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, 1997.

[ ]  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 - 11,645,529 shares as of  February 28, 1998.

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 3,
1998, are incorporated by reference into Part III.

<TABLE>


                                               TABLE OF CONTENTS
                                       FORM 10-K ANNUAL REPORT - 1997
                                        AMTRAN INC. AND SUBSIDIARIES
<CAPTION>
                                                                                                                     Page #

PART I
<S>           <C>                                                                                                       <C>
         Item 1.     Business............................................................................................3
         Item 2.     Properties.........................................................................................18
         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 Consolidated 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........................................................52
         Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............68

PART III
         Item 10.    Directors and Officers of the Registrant...........................................................69
         Item 11.    Executive Compensation.............................................................................69
         Item 12.    Security Ownership of Certain Beneficial Owners and Management.....................................69
         Item 13.    Certain Relationships and Related Transactions.....................................................69

PART IV
         Item 14.    Exhibits, Financial Statement Schedule and Reports on Form 8-K.....................................70

</TABLE>

<PAGE>

PART I


Item 1.         Business

                General

                Amtran,  Inc. (the  "Company") is a leading  provider of charter
                airline  services,  and on a targeted  basis  scheduled  airline
                services, to leisure and other value-oriented travelers. Amtran,
                through  its  principal  subsidiary,  American  Trans Air,  Inc.
                ("ATA"),  has  been in  operation  for 24  years  and  currently
                operates the eleventh  largest  airline in the United  States in
                terms of 1997  revenue  passenger  miles  ("RPMs").  The Company
                provides  charter  services  throughout the world to independent
                tour operators,  corporations  and the U.S.  military,  and also
                provides  scheduled service primarily from its gateway cities of
                Chicago-Midway,  Indianapolis  and Milwaukee to popular vacation
                destinations  such as Hawaii,  Las Vegas,  Florida,  California,
                Mexico and the Caribbean.

                Charter Service

                The Company is the largest  charter airline in the United States
                and provides  charter airline  services  throughout the world to
                U.S., South American and European tour operators,  U.S. military
                and government agencies and corporations.  In 1997 and 1996, the
                Company derived approximately 45.9% and 41.4%, respectively,  of
                consolidated  revenues  from  charter  operations.  The  charter
                business  is an  attractive  niche for the  Company  because  it
                provides  contractual  revenues  which are generally more stable
                than  revenues  provided  by  scheduled  service.  The  customer
                generally  pays a fixed  price for the use of the  aircraft  and
                assumes the  responsibility  and risk for the actual sale of the
                seats, as well as most of the risk of fuel price increases.

                Tour Operator Programs

                Independent tour operators comprise the largest component of the
                Company's charter service operations, representing approximately
                29.1% and 30.2%, respectively, of consolidated revenues for 1997
                and 1996. Independent tour operators typically contract with the
                Company to provide  repetitive,  round-trip  patterns to leisure
                destinations for specified periods ranging from several weeks to
                several  years.  The  Company  believes  that its  long-standing
                relationships  with tour operators provide it with a competitive
                advantage.

                Military/Government

                The  Company's  U.S.   military  and  other  government   flight
                operations    comprised    approximately    16.8%   and   11.2%,
                respectively,  of  consolidated  revenues for 1997 and 1996. The
                Company has provided charter service to the U.S.  military since
                1983.  Because this  business is generally  less  seasonal  than
                leisure  travel,  it tends to have a  stabilizing  impact on the
                Company's  operations and earnings.  The U.S.  government awards
                one-year   contracts  for  its  military  charter  business  and
                pre-negotiates  contract  prices  for each  type of  aircraft  a
                carrier makes available. Such contracts are priced utilizing the
                participating  airlines'  average costs,  and are therefore more
                profitable  for  low-cost  providers  such as the  Company.  The
                Company believes its fleet of aircraft, in particular its Boeing
                757-200ERs,  is well  suited  for the  current  requirements  of
                military passenger service.

                Scheduled Service

                The  Company  provides  scheduled  service  primarily  from  its
                gateway cities of Chicago-Midway,  Indianapolis and Milwaukee to
                popular  vacation   destinations  such  as  Hawaii,  Las  Vegas,
                Florida, California,  Mexico and the Caribbean. In its scheduled
                service  operations,  the Company focuses primarily on providing
                low-cost,  nonstop or direct flights on routes where it can be a
                principal provider.  For the 12 months ended September 30, 1997,
                based on Department of Transportation  ("DOT")  statistics,  the
                Company had the lowest  operating  cost per available  seat mile
                ("ASM"), approximately 6(cent), of the 11 largest U.S. scheduled
                airlines.   Notwithstanding   the  Company's   competitive  cost
                position and business  focus,  the Company began to incur losses
                in its  scheduled  service in late 1995.  In  response  to these
                losses, the Company, as part of the 1996 restructuring described
                below,  reduced its scheduled  service by more than one-third of
                its  departures  and  ASMs.  The  Company's   scheduled  service
                operations   comprised   47.5%  and  51.5%,   respectively,   of
                consolidated  revenues in 1997 and 1996. The 1996  restructuring
                strengthened  the Company's  competitive  position for scheduled
                service  by  improving  both load  factors  and  yields in these
                operations.   The  Company  has   substantially   improved   the
                profitability  of the  scheduled  service  business  in  1997 as
                compared to 1996,  and has  selectively  expanded its  scheduled
                service during 1997.

                Strategy

                The  Company  intends  to  enhance  its  position  as a  leading
                provider to independent tour operators, the U.S. military and of
                targeted  scheduled  airline  services  by  pursuing  a strategy
                designed  to  increase  revenues  and  profitability.   The  key
                components of this strategy are:

                (i)  Maintain  Low-Cost  Position.  The  Company  has one of the
                lowest operating costs per ASM in the industry,  with an average
                cost per ASM of approximately 6(cent) for the fiscal years ended
                December  31,  1997 and  1996.  The  Company  believes  that its
                low-cost structure provides a significant competitive advantage,
                which  allows it to  operate  profitably  while  selling  highly
                competitive  fares in both the  charter  and  scheduled  service
                markets.   The  Company  has  achieved  its  low-cost   position
                primarily as a result of its route  structure,  low overhead and
                distribution  costs,  productive and flexible work force and low
                aircraft rental and ownership costs.

                (ii)  Strengthen  Leading  Position  with  Tour  Operators.  The
                Company  has  successfully   operated  in  the  charter  service
                business  since 1981,  and it expects to continue to enhance its
                leading  position in this  business.  By offering  low-cost  air
                travel  products  that can be  tailored  to meet the  particular
                needs  of its  customers,  primarily  the  tour  operators,  the
                Company  believes it is able to  differentiate  itself from most
                major airlines,  whose principal focus is on scheduled  service,
                as well as from  smaller  charter  airlines,  which  do not have
                comparably  diverse  fleets or the  ability to provide a similar
                level of customer  support.  In  addition  to its low cost,  the
                Company   believes   that  its  product   quality,   reputation,
                long-standing  relationships and ability to deliver a customized
                service have become increasingly important to tour operators.

                (iii)  Maintain  Leading  Position  as a  Provider  to the  U.S.
                Military.  The  Company  has  a  long  history  of  serving  the
                military.  The  Company  believes  that its  contractor  teaming
                arrangement and its long-range  fleet of Boeing 757-200 aircraft
                will allow it to  maintain  a strong  competitive  position  for
                acquiring  and  servicing  current and future  military  charter
                contracts.

                (iv) Selectively Participate in Scheduled Service. The Company's
                strategy  for its  scheduled  service is to focus  primarily  on
                providing  low-cost,  nonstop or direct  flights  from  airports
                where it has market or  aircraft  advantages  in addition to its
                low cost. The Company believes that its high performance  Boeing
                757-200 and Boeing  727-200ADV  aircraft  give it a  competitive
                advantage in the  Chicago-Midway  market,  which  accounted  for
                approximately  41.5% of scheduled service  passengers boarded in
                1997.  Unlike  the  aircraft  used  by  most  of  the  Company's
                competitors  at  Chicago-Midway,  these  aircraft can fly larger
                passenger   capacities   substantially  longer  distances  while
                operating from the airport's short runways. In Indianapolis, the
                Company  has a name  recognition  advantage  by being the city's
                hometown airline.  In the Milwaukee  market,  the Company is the
                only low-cost scheduled  alternative.  The Company has announced
                the addition of nonstop  Dallas/Ft.  Worth,  San Juan and Denver
                service from its  Chicago-Midway  complex beginning in May 1998,
                and by June 1998 the  Company  expects to  operate  more than 50
                daily departures from Chicago-Midway.

                (v)  Capitalize on Selected  Growth  Opportunities.  The Company
                seeks to increase  revenues and profitability by capitalizing on
                selected  growth  opportunities  in  its  core  businesses.  The
                Company believes that, as a result of its low-cost structure and
                its  strong  relationships  with  tour  operators  and  military
                contractors,   it  is  well  positioned  to  capture  additional
                opportunities  to serve these  markets.  The Company  intends to
                purchase  or lease  additional  aircraft to meet demand from its
                military and tour operator charter customers, and potentially to
                expand scheduled  service.  In addition,  at various times since
                the second quarter of 1996, the Company has actively  considered
                possible business combinations with other air carriers and other
                providers of  airline-related  services.  The Company intends to
                continue to evaluate such transactions.

                1996 Restructuring of Scheduled Service Operations

                An analysis by the Company in 1996 of the  profitability  of its
                scheduled  service and charter  service  business units revealed
                that a  significant  number of scheduled  service  markets being
                served by the Company had become  unprofitable  at that point in
                time.  This  analysis  also  showed that the  Company's  charter
                operations  were generally  profitable  during the same periods,
                although  results  from  these  operations  were also  adversely
                affected by many of the factors that affected scheduled service.

                The Company believes that several key factors contributed to the
                deterioration of  profitability  of scheduled  service over this
                time  period.  Beginning in January  1996,  a growing  amount of
                low-fare    competition    entered   the    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,
                1996. This event focused significant negative media attention on
                airline safety, and on low-fare carriers in particular. In spite
                of the Company's excellent safety record,  having had no serious
                injuries  or  fatalities   since  its  inception,   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 of 4.3(cent) per gallon on jet fuel consumed
                in domestic use.  During 1996, the market price 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. See "--Management's Discussion
                and Analysis of Financial Condition and Results of Operations."

                In August 1996, the Company announced a significant reduction in
                scheduled service  operations.  More than one-third of scheduled
                service  departures  and ASMs  were  included  in this  schedule
                reduction.  The Company  eliminated its unprofitable  Boston and
                intra-Florida operations. The Company also exited, or reduced in
                frequency,   operations   to   other   selected   markets   from
                Chicago-Midway,  Indianapolis and Milwaukee.  Exited  operations
                were phased out over a  three-month  period  ending  December 2,
                1996.  The  Company  believes  this  process   strengthened  its
                competitive  position and improved  both load factors and yields
                in its remaining scheduled service  operations.  The Company has
                substantially  improved the profitability of these operations in
                1997 as compared to 1996.

                Based  upon the  improved  financial  performance  of  scheduled
                service in 1997 the Company  added new  service in June  between
                New  York's   John  F.   Kennedy   International   Airport   and
                Chicago-Midway,  Indianapolis and St. Petersburg, and also added
                several  frequencies  between the midwest and the west coast for
                the summer season.  New York service to  Chicago-Midway  and St.
                Petersburg  was  retained  for the 1997-98  winter  season.  New
                nonstop service  between  Chicago-Midway  and Dallas-Ft.  Worth,
                Denver and San Juan have been  announced  beginning in May 1998.
                In addition,  the Company's  application for slots at New York's
                La Guardia Airport are currently  pending with the DOT which, if
                approved,  the Company  intends to use for daily  frequencies to
                Chicago-Midway.  The Company  estimates that these  additions to
                scheduled  service will result in flying  approximately 22% more
                scheduled service ASMs in 1998 than in 1997. In order to operate
                this expanded schedule,  several narrow-body  aircraft have been
                reallocated  from charter  operations  and full-time  equivalent
                employees were increased by  approximately  10% as of the fourth
                quarter of 1997, as compared to the fourth quarter of 1996.

                Background of the Company

                ATA flew its maiden flight on a Boeing 720 between  Indianapolis
                and Orlando in December  1973. It was  certificated  as a public
                charter  carrier in 1981 and as a scheduled air carrier in 1985.
                ATA grew from  approximately 355 million RPMs in 1982, its first
                full year as a public  charter  carrier,  to  approximately  9.0
                billion RPMs in 1997. In 1973, the Company's  fleet consisted of
                a single  leased  Boeing  720.  As of  December  31,  1997,  the
                Company's  fleet  consisted of 45 aircraft.  The following table
                illustrates the growth of the Company over the past ten years:

<TABLE>
<CAPTION>

                                                                           Year Ended December 31,
<S>                                                      <C>           <C>           <C>           <C>           <C> 
                                                         1988          1989          1990          1991          1992
                                                                            (Dollars in millions)

                  Operating revenues                   $ 253.9       $ 279.1       $ 371.4       $ 414.0       $ 421.8
                  Net income (loss)                    $ 7.0         $   4.4       $  (2.0)      $   5.6       $  (2.1)
                  Total assets                         $ 193.4       $ 238.4       $ 251.8       $ 237.4       $ 239.0
                  Block hours                           42,642        49,222        57,847        60,177        65,583
                  ASMs (in millions)                     4,857         5,374         6,755         7,111         7,521
                  Employees (at period end)              1,789         2,134         2,310         2,205         2,412


                                                                           Year Ended December 31,

                                                         1993          1994          1995          1996          1997
                                                                            (Dollars in millions)

                  Operating revenues                   $ 467.9       $ 580.5       $ 715.0       $ 750.9       $ 783.2
                  Net income (loss)                    $   3.0       $   3.5       $   8.5       $ (26.7)      $   1.6
                  Total assets                         $ 269.8       $ 346.3       $ 413.1       $ 369.6       $ 450.9
                  Block hours                           76,542       103,657       126,295       138,114       139,426
                  ASMs (in millions)                     8,232        10,443        12,521        13,296        12,648
                  Employees (at period end)              3,418         4,136         4,830         4,435         5,012

</TABLE>

                Services Offered

                The  Company  generally  provides  its  airline  services to its
                customers  in the form of charter  and  scheduled  service.  The
                following  table  provides  a  summary  of the  Company's  major
                revenue sources for the periods indicated:
<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
<S>                                      <C>               <C>              <C>                   <C>            <C> 
                                         1993              1994             1995                  1996           1997
                                             % of             % of              % of             % of              % of
                                    Amount   total   Amount   total    Amount   total   Amount   total    Amount   total
                                   ---------------------------------- ---------------------------------- -----------------
                                                                        (Dollars in millions)
                 Charter
                   Tour operator     $213.7  45.7%    $204.0  35.1%     $229.5  32.1%    $226.4  30.2%     $228.1   29.1%
                   Military            78.4  16.7%      91.8  15.8%       77.5  10.8%      84.2  11.2%      131.1   16.8%
                   Total charter      292.1  62.4%     295.8  50.9%      307.0  42.9%     310.6  41.4%      359.2   45.9%
                 
                 Scheduled service    138.0  29.5%     240.7  41.5%      362.0  50.6%     386.5  51.5%      371.8   47.5%
                                                                                                          
                 Other                 37.8   8.1%      44.0   7.6%       46.0   6.5%      53.8   7.1%       52.2    6.6%
                                                                                                     
                                   ================================== ================================== =================
                      Total         $467.9  100.0%   $580.5  100.0%    $715.0  100.0%   $750.9  100.0%     $783.2  100.0%
                                   ================================== ================================== =================

</TABLE>

                Charter Sales

                As illustrated  in  the above  table, charter  sales represented
                45.9% of the Company's consolidated  revenues for 1997 and 41.4%
                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

                Sales to tour  operators  accounted for  approximately  29.1% of
                consolidated revenues for 1997 and 30.2% for 1996. These leisure
                market   programs  are  generally   contracted  for  repetitive,
                round-trip patterns,  operating over varying 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,  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  has a contract  with its  customers  for each flight or
                series of flights,  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  connection with  its  sales to  tour operators, the  Company
                seeks to minimize its exposure to unexpected  changes in operat-
                ing costs.  Under its contracts with tour operators, the Company
                is able to pass through  most increases  in  fuel  costs  from a
                contracted  price.  Under these contracts,  if the fuel increase
                causes the tour  operator's  fuel cost to rise in excess of 10%,
                the tour operator has the option of canceling the contract.  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 (other than bulk-seat sales) and to increases
                affecting any contracts that do not include fuel cost escalation
                provisions. See "-- Fuel Price Risk Management."

                The  Company  believes  that  although  price  is the  principal
                competitive  criterion for its tour operator  programs,  product
                quality,  reputation  for  reliability  and delivery of services
                which are customized to specific needs have become  increasingly
                important  to the  buyer of this  product.  Accordingly,  as the
                Company  continues to emphasize the growth and  profitability of
                this  business  unit,  it will  seek to  maintain  its  low-cost
                pricing advantage, while differentiating itself from competitors
                through the delivery of customized  services and the maintenance
                of consistent and  dependable  operations.  In this manner,  the
                Company believes that it will produce  significant value for its
                tour  operator  partners by delivering  an  attractively  priced
                product which exceeds the leisure traveler's expectations.

                Although the Company serves tour operators on a worldwide basis,
                its primary  customers are  U.S.-based and  European-based  tour
                operators.  European tour  operators  accounted for 3.2%,  4.6%,
                2.4% and 2.3%, respectively,  of consolidated revenues for 1997,
                1996,  1995 and 1994. In addition,  contracts with most European
                tour operators  establish  prices payable to the Company in U.S.
                dollars,  thereby reducing the Company's  foreign currency risk.
                The Company's five largest tour operator  customers  represented
                approximately  16%  and  22%,  respectively,  of  the  Company's
                consolidated  revenues  for 1997 and 1996,  and the ten  largest
                tour operator customers represented approximately 21% and 30% of
                the Company's consolidated revenues for the same periods.

                Military/Government

                In 1997 and 1996,  military/government  sales were approximately
                16.8% and 11.2%,  respectively,  of the  Company's  consolidated
                revenues.   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 U.S.  government  awards one-year
                contracts for its military charter  business and  pre-negotiates
                contract  prices  for each  type of  aircraft  a  carrier  makes
                available.   Such   contracts   are   awarded   based  upon  the
                participating  airlines'  average costs and are  therefore  more
                profitable  for  low-cost  providers  such as the  Company.  The
                short-term  expansion  business  is  awarded  pro  rata to those
                carriers  with aircraft  availability  who have been awarded the
                most fixed-award  business,  and then to any additional  carrier
                that has aircraft  available.  The Company's  contractor teaming
                arrangement   with  four  other  cargo  airlines   significantly
                increases  the  likelihood  that  the  team  will  receive  both
                fixed-award and contract expansion  business,  and increases the
                Company's  opportunity to provide the passenger  portion of such
                services  because  the  Company  represents  all of  the  team's
                passenger transport capacity. See " -- Sales and Marketing."

                Military  and other  government  flight  activity is expected to
                remain a  significant  factor  in the  Company's  business  mix.
                Because this  business is generally  less  seasonal than leisure
                travel,  it tends to have a stabilizing  impact on the Company's
                operations  and  earnings.  The  Company  believes  its fleet of
                aircraft  is  well  suited  for  the  requirements  of  military
                passenger  service.  Although the military is reducing its troop
                deployments  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  Federal  Aviation  Administration  ("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 fly 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.

                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 completed in the
                fourth  quarter of 1997. As a result of the  Company's  military
                business,  it has  been  required  from  time  to  time  to meet
                operational standards beyond those normally required by the DOT,
                FAA, and other government agencies.

                Other Charter Services

                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,  fleet diversity and
                attention  to detail have helped to  establish  it as one of the
                leaders in providing the air portion of incentive travel airline
                charter services.  Generally,  incentive travel operations are a
                demanding  and highly  customized  part of the  charter  airline
                business.  Incentive  travel  operations  can vary from a single
                round-trip  flight 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.
                These flights,  which are arranged on very short notice based on
                aircraft  availability,  allow the Company to increase  aircraft
                utilization during off-peak periods.

                The  Company  believes  it is  able  to  attract  customers  for
                specialty  charter  due to  its  fleet  size  and  diversity  of
                aircraft.  The size and  geographic  dispersion of the Company's
                fleet reduces  nonproductive  ferry time for aircraft and crews,
                resulting in more competitive pricing. The diversity of aircraft
                types in its fleet  also  allows the  Company to better  match a
                customer's  particular  needs  with  the type of  aircraft  best
                suited to satisfy those requirements.

                Scheduled Service Sales

                In scheduled service, the Company markets air travel, as well as
                packaged leisure travel  products,  directly to retail consumers
                in selected  markets.  During 1997 and 1996,  scheduled  service
                provided  47.5%  and  51.5%,  respectively,   of  the  Company's
                consolidated  revenues. The Company's strategy for its scheduled
                service is to offer  low-cost,  nonstop or direct  flights which
                provide  convenience and a simplified pricing structure oriented
                to the buyer of leisure  travel  services.  The Company  focuses
                primarily on serving selected leisure destinations from airports
                which do not have convenient travel  alternatives  through other
                scheduled airlines, or where there is only limited competition.

