RPMs  increased  12.0% from 3.17 billion in 1994 to
3.55 billion in 1995,  while ASMs  increased  11.0% from 4.01 billion in 1994 to
4.45 billion in 1995, resulting in an improved passenger load factor of 79.8% in
1995 as compared to 79.1% in the prior year.  Passengers  boarded increased 7.0%
from 1.72 million in 1994 to 1.84 million in 1995,  while  departures  increased
9.7% from 10,300 in 1994 to 11,300 in 1995.  Tour operator  departures  for both
1994 and 1995 served numerous U.S. leisure destinations, together with cities in
Europe, Mexico, South America and Asia.

Charter  revenues  derived  from the U.S.  military  decreased  15.6% from $91.8
million in 1994 to $77.5 million in 1995.  Military  revenues  were  unfavorably
impacted by declines in both traffic and yield  between  periods.  Military RPMs
declined  9.9% from 0.71  billion in 1994 to 0.64  billion  in 1995,  while ASMs
decreased 12.1% from 1.57 billion in 1994 to 1.38 billion in 1995,  resulting in
an improved  passenger  load factor of 46.4% in 1995 as compared to 45.2% in the
prior year. Passengers boarded decreased 13.0% from 0.23 million in 1994 to 0.20
million in 1995, while departures  declined 14.0% from 4,300 in 1994 to 3,700 in
1995.

The Company and other competing air carriers are  compensated for U.S.  military
flying based upon reimbursement rates set by the United States government. These
reimbursement  rates have  generally  declined  over the last  several  contract
years,  resulting in lower yields for this business  segment.  Military yield in
1995  declined 6.1% to 12.11 cents per RPM as compared to 12.89 cents per RPM in
1994.  Although the Company's military yields are comparatively  higher than for
tour operators and scheduled service business segments,  military passenger load
factors  are  comparatively  much lower,  and the Company can incur  substantial
non-recurring costs to accommodate military flying which often becomes available
on short notice.  The  Company's  reduction of military ASMs in 1995 was largely
the result of decisions to deploy the Company's aircraft into selected scheduled
service  and tour  operator  markets,  where  the  Company  believes  that  more
repetitive  frequencies and more predictable  revenues and costs can be achieved
in the long term.

Ground  Package  Revenues.  Ground  package  revenues  increased 1.0% from $20.2
million in 1994 to $20.4 million in 1995. Ground packages, such as hotel and car
rentals,  are sold in conjunction with the Company's air transportation  product
to  Ambassadair  Travel  Club  members  and to the  general  public  through ATA
Vacations, Inc., its tour operator subsidiary.

Other  Revenues.  Other  revenues  increased  7.6% from $23.7 million in 1994 to
$25.5  million in 1995.  Significant  components  of the change in other revenue
between 1994 and 1995 include a $2.1 million  reduction in revenues derived from
subcontracting the Company's  aircraft to fly short-term  substitute service for
other airlines; a $1.0 million increase in administrative ticketing fees charged
to scheduled service  passengers;  a $0.7 million increase from the onboard sale
of liquor and  headsets;  a $0.6  million  increase  in cargo  revenues;  a $0.5
million  increase  from  the sale of trip  protection  insurance  to  passengers
purchasing tour packages;  a $0.5 million increase in commissions earned for the
sale of car rentals; and a $0.4 million increase in excess baggage fees.


Operating Expenses

Total operating  expenses  increased 21.8% from $572.1 million in 1994 to $697.1
million in 1995.  Operating  expense increases were principally due to increases
in scheduled  service  capacity,  traffic and passengers  boarded  between years
which affected most expense categories.

Operating  cost per ASM increased  1.5% from 5.48 cents in 1994 to 5.56 cents in
1995.  This  increase  in  cost  per  ASM  generally   reflects  growth  in  the
distribution  costs of single-seat sales (such as travel agency  commissions and
CRS fees),  salaries and benefits,  fuel and oil, aircraft handling and facility
rents,  partially offset by reductions in the cost per ASM of aircraft  rentals,
passenger service, ground package cost, and other operating expenses.  There was
no change in cost per ASM between years for aircraft  maintenance  materials and
repairs, crew and other employee travel, and advertising.


<PAGE>



Salaries,  Wages and Benefits.  This expense increased 24.0% from $113.8 million
in 1994 to $141.1  million in 1995.  The majority of the increase was due to the
addition of new  employees  (primarily  cockpit and cabin  crew,  base  station,
maintenance and reservations  staff) to support the growth in scheduled  service
and the addition of new aircraft to the Company's  fleet.  The Company  recorded
additional  vacation  accrual  costs of $1.4  million in 1995 to  recognize  the
phased  implementation  of a new vacation policy which became applicable to most
employees during 1995. The Company also recorded variable  compensation costs in
association  with higher 1995  profits  which were not  incurred in 1994.  These
additional 1995 benefit and compensation costs contributed to a 3.7% increase in
the cost per ASM from 1.09 cents in 1994 to 1.13 cents in 1995.

The Company implemented a collective bargaining agreement with flight attendants
in December  1994,  at which time this employee  group  received a base pay rate
increase of  approximately  5%,  together with some  adjustments to variable pay
factors.  In December  1995,  the Company  reached a  tentative  agreement  with
cockpit  crews on a  collective  bargaining  agreement  covering  that  group of
employees.  In February of 1996, the Company was notified that the cockpit crews
had  failed  to  ratify  the  tentative  agreement.  A new  tentative  four-year
collective  bargaining  agreement  was reached with  cockpit  crews on August 6,
1996,  which was  subsequently  ratified  by the  International  Brotherhood  of
Teamsters membership on September 23, 1996.

Fuel and Oil. The cost of fuel and oil  increased  22.1% from $106.1  million in
1994 to $129.6  million in 1995.  Although  the average  price paid for fuel was
slightly higher in 1995, this  unfavorable  price effect was partially offset by
the fact that a larger  proportion  of the block hours in 1995 were flown by the
more fuel-efficient Boeing 757-200 fleet.

Total block hours flown  increased  21.8% from 103,700  hours in 1994 to 126,300
hours in 1995. The Company's  Boeing 757-200 fleet  accounted for 27.8% of block
hours in 1995, as compared to 24.0% in 1994. The less fuel-  efficient  Lockheed
L-1011 fleet  accounted  for 28.1% of 1995 block hours,  as compared to 30.8% in
1994.  Block  hours  for the  Boeing  727-200  fleet  were  also  lower in 1995,
accounting for 44.1% of block hours as compared to 45.2% in 1994.

Effective  October 1, 1995, the Company became subject to a 4.3  cent-per-gallon
excise tax on jet fuel consumed for domestic use by commercial air carriers. The
effect of this tax in the fourth  quarter of 1995 was to increase the  Company's
cost of fuel subject to this tax by  approximately  6%, which added $1.6 million
to total fuel and oil expense in the fourth quarter of 1995. The fuel tax caused
the  Company's  1995 cost per ASM for fuel and oil to  increase  by 1.0% to 1.03
cents from 1.02 cents in 1994.

Handling,  Landing and Navigation  Fees.  Handling,  landing and navigation fees
increased  22.2% from $60.9  million in 1994 to $74.4  million in 1995.  Most of
this  increase  was  attributable  to a 23.3%  increase  in the total  number of
departures between years, from 34,700 in 1994 to 42,800 in 1995.

The  average  cost per  departure  declined  1.0% in 1995 as  compared  to 1994.
Because  each  airport  served by the Company  has a different  schedule of fees
(including  variable prices for different  aircraft  types),  average  departure
costs are a function of the mix of airports served and the fleet  composition of
departing aircraft.  On average,  operations to international  airports are more
expensive per departure than for U.S. domestic  airports.  In 1995, the share of
the Company's  departures which operated from  international  airports  declined
from 22.5% to 20.4% because the Company's growth in 1995 was concentrated mostly
in domestic scheduled service markets.

The cost per ASM for handling,  landing and air  navigation  fees increased 1.7%
from 0.58 cents in 1994 to 0.59 cents in 1995.  This  increase  resulted  from a
small decline in the average  number of ASMs per departure  between years and is
indicative of the growing  proportion  of departures  which employ the Company's
smaller-capacity  Boeing  727-200 and Boeing  757-200  aircraft  rather than the
larger  Lockheed  L-1011  wide-body.  In 1995, the percentage of departures made
with narrow-body aircraft increased to 77.6%, as compared to 75.0% in 1994.

Aircraft Rentals.  Aircraft rental expense increased 15.6% from $48.2 million in
1994 to $55.7 million in 1995.  This increase in expense was due to the addition
of leased Lockheed  L-1011,  Boeing 757-200 and Boeing 727-200 aircraft into the
Company's fleet during 1995,  offset partially by reduced lease costs on certain
Boeing 757-200  aircraft under terms of operating  leases  renegotiated  in late
1994, and by the purchase of four previously leased Pratt & Whitney engines.

Aircraft  rental  cost per ASM  decreased  4.3% from 0.46  cents in 1994 to 0.44
cents in 1995. The year-over-year benefit realized from Boeing 757-200 operating
lease  renegotiations in late 1994 was a significant factor in this change since
the ownership  costs of each Boeing 757-200  aircraft are  comparatively  higher
than for the Company's other fleet types.

Depreciation and  Amortization.  Depreciation and amortization expense increased
20.8% from $46.2 million in 1994 to $55.8 million in 1995.  The cost per ASM
increased 2.3% from 0.44 cents in 1994 to 0.45 cents in 1995.

Depreciation expense increased approximately $5.0 million in 1995 as compared to
1994  due to the  addition  of one  Lockheed  L-1011  and four  Pratt &  Whitney
engines,  together with the purchase of other property,  furniture and equipment
to support the Company's growth in operations.

