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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q/A

(Amendment No. 2)


|                                              |  |                                                                                         
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------
|(Mark One)                                   
|(X)                                           |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|For the quarterly period ended June 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                                                         |  | 92-0009235                          
|(State or other jurisdiction of
incorporation or organization) |  | (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 July
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 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





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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 six months ended June 30, 2002, have been restated.

This amendment to the Companys Quarterly Report on Form 10-Q/A for the three
and six months ended June 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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|                             |                                                                                               |  |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL STATEMENTS
|                             | 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                            
|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 STATEMENTS
ITEM 1. Financial Statements
BALANCE SHEETS (unaudited)
Alaska Airlines, Inc.

ASSETS

|                                               |  |              |         |          |  |   |         | 
|---------------------------------------------- |  | ------------ | ------- | -------- |  | - | ------- | 
|                                               |  | Restated     |         | Restated
|                                               |  | December 31, |         | June 30,
|(In Millions)                                  |  | 2001         |         | 2002    
|                                               |  |              |         |         
|Current Assets                                 |  |              |         |          |  |   |         | 
|Cash and cash equivalents                      |  | $            | 490.7   |          |  | $ | 270.3   | 
|Marketable securities                          |  |              | 169.8   |          |  |   | 434.9   | 
|Receivables from related companies             |  |              | 71.2    |          |  |   | 85.3    | 
|Receivables  net                              |  |              | 67.3    |          |  |   | 94.7    | 
|Inventories and supplies  net                 |  |              | 36.6    |          |  |   | 37.7    | 
|Prepaid expenses and other assets              |  |              | 85.2    |          |  |   | 87.5    | 
|                                               |  |              |         |          |  |   |         | 
|Total Current Assets                           |  |              | 920.8   |          |  |   | 1,010.4 | 
|                                               |  |              |         |          |  |   |         | 
|Property and Equipment                         |  |              |         |          |  |   |         | 
|Flight equipment                               |  |              | 1,888.7 |          |  |   | 1,888.7 | 
|Other property and equipment                   |  |              | 333.7   |          |  |   | 352.7   | 
|Deposits for future flight equipment           |  |              | 71.8    |          |  |   | 62.0    | 
|                                               |  |              |         |          |  |   |         | 
|                                               |  |              | 2,294.2 |          |  |   | 2,303.4 | 
|Less accumulated depreciation and amortization |  |              | 606.2   |          |  |   | 659.2   | 
|                                               |  |              |         |          |  |   |         | 
|Total Property and Equipment  Net             |  |              | 1,688.0 |          |  |   | 1,644.2 | 
|                                               |  |              |         |          |  |   |         | 
|Intangible Assets                              |  |              | 12.5    |          |  |   |        | 
|                                               |  |              |         |          |  |   |         | 
|Other Assets                                   |  |              | 134.7   |          |  |   | 147.3   | 
|                                               |  |              |         |          |  |   |         | 
|Total Assets                                   |  | $            | 2,756.0 |          |  | $ | 2,801.9 | 
|                                               |  |              |         |          |  |   |         | 

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, |       | June 30,
|(In Millions Except Share Amounts)                              |                                    | 2001 |              | 2002 
|                                                                |                                    |      |              |      
|Current Liabilities                                             |                                    |      |              |       |          |   |         |      
|Accounts payable                                                |                                    | $    | 98.8         |       |          | $ | 109.9   |      
|Payables to related companies                                   |                                    |      | 4.4          |       |          |   | 4.1     |      
|Accrued aircraft rent                                           |                                    |      | 71.9         |       |          |   | 60.9    |      
|Accrued wages, vacation and payroll taxes                       |                                    |      | 68.0         |       |          |   | 73.4    |      
|Other accrued liabilities                                       |                                    |      | 192.3        |       |          |   | 184.3   |      
|Air traffic liability                                           |                                    |      | 216.4        |       |          |   | 283.7   |      
|Current portion of long-term debt and
capital lease obligations |                                    |      | 43.2         |       |          |   | 45.7    |      
|                                                                |                                    |      |              |       |          |   |         |      
|Total Current Liabilities                                       |                                    |      | 695.0        |       |          |   | 762.0   |      
|                                                                |                                    |      |              |       |          |   |         |      
|Long-Term Debt and Capital Lease Obligations                    |                                    |      | 852.2        |       |          |   | 852.1   |      
|                                                                |                                    |      |              |       |          |   |         |      
|Other Liabilities and Credits                                   |                                    |      |              |       |          |   |         |      
|Deferred income taxes                                           |                                    |      | 182.3        |       |          |   | 175.3   |      
|Deferred revenue                                                |                                    |      | 193.5        |       |          |   | 207.7   |      
|Other liabilities                                               |                                    |      | 114.0        |       |          |   | 119.2   |      
|                                                                |                                    |      |              |       |          |   |         |      
|                                                                |                                    |      | 489.8        |       |          |   | 502.2   |      
|                                                                |                                    |      |              |       |          |   |         |      
|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         | )     |          |   | 4.6     |      
|Retained earnings                                               |                                    |      | 396.4        |       |          |   | 356.2   |      
|                                                                |                                    |      |              |       |          |   |         |      
|                                                                |                                    |      | 719.0        |       |          |   | 685.6   |      
|                                                                |                                    |      |              |       |          |   |         |      
|Total Liabilities and Shareholders Equity                      |                                    | $    | 2,756.0      |       |          | $ | 2,801.9 |      
|                                                                |                                    |      |              |       |          |   |         |      

See accompanying notes to financial statements.

