SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, DC 20549

                                FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 
1934

For the fiscal year ended December 31, 1997

Commission file number 0-21976

                         ATLANTIC COAST AIRLINES, INC.
          (Exact name of registrant as specified in its charter)
                                                         
Delaware                                        13-3621051
(State of incorporation)                       (IRS Employer
                                               Identification No.)

515-A Shaw Road, Dulles, Virginia               20166    
(Address of principal executive offices)      (Zip Code)

Registrant's telephone number, including area code:  (703) 925-6000

Securities registered pursuant to Section 12(b) of the Act:

Common Stock par value $ .02                NASDAQ National Market
    (Title of Class)             (Name of each exchange on which registered)

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  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__

Indicate by check mark if  disclosure  of  delinquent  filers  pursuant to Item 
405 of  Regulation  S-K is not contained herein,  and  will  not be  contained, 
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements incorporated by reference in Part III of this Form 10-K or any 
amendment to this Form 10-K.   

The  aggregate  market  value  of  voting  stock  held by  nonaffiliates  of the
registrant as of March 2, 1998 was approximately $253,399,036.

As of March 2, 1998 there were 9,107,786 shares of Common  Stock of the  
registrant  issued  and  7,635,286  shares of Common Stock were outstanding.

                   Documents Incorporated by Reference

Certain  portions  of the  documents  listed  below  have been  incorporated  by
reference into the indicated part of this Form 10-K.

Document Incorporated                                      Part of Form 10-K
---------------------                                      -----------------
Proxy Statement for 1998 Annual Meeting of Shareholders   Part III, Items 10-13








                                                         PART I

Item 1.           Business

         General

                  This  Annual  Report  on Form  10-K  contains  forward-looking
statements,   particularly   those  statements   identified  by  such  words  as
"anticipates", "believes", "plans" or "expects". Actual results may differ based
on a variety of factors including costs,  competitive reactions, and marketplace
demand for services on the Company's routes.

                  Atlantic Coast Airlines, Inc. ("ACAI"), is the holding company
of Atlantic Coast Airlines ("ACA"),  together, (the "Company"), a large regional
airline, serving 44 destinations in 19 states in the Eastern United States as of
March 2, 1998 with  nearly 500  scheduled  non-stop  flights  system-wide  every
weekday.  The  Company  markets  itself  as  "United  Express"  and is the  only
code-sharing regional airline for United Airlines,  Inc. ("United") operating as
United  Express in the Eastern United  States.  The Company caters  primarily to
business   travelers   with  its  principle   operations  at   Washington-Dulles
International Airport ("Washington-Dulles"),  which serves the Northern Virginia
and Washington, D.C. markets. The Company coordinates its schedules with United,
particularly at Washington-Dulles,  where United operates 63 daily departures to
31 cities in the U.S.,  Europe  and  Mexico.  As of March 2, 1998,  the  Company
operated a fleet of 67 aircraft (six  regional  jets and 61 turboprop  aircraft)
having an average age of approximately five years.

         Summary of Company Strategy

                  The  Company's  long-term  corporate  objective  is to achieve
sustained earnings growth by focusing its resources in the following areas:

                  1.  Implementation  of the Regional Jet Fleet and Expansion of
the  Washington-Dulles  Hub: In the fourth  quarter of 1997,  the Company placed
into service its first five 50-seat Canadair Regional Jets ("CRJs"). One CRJ was
delivered in January 1998 with eight  additional  CRJs scheduled for delivery in
the  remainder of the year and nine in 1999.  The Company has options to acquire
25 additional CRJs.

                  The Company  anticipates  that it will utilize CRJs as part of
its  strategy  to grow at  Washington-Dulles  airport  by  reclaiming  passenger
traffic lost when United downsized its  Washington-Dulles  schedule in the early
1990's  and by  increasing  market  share,  principally  in  markets  beyond the
economic  operating range of its turboprop  aircraft.  The Company believes that
utilizing CRJs in this manner will provide additional  connecting  passengers to
both its turboprop  fleet and United's jets flying from  Washington-Dulles.  The
Company also  believes  that the CRJs could also be deployed as a complement  to
its existing turboprop service in the short-haul, high-density markets and could
provide additional capacity during peak business travel times.

                  In December 1997, the Company  petitioned the U.S.  Department
of  Transportation  ("DOT") for 42  arrival/departure  slots at Chicago's O'Hare
Airport to serve seven cities currently  without nonstop service to Chicago.  If
granted,  the  Company  would  utilize as many as six CRJs  operating  as United
Express  pursuant to agreements  with United  Airlines (see  discussion on slots
below).

                  2.  Capitalize  on and Promote  the  Company's  Identity  with
United  Airlines:   The  Company  intends  to  capitalize  on  and  promote  its
code-sharing  relationship with United,  which has contributed  significantly to
the  Company's  growth.  The Company has a shared  market  identity with United,
lists its flights under  United's two letter flight  designator  code in airline
Computer  Reservation  Systems ("CRSs") and other published schedules and awards
United's  "Mileage  Plus" frequent  flyer miles to its  passengers.  The Company
coordinates its schedules with United,  particularly at  Washington-Dulles,  and
participates with United in cooperative advertising and marketing agreements. In
most cities served by the Company,  United  provides all airport  facilities and
related  ground  support  services.  The Company also  participates  in United's
"Apollo" reservation system and all major CRSs, uses the United Express logo and
has exterior aircraft paint schemes similar to those of United.

                  The  Company  markets  itself as  "United  Express"  under its
United Express Agreements ("Agreements") with United Airlines. These Agreements,
originally  scheduled  to expire on March 31, 1998,  have been  extended for one
year.

                  3. Continue to Emphasize  Operational  Safety and  Efficiency:
For  over  three  years,  the  Company  has  worked  with the  Federal  Aviation
Administration   ("FAA")  to  develop   enhanced   pilot  training  and  cockpit
decision-making  procedures  under  two  programs:  the  Advanced  Qualification
Program ("AQP") and the Advanced Crew Resource Management Program ("ACRM").  AQP
and ACRM focus  training  curriculums  on individual  technical  skills and crew
interaction scenarios. The FAA selected the Company to participate in a grant to
study how ACRM can be integrated  with standard  operational  procedures such as
crew briefings and checklists.  The Company anticipates that it will continue to
enhance and improve these programs in cooperation with the FAA.

                  The  Company  is  also in the  process  of  installing  in its
aircraft  an  enhanced   navigational  aid  which  utilizes  global  positioning
satellite ("GPS") technology. Once implemented, the Company anticipates that GPS
will reduce both aircraft block hours and pilot workloads. On July 18, 1997, the
FAA approved the Company's use of GPS on certain routes.  Full implementation of
GPS is contingent  on FAA approval for use in all of the  Company's  operational
areas.

                  During 1997, the Company equipped most of its aircraft with an
automated  aircraft  time  reporting  system,  which enables the Company to more
efficiently  communicate  with  flight  crews and  further  automate  the flight
tracking process. In addition,  this system improves the timeliness and accuracy
of flight information communicated and displayed to the Company's passengers.

                  During 1997, the Company performed most aircraft overnight and
heavy-maintenance  checks in Lynchburg,  Virginia,  approximately 160 miles from
Washington-Dulles.  In February 1998, the Company  occupied its new  maintenance
hangar at  Washington-Dulles.  Moving its  maintenance  operation  to the larger
facility at Washington-Dulles accommodates the Company's expanding fleet and has
enabled the Company to eliminate  aircraft ferrying costs. In addition,  because
the new facility  increases the proximity of maintenance  technicians  and spare
parts, the Company believes it will improve completion factor by reducing flight
cancellations (see discussion on leased facilities below).

         Markets

                  As of  March 2,  1998,  the  Company  scheduled  218  non-stop
flights from Washington-Dulles  representing more flights from that airport than
any other  airline.  During  1997,  the  Company  accounted  for more  passenger
boardings  from  Washington-Dulles  than any  airline  other than  United.  On a
combined basis, the Company and United generated  approximately 55% of passenger
traffic at Washington-Dulles during 1997.

                  The Company's top four cities based on frequency of operations
are Washington-Dulles, Boston, New York-JFK and Newark. During 1997, the Company
added additional flights to existing Washington-Dulles markets, added new routes
from  the  Washington-Dulles,  Boston  and  New  York-JFK  airports  and  ceased
operations  in  one  market.  The  Company  increased   operations  in  existing
Washington-Dulles  markets by 23 daily departures and added new service to three
cities:  Fort Myers,  FL;  Jacksonville,  FL; and Nashville,  TN.  Further,  the
Company added new non-Dulles  flights from Boston,  consisting of one new market
with five daily  departures;  and New  York-JFK  with two new  markets and eight
daily  departures.  In 1997,  the Company  ceased  operations to New Haven,  CT,
resulting in the elimination of four daily departures from Washington-Dulles. In
1997,  the Company  also  provided  seasonal  service to Martha's  Vineyard  and
Nantucket, MA from Washington-Dulles.

                  The  following  table  sets forth the  destinations  currently
served (or  scheduled for service on the date  indicated) by the Company,  as of
March 2, 1998:

           Albany, NY                                   Manchester, NH
           Allentown, PA                                Nashville, TN
           Atlanta, GA                                  New York, NY (Kennedy)
           Baltimore, MD                                New York, NY (LaGuardia)
           Binghamton, NY                               Newark, NJ
           Boston, MA                                   Newport News, VA
           Buffalo, NY                                  Norfolk, VA
           Burlington, VT                               Philadelphia, PA
           Charleston, SC                               Pittsburgh, PA
           Charleston, WV                               Portland, ME
           Charlottesville, VA                          Providence, RI
           Cleveland, OH                                Raleigh-Durham, NC    
           Columbus, OH                                 Richmond, VA
           Dayton, OH                                   Roanoke, VA        
           Detroit, MI                                  Rochester, NY
           Fort Myers, FL                               Savannah, GA (4/1/98)
           Greensboro, NC                               State College, PA
           Harrisburg, PA                               Stewart, NY
           Hartford, CT                                 Syracuse, NY
           Indianapolis, IN (3/16/98)                   Tampa, FL
           Jacksonville, FL                             Westchester County, NY
           Knoxville, TN                                Washington-Dulles, VA
           Lynchburg, VA                                Wilmington, NC
                                                        Worcester, MA (4/16/98)

         Fleet Description

                  Fleet  Expansion:  As of March 2, 1998, the Company operated a
fleet of six CRJs and 61 turboprop aircraft,  consisting of 29 British Aerospace
Jetstream-32 ("J-32s") and 32 British Aerospace Jetstream-41 ("J-41").

                  As of March 4,  1998,  the  Company  had a total of 17 CRJs on
order from Bombardier,  Inc., in addition to the six delivered, and held options
for 25 additional  CRJs. The initial order for 12 CRJs and 36 options was placed
on January  28,  1997.  Options  were  exercised  on  November  20,  1997 for an
additional six firm and six conditional  CRJ deliveries.  On March 4, 1998, five
of the six  conditional  orders were  converted to firm orders and the remaining
one was  restored to option  status.  The first six CRJs were  delivered  in the
third and fourth quarters of 1997, and January 1998. Eight additional deliveries
are scheduled in 1998 and nine deliveries are scheduled in 1999.

                  The Company  accepted  delivery  of four new J-41s  during the
first half of 1997,  and had  additional  J-41s on order  pursuant to a purchase
agreement  with  British  Aerospace,  dated  February  23,  1997,  the ("BA J-41
Agreement").  On May 29,  1997,  British  Aerospace  announced  that it would no
longer  manufacture  the J-41 as part of its regular  product  line.  On July 2,
1997, the Company and British  Aerospace amended the BA J-41 Agreement to cancel
any further  deliveries  pursuant to this  agreement.  On December 4, 1997,  the
Company  entered into a short term lease  agreement  and took  delivery of a new
J-41.

