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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q/A


(Amendment No. 1)


|                                                   |  |                                                                                         
|-------------------------------------------------- |  | ----------------------------------------------------------------------------------------
|(Mark One)                                        
|(X)                                                |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|For the quarterly period ended September 30, 2002.
|OR                                                
|(  )                                               |  | 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 1-8957

ALASKA AIRLINES, INC.

(Exact name of registrant as specified in its charter)


|                                                                      |  |                                                
|--------------------------------------------------------------------- |  | -----------------------------------------------
|Alaska
(State or other jurisdiction of
incorporation or organization) |  | 92-0009235
(I.R.S. Employer
Identification No.)

|                                                                                               
|-----------------------------------------------------------------------------------------------
|19300 Pacific Highway South, Seattle, Washington 98188
(Address of principal executive offices)

Registrants telephone number, including area code: (206) 431-7079

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes  (X)  No  (  )

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
October 31, 2002.

During 2002, the Company changed its accounting policies relating to the
accrual for certain lease return costs and capitalization of software
development costs. In addition, the Company changed its accounting for
aircraft purchase commitments assumed by a third party. The Company also made
other corrections and certain reclassifications of deferred income taxes and
other balance sheet and income statement items, none of which have a
significant impact on previously reported equity or net





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earnings. Because the
previous accounting methods and classifications are not considered to be in
compliance with generally accepted accounting principles in the United States
of America, the Companys previously issued financial statements for the years
ended December 31, 1999, 2000, and 2001, including the interim periods within
those years, and for the three and nine months ended September 30, 2002, have
been restated.

This amendment to the Companys Quarterly Report on Form 10-Q/A for the three
and nine months ended September 30, 2002, amends and restates only those items
of the previously filed Form 10-Q which have been affected by the restatement.
In order to preserve the nature and character of the disclosures set forth in
such items as originally filed, no attempt has been made in this amendment to
modify or update such disclosures except as required to reflect the effects of
the restatement and to make non-substantive revisions to the notes to the
financial statements. For additional information regarding the restatement,
see Note 2 to the Financial statements.

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TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. Financial Statements                                                                 
|                              | ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | ITEM 3. Quantitative and Qualitative Disclosure about Market Risk                            
|                              | ITEM 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 1. Legal Proceedings                                                                    
|                              | ITEM 5. Other Information                                                                    
|                              | ITEM 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                   
|CERTIFICATIONS               
|EXHIBIT 99.1                 
|EXHIBIT 99.2                 



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PART I. FINANCIAL INFORMATION




ITEM 1. Financial Statements

BALANCE SHEETS (unaudited)
Alaska Airlines, Inc.


ASSETS

|                                               |  |              |         |               |  |   |         | 
|---------------------------------------------- |  | ------------ | ------- | ------------- |  | - | ------- | 
|                                               |  | Restated     |         | Restated     
|                                               |  | December
31, |         | September 30,
|(In Millions)                                  |  | 2001         |         | 2002         
|                                               |  |              |         |              
|Current Assets                                 |  |              |         |               |  |   |         | 
|Cash and cash equivalents                      |  | $            | 490.7   |               |  | $ | 308.6   | 
|Marketable securities                          |  |              | 169.8   |               |  |   | 352.3   | 
|Receivables from related companies             |  |              | 71.2    |               |  |   | 87.1    | 
|Receivables - net                              |  |              | 67.3    |               |  |   | 82.0    | 
|Inventories and supplies - net                 |  |              | 36.6    |               |  |   | 39.0    | 
|Prepaid expenses and other assets              |  |              | 85.2    |               |  |   | 82.1    | 
|                                               |  |              |         |               |  |   |         | 
|Total Current Assets                           |  |              | 920.8   |               |  |   | 951.1   | 
|                                               |  |              |         |               |  |   |         | 
|Property and Equipment                         |  |              |         |               |  |   |         | 
|Flight equipment                               |  |              | 1,888.7 |               |  |   | 1,923.2 | 
|Other property and equipment                   |  |              | 333.7   |               |  |   | 365.5   | 
|Deposits for future flight equipment           |  |              | 71.8    |               |  |   | 61.2    | 
|                                               |  |              |         |               |  |   |         | 
|                                               |  |              | 2,294.2 |               |  |   | 2,349.9 | 
|Less accumulated depreciation and amortization |  |              | 606.2   |               |  |   | 685.4   | 
|                                               |  |              |         |               |  |   |         | 
|Total Property and Equipment - Net             |  |              | 1,688.0 |               |  |   | 1,664.5 | 
|                                               |  |              |         |               |  |   |         | 
|Goodwill                                       |  |              | 12.5    |               |  |   |        | 
|                                               |  |              |         |               |  |   |         | 
|Other Assets                                   |  |              | 134.7   |               |  |   | 141.1   | 
|                                               |  |              |         |               |  |   |         | 
|Total Assets                                   |  | $            | 2,756.0 |               |  | $ | 2,756.7 | 
|                                               |  |              |         |               |  |   |         | 

See accompanying notes to financial statements.

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BALANCE SHEETS (unaudited)
Alaska Airlines, Inc.

LIABILITIES AND SHAREHOLDERS EQUITY

|                                                                                       |                                |      |              |       |               |   |         |       | 
|-------------------------------------------------------------------------------------- | ------------------------------ | ---- | ------------ | ----- | ------------- | - | ------- | ----- | 
|                                                                                       |                                |      | Restated     |       | Restated     
|                                                                                       |                                |      | December
31, |       | September 30,
|(In
Millions Except Share Amounts)                                                     |                                | 2001 |              | 2002 
|                                                                                       |                                |      |              |      
|Current Liabilities                                                                    |                                |      |              |       |               |   |         |      
|Accounts payable                                                                       |                                | $    | 98.8         |       |               | $ | 117.7   |      
|Payables to related companies                                                          |                                |      | 4.4          |       |               |   | 4.0     |      
|Accrued aircraft rent                                                                  |                                |      | 71.9         |       |               |   | 62.7    |      
|Accrued wages, vacation and payroll taxes                                              |                                |      | 68.0         |       |               |   | 75.2    |      
|Other accrued liabilities                                                              |                                |      | 192.3        |       |               |   | 169.2   |      
|Air traffic liability                                                                  |                                |      | 216.4        |       |               |   | 227.7   |      
|Current portion of long-term debt and
capital lease obligations                        |                                |      | 43.2         |       |               |   | 46.2    |      
|                                                                                       |                                |      |              |       |               |   |         |      
|Total Current Liabilities                                                              |                                |      | 695.0        |       |               |   | 702.7   |      
|                                                                                       |                                |      |              |       |               |   |         |      
|Long-Term Debt and Capital Lease Obligations                                           |                                |      | 852.2        |       |               |   | 843.7   |      
|                                                                                       |                                |      |              |       |               |   |         |      
|Other Liabilities and Credits                                                          |                                |      |              |       |               |   |         |      
|Deferred income taxes                                                                  |                                |      | 182.3        |       |               |   | 178.6   |      
|Deferred revenue                                                                       |                                |      | 193.5        |       |               |   | 211.6   |      
|Other liabilities                                                                      |                                |      | 114.0        |       |               |   | 121.8   |      
|                                                                                       |                                |      |              |       |               |   |         |      
|                                                                                       |                                |      | 489.8        |       |               |   | 512.0   |      
|                                                                                       |                                |      |              |       |               |   |         |      
|Shareholders Equity                                                                   |                                |      |              |       |               |   |         |      
|Common
stock, $1 par value
Authorized: 1,000 shares
Issued: 2001 and 2002 - 500 shares |                                |      |             |       |               |   |        |      
|                                                                                       | Capital in excess of par value |      |              | 324.8 |               |   |         | 324.8 | 
|Accumulated other comprehensive income (loss)                                          |                                |      | (2.2         | )     |               |   | 8.4     |      
|Retained earnings                                                                      |                                |      | 396.4        |       |               |   | 365.1   |      
|                                                                                       |                                |      |              |       |               |   |         |      
|                                                                                       |                                |      | 719.0        |       |               |   | 698.3   |      
|                                                                                       |                                |      |              |       |               |   |         |      
|Total Liabilities and Shareholders Equity                                             |                                | $    | 2,756.0      |       |               | $ | 2,756.7 |      
|                                                                                       |                                |      |              |       |               |   |         |      

See accompanying notes to financial statements.

