<PAGE>1
                    SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549
                                     
                                 FORM 10-Q
                                     
              QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
                    THE SECURITIES EXCHANGE ACT OF 1934
                                     
                   For Quarter Ended September 30, 1998
                                     
                       Commission File Number 1-6512
                                     
                       AIRBORNE FREIGHT CORPORATION
          ------------------------------------------------------
          (Exact name of registrant as specified in its charter)
                                     
                                 Delaware
                 ----------------------------------------
                 (State of incorporation or organization)
                                     
                                91-0837469
                     ---------------------------------
                     (IRS Employer Identification No.)
                                     
                            3101 Western Avenue
                               P.O. Box 662
                      Seattle, Washington 98111-0662
                      ------------------------------
                  (Address of Principal Executive Office)

Registrant's telephone number, including area code:    (206) 285-4600
                                                       --------------

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

                         Yes: XXX       No:
                              ---            ---

Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the close of the period covered by this report.

     Common Stock, par value $1 per share

     Outstanding (net of 2,497,078 treasury shares)
          as of September 30, 1998                48,286,791 shares
                                                  -----------------

<PAGE>2
<TABLE>
                  AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF NET EARNINGS
                  (Dollars in thousands except per share data)
                                   (Unaudited)

<CAPTION>
                                        Three Months Ended          Nine Months Ended
                                        ------------------          -----------------
                                           September 30               September 30
                                           ------------               ------------
                                        1998         1997           1998        1997
                                        ----         ----           ----        ----
<S>                                  <C>          <C>            <C>         <C>
REVENUES:                                                                    
  Domestic                            $678,650    $687,549       $2,013,546  $1,861,659
  International                         90,432     101,049          269,866     295,245
                                      --------    --------       ----------  ----------
                                       769,082     788,598        2,283,412   2,156,904
                                                                             
OPERATING EXPENSES:                                                          
  Transportation purchased             237,503     242,521          702,623     680,074
  Station and ground operations        228,339     224,945          679,315     636,051
  Flight operations and maintenance    121,102     110,949          355,985     315,645
  General and administrative            62,811      64,842          184,701     173,942
  Sales and marketing                   18,288      19,742           53,256      53,821
  Depreciation and amortization         45,954      41,688          136,024     126,169
                                      --------    --------       ----------  ----------
                                       713,997     704,687        2,111,904   1,985,702
                                      --------    --------       ----------  ----------
                                                                             
     EARNINGS FROM OPERATIONS           55,085      83,911          171,508     171,202
INTEREST, NET                            3,005       7,026            9,881      23,522
                                      --------    --------       ----------  ----------
     EARNINGS BEFORE INCOME TAXES       52,080      76,885          161,627     147,680
                                                                             
INCOME TAXES                            19,267      30,266           62,627      58,400
                                      --------    --------       ----------  ----------
     NET EARNINGS                       32,813      46,619           99,000      89,280
                                      ========    ========       ==========  ==========
                                                                             
NET EARNINGS PER SHARE                                                       
   Basic                              $    .66    $   1.05       $     1.98  $     2.06
                                      ========    ========       ==========  ==========
   Diluted                            $    .65    $    .94       $     1.94  $     1.84
                                      ========    ========       ==========  ==========
DIVIDENDS PER SHARE                   $   .040    $   .038       $     .118  $     .113
                                      ========    ========       ==========  ==========
                                                                             
                 See notes to consolidated financial statements.
</TABLE>
<PAGE>3
<TABLE>
               AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS
                          (Dollars in thousands)

<CAPTION>
                                                September 30   December 31
                                                ------------   -----------
                    ASSETS                          1998           1997
                    ------                          ----           ----
                                                (Unaudited)    (Unaudited)
<S>                                            <C>            <C>
CURRENT ASSETS:                                               
  Cash                                          $   14,088    $   25,525
  Trade accounts receivable, less                             
      allowance of $9,990 and $10,290              316,589       322,549
  Spare parts and fuel inventory                    38,960        37,966
  Deferred income tax assets                        16,407        14,530
  Prepaid expenses and other                        26,329        25,982
                                                ----------    ----------
     TOTAL CURRENT ASSETS                          412,373       426,552
                                                              