Amortization of airframe and engine overhauls  increased $4.6 million in 1995 as
compared to 1994, net of $3.3 million in overhaul  credits earned by the Company
under an engine  purchase  agreement with  Rolls-Royce  Commercial  Aero Engines
Limited.  The  increasing  cost of  amortization  expense  reflects  the  recent
increase in the number of aircraft  added to the Company's  fleet.  New aircraft
introduced into the fleet generally do not require  airframe or engine overhauls
until as many as 12 or more months  after  first  entering  service.  Therefore,
resulting  amortization of these overhauls  generally  occurs on a delayed basis
from the date the aircraft is placed into service.

Aircraft Maintenance,  Materials and Repairs. The cost of maintenance, materials
and repairs increased 20.2% from $46.1 million in 1994 to $55.4 million in 1995.
The cost per ASM remained unchanged at 0.44 cents for both 1995 and 1994.

The cost of the Company's  maintenance,  materials and repairs increased in 1995
at  approximately  the same rate as the 19.9% increase in ASMs between years and
slightly  slower than the 21.8%  increase  in block  hours.  The more  favorable
comparison  to block hours  between  years is indicative of the faster growth in
the twin-engine  Boeing 757-200 fleet,  which is also composed of newer and more
technologically   advanced  aircraft  which  require   relatively  less  routine
maintenance  than the Company's  older  three-engine  Lockheed L-1011 and Boeing
727-200  fleets.  The Boeing 757-200 fleet accounted for 27.8% of block hours in
1995, as compared to 24.0% in 1994.

All of the  Company's  aircraft  under  operating  leases  have  certain  return
conditions  applicable to the maintenance  status of airframes and engines as of
the termination of the lease.  The Company accrues  estimated  return  condition
costs as a component of  maintenance,  materials and repairs  expense based upon
the actual condition of the aircraft as each lease  termination date approaches.
Return  condition  expenses accrued in 1995 were $1.0 million less than in 1994,
primarily  due to a change in return  conditions  negotiated  on certain  Boeing
757-200 aircraft leases in late 1994.

Crew and  Other  Employee  Travel.  The cost of crew and other  employee  travel
increased  20.2% from $26.2 million in 1994 to $31.5  million in 1995.  The cost
per ASM remained unchanged at 0.25 cents for both years.

Passenger Service. The most significant portion of this cost is catering,  which
represented 84.9% and 85.8%, respectively, of total passenger service expense in
1995 and 1994.

The cost of  passenger  service  increased  16.8% from $29.8  million in 1994 to
$34.8 million in 1995.  This increase was primarily due to the 26.7% increase in
the total number of passengers boarded from 4.24 million in 1994 to 5.37 million
in 1995. The cost of passenger  service increased less rapidly than the increase
in passengers  boarded due to a reduction in catering  service  levels in select
charter and scheduled  service  markets  beginning late in the second quarter of
1995. In addition to this planned reduction in catering,  the 13.0% reduction in
military  passengers  boarded  between  years also  reduced the average  cost of
catering since  military  catering is one of the most expensive per passenger in
the Company's business mix.

The cost per ASM of passenger  service  declined 3.6% from 0.29 cents in 1994 to
0.28 cents in 1995. This reduction was primarily due to reduced  catering costs,
as the cost per ASM of the total of other  components  of passenger  service did
not change materially between years.

Commissions.  Commissions  expense increased 41.7% from $17.5 million in 1994 to
$24.8 million in 1995. The cost of commissions per ASM increased 17.6% from 0.17
cents in 1994 to 0.20 cents in 1995.

Scheduled service  commissions expense accounted for all of the increase in this
cost in 1995, which was consistent with the significant growth in commissionable
scheduled  service sold by travel agencies.  The average rate of commission paid
to travel  agencies  declined  slightly  between years due to the elimination of
selected  sales  incentives.  The average  percentage of revenues sold by travel
agencies  increased  between years due to the Company's  implementation  of full
participation  in several  CRSs in the third  quarter of 1994 and because of the
introduction  of  connecting  fares in the second  quarter of 1995 which offered
significantly expanded ATA schedule choices to travel agencies.

Commissions  paid for military  flying were reduced in 1995 due to the reduction
in  military  departures  between  years.  Commissions  paid for  tour  operator
departures also declined slightly between years.

Ground  Package Cost.  Ground  package cost for 1995  increased  7.4% from $14.8
million in 1994 to $15.9  million in 1995.  The cost per ASM declined  7.1% from
0.14  cents in 1994 to 0.13  cents in 1995.  The cost per ASM  declined  between
years due to the slower  growth in ground  package  sales as compared to overall
growth  in the  Company's  capacity  as  measured  by ASMs.  The cost of  ground
accommodations sold to Ambassadair and ATA Vacations customers increased in some
markets in 1995,  resulting in slightly  lower gross margins in 1995 as compared
to 1994.

Other Selling Expenses.  Other selling expenses are comprised  primarily of fees
paid to CRS and the cost of inbound  reservations  lines provided for the use of
the Company's  customers.  These costs increased 86.3% from $8.0 million in 1994
to $14.9  million in 1995 and were  generally  incurred  to support  the sale of
scheduled  services.  Other selling cost per ASM increased 50.0% from 0.08 cents
in 1994 to 0.12 cents in 1995.  Scheduled service  passengers  boarded increased
47.3% from 2.24 million to 3.30 million over the same comparative period,  while
scheduled service ASMs increased 39.5% from 4.73 billion to 6.60 billion between
years.

The Company  participates in SABRE as a multi-host user and is also displayed in
Galileo,  Worldspan  and System  One.  These  CRSs,  which  display  competitive
schedules and fares for all  participating  airlines,  offer different levels of
services  at  different  transaction  costs.  In order to expand  the  Company's
visibility  of  schedules  and fares with travel  agencies,  the  Company's  CRS
service  levels were  increased in all of these systems  effective in July 1994,
resulting  in  a  significant  increase  in  billable  transactions  and  higher
transaction rates. Although the Company believes that CRS participation has been
essential to rapid  development of name  recognition  and sales in the Company's
new markets,  more economic scheduled service distribution  alternatives to CRSs
are now being evaluated.

Advertising.  Advertising  expense for 1995 increased 14.1% from $7.8 million in
1994 to $8.9 million in 1995. The cost per ASM remained  unchanged between years
at 0.07  cents.  The  Company  incurs  advertising  costs  primarily  to support
scheduled service sales. Scheduled service ASMs increased 39.5% in 1995 compared
to 1994,  and the cost of advertising  per scheduled  service ASM declined 18.8%
from 0.16 cents in 1994 to 0.13 cents in 1995.

Facilities and Other Rentals.  The cost of facilities and other rents  increased
34.5%  from  $5.5  million  in 1994 to $7.4  million  in 1995.  The cost per ASM
increased  20.0% from 0.05 cents in 1994 to 0.06 cents in 1995. The  significant
portion of growth in  facilities  leasing has  originated  from the expansion of
scheduled services,  which has required the Company to add new leased facilities
at airport locations to accommodate the space needs of airport passenger service
and maintenance  staff.  The rate of increase in facilities  costs between years
(34.5%) has been  slightly  lower than the 39.5% rate of  increase in  scheduled
service ASMs since the utilization of the Company's facilities has improved with
expanded scheduled service frequencies at certain airports.

Other  Expenses.  Other expenses  increased  12.5% from $41.5 million in 1994 to
$46.7 million in 1995.  The cost per ASM for other  expenses  declined 8.1% from
0.40 cents in 1994 to 0.37 cents in 1995. Significant components of the increase
of $6.6  million  in other  expenses  between  years  include:  $2.0  million in
additional  general,  hull and liability  insurance expense  associated with the
Company's expanded size and flying activity; $1.5 million in additional property
and sales taxes  assessed on the Company's  expanding  asset base and purchasing
activity;  and $1.5 million in  additional  communications  costs related to the
Company's data network infrastructure for worldwide airport operations. In 1995,
the Company  recognized a gain of $1.3 million on a transaction with the City of
Indianapolis  involving  the  Company's  headquarters  facility.  There  was  no
comparable gain recognized in 1994.


Income Tax Expense

Income tax expense increased 154.2% from $2.4 million in 1994 to $6.1 million in
1995.  The  effective  income  tax rates were 41.8% and 40.7% for 1995 and 1994,
respectively.  Income tax expense  increased in close  proportion  to the 149.2%
increase  in taxable  income  between  years.  The  effective  tax rate for 1994
included a more significant  negative impact from  non-deductible  crew per diem
expense than did 1995. However, this effect was more than offset by the 1994 tax
benefit  of  adjustments  in state tax rates and other tax  reserve  adjustments
recognized in that year.


Liquidity and Capital Resources

Cash Flow. The Company has historically financed its working capital and capital
expenditure requirements from cash flow from operations and long-term borrowings
from banks and other  lenders.  For 1996,  1995 and 1994,  net cash  provided by
operating  activities  was $32.2  million,  $87.1  million,  and $75.3  million,
respectively.

Net cash used in investing  activities  was $63.2 million,  $44.0  million,  and
$80.4 million,  respectively,  for 1996, 1995 and 1994.  Such amounts  primarily
reflected  cash  capital  expenditures  totaling  $69.9  million in 1996,  $57.8
million  in 1995,  and $81.0  million  in 1994 for  engine  overhauls,  airframe
improvements  and the purchase of airframes,  engines and rotable  parts.  These
capital expenditures were supplemented with other capital expenditures, financed
directly with debt, totaling $31.7 million and $15.9 million,  respectively,  in
1995 and 1994.

Net cash provided by (used in) financing activities was $11.6 million,  ($12.1)
million, and $21.8 million, respectively, for 1996, 1995 and 1994.

Aircraft and Fleet  Adjustments.  In September 1994, the Company entered into an
agreement to lease four  additional  Lockheed L-1011 aircraft and two new Boeing
757-200  aircraft.  One Lockheed  L-1011 was delivered in November 1994, and the
remaining  Lockheed L-1011 aircraft were delivered  during the second quarter of
1995. The Company  purchased one of the three Lockheed  L-1011s it was obligated
to lease during the second  quarter of 1995. The Company  completed  delivery of
one Boeing  757-200 in the fourth  quarter  of 1994,  and the  remaining  Boeing
757-200 was delivered in October, 1995.