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STATEMENTS OF OPERATIONS (unaudited)
Alaska Airlines, Inc.

|                                |  |          |       |          |  |   |       |  
|------------------------------- |  | -------- | ----- | -------- |  | - | ----- | -
|Three Months Ended
September 30 |  | Restated |       | Restated
|(In Millions)                   |  | 2001     |       | 2002    
|                                |  |          |       |         
|Operating Revenues              |  |          |       |          |  |   |       |  
|Passenger                       |  | $        | 441.1 |          |  | $ | 468.0 |  
|Freight and mail                |  |          | 20.8  |          |  |   | 19.6  |  
|Other - net                     |  |          | 22.3  |          |  |   | 24.8  |  
|                                |  |          |       |          |  |   |       |  
|Total Operating Revenues        |  |          | 484.2 |          |  |   | 512.4 |  
|                                |  |          |       |          |  |   |       |  
|Operating Expenses              |  |          |       |          |  |   |       |  
|Wages and benefits              |  |          | 164.3 |          |  |   | 185.4 |  
|Contracted services             |  |          | 19.0  |          |  |   | 19.1  |  
|Aircraft fuel                   |  |          | 71.8  |          |  |   | 70.7  |  
|Aircraft maintenance            |  |          | 32.9  |          |  |   | 31.6  |  
|Aircraft rent                   |  |          | 33.7  |          |  |   | 32.2  |  
|Food and beverage service       |  |          | 14.4  |          |  |   | 17.8  |  
|Commissions                     |  |          | 16.4  |          |  |   | 12.1  |  
|Other selling expenses          |  |          | 26.3  |          |  |   | 26.1  |  
|Depreciation and amortization   |  |          | 27.3  |          |  |   | 29.2  |  
|Loss on sale of assets          |  |          | 0.6   |          |  |   | 0.5   |  
|Landing fees and other rentals  |  |          | 25.9  |          |  |   | 30.1  |  
|Other                           |  |          | 34.6  |          |  |   | 38.9  |  
|                                |  |          |       |          |  |   |       |  
|Total Operating Expenses        |  |          | 467.2 |          |  |   | 493.7 |  
|                                |  |          |       |          |  |   |       |  
|Operating Income                |  |          | 17.0  |          |  |   | 18.7  |  
|                                |  |          |       |          |  |   |       |  
|Nonoperating Income (Expense)   |  |          |       |          |  |   |       |  
|Interest income                 |  |          | 7.0   |          |  |   | 6.4   |  
|Interest expense                |  |          | (11.8 | )        |  |   | (11.2 | )
|Interest capitalized            |  |          | 1.5   |          |  |   | 0.5   |  
|U.S. government compensation    |  |          | 18.7  |          |  |   | 0.2   |  
|Other - net                     |  |          | 0.6   |          |  |   | (1.5  | )
|                                |  |          |       |          |  |   |       |  
|                                |  |          | 16.0  |          |  |   | (5.6  | )
|                                |  |          |       |          |  |   |       |  
|Income before income tax        |  |          | 33.0  |          |  |   | 13.1  |  
|Income tax expense              |  |          | 10.7  |          |  |   | 4.2   |  
|                                |  |          |       |          |  |   |       |  
|Net Income                      |  | $        | 22.3  |          |  | $ | 8.9   |  
|                                |  |          |       |          |  |   |       |  

See accompanying notes to financial statements.

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STATEMENTS OF OPERATIONS (unaudited)
Alaska Airlines, Inc.

|                                                            |  |          |         |          |  |   |         |  
|----------------------------------------------------------- |  | -------- | ------- | -------- |  | - | ------- | -
|Nine Months Ended
September 30                              |  | Restated |         | Restated
|(In Millions)                                               |  | 2001     |         | 2002    
|                                                            |  |          |         |         
|Operating Revenues                                          |  |          |         |          |  |   |         |  
|Passenger                                                   |  | $        | 1,258.0 |          |  | $ | 1,275.6 |  
|Freight and mail                                            |  |          | 60.5    |          |  |   | 55.6    |  
|Other - net                                                 |  |          | 59.0    |          |  |   | 72.2    |  
|                                                            |  |          |         |          |  |   |         |  
|Total Operating Revenues                                    |  |          | 1,377.5 |          |  |   | 1,403.4 |  
|                                                            |  |          |         |          |  |   |         |  
|Operating Expenses                                          |  |          |         |          |  |   |         |  
|Wages and benefits                                          |  |          | 476.5   |          |  |   | 525.6   |  
|Contracted services                                         |  |          | 57.0    |          |  |   | 60.3    |  
|Aircraft fuel                                               |  |          | 219.8   |          |  |   | 190.1   |  
|Aircraft maintenance                                        |  |          | 100.0   |          |  |   | 103.3   |  
|Aircraft rent                                               |  |          | 104.0   |          |  |   | 95.7    |  
|Food and beverage service                                   |  |          | 42.4    |          |  |   | 47.9    |  
|Commissions                                                 |  |          | 50.4    |          |  |   | 40.6    |  
|Other selling expenses                                      |  |          | 78.9    |          |  |   | 78.8    |  
|Depreciation and amortization                               |  |          | 76.1    |          |  |   | 85.9    |  
|Loss on sale of assets                                      |  |          | 1.8     |          |  |   | 0.7     |  
|Landing fees and other rentals                              |  |          | 70.8    |          |  |   | 82.3    |  
|Other                                                       |  |          | 110.3   |          |  |   | 112.7   |  
|                                                            |  |          |         |          |  |   |         |  
|Total Operating Expenses                                    |  |          | 1,388.0 |          |  |   | 1,423.9 |  
|                                                            |  |          |         |          |  |   |         |  
|Operating Loss                                              |  |          | (10.5   | )        |  |   | (20.5   | )
|                                                            |  |          |         |          |  |   |         |  
|Nonoperating Income (Expense)                               |  |          |         |          |  |   |         |  
|Interest income                                             |  |          | 21.6    |          |  |   | 17.5    |  
|Interest expense, net                                       |  |          | (34.5   | )        |  |   | (34.7   | )
|Interest capitalized                                        |  |          | 6.5     |          |  |   | 1.0     |  
|U.S. government compensation                                |  |          | 18.7    |          |  |   | 0.3     |  
|Other - net                                                 |  |          | 0.7     |          |  |   | 7.7     |  
|                                                            |  |          |         |          |  |   |         |  
|                                                            |  |          | 13.0    |          |  |   | (8.2    | )
|                                                            |  |          |         |          |  |   |         |  
|Income (loss) before income tax and accounting change       |  |          | 2.5     |          |  |   | (28.7   | )
|Income tax expense (benefit)                                |  |          | 0.3     |          |  |   | (9.9    | )
|                                                            |  |          |         |          |  |   |         |  
|Income (loss) before cumulative effect of accounting change |  |          | 2.2     |          |  |   | (18.8   | )
|Cumulative effect of accounting change                      |  |          |        |          |  |   | (12.5   | )
|                                                            |  |          |         |          |  |   |         |  
|Net Income (Loss)                                           |  | $        | 2.2     |          |  | $ | (31.3   | )
|                                                            |  |          |         |          |  |   |         |  

See accompanying notes to financial statements.

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RESTATED STATEMENT OF SHAREHOLDERS EQUITY (unaudited)
Alaska Airlines, Inc.

|                                                      |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |   | 
|----------------------------------------------------- | ---------------------------- | ----- | ------ | --------- | --------- | ------------- | ------------- | -------- | -------- | ----- | ----------- | ---- | - | - | ----- | - |  | - | ----- | - | 
|                                                      |                              |       |        |           |           |               |               |          |          |       | Accumulated |      |   |   |       |   |  |   |      
|                                                      |                              |       |        |           |           |               | Capital in    |          | Other    |       |             |      |   |   |       |   | 
|                                                      |                              |       | Common |           | Excess of |               | Comprehensive |          | Retained |       |             |      |  
|(In
Millions)                                         |                              | Stock |        | Par Value |           | Income (Loss) |               | Earnings |          | Total
|                                                      |                              |       |        |           |           |               |               |          |          |      
|Balances at December 31, 2001:                        |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|As previously reported                                |                              | $     |       |           |           | $             | 324.8         |          |          | $     | (3.1        | )    |   | $ | 368.7 |   |  | $ | 690.4 |  
|                                                      |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|Prior period adjustment (see Note 2)                  |                              |       |        |           |           |               |               |          |          |       | 0.9         |      |   |   | 27.7  |   |  |   | 28.6  |  
|As restated                                           |                              |       |       |           |           |               | 324.8         |          |          |       | (2.2        | )    |   |   | 396.4 |   |  |   | 719.0 |  
|                                                      |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|Net loss for the nine months
ended September 30, 2002 |                              |       |        |           |           |               |               |          |          |       |             |      |   |   | (31.3 | ) |  |   | (31.3 | )
|Other comprehensive income (loss):                    |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|Related to marketable securities:                     |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|                                                      | Change in fair value         |       |        |           |           |               |               |          |          |       |             | 0.4  |   |   |       |   |  |   |       |   | 
|                                                      | Reclassification to earnings |       |        |           |           |               |               |          |          |       |             | 0.7  |   |   |       |   |  |   |       |   | 
|                                                      | Income tax effect            |       |        |           |           |               |               |          |          |       |             | (0.4 | ) |   |       |   |  |   |       |   | 
|                                                      |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|                                                      |                              |       |        |           |           |               |               |          |          |       | 0.7         |      |   |   |       |   |  |   | 0.7   |  
|                                                      |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|Related to fuel hedges:                               |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|                                                      | Change in fair value         |       |        |           |           |               |               |          |          |       |             | 21.0 |   |   |       |   |  |   |       |   | 
|                                                      | Reclassification to earnings |       |        |           |           |               |               |          |          |       |             | (5.2 | ) |   |       |   |  |   |       |   | 
|                                                      | Income tax effect            |       |        |           |           |               |               |          |          |       |             | (5.9 | ) |   |       |   |  |   |       |   | 
|                                                      |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|                                                      |                              |       |        |           |           |               |               |          |          |       | 9.9         |      |   |   |       |   |  |   | 9.9   |  
|                                                      |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|Total comprehensive loss                              |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   | (20.7 | )
|                                                      |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|Balances at September 30, 2002                        |                              | $     |       |           |           | $             | 324.8         |          |          | $     | 8.4         |      |   | $ | 365.1 |   |  | $ | 698.3 |  
|                                                      |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  