PROPERTY AND EQUIPMENT, NET                        976,107       916,331
                                                              
EQUIPMENT DEPOSITS and OTHER ASSETS                 36,585        23,090
                                                ----------    ----------
TOTAL ASSETS                                    $1,425,065    $1,365,973
                                                ==========    ==========
                                                              
     LIABILITIES AND SHAREHOLDERS' EQUITY                     
     ------------------------------------                     
CURRENT LIABILITIES:                                          
  Accounts payable                              $  142,366    $  143,966
  Salaries, wages and related taxes                 67,099        80,154
  Accrued expenses                                  90,974       100,126
  Income taxes payable                               3,130         5,440
  Current portion of debt                              400           381
                                                ----------    ----------
     TOTAL CURRENT LIABILITIES                     303,969       330,067
                                                              
LONG-TERM DEBT                                     250,289       250,559
DEFERRED INCOME TAX LIABILITIES                     81,383        65,322
OTHER LIABILITIES                                   57,506        49,110
                                                              
SHAREHOLDERS' EQUITY:                                         
  Preferred Stock, without par value -                        
    Authorized 5,200,000 shares,                              
        no shares issued                                      
  Common stock, par value $1 per share -                      
    Authorized 120,000,000 shares                             
    Issued 50,783,869 and 50,428,548 shares         50,784        50,429
  Additional paid-in capital                       293,549       287,208
  Retained earnings                                427,186       334,083
                                                ----------    ----------
                                                   771,519       671,720
  Treasury stock, 2,497,078 and 522,300                       
   shares, at cost                                 (39,601)         (805)
                                                ----------    ----------
                                                   731,918       670,915
                                                ----------    ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $1,425,065    $1,365,973
                                                ==========    ==========
              See notes to consolidated financial statements.
</TABLE>
<PAGE>4
<TABLE>
               AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (Dollars in thousands)
                                (Unaudited)
<CAPTION>
                                                       Nine Months Ended
                                                       -----------------
                                                         September 30
                                                       -----------------
                                                       1998         1997
                                                       ----         ----
<S>                                                  <C>         <C>
OPERATING ACTIVITIES:                                            
  Net Earnings                                       $ 99,000    $ 89,280
  Adjustments to reconcile net earnings                          
   to net cash provided by operating activities:                 
     Depreciation and amortization                    124,002     116,303
     Provision for aircraft engine overhauls           12,022       9,866
     Deferred income taxes                             14,184      17,903
     Other                                              8,535       2,411
                                                     --------    --------
  CASH PROVIDED BY OPERATIONS                         257,743     235,763
                                                                 
     Change in:                                                  
       Receivables                                      5,960     (57,859)
       Inventories and prepaid expenses                (1,341)     (2,760)
       Accounts payable                                (1,600)     (1,063)
       Accrued expenses, salaries and taxes payable   (24,176)     49,788
                                                     --------    --------
  NET CASH PROVIDED BY OPERATING ACTIVITIES           236,586     223,869
                                                                 
INVESTING ACTIVITIES:                                            
  Additions to property and equipment                (193,497)   (135,433)
  Disposition of property and equipment                   951       4,425
  Expenditures for engine overhauls                   (15,521)     (8,821)
  Proceeds from insurance on aircraft accident            --       18,000
  Other                                                (1,367)        214
                                                     --------    --------
  NET CASH USED IN INVESTING ACTIVITIES              (209,434)   (121,615)
                                                                 