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STATEMENTS OF OPERATIONS (unaudited)
Alaska Airlines, Inc.

|                                |  |          |       |          |  |   |       |  
|------------------------------- |  | -------- | ----- | -------- |  | - | ----- | -
|Three Months Ended June 30      |  | Restated |       | Restated
|(In Millions)                   |  | 2001     |       | 2002    
|                                |  |          |       |         
|Operating Revenues              |  |          |       |          |  |   |       |  
|Passenger                       |  | $        | 434.1 |          |  | $ | 433.6 |  
|Freight and mail                |  |          | 21.4  |          |  |   | 20.0  |  
|Other  net                     |  |          | 19.2  |          |  |   | 25.1  |  
|                                |  |          |       |          |  |   |       |  
|Total Operating Revenues        |  |          | 474.7 |          |  |   | 478.7 |  
|                                |  |          |       |          |  |   |       |  
|Operating Expenses              |  |          |       |          |  |   |       |  
|Wages and benefits              |  |          | 157.5 |          |  |   | 174.5 |  
|Contracted services             |  |          | 19.2  |          |  |   | 19.4  |  
|Aircraft fuel                   |  |          | 74.1  |          |  |   | 64.2  |  
|Aircraft maintenance            |  |          | 32.6  |          |  |   | 36.1  |  
|Aircraft rent                   |  |          | 35.0  |          |  |   | 31.8  |  
|Food and beverage service       |  |          | 14.7  |          |  |   | 16.2  |  
|Commissions                     |  |          | 18.2  |          |  |   | 14.2  |  
|Other selling expenses          |  |          | 26.6  |          |  |   | 27.8  |  
|Depreciation and amortization   |  |          | 25.2  |          |  |   | 28.5  |  
|Loss on sale of assets          |  |          | 0.3   |          |  |   | 0.2   |  
|Landing fees and other rentals  |  |          | 23.4  |          |  |   | 28.5  |  
|Other                           |  |          | 37.7  |          |  |   | 37.5  |  
|                                |  |          |       |          |  |   |       |  
|Total Operating Expenses        |  |          | 464.5 |          |  |   | 478.9 |  
|                                |  |          |       |          |  |   |       |  
|Operating Income (Loss)         |  |          | 10.2  |          |  |   | (0.2  | )
|                                |  |          |       |          |  |   |       |  
|Nonoperating Income (Expense)   |  |          |       |          |  |   |       |  
|Interest income                 |  |          | 6.0   |          |  |   | 6.1   |  
|Interest expense                |  |          | (10.6 | )        |  |   | (11.6 | )
|Interest capitalized            |  |          | 1.9   |          |  |   | 0.4   |  
|U.S. government compensation    |  |          |      |          |  |   | 0.1   |  
|Other  net                     |  |          | 0.6   |          |  |   | 5.1   |  
|                                |  |          |       |          |  |   |       |  
|                                |  |          | (2.1  | )        |  |   | 0.1   |  
|                                |  |          |       |          |  |   |       |  
|Income (loss) before income tax |  |          | 8.1   |          |  |   | (0.1  | )
|Income tax expense              |  |          | 3.5   |          |  |   | 0.7   |  
|                                |  |          |       |          |  |   |       |  
|Net Income (Loss)               |  | $        | 4.6   |          |  | $ | (0.8  | )
|                                |  |          |       |          |  |   |       |  

See accompanying notes to financial statements.

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STATEMENTS OF OPERATIONS (unaudited)
Alaska Airlines, Inc.

|                                                   |  |          |       |          |  |   |       |  
|-------------------------------------------------- |  | -------- | ----- | -------- |  | - | ----- | -
|Six Months Ended June 30                           |  | Restated |       | Restated
|(In Millions)                                      |  | 2001     |       | 2002    
|                                                   |  |          |       |         
|Operating Revenues                                 |  |          |       |          |  |   |       |  
|Passenger                                          |  | $        | 816.9 |          |  | $ | 807.6 |  
|Freight and mail                                   |  |          | 39.7  |          |  |   | 35.9  |  
|Other  net                                        |  |          | 36.7  |          |  |   | 47.4  |  
|                                                   |  |          |       |          |  |   |       |  
|Total Operating Revenues                           |  |          | 893.3 |          |  |   | 890.9 |  
|                                                   |  |          |       |          |  |   |       |  
|Operating Expenses                                 |  |          |       |          |  |   |       |  
|Wages and benefits                                 |  |          | 312.2 |          |  |   | 340.2 |  
|Contracted services                                |  |          | 38.0  |          |  |   | 41.2  |  
|Aircraft fuel                                      |  |          | 148.1 |          |  |   | 119.4 |  
|Aircraft maintenance                               |  |          | 67.1  |          |  |   | 71.7  |  
|Aircraft rent                                      |  |          | 70.3  |          |  |   | 63.6  |  
|Food and beverage service                          |  |          | 27.9  |          |  |   | 30.1  |  
|Commissions                                        |  |          | 34.1  |          |  |   | 28.4  |  
|Other selling expenses                             |  |          | 52.6  |          |  |   | 52.7  |  
|Depreciation and amortization                      |  |          | 48.8  |          |  |   | 56.7  |  
|Loss on sale of assets                             |  |          | 1.2   |          |  |   | 0.2   |  
|Landing fees and other rentals                     |  |          | 44.8  |          |  |   | 52.1  |  
|Other                                              |  |          | 75.7  |          |  |   | 73.8  |  
|                                                   |  |          |       |          |  |   |       |  
|Total Operating Expenses                           |  |          | 920.8 |          |  |   | 930.1 |  
|                                                   |  |          |       |          |  |   |       |  
|Operating Loss                                     |  |          | (27.5 | )        |  |   | (39.2 | )
|                                                   |  |          |       |          |  |   |       |  
|Nonoperating Income (Expense)                      |  |          |       |          |  |   |       |  
|Interest income                                    |  |          | 14.5  |          |  |   | 11.1  |  
|Interest expense                                   |  |          | (22.7 | )        |  |   | (23.5 | )
|Interest capitalized                               |  |          | 5.0   |          |  |   | 0.5   |  
|U.S. government compensation                       |  |          | 0.0   |          |  |   | 0.1   |  
|Other  net                                        |  |          | 0.1   |          |  |   | 9.2   |  
|                                                   |  |          |       |          |  |   |       |  
|                                                   |  |          | (3.1  | )        |  |   | (2.6  | )
|                                                   |  |          |       |          |  |   |       |  
|Loss before income tax and accounting change       |  |          | (30.6 | )        |  |   | (41.8 | )
|Income tax benefit                                 |  |          | (10.5 | )        |  |   | (14.1 | )
|                                                   |  |          |       |          |  |   |       |  
|Loss before cumulative effect of accounting change |  |          | (20.1 | )        |  |   | (27.7 | )
|Cumulative effect of accounting change             |  |          |      |          |  |   | (12.5 | )
|                                                   |  |          |       |          |  |   |       |  
|Net Loss                                           |  | $        | (20.1 | )        |  | $ | (40.2 | )
|                                                   |  |          |       |          |  |   |       |  