In November  1994,  the Company  signed a purchase  agreement for six new Boeing
757-200s which, as subsequently  amended,  provides for aircraft to be delivered
between 1995 and 1998. In conjunction  with the Boeing purchase  agreement,  the
Company  entered into a separate  agreement  with  Rolls-Royce  Commercial  Aero
Engines Limited for thirteen RB211-535E4 engines to power the six Boeing 757-200
aircraft and to provide one spare engine. Under the Rolls-Royce agreement, which
became effective  January 1, 1995,  Rolls-Royce has provided the Company various
spare parts credits and engine overhaul cost guarantees. If the Company does not
take  delivery of the engines,  the credits and cost  guarantees  that have been
used are required to be refunded to  Rolls-Royce.  The aggregate  purchase price
under these two agreements is approximately $50.0 million per aircraft,  subject
to escalation.  The Company accepted  delivery of the first aircraft under these
agreements in September  1995,  and the second  aircraft in December  1995.  The
Company  accepted  delivery  of  the  third  and  fourth  aircraft  under  these
agreements in November and December 1996.  All four  deliveries in 1995 and 1996
were  financed  under leases  accounted for as operating  leases.  The final two
deliveries  under this  agreement are scheduled for the fourth  quarters of 1997
and 1998.  Advance payments and interest  totaling  approximately  $22.0 million
($11.0 million per aircraft) are required prior to delivery of the two remaining
aircraft,  with the remaining purchase price payable at delivery. As of December
31, 1996,  1995 and 1994, the Company had made $2.7 million,  $5.0 million,  and
$10.8  million,  respectively,  in advance  payments and interest  applicable to
aircraft  scheduled for future  delivery.  The Company intends to finance future
deliveries under this agreement through  sale/leaseback  transactions  accounted
for as operating leases.

In the fourth  quarter of 1995,  the Company  purchased  one Boeing  727-200 and
financed that aircraft  through a  sale/leaseback  accounted for as an operating
lease.  In the first  quarter of 1996,  the Company  purchased  four  additional
Boeing  727-200  aircraft,   financing  all  of  these  through  sale/leasebacks
accounted  for as operating  leases by the end of the third  quarter of 1996. In
the  second  quarter of 1996,  the  Company  purchased  a sixth  Boeing  727-200
aircraft  which had been  previously  financed  by the  Company  through a lease
accounted  for as an operating  lease.  This  aircraft  was  financed  through a
separate  bridge debt  facility as of December 31,  1996,  but is expected to be
financed long term through a sale/leaseback transaction.

In October  1995,  the  Company  entered  into an  agreement  with a supplier to
provide  for the  purchase  of  hushkits  for  installation  on  Boeing  727-200
aircraft.  All six Boeing 727-200 aircraft acquired during the fourth quarter of
1995 and the first two quarters of 1996 had hushkits installed,  and the Company
installed  hushkits  on  two  other  existing  Boeing  727-200  aircraft  in the
Company's  fleet  by the end of  1996.  These  narrow-body  hushkitted  aircraft
maintain the Company's  compliance with Federal Stage 3 noise  requirements  for
the fleet as of December  31, 1996.  The cost of these  hushkits was included in
the basis of each modified  Boeing  727-200 as these aircraft were financed long
term through sale/leaseback transactions.

On July 29,  1996,  the  Company  entered  into a letter of intent  with a major
lessor to cancel several Boeing 757-200 and Lockheed L-1011  operating  aircraft
leases  then in effect.  Under the terms of the letter of  intent,  the  Company
canceled  leases on five  Boeing  757-200  aircraft  powered  by Pratt & Whitney
engines  and  returned  these  aircraft  to the  lessor by the end of 1996.  The
Company was required to meet certain return  conditions  associated with several
aircraft,  such  as  providing  maintenance  checks  to  airframes.  The  lessor
reimbursed the Company for certain leasehold  improvements made to some aircraft
and  credited  the  Company  for certain  prepayments  made in earlier  years to
satisfy  qualified  maintenance  expenditures  for several  aircraft  over their
original  lease terms.  The  cancellation  of these leases reduced the Company's
fleet of Pratt-&-Whitney-powered Boeing 757-200 aircraft from seven to two units
as of the end of 1996. The Company also agreed to terminate  existing  operating
leases  on  three  Lockheed  L-1011  aircraft,  and to  purchase  the  airframes
pertaining to these  aircraft  while signing a new lease  covering only the nine
related  engines;  the Lockheed L-1011  transaction was not completed before the
end of 1996. In association with this letter of intent,  the lessor provided the
Company with approximately $6.4 million in additional  unsecured financing for a
term of seven years.  This  transaction  accounted  for $2.3 million of the $4.7
million  loss on disposal of assets  recorded in the third  quarter of 1996 (see
"Disposal of Assets").

The Company  also  agreed to purchase  one  Rolls-Royce-powered  Boeing  757-200
aircraft  from the same  lessor  in the  fourth  quarter  of 1996.  This was not
completed  and the  aircraft  was  acquired  through the lessor on a  short-term
rental agreement.  The acquisition of this aircraft,  together with the delivery
of two new Rolls-Royce-powered  Boeing 757-200 aircraft from the manufacturer in
the   fourth   quarter   of   1996,   and   the   return   of   the   last   two
Pratt-&-Whitney-powered Boeing 757-200 aircraft discussed in the next paragraph,
reduced the Company's Rolls-Royce-powered Boeing 757-200 fleet to seven units as
of the end of 1996.

In September 1996, the Company began  negotiations with a major lessor to cancel
existing operating leases on the Company's remaining two Pratt-&-Whitney-powered
Boeing 757-200  aircraft.  These aircraft were returned to the lessor by the end
of 1996. This transaction accounted for $2.4 million of the $4.7 million loss on
disposal of assets provided for in the third quarter of 1996.

Credit  Facilities.  The  Company's  existing  bank credit  facility  provides a
maximum of $125.0 million,  including a $25.0 million letter of credit facility,
subject to the maintenance of certain  collateral  value. The collateral for the
facility   consists  of  certain  owned  Lockheed   L-1011   aircraft,   certain
receivables,  and certain  rotables and spare parts.  At December 31, 1996, 1995
and 1994, the Company had borrowed the maximum  amount then available  under the
bank  credit  facility,  of which  $46.0  million was repaid on January 2, 1997,
$68.0  million  was repaid on January 2, 1996,  and $56.0  million was repaid on
January 3, 1995.

As a result of the Company's need to restructure its scheduled service business,
the Company  renegotiated  certain terms of the bank credit  facility  effective
September 30, 1996.  The new agreement  also modified  certain loan covenants to
take into account the expected  losses in the third and fourth quarters of 1996.
In return for this covenant relief,  the Company agreed to implement  changes to
the  underlying  collateral  for the facility  and to change the interest  rates
applicable to borrowings under the facility.  The Company has pledged additional
owned  engines  and  equipment  as  collateral   for  the  facility  as  of  the
implementation  date of the new  agreement.  The Company  has further  agreed to
reduce  the $63.0  million of  available  credit  secured by the owned  Lockheed
L-1011 fleet by $1.0 million per month from April 1997 through  September  1997,
and by $1.5  million per month from  October  1997  through  April  1999.  Loans
outstanding  under the  renegotiated  facility bear  interest,  at the Company's
option,  at either (i) prime to prime plus 0.75%,  or (ii) the  Eurodollar  rate
plus 1.50% to 2.75%. The facility matures on April 1, 1999, and contains various
covenants  and  events  of  default,  including:   maintenance  of  a  specified
debt-to-equity ratio and a minimum level of net worth;  achievement of a minimum
level of cash flow; and restrictions on aircraft  acquisitions,  liens, loans to
officers,  change of control,  indebtedness,  lease  commitments  and payment of
dividends.

At December 31, 1996, the Company has reclassified  $19.9 million of bank credit
facility borrowings from long-term debt to current maturities of long-term debt.
Of this amount,  $10.5 million is  attributable  to the  scheduled  reduction of
availability  secured by the owned  Lockheed  L-1011  fleet during the 12 months
ending  December 31, 1997. The remaining  $9.4 million  represents the amount of
the spare Pratt & Whitney  engines  which are pledged to the bank  facility  and
which  will be repaid  from the  anticipated  sale.  The net book value of these
spare  engines,  which  approximates  estimated  market value,  is classified as
Assets Held for Sale in the accompanying balance sheet.

The Company also maintains a $5.0 million  revolving  credit facility  available
for its short-term  borrowing  needs and for securing the issuance of letters of
credit.  Borrowings  against this credit  facility bear interest at the lender's
prime rate plus 0.25% per annum.  There were no borrowings against this facility
as of December  31,  1996 or 1995;  however,  the  Company did have  outstanding
letters of credit  secured by this  facility  aggregating  $4.1 million and $2.9
million, respectively.

Stock Repurchase  Program. In February 1994, the Board of Directors approved the
repurchase of up to 250,000 shares of the Company's  common stock.  During 1996,
the Company  repurchased  16,000 shares,  bringing the total number of shares it
has  repurchased  under the  program to 185,000  shares.  The  Company  does not
currently expect to complete this stock repurchase program.

Other Significant Matters

In August 1995, the City of Indianapolis  and the State of Indiana agreed upon a
package of economic incentives to be provided to the Company in exchange for the
Company's  commitment to maintain existing operations in Indiana and to increase
overall  employment  within  the  Company's  Indiana  operations.   The  Company
presently  maintains  in  Indiana  its  corporate  headquarters,  a  significant
maintenance and engineering operation,  and a reservations center, together with
other smaller operational units of the Company.