FINANCING ACTIVITIES:                                            
  Payments on bank notes, net                             --     (117,300)
  Principal payments on debt                             (251)       (316)
  Repurchase of common stock                          (38,835)        --
  Proceeds from common stock issuance                   6,394       6,596
  Dividends paid                                       (5,897)     (4,894)
                                                     --------    --------
  NET CASH USED BY FINANCING ACTIVITIES               (38,589)   (115,914)
                                                     --------    --------
                                                                 
NET DECREASE IN CASH                                  (11,437)    (13,660)
                                                                 
CASH AT JANUARY 1                                      25,525      35,816
                                                     --------    --------
CASH AT SEPTEMBER 30                                 $ 14,088    $ 22,156
                                                     ========    ========
                                                                 
              See notes to consolidated financial statements.
</TABLE>
<PAGE>5
               AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            September 30, 1998
                                (Unaudited)

NOTE A - SUMMARY OF FINANCIAL STATEMENT PREPARATION:

The consolidated financial statements included herein are unaudited but
include all adjustments which are, in the opinion of management, necessary
for a fair presentation of the financial position and results of operations
and cash flows for the interim periods reported.

Certain amounts for prior periods have been reclassified to conform to the
1998 presentation.

NOTE B - LONG-TERM DEBT:

<TABLE>
Long-term debt consists of the following:

<CAPTION>
                                            September 30   December 31
                                            ------------   ------------
                                                1998           1997
                                                ----           ----
                                                  (In thousands)
<S>                                          <C>          <C>
Senior debt:                                              
  Notes payable                                 30,000       30,000
  Senior notes                                 200,000      200,000
  Revenue bonds                                 13,200       13,200
  Other debt                                     7,489        7,740
                                             ---------    ---------
                                               250,689      250,940
Less current portion                               400          381
                                             ---------    ---------
                                             $ 250,289    $ 250,559
                                             =========    =========
                                                          
</TABLE>


NOTE C - SHARE REPURCHASE:

In August 1998, the Company's Board of Directors authorized the repurchase
of up to 2 million shares of its common stock.  The repurchase of 2 million
shares was completed by the end of September for a total purchase price of
$38.8 million.  The repurchased shares were not retired or canceled but
rather held as treasury stock.


NOTE D - EARNINGS PER SHARE:

Basic earnings per share are based upon the weighted average number of
common shares outstanding during the interim period. Diluted earnings per
share are based upon the weighted average number of shares outstanding
during the interim period plus dilutive common equivalent shares applicable
to the assumed exercise of outstanding stock options.

Diluted earnings per share for the three and nine months ended September
30, 1997 assumes conversion of the Company's convertible subordinated
debentures as of the beginning of the period as well as the dilutive common
equivalent shares applicable to the assumed exercise of stock options.  Net
earnings as adjusted for the elimination of interest expense, net of
<PAGE>6

applicable taxes, relative to the assumed conversion was $47,459,000 for
the three month period and $92,249,000 for the nine month period.

<TABLE>
Weighted average shares outstanding used in earnings per share computations
were as follows:

<CAPTION>
                               Three Months Ended    Nine Months Ended
                               ------------------    -----------------
                                  September 30         September 30
                                  ------------         ------------
                                1998       1997       1998       1997
                                ----       ----       ----       ----
<S>                           <C>        <C>        <C>        <C>
WEIGHTED AVERAGE SHARES                                        
OUTSTANDING:                                                   
   Basic                        49,921     44,325     50,056     43,246
   Diluted                      50,682     50,631     51,051     50,099
                                                               
</TABLE>


NOTE E - NEW ACCOUNTING PRONOUNCEMENTS:

ACCOUNTING FOR DERIVATIVE INSTRUMENTS:

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which will be effective for fiscal year
2000.  SFAS No. 133 requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value.