                  Fleet  Composition:  The  following  table  describes  the  
Company's  fleet  of  aircraft,  scheduled deliveries and options as of March 4,
1998:

<TABLE>
<CAPTION>
                                                                                                  Future Scheduled
                                 Number of Aircraft   Passenger Capacity     Average Age in         Deliveries/
                                                                                  Years               Options
<S>                                      <C>                  <C>             <C>                 <C>    

British Aerospace J-32                   29                   19                   8.2                   -
British Aerospace J-41                   32                   29                   3.2                   -
Canadair Regional Jets                    6                   50                    .4                 17/25
                                         --                                         --                 -----
                                         67                                        5.1                 17/25
                                         ==                                                            =====

</TABLE>

         Regional Jet Implementation

                  During  the third  quarter  of 1997 the  Company  successfully
completed  line  certification  of the Regional  Jet.  Accordingly,  the Company
received  authorization  to conduct  operations  under the provisions of the FAA
Part 121  regulations.  The  Company  is  operating  the CRJs under the same FAA
regulatory  requirements  mandated by the FAA for all other CRJ, and larger jet,
carriers.   The  Company   believes  that  the  market  will  support   existing
high-density  routes and new routes and schedules  that the  Company's  expanded
fleet will facilitate.  In addition, the Company expects that its customers will
find the new CRJs acceptable for relatively  longer flights,  thereby  enhancing
the Company's ability to compete in a broader geographic market.

                  The United Express  Agreements  required the Company to obtain
United's  consent to operate the 50-seat  CRJs under the "United  Express"  name
which  consent was  obtained on November 22,  1997.  All CRJ routes  operated as
United  Express must receive  prior  approval  from United.  While the Company's
request for that consent was pending,  United agreed in August 1997 to reimburse
the Company for its estimated aircraft lease and associated flight crew expenses
for its CRJs that were  delivered  but not in  operation  during the period from
September 11, 1997 through  December 31, 1997. On November 22, 1997, the Company
began  scheduled  CRJ  passenger  service to four  cities.  From  November 22 to
December 7, 1997, in order to expedite the  introduction  of United  Express CRJ
service,  United  agreed to  reimburse  the  Company  for the block  hour  costs
associated with providing CRJ service to three of these cities.  United received
the revenue from these  flights.  The United  subsidy  associated  with aircraft
lease and flight crew expenses also ceased after December 7, 1997.

         United Express Agreements

                  The Company's  code-sharing and related agreements with United
(the "United Express Agreements") define the Company's relationship with United.
The United Express Agreements  authorize the Company to use United's "UA" flight
designator  code to identify its flights and fares in the major CRSs,  including
United's  "Apollo"  reservation  system,  to use the  United  Express  logo  and
exterior aircraft paint schemes and uniforms similar to those of United,  and to
otherwise advertise and market its association with United.

                  Company  passengers may participate in United's "Mileage Plus"
frequent  flyer program and are eligible to receive a certain  minimum number of
United  frequent  flyer miles for each of the  Company's  flights.  Mileage Plus
members are also eligible to redeem their awards on the Company's  route system.
In 1997,  approximately 60% of the Company's passengers participated in United's
"Mileage Plus" frequent flyer program. The Company limits the number of "Mileage
Plus"   tickets  that  may  be  used  on  its  flights  and  believes  that  the
displacement, if any, of revenue passengers is minimal.

                  The United  Express  Agreements  also provide for  coordinated
schedules and  through-fares.  A  through-fare  is a fare offered by a major air
carrier  to  prospective   passengers  who,  in  order  to  reach  a  particular
destination,  transfer between the major carrier and its  code-sharing  partner.
Generally,  these fares are less  expensive than  purchasing the  combination of
local  fares.  United  establishes  all  through-fares  and allows the Company a
portion  of these  fares on a fixed rate or formula  basis  subject to  periodic
adjustment.  The United Express  Agreements  also provide for interline  baggage
handling,  and for  reduced  airline  fares  for  eligible  United  and  Company
personnel and families.  The United Express  code-sharing  agreement  expires on
March 31, 1999.

                  Under the United Express Agreements,  United provides a number
of additional  services to the Company.  These include publication of the fares,
rules  and  related  information  that are part of the  Company's  contracts  of
carriage  for  passengers  and  freight;  publication  of the  Company's  flight
schedules and related information; provision of toll-free reservations services;
provision  of ground  support  services at many of the  airports  served by both
United and the  Company;  provision  of ticket  handling  services  at  United's
ticketing  locations;  provision of airport  signage at airports  where both the
Company  and  United  operate;  provision  of United  ticket  stock and  related
documents;  provision  of expense  vouchers,  checks and cash  disbursements  to
Company  passengers  inconvenienced  by  flight  cancellations,  diversions  and
delays;  and  cooperation  in the  development  and  execution  of  advertising,
promotion,  and marketing  efforts featuring United Express and the relationship
between United and the Company.  In return for these services,  the Company pays
United monthly fees based on the total number of revenue  passengers  boarded by
the Company on its flights for the month.  The fee escalates  periodically  over
the term of the United Express Agreements.

                  The United  Express  Agreements  require the Company to obtain
United's consent to operate service between city pairs as "United  Express".  If
the Company  experiences  net operating  expenses that exceed revenues for three
consecutive  months on any required  route,  the Company may withdraw  from that
route if United and the Company are unable to negotiate an alternative  mutually
acceptable level of service for that route.  The United Express  Agreements also
require  the  Company to obtain  United's  approval  if it chooses to enter into
code-sharing  arrangements with other carriers,  but do not prohibit United from
competing,  or from  entering  into  agreements  with other  airlines  who would
compete,  on routes served by the Company.  The United Express Agreements may be
canceled if the Company  fails to meet certain  financial  tests or  performance
standards or fails to maintain certain minimum flight frequency  levels,  events
which the Company, based on experience to date, believes to be unlikely.

                  The United  Express  Agreements  restrict  the  ability of the
Company to merge with another  company or dispose of certain  assets or aircraft
without  offering United a right of first refusal to acquire the Company or such
assets or  aircraft.  United also has a right of first  refusal  with respect to
issuance  by the  Company of shares of its  Common  Stock if, as a result of the
issuance,  certain of the Company's stockholders and their permitted transferees
do not own at least 50% of the  Company's  Common  Stock  after  such  issuance.
Because  those  Company   stockholders  and  their  permitted   transferees  own
substantially  less than 50%  today,  management  believes  that such a right is
unlikely to be exercised.

         Lufthansa Agreement

                  In October  1997,  the  Company  entered  into a  code-sharing
agreement with Lufthansa German Airlines,  which permits  Lufthansa to place its
airline  code on  flights  operated  by the  Company.  In  addition,  the United
Express-Lufthansa  agreement  provides a wide range of benefits  for  code-share
passengers  including  the ability to check in once at their  initial  departure
city and receive  boarding  passes and seat  assignments for the flights on both
carriers  while their luggage is  automatically  checked  through to their final
destination.  Members  of the  Lufthansa  Miles & More  frequent  flyer  program
receive mileage credit for these flights. In January 1998, the Company added the
Lufthansa code to flights operated in ten city pair markets.

                  The following markets served by the Company now carry both the
United  Airlines (UA) and Lufthansa (LH) designator  codes on selected  flights:
Washington-Dulles  to  Greensboro,  NC;  Charlottesville,   VA;  Cleveland,  OH;
Norfolk,  VA;  Richmond,  VA;  Roanoke,  VA;  Syracuse,  NY;  Newport News,  VA;
Pittsburgh, PA; and Raleigh-Durham, NC.

         Fuel

                  The  Company  has  not  experienced   difficulties  with  fuel
availability  and  expects  to be able to obtain  fuel at  prevailing  prices in
quantities sufficient to meet its future requirements.  During 1997, the Company
purchased  approximately  78% of its fuel from United Aviation Fuels Corporation
("UAFC"), an affiliate of United taking advantage of the affiliate's significant
buying  power and fuel  purchasing  expertise.  On March 17,  1997,  the Company
renewed its fuel purchasing  agreement with the United  affiliate and obtained a
reduction in the base price of fuel at its Washington-Dulles hub. In January and
March 1998, the Company  entered into fixed price fuel purchase  agreements with
UAFC for the  delivery  of 33,000  barrels per month at  Washington-Dulles.  The
purchase contracts,  representing approximately 46% of the Company's anticipated
1998 fuel requirements, expire December 31, 1998.

         Marketing

                  The Company's  advertising and promotional  programs emphasize
the  Company's  close  affiliation  with United,  including  coordinated  flight
schedules and the ability of the Company's passengers to participate in United's
"Mileage  Plus"  frequent  flyer  program.  The Company's  services are marketed
primarily  by  means  of  listings  in CRSs  and the  Official  Airlines  Guide,
advertising and promotions,  and through direct contact with travel agencies and
corporate   travel   departments.   For  the  year  ended   December  31,  1997,
approximately  82% of the  Company's  passenger  revenue was derived from ticket
sales generated  through travel agencies and corporate  travel  departments.  In
marketing to travel agents,  the Company relies on personal  contacts and direct
mail campaigns,  provides familiarization flights, and hosts group presentations
and other functions to acquaint travel agents with the Company's services.  Many
of  these   activities  are  conducted  in  cooperation  with  United  marketing
representatives.  In addition,  the Company and United  jointly create radio and
print advertising in markets served by the Company.

                  In February  1998,  the Company  announced that it would offer
double Mileage Plus miles to passengers on several  United Express  regional jet
markets from February 1 to April 15, 1998. Those flights include service between
Washington-Dulles  International Airport and Fort Myers, Jacksonville and Tampa,
FL; as well as Atlanta, GA; Nashville, TN; and Raleigh-Durham, NC.

                  In  September  1995,  the  Company  became  a  participant  in
United's electronic  ticketing program.  This program allows customers to travel
on flights of United and the Company  without the need for a paper  ticket.  The
primary  benefit of this  program  is  improved  customer  service  and  reduced
ticketing  costs.  For the year ended December 31, 1997,  25.6% of the Company's
passengers utilized electronic tickets up from 18.4% for the year ended December
31, 1996.

         Competition

                  The Company  competes  primarily  with  regional and major air
carriers as well as with ground  transportation.  The Company's competition from
other air  carriers  varies from  location to location,  type of aircraft  (both
turbo-prop and jet), and in certain cities,  comes from carriers which serve the
same  destinations  as the  Company  but  through  different  hubs.  The Company
believes that its ability to compete in its market areas is  strengthened by its
code-sharing  relationship  with  United,  which has a  substantial  presence at
Washington-Dulles,   thereby   enhancing  the  importance  of  the  "UA"  flight
designator  code on the East  Coast.  The  Company  seeks to compete  with other
airlines by offering frequent flights.  In addition,  the Company's  competitive
position  benefits from the large number of  participants  in United's  "Mileage
Plus"  frequent flyer program who fly regularly to or from the markets served by
the Company.

                  At its Washington-Dulles hub, the Company faces limited direct
nonstop  competition from other carriers.  In eleven of its markets from Dulles,
other airlines have competing  turboprop and/or jet service.  There are no other
airlines  serving the  Company's  remaining  twenty-seven  Dulles  markets  with
nonstop   flights.   However,   flights  to  the   Company's   Washington-Dulles
destinations  are also offered by other  carriers from Ronald Reagan  Washington
National and Baltimore-Washington International airports.