Forward-Looking Information

Information  contained  within this  "Management's  Discussion  and  Analysis of
Financial  Condition  and  Results  of  Operations"   contains   forward-looking
information  which can be  identified  by  forward-looking  terminology  such as
"believes,"  "expects," "may," "will," "should,"  "anticipates," or the negative
thereof,  or other variations in comparable  terminology.  Such  forward-looking
information is based upon  management's  current  knowledge of factors affecting
the Company's  business.  The differences  between expected  outcomes and actual
results can be material, depending upon the circumstances.  Therefore, where the
Company  expresses  an  expectation  or  belief  as to  future  results  in  any
forward-looking  information,  such  expectation  or belief is expressed in good
faith and is believed to have a reasonable  basis, but there can be no assurance
that the statement of  expectation  or belief will result or will be achieved or
accomplished.

Taking into account the  foregoing,  the Company has  identified  the  following
important  factors that could cause  actual  results to differ  materially  from
those expressed in any forward-looking statement made by the Company:

1. The restructuring of the Company's  scheduled service operations has resulted
in  significant  operating  and net losses for the third and fourth  quarters of
1996 and has imposed higher fixed costs on the traditionally  profitable charter
business segment of the Company. Future actions of the Company's competitors, or
unfavorable future economic conditions,  such as high fuel prices or a sustained
reduction in demand for the Company's services,  could render such restructuring
insufficient to return the Company to sustained profitability.

2. At various times during 1996,  the Company has actively  considered  possible
business  combinations with other air carriers.  The Company intends to continue
to evaluate  such  potential  combinations,  and it is possible that the Company
will enter  into a  transaction  in 1997 that would  result in a merger or other
change in control of the Company.  The Company's  current credit facility may be
accelerated upon such a merger or  consolidation,  in which case there can be no
assurance  that the Company would have  sufficient  liquidity to complete such a
transaction or to secure alternative financing.

3. The Company's  capital  structure  remains  subject to significant  financial
leverage,  which could impair the Company's  ability to obtain new or additional
financing for working capital and capital  expenditures,  and could increase the
Company's vulnerability to a sustained economic downturn.

4. Under the terms of certain financing  agreements,  the Company is required to
maintain compliance with certain specified  covenants,  restrictions,  financial
ratios, and other financial and operating tests. The Company's ability to comply
with any of the foregoing  restrictions and with loan repayment  provisions will
depend upon its future profit and loss performance and financial position, which
will be subject to prevailing economic  conditions and other factors,  including
some factors  entirely  beyond the control of the  Company.  A failure to comply
with any of these  obligations  could result in an event of default under one or
more such financing  agreements,  which could result in the  acceleration of the
repayment of certain of the Company's debt, as well as the possible  termination
of aircraft operating leases. Such an event could result in a materially adverse
effect on the Company's financial position.

5. The Company has significant net operating loss  carryforwards  and investment
and other tax credit  carryforwards which may, depending upon the circumstances,
be available to reduce  future  Federal  income  taxes  payable.  If the Company
undergoes an ownership  change within the meaning of Section 382 of the Internal
Revenue Code, the Company's  potential  future  utilization of its net operating
loss  carryforwards and investment tax credit  carryforwards  could be impaired.
The actual  effect of this  impairment on the Company would depend upon a number
of factors,  including  the  profitability  of the Company and the timing of the
sale of certain  assets,  some of which  factors  are beyond the  control of the
Company.  The impact on the  Company of such a  limitation  could be  materially
adverse under certain circumstances.

6. The vast majority of the Company's  scheduled  service and charter  business,
other than U.S.  military,  is leisure  travel.  Since  leisure  travel is often
discretionary  spending on the part of the  Company's  customers,  the Company's
results of operations  can be adversely  affected by economic  conditions  which
reduce discretionary purchases.

7. The  Company  is  subject  to the risk  that one or more  customers  who have
contracted  with the Company will cancel or default on such  contracts  and that
the Company might be unable in such  circumstances  to obtain other  business to
replace the resulting loss in revenues. The Company's largest single customer is
the U.S. military, which accounted for approximately 11.2% of operating revenues
in 1996. No other single  customer of the Company  accounts for more than 10% of
operating revenues.

8. Over two-thirds of the Company's operating revenues are sold by travel agents
and tour  operators,  who  generally  have a choice of airlines  when  booking a
customer's  travel.  Although  the  Company  intends  to  offer  attractive  and
competitive products to travel agents and tour operators, and further intends to
maintain  favorable  relationships  with them, any significant  actions by large
numbers of travel  agencies or tour  operators  to favor other  airlines,  or to
disfavor the Company, could have a material adverse effect on the Company.

9. The Company has faced intensified  competition in 1996 from other airlines in
many of its scheduled service markets,  including other low-fare  airlines.  The
future  actions of existing and  potential  competitors  in all of the Company's
business  segments,  including  changes in prices and seat  capacity  offered in
individual  markets,  could have a material effect on the profit  performance of
those business segments of the Company.

10. Jet fuel comprises a significant  percentage of the total operating expenses
of the  Company,  accounting  for 20.5% and 18.6%,  respectively,  of  operating
expenses in 1996 and 1995.  Fuel prices are subject to factors  which are beyond
the control of the Company,  such as market  supply and demand  conditions,  and
political or economic  factors.  Although  the Company is able to  contractually
pass  through  some  fuel  price  increases  to the  U.S.  military  and to tour
operators,  a significant  increase in fuel prices could have a material adverse
effect on the Company's operating performance.

11. The Company  believes  that its  relations  with  employee  groups are good.
However,  the existence of a significant labor dispute with any sizable group of
employees could have a material adverse effect on the Company's operations.

12.  The  Company  is  subject  to  regulation  under the  jurisdictions  of the
Department of  Transportation  and the Federal Aviation  Administration,  and by
certain  other   governmental   agencies.   These  agencies  propose  and  issue
regulations  from time to time  which  can  significantly  increase  the cost of
airline  operations.  For  example,  the FAA  has  issued  regulations  imposing
standards  on airlines  for the  limitation  of engine  noise and  standards  to
address aging aircraft maintenance procedures.  The Company could become subject
to new future regulations which could impose new and significant operating costs
on the Company. A modification, suspension or revocation of the Company's DOT or
FAA  authorizations or certificates  could have a material adverse affect on the
Company.


<PAGE>


PART II - Continued





Item 8.        Financial Statements and Supplementary Data


                   REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS





Board of Directors
Amtran, Inc.



We have audited the accompanying consolidated balance sheets of Amtran, Inc. and
subsidiaries  as of  December  31, 1996 and 1995,  and the related  consolidated
statements of  operations,  changes in  shareholders'  equity and cash flows for
each of the three years in the period ended December 31, 1996, as listed in Item
14(a).  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated  financial position of Amtran, Inc. and
subsidiaries  at December  31, 1996 and 1995,  and the  consolidated  results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.






Indianapolis, Indiana
February 7, 1997


<PAGE>



<TABLE>
<CAPTION>
                                            AMTRAN, INC. AND SUBSIDIARIES
                                             CONSOLIDATED BALANCE SHEETS
                                               (Dollars in thousands)
                                                                                December 31,         December 31,

                                                                                 1996                    1995
                                                                            ----------------      --------------------
                                                                            ------------------------------------------
<S>                                                                        <C>                                 <C>
                                ASSETS
Current assets:
     Cash and cash equivalents                                            $          73,382    $               92,741
     Receivables, net of allowance for doubtful accounts
     (1996 - $1,274; 1995 - $1,303)                                                  20,239                    24,158
     Inventories,  net                                                               13,888                    13,959
     Assets held for sale                                                            14,112                         -
     Prepaid expenses and other current assets                                       14,672                    25,239
                                                                        --------------------   -----------------------
Total current assets                                                      $         136,293    $              156,097

Property and equipment:
     Flight equipment                                                               381,186                   384,476
     Facilities and ground equipment                                                 51,874                    40,290
                                                                        --------------------   -----------------------
                                                                                    433,060                   424,766
     Accumulated depreciation                                                     (208,520)                 (183,998)
                                                                        --------------------   -----------------------
                                                                                    224,540                   240,768

Deposits and other assets                                                             9,454                    16,272
                                                                        --------------------   -----------------------

Total assets                                                              $         370,287    $              413,137
                                                                        ====================   =======================

                 LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Current maturities of long-term debt                                 $          30,271    $                3,606
     Accounts payable                                                                13,671                    11,152
     Air traffic liabilities                                                         49,899                    56,531
     Accrued expenses                                                                64,813                    76,312
                                                                        --------------------   -----------------------
Total current liabilities                                                           158,654                   147,601

Long-term debt, less current maturities                                             119,786                   134,641
Deferred income taxes                                                                20,216                    37,949
Other deferred items                                                                 16,887                    11,761

Commitments and contingencies

Shareholders' equity:
     Preferred stock; authorized 10,000,000 shares; none issued                           -                         -
     Common stock, without par value;  authorized 30,000,000 shares;
         issued 11,799,852 - 1996; 11,790,752 - 1995                                 38,341                    38,259
     Treasury stock: 185,000 shares - 1996; 169,000 shares - 1995                   (1,760)                   (1,581)
     Additional paid-in-capital                                                      15,618                    15,821
     Retained earnings                                                                4,678                    31,352
     Deferred compensation - ESOP                                                   (2,133)                   (2,666)
                                                                        --------------------   -----------------------
                                                                                     54,744                    81,185
                                                                        --------------------   -----------------------

Total liabilities and shareholders' equity                                $         370,287    $              413,137
                                                                        ====================   =======================

See accompanying notes.