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 six months
ended June 30, 2002 |                              |       |        |           |           |               |               |          |          |       |             |      |   |   | (40.2 | ) |  |   | (40.2 | )
|Other comprehensive income (loss):              |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|Related to marketable securities:               |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|                                                | Change in fair value         |       |        |           |           |               |               |          |          |       |             | (1.0 | ) |   |       |   |  |   |       |   | 
|                                                | Reclassification to earnings |       |        |           |           |               |               |          |          |       |             | 0.7  |   |   |       |   |  |   |       |   | 
|                                                | Income tax effect            |       |        |           |           |               |               |          |          |       |             | 0.1  |   |   |       |   |  |   |       |   | 
|                                                |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|                                                |                              |       |        |           |           |               |               |          |          |       | (0.2        | )    |   |   |       |   |  |   | (0.2  | )
|                                                |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|Related to fuel hedges:                         |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|                                                | Change in fair value         |       |        |           |           |               |               |          |          |       |             | 17.9 |   |   |       |   |  |   |       |   | 
|                                                | Reclassification to earnings |       |        |           |           |               |               |          |          |       |             | (6.8 | ) |   |       |   |  |   |       |   | 
|                                                | Income tax effect            |       |        |           |           |               |               |          |          |       |             | (4.1 | ) |   |       |   |  |   |       |   | 
|                                                |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|                                                |                              |       |        |           |           |               |               |          |          |       | 7.0         |      |   |   |       |   |  |   | 7.0   |  
|                                                |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|Total comprehensive loss                        |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   | (33.4 | )
|                                                |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  
|Balances at June 30, 2002                       |                              | $     |       |           |           | $             | 324.8         |          |          | $     | 4.6         |      |   | $ | 356.2 |   |  | $ | 685.6 |  
|                                                |                              |       |        |           |           |               |               |          |          |       |             |      |   |   |       |   |  |   |       |  

See accompanying notes to financial statements.

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

|                                                                                |                                      |                                                       |        |          |       |          |        |       |       |  
|------------------------------------------------------------------------------- | ------------------------------------ | ----------------------------------------------------- | ------ | -------- | ----- | -------- | ------ | ----- | ----- | -
|                                                                                |                                      |                                                       |        | Restated |       | Restated
|Six Months Ended June 30 (In Millions)                                          |                                      | 2001                                                  |        | 2002    
|                                                                                |                                      |                                                       |        |         
|Cash flows from operating activities:                                           |                                      |                                                       |        |          |       |          |        |      
|Net loss                                                                        |                                      | $                                                     | (20.1  | )        |       | $        | (40.2  | )    
|Adjustments to reconcile net loss to
net cash provided by operating activities: |                                      |                                                       |        |          |       |          |        |      
|                                                                                |                                      | Cumulative effect of accounting change                |        |          |      |          |        |       | 12.5  |  
|                                                                                |                                      | Depreciation and amortization                         |        |          | 48.8  |          |        |       | 56.7  |  
|                                                                                |                                      | Amortization of airframe and engine overhauls         |        |          | 27.1  |          |        |       | 29.6  |  
|                                                                                |                                      | Changes in derivatives                                |        |          | 2.4   |          |        |       | (6.8  | )
|                                                                                |                                      | Loss on disposition of assets                         |        |          | 1.2   |          |        |       | 0.2   |  
|                                                                                |                                      | Increase (decrease) in deferred income taxes          |        |          | 4.0   |          |        |       | (11.0 | )
|                                                                                |                                      | Increase in accounts receivable  net                 |        |          | (45.0 | )        |        |       | (41.5 | )
|                                                                                |                                      | Decrease in other current assets                      |        |          | 8.5   |          |        |       | 2.8   |  
|                                                                                |                                      | Increase in air traffic liability                     |        |          | 87.6  |          |        |       | 67.3  |  
|                                                                                |                                      | Increase in other current liabilities                 |        |          | 10.2  |          |        |       | 0.9   |  
|                                                                                |                                      | Increase (decrease) in deferred revenue and other-net |        |          | (9.3  | )        |        |       | 16.9  |  
|                                                                                |                                      |                                                       |        |          |       |          |        |      
|Net cash provided by operating activities                                       |                                      |                                                       | 115.4  |          |       |          | 87.4   |      
|                                                                                |                                      |                                                       |        |          |       |          |        |      
|Cash flows from investing activities:                                           |                                      |                                                       |        |          |       |          |        |      
|Proceeds from disposition of assets                                             |                                      |                                                       | 0.1    |          |       |          | 1.0    |      
|Purchases of marketable securities                                              |                                      |                                                       | (243.8 | )        |       |          | (358.5 | )    
|Sales and maturities of marketable securities                                   |                                      |                                                       | 265.0  |          |       |          | 93.0   |      
|Property and equipment additions:                                               |                                      |                                                       |        |          |       |          |        |      
|                                                                                | Aircraft purchase deposits           |                                                       |        | (18.3    | )     |          |        | (12.6 | )    
|                                                                                | Capitalized overhauls                |                                                       |        | (27.2    | )     |          |        | (29.7 | )    
|                                                                                | Aircraft                             |                                                       |        | (216.9   | )     |          |        | (1.0  | )    
|                                                                                | Other flight equipment               |                                                       |        | (25.8    | )     |          |        | (4.2  | )    
|                                                                                | Other property                       |                                                       |        | (17.3    | )     |          |        | (18.2 | )    
|Aircraft deposits returned                                                      |                                      |                                                       | 15.1   |          |       |          | 22.4   |      
|Restricted deposits and other                                                   |                                      |                                                       | (0.6   | )        |       |          | (6.7   | )    
|                                                                                |                                      |                                                       |        |          |       |          |        |      
|Net cash used in investing activities                                           |                                      |                                                       | (269.7 | )        |       |          | (314.5 | )    
|                                                                                |                                      |                                                       |        |          |       |          |        |      
|Cash flows from financing activities:                                           |                                      |                                                       |        |          |       |          |        |      
|Proceeds from issuance of long-term debt                                        |                                      |                                                       | 136.5  |          |       |          | 25.5   |      
|Long-term debt and capital lease payments                                       |                                      |                                                       | (47.7  | )        |       |          | (18.8  | )    
|                                                                                |                                      |                                                       |        |          |       |          |        |      
|Net cash provided by financing activities                                       |                                      |                                                       | 88.8   |          |       |          | 6.7    |      
|                                                                                |                                      |                                                       |        |          |       |          |        |      
|Net change in cash and cash equivalents                                         |                                      |                                                       | (65.5  | )        |       |          | (220.4 | )    
|Cash and cash equivalents at beginning of period                                |                                      |                                                       | 101.2  |          |       |          | 490.7  |      
|                                                                                |                                      |                                                       |        |          |       |          |        |      
|Cash and cash equivalents at end of period                                      |                                      | $                                                     | 35.7   |          |       | $        | 270.3  |      
|                                                                                |                                      |                                                       |        |          |       |          |        |      
|Supplemental disclosure of cash paid (refunded) during the period for:          |                                      |                                                       |        |          |       |          |        |      
|                                                                                | Interest (net of amount capitalized) |                                                       | $      | 27.5     |       |          | $      | 23.6  |      
|                                                                                | Income taxes                         |                                                       |        | (0.1     | )     |          |        | (15.8 | )    
|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. (the Company or Alaska), 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 June 30, 2002, as well as the results of its operations for the three and
six months ended June 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. 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. Certain reclassifications have been made
in the prior years restated financial statements to conform to the 2002
presentation.