See accompanying notes to financial statements.

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STATEMENTS OF CASH FLOWS (unaudited)
Alaska Airlines, Inc.

|                                                                                |  |                                                  |        |          |        |          |        |   |       |  
|------------------------------------------------------------------------------- |  | ------------------------------------------------ | ------ | -------- | ------ | -------- | ------ | - | ----- | -
|                                                                                |  |                                                  |        | Restated |        | Restated
|Nine Months
Ended September 30 (In millions)                                    |  | 2001                                             |        | 2002    
|                                                                                |  |                                                  |        |         
|Cash flows from operating activities:                                           |  |                                                  |        |          |        |          |        |  
|Net income (loss)                                                               |  | $                                                | 2.2    |          |        |          | ($31.3 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                                                  |        |          |        |          |        |  
|                                                                                |  | Cumulative effect of accounting change           |        |          |       |          |        |   | 12.5  |  
|                                                                                |  | Depreciation and amortization                    |        |          | 76.1   |          |        |   | 85.9  |  
|                                                                                |  | Amortization of airframe and engine overhauls    |        |          | 41.4   |          |        |   | 44.8  |  
|                                                                                |  | Changes in derivatives                           |        |          | 2.8    |          |        |   | (4.7  | )
|                                                                                |  | Loss on disposition of assets                    |        |          | 1.8    |          |        |   | 0.7   |  
|                                                                                |  | Increase (decrease) in deferred income taxes     |        |          | 28.5   |          |        |   | (10.3 | )
|                                                                                |  | (Increase) decrease in accounts receivable - net |        |          | 1.5    |          |        |   | (30.6 | )
|                                                                                |  | Decrease in other current assets                 |        |          | 14.6   |          |        |   | 10.2  |  
|                                                                                |  | Increase in air traffic liability                |        |          | 31.8   |          |        |   | 11.3  |  
|                                                                                |  | Increase (decrease) in other current liabilities |        |          | 48.2   |          |        |   | (3.0  | )
|                                                                                |  | Increase in deferred revenue and other-net       |        |          | 16.9   |          |        |   | 34.0  |  
|                                                                                |  |                                                  |        |          |        |          |        |  
|Net cash provided by operating activities                                       |  |                                                  | 265.8  |          |        |          | 119.5  |  
|                                                                                |  |                                                  |        |          |        |          |        |  
|Cash flows from investing activities:                                           |  |                                                  |        |          |        |          |        |  
|Proceeds from disposition of assets                                             |  |                                                  | 0.2    |          |        |          | 1.2    |  
|Purchases of marketable securities                                              |  |                                                  | (675.0 | )        |        |          | (457.1 | )
|Sales and maturities of marketable securities                                   |  |                                                  | 394.5  |          |        |          | 275.7  |  
|Property and equipment additions:                                               |  |                                                  |        |          |        |          |        |  
|                                                                                |  | Aircraft purchase deposits                       |        |          | (32.0  | )        |        |   | (18.6 | )
|                                                                                |  | Capitalized overhauls                            |        |          | (35.6  | )        |        |   | (35.6 | )
|                                                                                |  | Aircraft                                         |        |          | (254.9 | )        |        |   | (36.8 | )
|                                                                                |  | Other flight equipment                           |        |          | (29.9  | )        |        |   | (5.8  | )
|                                                                                |  | Other property                                   |        |          | (24.5  | )        |        |   | (32.3 | )
|Aircraft deposits returned                                                      |  |                                                  | 20.5   |          |        |          | 22.4   |  
|Restricted deposits and other                                                   |  |                                                  | (1.3   | )        |        |          | (13.4  | )
|                                                                                |  |                                                  |        |          |        |          |        |  
|Net cash used in investing activities                                           |  |                                                  | (638.0 | )        |        |          | (300.3 | )
|                                                                                |  |                                                  |        |          |        |          |        |  
|Cash flows from financing activities:                                           |  |                                                  |        |          |        |          |        |  
|Proceeds from issuance of long-term debt                                        |  |                                                  | 359.5  |          |        |          | 25.5   |  
|Long-term debt and capital lease payments                                       |  |                                                  | (57.8  | )        |        |          | (26.8  | )
|                                                                                |  |                                                  |        |          |        |          |        |  
|Net cash provided by (used in) financing activities                             |  |                                                  | 301.7  |          |        |          | (1.3   | )
|                                                                                |  |                                                  |        |          |        |          |        |  
|Net change in cash and cash equivalents                                         |  |                                                  | (70.5  | )        |        |          | (182.1 | )
|Cash and cash equivalents at beginning of period                                |  |                                                  | 101.2  |          |        |          | 490.7  |  
|                                                                                |  |                                                  |        |          |        |          |        |  
|Cash and cash equivalents at end of period                                      |  | $                                                | 30.7   |          |        | $        | 308.6  |  
|                                                                                |  |                                                  |        |          |        |          |        |  
|Supplemental disclosure of cash paid (refunded) during the period for:          |  |                                                  |        |          |        |          |        |  
|                                                                                |  | Interest (net of amount capitalized)             |        | $        | 34.8   |          |        | $ | 32.1  |  
|                                                                                |  | Income taxes                                     |        |          | (0.1   | )        |        |   | (16.1 | )
|Noncash investing and financing activities                                      |  | None                                             |        | None    

See accompanying notes to financial statements.

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NOTES TO FINANCIAL STATEMENTS (unaudited)
Alaska Airlines, Inc.

Note 1. Basis of Presentation and Significant Accounting Policies

The accompanying unaudited interim financial statements of Alaska
Airlines, Inc. (Alaska or the Company) should be read in conjunction with the
financial statements in the Companys annual report on Form 10-K/A for the year
ended December 31, 2001. In the opinion of management, all adjustments have
been made which are necessary to present fairly the financial position of the
Company as of September 30, 2002, as well as the results of its operations for
the three and nine months ended September 30, 2002 and 2001. Except for the
restatement of the previous financial statements as described below, the
adjustments made were of a normal recurring nature. Certain reclassifications
have been made in the prior years restated financial statements to conform to
the 2002 presentation.

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.

These financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
(GAAP). They require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
liabilities, as well as the reported amounts of revenues and expenses.
Significant estimates include assumptions used to record liabilities, expenses
and revenue associated with the Companys Mileage Plan, estimated useful lives
of property and equipment and the amounts of certain accrued liabilities.
Actual results may differ from these estimates.

As further discussed in Note 2, in 2002, the Company restated its
financial statements for the year ended December 31, 2001 and for all quarterly
periods during the year ended December 31, 2001. The Company also restated its
financial statements for the three and nine months ended September 30, 2002.

Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets.
Under this Statement, the Companys goodwill will no longer be amortized, but
instead will be tested for impairment on a minimum of an annual basis. The
impact of discontinuing amortization of existing goodwill has resulted in an
increase of net income of $0.1 million and $0.4 million for the three and nine
months ended September 30, 2002, respectively. During the second quarter of
2002, the Company completed the first step of its impairment test related to
its $12.5 million of goodwill. In the fourth quarter of 2002, the Company
completed the second step of its impairment test and determined that all of the
Companys goodwill was impaired. As a result, the Company recorded a one-time,
non-cash charge, effective January 1, 2002 of $12.5 million to write off all of
its goodwill. This charge is reflected as a cumulative effect of accounting
change in the Statement of Operations for the nine months ended September 30,
2002.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations, which requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can
be made. The Statement also requires that the associated asset retirement costs
be capitalized as part of the carrying amount of the long-
lived asset. This Statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The adoption of this
8Table of ContentsStatement,
is not expected to have a material impact on the Companys financial position,
results of operations or cash flows.In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of and APB Opinion No. 30, Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
Adoption of this Statement, in the fiscal year beginning January 1, 2002, did
not have a material impact on the Companys financial position, results of
operations or cash flows.In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement requires that only certain debt extinguishment
transactions be classified as extraordinary items. Additionally, under this
Statement, capital leases that are modified so that the resulting agreement is
an operating lease shall be accounted for under the sale-leaseback provisions
of SFAS No. 98. The Statement also includes minor modifications to existing
GAAP literature. SFAS No. 145 is generally effective for financial statements
issued for fiscal years beginning after May 15, 2002. The adoption of this
Statement is not expected to have a material impact on the Companys financial
position, results of operations or cash flows.In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies EITF Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The Statement requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. The Statement is effective for the
Company on January 1, 2003 and is not expected to have a material impact on the
Companys financial position, results of operations or cash flows.Note 2. Restatement of Financial StatementsDuring 2002, the Company changed its accounting policies relating to the
accrual for certain lease return costs and capitalization of software
development costs. In addition, the Company changed its accounting for
aircraft purchase commitments assumed by a third party. The Company also made
other corrections and certain reclassifications of deferred income taxes and
other balance sheet and income statement items, none of which have a
significant impact on previously reported equity or net earnings. Because the
previous accounting methods and classifications are not considered to be in
compliance with GAAP, the Companys previously issued financial statements for
the years ended December 31, 1999, 2000 and 2001, including the interim periods
within those years, and for the three and nine months ended September 30, 2002,
have been restated. Significant changes are more fully described below.Leased Aircraft Return CostsThe Company leases many of its aircraft under relatively long-term operating
lease agreements. These aircraft are subject to periodic airframe and engine
overhauls based on the Companys maintenance program. The Companys previous
policy was to capitalize these overhauls and amortize the costs over the
estimated lives of the overhauls. Separately, many of the Companys lease
agreements contain provisions which require that at the end of the lease,
either certain minimum9Table of Contentstimes remain until the next overhaul or the Company make
a cash payment to the lessor. At the inception of the lease, the Company does
not know the balance between actual time remaining to the next overhaul and
cash payments that will be used to satisfy its return
commitments. Under the previous method, the Company accrued the costs of
returning leased aircraft, including any cash payments due to lessors and any
unamortized overhauls, on a straight-line basis over the lives of the leases.
Airframe and engine overhauls are now capitalized and amortized over the
remaining lease term, if shorter than the life of the overhaul. Additionally,
under the new method, since the amount of cash payments by themselves cannot be
reasonably predicted at the inception of the lease, the Company will accrue
cash payments expected to be made to lessors over the last few years of the
lease when probable and estimable.Internally Developed SoftwareThe Company revised its accounting practices for certain costs of internally
developed software. These costs were previously charged to expense as they
were incurred, and they are now capitalized and amortized over the estimated
lives of the software.Aircraft Purchase CommitmentsThe Company has a purchase commitment that may trigger a liability under
certain events of default. The Company previously recognized a portion of this
commitment, which was funded by a third party as a liability, and related
aircraft purchase deposits, on its balance sheet. Since the executory contract
for the purchase commitment is not an obligation of the Company until the
aircraft is delivered, this commitment is disclosed as a purchase commitment
and not included in long-term debt or deposits for future flight equipment.In the Companys filing of its Form 10-Q for the quarterly period ended
September 30, 2002, the Company previously restated its financial statements
for the three and nine months ended September 30, 2001 and as of December 31,
2001. Subsequently, the Company identified other corrections and certain
reclassifications, which have been restated in this filing. Amounts show as
previously reported for September 30, 2001 and December 31, 2001 in the
accompanying tables reflect the Companys original reporting of its financial
statements as of and for the respective periods.The effects of the restatement for the three and nine months ended September 30, 2001 are as follows:

|                              |  |                    |       |                    |  |               |       |          |  |   |         |   |  |   |         |  
|----------------------------- |  | ------------------ | ----- | ------------------ |  | ------------- | ----- | -------- |  | - | ------- | - |  | - | ------- | -
|                              |  | Three Months Ended |       | Nine Months Ended 
|                              |  | September 30, 2001 |       | September 30, 2001
|                              |  |                    |       |                   
|                              |  | As Previously      |       | As Previously     
|                              |  | Reported           |       | Restated           |  | Reported      |       | Restated
|                              |  |                    |       |                    |  |               |       |         
|                              |  |                    |       |                    |  | (in millions) |       |          |  |   |         |   |  |  
|Total Operating Revenues      |  | $                  | 480.0 |                    |  | $             | 484.2 |          |  | $ | 1,369.4 |   |  | $ | 1,377.5 |  
|Total Operating Expenses      |  | $                  | 464.1 |                    |  | $             | 467.2 |          |  | $ | 1,374.9 |   |  | $ | 1,388.0 |  
|Total Operating Income (Loss) |  | $                  | 15.9  |                    |  | $             | 17.0  |          |  | $ | (5.5    | ) |  | $ | (10.5   | )
|Net Income                    |  | $                  | 21.2  |                    |  | $             | 22.3  |          |  | $ | 4.4     |   |  | $ | 2.2     |  

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The effect of the restatement for the three and nine months ended September 30, 2002 is as follows:

|                                       |  |                    |       |                    |  |               |       |          |  |   |         |   |  |   |         |  
|-------------------------------------- |  | ------------------ | ----- | ------------------ |  | ------------- | ----- | -------- |  | - | ------- | - |  | - | ------- | -
|                                       |  | Three Months Ended |       | Nine Months Ended 
|                                       |  | September 30, 2002 |       | September 30, 2002
|                                       |  |                    |       |                   
|                                       |  | As Previously      |       | As Previously     
|                                       |  | Reported           |       | Restated           |  | Reported      |       | Restated
|                                       |  |                    |       |                    |  |               |       |         
|                                       |  |                    |       |                    |  | (in millions) |       |          |  |  
|Total Operating Revenues               |  | $                  | 512.0 |                    |  | $             | 512.4 |          |  | $ | 1,403.5 |   |  | $ | 1,403.3 |  
|Total Operating Expenses               |  | $                  | 495.1 |                    |  | $             | 493.7 |          |  | $ | 1,429.2 |   |  | $ | 1,423.9 |  
|Total Operating Income (Loss)          |  | $                  | 16.9  |                    |  | $             | 18.7  |          |  | $ | (25.7   | ) |  | $ | (20.5   | )
|Income (Loss) before
Accounting Change |  | $                  | 7.2   |                    |  | $             | 8.9   |          |  | $ | (22.6   | ) |  | $ | (18.8   | )
|Net Income (Loss)                      |  | $                  | 7.2   |                    |  | $             | 8.9   |          |  | $ | (22.6   | ) |  | $ | (31.3   | )

The effects of the restatement on selected balance sheet items are as follows:

|                           |  |                   |         |                    |  |          |         |          |  |   |         |  |  |   |         |  
|-------------------------- |  | ----------------- | ------- | ------------------ |  | -------- | ------- | -------- |  | - | ------- |  |  | - | ------- | -
|                           |  | December 31, 2001 |         | September 30, 2002
|                           |  | As Previously     |         | As Previously     
|                           |  | Reported          |         | Restated           |  | Reported |         | Restated
|                           |  |                   |         |                    |  |          |         |         
|                           |  | (in millions)    
|Current Assets             |  | $                 | 904.7   |                    |  | $        | 920.8   |          |  | $ | 957.5   |  |  | $ | 951.1   |  
|Property and Equipment-Net |  | $                 | 1,692.8 |                    |  | $        | 1,688.0 |          |  | $ | 1,657.7 |  |  | $ | 1,664.5 |  
|Current Liabilities        |  | $                 | 700.2   |                    |  | $        | 695.0   |          |  | $ | 712.7   |  |  | $ | 702.7   |  
|Long-Term Debt             |  | $                 | 863.3   |                    |  | $        | 852.2   |          |  | $ | 843.7   |  |  | $ | 843.7   |  
|Shareholders Equity       |  | $                 | 690.4   |                    |  | $        | 719.0   |          |  | $ | 707.3   |  |  | $ | 698.3   | *

*Includes $12.5 million cumulative effect of the accounting change in
connection with the impairment of goodwill upon the adoption of SFAS
No. 142.

