UNITED STATES SECURITIES AND EXCHANGE
COMMISSIONWASHINGTON, DC  20549FORM 10-Q (Mark One) xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2001. OR oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934For the transition period from  . . . . . .  to  .
 . . . . . Commission file number  1-8957 ALASKA AIRLINES, INC.(Exact name of registrant as specified in its charter) Alaska
    92-0009235(State or other
      jurisdiction of
    (I.R.S.
      Employerincorporation or
      organization)
    Identification
      No.)
 19300 Pacific Highway South, Seattle, Washington
98188(Address of principal executive
offices) (206) 431-7079(Registrant's telephone number, including area code) 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. YesxNoo 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 practicable date. The
registrant has 500 common shares, par value $1.00, outstanding at June 30,
 2001.  
 PART I. FINANCIAL STATEMENTSITEM 1.
Financial StatementsBALANCE SHEETS (unaudited)Alaska Airlines, Inc. ASSETSDecember 31, 2000
    June 30, 2001(In
      Millions)Current AssetsCash and
      cash equivalents
    $101.0
    $35.4Marketable securities
    360.6
    334.9Receivables from related companies
    53.0
    69.1Receivables - net
    76.5
    110.5Inventories and supplies - net
    34.5
    36.5Prepaid expenses and other assets
    190.8
    179.1Total
      Current Assets
    816.4
    765.5Property and EquipmentFlight equipment
    1,527.2
    1,777.9Other
      property and equipment
    299.3
    339.9Deposits for future flight equipment
    192.0
    82.52,018.5
    2,200.3Less accumulated depreciation and amortization
    488.0
    520.81,530.5
    1,679.5Capital leases:Flight
      and other equipment
    44.4
    44.4Less accumulated amortization
    33.8
    34.910.6
    9.5Total Property and Equipment - Net
    1,541.1
    1,689.0Intangible Assets - Subsidiaries
    13.0
    12.7Other Assets
    35.9
    32.6Total Assets
    $2,406.4
    $2,499.8 See accompanying notes to financial
statements. 2  BALANCE SHEETS (unaudited)Alaska Airlines, Inc. LIABILITIES AND SHAREHOLDER'S EQUITYDecember 31, 2000
    June 30, 2001(In
      Millions Except Share Amounts)Current LiabilitiesAccounts
      payable
    $117.1
    $103.7Payables to related companies
    0.5
    0.8Accrued
      aircraft rent
    74.2
    70.4Accrued wages, vacation and payroll taxes
    59.1
    61.3Other
      accrued liabilities
    127.1
    142.9Air traffic liability
    212.3
    295.4Current
      portion of long-term debt and capital lease obligations
    66.7
    38.6Total Current Liabilities
    657.0
    713.1Long-Term Debt and Capital Lease
    Obligations
    609.2
    656.0Other
      Liabilities and CreditsDeferred income taxes
    156.4
    148.0Deferred
      revenue
    133.0
    139.2Other liabilities
    147.2
    156.7436.6
    443.9Shareholder's EquityCommon
      stock, $1 par valueAuthorized:  1,000 sharesIssued:  2000 and 2001 - 500 shares
    -
    -Capital in excess of par value
    324.8
    324.8Retained
      earnings
    378.8
    362.0703.6