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 six months ended June 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 $0.3 million for the six months ended June 30, 2002.
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 its goodwill. This charge is reflected as a
cumulative effect of an accounting change in the Statement of Operations for
the six months ended June 30, 2002.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, Accounting for Asset Retirement Obligations (effective for the Company
on January 1, 2003). This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The Company expects that
adoption of SFAS No. 143 will not have a material impact on the Companys
financial statements.

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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 statements.

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. Provisions of the Statement are effective for the Company
commencing in May 2002 through January 2003.

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.

We do not expect a significant impact on our financial position, results of
operations, or cash flows from adoption of SFAS No. 145 or 146.

Note 2. Restatement of Quarterly Financial Statements

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 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 the three and six months ended June 30, 2002, have been
restated. Significant changes are more fully described below.

Leased Aircraft Return Costs

The 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 minimum times remain until the next overhaul or the Company make
a cash payment to the lessor.

9



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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 Software

The Company revised its accounting practices for certain costs of internally
developed software. These costs were previously charged to expense as they
were incurred. Internally developed software costs are now capitalized and
amortized over the estimated lives of the software.

Aircraft Purchase Commitments

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 that 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 June
30, 2002, the Company previously restated its financial statements for the
three and six months ended June 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 shown as
previously reported for June 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 months and six months ended June 30, 2001 are as follows:

|                              |  |                    |       |                  |  |          |       |               |  |   |       |   |  |   |       |  
|----------------------------- |  | ------------------ | ----- | ---------------- |  | -------- | ----- | ------------- |  | - | ----- | - |  | - | ----- | -
|                              |  | Three Months Ended |       | Six Months Ended
|                              |  | June 30, 2001      |       | June 30, 2001   
|                              |  |                    |       |                 
|                              |  | As Previously      |       |                  |  |          |       | As Previously |  |   |       |  
|                              |  | Reported           |       | Restated         |  | Reported |       | Restated     
|                              |  |                    |       |                  |  |          |       |              
|                              |  | (in millions)     
|Total Operating Revenues      |  | $                  | 471.3 |                  |  | $        | 474.7 |               |  | $ | 889.4 |   |  | $ | 893.3 |  
|Total Operating Expenses      |  | $                  | 460.2 |                  |  | $        | 464.5 |               |  | $ | 910.8 |   |  | $ | 920.8 |  
|Total Operating Income (Loss) |  | $                  | 11.1  |                  |  | $        | 10.2  |               |  | $ | (21.4 | ) |  | $ | (27.5 | )
|Net Income (Loss)             |  | $                  | 4.8   |                  |  | $        | 4.6   |               |  | $ | (16.8 | ) |  | $ | (20.1 | )

10



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The effects of the restatement for the three months and six months ended June 30, 2002 are as follows:

|                                  |  |                    |       |                  |  |          |       |               |  |   |       |   |  |   |       |  
|--------------------------------- |  | ------------------ | ----- | ---------------- |  | -------- | ----- | ------------- |  | - | ----- | - |  | - | ----- | -
|                                  |  | Three Months Ended |       | Six Months Ended
|                                  |  | June 30, 2002      |       | June 30, 2002   
|                                  |  |                    |       |                 
|                                  |  | As Previously      |       |                  |  |          |       | As Previously |  |   |       |  
|                                  |  | Reported           |       | Restated         |  | Reported |       | Restated     
|                                  |  |                    |       |                  |  |          |       |              
|                                  |  | (in millions)     
|Total Operating Revenues          |  | $                  | 476.9 |                  |  | $        | 478.7 |               |  | $ | 885.8 |   |  | $ | 890.9 |  
|Total Operating Expenses          |  | $                  | 479.1 |                  |  | $        | 478.9 |               |  | $ | 928.4 |   |  | $ | 930.1 |  
|Total Operating Loss              |  | $                  | (2.2  | )                |  | $        | (0.2  | )             |  | $ | (42.6 | ) |  | $ | (39.2 | )
|Net Loss before Accounting Change |  | $                  | (2.5  | )                |  | $        | (0.8  | )             |  | $ | (29.8 | ) |  | $ | (27.7 | )
|Net Loss                          |  | $                  | (2.5  | )                |  | $        | (0.8  | )             |  | $ | (29.8 | ) |  | $ | (40.2 | )