                  During  1997,  the Company  continued  to see a trend toward a
lower percentage of its passengers connecting to United Airlines flights through
its Dulles hub. One potential  cause for this trend was  additional  competition
for connecting  passengers  from other hub networks in the region  controlled by
some of United's principal competitors.  In 1997, regional jet operations were a
much larger part of these  competing  hub networks.  As a result,  the Company's
turbo-prop  to  jet   connections   with  its  code-share   partner  United  are
increasingly  competing  with these other hub networks' jet to jet  connections.
Some  passengers  may perceive jet to jet  connections  more  favorably due to a
jet's shorter elapsed flight time and comfort relative to a turbo-prop aircraft.
The Company  believes  that the public's  favorable  perception of regional jets
supports its strategy for  acquisition of these aircraft to mitigate any loss of
passengers to operators already using regional jets.

                  The  Aviation  Deregulation  Act  of  1978  (the  "1978  Act")
eliminated many regulatory  constraints on airline competition,  thereby freeing
airlines to set prices and,  with  limited  exceptions,  to  establish  domestic
routes  without  the  necessity  of seeking  government  approval.  The  airline
industry  is highly  competitive,  and there  are few  barriers  to entry in the
Company's  markets.  Furthermore,  larger  carriers  with greater  resources can
impact the Company's markets through fare adjustments as well as flight schedule
modifications.

         Yield Management

                  The Company  closely  monitors  its  inventory  and pricing of
available seats by use of a computerized yield management system. In March 1997,
the Company  implemented a state-of-the-art  revenue management system, PROS IV,
marketed by PROS Strategic Solutions.  This system enables the Company's revenue
control  analysts,  on a flight  by  flight  basis,  to  establish  the  optimal
allocation  of seats by fare class (the number of seats made  available for sale
at various fares) to maximize system revenue.

         Slots

                  Slots are  reservations for takeoffs and landings at specified
times and are  required  by  governmental  authorities  to  operate  at  certain
airports.  The Company utilizes takeoff and landing slots at the LaGuardia,  New
York-JFK and White  Plains,  New York  airports.  Airlines may acquire  slots by
governmental  grant, by lease or purchase from other  airlines,  or by loan when
another  airline  does  not  use  a  slot  but  desires  to  avoid  governmental
reallocation  of a slot for lack of use. All leased and loaned slots are subject
to renewal and termination provisions.

                  As  of  March  2,  1998  the  Company  utilized  18  slots  at
LaGuardia, 15 slots at New York-JFK, and six slots at White Plains. Of the above
slots,  the Company  controls five at LaGuardia  and three at White Plains.  The
LaGuardia slots are issued under FAA  regulations  which provide that although a
carrier  may be a holder of a slot,  it has no  property  interest in such slot.
These slots can be withdrawn without  compensation under certain  circumstances.
The other slots  utilized by the Company are either  loaned or leased from other
carriers and are subject to varying renewal dates.  The Company believes that as
slots expire it will be able to either renew the lease or find substitute  slots
at similar prices.

                  In December 1997, the Company  applied to the U.S.  Department
of Transportation ("DOT") for 42 slots to operate three daily round-trip flights
with 50-passenger  regional jet aircraft between Chicago's O'Hare  International
Airport  and  each  of  the  following  cities:   Charleston,  WV;  Duluth,  MN;
Fayetteville,  AK; Montgomery, AL; Shreveport, LA; Springfield/Branson,  MO; and
Wilkes-Barre/Scranton,  PA.  These  flights  would  connect to ACA's  code-share
partner,  United, and other United Express operators at United's Chicago hub. An
affiliate of American  Airlines,  Inc.,  operating as American  Eagle,  has also
requested the DOT grant it slots to serve  Chicago  O'Hare from the same cities.
The DOT is expected to issue an order  granting or denying the carrier  requests
for slots to serve these city pair  markets.  There can be no assurance  whether
any or all slots will be granted to the Company by the DOT.

         Employees

                   As of March 2, 1998,  the Company had 1,454  full-time  and 
151  part-time  employees,  classified as follows:



<PAGE>




Classification                                   Full-Time       Part-Time

Pilots                                              566              -
Flight attendants                                   191              -
Station personnel                                   277             139
Maintenance personnel                               120               1
Administrative and clerical personnel               286              11
Management                                           14              -
                                              --------------- ---------------

                     Total employees             1,454              151
                                              =============== ===============

                  The Company's  pilots are  represented  by the Airline  Pilots
Association  ("ALPA"),  its  flight  attendants  by the  Association  of  Flight
Attendants  ("AFA"),  and its  mechanics  by the  Aircraft  Mechanics  Fraternal
Association ("AMFA").

                  The  ALPA  collective  bargaining  agreement  was  amended  on
February 26, 1997 and is effective  for three years.  The new contract  modifies
work rules to allow  more  flexibility,  includes  regional  jet pay rates,  and
transfers pilots into the Company's employee benefit plans. The Company believes
that the incremental cost as a result of the amendments to the contract will not
have any material effect on the Company's  financial  position or results of its
operations over the life of the agreement.

                  On  March  11,  1994,  AMFA  was  certified  by  the  National
Mediation Board (the "NMB") as the collective bargaining  representative elected
by mechanics  and related  employees of the Company.  As of March 2, 1998,  AMFA
represented  110 of the  Company's  employees.  The  Company  and AMFA have been
attempting  to negotiate  an initial  contract  under  federal  mediation  since
December 1994, but have so far failed to reach agreement.  The NMB has indicated
that it is in favor of continuing the negotiations,  and the Company anticipates
participating in further negotiations.  If, at some point, the NMB should decide
that the parties are  deadlocked,  the NMB could declare an impasse along with a
thirty day cooling off period.  At the conclusion of that period if an agreement
has not been reached,  AMFA would have the authority to use self help, up to and
including the right to strike.

                  The Company  and AMFA were also  engaged in  litigation  which
arose over certain  work rule  issues.  In  September  1997,  the U.S.  Court of
Appeals  for the Second  Circuit  ruled in favor of the  Company on all  matters
pending before it, thereby resolving the pending litigation.

                  The Company's  contract with the AFA became amendable on April
30, 1997. In March 1998, a tentative  agreement  between the Company and AFA was
rejected by a vote of the members.  The Company  expects to resume  negotiations
during the second  calendar  quarter of 1998 and will  continue to operate under
the terms of the existing agreement until negotiations are completed.

                  The  Company  believes  that the wage rates and  benefits  for
other  employee  groups  are  comparable  to  similar  groups at other  regional
airlines.  The Company is unaware of any  significant  organizing  activities by
labor unions among its other non-union employees at this time.

                  As the Company  continues to pursue its growth  strategy,  its
employee  staffing  needs and  recruitment  efforts  are  expected  to  increase
commensurately.  Due to competitive  local labor markets and normal attrition to
the major  airlines,  there can be no assurance that the Company will be able to
satisfy its hiring requirements.  The Company has committed additional resources
to its  employee  retention  efforts.  Annual  turnover  of  Company  pilots was
approximately 11% during 1997, compared to 18% during 1996.

         Pilot Training

                  The Company performs pilot training in state-of-the-art,  full
motion  simulators  and  conducts  training  in  accordance  with  FAA  Part 121
regulations.  In 1993, the Company initiated an Advanced  Qualification  Program
("AQP") to enhance pilot training in both technical and Crew Resource Management
("CRM") skills. The FAA has recognized the Company's  leadership in CRM training
by selecting the Company to participate in a FAA sponsored  training grant.  The
principal objective of the grant is to develop a prototype training program that
provides carriers with a more efficient  approach for integrating CRM procedures
into standard  operating  procedures.  For the past two and one half years,  the
Company  has worked  closely  with the FAA and George  Mason  University  in the
development  of  proceduralized  CRM. The second and final phase of the project,
operational implementation, began in August 1996 and is expected to be completed
in 1998.

         Aviation Safety

                  On December 20, 1995,  the FAA issued  regulation  14 CFR Part
119,  requiring air carriers  operating  aircraft  under 14 CFR Part 135, with a
seating capacity of ten to thirty seats,  excluding crew members, to comply with
and be certified  under the more stringent air carrier safety  regulation 14 CFR
Part 121 by March 20, 1997.  The Company has had an internal  audit  program for
flight  operations  in place since October 1993 and has been training all of its
flight crews under CFR Part 121 since February 1994.  Additionally,  the Company
appointed a safety  officer  during  1995.  The Company  continues  to emphasize
safety in its daily  operations and plans to implement  several new programs for
flight crews in 1997.

                  From time to the time,  the FAA  conducts  inspections  of air
carriers with varying degrees of intensity.  The Company underwent an intensive,
two-week FAA Regional  Aerospace  Inspection  Program ("RASIP") audit during the
fourth quarter of 1997. The final audit report consisted of recommendations  and
minor findings, none of which resulted in civil penalties. The Company responded
to the findings and believes  that it has met and continues to meet the required
standards  for  safety  and  operational  performance.   The  Company's  airline
operations will continue to be audited by the FAA for compliance with applicable
safety regulations.

         Regulation

                  Economic.  With the passage of the  Deregulation  Act, much of
the  regulation of domestic  airline  routes and rates was  eliminated.  The DOT
still has  extensive  authority to issue  certificates  authorizing  carriers to
engage  in  air  transportation,   establish  consumer  protection  regulations,
prohibit  certain  unfair  or   anti-competitive   pricing  practices,   mandate
conditions of carriage and make ongoing  determinations of a carrier's  fitness,
willingness  and ability to provide air  transportation.  The DOT can also bring
proceedings  for the  enforcement of its regulations  under  applicable  federal
statutes,  which  proceedings  may  result  in civil  penalties,  revocation  of
operating authority or criminal sanctions.

                  The Company  holds a  certificate  of public  convenience  and
necessity,  issued by the DOT, that authorizes it to conduct air  transportation
of  persons,  property  and mail  between all points in the United  States,  its
territories and possessions. This certificate requires that the Company maintain
DOT-prescribed minimum levels of insurance,  comply with all applicable statutes
and regulations and remain continuously "fit" to engage in air transportation.

                  Based  on  conditions  in  the  industry,  or as a  result  of
Congressional  directives  or statutes,  the DOT from time to time  proposes and
adopts new regulations or amends existing regulations.  For example, the DOT has
implemented  extensive   regulations  to  prevent  unfair,   discriminatory  and
deceptive practices by CRSs. Currently, these rules are being re-examined by the
DOT in light of changing  market  conditions  since they were last recodified in
1992. The DOT must either re-enact these regulations or revise them on or before
March 31, 1999.

                  The DOT has also enacted  rules  establishing  guidelines  for
setting  reasonable  airport charges and procedural  rules for challenging  such
charges.  The DOT  has  recently  adopted  a  compliance  policy  regarding  the
increasing use of ticketless travel and the  consumer-related  notices that must
be supplied to passengers  before  travel.  The DOT has also  proposed  rules to
implement a statutory directive and a Presidential Commission  recommendation to
improve notice to families of passengers involved in aviation accidents. The DOT
is  considering  the means by which it will require  domestic and  international
carriers  to  collect  additional   passenger-related   information,   including
emergency contact names and telephone numbers and other identifying information.
The  DOT  has  estimated  that  the  cost  to the  industry  of  obtaining  this
information from each passenger could be significant.

                  Safety. The FAA regulates the safety-related activities of air
carriers.  The  Company  is subject to the FAA's  jurisdiction  with  respect to
aircraft  maintenance  and  operations,  equipment,  ground  facilities,  flight
dispatch,  communications,  training, weather observation,  flight personnel and
other matters  affecting air safety.  To ensure compliance with its regulations,
the FAA  requires  that  airlines  under its  jurisdiction  obtain an  operating
certificate and operations  specifications for the particular aircraft and types
of operations  conducted by such airlines.  The Company possesses an Air Carrier
Certificate issued by the FAA and related authorities  authorizing it to conduct
operations  with  turboprop  and turbojet  equipment.  In addition,  the FAA has
approved the Company's  commencement of CRJ service.  The Company's authority to
conduct  operations is subject to  suspension,  modification  or revocation  for
cause.  The FAA has authority to bring  proceedings to enforce its  regulations,
which  proceedings  may result in civil or criminal  penalties or  revocation of
operating authority.