</TABLE>


<PAGE>

<TABLE>

<CAPTION>
                                        AMTRAN, INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                (Dollars in thousands, except per share data)



                                                                       Year ended December 31,
                                                              1996                1995               1994
                                                        ------------------------------------------------------
Operating revenues:
<S>                                                     <C>                <C>                <C>
   Scheduled service                                    $       386,488    $       361,967    $       240,675
   Charter                                                      310,569            307,091            295,890
   Ground package                                                22,302             20,421             20,248
   Other                                                         31,492             25,530             23,709
                                                        ----------------   ----------------   ----------------
Total operating revenues                                        750,851            715,009            580,522
                                                        ----------------   ----------------   ----------------

Operating expenses:
   Salaries, wages and benefits                                 163,990            141,072            113,789
   Fuel and oil                                                 161,226            129,636            106,057
   Handling, landing and navigation fees                         70,122             74,400             60,872
   Aircraft rentals                                              65,427             55,738             48,155
   Depreciation and amortization                                 61,661             55,827             46,178
   Aircraft maintenance, materials and repairs                   55,175             55,423             46,092
   Crew and other employee travel                                35,855             31,466             26,171
   Passenger service                                             32,745             34,831             29,804
   Commissions                                                   26,677             24,837             17,469
   Ground package cost                                           18,246             15,926             14,767
   Other selling expenses                                        17,563             14,934              8,008
   Advertising                                                   10,320              8,852              7,759
   Facilities and other rentals                                   9,625              7,414              5,500
   Disposal of assets                                             4,475                  -                  -
   Other                                                         53,800             46,717             41,486
                                                        ----------------   ----------------   ----------------
Total operating expenses                                        786,907            697,073            572,107
                                                        ----------------   ----------------   ----------------
Operating income (loss)                                        (36,056)             17,936              8,415

Other income (expense):
  Interest income                                                   617                410                191
  Interest (expense)                                            (4,465)            (4,163)            (3,656)
  Other                                                             323                470                929
                                                        ----------------   ----------------   ----------------
Other expenses                                                  (3,525)            (3,283)            (2,536)
                                                        ----------------   ----------------   ----------------

Income (loss) before income taxes                              (39,581)             14,653              5,879
Income taxes (credits)                                         (12,907)              6,129              2,393
                                                        ----------------   ----------------   ----------------
Net income (loss)                                       $      (26,674)     $        8,524     $        3,486
                                                        ================   ================   ================

Net income (loss) per share                             $        (2.31)     $         0.74     $         0.30
                                                        ================   ================   ================

Average shares outstanding                                   11,535,425         11,481,861         11,616,196

</TABLE>


See accompanying notes.



<PAGE>

<TABLE>



<CAPTION>
                          AMTRAN, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                             (Dollars in thousands)

                                                                           Additional                        Deferred
                                                  Common      Treasury       Paid-in         Retained      Compensation
                                                   Stock         Stock       Capital         Earnings          ESOP
                                              ---------------------------- ------------ --------------  ------------------
<S>                                           <C>           <C>             <C>         <C>             <C>
Balance, December 31, 1993                    $    37,667   $           -   $   16,132  $      19,342   $         (3,200)

     Net income                                         -               -            -          3,486                   -

     Issuance of common stock for ESOP                  -               -         (46)              -                 267

     Restricted stock grants                          274               -         (78)              -                   -

     Purchase of 115,000 shares of  treasury            -         (1,091)            -              -                   -
     stock
                                              ------------  -------------- ------------ --------------  ------------------

Balance, December 31, 1994                         37,941         (1,091)       16,008         22,828             (2,933)

     Net income                                         -               -            -          8,524                   -

     Issuance of common stock for ESOP                  -               -        (111)              -                 267

     Restricted stock grants                          152               -         (19)              -                   -

     Stock options exercised                          166               -         (57)              -                   -

     Purchase of 54,000 shares of  treasury             -           (490)            -              -                   -
     stock
                                              ------------  -------------- ------------ --------------  ------------------

Balance, December 31, 1995                         38,259         (1,581)       15,821         31,352             (2,666)

     Net income                                         -               -            -       (26,674)                   -

     Issuance of common stock for ESOP                  -               -        (173)              -                 533

     Restricted stock grants                           32               -          (7)              -                   -

     Stock options exercised                           50               -         (23)              -                   -

     Purchase of 16,000 shares of  treasury             -           (179)            -              -                   -
     stock
                                              ------------  -------------- ------------ --------------  ------------------

Balance, December 31, 1996                    $    38,341   $     (1,760)   $   15,618  $       4,678   $         (2,133)
                                              ============  ============== ============ ==============  ==================
</TABLE>


See accompanying notes.


<PAGE>


<TABLE>

<CAPTION>
                                            AMTRAN, INC. AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (Dollars in thousands)
                                                                               Year ended December 31,
                                                                      1996                1995                1994
                                                               --------------------------------------------------------
Operating activities:
<S>                                                             <C>                  <C>                 <C>
Net  income (loss)                                              $     (26,674)       $       8,524       $       3,486
Adjustments to reconcile net income (loss)
  to net cash provided by operating activities:
     Depreciation and amortization                                      61,661              55,827              46,178
     Deferred income taxes (credits)                                  (13,246)               4,025               2,226
     Other non-cash items                                               28,185               9,699               2,131
   Changes in operating assets and liabilities:
      Receivables                                                        3,919             (6,768)             (1,728)
      Inventories                                                        (948)               2,739             (3,027)
      Assets held for sale                                            (14,112)                   -                   -
      Prepaid expenses                                                   6,081             (4,061)             (3,572)
      Accounts payable                                                   2,519               (166)             (4,243)
      Air traffic liabilities                                          (6,632)              10,466               1,293
      Accrued expenses                                                 (8,582)               6,793              32,553
                                                               ----------------     ---------------     ---------------
    Net cash provided by operating activities                           32,171              87,078              75,297
                                                               ----------------     ---------------     ---------------

Investing activities:

Proceeds from sales of property and equipment                              529              21,564                 358
Capital expenditures                                                  (69,884)            (57,835)            (81,015)
Reductions of (additions to) other assets                                6,194             (7,761)                 257
                                                               ----------------     ---------------     ---------------
   Net cash used in investing activities                              (63,161)            (44,032)            (80,400)
                                                               ----------------     ---------------     ---------------

Financing activities:

Proceeds from long-term debt                                            21,390               6,000              45,000
Payments on long-term debt                                             (9,580)            (17,567)            (22,078)
Purchase of  treasury  stock                                             (179)               (490)             (1,091)
                                                               ----------------     ---------------     ---------------
   Net cash provided by (used in) financing activities                  11,631            (12,057)              21,831
                                                               ----------------     ---------------     ---------------

Increase (decrease) in cash and cash equivalents                      (19,359)              30,989              16,728
Cash and cash equivalents, beginning of period                          92,741              61,752              45,024
                                                               ----------------     ---------------     ---------------
Cash and cash equivalents, end of period                       $        73,382       $      92,741       $      61,752
                                                               ================     ===============     ===============

Supplemental disclosures:

Cash payments for:
   Interest                                                    $         3,823       $       4,515       $       3,376
   Income taxes                                                            515               1,069                 835

Financing and investing activities not affecting cash:
   Issuance of long-term debt directly for capital             $             -       $      31,708       $      15,851
expenditures
</TABLE>

See accompanying notes.




<PAGE>


================================================================================
Part II - Continued
================================================================================






Notes to Consolidated Financial Statements

1.    Significant Accounting Policies

      Basis of Presentation and Business Description

      The consolidated financial statements include the accounts of Amtran, Inc.
      (the  "Company")  and  its  wholly  owned  subsidiaries.  All  significant
      intercompany accounts and transactions have been eliminated.

      The Company operates  principally in one business segment through American
      Trans Air, Inc.  ("ATA"),  its principal  subsidiary,  which  accounts for
      approximately  95%  of  the  Company's  operating   revenues.   ATA  is  a
      U.S.-certificated air carrier providing domestic and international charter
      and scheduled  passenger  services.  Approximately  51.5% of the Company's
      1996 operating  revenues were generated through scheduled services to such
      destinations  as  Hawaii,  Las Vegas,  Florida  and the  Caribbean,  while
      approximately  41.4% of 1996 operating  revenues were derived from charter
      operations with independent tour operators and U.S.
      military services to numerous destinations throughout the world.

      Use of Estimates

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

      Cash Equivalents

      Cash  equivalents  are  carried  at cost and are  primarily  comprised  of
      investments  in U.S.  Treasury bills and time deposits which are purchased
      with original maturities of three months or less (see Note 2).

      Assets Held For Sale

      Assets  held for  sale  are  carried  at the  lower  of net book  value or
estimated net realizable value.

      Inventories

      Inventories consist primarily of expendable aircraft spare parts, fuel and
      other supplies.  Aircraft parts inventories are stated at cost and reduced
      by an allowance for obsolescence.  The obsolescence  allowance is provided
      by  amortizing  the  cost  of  the  aircraft  parts  inventory,  net of an
      estimated  residual  value,  over its estimated  useful  service life. The
      obsolescence allowance at December 31, 1996 and 1995, was $6.6 million and
      $5.6  million,  respectively.  Inventories  are  charged to  expense  when
      consumed.

      Revenue Recognition

      Revenues are  recognized  when the  transportation  is provided.  Customer
      flight  deposits  and unused  passenger  tickets  sold are included in air
      traffic  liability.  As is  customary  within the  industry,  the  Company
      performs  periodic  evaluations  of  this  estimated  liability,  and  any
      adjustments resulting therefrom, which can be significant, are included in
      the results of  operations  for the periods in which the  evaluations  are
      completed.

      Passenger Traffic Commissions

      Passenger   traffic   commissions  are  recognized  as  expense  when  the
      transportation  is provided  and the related  revenue is  recognized.  The
      amount of passenger  traffic  commissions  paid but not yet  recognized as
      expense is included in prepaid  expenses and other  current  assets in the
      accompanying consolidated balance sheets.


<PAGE>


      Property and Equipment

      Property and equipment is recorded at cost and is  depreciated to residual
      value over its  estimated  useful  service  life  using the  straight-line
      method.  Advanced  payments for future aircraft  purchases are recorded at
      cost.  As of  December  31, 1996 and 1995,  the Company had made  advanced
      payments for future  aircraft  deliveries  totaling  $2.7 million and $4.9
      million,   respectively.  The  estimated  useful  service  lives  for  the
      principal depreciable asset classifications are as follows:

<TABLE>
<CAPTION>


        Asset                                               Estimated Useful Service Life
        --------------------------------------------------- -----------------------------------------------
        Aircraft and related equipment:
<S>                      <C>                                <C>
              Lockheed L-1011                               16 years
        Major rotable parts, avionics and assemblies        Life of equipment to which applicable
                                                            (Generally ranging from 10-16 years)
        Improvements to leased flight equipment             Period of benefit or term of lease
        Other property and equipment                        3 - 7 years

</TABLE>

      The costs of major  airframe  and engine  overhauls  are  capitalized  and
      amortized  over  their  estimated  useful  lives  based  upon usage (or to
      earlier fleet common retirement dates) for both owned and leased aircraft.