Note 3. Frequent Flyer Program

Alaskas Mileage Plan liabilities are included under the following balance
sheet captions:

|                               |  |                           |       |                            |  |   |       | 
|------------------------------ |  | ------------------------- | ----- | -------------------------- |  | - | ----- | 
|                               |  | RestatedDecember 31, 2001 |       | RestatedSeptember 30, 2002
|                               |  |                           |       |                           
|                               |  | (in millions)            
|Current Liabilities:           |  |                           |       |                            |  |   |       | 
|Other accrued liabilities      |  | $                         | 65.7  |                            |  | $ | 79.5  | 
|Other Liabilities and Credits: |  |                           |       |                            |  |   |       | 
|Deferred revenue               |  |                           | 150.7 |                            |  | $ | 171.7 | 
|Other liabilities              |  |                           | 31.9  |                            |  | $ | 32.3  | 
|                               |  |                           |       |                            |  |   |       | 
|Total                          |  | $                         | 248.3 |                            |  | $ | 283.5 | 
|                               |  |                           |       |                            |  |   |       | 

Note 4. Other Assets

At December 31, 2001 and September 30, 2002, other assets included prepaid
pension cost of $98.4 million and $90.2 million, respectively.

Note 5. U.S. Government Compensation

In September 2001, the U.S. Government passed the Air Transportation
Safety and System Stabilization Act to compensate the airlines for direct and
incremental losses as a result of the September 11th terrorist attacks. In the
second quarter of 2002, Alaska submitted its final application to the
Department of Transportation (DOT) based on the Companys losses. During the
third quarter

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of 2002, the DOT completed its review procedures and remitted a
final compensation payment to the Company
of $0.2 million. This amount is reflected in the Statement of Operations
for the three months ended September 30, 2002.

12



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##### Table of Contents



ALASKA AIRLINES FINANCIAL AND STATISTICAL DATA (unaudited)

|                                                      |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|----------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ |  | - | ------ | - |  | ------ |  | -------- |  | -------- | ----- | ------ | --- | - | ------- | - | ----- | - | ------- | -- |  | -- | ----- | ---
|                                                      |  | Three Months Ended September 30 |        | Nine Months Ended September 30
|                                                      |  |                                 |        |                               
|                                                      |  | Restated                        |        | Restated                       |  |   |        |   |  | %      |  | Restated |  | Restated |       | %     
|Financial Data (in millions):                         |  | 2001                            |        | 2002                           |  |   |        |   |  | Change |  | 2001     |  | 2002     |       | Change
|                                                      |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |       
|Operating Revenues:                                   |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|Passenger                                             |  | $                               | 441.1  |                                |  | $ | 468.0  |   |  |        |  |          |  |          | 6.1   | %      |     | $ | 1,258.0 |   |       | $ | 1,275.6 |    |  |    | 1.4   | %  
|Freight and mail                                      |  |                                 | 20.8   |                                |  |   | 19.6   |   |  |        |  |          |  |          | -5.8  | %      |     |   | 60.5    |   |       |   | 55.6    |    |  |    | -8.1  | %  
|Other - net                                           |  |                                 | 22.3   |                                |  |   | 24.8   |   |  |        |  |          |  |          | 11.2  | %      |     |   | 59.0    |   |       |   | 72.2    |    |  |    | 22.4  | %  
|                                                      |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|Total Operating Revenues                              |  |                                 | 484.2  |                                |  |   | 512.4  |   |  |        |  |          |  |          | 5.8   | %      |     |   | 1,377.5 |   |       |   | 1,403.4 |    |  |    | 1.9   | %  
|                                                      |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|Operating Expenses:                                   |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|Wages and benefits                                    |  |                                 | 164.3  |                                |  |   | 185.4  |   |  |        |  |          |  |          | 12.8  | %      |     |   | 476.5   |   |       |   | 525.6   |    |  |    | 10.3  | %  
|Contracted services                                   |  |                                 | 19.0   |                                |  |   | 19.1   |   |  |        |  |          |  |          | 0.5   | %      |     |   | 57.0    |   |       |   | 60.3    |    |  |    | 5.8   | %  
|Aircraft fuel                                         |  |                                 | 71.8   |                                |  |   | 70.7   |   |  |        |  |          |  |          | -1.5  | %      |     |   | 219.8   |   |       |   | 190.1   |    |  |    | -13.5 | %  
|Aircraft maintenance                                  |  |                                 | 32.9   |                                |  |   | 31.6   |   |  |        |  |          |  |          | -4.0  | %      |     |   | 100.0   |   |       |   | 103.3   |    |  |    | 3.3   | %  
|Aircraft rent                                         |  |                                 | 33.7   |                                |  |   | 32.2   |   |  |        |  |          |  |          | -4.5  | %      |     |   | 104.0   |   |       |   | 95.7    |    |  |    | -8.0  | %  
|Food and beverage service                             |  |                                 | 14.4   |                                |  |   | 17.8   |   |  |        |  |          |  |          | 23.6  | %      |     |   | 42.4    |   |       |   | 47.9    |    |  |    | 13.0  | %  
|Commissions                                           |  |                                 | 16.4   |                                |  |   | 12.1   |   |  |        |  |          |  |          | -26.2 | %      |     |   | 50.4    |   |       |   | 40.6    |    |  |    | -19.4 | %  
|Other selling expenses                                |  |                                 | 26.3   |                                |  |   | 26.1   |   |  |        |  |          |  |          | -0.8  | %      |     |   | 78.9    |   |       |   | 78.8    |    |  |    | -0.1  | %  
|Depreciation and amortization                         |  |                                 | 27.3   |                                |  |   | 29.2   |   |  |        |  |          |  |          | 7.0   | %      |     |   | 76.1    |   |       |   | 85.9    |    |  |    | 12.9  | %  
|Loss on sale of assets                                |  |                                 | 0.6    |                                |  |   | 0.5    |   |  |        |  |          |  |          | -16.7 | %      |     |   | 1.8     |   |       |   | 0.7     |    |  |    | -61.1 | %  
|Landing fees and other rentals                        |  |                                 | 25.9   |                                |  |   | 30.1   |   |  |        |  |          |  |          | 16.2  | %      |     |   | 70.8    |   |       |   | 82.3    |    |  |    | 16.2  | %  
|Other                                                 |  |                                 | 34.6   |                                |  |   | 38.9   |   |  |        |  |          |  |          | 12.4  | %      |     |   | 110.3   |   |       |   | 112.7   |    |  |    | 2.2   | %  
|                                                      |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|Total Operating Expenses                              |  |                                 | 467.2  |                                |  |   | 493.7  |   |  |        |  |          |  |          | 5.7   | %      |     |   | 1,388.0 |   |       |   | 1,423.9 |    |  |    | 2.6   | %  
|                                                      |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|Operating Income (Loss)                               |  |                                 | 17.0   |                                |  |   | 18.7   |   |  |        |  |          |  |          | 10.0  | %      |     |   | (10.5   | ) |       |   | (20.5   | )  |  | NM
|                                                      |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|Interest income                                       |  |                                 | 7.0    |                                |  |   | 6.4    |   |  |        |  |          |  |          |       |        |     |   | 21.6    |   |       |   | 17.5    |    |  |    |       |    
|Interest expense                                      |  |                                 | (11.8  | )                              |  |   | (11.2  | ) |  |        |  |          |  |          |       |        |     |   | (34.5   | ) |       |   | (34.7   | )  |  |    |       |    
|Interest capitalized                                  |  |                                 | 1.5    |                                |  |   | 0.5    |   |  |        |  |          |  |          |       |        |     |   | 6.5     |   |       |   | 1.0     |    |  |    |       |    
|U.S. government compensation                          |  |                                 | 18.7   |                                |  |   | 0.2    |   |  |        |  |          |  |          |       |        |     |   | 18.7    |   |       |   | 0.3     |    |  |    |       |    
|Other - net                                           |  |                                 | 0.6    |                                |  |   | (1.5   | ) |  |        |  |          |  |          |       |        |     |   | 0.7     |   |       |   | 7.7     |    |  |    |       |    
|                                                      |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|                                                      |  |                                 | 16.0   |                                |  |   | (5.6   | ) |  |        |  |          |  |          |       |        |     |   | 13.0    |   |       |   | (8.2    | )  |  |    |       |    
|                                                      |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|Income (Loss) Before Income Tax
and Accounting Change |  | $                               | 33.0   |                                |  | $ | 13.1   |   |  |        |  |          |  | NM       |       | $      | 2.5 |   |         | $ | (28.7 | ) |         | NM
|                                                      |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|Operating Statistics:                                 |  |                                 |        |                                |  |   |        |   |  |        |  |          |  |          |       |        |     |   |         |   |       |   |         |    |  |    |       |    
|Revenue passengers (000)                              |  |                                 | 3,747  |                                |  |   | 3,978  |   |  |        |  |          |  |          | 6.2   | %      |     |   | 10,643  |   |       |   | 10,787  |    |  |    | 1.4   | %  
|RPMs (000,000)                                        |  |                                 | 3,328  |                                |  |   | 3,673  |   |  |        |  |          |  |          | 10.4  | %      |     |   | 9,514   |   |       |   | 10,022  |    |  |    | 5.3   | %  
|ASMs (000,000)                                        |  |                                 | 4,687  |                                |  |   | 5,207  |   |  |        |  |          |  |          | 11.1  | %      |     |   | 13,798  |   |       |   | 14,602  |    |  |    | 5.8   | %  
|Passenger load factor                                 |  |                                 | 71.0   | %                              |  |   | 70.5   | % |  |        |  |          |  |          | -0.5  | pts    |     |   | 69.0    | % |       |   | 68.6    | %  |  |    | -0.4  | pts
|Breakeven load factor                                 |  |                                 | 69.6   | %                              |  |   | 69.4   | % |  |        |  |          |  |          | -0.2  | pts    |     |   | 71.1    | % |       |   | 71.4    | %  |  |    | 0.3   | pts
|Yield per passenger mile                              |  |                                 | 13.25  | ¢                              |  |   | 12.74  | ¢ |  |        |  |          |  |          | -3.9  | %      |     |   | 13.22   | ¢ |       |   | 12.73   | ¢  |  |    | -3.7  | %  
|Operating revenue per ASM                             |  |                                 | 10.33  | ¢                              |  |   | 9.84   | ¢ |  |        |  |          |  |          | -4.7  | %      |     |   | 9.98    | ¢ |       |   | 9.61    | ¢  |  |    | -3.7  | %  
|Operating expenses per ASM                            |  |                                 | 9.97   | ¢                              |  |   | 9.48   | ¢ |  |        |  |          |  |          | -4.9  | %      |     |   | 10.06   | ¢ |       |   | 9.75    | ¢  |  |    | -3.1  | %  
|Expense per ASM excluding fuel                        |  |                                 | 8.44   | ¢                              |  |   | 8.12   | ¢ |  |        |  |          |  |          | -3.7  | %      |     |   | 8.47    | ¢ |       |   | 8.45    | ¢  |  |    | -0.2  | %  
|Fuel cost per gallon                                  |  |                                 | 90.1   | ¢                              |  |   | 81.6   | ¢ |  |        |  |          |  |          | -9.4  | %      |     |   | 93.1    | ¢ |       |   | 77.9    | ¢  |  |    | -16.3 | %  
|Fuel gallons (000,000)                                |  |                                 | 79.6   |                                |  |   | 86.6   |   |  |        |  |          |  |          | 8.8   | %      |     |   | 236.1   |   |       |   | 243.9   |    |  |    | 3.3   | %  
|Average number of employees                           |  |                                 | 10,222 |                                |  |   | 10,465 |   |  |        |  |          |  |          | 2.4   | %      |     |   | 10,209  |   |       |   | 10,167  |    |  |    | -0.4  | %  
|Aircraft utilization (blk hrs/day)                    |  |                                 | 10.3   |                                |  |   | 11.2   |   |  |        |  |          |  |          | 8.2   | %      |     |   | 10.8    |   |       |   | 10.7    |    |  |    | -0.9  | %  
|Operating fleet at period-end                         |  |                                 | 102    |                                |  |   | 102    |   |  |        |  |          |  |          | 0.0   | %      |     |   | 102     |   |       |   | 102     |    |  |    | 0.0   | %  