                  In  order  to  ensure  the  highest  level  of  safety  in air
transportation,  the FAA has authority to issue maintenance directives and other
mandatory orders relating to, among other things, inspection of aircraft and the
mandatory  removal and  replacement of parts that have failed or may fail in the
future. In addition, the FAA from time to time amends its regulations which such
amended regulations may impose additional regulatory burdens on the Company such
as the  installation  of  new  safety-related  items  (collision  and  windshear
avoidance systems and enhanced flight data recorders).  Depending upon the scope
of the FAA's order and amended  regulations,  these  requirements  may cause the
Company to incur substantial, unanticipated expenses.

                  The FAA requires air carriers to adopt and enforce  procedures
designed to safeguard property, ensure airport security and screen passengers to
protect against terrorist acts. The FAA, from time to time,  imposes  additional
security  requirements on air carriers and airport authorities based on specific
threats or world conditions or as otherwise  required.  The FAA and the industry
are cooperating to test a system by which  passengers and their baggage would be
more  closely  monitored  to ensure  that no bag is checked  without a passenger
boarding the aircraft.  The Company incurs substantial expense in complying with
current  security  requirements  and it cannot predict what additional  security
requirements  may be imposed in the  future or the cost of  complying  with such
requirements.

                  Associated  with  the  FAA's  security  responsibility  is its
program  to ensure  compliance  with  rules  regulating  the  transportation  of
hazardous  materials.  The Company  both  accepts and ships  approved  hazardous
materials  for  transportation  and must train its  employees  to  identify  and
properly  handle  such  materials.  The  FAA  enforces  its  hazardous  material
regulations by the imposition of civil penalties, which can be substantial.

                  Other Regulation. In the maintenance of its aircraft fleet and
ground  equipment,  the  Company  handles  and  uses  many  materials  that  are
classified as hazardous.  The Environmental  Protection Agency and similar local
agencies have  jurisdiction over the handling and processing of these materials.
The Company is also  subject to the  oversight  of the  Occupational  Safety and
Health Administration concerning employee safety and health matters. The Company
is subject to the Federal Communications Commission's jurisdiction regarding the
use of radio facilities.

                  The Airport Noise Control Act ("ANCA")  requires that airlines
phase-out  the  operation of certain  types of aircraft.  None of the  Company's
aircraft are subject to the phase-out  provisions of ANCA.  While ANCA generally
preempts airports from imposing unreasonable local noise rules that restrict air
carrier   operations,   airport   operators   may   implement   reasonable   and
nondiscriminatory  local noise  abatement  procedures,  which  procedures  could
impact the ability of the Company to serve  certain  airports,  particularly  in
off-peak   hours.   Certain  local  noise  rules  adopted  prior  to  ANCA  were
grandfathered under the statute.

                  Federal  Excise  Taxes.  Ticketing  airlines are  obligated to
collect a U.S.  transportation  excise tax on passenger ticket sales.  This tax,
known as the  aviation  trust tax or the "ticket tax" is used to defray the cost
of FAA operations and other aviation  programs.  Recently,  the federal  statute
authorizing  the ticket tax expired on two separate  occasions - from January 1,
1996 through  August 26, 1996,  and from January 1, 1997 through  March 6, 1997.
Ticketing  airlines  did not collect the ticket tax during  these  periods.  The
ticket  tax was  most  recently  reinstated  effective  March 7,  1997,  with an
expiration  date of September 30, 1997.  Beginning on October 1, 1997, a revised
formula for determining the ticket tax took effect.  Under this revised formula,
the ticket tax is now comprised of a percentage  of the  passenger  ticket price
plus a flat fee for each segment flown, and will be adjusted  annually.  For the
period from October 1, 1997  through  September  30,  1998,  the ticket tax will
equal nine percent of passenger ticket price plus $1 per segment.

         Seasonality

                  As is common in the industry,  the Company  experiences  lower
demand for its product during the period of December through  February.  Because
the  Company's  services  and  marketing  efforts  are  focused on the  business
traveler, this seasonality of demand is somewhat greater than for airlines which
carry a larger  proportion  of leisure  travelers.  In addition,  the  Company's
principal geographic area of operations  experiences more adverse weather during
this period, causing a great77er percentage of the Company's and other airlines'
flights to be canceled.  These  seasonal  factors  have  combined in the past to
reduce the Company's capacity, traffic,  profitability,  and cash generation for
this three month period as compared to the rest of the year.


Item 2.           Properties

         Leased Facilities

                  Airports

                  The  Company  leases  gate and ramp  facilities  at all of the
airports it serves and leases ticket counter and office space at those locations
where ticketing is handled by Company personnel. Payments to airport authorities
for ground  facilities  are  generally  based on a number of factors,  including
space occupied as well as flight and passenger volume. The Company believes that
it can accommodate through various arrangements the new flights it plans, and is
exploring  possible   long-term   solutions  for  assuring  access  to  adequate
facilities at Washington-Dulles.

                  Corporate Offices

                  On February 15, 1997, the Company established new headquarters
in Dulles, VA. The new facility provides over 45,000 square feet in one building
for the executive, administrative, training and system control departments. This
facility  compares to the previous  space  consisting  of  approximately  28,500
square feet divided  between two  buildings.  The Company  believes that the new
headquarters  provides  adequate  facilities  to conduct its current and planned
operations.

                  Maintenance Facilities

                  The FAA's safety regulations  mandate periodic  inspection and
maintenance  of commercial  aircraft.  The Company  performs  most  maintenance,
service and inspection of its aircraft and engines at its maintenance facilities
using its own personnel.

                  In February 1998,  the Company  occupied its new 90,000 square
foot  aircraft  maintenance  facility  comprised of 60,000 square feet of hangar
space and 30,000 square feet of support space at Washington-Dulles.  The Company
has  consolidated  all  maintenance  functions to this facility  which  includes
hangar, shop and office space necessary to maintain the Company's growing fleet.


Item 3.           Legal Proceedings

                  The  Company  is  a  party  to  routine   litigation  and  FAA
proceedings  incidental  to its  business,  none of  which is  likely  to have a
material  effect on the  Company's  financial  position  or the  results  of its
operations.

     The Company is a party to an action  pending in the United States  District
Court for the Southern District of Ohio, Peter J. Ryerson,  administrator of the
estate of David Ryerson,  v. Atlantic Coast Airlines,  Case No. C2-95-611.  This
action is more fully  described in the Company's  Annual Report on Form 10-K for
the fiscal year ended  December 31, 1995.  On March 10, 1997,  the Court granted
Plaintiff's  motion to the effect that  liability  would not be limited to those
damages available under the Warsaw  Convention.  The Company is currently unable
to estimate the monetary  award,  if any,  resulting from this  litigation,  but
believes it remains fully covered under the Company's insurance policy.
     
     The Company is also a party to an action pending in the United States Court
of Appeals for the Fourth  Circuit  known as Afzal v. Atlantic  Coast  Airlines,
Inc.  (No.  98-1011).  This action is an appeal of the  December  1997  decision
granted  in favor of the  Company in a case  claiming  wrongful  termination  of
employment  brought in the United States District Court for the Eastern District
of Virginia known as Afzal v. Atlantic Coast  Airlines,  Inc.  (Civil Action No.
96-1537-A).  The  Company  does not expect the  outcome of this case to have any
material adverse effect on its financial condition or results of its operations.

Item 4.  Submission of Matters to a Vote of Security Holders

     No matter was submitted  during the fiscal quarter ended December 31, 1997,
to a vote of the security  holders of the Company  through the  solicitation  of
proxies or otherwise.

                                                        PART II

Item 5.           Market for Registrant's Common Equity and Related
Stockholder Matters

                  The  Company's  common  stock,  par value  $.02 per share (the
"Common Stock"), is traded on the Nasdaq National Market ("Nasdaq/NM") under the
symbol "ACAI". Trading of the Common Stock commenced on July 21, 1993.

                  The  following  table  sets  forth the  reported  high and low
closing  sale  prices  of the  Common  Stock on the  Nasdaq/NM  for the  periods
indicated:

       1996                           High                       Low
       ----                          ----                       ---
       First quarter               $16.250                    $7.375
       Second quarter               17.125                    12.625
       Third quarter                15.875                    11.000
       Fourth quarter               13.125                      9.25

       1997
       First quarter               $17.000                   $11.800
       Second quarter               17.250                    12.250
       Third quarter                22.000                    15.500
       Fourth quarter               31.875                    18.500

       1998
       First quarter               $45.000                   $29.750
       (through March 2, 1997)

                  As of March 2, 1998,  the  closing  sales  price of the Common
Stock on Nasdaq/NM was $44.00 per share and there were approximately 109 holders
of record of Common Stock.

                  The  Company  has not paid any cash  dividends  on its  Common
Stock and does not  anticipate  paying any Common  Stock cash  dividends  in the
foreseeable future. The Company intends to retain earnings to finance the growth
of its operations. The payment of Common Stock cash dividends in the future will
depend upon such factors as earnings levels, capital requirements, the Company's
financial  condition,  the  applicability of any  restrictions  imposed upon the
Company's subsidiary by certain of its financing  agreements,  and other factors
deemed relevant by the Board of Directors. In addition, Atlantic Coast Airlines,
Inc. is a holding  company and its only  significant  asset is its investment in
its subsidiary, Atlantic Coast Airlines.

                  In January  1996,  the Company's  Board of Directors  declared
dividends of  approximately  $0.3 million on its Redeemable  Series A Cumulative
Convertible  Preferred Stock  representing the cumulative  dividend for the full
year 1995. The Company paid these dividends in February 1996. On March 29, 1996,
the Company redeemed all of the preferred stock for $3.8 million.  The preferred
stock was issued to JSX Capital  Corporation  ("JSX"),  a subsidiary  of British
Aerospace,  Inc. in December 1994 as part of a $20 million  financing  agreement
consisting of an equity investment and available borrowings.

                  On July 2, 1997,  the  Company  issued $50  million  aggregate
principal  amount of 7.0% Convertible  Subordinated  Notes due July 1, 2004 (the
"Notes"),  pursuant to Rule 144A under the  Securities Act of 1933, and received
net proceeds of approximately $48.3 million related to the sale of the Notes. On
July 18, 1997, the Company received  additional net proceeds of $7.3 million for
the exercise of the over-allotment option. The notes are convertible into shares
of Common  Stock,  par value $0.02 of the Company  (the  "Common  Stock") by the
holders  at any time after  sixty days  following  the latest  date of  original
issuance  thereof  and  prior  to  maturity,   unless  previously   redeemed  or
repurchased,  at a  conversion  price  of $18  per  share,  subject  to  certain
adjustments.  The Company may not call the notes for redemption prior to July 1,
2000.

                  In  January  1998,  $5.9  million  face  amounts of Notes were
converted at the option of several  holders into 330,413 shares of the Company's
Common Stock. On March 3, 1998, the Company  notified  holders of the Notes that
the Company was temporarily reducing the conversion price in order to induce the
holders to redeem their Notes for Common Stock. If all remaining  holders of the
Notes  converted  to Common  Stock  pursuant to this  inducement,  approximately
46,000  shares  of  Common  Stock  will be  issued  representing  the  reduction
component  of the  conversion  price.  The  holders  have until April 8, 1998 to
accept the Company's inducement.