                The Company's  scheduled  service  operations link the Company's
                gateway  cities of  Chicago-Midway,  Indianapolis  and Milwaukee
                with several popular vacation  destinations such as Hawaii,  Las
                Vegas, California,  Mexico, Florida and the Caribbean. In August
                1996, the Company announced a significant reduction in scheduled
                service  operations.  More than  one-third of scheduled  service
                departures  and ASMs were included in this  schedule  reduction.
                The Company  completely  eliminated its unprofitable  Boston and
                intra-Florida operations. The Company also exited, or reduced in
                frequency,   operations   to   other   selected   markets   from
                Chicago-Midway,  Indianapolis  and  Milwaukee  during  1996.  As
                competitive  conditions  have improved in 1997, the Company has,
                on a selective basis, expanded this business,  particularly from
                its Chicago-Midway gateway.

                Beginning October 27, 1996 the Company  implemented a code share
                agreement with Chicago  Express,  Inc., an independent  commuter
                airline. Under this code share agreement,  the Company agreed to
                purchase a limited  number of seats on Chicago  Express  flights
                operating between  Chicago-Midway and the cities of Indianapolis
                and Milwaukee.  As is customary for code share agreements in the
                airline industry, the seats purchased by the Company were listed
                on major CRS systems as ATA seats,  even though the flights were
                to be  operated  by a separate  airline.  Chicago  Express  uses
                19-seat  Jetstream  31  propeller  aircraft,  which the  Company
                determined  were a more economic  alternative  to satisfying the
                demand in these markets than the use of the Company's own larger
                jet aircraft.

                Effective April 1, 1997 the Company  expanded this  relationship
                by  agreeing  to  purchase  all seats on  Jetstream  31  flights
                between  Chicago-Midway  and Indianapolis and Milwaukee,  and by
                adding similar flights between  Chicago-Midway and the cities of
                Des Moines, Dayton and Grand Rapids. In October 1997 the Company
                added the cities of Lansing and Madison to the flights  operated
                on its behalf by Chicago  Express.  In all  cases,  the  Company
                purchases all available  seats on these flights and markets them
                as ATA flights  through normal  scheduled  service  distribution
                channels.

                Included  in the  Company's  scheduled  service  sales  for  jet
                operations are bulk sales agreements with tour operators.  Under
                these arrangements, which are very similar to charter sales, the
                tour  operator  may take up to 85% of an aircraft as a bulk-seat
                purchase.  The portion which the Company retains is sold through
                its own scheduled service  distribution  network.  The advantage
                for the tour  operators is that their  product is available  for
                sale in computer  reservations systems ("CRS") and through other
                scheduled  service  distribution  channels.   Under  bulk  sales
                arrangements, the Company is obligated to provide transportation
                to  the  tour   operators'   customers  even  in  the  event  of
                non-payment to the Company by the tour operator. To minimize its
                exposure under these arrangements,  the Company requires bonding
                or a security deposit for a significant  portion of the contract
                price.  Bulk seat  sales  amounted  to $71.1  million  and $67.3
                million in 1997 and 1996,  respectively,  which represented 9.1%
                and 9.0%,  respectively,  of the Company's consolidated revenues
                for such periods.

                Other Revenues

                In  addition  to  its  core   charter  and   scheduled   service
                businesses,   the  Company   operates   several   other  smaller
                businesses that complement its core businesses. For example, the
                Company  sells  ground  arrangements  (hotels,  car  rentals and
                attractions)   through  its  Ambassadair  Travel  Club  and  ATA
                Vacations   subsidiaries;   provides   airframe  and  powerplant
                mechanic training through ATA Training Corporation; and provides
                helicopter charter services through its ExecuJet subsidiary.  In
                aggregate,  these businesses,  together with incidental revenues
                associated  with  charter  and  scheduled  service   businesses,
                accounted  for  6.6% and  7.1%,  respectively,  of  consolidated
                revenues in 1997 and 1996.

                Sales and Marketing

                Charter Sales

                Tour Operator Programs. The Company markets its charter services
                to tour  operators  primarily  through its own sales force.  The
                charter sales department's  principal office is in Indianapolis,
                but it also has offices in  Orlando,  New York,  San  Francisco,
                Seattle, Boston, Chicago, Detroit and London. Through this sales
                force,  the Company markets its charter,  military and specialty
                products.  While most of the  Company's  charter  and  specialty
                products are  transacted  directly  with the end  customer,  the
                Company  from time to time will utilize  independent  brokers to
                acquire some contracts.

                In general,  tour operators either package the Company's flights
                with traditional  ground components (e.g.,  hotels,  rental cars
                and  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   funds  paid  for  land
                arrangements) must be placed into escrow or must be protected by
                a surety bond satisfying  prescribed standards.  Currently,  the
                Company provides a third-party bond which is unlimited in amount
                but  restricted in use to the  satisfaction  of its  obligations
                under  these  regulations.   Under  the  terms  of  its  bonding
                arrangement,  the issuer of the bond has the right to  terminate
                the bond at any time on 30 days' notice.  The Company provides a
                $2.5   million   letter  of  credit  to  secure  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 $13.5
                million  based  upon  1997  peak  travel   periods.   See  "  --
                Regulation."

                In  general,   the  Company  enters  into  contracts  with  tour
                operators four to nine months in advance of the  commencement of
                flight services.  Pursuant to these  contracts,  tour operators,
                who may be thinly  capitalized,  generally are required to pay a
                deposit to the Company at the time the  contract is executed for
                as much as one week's  revenue  due under the  contract  (in the
                case of recurring pattern contracts), to 10% to 30% of the total
                contract price (in the case of non-recurring pattern contracts).
                Tour operators are required to pay the remaining  balance of the
                contract  price in full 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 the 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  to  keep
                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 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 renegotiation 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.

                Military/Government. 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 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.

                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 cargo  airlines and vice versa.
                When the military  determines  its  requirements  for a contract
                year, 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
                made to a team,  the charter  passenger  airline will  generally
                perform the passenger part of the award and a cargo airline will
                perform the cargo part of the award.

                In  1992,  the  Company   entered  into  a  contractor   teaming
                arrangement  with four other  cargo  airlines  serving  the U.S.
                military. The Company currently represents 100% of the passenger
                portion of the contractor  teaming  arrangement.  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 100% of the
                team's  passenger  transport  capacity.  In addition,  since the
                expansion  business  awards are correlated  with 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 a utilization fee
                or commission to the other team members.

                Scheduled Service

                In scheduled service, the Company markets air travel, as well as
                packaged leisure travel products,  directly to its customers and
                through  travel  agencies  and bulk tour  operators  in selected
                markets.   Approximately   74.8%  and  71.2%  of  the  Company's
                scheduled  services  were  sold by travel  agents  and bulk tour
                operators in 1997 and 1996,  respectively,  often using computer
                reservation  systems that have been developed and are controlled
                by other airlines.  Federal  regulations  have been  promulgated
                that are  intended  to  diminish  preferential  flight  schedule
                displays and other  practices  with  respect to the  reservation
                systems that could place the Company and other  similar users at
                a competitive marketing disadvantage as compared to the airlines
                controlling  the  systems.   Travel  agents  generally   receive
                commissions  based on the price of  tickets  sold.  Accordingly,
                airlines  compete not only with respect to ticket price but also
                with  respect to the  amount of  commissions  paid to  appointed
                agents.  Airlines often pay additional  commissions to appointed
                agents in connection with special revenue programs.  The Company
                believes that by concentrating its scheduled service  operations
                in a few selected markets, such as the Company's  Chicago-Midway
                complex, its marketing and advertising expenditures will be much
                more effective. The Company believes this strategy will continue
                to  strengthen  its  competitive  position and improve both load
                factors and yields in its scheduled service operations.

                The  Company's  sales  and  marketing   strategy  for  scheduled
                services has continued to emphasize  convenience  and simplified
                pricing  for the  leisure  traveler.  In the summer of 1997,  an
                electronic  ticketing  option  was  implemented  which  provides
                customers  with the  ability  to  purchase  seats  on  scheduled
                flights using a credit card while  eliminating the need to issue
                a paper ticket.  Also in 1997, the Company became only the fifth
                domestic U.S.  airline to offer fully  interactive  capabilities
                for  customers  to  purchase  tickets   electronically  via  the
                internet. In late 1996, the Company introduced convenient coupon
                booklets  which the  customer  can  purchase  in advance for use
                throughout the Company's  scheduled service system at guaranteed
                low fares.

                Aircraft Fleet

                As of December 31, 1997,  the Company was certified to operate a
                fleet of 14 Lockheed L-1011s, 24 Boeing 727-200ADVs and 7 Boeing
                757-200s.  (Jetstream 31 propeller  aircraft operated by Chicago
                Express are not included on the Company's certificate.)

                Lockheed  L-1011  Aircraft.  The  Company's  14 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
                other wide-body aircraft types. See " -- Environmental Matters."
                As a result,  the  Company  believes  these  aircraft  provide a
                competitive  advantage when operated on long-range routes,  such
                as on  transatlantic,  Caribbean and West  Coast-Hawaii  routes.
                These aircraft have an average age of approximately 23 years. As
                of December 31,  1997,  13 of these  aircraft  were owned by the
                Company  and one was under an  operating  lease that  expires in
                March 2001. Certain of the Lockheed L-1011 aircraft owned by the
                Company are subject to mortgages  and other  security  interests
                granted in favor of the Company's  lenders under its bank credit
                facility. See "Management's Discussion and Analysis of Financial
                Condition  and Results of  Operations  -- Liquidity  and Capital
                Resources -- Credit Facilities."

                Boeing 727-200ADV  Aircraft.  The Company's 24 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,  of which 15  conform  to Stage 2 and 9
                conform to Stage 3 noise  requirements  as of December 31, 1997,
                have an  average  age of  approximately  18 years.  The  Company
                leases 23 of these  aircraft,  with  initial  lease  terms  that
                expire  between  March 1998 and September  2003,  subject to the
                Company's  right to extend  each lease for  varying  terms.  The
                Company  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.  The Company
                currently  plans to install  hushkits on six Stage 2 aircraft by
                the end of 1998, with the balance of nine Stage 2 aircraft being
                converted to Stage 3 in 1999. See "--Environmental Matters".

                Boeing  757-200ADV  Aircraft.  The  Company's  7 Boeing  757-200
                aircraft are relatively new, narrow-body aircraft,  all of which
                have a range of 3,679 nautical  miles.  These  aircraft,  six 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 lower  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
                May 2002 and December  2015,  subject to the Company's  right to
                extend each lease for varying terms.

                Although  Lockheed  L-1011 and Boeing  727-200ADV  aircraft  are
                subject to the FAA's Aging  Aircraft  program,  the Company does
                not  currently  expect  that its cost of  compliance  for  these
                aircraft will be material.
                See "-- Regulation."

                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.
                The  Company'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 and three
                spare Boeing 727-200  aircraft at all times.  Spare aircraft can
                be  dispatched  on  short  notice  to  most  locations  where  a
                substitute  aircraft is needed for  mechanical or other reasons.
                These  spare  aircraft  allow  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.  This 120,000  square-foot
                facility  was  designed  to meet  the  maintenance  needs of the
                Company's  operations  as well  as to  provide  supervision  and
                control of purchased maintenance services.  The Company performs
                approximately 75% of its own 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
                primarily as charter  flight  operations  require to arrange for
                and supervise  maintenance services at temporary locations.  The
                Company also uses road teams to supervise  all  maintenance  not
                performed in-house.

                The Maintenance and  Engineering  Center is an  FAA-certificated
                repair station and has the expertise to perform routine, as well
                as non-routine,  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  engines;   (iii)   non-destructive
                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 if the Company  does not
                have the technical  capability or facility capacity,  or if such
                services  can be  obtained on a more  cost-effective  basis from
                outside sources.

                Fuel Price Risk Management

                Most of the Company's  contracts with independent tour operators
                include fuel price reimbursement clauses. Such clauses generally
                state that if the  Company's  cost of fuel per gallon to perform
                the contract meets or exceeds a stated trigger price, fuel costs
                in excess of the trigger  price are required to be reimbursed to
                the  Company by the tour  operator.  Protection  under such fuel
                escalation  provisions  is  generally  limited  to  those  price
                increases which occur 14 or more days prior to flight date. Fuel
                price  increases  which  occur  during the last 14 days prior to
                flight date are the responsibility of the Company.  In addition,
                if the  fuel  price  increase  exceeds  10%  of the  contractual
                trigger  price,  the tour  operator  generally  has the right to
                cancel the contract. Tour operator revenues subject to such fuel
                price reimbursement clauses represented  approximately 29.1% and
                30.2%, respectively, of consolidated revenues for 1997 and 1996.

                The Company's  contract  with the U.S.  military also includes a
                fuel   price   guarantee,   which  is   incorporated   into  the
                reimbursement  rates by aircraft type each contract year. If the
                actual cost of fuel consumed is less than the guaranteed  price,
                the Company is required to reimburse  the U.S.  military for the
                excess revenues received. If the actual cost of fuel consumed is
                more than the guaranteed price, the U.S. military reimburses the
                Company for the additional costs incurred.  In this manner,  the
                Company is  guaranteed  to pay the actual cost of fuel up to the
                maximum  price  guaranteed  in the  contract.  This  fuel  price
                guarantee is renegotiated each contract year.  Military revenues
                subject to the fuel price  guarantee  represented  approximately
                16.8% and 11.2%, respectively, of consolidated revenues for 1997
                and 1996.

                Within  the  Company's   scheduled  service  business  unit  are
                included  bulk  seat  sales  to  tour  operators.   Under  these
                contracts,  which are very similar to tour operator  agreements,
                the bulk seat contractor may purchase up to 85% of the available
                seats on scheduled  service  flights.  Most of these  agreements
                also provide for fuel  escalation  reimbursements  to be made to
                the Company in a manner similar to the tour operator  agreements
                described above. Scheduled service bulk seat revenues subject to
                such fuel price reimbursement clauses represented  approximately
                9.1% and 9.0%,  respectively,  of consolidated revenues for 1997
                and 1996.

                As a result of the fuel  reimbursement  clauses  and  guarantees
                described above, approximately 54.9% and 50.4%, respectively, of
                consolidated revenues in 1997 and 1996 were subject to such fuel
                price  protection.  The Company  closely  monitors jet fuel spot
                prices and crude oil and heating oil futures  markets to provide
                early  indications  of  potential  shifts in jet fuel prices for
                timely management review and action.  The Company did not engage
                in any material fuel hedging activities in 1997 or 1996, but has
                begun a hedging program in 1998.

                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
                primarily designed to meet the 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  low-cost air travel  products  that can be tailored to
                meet  the  specific   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 availability of aircraft and financing. This is
                particularly  true for those  airlines  seeking  to operate on a
                small  scale  with  limited  infrastructure  and  other  support
                systems.  As a result,  the  Company may face  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,  availability  of equipment,  quality of service
                and convenience.

                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 discounted
                seats  to  tour  operators  on  scheduled   flights,   promoting
                prepackaged  tours to travel agents for sale to retail customers
                and selling discounted, airfare-only products to the public.

                Charter airlines generally have a lower cost structure than most
                scheduled airlines. The major scheduled airlines typically incur
                higher costs related to aircraft ownership, labor, marketing 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 except with a
                limited inventory of seats. However,  during periods of dramatic
                fare cuts by the  scheduled  airlines,  the Company is forced to
                compete more broadly against larger numbers of deeply discounted
                seats. The scheduled  airlines do compete regularly with charter
                airlines by selling  varying  amounts of excess seat capacity to
                tour operators and  consolidators  at discounted 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  attractive  leisure nonstop service
                to  destinations  not as  conveniently  available to  passengers
                through scheduled airline hub-and-spoke systems.

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

                Competition from Charter Airlines

                In addition  to  competing  with major  domestic,  European  and
                Mexican scheduled  airlines,  the Company also faces competition
                from  charter  airlines.  In  the  U.S.,  the  Company  competes
                primarily  with Sun  Country  and Miami Air,  two  smaller  U.S.
                charter airlines.  This is the lowest number of domestic charter
                carriers  competing for this business in many years, a situation
                that could promote  additional  entries into the charter market.
                In Europe,  the Company  competes  with large  European  charter
                airlines,  several of which are owned by more highly  integrated
                transportation  companies  which  also  own tour  operators  and
                travel agencies or scheduled airlines.  To date, the Company has
                been able to compete  successfully  against  U.S.,  Mexican  and
                European charter airlines.

                Insurance

                The Company carries types and amounts of insurance  customary in
                the airline industry,  including  coverage for public liability,
                passenger liability,  property damage,  aircraft loss or damage,
                baggage and cargo liability and worker's compensation. Under the
                Company's current insurance policies,  it will not be covered by
                such  insurance  were  it to fly,  without  the  consent  of its
                insurance provider, to certain high risk countries.  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 replacement insurance coverage.

                Employees

                As of  December  31,  1997,  the  Company  had 5,012  employees,
                approximately  1,900 of which were represented  under collective
                bargaining  agreements.  In  June  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 1993,  the
                Company's cockpit crews elected the International Brotherhood of
                Teamsters ("IBT") as their representative.  In September 1996, 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
                sizeable number of its employees  could have a material  adverse
                effect on the Company's operations and financial condition.

                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  by  the  DOT  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 fly to
                specific  airports  using  specified   equipment.   All  of  the
                Company's  aircraft must also 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
                re-export  of  the  Company's   U.S.-manufactured  aircraft  and
                equipment.

                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
                the  Company,  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.

                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 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 requests is typically
                based on  considerations of comity and reciprocity and cannot be
                guaranteed.

                Environmental Matters

                Under the Airport Noise and Capacity Act of 1990 and related FAA
                regulations,  the  Company's  aircraft  must comply with certain
                Stage 3 noise restrictions by certain specified deadlines. These
                regulations require that the Company achieve 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, 1997,  67% of the  Company's  fleet
                met Stage 3  requirements.  The  Company  expects to meet future
                Stage  3  fleet  requirements  through  Boeing  727-200  hushkit
                modifications,  combined with  additional  future  deliveries of
                Stage 3 aircraft.

                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 believes it 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 contain  quantities  of de-icing  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  terminal  and are  used as
                principal   business  offices  and  for  the  operation  of  the
                Indianapolis reservations center.

                The Company's Maintenance and Engineering Center is also 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 1998, the Company expects to begin  construction of an 80,000
                square  foot  office  building   immediately   adjacent  to  the
                Company's Indianapolis  Maintenance and Engineering Center. This
                facility will house the Company's  Maintenance  and  Engineering
                professional  staff and also will serve as a training center for
                various groups within the Company.

                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.  The  Company  has
                subsequently  completed significant  improvements to this leased
                property,  which is used to  support  line  maintenance  for the
                Boeing 757-200 and Boeing 727-200 narrow-body fleets.

                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  reservation   facility
                primarily serves  customers in the greater Chicago  metropolitan
                area  in  support  of  the  Company's  Chicago-Midway  scheduled
                service operation.

                The Company also routinely leases various properties at airports
                around the world  for use by its passenger service, flight oper-
                ations,  crews and maintenance staffs. Other properties are also
                leased for the use of sales office staff.  These  properties are
                used in support of both scheduled and charter flight  operations
                at such diverse locations as Baltimore, Boston, Cancun, Chicago,
                Cleveland, Dallas/Ft. Worth, Detroit, Ft. Lauderdale, Ft. Myers,
                Frankfurt,  Honolulu,  Indianapolis,  Las Vegas, London Gatwick,
                Los Angeles, Miami, Milwaukee, Minneapolis, New  York,  Orlando,
                Philadelphia, Phoenix, St. Louis, St. Petersburg, San Francisco,
                San Juan and Sarasota.



<PAGE>



                At December  31,  1997,  the Company was  certified to operate a
                fleet  of  45  aircraft.  The  following  table  summarizes  the
                ownership,  lease  term  (where  applicable),  standard  seating
                configuration   (all   coach),   and   Stage   2/Stage  3  noise
                characteristics  of each aircraft  operated by the Company as of
                the end of 1997.

<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                       Owned                 n/a               362             3
                Lockheed L-1011-100                      Leased               03/2002             362             3
                Boeing 727-200ADV                         Owned                 n/a               173             2
                Boeing 727-200ADV                        Leased               03/1998             173             2
                Boeing 727-200ADV                        Leased               04/1998             173             2
                Boeing 727-200ADV                        Leased               11/1998             173             2
                Boeing 727-200ADV                        Leased               01/1999             173             3
                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               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               10/2000             173             2
                Boeing 727-200ADV                        Leased               10/2000             173             2
                Boeing 727-200ADV                        Leased               10/2000             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               09/2002             173             3
                Boeing 727-200ADV                        Leased               11/2002             173             3
                Boeing 727-200ADV                        Leased               11/2002             173             3
                Boeing 727-200ADV                        Leased               09/2003             173             3
                Boeing 757-28AER                          Owned                 n/a               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 757-23N                           Leased               12/2014             216             3
                Boeing 757-23N                           Leased               12/2015             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, 1997.