      Financial Instruments

      The  carrying   amounts  of  cash   equivalents,   receivables   and  both
      variable-rate and fixed-rate debt (see Note 5) approximate fair value. The
      fair value of fixed-rate debt, including current maturities,  is estimated
      using  discounted  cash  flow  analysis  based  on the  Company's  current
      incremental rates for similar types of borrowing arrangements.

      Income (Loss) Per Share

      Income  (loss) per share is computed by dividing net income  (loss) by the
      weighted  average  number of common shares  outstanding  plus common share
      equivalents  arising from restricted  shares issued during the period.  No
      effect has been given to options outstanding under the Company's incentive
      stock  plans,  as no  material  dilutive  effect  would  result from their
      exercise (see Note 9).

2.    Cash and Cash Equivalents

      Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
                                                                              December 31,
                                                                      1996                     1995
                                                                ------------------ ---- -------------------
                                                                -------------------------------------------
                                                                              (In thousands)
<S>                                                                       <C>                     <C>
        Cash                                                              $18,523                 $ 21,714
        U.S. Treasury bill repurchase agreements                           54,859                   71,027
                                                                ------------------      -------------------
                                                                          $73,382                  $92,741
                                                                ==================      ===================

</TABLE>

<PAGE>




      Cash equivalents of $6.3 million and $6.0 million at December 31, 1996 and
      1995,  respectively,  are  pledged to  collateralize  amounts  which could
      become due under letters of credit.  At December 31, 1996 and 1995,  there
      were no amounts drawn against letters of credit (see Note 4).


3.    Property and Equipment

      The Company's property and equipment consisted of the following:
<TABLE>
<CAPTION>
                                                                               December 31,
                                                                      1996                            1995
                                                                ------------------ ---- -------------------
                                                                              (In thousands)
<S>                                                                      <C>                      <C>
        Flight equipment, including airframes, engines and
        other                                                            $381,186                 $384,476
        Less accumulated depreciation                                     182,392                  163,846
                                                                ------------------      -------------------
                                                                          198,794                  220,630
                                                                ------------------      -------------------

        Facilities and ground equipment                                    51,874                   40,290
        Less accumulated depreciation                                      26,128                   20,152
                                                                ------------------      -------------------
                                                                           25,746                   20,138
                                                                ------------------      -------------------
                                                                         $224,540                 $240,768
                                                                ==================      ===================
</TABLE>

4.    Short-Term Borrowings

      The Company maintains a $5.0 million  revolving credit facility  available
      for its short-term  borrowing needs and for issuance of letters of credit.
      The credit facility is available until June 1997 and is  collateralized by
      certain aircraft engines. Borrowings against the facility bear interest at
      the bank's  prime rate plus .25%.  There were no  borrowings  against this
      credit  facility at December  31, 1996 or 1995.  At December  31, 1996 and
      1995,  the  Company had  outstanding  letters of credit  aggregating  $4.1
      million and $2.9 million, respectively, under such facility.


<PAGE>



5.    Long-Term Debt

      Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                                1996               1995
                                                                             ------------ ---- -------------
                                                                                    (In thousands)
<S>                                                                              <C>               <C>
       Notes payable to banks; prime to prime plus .75% (8.25% and 9% at         $123,246          $112,337
       December 31, 1996), payable in varying installments through April
       1999
       Note payable to institutional lender; fixed rate of 7.8% payable in
       varying installments through September 2003                                  9,106             2,860

       City of Indianapolis Economic Development Revenue Bond;
       9.88%, payable in quarterly installments through July 1997                     875             1,375

       City of Chicago variable rate special facility revenue bonds (4.75%
       at December 31, 1996), payable in December 2020                              6,000             6,000
       Notes payable to banks and institutional lenders                                 -             4,205
       Capitalized lease obligations and other                                     10,830            11,470
                                                                            --------------     -------------
                                                                                  150,057           138,247
       Less current maturities                                                     30,271             3,606
                                                                            --------------     -------------
                                                                                 $119,786          $134,641
                                                                            ==============     =============
</TABLE>


      The Company's 1996 credit  facility  provides a maximum of $125.0 million,
      including a $25.0 million  letter of credit  facility.  The collateral for
      the facility  consists of certain owned Lockheed L-1011 aircraft,  certain
      receivables and certain rotables and spare parts.  Effective September 30,
      1996, the Company  renegotiated  certain terms of the bank credit facility
      along with the modification of certain loan covenants.  In return for this
      covenant  relief,  the  Company  has  agreed to  implement  changes to the
      underlying  collateral  for the facility  and to change the interest  rate
      applicable  to  borrowings  under the  facility.  The  Company has pledged
      additional  owned engines and equipment as collateral  for the facility as
      of the implementation  date of the new agreement.  The Company has further
      agreed to begin  reducing  the  maximum  borrowing  availability  of $63.0
      million  collateralized by the owned Lockheed L-1011 fleet by $1.0 million
      per month from April 1997 through  September 1997, and by $1.5 million per
      month from October 1997 through April 1999.  Loans  outstanding  under the
      renegotiated  facility bear interest,  at the Company's  option, at either
      (i) prime to prime plus 0.75%,  or (ii) the Eurodollar  rate plus 1.50% to
      2.75%.  The  facility  matures  on April 1,  1999,  and  contains  various
      covenants and events of defaults,  including:  maintenance  of a specified
      debt-to-equity  ratio and a minimum level of net worth;  achievement  of a
      minimum level of cash flow;  and  restrictions  on aircraft  acquisitions,
      liens,  loans  to  officers,  change  of  control,   indebtedness,   lease
      commitments and payment of dividends.

      In December 1995, the Company issued $6.0 million in variable rate special
      revenue  bonds  through the City of Chicago.  The Company is  obligated to
      perform  certain  mandatory  improvements  to its  Chicago-Midway  Airport
      Maintenance facility with the bond proceeds.


<PAGE>


      In December 1995, the Company entered into a sale/lease  transaction  with
      the City of Indianapolis on its maintenance  facility at the  Indianapolis
      International  Airport  which  resulted in the advance of $10.0 million in
      cash to the Company, as secured by the maintenance  facility.  The Company
      is obligated to pay $.6 million per year to the City of  Indianapolis  for
      five years, which represents interest on the City's associated outstanding
      debt obligation. As of December 2000, the Company is required to repay the
      advance  of $10.0  million to the City of  Indianapolis,  and may elect to
      repay the balance using special facility bonds  underwritten by the City's
      Airport Authority, or by using the Company's own funds.

      At December 31, 1996, the Company has  reclassified  $19.9 million of bank
      credit facility  borrowings  from long-term debt to current  maturities of
      long-term  debt.  Of this amount,  $10.5  million is  attributable  to the
      scheduled  reduction of availability  collateralized by the owned Lockheed
      L-1011  fleet  over  the  next  12  months.  The  remaining  $9.4  million
      represents  the  amount of the spare  Pratt &  Whitney  engines  which are
      pledged to the bank facility and which will be repaid from the anticipated
      sale of the engines.  The estimated market value of these spare engines is
      classified under current assets.

      The Company has made voluntary prepayments of long-term debt which has had
      the effect of reducing interest expense by approximately  $5.9 million and
      $5.5 million during 1996 and 1995,  respectively.  The Company  reborrowed
      the full amounts available to it as of December 31, 1996 and 1995.

      Future maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
                                    December 31, 1996
                                  -----------------------
                                      (In thousands)
<S>       <C>                              <C>
          1997                           $  30,271
          1998                              19,486
          1999                              79,615
          2000                               1,483
          2001                               1,476
          Thereafter                        17,726
                                  -----------------------
                                         $ 150,057
                                  =======================

</TABLE>

      Interest capitalized in connection with long-term asset purchase
      agreements was $1.4 million and $1.3 million in 1996 and 1995,
      respectively.


<PAGE>


  6.   Lease Commitments

      At December 31, 1996,  the Company had  aircraft  leases on four  Lockheed
      L-1011s,  23 Boeing  727-200s,  and seven  Boeing  757-200s.  The Lockheed
      L-1011s  have an initial  term of 60  months.  The  Boeing  757-200s  have
      initial  lease  terms  that  expire  from 1997  through  2015.  The Boeing
      727-200s have initial terms of three to seven years.

      The Company is responsible for all maintenance costs on these aircraft and
      must meet specified airframe and engine return conditions. The Company had
      previously been required to make  maintenance  reserve payments based upon
      the usage of certain  leased  aircraft,  but is no longer  subject to such
      requirements.

      As of December 31, 1996, the Company had other long-term leases related to
      certain  ground  facilities,  including  terminal  space  and  maintenance
      facilities,  with  original  lease  terms that vary from 3 to 40 years and
      expire at various dates through 2035. The lease agreements relating to the
      ground  facilities,  which are primarily  owned by  governmental  units or
      authorities,  generally do not provide for  transfer of  ownership  nor do
      they contain options to purchase.

      In December 1995, the Company sold its option to purchase its headquarters
      facility to the City of  Indianapolis  for $2.9  million,  and  thereafter
      entered  into a capital  lease  agreement  with the City  relating  to the
      continued use of the headquarters and maintenance  facility. A gain on the
      sale of the option equal to $1.3 million was recognized in income in 1995,
      with the  remainder  of the gain to be  amortized  to  income  during  the
      periods the headquarters  facilities are used. The headquarters  agreement
      has an initial term of four years, with two options to extend of three and
      five years,  respectively,  and is cancelable after two years with advance
      notice. The maintenance facility lease has a term of 39 years. The Company
      is  responsible  for  maintenance,  taxes,  insurance  and other  expenses
      incidental to the operation of the facilities.