                  In July 1997, the Company  repurchased  1.46 million shares of
the  Company's  Common Stock from British  Aerospace  for $16.9  million using a
portion of the proceeds received from the issuance of the Notes.


Item 6.           Selected Financial Data

                  The  following  selected  financial  data  under  the  caption
"Consolidated  Financial Data" and "Consolidated Balance Sheet Data" relating to
the years ended December 31, 1993,  1994,  1995, 1996 and 1997 have been derived
from the Company's  consolidated  financial  statements.  The following selected
operating  data under the caption  "Selected  Operating  Data" have been derived
from Company records.  The data should be read in conjunction with "Management's
Discussion  and Analysis of Results of Operations  and Financial  Condition" and
the Consolidated  Financial  Statements and Notes thereto included  elsewhere in
this Annual Report on Form 10-K.


<PAGE>

<TABLE>

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(Dollars in thousands, except per share and related operating data)

Consolidated Financial Data:                                       Years ended December 31,
<CAPTION>

                                                       1993                1994               1995             1996             1997
                                            ----------------    ----------------   ----------------   --------------    ------------
<S>                                         <C>                 <C>                <C>                <C>               <C>    

Operating revenues:
  Passenger revenues                              $145,786            $156,047            $153,918         $179,370         $202,540
  Total operating revenues                         149,103             158,919             156,968          182,484          205,444
Operating expenses:
  Salaries and related costs                        35,162              41,590              40,702           44,438           49,661
  Aircraft fuel                                     15,397              15,189              13,303           17,124           17,766
  Aircraft maintenance and materials                19,714              22,345              15,252           16,841           16,860
  Aircraft rentals                                  31,087              35,565              25,947           29,137           29,570
  Traffic commissions and related fees              22,914              25,913              25,938           28,550           32,667
  Depreciation and amortization                      1,654               2,329               2,240            2,846            3,566
  Other                                             20,608              25,167              21,262           23,711           26,411
  Write-off of  intangible assets                        -               6,000                   -                -                -
  Restructuring charges (reversals)                      -               8,099               (521)            (426)                -
                                            ----------------    ----------------   ----------------   --------------
                                                                                                                        ------------
  Total operating expenses                         146,536             182,197             144,123          162,221          176,501

                                                                
                                            ----------------    ----------------   ----------------   --------------    ------------
Operating income (loss)                              2,567            (23,278)              12,845           20,263           28,943

                                                                
                                            ----------------    ----------------   ----------------   --------------    ------------

  Interest expense                                 (2,298)             (2,153)             (1,802)          (1,013)          (3,450)
  Interest income                                       60                   -                  66              341            1,284
  Other (expenses) income                            (225)                 295                 181               17               62
                                                                
                                            ----------------    ----------------   ----------------   --------------    ----------
Total non operating expenses                       (2,463)             (1,858)             (1,555)            (655)          (2,104)
                                            ----------------    ----------------   ----------------   --------------    ------------

Income (loss) before income tax expense
   and extraordinary item                              104            (25,136)              11,290           19,608           26,839
Income tax provision (benefit)                          67                   -             (1,212)              450           12,339
                                            ----------------    ----------------   ----------------   --------------    ------------

Income (loss) before extraordinary item                 37            (25,136)              12,502           19,158           14,500
Extraordinary item (1)                             (1,780)                   -                 400                -                -
                                            ----------------    ----------------   ----------------   --------------    ------------
  Net Income (loss)                               $(1,743)           $(25,136)             $12,902          $19,158          $14,500
                                            ================    ================   ================   ==============    ============


</TABLE>

<PAGE>

<TABLE>

SELECTED CONSOLIDATED  FINANCIAL AND OPERATING  DATA 
(Dollars in thousands, except per share and related operating data)

                                                                   Years ended December 31,
<CAPTION>

                                                 1993              1994             1995                1996                1997
                                             
                                             --------------    --------------   --------------    -----------------    -------------
Income (loss) per share:

  <S>                                        <C>               <C>              <C>               <C>                  <C>        
  Basic:
    Income (loss) before extraordinary item         $0.01            $(3.67)           $1.46                $2.25             $1.85
    Extraordinary item                              (0.29)                -             0.05                    -                 -
                                             ==============   ===============   ==============    =================    =============
  Net  income (loss) per share                     $(0.28)           $(3.67)           $1.51                $2.25             $1.85
                                             ==============   ===============   ==============    =================    =============

  Diluted:
    Income (loss) before extraordinary item         $0.01            $(3.67)           $1.29                $2.15             $1.61
    Extraordinary item                              (0.29)                -             0.04                    -                 -
                                             ==============   ===============   ==============    =================    =============
  Net  income (loss) per share                     $(0.28)           $(3.67)           $1.33                $2.15             $1.61
                                             ==============   ===============   ==============    =================    =============



Weighted average  number of shares used
   in computation  (in thousands)
      Basic                                         6,083             6,858             8,342                8,481             7,824
      Diluted                                       6,083             6,858             9,871                8,920             9,756
Selected Operating Data:
    Departures                                     97,291           134,804           131,470              137,924           146,069
    Revenue passengers carried                  1,445,878         1,545,520         1,423,463            1,462,241         1,666,975
    Revenue passenger miles (000s) (2)            381,489           393,013           348,675              358,725           419,977
    Available seat miles (000s) (3)               853,668           885,744           731,109              771,068           861,222
    Passenger load factor (4)                       44.7%             44.3%             47.7%                46.5%             48.8%
    Breakeven passenger load factor (5)             43.9%             47.0%             43.9%                41.4%             41.8%
    Revenue per available seat mile                $0.175            $0.179            $0.215               $0.237            $0.239
    Cost per available seat mile (6)               $0.171            $0.189            $0.198               $0.211            $0.205
    Average yield per revenue passenger            $0.382            $0.397            $0.441               $0.500            $0.482
mile (7)
    Average fare                                     $101              $101              $108                 $123              $122
    Average passenger trip length (miles)             264               254               245                  245               252
    Aircraft in service (end of period)                62                56                54                   57                65
    Destinations served (end of period)                54                42                41                   39                43

Consolidated Balance Sheet Data:
    Working capital (deficiency)                 $(3,935)           (4,488)             $4,552              $17,782          $45,177
    Total assets                                   52,448            40,095            47,499               64,758           148,992
    Long-term debt and capital leases, less
current                                             5,941             6,675             7,054                5,673            76,146
         portion
    Redeemable common stock warrants                    -                 -                 -                    -                 -
    Redeemable Series A, Cumulative,
Convertible,                                            -             3,825             3,825                    -                 -
         Preferred Stock
    Total stockholders' equity                     19,595             1,922            14,561               34,637            34,805

</TABLE>

<PAGE>


     (1)  In connection with the early  extinguishment  of certain senior notes,
          in 1993 the Company  recorded an  extraordinary  charge of  $1,779,583
          resulting  from  the  write-off  of the  unamortized  portion  of debt
          discount  and  the  deferred   finance  costs   associated   with  the
          extinguished  debt;  and in 1995  an  extraordinary  gain of  $400,000
          related   to  the   early   extinguishment   of   debt.   No   similar
          extinguishments were recognized in 1996 or 1997.

     (2)  "Revenue  passenger  miles" or "RPMs"  represent  the  number of miles
          flown by revenue passengers.


     (3)  "Available  seat  miles"  or  "ASMs"  represent  the  number  of seats
          available for passengers  multiplied by the number of scheduled  miles
          the seats are flown.

     (4)  "Passenger  load factor"  represents the percentage of seats filled by
          revenue  passengers  and is calculated by dividing  revenue  passenger
          miles by available seat miles.

     (5)  "Breakeven  passenger load factor"  represents the percentage of seats
          filled by  revenue  passengers  for the  airline  to break  even after
          operating  expenses,  less other revenues and excluding  restructuring
          and write-offs of intangible  assets. Had restructuring and write-offs
          of intangible  assets been  included for the years ended  December 31,
          1993,  1994,  1995,  1996 and 1997,  this  percentage  would have been
          43.9%,  51.0%,  43.8%, 41.3% and 41.8%,  respectively.  
    
     (6)  "Operating  cost per available seat mile"  represents  total operating
          expenses  excluding  restructuring and write-offs of intangible assets
          divided by available seat miles. Had  restructuring  and write-offs of
          intangible assets been included for the years ended December 31, 1993,
          1994,  1995,  1996 and 1997,  cost per available  seat mile would have
          been  $0.172,  $0.206,  $0.197,  $0.210 and $0.205  respectively.  

     (7)  "Average  yield per revenue  passenger  mile"  represents  the average
          passenger  revenue  received  for each  mile a  revenue  passenger  is
          carried.

<PAGE>


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

General

                  In  1997,  Atlantic  Coast  Airlines,  Inc.  ("ACAI")  and its
wholly-owned  subsidiary,   Atlantic  Coast  Airlines  ("ACA"),  together  ("the
Company"),  posted  a profit  of $14.5  million  compared  to a profit  of $19.2
million for 1996, and $12.9 million in 1995. The reduced profitability from 1996
to 1997 is primarily  due to an increase in the  Company's  provision for income
taxes of  approximately  $12.3  million  in 1997 as  compared  to  approximately
$500,000 for 1996.  The increase in the tax  provision in 1997 reflects the full
utilization  of net operating loss  carryforwards  in 1996 and the use of a more
conservative  approach to estimating  permanent  differences between taxable and
book income. Pretax income increased 37% from 1996 to 1997 principally caused by
a 2.3 point load factor gain and a 2.8%  reduction  in cost per  available  seat
mile ("ASM") partially offset by a 3.6% reduction in yield. The improvement from
1995 to 1996 reflects  increases in the Company's  yields as well as a reduction
in  the  break-even   passenger  load  factor.   Management  believes  that  the
improvement  from 1995 to 1996 is attributable  to the benefits  realized from a
major  restructuring  in  1994.  As a  result  of these  actions,  coupled  with
improvements in yield management,  marketing,  and a generally improved economic
environment for airlines,  the Company  returned to  profitability in the second
quarter 1995, achieving record operating profits for 1995, 1996 and 1997.

Results of Operations

                  The  Company  earned net income of $14.5  million or $1.61 per
diluted  share in 1997  compared  to net  income of $19.2  million  or $2.15 per
diluted  share in 1996,  and $12.9  million or $1.33 per diluted  share in 1995.
During 1997, the Company generated operating income of $28.9 million compared to
$20.3 million for 1996, and $12.8 million for 1995.  Operating margins for 1997,
1996 and 1995 were 14.1%, 11.1% and 8.2%, respectively.

     The  improvement  in operating  results  from 1996 to 1997  reflects a 1.0%
increase in unit revenue (revenue per ASM) from $0.237 to $0.239 coupled with an
11.7% increase in ASMs and a 2.8% decrease in unit cost (cost per ASM.

                  The  improvement  in  operating  results  from  1995  to  1996
reflects a 10.2%  increase  in unit  revenue  (revenue  per ASM) from  $0.215 to
$0.237 coupled with a 5.5% increase in ASMs partially  offset by a 6.6% increase
in unit cost (cost per ASM).  These results were achieved  despite a challenging
operating  environment  brought about by a 20.5% increase in the cost per gallon
of fuel in 1996.

Fiscal Year 1996 vs. 1997

Operating Revenues

     The Company's  operating revenues increased 12.6% to $205.4 million in 1997
compared to $182.5 million in 1996. The increase resulted from an 11.7% increase
in ASMs,  an increase in load factor of 2.3 points,  partially  offset by a 3.6%
decrease in yield.