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

|                           |  |                   |         |               |  |          |         |               |  |   |         |  |  |   |         | 
|-------------------------- |  | ----------------- | ------- | ------------- |  | -------- | ------- | ------------- |  | - | ------- |  |  | - | ------- | 
|                           |  | December 31, 2001 |         | June 30, 2002
|                           |  |                   |         |              
|                           |  | As Previously     |         |               |  |          |         | As Previously |  |   |         | 
|                           |  | Reported          |         | Restated      |  | Reported |         | Restated     
|                           |  |                   |         |               |  |          |         |              
|                           |  | (in millions)    
|Current Assets             |  | $                 | 904.7   |               |  | $        | 920.8   |               |  | $ | 1,013.8 |  |  | $ | 1,010.4 | 
|Property and Equipment-Net |  | $                 | 1,692.8 |               |  | $        | 1,688.0 |               |  | $ | 1,637.4 |  |  | $ | 1,644.2 | 
|Current Liabilities        |  | $                 | 700.2   |               |  | $        | 695.0   |               |  | $ | 763.6   |  |  | $ | 762.0   | 
|Long-Term Debt             |  | $                 | 863.3   |               |  | $        | 852.2   |               |  | $ | 852.1   |  |  | $ | 852.1   | 
|Shareholders Equity       |  | $                 | 690.4   |               |  | $        | 719.0   |               |  | $ | 695.7   |  |  | $ | 685.6*  | 



---

|* |  | 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.

|                               |  |                            |       |                        |  |   |       | 
|------------------------------ |  | -------------------------- | ----- | ---------------------- |  | - | ----- | 
|                               |  | Restated December 31, 2001 |       | Restated June 30, 2002
|                               |  |                            |       |                       
|                               |  | (In millions)             
|Current Liabilities:           |  |                            |       |                        |  |   |       | 
|Other accrued liabilities      |  | $                          | 65.7  |                        |  | $ | 76.8  | 
|Other Liabilities and Credits: |  |                            |       |                        |  |   |       | 
|Deferred revenue               |  |                            | 150.7 |                        |  |   | 166.5 | 
|Other liabilities              |  |                            | 31.9  |                        |  |   | 32.6  | 
|                               |  |                            |       |                        |  |   |       | 
|Total                          |  | $                          | 248.3 |                        |  | $ | 275.9 | 
|                               |  |                            |       |                        |  |   |       | 

Note 4. Other Assets

At December 31, 2001 and June 30, 2002, other assets included prepaid pension
cost of $98.4 million and $101.4 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

11



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##### Table of Contents



to the Department of
Transportation (DOT) based on its losses. During the third quarter of 2002,
the DOT completed its review procedures and remitted a final compensation
payment to Alaska of $0.2 million.