    686.8Total Liabilities and Shareholder's
Equity
    $2,406.4
    $2,499.8 See accompanying notes to financial
statements. 3  STATEMENTS OF
INCOME (unaudited)Alaska Airlines, Inc. Three Months
      Ended June 30(In
      Millions)
    2000
    2001Operating RevenuesPassenger
    $410.0
    $434.7Freight and mail
    20.1
    21.4Other -
net
    14.1
    15.2Total Operating Revenues
    444.2
    471.3Operating
      ExpensesWages and benefits
    142.3
    157.5Contracted
      services
    14.9
    18.2Aircraft fuel
    67.7
    74.1Aircraft
      maintenance
    30.1
    32.1Aircraft rent
    36.1
    35.0Food and beverage
      service
    12.4
    14.7Commissions
    16.7
    18.2Other selling
      expenses
    23.4
    26.6Depreciation and amortization
    19.4
    24.6Loss on sale of
      assets
    0.4
    0.3Landing fees and other rentals
    17.5
    23.3Other
    31.1
    35.6Special charge - Mileage Plan
    24.0
    -Total Operating Expenses
    436.0
    460.2Operating
      Income
    8.2
    11.1Nonoperating Income (Expense)Interest
      income
    6.3
    6.8Interest expense
    (7.9)
    (10.6)Interest
      capitalized
    3.0
    1.2Other - net
    0.3
    (0.2)1.7
    (2.8)Income
      before income tax
    9.9
    8.3Income tax
      expense
    3.9
    3.5Net Income
    $6.0
    $4.8 See accompanying notes to financial
statements. 4  STATEMENTS OF
INCOME (unaudited)Alaska Airlines, Inc. Six Months
      Ended June 30(In
      Millions)
    2000
    2001Operating RevenuesPassenger
    $770.1
    $819.8Freight and mail
    37.9
    39.7Other -
net
    27.7
    29.9Total Operating Revenues
    835.7
    889.4Operating
      ExpensesWages and benefits
    280.9
    312.8Contracted
      services
    30.1
    36.1Aircraft fuel
    141.5
    148.1Aircraft
      maintenance
    58.5
    63.2Aircraft rent
    71.9
    70.3Food and beverage
      service
    24.5
    27.9Commissions
    32.3
    34.1Other selling
      expenses
    43.8
    52.6Depreciation and amortization
    38.0
    47.7Loss on sale of
      assets
    0.4
    1.2Landing fees and other rentals
    34.5
    44.8Other
    62.1
    72.0Special charge - Mileage Plan
    24.0
    -Total Operating Expenses
    842.5
    910.8Operating
      Loss
    (6.8)
    (21.4)Nonoperating Income (Expense)Interest
      income
    12.4
    16.3Interest expense
    (15.8)
    (22.7)Interest
      capitalized
    5.6
    3.8Other - net
    0.8
    (1.4)3.0
    (4.0)Loss before income
      tax and accounting charge
    (3.8)
    (25.4)Income tax
      credit
    (1.6)
    (8.6)Loss
      before accounting change
    (2.2)
    (16.8)Cumulative effect of
      accounting change, net of income taxes of $35.6 million
    (56.9)
    -Net Loss
    $(59.1)
    $(16.8) See accompanying notes to financial
statements. 5   STATEMENTS OF SHAREHOLDER'S EQUITY
(unaudited)Alaska Airlines,
Inc. Capital inCommon
    Excess of
    Retained(In Millions)
    Stock
    Par Value
    Earnings
    TotalBalances
      at December 31, 2000
    $-
    $324.8
    $378.8
    $703.6Net loss
      for the six months ended June 30, 2001
    