                  The reduction in yield is related in part to the reinstatement
of the federal excise ticket tax from March 7, 1997 through the remainder of the
year.  During 1996, this tax was only in effect from August 27, 1996 to December
31, 1996. Total passengers  increased 14.0% in 1997 compared to 1996 as a result
of the 11.7% increase in ASMs and 2.3 point increase in load factor.

Operating Expenses

                  The  Company's  operating  expenses  increased  8.8% to $176.5
million in 1997  compared to $162.2  million in 1996 due  primarily  to an 11.7%
increase in ASMs,  and a 14.0%  increase  in  passengers.  The  increase in ASMs
reflects  the net  addition  of five  British  Aerospace  Jetstream-41  ("J-41")
aircraft during 1997.

     A summary of operating  expenses as a percentage  of operating  revenue and
operating  cost per ASM for the years  ended  December  31,  1996 and 1997 is as
follows:
<TABLE>


                                                                 Year Ended December 31,
                                                        1996                            1997
<CAPTION>
                                            ------------------------------ --------------------------------
                                              Percent of         Cost        Percent of          Cost
                                               Operating       per ASM        Operating        per ASM
                                               Revenues        (cents)        Revenues         (cents)
                                            --------------- ---------------- ------------- ---------------- 
<S>                                         <C>             <C>              <C>           <C>    
                                            
Salaries and related costs                       24.4%           5.8            24.2%            5.8
Aircraft fuel                                     9.4%           2.2             8.6%            2.1
Aircraft maintenance and materials                9.2%           2.2             8.2%            2.0
Aircraft rentals                                 16.0%           3.8            14.4%            3.4
Traffic commissions and related fees             15.6%           3.7            15.9%            3.8
Depreciation and amortization                     1.6%            .4             1.7%             .4
Other                                            13.0%           3.0            12.9%            3.0
                                            ---------------- ------------- ---------------- ---------------

    Total (before reversals of
    restructuring charges)                       89.2%           21.1           85.9%            20.5
                                            ---------------- ------------- ---------------- ---------------
</TABLE>

                  Costs  per  ASM  before  reversals  of  restructuring  charges
decreased  2.8% to 20.5 cents in 1997  compared to 21.1 cents in 1996  primarily
due to an 11.7%  increase in ASMs in 1997  compared  to 1996,  offset by a 14.0%
increase in  passengers  carried.  The  increase in ASMs  resulted  from the net
addition of five J-41 aircraft and five 50-seat  Canadair  Regional Jets ("CRJ")
aircraft along with a 1.8% improvement in daily aircraft block hour utilization.

                  Salaries and related  costs per ASM remained  unchanged at 5.8
cents in 1997  compared  to 1996.  In  absolute  dollars,  salaries  and related
expenses  increased  11.9% from $44.4  million in 1996 to $49.7 million in 1997.
The increase  resulted from  additional  flight payroll related to a contractual
increase in May 1996 and February  1997 and a 10.7%  increase in profit  sharing
expense year over year.

                  The cost per ASM of aircraft  fuel  decreased  to 2.1 cents in
1997 compared to 2.2 cents in 1996. The total cost of fuel per gallon  decreased
4.2% to 79.3 cents in 1997 compared to 82.8 cents in 1996. In absolute  dollars,
aircraft fuel expense increased 4.1% from $17.1 million in 1996 to $17.8 million
in 1997.

                  The  cost  per  ASM  of  aircraft  maintenance  and  materials
decreased  to 2.0 cents in 1997  compared  to 2.2 cents in 1996.  The  decreased
maintenance expense resulted primarily from the receipt of performance guarantee
fees from an overhaul  vendor.  In absolute  dollars,  aircraft  maintenance and
materials  expense increased 0.6% from $16.8 million in 1996 to $16.9 million in
1997.

                  The cost per ASM of aircraft rentals decreased to 3.4 cents in
1997  compared  to 3.8 cents in 1996.  The  decreased  unit  costs  reflect  the
refinancing  to lower rental rates of eleven used J-41 aircraft and the purchase
by the Company of three used J-41s. All of these  transactions were accomplished
in the second half of 1997. In absolute dollars, aircraft rentals increased 1.7%
from $29.1 million in 1996 to $29.6 million in 1997.

                  The cost  per ASM of  traffic  commissions  and  related  fees
increased  to 3.8 cents in 1997  compared  to 3.7 cents in 1996.  The  increased
commissions reflect the contractual increases in program fees paid to United and
a higher  percentage of tickets sold by travel  agencies.  Commission rates as a
percent of total passenger  revenue fluctuate based on the mix of commissionable
and  non-commissionable  tickets,  and have  changed  due to a cap on the  total
amount of commission that travel agents can earn. Commissions as a percentage of
total  passenger  revenue  averaged 7.3% in 1997 and 7.4% in 1996.  Related fees
include  program fees to United and segment  booking fees for  reservations.  In
absolute  dollars,  traffic  commissions  and related fees increased  14.3% from
$28.6 million in 1996 to $32.7 million in 1997.

                  The cost per ASM of  depreciation  and  amortization  remained
unchanged  at 0.4  cents  in  1997  compared  to  1996.  Absolute  increases  in
depreciation  expense were offset by increases  in ASMs.  The absolute  increase
results primarily from the purchase of four J-41 aircraft (one of these aircraft
was new to the fleet in 1997),  additional  rotable spare parts  associated with
additional J-41 aircraft,  improvements to aircraft,  leasehold improvements and
purchases  of  computer  equipment.   In  absolute  dollars,   depreciation  and
amortization  expense  increased 28.6% from $2.8 million in 1996 to $3.6 million
in 1997.

                  The  cost  per  ASM  of  other  operating   expenses  remained
unchanged at 3.0 cents in 1997 compared to 1996.  Absolute increases were offset
by increased ASMs. The absolute increase in expenses are primarily  attributable
to increased  facility  rents and  distressed  passenger  expenses.  In absolute
dollars,  other operating expenses increased 11.4% from $23.7 million in 1996 to
$26.4 million in 1997.

                  As a result of the foregoing  expense items,  total  operating
expenses before reversals of  restructuring  charges were  approximately  $176.5
million for 1997, an increase of 8.5% compared to $162.6 million in 1996.  Total
ASMs  increased  11.7% year over year and the cost per ASM  decreased  from 21.1
cents for 1996 to 20.5 cents for 1997.

                  The Company reversed excess restructuring reserves of $426,000
in 1996 (0.1 cents per ASM). The Company  established the reserves with a charge
of $8.1 million in 1994. The reversals  reflected  remaining unused reserves for
pilot  requalification,   return  conditions,  spare  parts  reconciliation  and
miscellaneous  professional  fees.  As of  December  31,  1996,  there  were  no
remaining reserves related to the restructuring.

                  Interest expense,  net of interest income, was $2.2 million in
1997 and $672,000 in 1996. The increased expense reflects the Company's issuance
in July  1997 of $57.5  million  of 7%  convertible  debt and $16.4  million  of
equipment  notes  associated  with pass  through  trust  certificates  issued in
September 1997 reduced by a significant  increase in the Company's cash balances
in 1997 and use of proceeds from the  convertible  debt to repay higher interest
bearing debt.

                  The  Company   recorded  a  provision   for  income  taxes  of
approximately  $12.3 million for 1997,  compared to a provision for income taxes
of approximately  $500,000 in 1996. The 1996 effective tax rate of approximately
2.3% is  significantly  less than the  statutory  federal  and  state  rates due
principally to the full utilization of net operating loss  carryforwards and the
elimination  of  the  valuation  allowance.  The  1997  effective  tax  rate  of
approximately  46% is higher than the  statutory  federal and state  rates.  The
Company  believes the higher  effective tax rate is nonrecurring  and reflects a
more conservative  approach to estimating permanent  differences between taxable
and book income.  The Company  expects a more  normalized  effective tax rate in
1998.  The  Company  has  recorded  a net  deferred  tax asset of  approximately
$688,000 at December 31, 1997  compared to $3.1 million at December 31, 1996. No
net operating loss carryforwards were available for 1997.

Fiscal Year 1995 vs. 1996

Operating Revenues

                  The Company's  operating  revenues  increased  16.2% to $182.5
million in 1996 compared to $157 million in 1995.  The increase  resulted from a
5.5% increase in ASMs and a 13.3% increase in yield,  partially  offset by a 1.2
percentage point decrease in passenger load factor.

                  The increase in yield is related in part to the  expiration of
the ticket tax on December 31, 1995. The increase in yield caused by this factor
cannot be  determined  nor can the  impact on  revenue  that  resulted  from the
reinstatement of the tax on August 27, 1996. Revenue per ASM improved 10.2% year
over year. Total passengers increased 2.7% in 1996 compared to 1995.

Operating Expenses

     The Company's  operating  expenses increased 12.6% in 1996 compared to 1995
due primarily to a 5.5% increase in ASMs, and a 2.7% increase in passengers. The
increase in ASMs reflects the addition of two J-41 aircraft.

     A summary of operating  expenses as a percentage of operating  revenues and
operating  cost per ASM for the years  ended  December  31,  1995 and 1996 is as
follows:
                                                                 






<PAGE>
<TABLE>

                                                                 Year Ended December 31,
                                                         1995                           1996
<CAPTION>
                                             ------------------------------ ------------------------------
                                               Percent of        Cost        Percent of         Cost
                                               Operating        per ASM       Operating       per ASM
                                                Revenues        (cents)       Revenues        (cents)
                                             --------------- -------------- -------------- ---------------

<S>                                          <C>             <C>            <C>            <C>   
Salaries and related costs                        25.9%            5.7          24.4%           5.8
Aircraft fuel                                      8.5%            1.8           9.4%           2.2
Aircraft maintenance and materials                 9.7%            2.1           9.2%           2.2
Aircraft rentals                                  16.5%            3.5          16.0%           3.8
Traffic commissions and related fees              16.5%            3.5          15.6%           3.7
Depreciation and amortization                      1.4%             .3           1.6%            .4
Other                                             13.6%            2.9          13.0%           3.0
                                             --------------- -------------- -------------- ---------------
    Total (before reversals of
    restructuring charges)                        92.1%          19.8           89.2%          21.1
                                             --------------- -------------- -------------- ---------------
</TABLE>

                  Cost  per  ASM  before  reversals  of  restructuring   charges
increased  6.6% to 21.1 cents in 1996  compared to 19.8 cents in 1995  primarily
due to the  increased  cost of fuel,  increases in aircraft  rental  expense and
landing fees from  additional  aircraft and additional  traffic  commissions and
related fees resulting from a 16.3% increase in total operating  revenue.  These
factors were slightly offset by a 5.5% increase in ASMs.

                  Salaries and related  costs per ASM  increased to 5.8 cents in
1996 compared to 5.7 cents in 1995. The increase resulted from additional flight
payroll  related to a contractual  increase in May 1996 and an 80.4% increase in
profit  sharing  year over year.  In  absolute  dollars,  salaries  and  related
expenses increased 9.1% from $40.7 million in 1995 to $44.4 million in 1996.

                  The total cost per ASM of aircraft fuel increased to 2.2 cents
in 1996  compared  to 1.8  cents  in 1995.  The  total  cost of fuel per  gallon
increased  20.5% due to increases in aircraft  fuel prices and the 4.3 cents per
gallon fuel tax imposed by the federal  government in October 1995.  The average
cost per  gallon,  including  into-plane  fees,  was 82.8 cents in 1996 and 68.7
cents in 1995. In absolute  dollars,  aircraft fuel expense increased 28.6% from
$13.3 million in 1995 to $17.1 million in 1996.