12



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##### Table of Contents



Alaska Airlines Financial and Statistical Data

|                                                      |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|----------------------------------------------------- |  | -------------------------- | ------ | ------------------------ |  | ------ | ------ | -------- |  | -------- | ----- | ------ | ----- | - | ------ | - | ----- | - | ------ | -------- | ---- | - | ----- | -
|                                                      |  | Three Months Ended June 30 |        | Six Months Ended June 30
|                                                      |  |                            |        |                         
|                                                      |  | Restated                   |        | Restated                 |  | %      |        | Restated |  | Restated |       | %     
|                                                      |  | 2001                       |        | 2002                     |  | Change |        | 2001     |  | 2002     |       | Change
|Financial Data (in millions):                         |  |                            |        |                          |  |        |        |          |  |          |       |       
|Operating Revenues:                                   |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|Passenger                                             |  | $                          | 434.1  |                          |  | $      | 433.6  |          |  |          | -0.1  | %      |       | $ | 816.9  |   |       | $ | 807.6  |          |      |   | -1.1  | %
|Freight and mail                                      |  |                            | 21.4   |                          |  |        | 20.0   |          |  |          | -6.5  | %      |       |   | 39.7   |   |       |   | 35.9   |          |      |   | -9.6  | %
|Other  net                                           |  |                            | 19.2   |                          |  |        | 25.1   |          |  |          | 30.7  | %      |       |   | 36.7   |   |       |   | 47.4   |          |      |   | 29.2  | %
|                                                      |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|Total Operating Revenues                              |  |                            | 474.7  |                          |  |        | 478.7  |          |  |          | 0.8   | %      |       |   | 893.3  |   |       |   | 890.9  |          |      |   | -0.3  | %
|                                                      |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|Operating Expenses:                                   |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|Wages and benefits                                    |  |                            | 157.5  |                          |  |        | 174.5  |          |  |          | 10.8  | %      |       |   | 312.2  |   |       |   | 340.2  |          |      |   | 9.0   | %
|Contracted services                                   |  |                            | 19.2   |                          |  |        | 19.4   |          |  |          | 1.0   | %      |       |   | 38.0   |   |       |   | 41.2   |          |      |   | 8.4   | %
|Aircraft fuel                                         |  |                            | 74.1   |                          |  |        | 64.2   |          |  |          | -13.4 | %      |       |   | 148.1  |   |       |   | 119.4  |          |      |   | -19.4 | %
|Aircraft maintenance                                  |  |                            | 32.6   |                          |  |        | 36.1   |          |  |          | 10.7  | %      |       |   | 67.1   |   |       |   | 71.7   |          |      |   | 6.9   | %
|Aircraft rent                                         |  |                            | 35.0   |                          |  |        | 31.8   |          |  |          | -9.1  | %      |       |   | 70.3   |   |       |   | 63.6   |          |      |   | -9.5  | %
|Food and beverage service                             |  |                            | 14.7   |                          |  |        | 16.2   |          |  |          | 10.2  | %      |       |   | 27.9   |   |       |   | 30.1   |          |      |   | 7.9   | %
|Commissions                                           |  |                            | 18.2   |                          |  |        | 14.2   |          |  |          | -22.0 | %      |       |   | 34.1   |   |       |   | 28.4   |          |      |   | -16.7 | %
|Other selling expenses                                |  |                            | 26.6   |                          |  |        | 27.8   |          |  |          | 4.5   | %      |       |   | 52.6   |   |       |   | 52.7   |          |      |   | 0.2   | %
|Depreciation and amortization                         |  |                            | 25.2   |                          |  |        | 28.5   |          |  |          | 13.1  | %      |       |   | 48.8   |   |       |   | 56.7   |          |      |   | 16.2  | %
|Loss on sale of assets                                |  |                            | 0.3    |                          |  |        | 0.2    |          |  | NM       |       |        | 1.2   |   |        |   | 0.2   |   |        | NM      
|Landing fees and other rentals                        |  |                            | 23.4   |                          |  |        | 28.5   |          |  |          | 21.8  | %      |       |   | 44.8   |   |       |   | 52.1   |          |      |   | 16.3  | %
|Other                                                 |  |                            | 37.7   |                          |  |        | 37.5   |          |  |          | -0.5  | %      |       |   | 75.7   |   |       |   | 73.8   |          |      |   | -2.5  | %
|                                                      |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|Total Operating Expenses                              |  |                            | 464.5  |                          |  |        | 478.9  |          |  |          | 3.1   | %      |       |   | 920.8  |   |       |   | 930.1  |          |      |   | 1.0   | %
|                                                      |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|Operating Income (Loss)                               |  |                            | 10.2   |                          |  |        | (0.2   | )        |  | NM       |       |        | (27.5 | ) |        |   | (39.2 | ) |        |          | 42.5 | %
|                                                      |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|Interest income                                       |  |                            | 6.0    |                          |  |        | 6.1    |          |  |          |       |        |       |   | 14.5   |   |       |   | 11.1   |          |      |   |       |  
|Interest expense                                      |  |                            | (10.6  | )                        |  |        | (11.6  | )        |  |          |       |        |       |   | (22.7  | ) |       |   | (23.5  | )        |      |   |       |  
|Interest capitalized                                  |  |                            | 1.9    |                          |  |        | 0.4    |          |  |          |       |        |       |   | 5.0    |   |       |   | 0.5    |          |      |   |       |  
|U.S. government compensation                          |  |                            | 0.0    |                          |  |        | 0.1    |          |  |          |       |        |       |   | 0.0    |   |       |   | 0.1    |          |      |   |       |  
|Other  net                                           |  |                            | 0.6    |                          |  |        | 5.1    |          |  |          |       |        |       |   | 0.1    |   |       |   | 9.2    |          |      |   |       |  
|                                                      |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|                                                      |  |                            | (2.1   | )                        |  |        | 0.1    |          |  |          |       |        |       |   | (3.1   | ) |       |   | (2.6   | )        |      |   |       |  
|                                                      |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|Income (Loss) Before Income Tax and Accounting Change |  | $                          | 8.1    |                          |  | $      | (0.1   | )        |  | NM       |       | $      | (30.6 | ) |        | $ | (41.8 | ) |        |          | 36.6 | %
|                                                      |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|Operating Statistics:                                 |  |                            |        |                          |  |        |        |          |  |          |       |        |       |   |        |   |       |   |        |          |      |   |       |  
|Revenue passengers (000)                              |  |                            | 3,698  |                          |  |        | 3,616  |          |  |          | -2.2  | %      |       |   | 6,896  |   |       |   | 6,809  |          |      |   | -1.3  | %
|RPMs (000,000)                                        |  |                            | 3,290  |                          |  |        | 3,372  |          |  |          | 2.5   | %      |       |   | 6,185  |   |       |   | 6,349  |          |      |   | 2.7   | %
|ASMs (000,000)                                        |  |                            | 4,683  |                          |  |        | 4,929  |          |  |          | 5.2   | %      |       |   | 9,111  |   |       |   | 9,396  |          |      |   | 3.1   | %
|Passenger load factor                                 |  |                            | 70.3   | %                        |  |        | 68.4   | %        |  | (1.9)pts |       |        | 67.9  | % |        |   | 67.6  | % |        | (0.3)pts
|Breakeven load factor                                 |  |                            | 69.8   | %                        |  |        | 69.5   | %        |  | (0.3)pts |       |        | 71.9  | % |        |   | 72.5  | % |        | 0.6  pts
|Yield per passenger mile                              |  |                            | 13.19  | ¢                        |  |        | 12.86  | ¢        |  |          | -2.5  | %      |       |   | 13.21  | ¢ |       |   | 12.72  | ¢        |      |   | -3.7  | %
|Operating revenue per ASM                             |  |                            | 10.14  | ¢                        |  |        | 9.71   | ¢        |  |          | -4.2  | %      |       |   | 9.80   | ¢ |       |   | 9.48   | ¢        |      |   | -3.3  | %
|Operating expenses per ASM                            |  |                            | 9.92   | ¢                        |  |        | 9.72   | ¢        |  |          | -2.0  | %      |       |   | 10.11  | ¢ |       |   | 9.90   | ¢        |      |   | -2.1  | %
|Expense per ASM excluding fuel                        |  |                            | 8.34   | ¢                        |  |        | 8.41   | ¢        |  |          | 0.9   | %      |       |   | 8.48   | ¢ |       |   | 8.63   | ¢        |      |   | 1.7   | %
|Fuel cost per gallon                                  |  |                            | 92.3   | ¢                        |  |        | 78.0   | ¢        |  |          | -15.5 | %      |       |   | 94.6   | ¢ |       |   | 75.9   | ¢        |      |   | -19.8 | %
|Fuel gallons (000,000)                                |  |                            | 80.3   |                          |  |        | 82.3   |          |  |          | 2.5   | %      |       |   | 156.5  |   |       |   | 157.3  |          |      |   | 0.5   | %
|Average number of employees                           |  |                            | 10,201 |                          |  |        | 10,222 |          |  |          | 0.2   | %      |       |   | 10,202 |   |       |   | 10,019 |          |      |   | -1.8  | %
|Aircraft utilization (blk hrs/day)                    |  |                            | 11.1   |                          |  |        | 10.8   |          |  |          | -2.5  | %      |       |   | 11.0   |   |       |   | 10.4   |          |      |   | -5.5  | %
|Operating fleet at period-end                         |  |                            | 100    |                          |  |        | 102    |          |  |          | 2.0   | %      |       |   | 100    |   |       |   | 102    |          |      |   | 2.0   | %



NM = Not Meaningful

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

13



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##### Table of Contents






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 six months ended June 30, 2002. The accompanying
managements discussion and analysis gives effect to the restatement.