The Company has entered into certain derivative contracts with financial
institutions to limit its exposure to volatility in jet fuel prices.  Under
terms of the contracts, the Company either makes or receives payments if
the market price of heating oil, as determined by an index of monthly NYMEX
Heating Oil futures contracts, is lower or exceeds certain prices agreed to
between the Company and the financial institutions.  The contracts, which
have no cost basis, are accounted for as hedges since there has
historically existed a high correlation between the changes in the NYMEX
index and the price of jet fuel.  Settlements are made in cash and are
recorded in the earnings statement in the period of settlement as either an
increase or decrease to fuel expense.

Under the cash flow hedge provisions of SFAS No. 133, the Company will be
required to record the contracts at fair value, with corresponding changes
in fair value recorded as a component of other comprehensive income.  The
Company has not adopted the provisions of SFAS No. 133 as of September 30,
1998.  However, if the provisions of the statement had been adopted, a
cumulative charge of $1,000,000, net of tax, would have been recorded to
shareholders' equity and a credit to comprehensive income of approximately
$1,300,000 would have been reported for the three month period ended
September 30, 1998.  A charge to comprehensive income of approximately
$400,000, would have been reported for the nine month period ended
September 30, 1998.

<PAGE>7

OTHER PRONOUNCEMENTS:

The FASB has also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which establishes standards for
reporting information about operating segments and SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits"
which revises disclosures requirements for pension and other postretirement
benefit plans.  Both of these pronouncements govern only financial
statement disclosures and will be incorporated into the Company's financial
statements for the year ending December 31, 1998.  Implementation of the
pronouncements are not expected to have a material impact on the Company's
financial position or results of operations.
<PAGE>8

                  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS:

Net earnings for the third quarter of 1998 were $32.8 million, or $.65 per
share on a diluted basis, on revenues of $769 million.  Current period
results are not directly comparable with the prior year in certain
respects, as the Company benefited in the third quarter of 1997 from a
strike at United Parcel Service which added $50 - $55 million in
incremental domestic revenues and increased earnings per share results by
$.28 to $.30.  Total net earnings for the third quarter of 1997 were $46.6
million or $.94 per diluted share on revenues of $789 million.

Because of weaker economic conditions, the Company experienced basically
stagnant third quarter 1998 total shipment and revenue growth on a
sequential basis over second quarter.  However, the Company is pleased with
the operating performance achieved for the third quarter as signified by
the 7.2% operating margin, despite the slower growth.  This strong
performance was primarily due to the improvement in the domestic yield, as
measured by revenue per shipment, which was $8.59 in the third quarter
compared to $8.49 in the second quarter of 1998.

Net earnings for the first nine months of 1998 increased 10.9% to
$99.0 million, or $1.94 per diluted share compared to $89.3 million, or
$1.84 per share for the first nine months of 1997.  Total revenues for the
first nine months of 1998 were $2.283 billion, a 5.9% increase over the
comparable period of 1997.  This 1998 year-to-date performance represents
approximately a 25% increase in earnings per share over 1997, on a
comparative basis when the benefit realized from the 1997 UPS strike is
eliminated, a significant improvement considering the prevailing weak
economic conditions.
<TABLE>
The following table sets forth selected shipment and revenue data for the
periods indicated:

<CAPTION>
                                  Three Months Ended                  Nine Months Ended             
                                  ------------------                  -----------------             
                                     September 30                        September 30                  
                                     ------------           %            -----------            %
                                  1998         1997       Change      1998         1997       Change
                                  ----         ----       ------      ----         ----       ------
<S>                            <C>          <C>          <C>       <C>          <C>          <C>
Shipments (in thousands):                                                                          
  Domestic                                                                                   
    Overnight                    46,792          45,675     2.4%    139,183         127,601     9.1%
    Next Afternoon Service       14,640          14,026     4.4%     43,741          39,907     9.6%
    Second Day Service           17,497          19,482   -10.2%     53,181          51,948     2.4%
    100 Lbs. & Over                  91              96    -5.2%        269             250     7.6%
                                 ------          ------             -------         -------  
      Total Domestic             79,020          79,279    -0.3%    236,374         219,706     7.6%
                                 ------          ------             -------         -------  
  International                                                                              
    Express                       1,522           1,351    12.7%      4,418           3,803    16.2%
    Freight                         105             118   -11.0%        328             356    -7.9%
                                 ------          ------             -------         -------  
  Total International             1,627           1,469    10.8%      4,746           4,159    14.1%
                                 ------          ------             -------         -------  
  Total Shipments                80,647          80,748    -0.1%    241,120         223,865     7.7%
                                 ======          ======             =======         =======  
Average Pounds per Shipment:                                                                 
  Domestic                         4.26            4.71    -9.6%       4.28            4.45    -3.8%
  International                   41.06           50.32   -18.4%      42.23           51.33   -17.7%
                                                                                             