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
            327 registered shareholders at December 31, 1997.
<TABLE>
<CAPTION>

                                                                               Year Ended December 31, 1997
             Market Prices of Common Stock                        High                    Low                     Close
                                                              --------------       -------------------       -----------------
<S>                                                              <C>  <C>                  <C>                    <C> <C>
             First quarter                                       10 7/8                    7                      8 3/8
             Second quarter                                       9 5/8                  7 7/8                    8 1/4
             Third quarter                                        8 3/4                  6 5/8                    8 1/4
             Fourth quarter                                       8 1/2                  6 7/8                    7 7/8

</TABLE>

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




<PAGE>


PART II - Continued


Item 6.  Selected Consolidated Financial Data - (Unaudited)

           The unaudited selected consolidated 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> 
                                                                         1993         1994        1995        1996        1997
               (In thousands, except per share data and ratios)
               -------------------------------------------------------------------------------------------------------------------

               Statement of Operations Data:
                   Operating revenues                                 $  467,909  $  580,522  $  715,009  $  750,851  $   783,193
                   Operating expenses                                    461,289     572,107     697,073     786,907      769,709
                   Operating income (loss) (1)                             6,620       8,415      17,936    (36,056)       13,484
                   Income (loss) before taxes                              3,866       5,879      14,653    (39,581)        6,027
                   Net income (loss)                                       3,035       3,486       8,524    (26,674)        1,572
                   Net income (loss) per share - basic (2)                  0.28        0.30        0.74      (2.31)         0.14
                   Net income (loss) per share - diluted (2)                0.28        0.30        0.74      (2.31)         0.13

               Balance Sheet Data:
                   Property and equipment, net                        $  172,244  $  223,104  $  240,768  $  224,540  $   267,681
                   Total assets                                          269,830     346,288     413,137     369,601      450,857  
                   Total debt                                             79,332     118,106     138,247     149,371      191,804  
                   Shareholders' equity (3)                               69,941      72,753      81,185      54,744       56,990
                   Ratio of total debt  to shareholders' equity             1.13        1.62        1.70        2.73         3.37   
                   Ratio of total liabilities to shareholders' equity       2.86        3.76        4.09        5.75         6.91 
                                                                                                         
                                                                                                                             

               Selected Operating Statistics for
               Consolidated Passenger Services: (4)
                   Revenue passengers carried (thousands)                2,971.8     4,237.9     5,368.2     5,680.5      5,307.4
                   Revenue passenger miles (millions)                    5,593.5     7,158.8     8,907.7     9,172.4      8,986.0
                   Available seat miles (millions)                       8,232.5    10,443.1    12,521.4    13,295.5     12,647.7
                   Passenger load factor                                   67.9%       68.6%       71.1%       69.0%        71.0%

</TABLE>


              (1) The  Company  has  reclassified  gain  (loss)  on the  sale of
                  operating assets for 1993-1995 from  non-operating gain (loss)
                  to operating income (loss) to be consistent with the 1996-1997
                  presentation.  Also,  in the third quarter of 1996 the Company
                  recorded a $4.7 million loss on the disposal of leased  assets
                  associated with the reconfiguration of its fleet.

             (2)  In  1997,  the  Company  adopted  Financial   Accounting
                  Standards  Board  Statement 128,  "Earnings per Share",  which
                  establishes  new standards for the  calculation and disclosure
                  of earnings  per share.  All prior  period  earnings per share
                  amounts disclosed in this five-year summary have been restated
                  to conform to the new standards under Statement 128.

             (3)  No dividends were paid in any periods presented.

             (4)  Operating  statistics  pertain  only to ATA and do not include
                  information for  other operating  subsidiaries of the Company.



<PAGE>


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

Overview

Amtran is a leading  provider  of charter  airline  services  and, on a targeted
basis, scheduled airline services to leisure and other value-oriented travelers.
Amtran, through its principal subsidiary,  American Trans Air, Inc. ("ATA"), has
been operating for 24 years and is the eleventh largest U.S. airline in terms of
1997 revenue passenger miles. ATA provides charter service  throughout the world
to  independent  tour  operators,  specialty  charter  customers  and  the  U.S.
military.  Scheduled service is provided through nonstop and connecting  flights
from the gateway cities of Chicago-Midway, Indianapolis and Milwaukee to popular
vacation destinations such as Hawaii, Las Vegas, Florida, California, Mexico and
the Caribbean.

An analysis by the Company in 1996 of the profitability of its scheduled service
and charter  service  business  units  disclosed  that a  significant  number of
scheduled   service  markets  then  being  served  by  the  Company  had  become
increasingly  unprofitable  at that point in time.  The  Company  believes  that
several key factors had contributed to the  deterioration  of  profitability  of
scheduled  service  operations in that time period,  including (i) a significant
increase in competition from larger carriers in the Company's  scheduled service
markets;  (ii) the negative  impact on low-fare  carriers,  such as the Company,
from  unfavorable  media coverage of the ValuJet  accident in Florida on May 11,
1996, and, to a lesser extent,  the Company's own decompression  incident on the
following  day;  (iii) a  significant  increase  in jet fuel  costs;  and (iv) a
federal excise tax on jet fuel beginning in the fourth quarter of 1995.

In August 1996, the Company  announced a significant  restructuring of scheduled
service  operations.  More than one-third of scheduled service capacity operated
during the summer of 1996 was eliminated.  The Company completely eliminated its
Boston  and  intra-Florida   scheduled   service   operations  and  also  exited
completely, or reduced in frequency, certain markets served from Chicago-Midway,
Indianapolis and Milwaukee. In conjunction with this restructuring,  the Company
completed a 15% reduction in its employee and contract work forces by the end of
1996.

In addition,  the Company  re-evaluated the relative economic performance of its
three  aircraft  fleet  types in the context of the  restructured  markets to be
served by the Company and  optimized  the type and number of aircraft  through a
fleet  restructuring which was completed by the end of 1996. The Company reduced
the number of Boeing 757-200  aircraft from 11 units at the end of 1995 to seven
units at the end of 1996. The remaining  seven Boeing  757-200  aircraft are all
powered by Rolls-Royce  engines. The Company committed the seven Boeing 757-200s
to  mission-specific  uses in the U.S.  military and scheduled  service business
units.

As a  result  of the  1996  restructuring,  the  Company  believes  that  it has
established  a better  economic  platform  from  which to pursue  its  long-term
strategies of: (i) maintaining its low-cost advantage versus  competitors;  (ii)
strengthening  its leading position in the charter  business;  (iii) maintaining
its  leading  position  as a provider  to the U.S.  military;  (iv)  selectively
participating  in scheduled  service;  and (v)  capitalizing  on selected growth
opportunities in areas of the Company's core competency.

Results of Operations

In 1997 the results of operations for the Company showed significant improvement
as compared to 1996.  For the twelve months ended December 31, 1997, the Company
earned $13.5 million in operating  income,  as compared to an operating  loss of
$36.1  million in the twelve  months ended  December  31, 1996;  and the Company
earned  $1.6  million in net income in 1997,  as compared to a net loss of $26.7
million in 1996.  Operating results for 1997 were significantly  impacted by the
accelerated  recognition  in the  second  quarter  of $2.0  million  in  prepaid
compensation  expense due to the  resignation of its former  President and Chief
Executive  Officer  in May  1997.  Approximately  $1.7  million  of this  amount
provided no income tax benefit to the Company.

The Company's  1997 operating  revenues  increased  4.3% to $783.2  million,  as
compared to $750.9 million in 1996. Operating revenues per ASM increased 9.6% to
6.19 cents in 1997, as compared to 5.65 cents in 1996.  ASMs  decreased  4.9% to
12.648  billion from 13.296  billion,  RPMs decreased 2.0% to 8.986 billion from
9.172  billion,  and  passenger  load  factor  increased  2.0 points to 71.0% as
compared  to 69.0%.  Yield in 1997  increased  6.5% to 8.72  cents  per RPM,  as
compared to 8.19 cents per RPM in 1996. Total passengers  boarded decreased 6.6%
to 5,307,390 in 1997, as compared to 5,680,496 in 1996,  while total  departures
increased 6.9% to 49,608 from 46,416 between the same comparable periods.

Operating expenses decreased  2.2% to  $769.7  million  in 1997 as  compared  to
$786.9 million  in 1996.  Cost  per ASM  increased 2.9% to 6.09 cents in 1997 as
compared to 5.92 cents in 1996.

Results of Operations in Cents Per ASM

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> 
                                                                1997              1996             1995

Operating revenues:                                             6.19              5.65             5.71

Operating expenses:
    Salaries, wages and benefits                                1.36              1.23             1.13
    Fuel and oil                                                1.22              1.21             1.03
    Handling, landing and navigation fees                       0.55              0.53             0.59
    Depreciation and amortization                               0.49              0.47             0.45
     Aircraft rentals                                           0.43              0.49             0.44
    Aircraft maintenance, materials and repairs                 0.41              0.42             0.44
    Crew and other employee travel                              0.29              0.27             0.25
    Passenger service                                           0.26              0.25             0.28
    Commissions                                                 0.21              0.20             0.20
    Ground package cost                                         0.15              0.14             0.13
    Other selling expenses                                      0.12              0.13             0.12
    Advertising                                                 0.10              0.08             0.07
     Facility and other rents                                   0.07              0.07             0.06
    Disposal of assets                                             -              0.03                 -
    Other operating expenses                                    0.43              0.40             0.37
        Total operating expenses                                6.09              5.92             5.56

    Operating income (loss)                                     0.10             (0.27)            0.15


    ASMs (in thousands)                                      12,647,683        13,295,505       12,521,405

</TABLE>


<PAGE>



Year Ended December 31, 1997, Versus Year Ended December 31, 1996

Consolidated Flight Operations and Financial Data

The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated  flight operations of the Company.  Data
shown for "jet"  operations  includes the  consolidated  operations  of Lockheed
L-1011,  Boeing  727-200 and Boeing  757-200  aircraft  in all of the  Company's
business units.
<TABLE>
<CAPTION>

------------------------------------- ----------------------------------------------------------------
                                                     Twelve Months Ended December 31,
<S>                                        <C>             <C>            <C>            <C> 
                                            1997            1996          Inc (Dec)      % Inc (Dec)
                                      --------------- --------------- ---------------- ---------------
Departures Jet                                39,517          46,416          (6,899)         (14.86)
Departures J31(a)                             10,091               -           10,091             N/M
                                      --------------- --------------- ---------------- ---------------
  Total Departures (b)                        49,608          46,416            3,192            6.88
                                      --------------- --------------- ---------------- ---------------

Block Hours Jet                              129,216         138,114          (8,898)          (6.44)
Block Hours J31                               10,210               -           10,210             N/M
                                      --------------- --------------- ---------------- ---------------
  Total Block Hours (c)                      139,426         138,114            1,312            0.95
                                      --------------- --------------- ---------------- ---------------

RPMs Jet (000s)                            8,967,900       9,172,438        (204,538)          (2.23)
RPMs J31 (000s)                               18,055               -           18,055             N/M
                                      --------------- --------------- ---------------- ---------------
  Total RPMs (000s) (d)                    8,985,955       9,172,438        (186,483)          (2.03)
                                      --------------- --------------- ---------------- ---------------

ASMs Jet (000s)                           12,615,230      13,295,505        (680,275)          (5.12)
ASMs J31 (000s)                               32,453               -           32,453             N/M
                                      --------------- --------------- ---------------- ---------------
  Total ASMs (000s) (e)                   12,647,683      13,295,505        (647,822)          (4.87)
                                      --------------- --------------- ---------------- ---------------

Load Factor Jet                                71.09           68.99             2.10            3.04
Load Factor J31                                55.63               -              N/M             N/M
                                      --------------- --------------- ---------------- ---------------
  Total Load Factor (f)                        71.05           68.99             2.06            2.99
                                      --------------- --------------- ---------------- ---------------

Passengers Enplaned Jet                    5,210,578       5,680,496        (469,918)          (8.27)
Passengers Enplaned J31                       96,812               -           96,812             N/M
                                      --------------- --------------- ---------------- ---------------
  Total Passengers Enplaned (g)            5,307,390       5,680,496        (373,106)          (6.57)
                                      --------------- --------------- ---------------- ---------------

Revenue $(000s)                              783,193         750,851           32,342            4.31
RASM in cents (h)                               6.19            5.65             0.54            9.56
CASM in cents (i)                               6.09            5.92             0.17            2.87
Yield in cents (j)                              8.72            8.19             0.53            6.47
------------------------------------- --------------- --------------- ---------------- ---------------
</TABLE>

N/M - Not meaningful

(a) Effective  April 1, 1997, the Company began service  between  Chicago-Midway
and the cities of Indianapolis,  Milwaukee,  Des Moines, Dayton and Grand Rapids
under an  agreement  with Chicago  Express.  Services  were  expanded to include
Lansing, Michigan and Madison, Wisconsin in October 1997.

(b) A departure is a single  takeoff and landing  operated by a single  aircraft
between an origin city and a destination city.

(c) Block hours for any aircraft  represent  the elapsed time  computed from the
moment  the  aircraft  first  moves  under its own power  from the  origin  city
boarding  ramp to the moment it comes to rest at the  destination  city boarding
ramp.

(d) Revenue  passenger  miles (RPMs)  represent the number of seats  occupied by
revenue passengers multiplied by the number of miles those seats are flown. RPMs
are an industry measure of the total seat capacity actually sold by the Company.

(e) Available seat miles (ASMs) represent the number of seats available for sale
to revenue  passengers  multiplied by the number of miles those seats are flown.
ASMs are an industry  measure of the total seat capacity offered for sale by the
Company, whether sold or not.

(f) Passenger  load factor is the  percentage  derived by dividing RPMs by ASMs.
Passenger load factor is relevant to the evaluation of scheduled service because
incremental  passengers  normally provide  incremental revenue and profitability
when seats are sold individually. In the case of tour operator and U.S. military
business units,  load factor is less relevant because an entire aircraft is sold
by the Company  instead of individual  seats.  Since both costs and revenues are
largely  fixed for these  types of  flights,  changes in load  factor  have less
impact on business unit  profitability.  Consolidated load factors and scheduled
service  load  factors for the Company are shown in the  appropriate  tables for
industry  comparability,  but load factors for individual charter businesses are
omitted from applicable tables.

(g) Passengers  enplaned are the number of revenue passengers who occupied seats
on the  Company's  flights.  This  measure is also  referred  to as  "passengers
boarded."

(h) Revenue per ASM (expressed in cents) is total  operating  revenue divided by
total ASMs.  This  measure is also  referred  to as "RASM."  RASM  measures  the
Company's  ability to maximize  revenues from the sale of total  available  seat
capacity.  In the case of scheduled  service,  RASM is a measure of the combined
impact of load factor and yield (see (j) below for the definition of yield).  In
the case of tour operator and U.S. military businesses, RASM is a measure of the
Company's  ability to maximize  revenues from the sale of an entire  aircraft at
one time. In all cases,  RASM adjusts for the differing  seat  capacities on the
Company's various fleet types.

(i) Cost per ASM  (expressed  in cents) is total  operating  expense  divided by
total ASMs.  This  measure is also  referred  to as "CASM".  CASM  measures  the
Company's effectiveness in minimizing the operating cost of producing total seat
capacity.

(j) Revenue per RPM (expressed in cents) is total  operating  revenue divided by
total RPMs.  This measure is also  referred to as "yield."  Yield is relevant to
the evaluation of scheduled  service because yield is a measure of the Company's
ability to optimize the price paid by  customers  purchasing  individual  seats.
Yield is less relevant to the tour  operator and U.S.  military  business  units
because  the entire  aircraft  is sold at one time for one  price.  Consolidated
yields and  scheduled  service  yields are shown in the  appropriate  tables for
industry comparability, but yields for individual charter businesses are omitted
from applicable tables.

Operating Revenues

Total  operating  revenues for 1997 increased 4.3% to $783.2 million from $750.9
million in 1996.  This increase was due to a $48.6  million  increase in charter
revenues,  partially  offset by a $14.7  million  decrease in scheduled  service
revenues and a $1.6 million decrease in other revenues.

Scheduled  Service  Revenues.  The following  table sets forth,  for the periods
indicated,  certain key operating and financial  data for the scheduled  service
operations of the Company. Data shown for "jet" operations includes the combined
operations of Lockheed  L-1011,  Boeing 727-200 and Boeing  757-200  aircraft in
scheduled service.

<TABLE>
<CAPTION>

------------------------------------- ----------------------------------------------------------------
                                                     Twelve Months Ended December 31,
                                           1997            1996          Inc (Dec)      % Inc (Dec)
                                      --------------- --------------- ---------------- ---------------
<S>                                           <C>             <C>             <C>             <C>    
Departures Jet                                23,800          31,467          (7,667)         (24.37)
Departures J31(a)                             10,091               -           10,091             N/M
                                      --------------- --------------- ---------------- ---------------
  Total Departures (b)                        33,891          31,467            2,424            7.70
                                      --------------- --------------- ---------------- ---------------

Block Hours Jet                               72,883          85,836         (12,953)         (15.09)
Block Hours J31                               10,210               -           10,210             N/M
                                      --------------- --------------- ---------------- ---------------
  Total Block Hours (c)                       83,093          85,836          (2,743)          (3.20)
                                      --------------- --------------- ---------------- ---------------

RPMs Jet (000s)                            4,523,245       4,918,045        (394,800)          (8.03)
RPMs J31 (000s)                               18,055               -           18,055             N/M
                                      --------------- --------------- ---------------- ---------------
  Total RPMs (000s) (d)                    4,541,300       4,918,045        (376,745)          (7.66)
                                      --------------- --------------- ---------------- ---------------

ASMs Jet (000s)                            6,209,825       7,304,897      (1,095,072)         (14.99)
ASMs J31 (000s)                               32,453               -           32,453             N/M
                                      --------------- --------------- ---------------- ---------------
  Total ASMs (000s) (e)                    6,242,278       7,304,897      (1,062,619)         (14.55)
                                      --------------- --------------- ---------------- ---------------

Load Factor Jet                                72.84           67.33             5.51            8.18
Load Factor J31                                55.63               -              N/M             N/M
                                      --------------- --------------- ---------------- ---------------
  Total Load Factor (f)                        72.75           67.33             5.42            8.05
                                      --------------- --------------- ---------------- ---------------

Passengers Enplaned Jet                    3,087,706       3,551,141        (463,435)         (13.05)
Passengers Enplaned J31                       96,812               -           96,812             N/M
                                      --------------- --------------- ---------------- ---------------
  Total Passengers Enplaned (g)            3,184,518       3,551,141        (366,623)         (10.32)
                                      --------------- --------------- ---------------- ---------------

Revenues $(000s)                             371,762         386,488         (14,726)          (3.81)
RASM in cents (h)                               5.96            5.29             0.67           12.67
Yield in cents (j)                              8.19            7.86             0.33            4.20
Rev per segment $ (k)                         116.74          108.83             7.91            7.27
------------------------------------- --------------- --------------- ---------------- ---------------
</TABLE>

N/M - Not Meaningful
See footnotes (a) through (j) on pages 24-25.

(k) Revenue per segment flown is determined by dividing total scheduled  service
revenues  by the number of  passengers  boarded.  Revenue per segment is a broad
measure  of the  average  price  obtained  for  all  flight  segments  flown  by
passengers in the Company's scheduled service route network.

Scheduled  service revenues in 1997 decreased 3.8% to $371.8 million from $386.5
million in 1996.  Scheduled  service  revenues  comprised  47.5% of consolidated
revenues  in  1997,  as  compared  to 51.5% of  consolidated  revenues  in 1996.
Scheduled service RPMs decreased 7.7% to 4.541 billion from 4.918 billion, while
ASMs  decreased  14.6% to 6.242  billion  from 7.305  billion,  resulting  in an
increase of 5.5 points in passenger load factor to 72.8% in 1997,  from 67.3% in
1996.  Scheduled  service yield in 1997  increased  4.2% to 8.19 cents from 7.86
cents in 1996,  while RASM increased 12.7% to 5.96 cents from 5.29 cents between
the same periods.  Scheduled service departures in 1997 increased 7.7% to 33,891
from 31,467 in 1996;  block hours  decreased 3.2% to 83,093 in 1997, from 85,836
in 1996; and passengers boarded decreased 10.3% between periods to 3,184,518, as
compared to 3,551,141.

The  Company  added  scheduled  service  capacity  during  the  second and third
quarters  of 1996  which  primarily  included  expanded  direct  and  connecting
frequencies  through the Company's four major gateway cities of  Chicago-Midway,
Indianapolis,  Milwaukee  and Boston to west coast and Florida  markets  already
being served.  New seasonal  scheduled service was also introduced in the second
and third  quarters of 1996 from New York to Shannon and  Dublin,  Ireland,  and
Belfast,  Northern  Ireland,  and from the  midwest to Seattle.  New  year-round
service also commenced to San Diego, California, in the second quarter of 1996.

The introduction of this new capacity coincided closely,  however,  with the May
11, 1996 ValuJet accident in Florida and the resulting persistent negative media
attention  directed  toward  airline  safety,  and  especially  toward  low-fare
airlines.  On May 12, the Company experienced a cabin decompression  incident on
one of its own flights which,  although it resulted in no serious injury to crew
or passengers,  nevertheless  attracted  additional  negative  media  attention,
occurring as it did one day after the ValuJet tragedy. As a consequence,  during
the  second and third  quarters  of 1996,  the  Company  estimates  that it lost
significant  scheduled  service  revenues  from both canceled  reservations  and
reservations which were never received.

In association with the 1996  restructuring of the Company's  scheduled  service
operations, a significant reduction in scheduled service was announced on August
26, 1996.  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 as discussed further below. In association with this
service reduction,  all scheduled service ceased at Seattle,  Grand Cayman, West
Palm Beach, Montego Bay, Miami and San Diego.