Results of Operations

Second Quarter 2002 Compared with Second Quarter 2001

Our net loss for the second quarter of 2002 was $0.8 million compared with net
income of $4.6 million in 2001. Our operating loss for the second quarter of
2002 was $0.2 million compared with operating income of $10.2 million for 2001.
Financial and statistical data is shown on page 12. A discussion of this data
follows.

Revenues

Our capacity increased 5.2% due to our 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 Southern California and the Pacific Northwest to Northern
California. Traffic grew by 2.5%, and our passenger load factor decreased 1.9
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. Passenger yields were down 2.5%
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 4.2% decrease in revenue per
available seat mile (ASM). The higher traffic combined with the lower yield
resulted in a 0.1% decrease in passenger revenue.

Freight and mail revenues decreased 6.5% primarily due to lower freight volumes
attributable to increased security restrictions. Other-net revenues increased
30.7%, 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.

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##### Table of Contents



Expenses

Total operating expenses increased 3.1% compared to 2001, while our cost per
ASM decreased by 2.0%. Our cost per ASM excluding fuel increased by 0.9%.
Explanations of significant year-over-year changes in the components of
operating expenses are as follows:



| |  |  | Wages and benefits increased 10.8% due to a 10.6% increase in
average wages and benefits per employee combined with a 0.2% increase
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 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 13.4% due to a 15.5% decrease in the cost
per gallon of fuel combined with a 2.5% increase in gallons consumed.
The lower fuel prices saved $11.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |  | Maintenance expense increased 10.7%, largely due to increased
airframe overhaul expenses. A total of 10 C checks (annual airframe
inspections) were performed at outside contractors in 2002 compared to
three in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | Aircraft rent decreased 9.1%, due to lower lease rates on several
aircraft and reduced spare parts rental costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | Commission expense decreased 22.0%, much more than the 0.1%
decrease in passenger revenue, due to a commission cap we instituted
in November 2001 and the continuing shift to direct sales channels.
In 2002, 57.8% of Air Group ticket sales were made through travel
agents, versus 61.4% in 2001. In 2002, 20.4% of total ticket sales
were made through Alaskas Internet web site versus 15.9% in 2001. 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 had no material impact on commissions expense in the
second quarter of 2002, but is expected to reduce commission expense
by approximately $17 million for the remainder of 2002, as compared to
2001.
|
| |  |  | Depreciation and amortization increased 13.1%, primarily because
we owned an average of four more aircraft in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | Landing fees and other rentals increased 21.8%, primarily due to
higher rates. The higher rates are attributable to airport
construction projects and the effects of increased security and other
costs resulting from the events of September 11.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  |  | Other expense decreased 0.5% due to higher insurance costs,
offset by lower costs for legal, supplies, personnel and uninsured
losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Nonoperating Income (Expense)

Net nonoperating items were $0.1 million income in 2002 compared to $2.1
million expense in 2001. The $2.2 million change was primarily due to gains
due to the increase in value of fuel hedging

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##### Table of Contents



contracts in 2002, partially offset by higher interest expense resulting from
new debt incurred in the past year and lower levels of capitalization.

Six Months 2002 Compared with Six Months 2001

The loss before accounting change for the six months ended June 30, 2002 was
$27.7 million compared with a net loss of $20.1 million in 2001. The operating
loss widened by $11.7 million to $39.2 million in 2002.

Revenues

Capacity increased 3.1% for the first six 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 2.7% compared to 2001, and our passenger load
factor decreased 0.3 percentage points. The new Washington D.C., Boston and
Denver markets have experienced load factors which exceed the system average
for the year. Passenger yields decreased 3.7% compared to 2001, due to a
combination of fewer business passengers, a drop off in demand due to the
September 11, 2001 terrorist attacks, the slowing economy and fare sales
offered to stimulate demand. The lower yield combined with the lower load
factor resulted in a 3.3% decrease in revenue per ASM. The higher traffic
combined with the lower yield resulted in a 1.1% decrease in passenger revenue.

Freight and mail revenue decreased 9.6% due to lower freight volumes
attributable to increased security restrictions as a result of the September
11, 2001 terrorist attacks. Other-net revenues increased by 29.2% due
primarily to increased revenue related to the sale of miles in Alaskas
frequent flyer program.

Expenses

Explanations of significant year-over-year changes in the components of
operating expenses are as follows:



| |  |  | Wages and benefits increased 9.0% due to an 11.0% increase in
average wages and benefits per employee combined with a 1.8% 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 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 19.4% due to a 19.8% decrease in the cost
per gallon of fuel combined with a 0.5% increase in gallons consumed.
The lower fuel prices saved $29.5 million.                                                                                                                                                                                                                                                                                    
|
| |  |  | Commission expense decreased 16.7%, much more than the 1.1%
decrease in passenger revenue, due to a commission cap we instituted
in November 2001 and the continuing shift to direct sales channels.
In 2002, 58.2% of Air Group ticket sales were made through travel
agents, versus 61.5% in 2001. In 2002, 19.6% of total ticket sales
were made through Alaskas
Internet web site versus 15.4% in 2001. In June 2002, the Company
changed its travel agent      