                  The  cost  per  ASM  of  aircraft  maintenance  and  materials
increased  to 2.2 cents in 1996  compared  to 2.1 cents in 1995.  The  increased
maintenance  expense  resulted  primarily from an increase in the average age of
the fleet,  the  expiration  of warranty  coverage on certain  aircraft and rate
increases in contract  maintenance for engines.  In absolute  dollars,  aircraft
maintenance and materials  expense  increased 9.8% from $15.3 million in 1995 to
$16.8 million in 1996.

                  The cost per ASM of aircraft rentals increased to 3.8 cents in
1996  compared  to 3.5  cents  in  1995.  The  increased  expenses  reflect  two
additional J-41 aircraft  delivered in 1996 and the full year effect of aircraft
delivered in 1995. In absolute  dollars,  aircraft rentals  increased 12.4% from
$25.9 million in 1995 to $29.1 million in 1996.

                  The cost  per ASM of  traffic  commissions  and  related  fees
increased  to 3.7 cents in 1996  compared  to 3.5 cents in 1995.  The  increased
commission reflects the increase in passenger revenue and contractual  increases
in program fees paid to United.  Commission  rates fluctuate based on the mix of
commissionable and non-commissionable  tickets, and have changed due to a cap on
the total amount of  commission  that travel  agents can claim.  Commission as a
percentage of total  passenger  revenue  averaged 7.4% in 1996 and 8.0% in 1995.
Related  fees  include  program  fees to United  and  segment  booking  fees for
reservations.   In  absolute  dollars,  traffic  commissions  and  related  fees
increased 10.4% from $25.9 million in 1995 to $28.6 million in 1996.

                  The cost per ASM of depreciation and amortization increased to
0.4 cents in 1996 compared to 0.3 cents in 1995. The increase results  primarily
from  the  acquisition  of  additional   rotable  spare  parts  associated  with
additional J-41 aircraft,  improvements to aircraft,  leasehold improvements and
purchases  of  computer   equipment.   There  were  no  significant  changes  in
amortization  in either 1996 or 1995.  In  absolute  dollars,  depreciation  and
amortization  expense  increased 27.3% from $2.2 million in 1995 to $2.8 million
in 1996.

                  The cost per ASM of other operating  expenses increased to 3.0
cents in 1996  compared  to 2.9  cents  in  1995.  The  increased  expenses  are
primarily  attributable  to increased  glycol costs  resulting  from  relatively
severe winter weather, additional pilot training costs and increased legal fees.
In absolute dollars, other operating expenses increased 11.3% from $21.3 million
in 1995 to $23.7 million in 1996.

                  As a  result  of the  foregoing  components,  total  operating
expenses before reversals of  restructuring  charges were  approximately  $162.6
million for 1996, an increase of 12.4% compared to $144.6 million in 1995. Total
ASMs  increased  5.5% year over  year and the cost per ASM  increased  from 19.8
cents for 1995 to 21.1 cents for 1996.

                  The Company reversed excess restructuring reserves of $426,000
in 1996  (0.1  cents per ASM) and  $521,000  in 1995  (0.1  cents per ASM).  The
Company  established  the reserves  with a charge of $8.1  million in 1994.  The
reversals reflected remaining unused reserves for pilot requalification,  return
conditions,  spare parts reconciliation and miscellaneous  professional fees. As
of  December  31,  1996,  there  were  no  remaining  reserves  related  to  the
restructuring.

                  Interest expense, net of interest income, was $672,000 in 1996
and $1.7 million in 1995.  The decreased  expense  reflects  reduced  borrowings
under  the  Company'  accounts  receivable  financing  facility  and  the  early
retirement  of a $4  million  convertible  term  note to  British  Aerospace  in
December 1995.

                  The  Company   recorded  a  provision   for  income  taxes  of
approximately  $500,000 for 1996,  compared to a benefit of  approximately  $1.2
million in 1995.  The benefit  recorded in 1995 reflects the  recognition of the
deferred  tax  asset of $1.5  million  in the  fourth  quarter  of 1995,  net of
valuation  allowance.  The  1996  effective  tax rate of  approximately  2.3% is
significantly less than the statutory federal and state rates due principally to
the full utilization of net operating loss  carryforwards and the elimination of
the valuation  allowance.  The Company recorded a net deferred tax asset of $3.1
million at December 31, 1996.

Outlook

                  This Outlook  section and the Liquidity and Capital  Resources
section below contain forward-looking  statements.  The Company's actual results
may  differ   significantly   from  the  results  discussed  in  forward-looking
statements.  Factors  that could cause the  Company's  future  results to differ
materially  from the  expectations  described  here  include the response of the
Company's  competitors to the Company's business strategy,  market acceptance of
CRJ service to new destinations,  the cost of fuel, the weather, satisfaction of
regulatory requirements and general economic and industry conditions.

                  A  central  element  of the  Company's  business  strategy  is
expansion  of its  aircraft  fleet.  At  December  31,  1997,  the  Company  had
commitments to acquire 18 additional 50-seat CRJs, one of which was delivered in
January  1998.  The  introduction  of these  aircraft  will expand the Company's
business  into new  markets.  In  general,  service to new markets may result in
increased  operating expenses that may not be immediately offset by increases in
operating revenues.

Liquidity and Capital Resources

                  The Company's balance sheet improved significantly during 1997
compared  to 1996.  As of  December  31,  1997,  the  Company  had cash and cash
equivalents  of $39.2 million and working  capital of $45.2 million  compared to
$21.5 million and $17.8 million respectively as of December 31, 1996. During the
year ended December 31, 1997, cash and cash equivalents increased $17.7 million,
reflecting net cash provided by operating  activities of $21.3 million, net cash
used in investing activities of $55.2 million (related to deposits for the CRJs,
purchases of equipment  and  increases in short term  investments)  and net cash
provided  by  financing  activities  of  $51.6  million.  Net cash  provided  by
financing activities increased principally due to the receipt of net proceeds of
$55.6  million  in July 1997 from the  issuance  of  convertible  notes due 2004
partially  offset by the $16.9 million  purchase of the  Company's  common stock
from British Aerospace in July 1997.

                  As of  December  31,  1996  the  Company  had  cash  and  cash
equivalents  of $21.5 million and working  capital of $17.8 million  compared to
$8.4 million and $4.6 million respectively as of December 31, 1995. During 1996,
cash and cash equivalents increased $13.1 million,  reflecting net cash provided
by operations of $20.1  million,  net cash used in investing  activities of $2.2
million (related to purchases or spare parts and equipment) and net cash used in
financing  activities of $4.9 million  (primarily  related to the  redemption of
preferred stock and payments on long-term debt and capital lease obligations).

         Other Financing

                  The  Company  has  an  asset-based  lending  agreement  with a
financial  institution  that provides the Company with a line of credit of up to
$20 million, depending on the amount of assigned ticket receivables.  Borrowings
under the line of credit can  provide  the  Company a source of working  capital
until proceeds from ticket coupons are received.  The line is  collateralized by
all of the Company's  receivables  and there were no  borrowings  under the line
during  1997.  The  Company  pledged  $7.7  million  of this  line of  credit as
collateral  to secure  letters  of credit  issued on behalf of the  Company by a
financial institution.

                  In June 1997, the Industrial  Development Authority of Loudoun
County,  Virginia  ("IDA")  approved a $9.4 million tax exempt bond  issuance in
connection with the Company's proposed construction of a maintenance facility at
Washington-Dulles.  The  Company  has paid  approximately  $500,000 to cover the
costs  associated  with  furnishing and equipping the new facility.  These bonds
were issued under a variable interest rate structure for a twenty-five year term
including  a  requirement  for  a  monthly  sinking  fund  provision,   and  are
collateralized  by a $9.6  million  letter  of  credit  issued  on behalf of the
Company by a financial  institution.  The letter of credit is  collateralized by
the  Company's  leasehold  deed of trust on the  maintenance  facility  and $4.9
million of the  Company's  line of credit.  The Company will be obligated to pay
rent for the facility and the underlying land leasehold, the proceeds from which
the IDA will make the required  interest  and sinking fund  payments on the bond
obligation.  In the  event of a  default,  the  Company  would be  obligated  to
reimburse  the  financial  institution  to the  maximum  amount of the letter of
credit. Annual rent is subject to escalation every five years. In February 1998,
the Company occupied this building and began paying rent.

                  On July 2, 1997,  the  Company  issued $50  million  aggregate
principal  amount of 7%  Convertible  Subordinated  Notes due July 1, 2004 ("the
Notes").  The Company  received  net  proceeds of  approximately  $48.3  million
related to the sale of the Notes.  In addition,  the Company granted the initial
purchasers  a thirty day option to purchase  up to an  additional  $7.5  million
aggregate principal amount of the Notes solely to cover over-allotments. On July
18, 1997,  the Company  received  net  proceeds of $7.3  million  related to the
exercise of this option. The net proceeds of the Note offering have been used to
support the  introduction of the Company's  regional jet fleet,  repurchase 1.46
million shares of the Company's Common Stock from British Aerospace as described
below, retire higher interest rate debt and for general corporate purposes.

                  The Notes are convertible into shares of Common Stock,  unless
previously  redeemed or  repurchased,  at a  conversion  price of $18 per share,
subject to certain adjustments.  Interest on the Notes is payable on April 1 and
October 1 of each year, commencing October 1, 1997. The Notes are not redeemable
by the Company until July 1, 2000. Thereafter,  the Notes will be redeemable, at
any time,  on at least 15 days notice at the option of the Company,  in whole or
in part, at the redemption prices set forth in the Indenture dated July 2, 1997,
in each case, together with accrued interest.

                  In  January  1998,  $5.9  million  face  amount of Notes  were
converted by several holders into 330,413 shares of the Company's Common Stock.

                  On March 3, 1998,  the Company  notified  holders of the Notes
that the Company  was  temporarily  reducing  the  conversion  price in order to
induce the Note  holders to convert  their  Notes into  Common  Stock.  The Note
holders have until April 8, 1998 to accept the Company's inducement.

     In April  1997,  the  Company  executed  a short term  promissory  note for
deposits  totaling  $11  million  related to the  acquisition  of the CRJs.  The
promissory  note was paid in full on July 2, 1997 from the net  proceeds  of the
Notes.
      
                  In July 1997, the Company  repurchased  1.46 million shares of
the  Company's  Common  Stock from British  Aerospace  for  approximately  $16.9
million from the net proceeds of the sale of the Notes as described  above.  The
stock was  repurchased  at a 22.5%  discount from the average of the closing bid
prices during the period June 24 through June 30, 1997.

     During July 1997,  the Company  retired $3.1 million of other high interest
rate debt from the proceeds of the Notes.  In January 1998, the Company  retired
an additional $1.4 million in capital lease obligations.

                  In September 1997,  approximately $112 million of pass through
certificates were issued in a private placement by separate pass through trusts,
which  purchased  with the proceeds,  equipment  notes (the  "Equipment  Notes")
issued in connection  with (i)  leveraged  lease  transactions  relating to four
J-41s and six CRJs (delivered or expected to be delivered),  all of which are or
will be leased to the Company (the "Leased Aircraft"), and (ii) the financing of
four J-41s owned by the Company  (the "Owned  Aircraft").  The  Equipment  Notes
issued  with  respect  to the Owned  Aircraft  are  direct  obligations  of ACA,
guaranteed by ACAI and are included in the accompanying  consolidated  financial
statements.  The Equipment  Notes issued with respect to the Leased Aircraft are
not obligations of ACA or guaranteed by ACAI.

                  With respect to one CRJ leased aircraft,  at December 31, 1997
(the  "Prefunded  Aircraft"),  the proceeds from the sale of the Equipment Notes
were  deposited  into  collateral  accounts,  to be released at the closing of a
leveraged  lease related to the Prefunded  Aircraft.  In January 1998, an equity
investor  purchased  this  aircraft and entered into a leveraged  lease with the
Company and the collateral accounts were released.