On  October  27,  1996 the  Company  also  implemented  a  commuter  code  share
partnership  with  Chicago  Express to provide  incremental  connecting  traffic
between  Indianapolis,  Milwaukee and other smaller  midwestern  cities into the
Company's  Chicago-Midway   connections  with  certain  Florida  and  west-coast
destinations.  This  partnership was replaced with a contractual  agreement with
Chicago  Express  effective  April 1, 1997,  under  which  Chicago  Express  now
operates 19-seat Jetstream 31 propeller aircraft between  Chicago-Midway and the
cities of  Indianapolis,  Milwaukee,  Des Moines,  Dayton and Grand  Rapids,  on
behalf of ATA. Service between Chicago-Midway and Lansing, Michigan and Madison,
Wisconsin  was added under this  agreement  effective  in the fourth  quarter of
1997.

After the 1996  restructuring,  the Company's  1997 core jet  scheduled  service
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 from San
Francisco, Los Angeles and Phoenix; and service between Orlando and San Juan and
Nassau.

As a result of the restructuring of scheduled  service  operations in the manner
described above,  scheduled service profitability was substantially  improved in
1997 as compared to 1996.  Profitability  was enhanced  through a combination of
significantly higher load factors and yields between periods,  even though total
revenues in scheduled  service declined between years. The Company believes that
profitability   was  enhanced  in  this  business  unit  through  the  selective
elimination of flights which had previously produced  below-average load factors
and yield, and that the elimination of intra-Florida  flying in particular was a
prominent  factor in this  improvement.  Profitability  was further  enhanced in
certain  scheduled  service markets  through the  reassignment of aircraft fleet
types to provide  better balance within markets  between  revenues,  costs,  and
aircraft operational capabilities.

Scheduled service profitability improvement in 1997 was accomplished in spite of
what would normally have been a demand-dampening effect from the re-introduction
of the U.S.  departure and 10% federal excise taxes on tickets on March 7, 1997,
which had expired on January 1, 1997. In August 1997,  federal  legislation  was
enacted  which  extends  these  taxes  until 2007.  The U.S.  departure  tax for
international destinations was increased from $6 to $12 per passenger, and a new
U.S.  arrivals tax of $12 per passenger was added for  passengers  arriving into
the United States from international cities.  Effective October 1, 1997, the new
tax law also changed the method of  computation of the federal excise tax from a
standard  10% of ticket sale value,  to a  declining  percentage  of ticket sale
value (ranging from 9.0% to 7.5%), plus an increasing  inflation-indexed  charge
per  passenger  segment  flown  (ranging  from $1 to $3).  The Company  does not
currently  believe that the change in federal excise tax  computation has placed
it at either a significant  pricing advantage or disadvantage as compared to the
previous  computation  method.  The Company  does  believe  that  certain of its
low-fare  competitors may be disadvantaged by the new computation  method due to
their lower  average  segment  fares and higher  average  intermediate  stops as
compared to the Company in similar markets.

The  Company  continues  to  evaluate  the  profit and loss  performance  of its
scheduled  service  business,  and the Company may change the level of scheduled
service  operations  from time to time.  The  Company  began new service in June
1997,   between  New  York's   John  F.   Kennedy   International   Airport  and
Chicago-Midway,   Indianapolis  and  St.  Petersburg,  and  also  added  several
frequencies  between the midwest and the west coast for the summer  season.  New
York service to  Chicago-Midway  and St. Petersburg was retained for the 1997-98
winter season. New nonstop service between Chicago-Midway and Dallas/Ft.  Worth,
San Juan and Denver have been announced beginning in May 1998. In addition,  the
Company's  application for slots at New York's  LaGuardia  Airport are currently
pending with the DOT which,  if approved,  the Company  intends to use for daily
frequencies from Chicago-Midway.

Charter Revenues.  The Company's  charter revenues are derived  principally from
independent  tour  operators,  specialty  charter  customers 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.  Total charter  revenues  increased  15.6% to $359.2  million in 1997, as
compared to $310.6 million in 1996.  Charter revenue growth,  prior to scheduled
service  restructuring in late 1996, had been 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  service
to Ireland and Northern  Ireland  between May and September  1996. The Company's
restructuring  strategy, as reflected in the Company's results of operations for
1997,  included a renewed  emphasis  on charter  revenue  sources.  The  Company
believes  that tour  operator,  specialty  charter and military  operations  are
businesses   where  the  Company's   experience  and  size  provide   meaningful
competitive advantage.  Charter revenues produced 45.9% of consolidated revenues
in 1997, as compared to 41.4% in 1996.

Tour  Operator  Programs.  The  following  table  sets  forth,  for the  periods
indicated, certain key operating and financial data for the tour operator flying
operations of the Company.
<TABLE>
<CAPTION>

----------------------------------- ----------------------------------------------------------------
                        Twelve Months Ended December 31,
                         1997 1996 Inc (Dec) % Inc (Dec)
<S>                                         <C>              <C>              <C>            <C>   
Departures (b)                              10,589           10,920           (331)          (3.03)
Block Hours (c)                             36,836           38,154         (1,318)          (3.45)
RPMs (000s) (d)                          3,373,840        3,470,450        (96,610)          (2.78)
ASMs (000s) (e)                          4,169,102        4,363,220       (194,118)          (4.45)
Passengers Enplaned (g)                  1,840,056        1,854,262        (14,206)          (0.77)
Revenue $(000s)                            228,062          226,400           1,662            0.73
RASM in cents (h)                             5.47             5.19            0.28            5.39
----------------------------------- --------------- ---------------- --------------- ---------------
</TABLE>

See footnotes (b) through (h) on pages 24-25.

Charter  revenues  derived from  independent  tour  operators  increased 0.8% to
$228.1  million in 1997,  as compared to $226.4  million in 1996.  Tour operator
RPMs decreased  2.8% to 3.374 billion in 1997 from 3.470 billion in 1996,  while
ASMs  decreased  4.4% to 4.169  billion from 4.363  billion.  Tour operator RASM
increased  5.4% to 5.47 cents from 5.19 cents  between  the same  periods.  Tour
operator  passengers boarded decreased 0.8% to 1,840,056 in 1997, as compared to
1,854,262 in 1996; tour operator departures decreased 3.0% to 10,589 in 1997, as
compared to 10,920 in 1996;  and tour  operator  block hours  decreased  3.5% to
36,836 in 1997, as compared to 38,154 in 1996.

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 low  frequency  but  repetitive
domestic  and  international  flights  between  city pairs,  which  support high
passenger  load  factors and are  marketed  through  tour  operators,  providing
value-priced  and convenient  nonstop service to vacation  destinations  for the
leisure traveler.  Since track charter  resembles  scheduled service in terms of
its repetitive  flying patterns  between fixed city pairs, it allows the Company
to achieve  reasonable  levels of crew and aircraft  utilization  (although less
than for scheduled service), and provides the Company with meaningful protection
from some fuel price increases through the use of fuel escalation  reimbursement
clauses in tour operator contracts.

The Company believes that although price is the principal  competitive criterion
for its tour operator programs, product quality,  reputation for reliability and
delivery  of  services  which are  customized  to  specific  needs  have  become
increasingly important to the buyer of this product. Accordingly, as the Company
continues to emphasize the growth and  profitability  of this business  unit, it
will seek to maintain  its low-cost  pricing  advantage,  while  differentiating
itself from  competitors  through the  delivery of  customized  services and the
maintenance of consistent and dependable operations. In this manner, the Company
believes that it will produce  significant  value for its tour operator partners
by  delivering  an  attractively   priced  product  which  exceeds  the  leisure
traveler's expectations.

Specialty charter is a product which is designed to meet the unique requirements
of the customer and is a business  characterized by lower frequency of operation
and by greater  variation in city pairs served than the track charter  business.
Specialty charter includes such diverse contracts as flying university alumni to
football games,  transporting  political candidates on campaign trips and moving
NASA space shuttle  ground crews to alternate  landing  sites.  The Company also
operates an  increasing  number of trips in  all-first-class  configuration  for
certain  corporate and high-end leisure clients.  Although lower  utilization of
crews and aircraft and infrequent service to specialty destinations often result
in higher average  operating  costs, the Company has determined that the revenue
premium  earned by  meeting  special  customer  requirements  usually  more than
compensates for these increased costs. In addition,  specialty  charter programs
sometimes  permit the  Company  to  increase  overall  aircraft  utilization  by
providing  filler  traffic during periods of low demand from other programs such
as track charter.  The Company believes that it is  competitively  advantaged to
attract this type of business due to the size and  geographic  dispersion of its
fleet,  which reduces  costly ferry time for aircraft and crews and thus permits
more competitive  pricing. The diversity of the Company's three fleet types also
permits  the  Company to meet a  customer's  particular  needs by  choosing  the
aircraft   type  which   provides  the  most   economical   solution  for  those
requirements.


Military Programs.  The following table sets forth,  for the periods  indicated,
certain key  operating and financial data for  the military flight operations of
the Company.
<TABLE>
<CAPTION>

-------------------------------- ---------------------------------------------------------------
                        Twelve Months Ended December 31,
                         1997 1996 Inc (Dec) % Inc (Dec)
<S>                                       <C>             <C>             <C>             <C>  
Departures (b)                            4,860           3,414           1,446           42.36
Block Hours (c)                          18,704          12,294           6,410           52.14
RPMs (000s) (d)                       1,044,317         665,494         378,823           56.92
ASMs (000s) (e)                       2,165,169       1,442,113         723,056           50.14
Passengers Enplaned (g)                 265,862         185,575          80,287           43.26
Revenue $(000s)                         131,115          84,200          46,915           55.72
RASM in cents (h)                          6.06            5.84            0.22            3.77
-------------------------------- --------------- --------------- --------------- ---------------
</TABLE>

See footnotes (b) through (h) on pages 24-25.

Charter  revenues  derived  from  the  U.S.  military increased 55.7% to $131.1 
million  in 1997, as  compared  to $84.2 million  in 1996.  U.S.  military  RPMs
increased 56.9% to 1.044 billion in 1997, from 665.5 million in 1996, while ASMs
increased 50.1% to 2.165  billion from 1.442  billion.  Military RASM  increased
3.8% to 6.06 cents from 5.84 cents between the same time periods. U.S.  military
passengers boarded increased 43.3% to 265,862 in 1997, as compared to 185,575 in
1996; U.S. military departures  increased  42.4% to 4,860 in 1997,  as  compared
to 3,414 in 1996;  and U.S.  military  block  hours increased 52.1% to 18,704 in
1997 as compared to 12,294 in 1996.

The Company participates in two related military programs known as "fixed award"
and "short-term  expansion." Pursuant to the U.S. military's fixed award system,
each participating  airline is awarded certain "mobilization value points" based
upon the number and type of aircraft made available by that airline for military
flying.  In order to increase the number of points awarded,  in 1992 the Company
entered into a contractor  teaming  arrangement  with four other cargo  airlines
serving  the U.S.  military.  Under  this  arrangement,  the team has a  greater
likelihood of receiving  fixed award  business and, to the extent that the award
includes  passenger  transport,  the opportunity for the Company to operate this
flying is enhanced since the Company  represents all of the passenger  transport
capacity of the team. As part of its participation in this teaming  arrangement,
the Company pays a commission  to the team,  which passes that revenue on to all
team members based upon their mobilization points. All airlines participating in
the fixed award business contract annually with the U.S. military from October 1
to the following  September 30. For each contract year,  reimbursement rates are
determined for aircraft types and mission  categories  based upon operating cost
data submitted by the participating airlines.  These contracts generally are not
subject to renegotiation once they become effective.

Short-term  expansion  business is awarded by the U.S.  military  first on a pro
rata basis to those carriers who have been awarded  fixed-contract  business and
then to any  other  carrier  with  aircraft  availability.  Expansion  flying is
generally offered to airlines on very short notice.

The U.S. military business grew at a faster  year-over-year  rate than any other
business unit of the Company during 1997. In 1997,  the Company's U.S.  military
revenues  represented  16.8% of consolidated  revenues,  as compared to 11.2% in
1996.  As  a  result  of  the   restructuring  of  scheduled   service  and  the
reconfiguration  of the Company's  fleet in 1996, the Company  committed four of
its  seven  remaining  Boeing  757-200  aircraft  to the U.S.  military  for the
contract year ending  September 30, 1997. As a result of an analysis  undertaken
during 1996, the Company was also successful in more accurately  documenting the
actual costs  associated  with military  flying and was therefore able to obtain
rate increases for the contract year ending  September 30, 1997. The Company has
obtained  additional  rate increases for the contract year ending  September 30,
1998.

Because military flying is generally less seasonal than leisure travel programs,
the Company believes that a larger U.S. military business operation will tend to
have a stabilizing impact on seasonal earnings fluctuations. The Company is also
contractually  protected  from  changes  in fuel  prices.  The  Company  further
believes that its fleet of aircraft is  competitively  advantaged to serving the
transportation  needs of the U.S.  military.  Although  foreign  bases have been
reduced in troop size,  the U.S.  military still desires to maintain its service
frequency   to  those  bases  and   therefore   often  has  a   preference   for
smaller-capacity,  long-range  aircraft  such as the Company's  Boeing  757-200.
Furthermore,  in 1993, the Company  became the first North  American  carrier to
receive FAA  certification  to operate Boeing 757-200  aircraft with  180-minute
ETOPS,  which permits these aircraft to operate missions over water which can be
up to three hours from the nearest alternate airport.  The Company believes that
this certification,  which applies to all of the Company's Boeing 757-200 fleet,
provides a competitive advantage in receiving awards of certain military flying.

The overall  amount of military  business  that the Company  receives in any one
year is dependent upon the  percentage its team is of the total,  the percentage
it is of the  passengers'  business  of the team,  and the  amount of  expansion
business  available and which the Company is able to fly. In 1997,  there was an
unusual  amount of both contract and  expansion  business that was available for
the  Company.  In 1998,  the Company  expects  that there will be somewhat  less
flying available for it to do.

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.  In 1997 and 1996,
ground package revenues were unchanged at $22.3 million.

The Company's Ambassadair Travel Club offers hundreds of  tour-guide-accompanied
vacation  packages to its  approximately  35,000  individual  and family members
annually. In 1997, total packages sold increased 9.4% over 1996, and the average
revenue earned for each ground package sold increased 8.2% between periods .

ATA Vacations offers numerous ground package  combinations to the general public
for use on the Company's scheduled service flights throughout the United States.
These  packages are marketed  through  travel  agents as well as directly by the
Company.  During 1997,  the number of ground  packages  sold  increased  0.5% as
compared to 1996.  Lack of growth in the number of ground  packages sold between
periods  was mainly due to the  reduction  of the  Company's  scheduled  service
operations  between  years.  During 1997,  the average  revenue  earned for each
ground package sold decreased 15.8% as compared to 1996.

The  average  revenue  earned  by 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,  all of which
factors can change from period to period.

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 ATA.  Other  revenues
decreased  5.1% to $29.9  million in 1997, as compared to $31.5 million in 1996,
primarily  due to a reduction in revenues  earned  between  periods by providing
substitute  service to other  airlines,  partially  offset by increases in other
miscellaneous  revenue  categories.  A substitute  service  agreement  typically
provides for the Company to operate aircraft with its crews on routes designated
by the customer  airline to carry the  passengers  of that airline for a limited
period of time.

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 in 1997 increased 5.2% to $172.5 million from $164.0
million in 1996.

Approximately  $3.2 million of the increase  between periods was attributable to
changes  made in the third  quarter of 1996 in senior  executive  positions  and
associated senior executive  compensation plans. Special  compensation  totaling
$3.0 million was prepaid to the Company's  former  President and Chief Executive
Officer during the fourth  quarter of 1996 and the first quarter of 1997,  which
was  being  amortized  to  expense  over the  anticipated  two-year  term of his
employment  ending  August  1998.  Due to his  resignation  in late May 1997,  a
one-time charge to expense for the unamortized  $2.0 million prepaid balance was
made in the second quarter of 1997 to salaries,  wages and benefits,  whereas no
such charge to expense was incurred in the prior year.

The cost of salaries and wages earned by cockpit crew members and related flight
operations  support staff in 1997 was approximately  $5.8 million higher than in
1996.  These cost  increases  were incurred even though jet block hours flown by
cockpit crew members declined by 6.4% between periods. This increase in the unit
cost of cockpit crews was attributable to the following significant factors: (i)
the implementation of the cockpit crew collective bargaining agreement in August
1996, under which a 7.5% rate increase became  effective;  (ii) crew utilization
for U.S.  military flying is significantly  lower than for scheduled service and
tour operator flying, and U.S. military block hours increased as a percentage of
total block hours to 14.5% in 1997,  as compared to 8.9% in 1996;  (iii) cockpit
crew  shortages  during the first three quarters of 1997 resulted in the need to
increase  premium pay to cockpit crew members in order to  adequately  staff the
spring and summer  flying  schedule;  and (iv)  cockpit  crew  productivity  was
reduced by the fleet  restructuring  completed  during 1996, which increased the
percentage  of jet block hours  flown by  three-crew-member  aircraft  (Lockheed
L-1011 and Boeing 727-200) to 78.9% in 1997, as compared to 70.6% in 1996.

The salaries, wages and benefits cost for other employee groups declined by $0.8
million in 1997 as compared to 1996. These costs declined  partially as a result
of the  decline  in  equivalent  full-time  employment  between  periods.  Total
equivalent  full-time  employment  declined  by  7.7%  between  years,  although
equivalent  full-time  employment in the fourth quarter of 1997 was 10.0% higher
that in the fourth  quarter of 1996. The increase in employment in late 1997 was
primarily due to the addition of cockpit and cabin crews and reservations agents
to adequately  staff expected  growth in flying capacity in 1998 compared to the
fourth  quarter of 1996 when the Company had just  completed  significant  staff
reductions.

In  addition  to those  planned  staff  reductions  completed  during the fourth
quarter of 1996,  the change in salaries,  wages and benefits  expense for other
employee groups was significantly  affected by reduced employment in Maintenance
and Engineering, which accounted for a $1.4 million reduction in expense between
1997 and 1996. Employment of Maintenance and Engineering staff, such as airframe
and  powerplant  mechanics  and  engineers,  was  constrained  in 1997 by  broad
shortages in related labor markets  attributable  to very strong  current demand
for these skills within the airline industry.  The Company  compensated for some
of  these  shortages  in 1997 by  acquiring  these  skills  through  third-party
contract  labor  vendors.  The cost of  maintenance  contract  labor (which is a
component of Aircraft  Maintenance,  Materials  and  Repairs)  increased by $2.3
million in 1997 as compared to 1996.

Salaries, wages and benefits cost per ASM increased 10.6% in 1997 to 1.36 cents,
as compared to 1.23 cents in 1996.

Fuel and Oil.  Fuel and oil expense for 1997  decreased  4.7% to $153.7  million
from $161.2  million in 1996.  During  1997,  as  compared to 1996,  the Company
consumed 3.1% fewer gallons of jet fuel for flying operations, which resulted in
a reduction in fuel expense of approximately  $5.4 million between periods.  The
reduction in jet fuel  consumed was due to the reduced  number of block hours of
jet flying operations between years. The Company flew 129,216 jet block hours in
1997, as compared to 138,114 jet block hours in 1996, a decrease of 6.4% between
periods.  During 1997,  the  Company's  average cost per gallon of fuel consumed
decreased by 1.8% as compared to 1996,  which resulted in a decrease in fuel and
oil expense of  approximately  $2.9 million between years.  Also during the last
three quarters of 1997, the Company incurred  approximately $1.0 million in fuel
and oil expense to operate the Jetstream 31 aircraft  under its  agreement  with
Chicago Express, which was not in effect in the last three quarters of 1996.

Fuel and oil expense  increased  0.8% to 1.22 cents per ASM in 1997, as compared
to 1.21 cents per ASM in 1996.  The increase in the cost per ASM of fuel and oil
expense  between  periods was partly due to the change in mix of jet block hours
flown from the  more-fuel-efficient  twin-engine  Boeing 757-200 aircraft to the
less-fuel-efficient three-engine Boeing 727-200 and Lockheed L-1011 aircraft. In
1997,  21.1% of total jet block hours were flown by the Boeing 757-200 fleet, as
compared to 29.4% in 1996.  The  increase in cost per ASM caused by the shift in
fleet  mix of jet  block  hours  flown  was  substantially  offset  by the  1.8%
reduction in the average cost of jet fuel between periods.

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.  Where  the
Company  uses its own  employees  to  perform  ground  handling  functions,  the
resulting cost appears within salaries,  wages and benefits. Air navigation fees
are assessed when the Company's aircraft fly over certain foreign airspace.

Handling,  landing and  navigation  fees  decreased by 1.0% to $69.4  million in
1997,  as compared to $70.1 million in 1996.  During 1997,  the average cost per
system  jet  departure  for  third-party  aircraft  handling  increased  6.9% as
compared to 1996,  and the average cost of landing fees per system jet departure
increased 5.2% between the same periods.  Due to the  restructuring of scheduled
service in the fourth  quarter of 1996, the absolute  number of system-wide  jet
departures between 1997 and 1996 declined by 14.9% to 39,517 from 46,416,  which
resulted in approximately  $7.4 million in  volume-related  handling and landing
expense reductions between periods.  This  volume-related  decline was partially
offset,  however,  by an approximately $4.8 million  price-related  handling and
landing expense increase between periods  attributable  primarily to a change in
jet departure  mix.  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 and the fleet composition of departing aircraft. On average, handling and
landing fee costs for  Lockheed  L-1011  wide-body  aircraft are higher than for
narrow-body  aircraft,  and average costs at foreign airports are higher than at
many U.S.  domestic  airports.  As a result of the  reduction  in the  Company's
narrow-body  Boeing  757-200 fleet and the shift of revenue  production  towards
charter   operations,   the   Company's   jet   departures   in  1997   included
proportionately  more  international  and wide-body  operations than in 1996. In
1997,  21.1% of the  Company's  jet  departures  were  operated  with  wide-body
aircraft,  as compared  to 19.4% in 1996,  and 22.4% of the  Company's  1997 jet
departures were from international  locations, as compared to 18.9% in the prior
year.