NM = Not Meaningful

Note:Certain reclassifications have been made to the September 30, 2001 restated statements
of operations to conform to the September 30, 2002 presentation.

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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

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, including without limitation
statements relating to the Companys expectations regarding financing new
aircraft commitments 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/A for the year ended
December 31, 2001.

As discussed in Note 2 to the financial statements, in 2002 the Company
restated its financial statements for the year ended December 31, 2001 and the
interim periods within that year. The Company also restated its financial
statements for the three and nine months ended September 30, 2002. The
accompanying managements discussion and analysis gives effect to the
restatement.

Results of Operations
Third Quarter 2002 Compared with Third Quarter 2001

Revenues

Our capacity increased 11.1% during the three months ended September 30,
2002 when compared to the same period in 2001. This increase resulted largely
from service to new markets (Seattle to Washington D.C., Boston and Denver; Los
Angeles to Cancun and Calgary), partially offset by reduced service in existing
markets, especially the Pacific Northwest to Northern California. Traffic grew
by 10.4%, while passenger load factor decreased 0.5 percentage points. The new
Washington D.C., Boston and Denver markets experienced load factors exceeding
the system average. Virtually all other markets experienced reductions in load
factor. For 2001, capacity, traffic and load factors were adversely impacted
by the September 11th terrorist attacks. Passenger yields decreased 3.9% for
the quarter compared to 2001 due to a combination of fewer business passengers,
a drop off in demand due to the September 11, 2001 terrorist attacks and the
slowing economy, and fare sales offered to stimulate demand. Yields were down
in all major markets except the Pacific Northwest to Southern California
market. The lower yield combined with the lower load factor resulted in a 4.7%
decrease in revenue per available seat mile (ASM). The higher traffic combined
with the lower yield resulted in a 6.1% increase in passenger revenue.

Freight and mail revenues decreased 5.8% during the three months ended
September 30, 2002 when compared to comparable periods in 2001. This decrease
is primarily a result of increases in freight revenues offset by decreases in
mail revenues.

Other-net revenues increased 11.2%, due largely to increased revenue
related to the sale of miles in Alaskas frequent flyer program, new security
fee reimbursement revenue and higher essential air service subsidy rates.

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Expenses

Total operating expenses increased 5.7% during the three months ended
September 30, 2002 when compared to the same period in 2001, while our cost per
ASM decreased by 4.9%. Our cost per ASM excluding fuel decreased by 3.7%.
Explanations of significant period over period changes in the components of
operating expenses are as follows:



| |  |  | Wages and benefits increased $21.1 million, or 12.8% during the
three months ended September 30, 2002 as compared to the same period
in 2001. This increase is due principally to increases of $9.7
million in employee wages and higher pension, medical insurance, and
workers compensation costs. Increases in wages resulted from pilot pay
increases (11% effective in June 2001 plus 5% effective in May 2002),
scale step increases for union employees and annual merit raises for
management employees.                                                                                                                                                                                                              
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Fuel expense decreased 1.5% due to a 9.4% decrease in the cost
per gallon of fuel combined with an 8.8% increase in gallons consumed.
Fuel hedging saved $4.6 million during the three months ended
September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | Aircraft maintenance expense decreased $1.3 million or 4.0%
during the three months ended September 30, 2002 when compared to the
same period in 2001. This decrease is due largely to fewer major
engine repairs and overhauls. In the fourth quarter of 2002, the
Company expects a 30% increase in maintenance expense when compared to
the same period in 2001. This expected increase is a result of
several maintenance checks scheduled for the 4th quarter of 2001 that
were postponed until first quarter of 2002 while the Company assessed
its operating needs in the aftermath of September 11th.                                                                                                                 
|
| |  |  | Commission expense decreased 26.2%, despite a 6.1% increase in
passenger revenue, due to the elimination of base commissions and the
continuing shift to direct sales channels. In June 2002, the Company
changed its travel agent commissions program to eliminate base
commissions and move to a 100% incentive-based program. This change
reduced commissions expense in the third quarter of 2002 by
approximately $7.6 million. During the three months ended September
30, 2002, 54.5% of Air Group ticket sales were made through travel
agents, versus 57.7% in 2001. During the three months ended September
30, 2002, 22.6% of total ticket sales were made through Alaskas
Internet web site versus 17.5% in 2001.
|
| |  |  | Landing fees and other rentals increased 16.2%, primarily due to
higher rates as a result of airport construction projects, ground
rents on our four new routes and 6.6% more departures during the three
months ended September 30, 2002 as compared to the same period in
2001.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | Other expense increased 12.4% due to higher insurance costs,
partially offset by lower costs for property taxes, legal services,
uninsured losses, supplies and passenger remuneration costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Nonoperating Income (Expense)

Net nonoperating income (expense) during the three months ended September
30, 2002 and 2001 includes $0.2 million and $18.7 million, respectively of U.S.
government compensation received

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in connection with the
September 11th terrorist attacks. Excluding these
amounts, net nonoperating items were $5.8 million expense during the three
months ended September 30, 2002 compared to $2.7 million expense during the
same period in 2001. The $3.1 million increase was primarily due to losses
resulting from hedge ineffectiveness on fuel hedging contracts. The remaining
decrease is a result of decreases in interest income resulting from overall
decreases in interest rates in 2002.