Average Revenue per Pound:                                                                   
  Domestic                        $1.98           $1.82     8.8%      $1.96           $1.89     3.7%
  International                   $1.34           $1.34      --       $1.33           $1.36    -2.2%
                                                                                             
Average Revenue per Shipment:                                                                
  Domestic                        $8.59           $8.67    -0.9%      $8.51           $8.46     0.6%
  International                  $55.58          $68.79   -19.2%     $56.86          $70.99   -19.9%
                                                                                             
</TABLE>
<PAGE>9

Domestic shipments decreased .3% in the third quarter of 1998, but
increased 7.6% in the first nine months of 1998, compared to the same
periods in 1997.  Domestic shipment comparisons for 1998 over 1997 are less
meaningful due to the effect of the UPS strike in the third quarter of 1997
referred to above.

The growth rate in the higher yielding domestic overnight segment increased
2.4% in the third quarter of 1998, and 9.1% in the first nine months of
1998, a higher growth rate than overall domestic shipment growth.  This
helped the domestic revenue per shipment improve to $8.59 per shipment for
the third quarter of 1998, compared to the second quarter of 1998, and to
$8.51 per shipment for the first nine months of 1998.  Overnight shipments
accounted for approximately 59.2% of total domestic shipments in the third
quarter of 1998 compared to 57.6% in the comparable period of 1997.

Domestic revenues for 1997 included $15.5 million of fuel surcharge revenue
which was realized in the first two quarters of 1997.  This fuel surcharge
revenue added approximately $.15 per share to 1997 operating results.

International revenues decreased 10.5% and 8.6% in the third quarter and
first nine months of 1998, respectively, versus comparable periods in 1997,
primarily the result of slower global economic conditions prevailing,
especially in parts of Asia.  Shipments in the heavier weight, higher
revenue per shipment freight segment continued to decline as measured both
year to year and sequentially over prior quarter.  Mitigating some of the
weakness in freight volumes, the Company experienced strong growth in its
international express segment, resulting in gross margins on overall
international business remaining relatively stable.  International express
shipments increased 12.7% and 16.2% in the third quarter and first nine
months of 1998, respectively, compared to the corresponding periods of
1997.

Operating expenses as a percentage of revenues were 92.5% for the first
nine months of 1998 compared to 92.1% in the first nine months of 1997 and
92.3% for all of 1997.  Operating cost per shipment handled decreased 1.3%
to $8.76 for the first nine months of 1998 compared to the first nine
months of 1997.  The operating cost per shipment for the third quarter of
1998 increased 1.4% to $8.85, compared to the third quarter of 1997 while
operating expense as a percentage of revenues was 92.8%.  Most of the
decrease in year-to-date operating cost per shipment was attributable to
lower costs related to lower international freight volumes.

The Company experienced a 2.1% decline in productivity for the third
quarter of 1998, compared to the third quarter of 1997, as measured by
shipments handled per paid employee hour.  It was difficult to achieve
productivity improvement given the overall stagnant shipment growth
experienced during the third quarter of 1998, however, the Company achieved
a 1.9% productivity improvement for the first nine months of 1998.
Continued emphasis on cost control and productivity improvement were
factors having a positive impact on 1998 operating results.  Comparisons of
certain operating expense components are discussed below.