The cost per ASM for handling,  landing and  navigation  fees  increased 3.8% to
0.55 cents in 1997, from 0.53 cents in 1996.

Depreciation and Amortization.  Depreciation  reflects the periodic expensing of
the recorded  cost of owned  airframes  and engines,  and rotable  parts for all
fleet types,  together with other  property and equipment  owned by the Company.
Amortization  is primarily 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  increased 1.3% to $62.5 million in 1997,
as compared to $61.7 million in 1996.

Depreciation  expense attributable to owned airframes and engines decreased $0.4
million in 1997 as compared  to 1996.  The  Company  reduced its  year-over-year
investment in engines and airframe  improvements due to the  reconfiguration  of
the Boeing  757-200 fleet in the fourth  quarter of 1996. As a result of the net
reduction of four Boeing 757-200  aircraft at the end of 1996 as compared to the
end of 1995,  and the complete  elimination  of Pratt &  Whitney-powered  Boeing
757-200s from the fleet, some airframe and leasehold  improvements were disposed
of, and all spare Pratt & Whitney engines and rotable parts were reclassified as
Assets Held for Sale in the  accompanying  balance  sheet.  None of these assets
therefore  gave rise to  depreciation  expense in 1997. The Company did increase
its investment in computer  equipment and furniture and fixtures  between years;
placed  the west bay of the  renovated  Midway  Hangar  No.  2 into  service  in
mid-1996; and incurred increased debt issue costs between years relating to debt
facility  and  senior  unsecured  notes  issued,   as  well  as  aircraft  lease
negotiations  completed  primarily in the fourth quarter of 1996. These changes,
together with increased costs pertaining to remaining rotable components and the
provision  for  obsolescence  of  aircraft  parts  inventories,  resulted  in an
increase in depreciation expense of $0.8 million in 1997 as compared to 1996.

Amortization of capitalized engine and airframe overhauls increased $0.4 million
in  1997 as  compared  to  1996  after  including  the  offsetting  amortization
associated  with  manufacturers'  credits.  Changes  to  the  cost  of  overhaul
amortization  were partly due to the  reduction  of total block hours and cycles
flown between  comparable  periods.  This expense was also favorably impacted by
the late-1996  reconfiguration  of the Boeing  757-200 fleet and, in particular,
the  disposal  of all  Pratt &  Whitney-powered  Boeing  757-200  aircraft.  All
unamortized net book values of engine and airframe  overhauls  pertaining to the
Pratt &  Whitney-powered  aircraft  were  charged to the cost of the disposal of
these  assets  in the third  quarter  of 1996.  The  Company's  seven  remaining
Rolls-Royce-powered  Boeing 757-200  aircraft,  four of which were delivered new
from the  manufacturer in late 1995 and late 1996, are not presently  generating
any  engine  and  airframe  overhaul  expense  since the  initial  post-delivery
overhauls for the Rolls-Royce-powered  Boeing 757-200s are not yet due under the
Company's  maintenance  programs.  The net  reduction  in  engine  and  airframe
amortization  expense in 1997  pertaining  to changes  in the  Company's  Boeing
757-200  fleet was  approximately  $3.5 million as compared to 1996.  Engine and
airframe  amortization  for the  Company's  fleet  of  Boeing  727-200  aircraft
increased by  approximately  $2.6 million in 1997 as compared to 1996 due to the
on-going expansion of this fleet type and due to the completion of new overhauls
for Pratt & Whitney  JT8D  engines  that power the  Boeing  727-200  fleet.  The
increase  between  years in engine and  airframe  amortization  expense  for the
Company's  Lockheed  L-1011  fleet was  approximately  $0.8  million,  which was
primarily due to the addition of airframe overhauls to the fleet.

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 was unchanged between 1997
and 1996. When these engine failures can be economically  repaired,  the related
repairs are charged to aircraft maintenance, materials and repairs expense.

Depreciation  and  amortization  expense  per ASM  increased  6.5% to 0.49 cents
in 1997, as compared to 0.46 cents in the prior year.

Aircraft  Rentals.  Aircraft  rentals  expense for 1997 decreased 16.8% to $54.4
million  in 1997  from  $65.4  million  in 1996.  This  decrease  was  primarily
attributable to the reconfiguration of the Company's Boeing 757-200 fleet in the
fourth  quarter  of 1996,  as a result  of which the  number  of Boeing  757-200
aircraft operated by the Company was reduced by four units. The reduction in the
size of the Boeing 757-200 fleet was an integral component of the Company's 1996
restructuring  of scheduled  service,  based upon  profitability  analysis which
disclosed that, for some uses of the Boeing 757-200 in the Company's markets, it
was more  profitable to substitute  other aircraft with lower  ownership  costs.
Aircraft  rentals  expense  declined by $14.4 million between 1997 and 1996 as a
result of the Boeing 757-200 fleet restructuring.

Four  additional   Boeing  727-200   aircraft  were  acquired  and  financed  by
sale/leasebacks  at various times during the first three quarters of 1996, while
one Boeing  727-200  aircraft  previously  on an operating  lease was  purchased
during the second quarter of 1996, and was subsequently  sold and leased back in
September  1997.  The net increase in leased  Boeing  727-200  aircraft  between
years,  together with the incorporation of hushkits into new  sale/leasebacks of
several  Boeing 727-200  aircraft  between  periods,  added  approximately  $3.2
million in aircraft rentals expense between 1997 and 1996.

Aircraft  rentals  expense  for 1997 was 0.43 cents per ASM, a decrease of 12.2%
from 0.49 cents per ASM in 1996.  The  period-to-period  decrease 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  continue  at lower  levels in
future quarters.

Aircraft  Maintenance,  Materials and Repairs. This expense 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  6.7% to $51.5
million  in 1997,  as  compared  to  $55.2  million  in  1996.  The cost per ASM
decreased by 2.4% to 0.41 cents in 1997,  as compared to 0.42 cents in the prior
year.

Repair costs were $4.2 million lower in 1997 as compared to the prior year. This
was due to a reduction  in both the total  number of repairs  performed  and the
average unit cost of repairs  between  periods.  Negotiations  were completed in
early 1997 with several  repair  vendors which  resulted in reduced unit charges
for some repair activity.  Additionally,  the Company  established a maintenance
disposition  board in late  1996  which  carefully  reviews  significant  repair
decisions in light of anticipated fleet  requirements and the available quantity
of serviceable components in stock.

The cost of expendable parts consumed increased $1.9 million in 1997 as compared
to 1996.  The  increase in the cost of  expendable  parts  consumed  was closely
related to the Company's heavy maintenance  check programs for its fleet,  which
resulted in several more heavy airframe  checks being  completed in 1997 than in
the previous year.

The cost of  maintenance  contract  labor  increased  by $2.3 million in 1997 as
compared to 1996. As explained above under  "Salaries,  Wages and Benefits," the
Company  increased its  utilization  of  maintenance  contract  labor in 1997 to
compensate  for  some  shortages  of  airframe  and  powerplant   mechanics  and
engineers.

The cost of parts loans and exchanges was $1.3 million lower in 1997 as compared
to 1996 due to improved internal procedures to limit the need for such loans and
exchanges.

Many 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 1997 were $1.8 million
lower than in 1996, primarily due to the negotiation of new terms and conditions
for several  aircraft  leases during 1997,  which  eliminated  return  condition
obligations which had existed prior to those negotiations.

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 unit 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 1.9% to $36.6 million in
1997, as compared to $35.9 million in 1996.  During 1997, the Company's  average
full-time-equivalent  cockpit  and  cabin  crew  employment  was  8.6%  lower as
compared to the prior year,  even though jet block hours  decreased by only 6.4%
between periods.  Although the Company did experience some crew shortages in the
first quarter of 1996 associated  with severe winter weather,  shortages of both
cockpit and cabin crews were more chronic in the first nine months of 1997,  and
per-crew-member  travel costs were consequently higher since crews spent greater
amounts of time away from their  bases to operate  the  Company's  schedule.  In
addition,  average crew travel costs for the U.S. military and specialty charter
businesses  are much higher than for track charter and  scheduled  service since
these flights more often operate away from crew bases.

The cost per ASM for crew and other employee travel increased 7.4% to 0.29 cents
in 1997, as compared to 0.27 cents in 1996.

Passenger Service.  Passenger service expense includes the onboard costs of meal
and  non-alcoholic  beverage  catering,  the  cost of  alcoholic  beverages  and
in-flight movie 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 1997  and  1996,
catering represented 83.0% and 80.4%,  respectively,  of total passenger service
expense.

The  cost of  passenger  service  increased  0.3% in 1997 to $32.8  million,  as
compared to $32.7 million in 1996. This change between periods was primarily due
to an  increase  of  approximately  8.4%  in the  average  cost  to  cater  each
passenger,  offset by a decrease of 8.3% in jet passengers  boarded to 5,210,578
in 1997, as compared to 5,680,496 in 1996. Catering unit cost increased due to a
change in the mix of passengers boarded from fewer scheduled service toward more
charter and military passengers;  the latter passengers,  particularly military,
are the  most  expensive  passengers  to cater in the  Company's  business  mix.
Military and charter  passengers  accounted for 40.4% of  passengers  boarded in
1997, as compared to 35.9% of passengers boarded in 1996.

The cost per ASM of passenger  service  increased 4.0% to 0.26 cents in 1997, as
compared to 0.25 cents in 1996.

Commissions. The Company incurs 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 decreased 2.2% to $26.1 million in 1997, as compared to $26.7 million in
1996.  Scheduled  service  commissions  expense declined by $2.2 million between
periods,  primarily  as a  result  of the  decline  in total  scheduled  service
revenues  earned,  and also as a result  of an  industry-wide  reduction  in the
standard  travel  agency  commission  rate from 10% to 8% during  October  1997.
Military and tour  operator  commissions  expense  increased by $1.9 million and
$0.1  million,  respectively,  due  to the  increased  level  of  commissionable
revenues earned in those business units in 1997 as compared to 1996.

The cost per ASM of commissions expense increased by 5.0% to 0.21 cents in 1997,
as compared to 0.20 cents in 1996.

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  5.5% to $19.2  million in 1997,  as
compared to $18.2  million in 1996.  The  increase in cost  between  periods was
primarily due to a 9.4% increase in the number of  Ambassadair  ground  packages
sold.  There was no material  change in the average cost of ground packages sold
between years.

Ground package cost per ASM increased by 7.1% to 0.15 cents in 1997, as compared
to 0.14 cents in 1996.

Other Selling Expenses. Other selling expenses are comprised of (i) booking fees
paid to computer  reservation  systems (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  decreased 11.9% to
$15.5 million in 1997, as compared to $17.6 million in 1996.

CRS fees  decreased  $1.3 million in 1997 as compared to 1996 due to both a 7.7%
decrease in total CRS bookings made for the smaller  scheduled  service business
unit between  periods,  and due to a 14.4% reduction in the average cost of each
CRS booking made between years. Toll-free telephone costs decreased $0.7 million
between  periods due to less usage and lower rates.  Other  selling cost per ASM
decreased  7.7% to 0.12 cents in 1997, as compared to 0.13 cents in the previous
year.

Advertising.  Advertising  expense  increased 23.3% to $12.7 million in 1997, as
compared  to $10.3  million  in  1996.  The  Company  incurs  advertising  costs
primarily  to  support  single-seat  scheduled  service  sales  and the  sale of
air-and-ground  packages.  Advertising  support for these lines of business  was
increased in 1997 consistent with the Company's overall strategy to enhance RASM
in these businesses  through  increases in load factor and yield.  Additionally,
advertising  was  comparatively  low in the  third  quarter  of 1996  due to the
restructuring of numerous  scheduled  service markets which was initiated in the
latter part of that quarter.

The cost  per ASM of  advertising  increased  25.0%  to 0.10  cents in 1997,  as
compared  to 0.08 cents in 1996.  This  increase in cost per ASM  resulted  from
higher absolute  advertising  dollars being spent in a period of declining ASMs,
but was  nevertheless  an  integral  part of the  Company's  strategy in 1997 to
enhance profitability in the scheduled service business.

Facility and Other Rentals.  Facility and other rentals includes the cost of all
ground facilities that are leased by the Company such as airport space, regional
sales  offices  and general  offices.  The cost of  facility  and other  rentals
decreased  10.4% to $8.6  million in 1997,  as compared to $9.6 million in 1996.
There were some changes in specific  facilities  utilized by the Company between
periods,  such  as the  addition  of  hangar  space  at  Chicago-Midway  and the
elimination  of airport  facilities  at Boston.  The Company also reduced  total
facility  expense  between  years  through the sublease of excess  facilities to
third parties.

The cost per ASM for facility and other rentals was unchanged between periods at
0.07 cents.

Other  Operating  Expenses.  Other  operating  expenses  increased 0.9% to $54.3
million in 1997, as compared to $53.8 million in 1996. Other operating  expenses
which experienced  significant  increases between years included (i) the cost of
the Chicago Express  commuter  agreement,  which became effective April 1, 1997;
and (ii) the cost of property and sales taxes.  Other  operating  expenses which
experienced  significant  decreases  between  periods  included  (i) the cost of
insurance; (ii) the cost of data and voice communications; and (iii) the cost of
professional  consulting  fees.  Several  other  categories  of other  operating
expenses  were lower in 1997 than in 1996  primarily  due to the smaller size of
the airline between periods.

Other  operating  cost per ASM increased 4.9% to 0.43 cents in 1997, as compared
to 0.41 cents in 1996.

Interest Income and Expense.  Interest  expense in 1997 increased 111.1% to $9.5
million,  as compared to $4.5 million in 1996. The increase in interest  expense
between  periods  was  primarily  due to the  change  in the  Company's  capital
structure which resulted from the two financings  completed on July 24, 1997, at
which  time the  Company  (i) sold  $100.0  million  principal  amount  of 10.5%
unsecured  seven-year  notes,  and (ii) entered into a new $50.0 million secured
revolving credit facility, thereby replacing the former secured revolving credit
facility of $122.0 million.

The capital structure of the Company,  prior to completing these new financings,
provided  for  borrowings  under the former  credit  facility  to be  constantly
adjusted to meet the expected  cash flow  requirements  of the Company,  thereby
minimizing the level of borrowings on which  interest  would be paid.  Under the
new capital  structure  of the  Company,  the  borrowings  under the 10.5% notes
remain fixed at $100.0 million without regard to actual cash requirements at any
point in time. During 1997, the weighted average  borrowings were  approximately
$117.2 million, as compared to $86.1 million in 1996.

The  weighted  average  effective  interest  rate  applicable  to the  Company's
borrowings in 1997 was 8.06%,  as compared to 5.18% in 1996. The increase in the
weighted average effective interest rates between years was primarily due to the
10.5% interest rate  applicable to the $100.0 million in unsecured  notes issued
on July 24, 1997,  which was higher than the average  interest  rates which were
applicable to borrowings under the former credit facility.

In order to minimize the interest  expense impact of the $100.0 million of 10.5%
unsecured  notes,  the  Company  invested  excess cash  balances  in  short-term
government  securities and  commercial  paper and thereby earned $1.6 million in
interest  income in 1997,  an increase of 166.7%  over  interest  income of $0.6
million earned in 1996.

Income Tax Expense

In 1997, the Company  recorded $4.5 million in income tax expense  applicable to
the income before  income taxes for that year,  while in 1996 income tax credits
of $12.9 million were recognized  pertaining to the loss before income taxes for
that year of $39.6 million. The effective tax rate applicable to 1997 was 73.9%,
while the effective tax rate applicable to 1996 was 32.6%.

Income tax expense and credits in both  periods were  significantly  affected by
the non-deductibility for federal income tax purposes of 50% of amounts paid for
crew per diem. The effect of this permanent  difference on the effective  income
tax rate for  financial  accounting  purposes  becomes more  pronounced in cases
where before-tax  income or loss approaches zero, which was a significant  cause
for the unusually high effective tax rate in 1997.

Income tax expense and the effective  tax rate for 1997 were also  significantly
affected by the one-time $2.0 million charge to salaries,  wages and benefits in
the  second  quarter  of 1997 for the  prepaid  executive  compensation  package
provided to the Company's former President and Chief Executive  Officer.  Of the
total  compensation  paid to this  former  executive  of the  Company  in  1997,
approximately $1.7 million is permanently  non-deductible  against the Company's
federal income taxes, and thus constitutes an additional  significant  permanent
difference  between  income  for  federal  income  tax  purposes  and  financial
accounting income in 1997 which did not exist in 1996.


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

Consolidated Flight Operations and Financial Data

The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company,  which
includes the  consolidated  operations of Lockheed  L-1011,  Boeing  727-200 and
Boeing 757-200 aircraft in all of the Company's business units.


<PAGE>

<TABLE>
<CAPTION>

-------------------------------- ----------------------------------------------- ---------------
                                        Twelve Months Ended December 31,
                                      1996            1995         Inc (Dec)      % Inc (Dec)
                                 --------------- --------------- --------------- ---------------
<S>                                      <C>             <C>              <C>              <C> 
Departures (b)                           46,416          42,815           3,601            8.41
Block Hours (c)                         138,114         126,295          11,819            9.36
RPMs (000s) (d)                       9,172,438       8,907,698         264,740            2.97
ASMs (000s) (e)                      13,295,505      12,521,405         774,100            6.18
Load Factor (f)                           68.99           71.14          (2.15)          (3.02)
Passengers Enplaned (g)               5,680,496       5,368,171         312,325            5.82
Revenue $(000s)                         750,851         715,009          35,842            5.01
RASM in cents (h)                          5.65            5.71          (0.06)
                                                                                     (1.05)
CASM in cents (i)                          5.92            5.56            0.36            6.47
Yield in cents (j)                         8.19            8.03            0.16            1.99
-------------------------------- --------------- --------------- --------------- ---------------
</TABLE>

See footnotes (b) through (j) on pages 24-25.

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.  The following  table sets forth,  for the periods
indicated,  certain key operating and financial  data for the scheduled  service
flight operations of the Company, which includes the consolidated  operations of
Lockheed  L-1011,  Boeing  727-200  and Boeing  757-200  aircraft  in  scheduled
service.
<TABLE>
<CAPTION>

---------------------------------- ---------------------------------------------------------------
                        Twelve Months Ended December 31,
                         1996 1995 Inc (Dec) % Inc (Dec)
                                   --------------- --------------- --------------- ---------------
<S>                                        <C>             <C>              <C>             <C>  
Departures (b)                             31,467          27,573           3,894           14.12
Block Hours (c)                            85,836          73,816          12,020           16.28
RPMs (000s) (d)                         4,918,045       4,673,210         244,835            5.24
ASMs (000s) (e)                         7,304,897       6,604,087         700,810           10.61
Load Factor (f)                             67.33           70.76          (3.43)          (4.85)
Passengers Enplaned (g)                 3,551,141       3,304,369         246,772            7.47
Revenue $(000s)                           386,488         361,967          24,521            6.77
RASM in cents (h)                            5.29            5.48          (0.19)          (3.47)
Yield in cents (j)                           7.86            7.75            0.11            1.42
Revenue per segment $ (k)                  108.83          109.54          (0.71)          (0.65)
---------------------------------- --------------- --------------- --------------- ---------------
</TABLE>

See footnotes (b) through (j) on pages 24-25.

(k) Revenue per segment flown is determined by dividing total scheduled  service
revenues  by the number of  passengers  boarded.  Revenue per segment is a broad
measure  of the  average  price  obtained  for  all  flight  segments  flown  by
passengers in the Company's scheduled service route network.

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 6.604 billion, resulting in a reduction in
passenger  load factor to 67.3% in 1996 from 70.8% 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.

Charter  Revenues.  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  unit 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
unit 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.

The following table sets forth, for the periods indicated, certain key operating
and financial data for the tour operator flying operations of the Company.

--------------------------------------------------------------------------------
                             Twelve Months Ended December 31,
                             1996         1995       Inc (Dec)     % Inc (Dec)
Departures (b)              10,920       11,324         (404)          (3.57)
Block Hours (c)             38,154       39,451       (1,297)          (3.29)
RPMs (000s) (d)          3,470,450    3,550,527      (80,077)          (2.26)
ASMs (000s) (e)          4,363,220    4,450,261      (87,041)          (1.96)
Passengers Enplaned (g)  1,854,262    1,839,386       14,876            0.81
Revenue $(000s)            226,400      229,500       (3,100)          (1.35)
RASM in cents (h)             5.19         5.16         0.03            0.58
--------------------------------------------------------------------------------

See footnotes (b) through (h) on pages 24-25.

Charter  revenues  derived from  independent  tour  operators  decreased 1.4% to
$226.4  million in 1996,  as compared to $229.5  million in 1995.  Tour operator
revenues comprised 30.2% of consolidated  revenues in 1996, as compared to 32.1%
of  consolidated  revenues in 1995.  Tour operator ASMs  decreased 2.0% to 4.363
billion  from 4.450  billion,  and the 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 following table sets forth, for the periods indicated, certain key operating
and financial data for the military flight operations of the Company.