    
    (16.8)
    (16.8)Balances at June 30, 2001
    $-
    $324.8
    $362.0
    $686.8 See accompanying notes to financial
statements. 6   STATEMENTS OF CASH FLOWS
(unaudited)Alaska Airlines,
Inc. Six Months
      Ended June 30  (In Millions)
    2000
    2001Cash flows from operating activities:Net loss
    $(59.1)
    $(16.8)Adjustments to reconcile net loss to cash:Cumulative effect of accounting change
    56.9
    -Special charge - Mileage Plan
    24.0
    -Depreciation and amortization
    38.0
    47.7Amortization of airframe and engine overhauls
    22.9
    28.8Loss on disposition of assets
    0.4
    1.2Decrease in deferred income taxes
    (38.9)
    (8.5)Increase in accounts receivable - net
    (66.7)
    (50.1)Decrease in other current assets
    1.8
    9.7Increase in air traffic liability
    81.6
    83.1Increase in other current liabilities
    39.3
    1.1Other-net
    12.0
    17.1Net cash provided by
      operating activities
    112.2
    113.3Cash flows from investing activities:Proceeds from
      disposition of assets
    36.6
    0.1Purchases of
      marketable securities
    (81.3)
    (239.4)Sales and maturities of marketable securities
    118.1
    265.0Flight equipment
      deposits returned
    -
    33.4Additions to flight
      equipment deposits
    (52.1)
    (34.3)Additions to
      property and equipment
    (132.2)
    (221.7)Restricted deposits and other
    0.8
    (0.7)Net cash used in
      investing activities
    (110.1)
    (197.6)Cash flows from financing activities:Proceeds from
      issuance of long-term debt
    -
    136.5Long-term debt and capital lease payments
    (14.6)
    (117.8)Net cash used in
      financing activities
    (14.6)
    18.7Net
      change in cash and cash equivalents
    (12.5)
    (65.6)Cash and cash
      equivalents at beginning of period
    132.3
    101.0Cash and cash equivalents at end of period
    $119.8
    $35.4Supplemental
      disclosure of cash paid (refunded) during the period for:Interest (net of amount capitalized)
    $10.0
    $27.5Income
      taxes
    1.8
    (0.1)Noncash investing and financing activities:
    None
    None See accompanying notes to financial
statements. 7  NOTES TO FINANCIAL STATEMENTS THAT HAVE CHANGED
SIGNIFICANTLY DURING THE SIX MONTHS ENDED JUNE 30, 2001Alaska Airlines, Inc. Note 1.Basis of PresentationThe accompanying unaudited financial statements of Alaska Airlines, Inc. (the
Company or Alaska), should be read in conjunction with the financial statements
in the Company's annual report on Form 10-K for the year ended December 31,
2000. They include all adjustments that are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods. The
adjustments made were of a normal recurring nature. The Company is a wholly
owned subsidiary of Alaska Air Group, Inc. (Air Group) whose principal
subsidiaries are Alaska Airlines, Inc. and Horizon Air Industries, Inc. Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended. SFAS 133 requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value. The Company's operating
results can be significantly impacted by changes in the price of aircraft fuel.
To manage the risks associated with changes in aircraft fuel prices, the Company
uses purchase options for crude oil contracts. These contracts, referred to as
"fuel hedge contracts", have a high correlation to changes in aircraft fuel
prices, and therefore qualify as cash flow hedges under SFAS 133. Upon adoption
of SFAS 133, the Company recorded the fair market value of its fuel hedging
contracts on the Consolidated Balance Sheet. Each period, the contracts are
adjusted to fair market value. To the extent the change in the value of the fuel
contract does not perfectly offset the change in the value of the aircraft fuel
purchase being hedged, that portion of the hedge is recognized in earnings. For
the six months ended June 30, 2001, the Company recognized $2.0 million of
nonoperating expense related to fair market value changes in fuel hedge
contracts. Note 2.Prepaid Expenses and Other Current AssetsAt December 31, 2000 and
June 30, 2001, other current assets included a deferred tax asset of $49.4
million. Note
3.              
Frequent Flyer Program (See Note 10 to Financial Statements at December 31,
2000)Balance Sheet Classification of Frequent
Flyer LiabilityAlaska's Mileage Plan liabilities are
included under the following balance sheet captions. December 31,
      2000
    June 30,
      2001(In
      millions)Current
      Liabilities:Other accrued
      liabilities
    $59.5
    $69.5Other Liabilities
      and Credits:Deferred revenue
    94.0
    102.0Other
      liabilities
    45.0
    52.0Total
    $198.5
    $223.5  8  Alaska  Airlines Financial and Statistical
Data Quarter Ended June 30
      Six Months Ended June 30%Financial Data
      (in millions):
    2000
    2001
    Change
      2000
    2001
    ChangeOperating Revenues:Passenger
    $410.0
    $434.7
    6.0
    