      Future  minimum  lease  payments at December 31, 1996,  for  noncancelable
      operating leases with initial terms of more than one year are as follows:
<TABLE>

<CAPTION>
                                                           Facilities
                                       Flight              And Ground
                                     Equipment              Equipment               Total
                             ----- --------------- ---- ------------------ ---- --------------
                                 (In thousands)
<S>     <C>                          <C>                     <C>                  <C>
        1997                         $  55,513               $ 5,572              $ 61,085
        1998                            46,890                5,229                 52,119
        1999                            45,205                4,662                 49,867
        2000                            32,272                4,505                 36,777
        2001                           31,457                 3,143                 34,600
        Thereafter                    200,209                 20,377               220,586
                                   ---------------      ------------------      --------------
                                    $411,546                $43,488             $455,034
                                   ===============      ==================      ==============

</TABLE>

      Rental expense for all operating  leases in 1996,  1995 and 1994 was $65.0
      million,  $63.0  million  and  $53.0  million,   respectively,   including
      maintenance reserve payments of $3.4 million in 1994.


<PAGE>


7.    Income Taxes

      The provision for income tax expense (credit) consisted of the following:

<TABLE>
<CAPTION>
                                                                   December 31,
                                                1996                   1995                   1994
                                           ---------------- ----- ---------------- ----- ----------------
                                                                  (In thousands)
        Federal:
<S>                                           <C>                          <C>                <C>
         Current                                                           $1,280             $     (14)
                                              $          -
         Deferred                                 (11,798)                  4,399                 2,357
                                           ----------------       ----------------       ----------------
                                                  (11,798)                  5,679                 2,343
        State:
         Current                                       161                    107                   181
         Deferred                                  (1,270)                    343                  (131)
                                           ----------------       ----------------       ----------------
                                                                              450                    50
                                                   (1,109)
                                                                  ----------------       ----------------
                                           ----------------
        Income tax expense (credit)              $(12,907)                 $6,129                $2,393
                                           ================      =================       ================
</TABLE>


      The  provision  for income  taxes  differed  from the amount  obtained  by
      applying the  statutory  federal  income tax rate to income  before income
      taxes as follows:

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                    1996              1995             1994
                                                             ------------ ---- ------------ ---- -----------
                                                                             (In thousands)
<S>                                                            <C>                  <C>              <C>
        Federal income taxes at statutory rate (credit)        $(13,457)            $4,982           $1,999
        State income taxes, net of federal benefit                 (732)               535              295
        Non-deductible expenses                                   1,282                998            1,155
        Benefit ofchange in estimate of state income tax
        rate                                                           -             (258)            (468)
        Benefit of tax reserve adjustments                             -             (203)            (610)
        Other, net                                                     -               75               22
                                                             ------------      ------------      -----------
        Income tax expense (credit)                            $(12,907)           $6,129           $2,393
                                                             ============      ============      ===========
</TABLE>


      Deferred  income taxes arise from  temporary  differences  between the tax
      basis  of  assets  and  liabilities  and  their  reported  amounts  in the
      financial  statements.  The principal temporary  differences relate to the
      use of  accelerated  methods  of  depreciation  and  amortization  for tax
      purposes. Deferred income tax liability components are as follows:


<PAGE>


<TABLE>
<CAPTION>

                                                                                 December 31,
                                                                                     1996 1995
                                                                           -------------------------
                                                                                (In thousands)

        Deferred tax liabilities:
<S>                                                                         <C>                  <C>
         Tax depreciation in excess of book depreciation                    $56,885              $57,167
         Other taxable temporary differences                                    476                  228
                                                                      --------------       --------------
               Deferred tax liabilities                                      57,361               57,395
        Deferred tax assets:
         Amortization of lease credits                                        2,044                2,109
         Tax benefit of net operating loss carryforwards                     29,852               17,420
         Investment and other tax credit carryforwards                        4,720                4,506
         Other deductible temporary differences                               4,928                4,296
                                                                      --------------       --------------
               Deferred tax assets                                          $41,544              $28,331
        Deferred taxes classified as:
        Current asset                                                         4,399                8,885
                                                                      --------------      ---------------
        Non-current liability                                               $20,216              $37,949
                                                                      ==============      ===============
</TABLE>

      At December 31, 1996, for federal tax reporting purposes,  the Company had
      approximately $81.7 million of net operating loss carryforwards  available
      to offset future federal taxable income and $4.7 million of investment and
      other tax credit  carryforwards  available  to offset  future  federal tax
      liabilities. The net operating loss carryforwards expire as follows: 2002,
      $11.9 million; 2003, $8.1 million; 2004, $9.0 million; 2005, $3.6 million;
      2009,  $14.8  million;   2011,   $34.4  million.   Investment  tax  credit
      carryforwards  of $.9  million  expire  principally  in 2000 and other tax
      credit carryforwards of $3.8 million have no expiration dates.


8.    Retirement Plan

      The Company has a defined  contribution 401(k) savings plan which provides
      for  participation by substantially  all the Company's  employees who have
      completed  one year of service.  The Company has elected to  contribute an
      amount equal to 30% of the amount  contributed  by each  participant up to
      the  first  six  percent  of  eligible   compensation.   Company  matching
      contributions  expensed  in 1996,  1995 and 1994 were $1.3  million,  $1.2
      million, and $1.0 million, respectively.

      In 1993,  the Company  added an Employee  Stock  Ownership  Plan  ("ESOP")
      feature to its existing 401(k) savings plan. The ESOP used the proceeds of
      a $3.2  million  loan from the Company to purchase  200,000  shares of the
      Company's  common  stock.  The  selling   shareholder  was  the  Company's
      principal  shareholder.  The Company recognized $.3 million,  $.4 million,
      and $.2  million in 1996,  1995 and 1994,  respectively,  as  compensation
      expense related to the ESOP.  Shares of common stock held by the ESOP will
      be allocated to participating  employees annually as part of the Company's
      401(k) savings plan  contribution.  The fair value of the shares allocated
      during the year is recognized as compensation expense.



<PAGE>


9.    Shareholders' Equity

      In the  first  quarter  of 1994,  the  Board  of  Directors  approved  the
      repurchase of up to 250,000  shares of the Company's  common stock.  As of
      December 31, 1996, the Company had  repurchased  185,000 shares at a total
      cost of $1.8 million.

      The Company's 1993 Incentive  Stock Plan (1993 Plan)  authorizes the grant
      of options to key  employees  for up to  900,000  shares of the  Company's
      common stock.  The Company's 1996  Incentive  Stock Plan for key employees
      (1996 Plan),  which has not been approved by the  Company's  shareholders,
      authorizes  the grant of  options  to key  employees  for up to  2,000,000
      shares of the Company's  common stock.  Options  granted have 5 to 10-year
      terms and  generally  vest and become  fully  exercisable  over  specified
      periods up to three years of continued employment.

      A summary of common stock option changes during 1996 follows:


<TABLE>

<CAPTION>
                                                             Number of            Weighted-Average
                                                               Shares             Exercise Price
                                                          ---------------
<S>                                                              <C>                   <C>
        Outstanding at December 31, 1994                         313,050               $13.73

         Granted                                                 190,000               $8.71
         Exercised                                                10,417               $10.56
         Canceled                                                 97,333               $11.73
                                                          ---------------
        Outstanding at December 31, 1995                         395,300               $11.92

         Granted                                               1,302,400               $7.87
         Exercised                                                 3,100               $8.94
         Canceled                                                 64,700               $10.87
                                                          ---------------
        Outstanding at December 31, 1996                       1,629,900               $8.74
                                                          ===============

        Options exercisable at December 31, 1996              497,015                  $9.99
                                                          ===============

</TABLE>

      During 1996, the Company  adopted FASB Statement No. 123  "Accounting  for
      Stock-Based  Compensation" (FAS 123) with respect to its stock options. As
      permitted  by FAS 123,  the Company has elected to continue to account for
      employee stock options following  Accounting  Principles Board Opinion No.
      25,  "Accounting  for Stock  Issued  to  Employees"  (APB 25) and  related
      Interpretations. Under APB 25, because the exercise price of the Company's
      employee stock options equals the market price of the underlying  stock on
      the date of grant, no compensation expense is recognized.


<PAGE>


      The weighted-average fair value of options granted during 1996 and 1995 is
      estimated at $4.49 and $5.74 per share,  respectively,  on the grant date.
      These  estimates  were made using the  Black-Scholes  option pricing model
      with  the  following  weighted-average  assumptions  for  1996  and  1995,
      respectively:  risk-free  interest rates of 6% and 7.92%;  expected market
      price  volatility of .48 and .40;  weighted-average  expected  option life
      equal  to the  contractual  term;  estimated  forfeitures  of  5%;  and no
      dividends.

      The  Black-Scholes  option  valuation  model  was  developed  for  use  in
      estimating  the  fair  value  of  traded  options  which  have no  vesting
      restrictions  and are fully  transferable.  In addition,  option valuation
      models use highly  subjective  assumptions  including  the expected  stock
      price  volatility.  Because the  Company's  employee  stock  options  have
      characteristics  significantly different from those of traded options, and
      because changes in the subjective input  assumptions can materially affect
      the fair value estimate,  in  management's  opinion the existing models do
      not necessarily provide a reliable single measure of the fair value of its
      employees' stock options.