--------------------------------------------------------------------------------
                              Twelve Months Ended December 31,
                             1996        1995       Inc (Dec)    % Inc (Dec)
Departures (b)               3,414       3,713          (299)         (8.05)
Block Hours (c)             12,294      12,377           (83)         (0.67)
RPMs (000s) (d)            665,494     639,040         26,454          4.14
ASMs (000s) (e)          1,442,113   1,382,482         59,631          4.31
Passengers Enplaned (g)    185,575     198,711       (13,136)         (6.61)
Revenue $(000s)             84,200      77,500          6,700          8.65
RASM in cents (h)             5.84        5.61           0.23          4.10
--------------------------------------------------------------------------------

See footnotes (b) through (h) on pages 24-25.

Charter revenues derived from the U.S. military  increased 8.7% to $84.2 million
in 1996, as compared to $77.5 million in 1995. Military revenues comprised 11.2%
of consolidated revenues in 1996, as compared to 10.8% of consolidated  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.

Ground Package Revenues. Ground package revenues increased 9.3% to $22.3 million
in 1996, as compared to $20.4 million in 1995.

In 1996, total packages sold increased 2.4% as compared to 1995, and the average
price of each  ground  package  sold by the  Company's  Ambassadair  Travel Club
increased 18.0% as compared to the prior year.

During 1996, the number of ATA Vacations 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 experienced price reductions in 1996 due to intense price competition.

Other  Revenues.  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.  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  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,  landing and navigation fees
decreased  by 5.8% 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  10.2% to
0.53 cents in 1996 from 0.59 cents in 1995.

Depreciation and  Amortization.  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.

Depreciation and amortization cost per ASM increased 2.2% to 0.46 cents in 1996,
as compared to 0.45 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 $0.6 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  reclassified these owned
spare engines as "Assets Held for Sale" in the accompanying balance sheet.

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.

Aircraft Maintenance, Materials and Repairs. 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 4.5% 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
$1.4 million between periods,  the cost of expendable  parts consumed  decreased
$2.1 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  with 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.

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.

Crew and  Other  Employee  Travel.  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
employment  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,  causing  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.  For 1996 and 1995,  catering  represented  80.3% 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 5,680,496 in 1996, as
compared to 5,368,171 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,  which are the most expensive  passengers to
cater in the Company's business mix.

The cost of servicing  passengers who were  inconvenienced  by flight delays and
cancellations  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 10.7% 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.  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 which
received a commission on such sales. The cost per ASM of commissions expense was
unchanged at 0.20 cents for both 1996 and 1995.

Ground Package Cost.  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 cost of each
ground package sold by ATA Vacations decreased by 11.2% 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 increased 18.1% to $17.6 million
in 1996,  as compared to $14.9 million in 1995.  Approximately  $1.1 million and
$0.2 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.  Advertising support for single-seat scheduled
service  and  ground  package  sales  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. 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 that airport.

Also in 1996, the Company incurred higher 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  also owned four spare Pratt & Whitney
engines, together with consumable, repairable and rotable components specific to
the Pratt & Whitney-powered Boeing 757-200s. The net book value of these engines
and  parts  approximated  $14.1  million  as of  December  31,  1996,  and  were
reclassified as Assets Held For Sale in the accompanying balance sheet.

Other  Expenses.  Other operating  expenses  increased 15.6% to $54.0 million in
1996,  as  compared  to $46.7  million in 1995.  Significant  components  of the
year-over-year  variance included  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 10.8% to 0.41 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 income 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  influenced  by the  permanent  non-deductibility  from taxable
income of 50% of crew per diem  expenses  incurred in both years.  The impact of
this  permanent  difference on effective  tax rates  becomes more  pronounced as
taxable income or loss approach zero.

Liquidity and Capital Resources

Cash Flows.  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.  As described  further  below,  in the
third quarter of 1997 the Company completed two separate  financings designed to
lengthen the maturity of its long-term  debt and  diversify its credit  sources,
including the issuance of unsecured  notes and a revolving  credit facility that
had an extended  maturity,  lower interest rate and less  restrictive  covenants
than the former credit facility.

For 1997,  1996 and 1995,  net cash provided by operating  activities  was $99.9
million,  $32.2 million and $87.1  million,  respectively.  The increase in cash
provided by operating  activities between 1996 and 1997 was attributable to such
factors as increased earnings, growth in scheduled service air traffic liability
associated  with advanced  ticket sales,  the liquidation of certain assets held
for sale,  and  other  factors.  The  decrease  in cash  provided  by  operating
activities  between 1995 and 1996 was due  primarily to the lower  profitability
between years,  coupled with the reduction in air traffic  liability  associated
with the 1996 restructuring of scheduled service.

Net cash used in investing activities was $76.1 million, $63.2 million and $44.0
million,  respectively,  for 1997,  1996 and 1995.  Such amounts  included  cash
capital expenditures  totaling $84.2 million in 1997, $69.9 million in 1996, and
$57.8  million  in 1995 for  engine  overhauls,  airframe  improvements  and the
purchase of rotable parts.  Cash capital  expenditures  were  supplemented  with
other capital expenditures,  financed directly with debt, totaling $35.4 million
in 1997, $0.0 million in 1996 and $31.7  million in 1995.  The $35.4  million in
new debt issued in 1997 was to  directly  finance  the  purchase  of one  Boeing
757-200 aircraft and one Boeing 727-200 aircraft,  both of which had  previously
been subject to leases accounted for as operating leases.

Net cash provided by (used in)  financing  activities  was $6.9  million,  $11.6
million and $(12.1) million, respectively, in 1997, 1996 and 1995. Debt proceeds
in the 1997 period  included $100.0 million in proceeds from the issuance of the
10.5%  senior  unsecured  notes and $34.0  million in  proceeds  from  borrowing
against the new credit  facility.  Debt  proceeds  in the 1996  period  included
primarily   the  addition  of  $15.0  million  in  revolving   credit   facility
availability  for  financing  the  installation  of hushkits  on Boeing  727-200
aircraft.  Payments on long-term debt in the 1997 period included  primarily the
full repayment of the former credit facility of $122.0 million.

Aircraft and Fleet Transactions. In November 1994, the Company signed a purchase
agreement  for six new Boeing  757-200s  which,  as  subsequently  amended,  now
provides  for seven total  aircraft to be  delivered  between late 1995 and late
1998. In conjunction  with the Boeing  purchase  agreement,  the Company entered
into a separate  agreement with Rolls-Royce  Commercial Aero Engines Limited for
15 RB211-535E4 engines to power the seven 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,  a prorated  amount of the credits 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 five aircraft under these
agreements  in September  and December  1995,  November and December  1996,  and
November  1997,  all of  which  were  financed  under  leases  accounted  for as
operating  leases.  The final two deliveries  under this agreement are scheduled
for July 1998 and December 1998. Advanced payments totaling  approximately $12.6
million ($6.3  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, 1997,  1996 and 1995,  the Company had recorded $6.0 million,  $2.7
million and $5.0  million,  respectively,  in advanced  payments  applicable  to
aircraft  scheduled  for future  delivery.  The Company  intends to finance both
future  deliveries  under this  agreement  through  sale/leaseback  transactions
accounted for as operating leases.

In the  first  quarter  of 1996,  the  Company  purchased  four  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 fifth 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 until
the completion of a sale/leaseback transaction during the third quarter of 1997.
In the fourth  quarter of 1997,  the  Company  purchased  an  additional  Boeing
727-200  aircraft which had been  previously  financed by the Company  through a
lease accounted for as an operating  lease,  financing this purchase through the
issuance  of a  short-term  note and a payment of cash.  The  Company  currently
expects to finance this aircraft through a sale/leaseback  transaction accounted
for as an operating lease in 1998.

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. The Company also agreed to terminate  existing  operating leases on three
Lockheed  L-1011  aircraft and to purchase  the  airframes  pertaining  to these
aircraft for $1.5 million, while signing a new operating lease covering only the
nine related  engines.  The Lockheed  L-1011 airframe and engine portion of this
transaction  was not completed until the second quarter of 1997. The lessor also
provided the Company with  approximately  $6.9 million in  additional  unsecured
financing  for  a  term  of  seven  years.  This  transaction  resulted  in  the
recognition of a $2.3 million loss on disposal of assets in the third quarter of
1996.

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 purchase was
not  completed  in 1996,  and the  aircraft  was  acquired  from the lessor on a
short-term  rental agreement pending the completion of the purchase in September
1997.  The  Company  financed  this  purchase  through a payment of cash and the
issuance of a $30.7 million note which, as amended, matures on January 15, 1999.
The note  requires  monthly  payments of $400,000 in principal and interest from
October 15, 1997 through  December  15, 1998,  with the balance due at maturity.
The Company currently intends to sell this aircraft and repay this note, subject
to a short-term  rental  agreement under which the aircraft would continue to be
operated by the Company.  The  temporary  acquisition  of this  aircraft in late
1996, 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,  resulted in an all-Rolls-Royce-powered  Boeing 757-200 fleet of
seven units by 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  resulted in the recognition of a $2.4 million loss on
disposal of assets in the third quarter of 1996.

Issuance  of  Unsecured  Notes.  On July 24,  1997,  the Company  completed  two
separate financings designed to lengthen the maturity of the Company's long-term
debt and diversify its credit sources. On that date, the Company (i) sold $100.0
million  principal  amount of unsecured  seven-year  notes in a private offering
under Rule 144A, and (ii) entered into a new secured  revolving credit facility.
The Company subsequently completed an exchange offer to holders of the unsecured
seven-year  notes in January  1998,  under which offer those notes issued in the
original  private  offering  could be tendered in exchange for fully  registered
notes of equal value.

The unsecured senior notes mature on August 1, 2004. Each note bears interest at
the  annual  rate of 10.5%,  payable  on  February  1 and  August 1 of each year
beginning  February  1, 1998.  The notes  rank pari  passu  with all  unsecured,
unsubordinated  indebtedness  of the  Company  existing  now or  created  in the
future, are effectively  subordinated to the Company's obligations under secured
indebtedness  to the  extent  of  such  security,  and  will  be  senior  to any
subordinated  indebtedness of the Company created in the future. All payments of
interest  and  principal  are   unconditionally   guaranteed  on  an  unsecured,
unsubordinated basis, jointly and severally,  by each of the active subsidiaries
of the Company.  The Company may redeem the notes,  in whole or in part,  at any
time on or after August 1, 2002,  initially at 105.25% of their principal amount
plus accrued  interest,  declining  ratably to 100.0% of their principal  amount
plus  accrued  interest at  maturity.  At any time prior to August 1, 2000,  the
Company may redeem up to 35.0% of the original aggregate principal amount of the
notes with the  proceeds  of sales of common  stock,  at a  redemption  price of
110.5% of their principal amount (plus accrued interest), provided that at least
$65.0 million in aggregate  principal  amount of the notes  remains  outstanding
after such redemption. The notes are subject to covenants for the benefit of the
note holders,  including, among other things, limitations on: (i) the incurrence
of  additional  indebtedness;  (ii) the making of certain  restricted  payments;
(iii) the creation of  consensual  restrictions  on the payment of dividends and
other  payments by certain  subsidiaries;  (iv) the issuance and sale of capital
stock by  certain  subsidiaries;  (v) the  issuance  of  guarantees  by  certain
subsidiaries;  (vi) certain transactions with shareholders and affiliates; (vii)
the creation of liens on certain assets or  properties;  (viii) certain types of
sale/leaseback  transactions;   and  (ix)  certain  sales,  transfers  or  other
dispositions of assets.

The net proceeds of the unsecured notes were approximately $96.9 million,  after
application of costs and fees of issuance. The Company used a portion of the net
proceeds to repay in full the  Company's  prior bank  facility  and will use the
balance of the proceeds for general  corporate  purposes,  which may include the
purchase of  additional  aircraft  and/or the  refinancing  of  existing  leased
aircraft.

Credit  Facilities.  Concurrently  with the issuance of the unsecured  notes, on
July 24, 1997,  the Company  entered into a new $50.0 million  revolving  credit
facility that includes up to $25.0 million for stand-by  letters of credit.  ATA
is the  borrower  under the new  credit  facility,  which is  guaranteed  by the
Company and each of the  Company's  other  active  subsidiaries.  The  principal
amount of the new facility  matures on April 1, 2001, and borrowings are secured
by certain  Lockheed L-1011 aircraft and engines.  The  loan-to-value  ratio for
collateral securing the new facility may not exceed 75% at any time.  Borrowings
under the new facility bear interest,  at the option of ATA, at either (i) LIBOR
plus 1.50% to 2.50% (depending upon certain financial ratios); or (ii) the agent
bank's prime rate plus 0.0% to 0.5% (depending upon certain  financial  ratios).
The facility  contains  various  covenants  including,  among other things:  (i)
limitations  on  incurrence  of debt and liens on assets;  (ii)  limitations  on
capital  expenditures;  (iii)  restrictions  on payment of  dividends  and other
distributions  to  stockholders;  (iv)  limitations  on mergers  and the sale of
assets;   (v)   restrictions   on  the   prepayment  or  redemption  of  certain
indebtedness,  including  the  10.5%  notes;  and (vi)  maintenance  of  certain
financial  ratios  such as minimum  tangible  net  worth,  cash-flow-to-interest
expense and  aircraft  rentals and total  adjusted  liabilities  to tangible net
worth.

The Company's former credit facility had initially  provided a maximum of $125.0
million,  including $25.0 million for stand-by letters of credit, subject to the
maintenance of certain collateral value, including certain owned Lockheed L-1011
aircraft, certain receivables, and certain rotables and spare parts. As a result
of the Company's need to restructure its scheduled service business, the Company
renegotiated certain terms of the former credit facility effective September 30,
1996,  including the modification of 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 former  facility and to change the interest rates  applicable
to borrowings under the facility.  The Company pledged  additional owned engines
and equipment as collateral  for the facility as of the  implementation  date of
the new  agreement.  The Company  further  agreed to reduce the $63.0 million of
borrowing  availability  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 under the  renegotiated
facility were subject to 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 former
facility  was  scheduled  to  mature on April 1,  1999,  and  contained  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 had classified  $19.9 million of former credit
facility  borrowings to current  maturities  of long-term  debt. Of this amount,
$10.5  million was  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 represented the amount of the spare Pratt &
Whitney  engines which were pledged to the credit  facility and which were to 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.  In July 1997, the Company sold two of the
four spare  Pratt & Whitney  engines,  and the Company  continues  to market the
remaining two spare  engines and parts to users of Pratt & Whitney  powerplants.
At December 31, 1997, the Company reclassified the remaining $8.7 million in net
book value for spare engines and parts to long-term assets held for sale.

As of December  31,  1997,  1996 and 1995,  the Company had borrowed the maximum
amounts then available against its credit facilities, of which $34.0 million was
repaid on January  2, 1998,  $46.0  million  was repaid on January 2, 1997,  and
$68.0 million was repaid on January 2, 1996.

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,  1997 or 1996;  however,  the  Company did have  outstanding
letters of credit  secured by this  facility  aggregating  $3.5 million and $4.1
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.  Between 1994
and 1996,  the Company  repurchased  185,000  shares of common  stock under this
program. No shares were repurchased during 1997.

Subsequent  Purchase  Commitments and Options For Boeing 727-200  Aircraft.  The
Company has signed purchase  agreements to acquire 11 Boeing 727-200ADV aircraft
at agreed prices.  Nine of these  aircraft are currently  leased by the Company.
The other two aircraft,  currently on lease to another airline, may be purchased
in either February, August or October 1999, depending upon the exercise of lease
extension options available to the current lessee.

The Company currently intends to install engine hushkits on these Boeing 727-200
aircraft in order to meet Stage 3 noise requirements for its fleet.

Year 2000

Until  recently many computer  programs were written to store only two digits of
year-related  date  information in order to make the storage and manipulation of
such data more efficient. Programs which use two digit date fields, however, may
not be able  to  distinguish  between  such  years  as 1900  and  2000.  In some
circumstances   this  date  limitation   could  result  in  system  failures  or
miscalculations, potentially causing disruptions of business processes or system
operations.  The date field  limitation is  frequently  referred to as the "Year
2000 Problem."

The Year 2000  Project.  In the fourth  quarter of 1997 the Company  initiated a
Year 2000  Project to address this issue.  During the first  quarter of 1998 the
Company  inventoried its internal computer systems,  facilities  infrastructure,
aircraft  components  and  other  hardware,  and  completed  a  year  2000  risk
assessment for these items.  The Company also began active  participation on the
Year 2000 Committee of the Air Transport Association,  an airline industry trade
association.   This  committee  represents  most  major  U.S.  airlines  and  is
evaluating  the year 2000 readiness of federal,  state and local  governments to
provide reliable  operations for airports and air traffic control systems beyond
December 1999.

Renovation, testing and implementation of systems for year 2000 readiness is now
in progress and will be ongoing  through the end of 1999.  Renovation of systems
will include several different  strategies such as the conversion,  replacement,
upgrade or elimination of selected hardware platforms,  applications,  operating
systems,  databases,  purchased  packages,  utilities  and internal and external
interfaces.  The Company  plans to use both  internal  and  external  consulting
resources to complete these modifications.

Computer  Infrastructure.  The Company currently uses approximately 650 separate
computer infrastructure  components to support various aspects of its world-wide
operations.  Such components include major software packages (both purchased and
internally  developed),  operating systems for computers,  computer hardware and
peripheral devices, and local and wide-area  communications networks. Based upon
the  Company's  risk  assessment  completed  in the first  quarter  of 1998,  it
currently believes that over 50% of its computer  infrastructure  components are
fully compliant with year 2000 standards.  Approximately  170 projects have been
identified  to  address  components  which  are not  believed  to be  year  2000
compliant and to test those components  believed to be compliant.  Although work
on non-critical  components will continue  throughout 1999, the Company plans to
ensure  compliance  of all  mission-critical  components  by July 1999,  and all
forward-looking systems prior to the date when they might be impacted.

Properties   and   Facilities   Infrastructure.   The  Company   currently  uses
approximately 40 computer-dependent systems in its properties and facilities for
such purposes as providing heat and light, electrical power and security.  These
systems were  inventoried  during the first quarter of 1998, and all maintenance
contracts were also evaluated.  The Company presently believes that there are no
significant  issues for these systems which would  prevent  achieving  year 2000
readiness by the end of 1999. A  certification  of compliance is being requested
from each supplier  associated with these systems,  and the Company has prepared
approximately 25 project plans to test the year 2000 readiness of these systems.

Aircraft Computer Components. The Company is dependent upon a number of computer
devices on board its aircraft which are used to support such activities as radio
communications,  air  navigation,  and certain flight  instruments and controls,
among other things. These devices are supplied by large third party vendors such
as aircraft manufacturers and avionics and aircraft parts suppliers. The Company
has completed a year 2000  assessment of these devices in  cooperation  with the
third party vendors, and currently believes that only a small number of aircraft
computer components are not presently year 2000 compliant. The Company is in the
process of obtaining year 2000 compliance  certification from these vendors,  as
well as  determining  what  corrective  steps  will be  needed to bring all such
components into compliance with year 2000 standards.

Vendor and Supplier Readiness. The Company is dependent upon a number of vendors
and suppliers to provide  essential  goods and services to operate the Company's
flight schedule throughout the world. For example, the Company consumed over 200
million  gallons of jet fuel in 1997 which was supplied by several dozen vendors
at hundreds of delivery points  throughout the world. Fuel vendors are dependent
upon a large  number of  computer  devices in  providing  these  services to the
Company,  and the failure of such devices to operate  correctly during and after
the year 2000 could result in the inability of such suppliers to meet their fuel
delivery  commitments  to the  Company,  in which case the Company  could suffer
serious  disruptions to its flight  schedule due to lack of fuel. The Company is
therefore  communicating  with all such major vendors and suppliers to ascertain
what  actions  these  vendors are taking to ensure  their  readiness  to provide
essential  goods  and  services  to the  Company  after  1999.  The  Company  is
requesting  written  certification  of year 2000  readiness  from all  essential
suppliers,  and will  further  take such steps as it believes  are  necessary to
validate such compliance.

Domestic and  International  Airports.  The Company flies to over 400 individual
airports world-wide each year. The smooth operation of many airports used by the
Company is highly  dependent upon computer  systems and hardware  devices.  Such
airports are typically operated by governmental or quasi-governmental  agencies,
both foreign and domestic,  who are primarily  responsible for the  installation
and operation of all computer devices at those airports.  Computers and software
packages  control  such  aspects  of airport  operations  as radar  tracking  of
aircraft,  instrument  landing systems,  air and ground  communications,  runway
lighting,  baggage delivery,  environmental  controls such as heat and lighting,
passenger security screening, and arrivals and departures data display.

Other  governmental  agencies  use  computers to provide  essential  services at
airports,  such as customs and immigration screening and weather reporting.  The
safe and  efficient  operation  of the  Company's  aircraft in airspace  between
airports is also highly  dependent on computer  systems and  hardware  which are
operated and maintained primarily by domestic and foreign governmental agencies.
In  the  United  States,   the  Federal  Aviation   Administration  has  primary
responsibility  for the  operation of the domestic air traffic  control  system,
including regional air traffic control and radar systems.