    $770.1
    $819.8
    6.5Freight and mail
    20.1
    21.4
    6.5
    
    37.9
    39.7
    4.7Other -
net
    14.1
    15.2
    7.8
    
    27.7
    29.9
    7.9Total Operating Revenues
    444.2
    471.3
    6.1
    
    835.7
    889.4
    6.4Operating Expenses:Wages and
      benefits
    142.3
    157.5
    10.7
    
    280.9
    312.8
    11.4Contracted services
    14.9
    18.2
    22.1
    
    30.1
    36.1
    19.9Aircraft
    fuel
    67.7
    74.1
    9.5
    
    141.5
    148.1
    4.7Aircraft maintenance
    30.1
    32.1
    6.6
    
    58.5
    63.2
    8.0Aircraft
    rent
    36.1
    35.0
    (3.0)
    
    71.9
    70.3
    (2.2)Food
      and beverage service
    12.4
    14.7
    18.5
    
    24.5
    27.9
    13.9Commissions
    16.7
    18.2
    9.0
    
    32.3
    34.1
    5.6Other selling expenses
    23.4
    26.6
    13.7
    
    43.8
    52.6
    20.1Depreciation and
      amortization
    19.4
    24.6
    26.8
    
    38.0
    47.7
    25.5Loss
      on sale of assets
    0.4
    0.3
    NM
    
    0.4
    1.2
    NMLanding fees and
      other rentals
    17.5
    23.3
    33.1
    
    34.5
    44.8
    29.9Other
    31.1
    35.6
    14.5
    
    62.1
    72.0
    15.9Special Charge - Mileage Plan
    24.0
    0.0
    NM
    
    24.0
    0.0
    NMTotal Operating
      Expenses
    436.0
    460.2
    5.6
    
    842.5
    910.8
    8.1Operating
    Income (Loss)
    8.2
    11.1
    
    
    (6.8)
    (21.4)Interest
      income
    6.3
    6.8
    
    
    12.4
    16.3Interest expense
    (7.9)
    (10.6)
    
    
    (15.8)
    (22.7)Interest
      capitalized
    3.0
    1.2
    
    
    5.6
    3.8Other - net
    0.3
    (0.2)
    
    
    0.8
    (1.4)1.7
    (2.8)
    
    
    3.0
    (4.0)Income (Loss)
      Before Income Tax  and Accounting Change
    $9.9
    $8.3
    
    
    $(3.8)
    $(25.4)Operating Statistics:Revenue passengers
      (000)
    3,432
    3,698
    7.7
    
    6,600
    6,896
    4.5RPMs
      (000,000)
    3,047
    3,290
    8.0
    
    5,861
    6,185
    5.5ASMs
    (000,000)
    4,210
    4,683
    11.2
    
    8,441
    9,111
    7.9Passenger load factor
    72.4%
    70.3%
    (2.1)pts
    
    69.4%
    67.9%
    (1.5)ptsBreakeven load
      factor
    66.9%
    69.9%
    3.0
      pts
    
    68.6%
    71.6%
    3.0
      ptsYield per passenger mile
    13.45¢
    13.21¢
    (1.8)
    
    13.14¢
    13.25¢
    0.9Operating revenue
      per ASM
    10.55¢
    10.06¢
    (4.6)
    
    9.90¢
    9.76¢
    (1.4)Operating expenses per ASM*
    9.79¢
    9.82¢
    0.4
    
    9.70¢
    10.00¢
    3.1Expense per ASM
      excluding fuel*
    8.18¢
    8.24¢
    0.8
    
    8.02¢
    8.37¢
    4.4Fuel
      cost per gallon
    91.2¢
    92.3¢
    1.1
    
    95.2¢
    94.6¢
    (0.6)Fuel gallons
      (000,000)
    74.2
    80.3
    8.2
    
    148.6
    156.5
    5.3Average number of employees
    9,439
    10,201
    8.1
    
    9,359
    10,202
    9.0Aircraft utilization
      (blk hrs/day)
    10.5
    11.1
    5.7
    