Nine Months 2002 Compared with Nine Months 2001

The loss before accounting change for the nine months ended September 30,
2002 was $18.8 million compared with net income of $2.2 million in 2001. The
2001 results include $18.7 million of U.S. government compensation. Operating
loss for the nine months ended September 30, 2002 was $20.5 million compared
with $10.5 million for 2001.

Revenues

The operating loss widened by $10.0 million to $20.5 million during the
nine months ended September 30, 2002. Capacity increased 5.8% for the first
nine months of 2002 compared to 2001. This increase is attributable to service
to new markets which commenced in late 2001 (Seattle to Washington D.C. and Los
Angeles to Cancun), the first quarter of 2002 (Los Angeles to Calgary), and in
April 2002 (Seattle to Denver and Boston). The increase was partially offset
by reduced service in existing markets, primarily the Pacific Northwest to
Southern and Northern California markets. Traffic increased by 5.3% compared
to 2001, and our passenger load factor decreased 0.4 percentage points. The
new Washington D.C., Boston and Denver markets have experienced load factors
that exceed the system average year to date. Passenger yields decreased 3.7%
during the nine months ended September 30, 2002 compared to the same period in
2001, due to a combination of fewer business passengers, a drop off in demand
due to the September 11th terrorist attacks, the slowing economy and fare sales
offered to stimulate demand. The lower yield combined with the lower load
factor resulted in a 3.7% decrease in revenue per ASM. The higher traffic
combined with the lower yield resulted in a 1.4% increase in passenger revenue.

Freight and mail revenue decreased 8.1% due to lower freight volumes
attributable to increased security restrictions and a slower economy.

Other-net revenues increased 22.4% primarily due to increased revenue
related to the sale of miles in Alaskas frequent flyer program, new security
fee reimbursement revenue and higher essential air service subsidy rates.

Expenses

Total operating expenses increased 2.6% during the nine months ended
September 30, 2002 when compared to the same period in 2001. Cost per ASM
decreased 3.1% and cost per ASM excluding fuel decreased slightly (0.2%).
Explanations of significant year-over-year changes in the components of
operating expenses are as follows:



| |  |  | Wages and benefits increased $49.1 million, or 10.3% during the
nine months ended September 30, 2002 as compared to the same period in
2001. This increase is due principally to an increase in average
wages and benefits per employee combined with an overall decrease in
the number of employees. Average wages and benefits per employee
increased due to pilot pay increases (11% effective in June 2001 plus
5% effective in May 2002), scale
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |   |  | and step increases for union employees, annual merit raises for
management employees, and higher pension and health insurance costs for
all employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Fuel expense decreased 13.5% due to a 16.3% decrease in the cost
per gallon of fuel combined with a 3.3% increase in gallons consumed.
Fuel hedging saved $5.4 million during the nine months ended September
30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | Commission expense decreased 19.4%, despite a 1.4% increase in
passenger revenue, due to elimination of base commissions and the
continuing shift to direct sales channels. In June 2002, the Company
changed its travel agent commissions program to eliminate base
commissions and move to a 100% incentive-based program. During the
nine months ended September 30, 2002, 57.0% of Air Group ticket sales
were made through travel agents, versus 60.5% during the same period
in 2001. During the nine months ended September 30, 2002, 20.6% of
total ticket sales were made through Alaskas Internet web site versus
16.0% during the same period in 2001.
|
| |  |  | Depreciation and amortization increased 12.9%, due principally to
equipment added during the year. In addition, Alaska owns one more
737-900 and 737-200 Combi this year when compared to the same period
in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | Landing fees and other rentals increased 16.2%, primarily due to
higher rates as a result of airport construction projects, ground
rents on our four new routes and more departures during the nine
months ended September 30, 2002 as compared to the same period in
2001.                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | Other expense increased 2.2% due to higher insurance costs,
partially offset by lower costs for property taxes, uninsured losses,
supplies, passenger remuneration and utilities costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Nonoperating Income (Expense)

Net nonoperating income (expense) during the nine months ended September
30, 2002 and 2001 includes $0.3 million and $18.7 million, respectively, of
U.S. government compensation received in connection with the
September 11th terrorist attacks. Excluding these amounts, net nonoperating items were $8.5
million expense in 2002 compared to $5.7 million expense in 2001. The $2.8
million net change was due principally to lower interest income and lower
capitalized interest due to the deferral of aircraft deliveries, partially
offset by gains resulting from hedge ineffectiveness on certain fuel hedging
contracts in 2002.

Income Tax Benefit (Expense)

Accounting standards require us to provide for income taxes each quarter
based on our estimate of the effective tax rate for the full year. The
volatility of airfares and fuel prices and the seasonality of our 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
employee per diem costs. In estimating the 34.5% tax rate for the first nine
months of 2002, we considered a variety of factors, including the U.S. federal
rate of 35%, estimates of nondeductible expenses and state income taxes and our
forecast of pretax loss for the full year. We evaluate this effective rate
each quarter and make adjustments if necessary.

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Critical Accounting Policies

For more information on the Companys critical accounting policies, see
Item 7 of the Companys Annual Report on Form 10-K/A for the year ended
December 31, 2001. In 2002, the Company revised its accounting practices with
respect to aircraft lease return costs. This change is more fully described in
Note 2 to the financial statements.

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##### Table of Contents



Liquidity and Capital Resources

The table below presents the major indicators of financial condition and
liquidity.

|                                                                                                  |  |                                       |        |                             |  |        |        |   |  |    |       |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | --------------------------- |  | ------ | ------ | - |  | -- | ----- | -
|                                                                                                  |  | December 31, 2001 Restated            |        | September 30, 2002 Restated |  | Change
|                                                                                                  |  |                                       |        |                             |  |       
|                                                                                                  |  | (In millions, except debt-to-capital)
|Cash and marketable securities                                                                    |  | $                                     | 660.5  |                             |  | $      | 660.9  |   |  | $  | 0.4   |  
|Working capital                                                                                   |  |                                       | 225.8  |                             |  |        | 248.4  |   |  |    | 22.6  |  
|Long-term debt and
capital lease obligations, net of current                                      |  |                                       | 852.2  |                             |  |        | 843.7  |   |  |    | (8.5  | )
|Shareholders equity                                                                              |  |                                       | 719.0  |                             |  |        | 698.3  |   |  |    | (20.7 | )
|Debt-to-capital                                                                                   |  |                                       | 54%:46 | %                           |  |        | 55%:45 | % |  | NA
|Debt-to-capital assuming aircraft
operating leases are capitalized
at seven times annualized rent |  |                                       | 71%:29 | %                           |  |        | 71%:29 | % |  | NA

The Companys cash and marketable securities portfolio increased $0.4
million during the first nine months of 2002. Operating activities provided
$119.5 million of cash during this period. Additional cash was provided by the
issuance of $25.5 million of new debt. Cash outflows included $106.7 million
of capital expenditures, including the purchase of spare parts, airframe and
engine overhauls and $36.8 million for purchases of new aircraft. In addition,
the Company made $26.8 million of debt repayments.

Shareholders equity decreased $20.7 million due principally to the net
loss of $31.3 million, partially offset by an increase in accumulated other
comprehensive income of $10.6 million.

Aircraft Purchase Commitments- At September 30, 2002, the Company had firm
orders for 14 aircraft requiring aggregate remaining payments of approximately
$259 million, as set forth below. In addition, Alaska has options to acquire
24 more B737s. Alaska expects to finance five of the B737-700 deliveries in
2003 with operating leases and the remainder of the new planes with long-term
debt or internally generated cash.

|                    |  |                               |      |  |  |   |      |  |  |   |      |  |  |   |       | 
|------------------- |  | ----------------------------- | ---- |  |  | - | ---- |  |  | - | ---- |  |  | - | ----- | 
|                    |  | Delivery Period - Firm Orders
|                    |  |                              
|Aircraft            |  |                               | 2002 |  |  |   | 2003 |  |  |   | 2004 |  |  |   | Total | 
|                    |  |                               |      |  |  |   |      |  |  |   |      |  |  |   |       | 
|Boeing 737-700      |  |                               |     |  |  |   | 6    |  |  |   |     |  |  |   | 6     | 
|Boeing 737-900      |  |                               |     |  |  |   | 5    |  |  |   | 3    |  |  |   | 8     | 
|                    |  |                               |      |  |  |   |      |  |  |   |      |  |  |   |       | 
|Total               |  |                               |     |  |  |   | 11   |  |  |   | 3    |  |  |   | 14    | 
|                    |  |                               |      |  |  |   |      |  |  |   |      |  |  |   |       | 
|Payments (Millions) |  | $                             | 27   |  |  | $ | 164  |  |  | $ | 68   |  |  | $ | 259   | 
|                    |  |                               |      |  |  |   |      |  |  |   |      |  |  |   |       | 

The Company has a purchase commitment that may trigger a liability under
certain events of default. The Company previously recognized a portion of this
commitment, which was funded by a third party, as a liability and related
aircraft purchase deposits on its balance sheet. Since the executory contract
for the purchase commitment is not an obligation of the Company until the
aircraft is delivered, this commitment is now disclosed as a purchase
commitment and not included in long-term debt or deposits for future flight
equipment. See Note 2 to the financial statements.