As a member of the Air Transport Association Year 2000 Committee, the Company is
participating  with other  airlines to test and validate the year 2000 readiness
of the air  transportation  infrastructure  such  as  airports  and air  traffic
control systems. At present,  no comprehensive  inventory and risk assessment of
airport and air traffic control  systems has been  completed,  and therefore the
Company  cannot  determine  to  what  degree,  if any,  the  air  transportation
infrastructure is at risk of failing to meet year 2000 readiness  standards.  In
addition,  the Company  cannot  presently  estimate  what cost,  if any, will be
incurred by the Company to make  modifications  to its aircraft or other systems
or  hardware to comply with  requirements  which may be imposed  before the year
2000 by governmental agencies as part of their efforts to prepare for operations
in the year 2000 and beyond.

Estimated Costs of Achieving Year 2000 Readiness.  Based upon all data currently
available to the Company,  it presently estimates that the total cost of meeting
year 2000 standards, including computer and facilities infrastructure,  aircraft
and  airports,  will range between $6.0 and $8.0 million.  Such  estimated  cost
includes  approximately  $4.0  million in capital  expenditures  to acquire  new
software and hardware to replace non-compliant computer devices, as well as from
$2.0 to $4.0  million in labor and  related  expenses  to perform  all year 2000
project work to insure the readiness of remaining computer devices for operation
after 1999. The range of labor cost  estimates  between $2.0 and $4.0 million is
due to the different costs of internal and external labor needed to perform this
work, as well as the  potential  increase in all  technology  labor costs due to
year  2000-related  skills  shortages  which may occur  before  the end of 1999.
Approximately 40% of the  aforementioned  capital and labor costs represents the
cost of already budgeted 1998 systems upgrade or replacement  projects which are
being pursued for reasons other than year 2000  compliance,  however,  year 2000
compliance will be one of the by-products.  It is possible that the Company will
determine that additional costs beyond those estimated above will be required to
complete all year 2000 activities as testing and implementation proceeds through
the end of 1999.  The Company  expects to incur most of these costs  during 1998
and 1999,  with no  significant  portion of these costs having been  incurred in
1997.

Forward-Looking Information

Information  contained  within  "Business"  and  "Management's   Discussion  and
Analysis  of   Financial   Condition   and  Results  of   Operations"   includes
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 the Company can provide no assurance  that the statement of  expectation  or
belief will result or will be achieved or accomplished.

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 Company's capital structure is subject to significant financial leverage,
which could impair the Company's  ability to obtain new or additional  financing
for working  capital and capital  expenditures,  could  increase  the  Company's
vulnerability to a sustained  economic downturn and could restrict the Company's
ability to take advantage of new business  opportunities  or limit the Company's
flexibility to respond to changing business conditions.

2. 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.

3. As previously disclosed by the Company,  possible business  combinations with
other entities have been considered. The Company intends to continue to evaluate
such potential  combinations.  It is possible that the Company will enter into a
transaction  in the  future  that  would  result in a merger or other  change in
control of the  Company.  The  Company's  current  credit  facility  and certain
unsecured term debt may be accelerated upon such a merger or  consolidation.  In
some   circumstances,   this   acceleration   could  limit  potential   business
combinations.

4. 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 may be beyond the control of the
Company.  The impact on the  Company of such a  limitation  could be  materially
adverse under certain circumstances.

5. The vast majority of the Company's  scheduled  service and charter  business,
other than U.S.  military,  is leisure  travel.  Since leisure travel is largely
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.

6. 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   16.8%  and  11.2%,
respectively,  of  consolidated  revenues  in 1997 and  1996.  No  other  single
customer of the Company accounts for more than 10% of operating revenues.

7.  Approximately  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.

8. The  Company's  airline  businesses  are  significantly  affected by seasonal
factors.  Typically,  the Company  experiences reduced demand for leisure travel
during the second and fourth quarters of each year. In recent years, the Company
has  experienced  its most robust demand in the first and third  quarters.  As a
result,  the  Company's  results of  operations  for any single  quarter are not
necessarily indicative of the Company's annual results of operations.

9. The airline  industry as a whole,  and scheduled  service in  particular,  is
characterized by high fixed costs of operation. The high fixed cost of operating
a flight does not vary significantly with the number of passengers carried,  and
therefore  the  revenue  impact  of a small  increase  or  decrease  in  average
passenger load factor could, in the aggregate,  have a significant effect on the
profitability  of those flights.  Accordingly,  a relatively  minor shortfall in
scheduled  service  load  factor and  associated  revenue  could have a material
adverse effect on the Company.

10. The Company faces  intense  competition  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 scheduled service
markets,  including  changes in prices and seat capacity  offered,  could have a
material effect on the profit performance of this business unit.

11. Jet fuel comprises a significant  percentage of the total operating expenses
of the  Company,  accounting  for 20.0% and 20.5%,  respectively,  of  operating
expenses in 1997 and 1996.  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 tour operators,
a significant  increase in fuel prices could have a material  adverse  effect on
the demand for the Company's services at profitable prices.

12. In June 1991,  the  Company's  flight  attendants  elected  the AFA as their
representative  and  ratified a four-year  collective  bargaining  agreement  in
December  1994.  In June 1993,  the  Company's  cockpit crews elected the IBT as
their representative and ratified a four-year collective bargaining agreement in
September 1996. The Company believes that its relations with employee groups are
good.  However,  the existence of a significant  labor dispute with any sizeable
group of  employees  could  have a  material  adverse  effect  on the  Company's
operations.

13.  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,   such  as  the  Federal  Communications
Commission,  the Commerce  Department,  the Customs Service, the Immigration and
Naturalization   Service,  the  Animal  and  Plant  Inspection  Service  of  the
Department  of  Agriculture,  and the  Environmental  Protection  Agency.  These
agencies propose and issue regulations from time to time which can significantly
increase the cost of airline  operations.  For example,  the FAA in recent years
has issued a number of aircraft  maintenance  directives  and other  regulations
requiring action by the Company on such matters as collision  avoidance systems,
airborne wind shear avoidance systems,  noise abatement,  airworthiness of aging
aircraft and increased inspection requirements.  Other laws and regulations have
been  considered from time to time that would prohibit or restrict the ownership
and/or  transfer  of  airline  routes and  takeoff  or landing  slots at certain
airports.  The Company  cannot  predict the nature of future  changes in laws or
regulations to which it may become subject,  and such laws and regulations could
have a material adverse effect on the financial condition of the Company.

14. In 1981,  the Company was granted a Certificate  of Public  Convenience  and
Necessity  by the DOT  pursuant  to  Section  401 of the  Federal  Aviation  Act
authorizing  it to engage in air  transportation.  The FAA further  requires the
Company  to  obtain  an  operating  certificate  and  operations  specifications
authorizing  the Company to fly to specific  airports using specific  equipment.
All of the Company's  aircraft must also maintain  certificates of airworthiness
issued by the FAA. The Company holds an FAA air operating certificate under Part
121 of the Federal  Aviation  Regulations.  The Company  believes  that it is in
compliance  with all  requirements  necessary  to maintain in good  standing its
operating authority granted by the DOT and its air carrier operating certificate
issued  by the FAA.  A  modification,  suspension  or  revocation  of any of the
Company's  DOT or FAA  authorizations  or  certificates  could  have a  material
adverse effect on the Company.

15.  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 ground  arrangements) must be placed into escrow by the tour operator
or be  protected  by a surety bond  meeting  prescribed  standards.  The Company
currently  provides  an  unlimited  third-party  bond in  order  to  meet  these
regulations.  The issuer of the bond has the right to  terminate  the bond on 30
days'  notice.  If this bond were to be  materially  limited  or  canceled,  the
Company would be required to escrow funds to comply with DOT regulations,  which
could  materially  reduce the Company's  liquidity and require it to fund higher
levels of working capital.

16. The  Company is  currently  preparing  its  software  systems  and  hardware
components for  operational  compliance  with year 2000  standards.  The Company
believes,  based  upon  its  assessment  of  year  2000  readiness,  that it has
developed  a year 2000  project  plan which,  if  successfully  completed,  will
mitigate all significant  risks of business and operational  disruption  arising
from non-compliant  computer components.  Successful  completion of this plan is
dependent  upon the  availability  to the  Company of a wide range of  technical
skills from both internal and external  sources,  and is also dependent upon the
availability of purchased software and hardware  components.  The Company cannot
be assured that such  resources and components can be acquired in the quantities
needed, or by the times needed,  to successfully  complete the year 2000 project
plan,  in which  case it is  possible  that the  Company  could  suffer  serious
disruptions  to business  processes and  operations  as a consequence  of system
failures  attributable to the year 2000 problem.  Such disruptions  could impair
the  Company's  ability  to  operate  its  flight  schedule,  and  could  impose
significant  economic  penalties  on the  Company  by  increasing  the  cost  of
operations  through  the  temporary  loss of  efficiencies  provided by computer
software and hardware.

In  addition,  the  Company  cannot be assured  that  domestic  and  foreign air
transportation infrastructure, such as airports and air traffic control systems,
will be fully  compliant  with  year  2000  requirements  by the end of 1999.  A
significant lack of readiness of the air  transportation  infrastructure to meet
year 2000 standards  could result in a material  adverse effect on the Company's
results of operations and financial condition by imposing serious limitations on
the Company's ability to operate its flight schedule.

17. The Company is subject to potential  financial  losses which may be incurred
in the event of an aircraft  accident,  including the repair or replacement of a
damaged aircraft and its subsequent loss from service,  and the potential claims
of injured passengers and others.  Under DOT regulations,  the Company maintains
liability  insurance on all aircraft.  Although the Company  currently  believes
that its  insurance  coverage is adequate,  there can be no  assurance  that the
amount of such  coverage  will be  sufficient  or that the  Company  will not be
required to bear  substantial  financial  losses from an  accident.  Substantial
claims from such an accident  could result in a material  adverse  change in the
Company's  financial position and could seriously inhibit customer acceptance of
the Company's services.



<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, 1997 and 1996,  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, 1997.  Our audits also
included the  financial  statement  schedule  listed in the index at Item 14(a).
These financial  statements and schedule are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  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, 1997 and 1996,  and the  consolidated  results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth herein.





/S/ERNST & YOUNG LLP
Indianapolis, Indiana
February 4, 1998


<PAGE>

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

                                                                          December 31,      December 31,
                                                                           1997                 1996
                                                                      ------------------------------------
                              ASSETS
Current assets:
<S>                                                                 <C>                 <C>              
     Cash and cash equivalents                                      $        104,196    $          73,382
     Receivables, net of allowance for doubtful accounts
     (1997 - $1,682; 1996 - $1,274)                                           23,266               20,239
     Inventories,  net                                                        14,488               13,888
     Assets held for sale                                                          -               14,112
     Prepaid expenses and other current assets                                20,892               14,571
                                                                   ------------------   ------------------
Total current assets                                                         162,842              136,192

Property and equipment:
     Flight equipment                                                        463,576              381,186
     Facilities and ground equipment                                          54,933               51,874
                                                                   ------------------   ------------------
                                                                             518,509              433,060
     Accumulated depreciation                                               (250,828)            (208,520)
                                                                   ------------------   ------------------
                                                                             267,681              224,540

Assets held for sale                                                           8,691                    -
Deposits and other assets                                                     11,643                8,869
                                                                   ------------------   ------------------

Total assets                                                        $        450,857    $         369,601
                                                                   ==================   ==================

               LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Current maturities of long-term debt                           $          8,975    $          30,271
     Accounts payable                                                         10,511               13,671
     Air traffic liabilities                                                  68,554               49,899
     Accrued expenses                                                         80,312               64,813
                                                                   ------------------   ------------------
Total current liabilities                                                    168,352              158,654

Long-term debt, less current maturities                                      182,829              119,100
Deferred income taxes                                                         31,460               20,216
Other deferred items                                                          11,226               16,887

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 11,829,230 - 1997; 11,799,852 - 1996                      38,760               38,341
     Treasury stock: 185,000 shares                                          (1,760)              (1,760)
     Additional paid-in-capital                                               15,340               15,618
     Retained earnings                                                         6,250                4,678
     Deferred compensation - ESOP                                            (1,600)              (2,133)
                                                                   ------------------   ------------------

                                                                              56,990               54,744
                                                                   ------------------   ------------------

Total liabilities and shareholders' equity                          $        450,857    $         369,601
                                                                   ==================   ==================

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,
                                                              1997                1996               1995
                                                        ------------------------------------------------------

Operating revenues:
<S>                                                     <C>                <C>                <C>            
   Scheduled service                                    $       371,762    $       386,488    $       361,967
   Charter                                                      359,177            310,569            307,091
   Ground package                                                22,317             22,302             20,421
   Other                                                         29,937             31,492             25,530
                                                        ----------------   ----------------   ----------------
Total operating revenues                                        783,193            750,851            715,009
                                                        ----------------   ----------------   ----------------

Operating expenses:
   Salaries, wages and benefits                                 172,499            163,990            141,072
   Fuel and oil                                                 153,701            161,226            129,636
   Handling, landing and navigation fees                         69,383             70,122             74,400
   Depreciation and amortization                                 62,468             61,661             55,827
   Aircraft rentals                                              54,441             65,427             55,738
   Aircraft maintenance, materials and repairs                   51,465             55,175             55,423
   Crew and other employee travel                                36,596             35,855             31,466
   Passenger service                                             32,812             32,745             34,831
   Commissions                                                   26,102             26,677             24,837
   Ground package cost                                           19,230             18,246             15,926
   Other selling expenses                                        15,462             17,563             14,934
   Advertising                                                   12,658             10,320              8,852
   Facilities and other rentals                                   8,557              9,625              7,414
   Disposal of assets                                                 -              4,475                  -
   Other                                                         54,335             53,800             46,717
                                                        ----------------   ----------------   ----------------
Total operating expenses                                        769,709            786,907            697,073
                                                        ----------------   ----------------   ----------------
Operating income (loss)                                          13,484           (36,056)             17,936

Other income (expense):
  Interest income                                                 1,584                617                410
  Interest (expense)                                             (9,454)            (4,465)            (4,163)
  Other                                                             413                323                470
                                                        ----------------   ----------------   ----------------
Other expenses                                                   (7,457)            (3,525)            (3,283)
                                                        ----------------   ----------------   ----------------

Income (loss) before income taxes                                 6,027           (39,581)             14,653
Income taxes (credits)                                            4,455           (12,907)              6,129
                                                        ----------------   ----------------   ----------------
Net income (loss)                                       $         1,572     $     (26,674)     $        8,524
                                                        ================   ================   ================

Basic earnings per common share:
Average shares outstanding                                   11,577,727         11,535,425         11,481,861
Net income (loss) per share                             $          0.14     $        (2.31)    $         0.74
                                                        ================   ================   ================

Diluted earnings per common share:
Average shares outstanding                                   11,673,330         11,535,425         11,519,232
Net income (loss) per share                             $          0.13     $       (2.31)     $         0.74
                                                        ================   ================   ================

See accompanying notes.
</TABLE>



<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, 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                        -            (490)               -               -                   -
     treasury stock                          -------------    -------------   -------------   -------------    ----------------

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

     Net loss                                            -                -               -        (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                        -            (179)               -               -                   -
     treasury stock
                                              -------------    -------------   -------------   -------------    ----------------

Balance, December 31, 1996                          38,341          (1,760)          15,618           4,678             (2,133)

     Net income                                          -                -               -           1,572                   -

     Issuance of common stock for ESOP                   -                -           (214)               -                 533

     Restricted stock grants                           419                -           (185)               -                   -

     Executive stock options expired                    -                -             121               -                   -
                                              -------------    -------------   -------------   -------------    ----------------

Balance, December 31, 1997                  $       38,760   $      (1,760)  $       15,340  $        6,250   $         (1,600)
                                              =============    =============   =============   =============    ================

</TABLE>

See accompanying notes.








<PAGE>

<TABLE>
<CAPTION>


                                            AMTRAN, INC. AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                               (Dollars in thousands)

                                                                              Year ended December 31,
                                                                     1997                 1996               1995
                                                               -------------------------------------------------------

Operating activities:

<S>                                                             <C>                  <C>                <C>          
Net  income (loss)                                              $       1,572        $   (26,674)       $       8,524
Adjustments to reconcile net income (loss)
  to net cash provided by operating activities:
     Depreciation and amortization                                     62,468              61,661              55,827
     Deferred income taxes (credits)                                   11,244            (13,246)               4,025
     Other non-cash items                                               (666)              28,185               9,699
   Changes in operating assets and liabilities:
      Receivables                                                     (3,027)               3,919             (6,768)
      Inventories                                                     (1,637)               (948)               2,739
      Assets held for sale                                              5,356            (14,112)                   -
      Prepaid expenses                                                (6,321)               6,081             (4,061)
      Accounts payable                                                (3,160)               2,519               (166)
      Air traffic liabilities                                          18,655             (6,632)              10,466
      Accrued expenses                                                 15,452             (8,582)               6,793
                                                               ---------------     ---------------     ---------------
    Net cash provided by operating activities                          99,936              32,171              87,078
                                                               ---------------     ---------------     ---------------

Investing activities:

Proceeds from sales of property and equipment                           8,005                 529              21,564
Capital expenditures                                                 (84,233)            (69,884)            (57,835)
Reductions of (additions to) other assets                                 173               6,194             (7,761)
                                                               ---------------     ---------------     ---------------
   Net cash used in investing activities                             (76,055)            (63,161)            (44,032)
                                                               ---------------     ---------------     ---------------

Financing activities:

Proceeds from long-term debt                                          134,000              21,390               6,000
Payments on long-term debt                                          (127,067)             (9,580)            (17,567)
Purchase of  treasury  stock                                                -               (179)               (490)
                                                               ---------------     ---------------     ---------------
   Net cash provided by (used in) financing activities                  6,933              11,631            (12,057)
                                                               ---------------     ---------------     ---------------

Increase (decrease) in cash and cash equivalents                       30,814            (19,359)              30,989
Cash and cash equivalents, beginning of period                         73,382              92,741              61,752
                                                               ---------------     ---------------     ---------------
Cash and cash equivalents, end of period                       $      104,196        $     73,382       $      92,741
                                                               ===============     ===============     ===============

Supplemental disclosures:

Cash payments for:
   Interest                                                    $        6,197        $      3,823       $       4,515
   Income taxes (refunds)                                               (311)                 515               1,069

Financing and investing activities not affecting cash:
   Issuance of long-term debt directly for capital             $       30,650        $          -       $      31,708
   expenditures
   Issuance of short-term debt directly for capital                     4,750                   -                   -
   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 48% of the Company's 1997
      operating  revenues  were  generated  through  scheduled  services to such
      destinations as Hawaii,  Las Vegas,  Florida,  California,  Mexico and the
      Caribbean, while approximately 46% of 1997 operating revenues were derived
      from charter  operations  with  independent  tour  operators  and the U.S.
      military 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,  commercial  paper 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 are
      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, 1997 and 1996, was $7.6 million and
      $6.6  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, 1997 and 1996,  the Company had made  advanced
      payments for future  aircraft  deliveries  totaling  $6.0 million and $2.7
      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
                Boeing 757-200                              20 years
                Boeing 727-200                              11 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

      In 1997, the Company adopted Financial Accounting Standards Board ("FASB")
      Statement 128,  "Earnings per Share",  which establishes new standards for
      the  calculation  and  disclosure of earnings per share.  All prior period
      earnings per share amounts disclosed in the financial statements have been
      restated to conform to the new  standards  under  Statement  128 (see Note
      10).


2.    Cash and Cash Equivalents

      Cash and cash equivalents consisted of the following:
                                                          December 31,
                                                   1997                 1996
                                               ---------------  ----------------
                                                         (In thousands)
        Cash                                    $  25,406            $  18,523
        Commercial paper                           34,817                    -
        U.S. Treasury repurchase agreements        43,973               54,859
                                               ---------------  ----------------
                                                $ 104,196            $  73,382
                                               ===============  ================


      Cash  equivalents  of $0.0 and  $6.3  million  at  December  31,  1997 and
      December 31, 1996,  respectively,  were pledged to  collateralize  amounts
      which could become due under  letters of credit.  At December 31, 1997 and
      1996, 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:
                                                           December 31,
                                                       1997           1996
                                                     -------------------------
                                                           (In thousands)
        Flight equipment, including airframes,       $  463,576     $  381,186
        engines and other
        Less accumulated depreciation                   219,590        182,392
                                                     ----------     ----------
                                                        243,986        198,794
                                                     ----------     ----------
        Facilities and ground equipment                  54,933         51,874
        Less accumulated depreciation                    31,238         26,128
                                                     ----------     ----------
                                                         23,695         25,746
                                                     ----------     ----------
                                                     $  267,681     $  224,540
                                                     ==========     ==========

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 1998 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, 1997 or 1996.  At December  31, 1997 and
      1996,  the  Company had  outstanding  letters of credit  aggregating  $3.5
      million and $4.1 million, respectively, under such facility.