    10.7
    11.0
    2.8Operating fleet at period-end
    91
    100
    9.9
    
    91
    100
    9.9* Excludes
    the impact of a special charge in June 2000.NM = Not
      Meaningful 9  ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
Forward-Looking Information

This report may contain forward-looking statements that are
based on the best information currently available to management. These
forward-looking statements are intended to be subject to the safe harbor
protection provided by Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Forward-looking statements are indicated
by phrases such as will, should, the Company
believes, we expect or any other language indicating a
prediction of future events. There can be no assurance that actual developments
will be those anticipated by the Company. Actual results could differ materially
from those projected as a result of a number of factors, some of which the
Company cannot predict or control. For a discussion of these factors, please see
Item 1 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2000.  Results of Operations
Second Quarter 2001 Compared with Second Quarter 2000

Net income for the second quarter of 2001 was $4.8 million
compared with a net income (excluding a special charge) of $20.8 million in
2000. The 2000 results included a special charge of $24.0 million ($14.8 million
after tax) for increases in estimated costs to acquire award travel for Mileage
Plan members on other airlines. Operating income for the second quarter of 2001
was $11.1 million compared with an operating income (excluding a special charge)
of $32.2 million for 2000. Financial and statistical data is shown on page nine.
A discussion of this data follows. Revenues

Capacity increased by 11.2% primarily due to additional flights
in the Pacific Northwest-to-Southern California, Alaska-to-U.S. mainland and the
Arizona markets. Traffic grew by 8.0%, and passenger load factor decreased 2.1
percentage points. The Arizona, Northern California and Southeast Alaska markets
experienced the largest decreases in load factor. Passenger yields were down
1.8%, due to a reduction in business passengers. The lower yield combined with
the lower load factor resulted in a 4.6% decrease in revenue per available seat
mile (ASM). The combined result of the 11.2% capacity increase and the 4.6%
revenue per ASM decrease was a 6.0% increase in passenger revenue. Freight and mail revenues increased 6.5%, primarily due to
higher mail rates. Other-net revenues increased 7.8%, largely due to increased
revenue from the sale of miles in Alaskas frequent flyer program. Expenses

Operating expenses (excluding a special charge in 2000) grew by
11.7% as a result of a 11.2% increase in capacity and a 0.4% increase in cost
per ASM excluding the special charge. Explanations of significant year-over-year
changes in the components of operating expenses are as follows: Wages and benefits increased
10.7% due to a 8.1% increase in the number of employees combined with a 2.4%
increase in average wages and benefits per employee. Employees were added in all
areas due to the net addition of 9 aircraft to the operating fleet (a 9.9%
increase). Average wage rates increased due to longevity increases for union
employees and annual merit raises for management employees. 10  Contracted services increased
22.1% primarily due to higher rates for and increased volume of ground handling
services, and increased costs for marketing information.Commission expense increased
9.0%, more than the 6.0% increase in passenger revenue, because Alaska paid a
higher amount to Horizon for feed traffic. For Air Group consolidated,
commission expense decreased 4.7% on a 3.7% increase in passenger revenue. In
2001, 61.4% of Air Group ticket sales were made through travel agents, versus
65.8% in 2000. In 2001, 15.9% of ticket sales were made through Alaskas
Internet web site versus 10.1% in 2000.Other selling expenses increased
13.7%, higher than the 6.0% increase in passenger revenue, primarily due to a
$3.0 million increase in Mileage Plan awards expense, as a result of the
following trends: (a) more ways to earn miles, (b) less forfeitures of miles,
(c) greater use of travel awards on other airlines, and (d) higher costs to
obtain awards on other airlines. Effective September 1, 2001, higher redemption
levels will be required for first class and peak awards on Alaska and Horizon,
as well as for certain Hawaii and international awards on other airlines. These
changes are expected to slow the increase in MP awards expense.Depreciation and amortization increased 26.8%, primarily due
to the owning of eleven more aircraft in 2001.Landing fees and other rentals
increased 33.1%, exceeding the 10.6% increase in landings, due to higher landing
fee and rental rates at airports throughout the system. The higher rates reflect
the airports increased cost of operations due to living wage
ordinances, expansion of their facilities and increased costs for utilities.
These trends are expected to continue during 2001.Other expense increased 14.5%,
primarily due to higher expenditures for insurance, flight crew hotels and
meals, legal fees, property taxes and utilities. Nonoperating Income (Expense)Net nonoperating items were
$2.8 million expense in 2001 compared to $1.7 million income in 2000. The $4.5
million change was primarily due to higher interest expense resulting from new
debt incurred during the past twelve months. Effective January 1, 2001, the
Company adopted Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended. SFAS 133 requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Consequently, a $0.6 million charge was recorded in the
second quarter of 2001 to recognize the reduction in fair value of fuel hedging
contracts in accordance with the new standard.  Six Months 2001 Compared with Six Months 2000