Transportation purchased decreased as a percentage of revenues to 30.8% in
the first nine months of 1998 compared to 31.5% in the comparable period of
1997.  This decrease was primarily due to commercial airline costs which
were lower in total and as a percentage of total revenues in the first nine
months of 1998 due to the lower volumes of international freight shipments
discussed above. The suspension of the Federal Aviation Excise Tax reduced
costs in the first quarter of 1997 by $4.3 million.  The Aviation Excise
Tax moratorium was effective through March 6, 1997, subsequent to which the
tax became effective once again; therefore, no cost reduction was realized
in 1998.

Station and ground expense increased as a percentage of revenues to 29.7%
for the first nine months of 1998 compared to 29.5% in the same period of
1997, primarily the result of lower productivity.

<PAGE>10

Flight operations and maintenance expense as a percentage of revenues
during the first nine months of 1998 was 15.6%, compared to 14.6% in the
first nine months of 1997, and was 15.7% in the third quarter of 1998
compared to 14.1% in 1997.  During the second and third quarters of 1997,
costs associated with periodic aircraft maintenance were lower as a
percentage of revenues versus the comparable quarters of 1998, due to fewer
maintenance checks performed.  The average aviation fuel price for the
third quarter and first nine months of 1998 was $.55 per gallon and $.58
per gallon, respectively, compared to $.70 per gallon and $.74 per gallon
for the comparable periods of 1997.  Aviation fuel consumption increased to
136.0 million gallons in the first nine months of 1998, a 8.7% increase
over the comparable period of 1997.  As a result of fuel hedging contracts,
the Company incurred settlement expense equivalent to approximately $.06
per gallon in the third quarter of 1998, and $.04 per gallon in the first
nine months of 1998 compared to $.01 per gallon benefit realized in the
first nine months of 1997.

General and administrative expense as a percentage of revenues in the first
nine months of 1998 was 8.1% which was comparable to the same period of
1997.  This category of expense decreased as a percentage of revenues as
well as in total cost in the third quarter of 1998 versus the third quarter
of 1997, primarily the result of higher incremental accrued profit sharing
costs in 1997.

Sales and marketing expense decreased both in total cost and as a
percentage of revenues to 2.3% in the first nine months of 1998 compared to
2.5% in the first nine months of 1997.  This decline is primarily due to
lower sales incentive compensation associated with slower shipment and
revenue growth.

The increase in depreciation and amortization expense in the first nine
months of 1998 is due in large part to the increased number of aircraft in
service since the third quarter of 1997.

Interest expense in the first nine months of 1998 was significantly lower
than the same period of 1997.  This is primarily attributable to the
significant reduction in average outstanding borrowings during the first
nine months of 1998 compared to the corresponding period of 1997.

The Company's effective tax rate was 38.7% in the first nine months of 1998
compared to 39.5% in the first nine months of 1997 and 39.2% for all of
1997.  The Company anticipates the effective tax rate for the 1998 annual
period will approximate 38.5%.

YEAR 2000 ISSUE:

The Company has implemented a compliance program to address the challenges
Year 2000 issues may present to its business.  This program includes
computer systems and applications operated by the Company, computer systems
of third parties upon whose data or functionality the Company relies, and
certain other fixed assets, including aircraft, which contain date
sensitive technology critical to their operation.

Management anticipates modifications to its critical operational and
financial systems, conversions to new software, and related testing will be
substantially complete by the end of 1998. Remediation efforts and related
testing on less critical applications are scheduled to be completed by
early 1999.

As part of the compliance program, the Company has also initiated
communications with third parties (primarily customers, vendors, airport
authorities, and other governmental agencies, including the Federal
Aviation Administration) whose failure to have Year 2000 compliant systems
could have an adverse impact on the Company's operations.  The Company is
scheduling testing of customer interfaces of shipment information as this
data is critical to providing services and billing.