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| |   |  | commissions program to eliminate base
commissions and move to a 100% incentive-based program. This change had
no material impact on commissions expense in the second quarter of 2002,
but is expected to reduce commission expense by approximately $17 million
for the remainder of 2002, as compared to 2001.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Depreciation and amortization increased 16.2%, primarily because
we owned an average of five more aircraft in 2002.                                                                                                                                                                                             
|
| |  |  | Landing fees and other rentals increased 16.3%, primarily due to
higher rates. The higher rates are attributable to airport
construction projects and the effects of increased security and other
costs resulting from the events of September 11.                                                              

Nonoperating Income (Expense)

Net nonoperating items were $2.6 million expense in the first six months of
2002 compared to $3.1 million expense in the same period of 2001. The $0.5
million net change was due to gains resulting from hedge ineffectiveness on
certain fuel hedging contracts in 2002, offset by lower interest income, higher
interest expense resulting from new debt incurred in the past year, and lower
levels of capitalization.

Income Tax Benefit

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
air fares 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 33.7% tax rate for the first half 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 income for the full year. We evaluate this rate each quarter and make
adjustments if necessary.

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            |        | June 30, 2002 Restated |  | Change
|                                                                                                  |  |                                       |        |                        |  |       
|                                                                                                  |  | (In millions, except debt-to-capital)
|Cash and marketable securities                                                                    |  | $                                     | 660.5  |                        |  | $      | 705.2  |   |  | $  | 44.7  |  
|Working capital                                                                                   |  |                                       | 225.8  |                        |  |        | 248.4  |   |  |    | 22.6  |  
|Long-term debt and
capital lease obligations                                                      |  |                                       | 852.2  |                        |  |        | 852.1  |   |  |    | 0.1   |  
|Shareholders equity                                                                              |  |                                       | 719.0  |                        |  |        | 685.6  |   |  |    | (33.4 | )
|Debt-to-capital                                                                                   |  |                                       | 54%:46 | %                      |  |        | 55%:45 | % |  | NA
|Debt-to-capital assuming aircraft
operating leases are capitalized
at seven times annualized rent |  |                                       | 71%:29 | %                      |  |        | 72%:28 | % |  | NA

The Companys cash and marketable securities portfolio increased $44.7 million
during the first six months of 2002. Operating activities provided $87.4
million of cash during this period. Additional cash was provided by the
issuance of $25.5 million of new debt. Cash was used for $43.3 million of
capital expenditures, including flight equipment deposits, the purchase of
spare parts and airframe and engine overhauls, and for $18.8 million of debt
repayment.

Shareholders equity decreased $33.4 million primarily due to the net loss of
$40.2 million.

CommitmentsAs of June 30, 2002, the Company had firm orders for 10 aircraft
requiring aggregate payments of approximately $301 million, as set forth below.
In addition, Alaska has options to acquire 24 more B737s. Alaska expects to
finance the new planes with either leases, long-term debt or internally
generated cash.

|                    |  |                               |    |      |  |      |     |       |  |   |    |  |  |   |     | 
|------------------- |  | ----------------------------- | -- | ---- |  | ---- | --- | ----- |  | - | -- |  |  | - | --- | 
|                    |  | Delivery Period - Firm Orders
|                    |  |                              
|Aircraft            |  | 2002                          |    | 2003 |  | 2004 |     | Total
|                    |  |                               |    |      |  |      |     |      
|Boeing B737-700     |  |                               |   |      |  |      | 3   |       |  |   |   |  |  |   | 3   | 
|Boeing B737-900     |  |                               | 1  |      |  |      | 3   |       |  |   | 3  |  |  |   | 7   | 
|                    |  |                               |    |      |  |      |     |       |  |   |    |  |  |   |     | 
|Total               |  |                               | 1  |      |  |      | 6   |       |  |   | 3  |  |  |   | 10  | 
|                    |  |                               |    |      |  |      |     |       |  |   |    |  |  |   |     | 
|Payments (Millions) |  | $                             | 69 |      |  | $    | 164 |       |  | $ | 68 |  |  | $ | 301 | 
|                    |  |                               |    |      |  |      |     |       |  |   |    |  |  |   |     | 

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 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

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goodwill
has resulted in an increase of net income of $0.2 million and $0.3 million for
the three and six months ended June 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 an accounting change in the Statement of Operations for the six months
ended June 30, 2002.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, Accounting for Asset Retirement Obligations, (effective for the Company
on January 1, 2003.) This Statement
addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset
retirement costs. The Company expects that adoption of SFAS No. 143 will not
have a material impact on the Companys financial statements.

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. Provisions of the Statement are effective for the Company
commencing in May 2002 through January 2003.

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.

We do not expect a significant impact on our financial position or results of
operations from adoption of SFAS No. 145 or 146.




ITEM 3. Quantitative and Qualitative Disclosure About Market Risk

At June 30, 2002, the Company had swap agreements for crude oil contracts in
place to hedge approximately 40% of its 2002 and 35% of its 2003 expected jet
fuel requirements. The Company had

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unrealized pretax hedging gains of $9.4
million reflected in accumulated other comprehensive income (loss) in the
balance sheet at June 30, 2002.







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 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
have begun with the International Association of Machinists and Aerospace
Workers regarding the Clerical, Office and Passenger Service (COPS) employee
group. The COPS contract is amendable October 29, 2002. During the third
quarter of 2002, negotiations are expected to begin with the Aircraft Mechanics
Fraternal Association (AMFA) regarding the mechanics, inspectors and cleaners
employee group. The AMFA contract is amendable December 25, 2002.




ITEM 6. Exhibits and Reports on Form 8-K

Exhibit 3.1 Articles of Incorporation of Alaska Airlines, Inc., as amended,
filed herein.

Exhibit 3.2 Bylaws of Alaska Airlines, Inc. (Incorporated by reference to
Exhibit 3.2 to Form 10-K for the year ended December 31, 2000.)

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

On May 28, 2002, a report on Form 8-K was filed disclosing a change in the
registrants certifying accountant.

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

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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 June 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;                   

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

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 June 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;                   

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

22