The net loss for the six months ended June 30, 2001 was $16.8
million compared with an income before accounting change (and excluding a
special charge in 2000) of $12.6 million in 2000. Operating income (excluding a
special charge in 2000) decreased $38.6 million to a $21.4 million operating
loss in 2001. Changes in operating revenues and operating expenses are generally
due to the same reasons stated above in the second quarter comparison. 11  Income Tax Credit Accounting standards
require the Company to provide for income taxes each quarter based on its
estimate of the effective tax rate for the full year. The volatility of air
fares and fuel prices and the seasonality of the Companys business make it
difficult to accurately forecast full-year pretax results. In addition, a
relatively small change in pretax results can cause a significant change in the
effective tax rate due to the magnitude of nondeductible expenses, such as
goodwill amortization and employee per diem costs. In estimating the 33.9% tax
rate for the first half of 2001, the Company considered a variety of factors,
including the U.S. federal rate of 35%, estimates of nondeductible expenses and
state income taxes, and the 38.8% and 39.2% tax rates used for full years 1998
and 1999. This rate is evaluated each quarter and adjustments are made if
necessary.  Liquidity and Capital Resources

The table below presents the major indicators of financial
condition and liquidity.  December 31,
      2000
    June 30,
      2001
    Change(In
      millions, except debt-to-equity)Cash and
      marketable securities
    $461.6
    $370.3
    $(91.3)Working capital
    159.4
    52.4
    (107.0)Unused credit
      facility
    150.0
    150.0
    -Long-term debt
      and capital lease obligations
    609.2
    656.0
    46.8Shareholder's
      equity
    703.6
    686.8
    (16.8)Debt-to-capital
    46%:54%
    49%:51%
    NADebt-to-capital
      assuming aircraft operating leases are capitalized at
      seven times annualized rent
    70%:30%
    70%:30%
    NA  The Company's cash and marketable  securities  portfolio  decreased by $91.3 million during the first six months of 2001.  Operating
activities  provided  $113.3 million of cash during this period.  Additional  cash was provided by the issuance of $136.5 million of
new debt and the return of $33.4 million of flight  equipment  deposits.  Cash was used for $256.0 million of capital  expenditures,
including the purchase of seven new Boeing 737 aircraft,  flight equipment deposits,  spare parts and airframe and engine overhauls,
and for $117.8 million of debt repayment. Commitments As of June 30, 2001,  the Company had firm orders for 9 aircraft  requiring  aggregate  payments of  approximately  $260
million,  as set forth below.  In addition,  Alaska has options to acquire 26 more B737s.  Alaska  expects to finance the new planes
with either leases, long-term debt or internally generated cash. Delivery Period - Firm OrdersAircraft
    2001
    2002
    2003
    TotalBoeing
      B737-700
    --
    2
    --
    2Boeing B737-900
    1
    2
    4*
    7Total
    1
    4
    4
    9Payments (Millions)
    $54
    $117
    $89
    $260 * With manufacturer approval, some of these firm orders may be
converted to other Next Generation Boeing 737 aircraft. 12  New Accounting Standards In June 2001, the Financial
Accounting Standards Board issued SFAS No. 141, Business
Combinations (effective July 1, 2001) and SFAS No. 142, Goodwill and
Other Intangible Assets (effective for the Company on January 1, 2002).
SFAS 141 prohibits pooling-of-interests accounting for acquisitions. SFAS 142
specifies that goodwill and some intangible assets will no longer be amortized
but instead will be subject to periodic impairment testing. The Company is in