New Accounting Standards- Effective January 1, 2002, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. Under this

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Statement, the Companys goodwill will no
longer be amortized, but instead will be tested for
impairment on a minimum of an annual basis. The impact of discontinuing
amortization of existing goodwill has resulted in an increase of net income of
$0.1 million and $0.4 million for the three and nine months ended September 30,
2002, respectively. During the second quarter of 2002, the Company completed
the first step of its impairment test related to its $12.5 million of goodwill.
In the fourth quarter of 2002, the Company completed the second step of its
impairment test and determined that all of the Companys goodwill was impaired.
As a result, the Company recorded a one-time, non-cash charge, effective
January 1, 2002, of $12.5 million to write off all of its goodwill. This
charge is reflected as a cumulative effect of accounting change in the
Statement of Operations for the nine months ended September 30, 2002.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations, which requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can
be made. The Statement also requires that the associated asset retirement costs
be capitalized as part of the carrying amount of the long-lived asset. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The adoption of this Statement is not expected
to have a material impact on the Companys financial position, results of
operations or cash flows.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of and APB Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
Adoption of this Statement, in the fiscal year beginning January 1, 2002, did
not have a material impact on the Companys financial position, results of
operations, or cash flows.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS No. 145). This Statement requires that only certain debt
extinguishment transactions be classified as extraordinary items.
Additionally, under this Statement, capital leases that are modified so that
the resulting agreement is an operating lease, shall accounted for under the
sale-leaseback provisions of SFAS No. 98. SFAS No. 145 also includes minor
modifications to existing GAAP literature. SFAS No. 145 is generally effective
for financial statements issued for fiscal years beginning after May 15, 2002.
The adoption of this Statement is not expected to have a material impact on the
Companys financial position, results of operations or cash flows.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies EITF Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The Statement requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. The Statement is effective for the
Company for transactions on or after January 1, 2003 and is not expected to
have a material impact on the Companys financial position, results of
operations or cash flows.

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ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

The Company utilizes financial derivative instruments as hedges to
decrease its exposure to jet fuel price increases. The Company accounts for
its fuel hedge derivative instruments as cash flow hedges as defined by SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended (SFAS No. 133). At September 30, 2002, the Company had hedge
agreements in place to hedge approximately 40% of its 2002 and 35% of its 2003
expected jet fuel requirements. Under SFAS No. 133, all changes in fair value
that are considered to be effective are recorded in accumulated other
comprehensive income (loss) until the underlying jet fuel is consumed. The
fair value of the Companys hedge instruments at September 30, 2002 was a net
asset of approximately $14.5 million, which is recorded in prepaid expenses and
other assets in the balance sheet as of September 30, 2002.

During the three and nine months ended September 30, 2002, the Company
recognized approximately $4.6 million and $5.4 million in realized hedging
gains which are reflected in aircraft fuel in the statements of operations.
During the three and nine months ended September 30, 2002, the Company recorded
expense of $1.6 million and income of $5.2 million, respectively, related to
the ineffectiveness of the Companys hedges. These amounts are recorded as
nonoperating income (expense) in other-net in the statements of operations.

As of September 30, 2002, the Company had unrealized gains, net of tax of
$8.9 million. These amounts are reflected in accumulated other comprehensive
income (loss) in the balance sheet as of September 30, 2002.




ITEM 4. Controls and Procedures

In the 90-day period before the filing of this report, the chief executive
officer and chief financial officer of the Company (collectively, the
certifying officers) have evaluated the effectiveness of the Companys
disclosure controls and procedures. These disclosure controls and procedures
are designed to ensure that the information required to be disclosed by the
Company in its periodic reports filed with the Securities and Exchange
Commission (the Commission) is recorded, processed, summarized and reported,
within the time periods specified by the Commissions rules and forms, and that
the information is communicated to the certifying officers on a timely basis.

The certifying officers concluded, based on their evaluation, that the
Companys disclosure controls and procedures are effective for the Company,
taking into consideration the size and nature of the Companys business and
operations.

No significant changes in the Companys internal controls or in other
factors were detected that could significantly affect the Companys internal
controls subsequent to the date when the internal controls were evaluated.




PART II. OTHER INFORMATION




ITEM 1. Legal Proceedings

Flight 261 Litigation

Alaska is a defendant in a number of lawsuits relating to the loss of
Flight 261 on January 31, 2000. Representatives of all 88 passengers and crew
on board have filed cases against Alaska, the

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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. Alaska has settled a number of these cases and
continues in its efforts to settle the remaining ones. Consistent with industry
standards, the Company maintains insurance against aircraft accidents.

Management believes the ultimate disposition of this matter 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 a party to other ordinary routine litigation
incidental to its business and with respect to which no material liability is
expected.




ITEM 5. Other Information

Employees

Alaska has two major labor contracts becoming amendable in 2002.
Negotiations are continuing with the International Association of Machinists
and Aerospace Workers regarding the Clerical, Office and Passenger Service
(COPS) employee group. The COPS contract became amendable on October 29, 2002.
During the third quarter of 2002, negotiations started with the Aircraft
Mechanics Fraternal Association (AMFA) regarding the mechanics, inspectors and
cleaners employee group. The AMFA contract is amendable December 25, 2002.

Alaska has a labor contract with the Transit Workers Union (TWU), which
covers 29 dispatchers. The contract was amendable on August 9, 2002. During
the third quarter 2002, the Company and TWU agreed to a five-year contract term
on all issues except hourly wage rate and certain wage-related issues. By
agreement of both parties, those issues were submitted to interest arbitration
to determine wages for a three-year period. The Company hopes to have
resolution to these issues in the fourth quarter of 2002.




ITEM 6. Exhibits and Reports on Form 8-K

Exhibits

Exhibit 99.1-
Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
     Exhibit 99.2- Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

Reports on Form 8-K

None

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##### Table of Contents






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.

|                                                                                                     
|-----------------------------------------------------------------------------------------------------
|ALASKA AIRLINES, INC.

Registrant                                                                    
|                                                                                                     
|
|Date: March 28, 2003                                                                                 
|                                                                                                     
|
|/s/ Terri K. Maupin

Terri K. Maupin
Staff Vice President/Finance and Controller                     
|                                                                                                     
|
|/s/ Bradley D. Tilden

Bradley D. Tilden
Executive Vice President/Finance and Chief Financial Officer

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##### Table of Contents






CERTIFICATIONS

I, William S. Ayer, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q/A of Alaska
Airlines, Inc. for the period ending September 30, 2002;                                                                                                                                                                                                                                                                  
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;                                                           
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;                                                                              
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                                                                                                
|  
|   |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;                                                                                       
|  
|   |  | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                                                                                                         
|  
|   |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                                                                                                               
|  
|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):                                                                                                                                           
|  
|   |  | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and                                                                                        
|  
|   |  | b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                                                                                                                
|  
|6. |  | The registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.

|               |  |                                                               
|-------------- |  | --------------------------------------------------------------
|March 28, 2003 |  | By /s/ William S. Ayer
William S. Ayer
Chief Executive Officer

24



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##### Table of Contents



I, Bradley D. Tilden, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q/A of Alaska
Airlines, Inc. for the period ending September 30, 2002;                                                                                                                                                                                                                                                                  
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;                                                           
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;                                                                              
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                                                                                                
|  
|   |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;                                                                                       
|  
|   |  | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                                                                                                         
|  
|   |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                                                                                                               
|  
|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):                                                                                                                                           
|  
|   |  | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and                                                                                        
|  
|   |  | b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                                                                                                                
|  
|6. |  | The registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.

|               |  |                                                                  
|-------------- |  | -----------------------------------------------------------------
|March 28, 2003 |  | By /s/Bradley D. Tilden
Bradley D. Tilden
Chief Financial Officer

25