      For  purposes of pro forma  disclosure,  the  estimated  fair value of the
      options is amortized to expense over the options'  vesting  period (1 to 3
      years).  Therefore,  because FAS 123 is applicable only to options granted
      subsequent  to December 31,  1994,  its pro forma effect will not be fully
      reflected until 1998. The Company's pro forma information follows:

<TABLE>
<CAPTION>
                                                              1996              1995
                                                      (In thousands except per share data)

<S>                                                           <C>                   <C>
            Net income (loss) as reported                     $(26,674)             $8,524

            Net income (loss) pro forma                        (28,864)              8,456

            Earnings (loss) per share as reported               (2.31)                .74

            Earnings (loss) per share pro forma                 (2.50)                .74

</TABLE>

      Options  outstanding  at  December  31,  1996  expire  from August 2001 to
      February 2006. A total of 1,270,100  shares are reserved for future grants
      as of December 31, 1996 under the 1993 and 1996 Plans. The following table
      summarizes  information  concerning outstanding and exercisable options at
      December 31, 1996:

  <TABLE>
<CAPTION>
                                                           Range of Exercise Prices

                                                                 1996          1995
<S>                                                            <C>  <C>    <C>   <C>
        Options outstanding:                                   $7 - 11     $12 - 16

         Weighted-Average Remaining
            Contractual Life                                  3.3 years    8.3 years
         Weighted-Average Exercise Price                          $7.48       $14.28
         Number                                               1,328,700      301,200

        Options exercisable:
          Weighted-Average Exercise Price                         $7.67       $16.00
          Number                                                358,315      138,700

</TABLE>




<PAGE>


10.   Major Customer

      The United States  Government is the only customer that accounted for more
      than 10% of consolidated revenues.  U.S. Government revenues accounted for
      11%,  11% and 16% of  consolidated  revenues  for  1996,  1995  and  1994,
      respectively.


11.   Commitments and Contingencies

      In November  1994,  the Company  signed a purchase  agreement  for six new
      Boeing 757-200s which, as subsequently amended, provides for deliveries of
      aircraft  between 1995 and 1998. As of December 31, 1996,  the Company had
      taken delivery of four Boeing  757-200s under this purchase  agreement and
      financed those aircraft using operating  leases.  In conjunction  with the
      Boeing purchase  agreement,  the Company entered into a separate agreement
      with  Rolls-Royce  Commercial  Aero  Engines  Limited  for 13  RB211-535E4
      engines  to power the six  Boeing 757  aircraft  and to provide  one spare
      engine.  Under the Rolls-Royce  agreement,  which was effective January 1,
      1995, Rolls-Royce provides the Company various credits for spare parts and
      maintenance  purchases,  together with engine overhaul cost guarantees for
      certain qualified Rolls-Royce engines currently used by the Company.

      If the  Company  does not take  delivery  of the  purchased  engines,  the
      credits  and  cost  guarantees  that  have  been  used are  refundable  to
      Rolls-Royce.  These two  agreements  have an aggregate  purchase  price of
      approximately $50.0 million per aircraft,  subject to escalation.  Advance
      payments totaling approximately $22.0 million ($11.0 million per aircraft)
      are required to be made for the undelivered aircraft, with the balance due
      upon delivery. As of December 31, 1996 and 1995, the Company had made $2.7
      million and $5.0 million in advanced payments, respectively, pertaining to
      aircraft deliveries scheduled to take place within one year.

      In the first quarter of 1996, the Company purchased four additional Boeing
      727-200  aircraft,  and had financed all of these through  sale/leasebacks
      accounted for as operating leases by the end of the third quarter of 1996.
      In the second  quarter  of 1996,  the  Company  purchased  a sixth  Boeing
      727-200 aircraft which had been previously financed by the Company through
      an operating lease. This aircraft was financed through the separate bridge
      debt  facility as of September  30,  1996,  but is expected to be financed
      long term through a sale/leaseback transaction.

      The Company  entered  into an  agreement  in October  1995 with a supplier
      which provides for the purchase of four engine hushkits and for the option
      to purchase three additional  hushkits on the same terms, for installation
      on newly acquired Boeing 727-200 aircraft.

      Various  claims,  contractual  disputes and  lawsuits  against the Company
      arise  periodically  involving  complaints which are normal and reasonably
      foreseeable in light of the nature of the Company's business. The majority
      of these suits are covered by insurance. In the opinion of management, the
      resolution of these claims will not have a material  adverse effect on the
      business, operating results or financial condition of the Company.



<PAGE>



<TABLE>
<CAPTION>
                                 Financial Statements and Supplementary Data
                                          Amtran, Inc. and Subsidiaries
                                        1996 Quarterly Financial Summary
                                                   (Unaudited)
--------------------------------------------------- ------------- -------------- ------------------- ------------------
<S>                                                         <C>           <C>                 <C>                <C>
(In thousands, except per share data)                 March 31       June 30        September 30        December 31
--------------------------------------------------- ------------- -------------- ------------------- ------------------

Operating revenues                                      $207,135       $195,395            $199,698         $148,623
Operating expenses                                       201,918        198,498             218,776          168,106
Operating income (loss)                                    5,217        (3,103)            (19,078)         (19,483)
Other income (expenses), net                               (855)          (471)               (355)          (1,453)
Income (loss) before income taxes                          4,362        (3,574)            (19,433)         (20,936)
Income taxes (credits)                                     2,009        (1,289)             (6,800)          (6,827)
Net income (loss)                                      $   2,353      $ (2,285)           $(12,633)        $(14,109)
Net income (loss) per share                          $       .21    $     (.20)         $    (1.09)      $    (1.23)

</TABLE>
<TABLE>
<CAPTION>
                                          Amtran, Inc. and Subsidiaries
                                        1995 Quarterly Financial Summary
                                                   (Unaudited)
--------------------------------------------------- ------------- -------------- ------------------- ------------------
<S>                                                         <C>           <C>                 <C>                <C>
(In thousands, except per share data)                 March 31       June 30        September 30        December 31
--------------------------------------------------- ------------- -------------- ------------------- ------------------

Operating revenues                                      $182,618       $173,338            $194,427         $164,626
Operating expenses                                       171,811        167,332             186,783          171,147
Operating income (loss)                                   10,807          6,006               7,644          (6,521)
Other income (expenses), net                               (825)          (597)               (758)          (1,103)
Income (loss) before income taxes                          9,982          5,409               6,886          (7,624)
Income taxes (credits)                                     4,578          2,085               3,295          (3,829)
Net income (loss)                                       $  5,404       $  3,324            $  3,591         $(3,795)
Net income (loss) per share                             $    .46       $    .29            $    .31         $  (.32)


</TABLE>

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

No change of auditors or disagreements on accounting methods have occurred which
would require disclosure hereunder.

<PAGE>


--------------------------------------------------------------------------------
Part III
--------------------------------------------------------------------------------




Item 10.   Directors and Officers of the Registrant

The information  contained on page 12 of Amtran,  Inc. and  Subsidiaries'  Proxy
Statement dated April 1, 1997, with respect to directors and executive  officers
of the Company, is incorporated herein by reference in response to this item.


Item 11.   Executive Compensation

The information contained on pages 15 through 17 of Amtran, Inc. and
Subsidiaries' Proxy Statement dated April 1, 1997, with respect to executive
compensation and transactions, is incorporated herein by reference in response
to this item.


Item 12.   Security Ownership of Certain Beneficial Owners and Management

The information  contained on page 14 of Amtran,  Inc. and  Subsidiaries'  Proxy
Statement  dated April 1, 1997,  with  respect to security  ownership of certain
beneficial  owners  and  management,  is  incorporated  herein by  reference  in
response to this item.


Item 13.   Certain Relationships and Related Transactions

The information  contained on pages 13 and 14 of Amtran, Inc. and Subsidiaries'
Proxy Statement dated April 1, 1997, with respect to certain relationships and
related transactions, is incorporated herein by reference in response to this
item.


<PAGE>


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

--------------------------------------------------------------------------------
PART IV

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

           (a)  (1)  Financial Statements

                  The following  consolidated  financial  statements of the
                  Company and its subsidiaries for the year ended December 31,
                  1996, are included in Item 8:

                  o  Consolidated Balance Sheets for years ended December 31,
                       1996 and 1995

                  o  Consolidated Statements of Operations for years ended
                     December 31, 1996, 1995 and 1994

                  o  Consolidated Statement of Changes in Shareholders' Equity
                     for years ended December 31, 1996, 1995 and 1994

                  o  Consolidated Statements of Cash Flows for years ended
                     December 31, 1996, 1995 and 1994

                  o  Notes to Consolidated Financial Statements as of
                     December 31, 1996

                (2) Financial Statement Schedules

                    All schedules for which provision is made in the applicable
                    accounting regulations of the Securities and Exchange
                    Commission are not required under the related instructions
                    or are inapplicable and therefore have been omitted.

                (3) Exhibits

                    The  following  exhibits  are  submitted  as  a  separate
                    section of this report:

                                                                       Page
                    23.   Consent of Independent Auditor                66


            (b)     Reports on Form 8-K

                    There were no Form 8-Ks filed during the quarter ended
                    December 31, 1996.

            (c)     Exhibits

                    This section is not applicable.

            (d)     Financial Statement Schedule

                    This section is not applicable.


<PAGE>


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

--------------------------------------------------------------------------------
Signatures

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                            Amtran, Inc.
                            (Registrant)



Date
                            J. George Mikelsons
                            Chairman



Date
                            Stanley L. Pace
                            President and Chief Executive Officer
                            Director



Date
                            Dalen D. Thomas
                            Senior Vice President Sales, Marketing and
                               Strategic Planning
                            Director



Date
                            James W. Hlavacek
                            Executive Vice President, Chief Operating Officer
                               and President of ATA Training Corporation
                            Director



Date
                            Kenneth K. Wolff
                            Executive Vice President and Chief Financial Officer
                            Director



Date
                            Robert A. Abel
                            Director


Date
                             William P. Rogers, Jr.
                             Director



Date
                             Andrejs P. Stipnieks
                             Director


<PAGE>


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

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


              Exhibit 23






                CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS


              We consent to the  incorporation  by reference in the Registration
              Statement Form S-8 No.  33-65708  pertaining to the 1993 Incentive
              Stock Plan for Key Employees of Amtran,  Inc. and its subsidiaries
              of  our  report  dated  February  7,  1997,  with  respect  to the
              consolidated  financial  statements  included in the Annual Report
              (Form 10-K) for the year ended December 31, 1996.





              Indianapolis, Indiana
              March 26, 1997