<PAGE>11

Although the Company does not believe the Year 2000 issue will have a
material impact on its operations, there can be no guarantee that the
Company's nor any third party's Year 2000 remediation efforts will be fully
compliant.  If non-compliance is extensive and involves some form of
temporary suspension of operations, this could have a material adverse
effect on the Company's business, financial condition and results of
operation.

In an attempt to mitigate the risk of noncompliance, the Company is in the
process of developing contingency plans regarding critical systems should
they fail to become Year 2000 compliant. These plans are focusing on the
Company's own critical operational and financial systems as well as
customer interfaces of shipment information.  Contingency plans covering
the failure of material third party systems will also be developed as the
status readiness becomes fully known.

Management estimates the total cost of its Year 2000 compliance program to
be approximately $2.5 million, of which $1 million has cumulatively been
incurred through September 30, 1998.   Total information technology costs
are not expected to differ from the normal recurring costs that are
incurred for systems development, in part due to the reallocation of
internal resources and the deferral of other projects.  These costs could
differ materially if either the scope or schedule of its compliance program
is significantly altered.

LIQUIDITY AND CAPITAL RESOURCES:

Cash provided by operations net of changes in working capital increased for
the first nine months of 1998 to $237 million, compared to $224 million in
the first nine months of 1997.  This increased liquidity is primarily the
result of the increase in profitability in 1998.

Capital expenditures continue to be a primary factor affecting the
financial condition of the Company.  The Company anticipates total capital
expenditures to approximate $250 million in 1998, down from the original
estimate of $274 million.  During the first nine months of 1998, total
capital expenditures net of dispositions were $193 million.  Cash provided
by operations was the primary source for funding capital expenditures.

In August 1998, the Board of Directors authorized a stock repurchase
program for up to 2 million shares of the Company's common stock.  The
Company accomplished the repurchase of 2 million shares by the end of
September for approximately $38.8 million.  These shares were added to the
Company's treasury stock.

In November 1998, the Board of Directors authorized a second stock
repurchase program for up to 4 million shares of the Company's common
stock. All shares may be acquired, at management's discretion, over time on
the open market. Shares repurchased will not be retired or canceled, but
will be held as treasury stock.

The Company's strong operating cashflow has become the major source of
liquidity, whereas, the Company's $250 million unsecured revolving bank
credit agreement has traditionally been used as the major source of
liquidity for periods between other financing transactions.  The Company
also has available $65 million under unsecured uncommitted money market
lines of credit with several banks, used in conjunction with the revolving
credit agreement to facilitate settlement and accommodate short-term
borrowing fluctuations.  A total of $30.0 million was outstanding at
September 30, 1998 under the revolving bank credit and money market credit
lines, compared to $30.0 million outstanding at December 31, 1997, and
$71.2 million outstanding at September 30, 1997.

In management's opinion, the available capacity under the bank credit
agreements coupled with internally generated cash flow from remaining 1998
operations should provide adequate flexibility to finance anticipated
capital expenditures for the balance of 1998.

<PAGE>12
                        PART II. OTHER INFORMATION
                        --------------------------

Item 6.   Exhibits and Reports on Form 8-K.

          (a)  Exhibits
               Exhibit No. 27 - Financial Data Schedule


<PAGE>13
                                SIGNATURES
                                ----------

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

                                        AIRBORNE FREIGHT CORPORATION
                                        ----------------------------
                                                  (Registrant)

<TABLE>

<CAPTION>
<S>       <C>                             <C>
Date:                11/13/98             /s/Roy C. Liljebeck
                     --------             -------------------
                                          Roy C. Liljebeck
                                          Executive Vice President,
                                          Chief Financial Officer
                                          
                                          
Date:                11/13/98             /s/Lanny H. Michael
                     --------             -------------------
                                          Lanny H. Michael
                                          Senior Vice President,
                                          Treasurer and Controller
                                          
</TABLE>