<PAGE>



5.    Long-Term Debt

      Long-term debt consisted of the following:
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                                1997               1996
                                                                             ------------ ---- -------------
                                                                                    (In thousands)
<S>                                          <C>                                <C>              <C>       
       Unsecured Senior Notes, fixed rate of 10.5% payable on                   $100,000         $        -
       August 1, 2004                                                                                    

       Note payable to bank; prime to prime plus 0.5% (8.5% and 9.0% at
       December 31, 1997), payable on or before April 2001                         34,000           123,246

       Note payable to institutional lender; fixed rate of 7.80% payable
       in varying installments through September 2003                               7,045             8,420

       Note payable to institutional lender; fixed rate of 7.08% payable
       in varying installments through January 1999                                29,982                 -

       City of Indianapolis advance, payable in December 2000                      10,000            10,000

       City of Chicago variable rate special facility revenue bonds (4.29%
       on December 31, 1997), payable in December 2020                              6,000             6,000
       Other                                                                        4,777             1,705
                                                                            --------------     -------------
                                                                                  191,804           149,371
       Less current maturities                                                      8,975            30,271
                                                                            --------------     -------------
                                                                                 $182,829          $119,100
                                                                            ==============     =============
</TABLE>

      On July 24, 1997, the Company completed two separate  financings  designed
      to lengthen the maturity of the Company's long-term debt and diversify its
      credit  sources.  On that  date,  the  Company  (i)  sold  $100.0  million
      principal amount of unsecured seven-year notes in a private offering under
      Rule 144A, and (ii) entered into a new secured revolving credit facility.

      The  unsecured  senior  notes  mature on August 1,  2004.  Each note bears
      interest at the annual  rate of 10.5%,  payable on February 1 and August 1
      of each year beginning February 1, 1998. The Company may redeem the notes,
      in whole or in part, at any time on or after August 1, 2002,  initially at
      105.25% of their principal amount plus accrued interest, declining ratably
      to 100.0% of their principal amount plus accrued interest at maturity.  At
      any time prior to August 1, 2000,  the  Company  may redeem up to 35.0% of
      the original aggregate  principal amount of the notes with the proceeds of
      sales of common stock, at a redemption  price of 110.5% of their principal
      amount (plus  accrued  interest),  provided that at least $65.0 million in
      aggregate  principal  amount of the notes remains  outstanding  after such
      redemption.

      The net proceeds of the unsecured notes were approximately  $96.9 million,
      after  application  of costs  and fees of  issuance.  The  Company  used a
      portion  of the net  proceeds  to repay in full the  Company's  prior bank
      facility  and used the  balance  of the  proceeds  for  general  corporate
      purposes.

      Concurrently with the issuance of the unsecured notes, the Company entered
      into a new $50.0  million  revolving  credit  facility that includes up to
      $25.0 million for stand-by  letters of credit.  ATA is the borrower  under
      the new credit  facility,  which is  guaranteed by the Company and each of
      the Company's other active  subsidiaries.  The principal amount of the new
      facility  matures on April 1, 2001,  and borrowings are secured by certain
      Lockheed  L-1011  aircraft  and  engines.   The  loan-to-value  ratio  for
      collateral  securing  the new  facility  may not  exceed  75% at any time.
      Borrowings under the new facility bear interest,  at the option of ATA, at
      either LIBOR plus 1.50% to 2.50% or the agent bank's prime rate.

      The Company's  former credit facility had initially  provided a maximum of
      $125.0 million,  including  $25.0 million for stand-by  letters of credit,
      subject to the maintenance of certain collateral value,  including certain
      owned Lockheed L-1011 aircraft, certain receivables,  and certain rotables
      and spare parts.  Loans under the former  credit  facility were subject to
      interest, at the Company's option, at either prime to prime plus 0.75%, or
      the Eurodollar rate plus 1.50% to 2.75%. The former facility was scheduled
      to mature on April 1, 1999.

      The notes and  credit  facility  are  subject  to  restrictive  covenants,
      including,   among  other  things,   limitations  on:  the  incurrence  of
      additional  indebtedness;  the payment of dividends;  certain transactions
      with  shareholders  and  affiliates;  or the creation of liens on or other
      transactions  involving  certain assets.  In addition,  certain  covenants
      require certain financial ratios to be maintained.

      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 $0.6 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 advance of $10.0 million must be
      repaid to the City of  Indianapolis.  The  Company  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.

      The Company has made voluntary prepayments of long-term debt which has had
      the effect of reducing interest expense by approximately  $3.4 million and
      $5.9 million during 1997 and 1996, respectively.

      Future maturities of long-term debt are as follows:

                                    December 31, 1997
                                  -----------------------
                                      (In thousands)
          1998                            $   8,975
          1999                               28,626
          2000                               11,382
          2001                               35,374
          2002                                1,192
          Thereafter                        106,255
                                  -----------------------
                                          $ 191,804
                                  =======================


      Interest  capitalized in  connection with  long-term asset purchase agree-
      ments  was $0.7 million  and $1.4 million in  1997 and 1996, respectively.

      In December 1997, the Company purchased a Boeing 727-200 and issued a $4.7
      million  note  payable  which  is  classified  in  current  maturities  of
      long-term  debt. The note payable is due in the first quarter of 1998, and
      is secured by $4.7 million in cash held in escrow. This restricted cash is
      classified as cash and cash equivalents at December 31, 1997. The note was
      repaid in January 1998.


<PAGE>



  6.   Lease Commitments

      At December  31,  1997,  the Company had  aircraft  leases on one Lockheed
      L-1011, 23 Boeing 727-200s,  and six Boeing 757-200s.  The Lockheed L-1011
      has an  initial  term of 60  months  which  expires  in 2002.  The  Boeing
      757-200s have initial lease terms that expire from 2002 through 2015.  The
      Boeing  727-200s  have  initial  terms of three to seven  years and expire
      between 1998 and 2003. The Company also leases nine engines for use on the
      Lockheed L-1011s through 2001.

      The Company is responsible for all maintenance costs on these aircraft and
      must meet specified airframe and engine return conditions.

      As of December 31, 1997, 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 Company is responsible for maintenance,  taxes,  insurance and
      other expenses incidental to the operation of the facilities.

      Future  minimum  lease  payments at December 31, 1997,  for  noncancelable
      operating leases with initial terms of more than one year are as follows:

                                                 Facilities
                                  Flight         And Ground
                                Equipment        Equipment         Total
                             -------------------------------------------------
                                               (In thousands)
        1998                    $  48,380           $6,458           $54,838
        1999                       46,842            5,825            52,667
        2000                       37,150            5,230            42,380
        2001                       37,451            3,877            41,328
        2002                       31,412            3,754            35,166
        Thereafter                229,946           22,941           252,887
                             ---------------    -------------    -------------
                                 $431,181          $48,085          $479,266
                             ===============    =============    =============


      Rental expense for all operating  leases in 1997,  1996 and 1995 was $63.0
      million, $75.0 million and $63.0 million, respectively.


<PAGE>



7.    Income Taxes

      The provision for income tax expense (credit) consisted of the following:
<TABLE>
<CAPTION>

                                                                   December 31,
                                                1997                   1996                   1995
                                           ----------------       ----------------       ----------------
                                                                  (In thousands)
        Federal:
<S>                                               <C>                                             <C>   
         Current                                  $    173                                        $1,280
                                                                     $          -
         Deferred                                    3,706               (11,798)                  4,399
                                           ----------------       ----------------       ----------------
                                                     3,879               (11,798)                  5,679
        State:
         Current                                       163                    161                    107
         Deferred                                      413                (1,270)                    343
                                                       576                (1,109)                    450 
        Income tax expense (credit)                $ 4,455              $(12,907)                 $6,129
                                          =================      =================       ================
</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,

                                                                          1997               1996              1995
                                                                       ------------      -------------      -----------
                                                                                       (In thousands)

<S>                                                                         <C>             <C>                 <C>   
        Federal income taxes at statutory rate (credit)                     $2,049          $(13,457)           $4,982

        State income taxes (credit), net of federal benefit                    367              (732)              535

        Non-deductible expenses                                              1,947             1,282               998
                                                                             

        Benefit of change in estimate of  state income tax rate                  -                  -            (258)

        Benefit of tax reserve adjustments                                       -                  -            (203)

        Other, net                                                              92                  -               75
                                                                       ------------      -------------      -----------

        Income tax expense (credit)                                         $4,455          $(12,907)           $6,129
                                                                       ============      =============      ===========
</TABLE>


<PAGE>



      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:
<TABLE>
<CAPTION>

                                                                                 December 31,
                                                                             1997           1996
                                                                                (In thousands)
        Deferred tax liabilities:
<S>                                                                         <C>         <C>    
         Tax depreciation in excess of book depreciation                    $61,117      $56,885
         Other taxable temporary differences                                    597          476
                                                                      --------------    ----------
               Deferred tax liabilities                                     $61,714      $57,361
                                                                      --------------    ----------
        Deferred tax assets:
         Tax benefit of net operating loss carryforwards                   $ 28,744     $  29,852
         Investment and other tax credit carryforwards                        3,032         4,720
         Vacation pay accrual                                                 2,595         2,044
         Amortization of lease credits                                        1,979             -
         Other deductible temporary differences                               3,660         4,928
                                                                      --------------     ---------
               Deferred tax assets                                          $40,010       $41,544
                                                                      --------------     ---------
        Deferred taxes classified as:


        Current asset
        Current asset                                                      $  9,756       $ 4,399
                                                                      ==============      ========
        Non-current liability                                               $31,460       $20,216

                                                                      ==============      ========
</TABLE>

      At December 31, 1997, for federal tax reporting purposes,  the Company had
      approximately $78.6 million of net operating loss carryforwards  available
      to offset future federal taxable income and $3.0 million of investment and
      other tax credit  carryforwards  available  to offset  future  federal tax
      liabilities. The net operating loss carryforwards expire as follows: 2002,
      $10.2 million; 2003, $8.1 million; 2004, $9.0 million; 2005, $3.5 million;
      2009,  $14.7  million;   2011,   $33.1  million.   Investment  tax  credit
      carryforwards  of $1.6 million  expire  principally in 2000, and other tax
      credit carryforwards of $1.4 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 35% in  1997,  and 30% in 1996 and  1995,  of the  amount
      contributed  by each  participant  up to the first six percent of eligible
      compensation.  Company matching  contributions  expensed in 1997, 1996 and
      1995 were $1.8 million, $1.3 million and $1.2 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 $0.3 million, $0.3 million,
      and $0.4 million in 1997,  1996 and 1995,  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.

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, 1997, the Company had  repurchased  185,000 shares at a total
      cost of $1.8 million.

      The Company's  1993  Incentive  Stock Plan for Key  Employees  (1993 Plan)
      authorizes  the grant of options for up to 900,000 shares of the Company's
      common stock.  The Company's 1996  Incentive  Stock Plan for Key Employees
      (1996 Plan)  authorizes the grant of options for up to 3,000,000 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 follows:

                                               Number of      Weighted-Average
                                                 Shares        Exercise Price
                                               ---------      ----------------
                                                                (In dollars)

        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
                                                  ---------

           Granted                                1,588,500            8.49

           Exercised                                      -               -

           Canceled                                 706,000            7.14
                                                  ----------

        Outstanding at December 31, 1997          2,512,400            9.39
                                                  ==========
        Options exercisable at December 31, 1996    497,015            9.99
                                                  ==========

        Options exercisable at December 31, 1997    390,232           12.02
                                                  ==========

      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.

      The weighted-average fair value of options granted during 1997 and 1996 is
      estimated at $5.28 and $4.49 per share,  respectively,  on the grant date.
      These estimates were made using the Black-Scholes option

<PAGE>


      pricing model with the following weighted-average assumptions for 1997 and
      1996:  risk-free  interest rate of 6%; expected market price volatility of
      .40  and  .48;   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:
                                                 1997      1996        1995
                                           (In thousands, except per share data)

            Net income (loss) as reported    $  1,572    $ (26,674)    $ 8,524
            Net income (loss) pro forma            89      (28,864)      8,456

            Diluted income (loss) per share
            as reported                           .13        (2.31)        .74

            Diluted income (loss) per share
            pro forma                             .01        (2.50)        .74


      Options  outstanding  at  December  31,  1997,  expire from August 2003 to
      February 2007. A total of 1,387,600  shares are reserved for future grants
      as of December  31,  1997,  under the 1993 and 1996 Plans.  The  following
      table  summarizes   information  concerning  outstanding  and  exercisable
      options at December 31, 1997:

        Range of Exercise Prices                   $7 - 11     $12 - 16

        Options outstanding:

         Weighted-Average Remaining
            Contractual Life                      8.8 years    7.3 years
         Weighted-Average Exercise Price              $8.50       $14.30
         Number                                   1,226,200      286,200

        Options exercisable:
          Weighted-Average Exercise Price             $9.19       $15.11
          Number                                    203,791      186,441


<PAGE>



10.   Earnings per Share
<TABLE>
<CAPTION>

      The  following  table  sets  forth the  computation  of basic and  diluted earnings per share:
                                                                          1997            1996                1995
                                                                     ------------      ------------     --------------
                                                                  (Dollars in thousands, except shares and per share data)
        Numerator:
<S>                                                                  <C>               <C>              <C>          <C> 
            Net income (loss)                                        $    1,572        $     (26,674)   $          8 ,524
                                                                          
        Denominator:
            Denominator for basic earnings per
               share - weighted average shares                       11,577,727           11,535,425           11,481,861
            Effect of dilutive securities:
                Employee stock options                                   64,725                    -               37,371
                Restricted shares                                        30,878                    -                    -
                                                                   -------------     ----------------     ----------------
            Dilutive potential common shares                             95,603                    -               37,371
                                                                   -------------     ----------------     ----------------
            Denominator for diluted earnings per
              share - adjusted weighted average shares               11,673,330           11,535,425           11,519,232
                                                                   =============     ================     ================
            Basic earnings per share                                $     0.14        $   (2.31)           $        0.74  
                                                                   =============     ================     ================
            Diluted earnings per share                              $     0.13        $   (2.31)                    0.74
                                                                   =============     ================     ================


      Potentially dilutive securities were not included in the computation of 1996 diluted earnings per share  because the year
      resulted in a net loss and, therefore, their effect would be antidilutive.
</TABLE>


11.   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
      16.8%, 11.2%  and 10.8% of consolidated  revenues for 1997, 1996 and 1995,
      respectively.


12.   Commitments and Contingencies

      In November  1994,  the Company  signed a purchase  agreement  for six new
      Boeing  757-200s,  which,  as subsequently  amended,  now provides for the
      delivery  of seven total  aircraft.  The amended  agreement  provides  for
      deliveries of aircraft between 1995 and 1998. As of December 31, 1997, the
      Company had taken  delivery of five Boeing  757-200s  under this  purchase
      agreement  and  financed  those  aircraft  using leases  accounted  for as
      operating leases.  The two remaining  aircraft have an aggregate  purchase
      price of approximately $50.0 million per aircraft,  subject to escalation.
      Advance payments  totaling  approximately  $12.6 million ($6.3 million per
      aircraft)  are  required  to be made  for the  remaining  two  undelivered
      aircraft,  with the balance of the purchase price due upon delivery. As of
      December  31, 1997 and 1996,  the  Company had made $6.0  million and $2.7
      million in advanced payments, respectively,  pertaining to future aircraft
      deliveries.

      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>



      The Company has signed purchase agreements to acquire 11 Boeing 727-200ADV
      aircraft  at agreed  prices.  Nine of the  aircraft  to be  purchased  are
      currently leased by the Company. The remaining two aircraft,  currently on
      lease to another airline,  may be purchased in either February,  August or
      October  1999,  depending  upon the  exercise of lease  extension  options
      available to the current lessee.

<TABLE>
<CAPTION>

                                               Financial Statements and Supplementary Data

                                                          Amtran, Inc. and Subsidiaries
                                                       1997 Quarterly Financial Summary
                                                               (Unaudited)
--------------------------------------------- ------------------- ------------------ ------------------ -------------------------
(In thousands, except per share data)                 March 31            June 30         September 30           December 31
--------------------------------------------- ------------------- ------------------ ------------------ -------------------------

<S>                                                     <C>                <C>                <C>                 <C>     
Operating revenues                                      $194,284           $192,187           $210,790            $185,931
Operating expenses                                       186,556            191,166            205,464             186,523
Operating income (loss)                                    7,728              1,021              5,326               (592)
Other expenses                                           (1,411)            (1,501)            (1,752)             (2,793)
Income (loss) before income taxes                          6,317              (480)              3,574             (3,385)
Income taxes (credits)                                     3,095                269              1,828               (737)
Net income (loss)                                       $  3,222           $  (749)           $  1,746            $(2,648)
Net income (loss) per share - basic                     $    .28           $  (.06)           $    .15            $  (.23)
Net income (loss) per share - diluted                   $    .27           $  (.06)           $    .15            $  (.23)
                                                                       

                                                         Amtran, Inc. and Subsidiaries
                                                      1996 Quarterly Financial Summary
                                                                  (Unaudited)
--------------------------------------------- ------------------- ------------------ ------------------ -------------------------
(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                                       201,704            198,321            218,776             168,106
Operating income (loss)                                    5,431            (2,926)           (19,078)            (19,483)
Other expenses                                           (1,069)              (648)              (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 - basic                     $    .21           $  (.20)          $  (1.09)           $  (1.23)
Net income (loss) per share - diluted                   $    .20           $  (.20)          $  (1.09)           $  (1.23)

</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 pages 4 and 5 of Amtran,  Inc. and  Subsidiaries'
Proxy  Statement  dated April 3, 1998,  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  12  through  15  of  Amtran,  Inc.  and
Subsidiaries'  Proxy  Statement  dated April 3, 1998,  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 pages 10 and 11 of Amtran,  Inc. and Subsidiaries'
Proxy  Statement  dated April 3, 1998,  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 page 6 of Amtran,  Inc. and  Subsidiaries'  Proxy
Statement dated April 3, 1998, 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, 1997, are
                 included in Item 8:

                 o Consolidated Balance Sheets for years ended December 31, 1997
                   and 1996

                 o Consolidated Statements of Operations for years ended
                   December 31, 1997, 1996 and 1995

                 o Consolidated Statements of Changes in Shareholders' Equity
                   for years ended December 31, 1997, 1996 and 1995

                 o Consolidated Statements of Cash Flows for years ended
                   December 31, 1997, 1996 and 1995

                 o Notes to Consolidated Financial Statements

              (2)  Financial Statement Schedule

           The following  consolidated  financial  information for the years
           1997, 1996 and 1995 is included in Item 14(d):
     
                                                                          Page
                 o  Schedule II - Valuation and Qualifying Accounts        73

            All other 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                72


       (b)     Reports on Form 8-K

               There were no Form 8-Ks filed during the quarter  ended  December
               31, 1997.

       (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  March 31, 1998       John P. Tague
                           President and Chief Executive Officer
                           Director




Date  March 31, 1998      James W. Hlavacek
                          Executive Vice President, Chief Operating Officer
                            and President of ATA Training Corporation
                          Director




Date  March 31, 1998      Kenneth K. Wolff
                          Executive Vice President and Chief Financial Officer
                          Director




Date  March 31, 1998      Dalen D. Thomas
                          Senior Vice President, Sales, Marketing and Strategic
                             Planning
                          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  4,  1998,  with  respect  to the
              consolidated  financial  statements and schedule of Amtran,  Inc.,
              included  in the  Annual  Report  (Form  10-K) for the year  ended
              December 31, 1997.













              /S/ERNST & YOUNG LLP
              Indianapolis, Indiana
              March 26, 1998




<PAGE>

<TABLE>
<CAPTION>

PART IV                                                                                                              SCHEDULE  II
Item 14


                        VALUATION AND QUALIFYING ACCOUNTS
                             (Dollars in thousands)

COLUMN A                                        COLUMN B                    COLUMN C                 COLUMN D           COLUMN E  
-------------------------------------------   --------------    -------------------------------   --------------    --------------
                                                                            Additions
                                                                -------------------------------

                                                                                 Charged to
                                               Balance at        Charged to      Other                               Balance at
                                                Beginning         Costs and      Accounts -       Deductions -         End of
Description                                     of Period         Expenses       Describe         Describe             Period
-------------------------------------------   --------------    --------------   --------------   --------------    --------------

Year ended December 31, 1995:
          Deducted from asset accounts:
<S>                                           <C>               <C>              <C>              <C>           <C> <C>          
          Allowance for doubtful accounts     $       1,347     $       2,115    $           -    $       2,159 (1) $       1,303
          Allowance for obsolescence -                6,564               258                -            1,248 (2)         5,574
          Inventory
                                              --------------    --------------   --------------   --------------    --------------
               Totals                         $       7,911     $       2,373    $           -    $       3,407     $       6,877
                                              ==============    ==============   ==============   ==============    ==============

Year ended December 31, 1996:
          Deducted from asset accounts:
          Allowance for doubtful accounts     $       1,303     $         791    $           -    $         820 (1) $       1,274
          Allowance for obsolescence -                5,574             1,432                -              412 (2)         6,594
          Inventory
                                              --------------    --------------   --------------   --------------    --------------
               Totals                         $       6,877     $       2,223    $           -    $       1,232     $       7,868
                                              ==============    ==============   ==============   ==============    ==============

Year ended December 31, 1997:
          Deducted from asset accounts:
          Allowance for doubtful accounts     $       1,274     $       1,261    $           -    $         853 (1) $       1,682
          Allowance for obsolescence -                6,594             1,474                -              437 (2)         7,631
          Inventory
          Valuation allowance - Assets
              held for sale                               -               200                -                -               200
                                              --------------    --------------   --------------   --------------    --------------
               Totals                         $       7,868     $       2,935    $           -    $       1,290     $       9,513
                                              ==============    ==============   ==============   ==============    ==============


(1)   Uncollectible accounts written off, net of recoveries

(2)  Obsolescence  allowance  related to inventory  items  transferred to flight equipment or sold
</TABLE>