the process of evaluating the financial statement impact of adoption of SFAS
142. However, the Compamy expects that the adoption of SFAS 142 will not have a
material impact on the financial statements.  PART II. OTHER INFORMATIONITEM 1. Legal ProceedingsOakland Maintenance Investigation
In December 1998 the U.S. attorney for the Northern District of
California initiated a grand jury investigation concerning certain 1998
maintenance activities at Alaskas Oakland maintenance base. The
investigation has also included the aircraft involved in the loss of Flight 261
in January 2000. Alaska is cooperating with this investigation. To the
Companys knowledge, no charges have been filed. The FAA has separately
proposed a civil penalty of $44,000 in connection with this matter. The parties
are in settlement discussions over this penalty. These proceedings are described
in more detail in the Alaska Air Group, Inc. Annual Report on Form 10-K for the
fiscal year ended December 31, 2000. Flight 261 Litigation
Alaska is a defendant in a number of lawsuits relating to the
loss of Flight 261 on January 31, 2000. Lawsuits on behalf of all 88
passengers and crew on board have been filed against Alaska, The Boeing Company
and others. The suits seek unspecified compensatory and punitive damages. In May
2001 the judge presiding over the majority of the cases ruled that punitive
damages are not available against Alaska. Consistent with industry standards,
the Company maintains insurance against aircraft accidents. This litigation is
described in more detail in the Alaska Air Group, Inc. Annual Report on Form
10-K for the fiscal year ended December 31, 2000. FAA Audit
In April 2000, the FAA performed an audit of Alaskas
maintenance and flight operations departments to ensure adherence to mandated
procedures. The FAA proposed civil penalties of approximately $1 million in
connection with this inspection, which the parties have settled for a negotiated
amount. The Company expects no further material activity in this matter. This
audit and the actions taken by the FAA and Alaska as a result are described in
more detail in the Alaska Air Group, Inc. Annual Report on Form 10-K for the
fiscal year ended December 31, 2000. The Company cannot predict the outcome of any of the pending
civil or potential criminal proceedings described above. As a result, the
Company can give no assurance that these proceedings, if determined adversely to
Alaska, would not have a material adverse effect on the financial position or
results of operations of the Company. However, while we cannot predict the
outcome of these matters, management believes their ultimate disposition is not
likely to materially affect the Companys financial position or results of
operations. This forward-looking statement is based on managements current
understanding of the relevant law and facts; it is subject to various
contingencies, including the potential costs and risks associated with
litigation and the actions of judges and juries. The Company is also subject to
other ordinary routine litigation incidental to its business and with respect to
which no material liability is expected. 13   ITEM 5. Other InformationEmployees
Effective in May 2001, Alaska began paying an 11% higher rate of
pay to all pilots impacted by the Boeing 737-900 aircraft.  ITEM 6. Exhibits and Reports on Form 8-K
No exhibits are attached and no reports on Form 8-K were filed
this quarter.  Signatures
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. ALASKA
      AIRLINES, INC.
      RegistrantDate:  August 7,
  2001/s/ Bradley D. Tilden
      Bradley D. TildenVice President / Finance and Chief Financial Officer/s/ Terri K. Maupin
      Terri K. MaupinStaff Vice President / Finance and Controller 14