         Other Commitments

                  In July 1997,  the Company  entered  into a series of interest
rate swap contracts in the amount of $39.8  million.  The swaps were executed by
purchasing  six  contracts  maturing  between  March  and  September  1998  with
Bombardier,  Inc. as the counter  party.  The interest rate hedge is designed to
limit approximately 50% of the Company's exposure to interest rate changes until
permanent  financing  for its second six CRJ  aircraft,  which are scheduled for
delivery between March and September 1998, is secured. At December 31, 1997, had
all contracts settled on that date, the Company would have been obligated to pay
the counter party approximately $1.4 million.

                  In January  1998,  the  Company  entered  into a  contract  to
purchase fuel from United Aviation Fuels  Corporation  ("UAFC"),  a wholly-owned
subsidiary of United Airlines during the period February through September 1998.
The Company has  committed to purchase  33,000  barrels of fuel per month during
the term of this contract at a delivered  price  excluding  taxes and into plane
fees of 52.2 cents per gallon.  In March 1998, the Company extended the contract
through  December 1998 committing to purchase 33,000 barrels per month,  October
through  December,  at a delivered  price excluding taxes and into plane fees of
50.35  cents per  gallon.  Fuel  purchased  under  this  arrangement  represents
approximately 46% of the Company's anticipated 1998 fuel requirements.

                  The  Company has  started to review its  computer  systems and
application  programs for year 2000  compliance.  The Company  believes that the
cost to modify any of its non-compliant  systems or applications will not have a
material effect on its financial position or results of its operations. However,
the Company can not give any  assurances  that the systems of other parties upon
which the Company  must rely,  will be year 2000  compliant  on a timely  basis.
Examples of systems operated by others that the Company may use and or rely upon
are:  FAA Air Traffic  Control,  Computer  Reservation  Systems for travel agent
sales  and  United  Airlines'  reservation,  passenger  check  in and  ticketing
systems.  The  Company's  business,   financial  condition  and  or  results  of
operations could be materially  adversely affected by the failure of its systems
and applications or those operated by others.

         Aircraft

                  The Company has  significant  lease  obligations  for aircraft
that are  classified  as operating  leases and  therefore  are not  reflected as
liabilities on the Company's  balance sheet.  The remaining terms of such leases
range from less than one year to sixteen and a half years.  The Company's  total
rent expense in 1997 under all  non-cancelable  aircraft  operating  leases with
remaining  terms of more than one year was  approximately  $29.2 million.  As of
December 31, 1997,  the  Company's  minimum  rental  payments for 1998 under all
non-cancelable  aircraft  operating leases with remaining terms of more than one
year were approximately $36 million.

                  As of March 4,  1998,  the  Company  had a total of 17 CRJs on
order from Bombardier,  Inc., in addition to the six delivered, and held options
for 25 additional  CRJs. The initial order for 12 CRJs and 36 options was placed
on January  28,  1997.  Options  were  exercised  on  November  20,  1997 for an
additional six firm and six conditional  CRJ deliveries.  On March 4, 1998, five
of the six  conditional  orders were  converted to firm orders and the remaining
one was  restored to option  status.  The first five CRJs were  delivered in the
third and fourth  quarters  of 1997.  Two  additional  CRJs have been  delivered
during  the  first  quarter  1998  under  operating  leases.   Seven  additional
deliveries are scheduled in 1998 and nine deliveries are scheduled in 1999 which
the Company is obligated to purchase and finance (including leveraged leases) at
an approximate capital cost of $296 million.

                  On February  23, 1997,  the Company  entered into an agreement
with Aero  International  (Regional) (the "BA J-41 Agreement") to acquire 12 new
J-41 aircraft,  and into a related agreement that gave the Company permission to
refinance through third parties up to fifteen previously delivered J-41 aircraft
that were under leases supported by British Aerospace.  The new aircraft were to
be  delivered  under  long-term  leases with  British  Aerospace,  but were also
eligible for third party financing.  Four of the new aircraft had been delivered
as of May 29, 1997,  when British  Aerospace  announced  that it would no longer
manufacture  the J-41 as part of its regular  product line. On July 2, 1997, the
Company  and  British  Aerospace  amended  the BA J-41  Agreement  to cancel any
further  deliveries of J-41s pursuant to the BA J-41  Agreement.  As part of the
amended BA J-41 Agreement, the Company received certain manufacturer credits and
support.  The  amendment  also  provides  that  British  Aerospace  will provide
additional asset value support for such contemplated third party financings.

                  During 1997, the Company  completed third party  financings of
eighteen  J-41 aircraft as follows:  On August 1, 1997,  three new J-41s through
leveraged  leases with a third  party;  on September  15,  1997,  two used J-41s
through single  investor  leases with a third party; on September 26, 1997, four
used  J-41s  through  leveraged  leases  with a third  party as part of the pass
through  certificates  as described  above;  on September 26, 1997,  one new and
three used J-41s  purchased by the Company with debt as part of the pass through
certificates;  on September  30, 1997,  two used J-41s through  single  investor
leases with a third party,  and on December 30, 1997,  three used J-41s  through
single investor leases with a third party. All of these aircraft were already on
lease to the Company at the time of closing, and prior leases were terminated as
part of these transactions.  As compared to the prior leases, these refinancings
have resulted in reduced payment obligations,  shorter lease terms, and improved
return  conditions.  On February  13,  1998,  the Company  entered into a single
investor lease with a third party for the last J-41 eligible for refinancing.

                  In  November  1997,  the  Company  entered  into a  lease  and
purchase agreement with Aero International (Regional) for the acquisition of one
additional  new J-41.  The  Company  will be  required  to arrange  third  party
financing  of this  aircraft,  or to  purchase  it  outright,  during the second
quarter  of 1998,  subject  to the  aircraft  being  properly  modified  by Aero
International.

                  In  order  to  ensure  the  highest  level  of  safety  in air
transportation,  the FAA has authority to issue maintenance directives and other
mandatory orders relating to, among other things, inspection of aircraft and the
mandatory  removal and  replacement of parts that have failed or may fail in the
future. In addition, the FAA from time to time amends its regulations which such
amended regulations may impose additional regulatory burdens on the Company such
as the  installation  of  new  safety-related  items  (collision  and  windshear
avoidance systems and enhanced flight data recorders).  Depending upon the scope
of the FAA's order and amended  regulations,  these  requirements  may cause the
Company to incur substantial, unanticipated expenses.

         Capital Equipment and Debt Service

                  In  1998  the   Company   anticipates   capital   spending  of
approximately  $60 million  consisting  primarily of $40 million to own two CRJs
and one J-41 aircraft,  $17 million for spare parts, engines and equipment,  and
$3 million for other capital  assets.  The Company  anticipates  that it will be
able to arrange  financing for the aircraft and spares  through a combination of
manufacturer and third party financing arrangements on favorable terms, although
there is no certainty  that such  financing will be available or in place before
the  commencement  of  deliveries.  The Company  currently  has an  agreement in
principle  from a third party for  approximately  $126 million in debt financing
associated with the purchase of nine CRJ's to be delivered in 1998 and 1999.

                  Debt service for 1998 is estimated  to be  approximately  $9.2
million  reflecting  increased  borrowings  related  to the  issuance  of the 7%
Convertible  Subordinated  Notes and the  purchase  of four J-41  aircraft.  The
foregoing  amount does not include  additional debt that may be required for the
financing of the CRJ spare parts and engines.

                  The  Company   believes   that,  in  the  absence  of  unusual
circumstances,  its cash flow from operations,  the accounts  receivable  credit
facility, and other available equipment financing will be sufficient to meet its
working capital needs, capital  expenditures,  and debt service requirements for
the next twelve months.

         Inflation

                  Inflation  has  not had a  material  effect  on the  Company's
operations.

         Recent Accounting Pronouncements

                  In  July  1997,  the  Financial   Accounting  Standards  Board
("FASB")  issued  Statement No. 130 ("SFAS No. 130"),  "Reporting  Comprehensive
Income",  which requires that comprehensive income and the associated income tax
expense or benefit be reported in financial  statements with the same prominence
as other financial  statements with an aggregate amount of comprehensive  income
reported in that same  financial  statement.  "Comprehensive  Income"  refers to
revenues,  expenses,  gains and losses  that under GAAP are not  included in net
income.  The impact of SFAS No. 130 will not change  levels of net  income,  but
will result in new disclosure requirements for the Company.

                  In July 1997,  the FASB also issued  Statement  No. 131 ("SFAS
No. 131"), "Disclosures About Segments of an Enterprise and Related Information"
which  requires  disclosure  for each  segment,  for which  the chief  operating
decision  maker  organizes  the  company  for  making  operating  decisions  and
assessing  performance.  Reportable segments are based on products and services,
geography,  legal  structure,  management  structure  and any  manner  in  which
management  disaggregates  the  company.  The  impact of SFAS No.  131 will also
result in new disclosure requirements for the Company.

                  Recently,   the  American   Institute   of  Certified   Public
Accountants  issued a proposed  statement of position on accounting for start-up
costs,  including  preoperating  costs related to the  introduction of new fleet
types by airlines. The proposed accounting guidelines would require companies to
expense  start-up  costs as incurred.  The FASB  recently  approved the proposed
guidelines,  and they will take effect for fiscal years beginning after December
15,  1998.  The Company  has  deferred  certain  start-up  costs  related to the
introduction  of the CRJs and is amortizing  such costs to expense  ratably over
four years.  The Company  will be  required to expense any  unamortized  amounts
remaining as of January 1, 1999. The Company estimates the remaining unamortized
balance  for  deferred  start-up  costs will be  approximately  $1.4  million on
January 1, 1999.



<PAGE>


Item 8.           Consolidated Financial Statements

         INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                                                           Page

Independent Auditors' Report for the year ended December 31, 1997

Report of  Independent  Certified  Public  Accountants  for the 
years ended December 31, 1995 and 1996 34 December 31, 1995 and 1996

Consolidated Balance Sheets as of December 31, 1996 and 1997

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

Consolidated  Statements  of  Stockholders'  Equity  for  the  
years  ended December 31, 1995, 1996 and 1997

Consolidated  Statements  of Cash Flows for the years  ended
December  31, 1995, 1996 and 1997 38 December 31, 1995, 1996 and 
1997

Notes to Consolidated  Financial  Statements 






<PAGE>


Independent Auditors' Report


The Board of Directors and Stockholders
Atlantic Coast Airlines, Inc.

We have audited the  accompanying  consolidated  balance sheet of Atlantic Coast
Airlines,  Inc.  and  Subsidiary  as of  December  31,  1997,  and  the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Atlantic  Coast
Airlines,  Inc. and  subsidiary as of December 31, 1997 and the results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
generally accepted accounting principles.


Washington, D.C.                                   KPMG Peat Marwick LLP
January 28, 1998, except as to note 17,
which is as of March 4, 1998


<PAGE>


Report of Independent Certified Public Accountants


Board of Directors and Stockholders
Atlantic Coast Airlines, Inc.

We have audited the  accompanying  consolidated  balance sheet of Atlantic Coast
Airlines, Inc. and Subsidiary, as of December 31, 1996 and 1995, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Atlantic  Coast
Airlines,  Inc. and Subsidiary at December 31, 1996 and 1995, and the results of
their  operations and their cash flows for each of the three years in the period
ended  December  31,  1996 in  conformity  with  generally  accepted  accounting
principles.


                                                   BDO Seidman, LLP

Washington, D.C.
January 24, 1997, except for Note 18, The date which is May 29, 1997




<PAGE>
<TABLE>


                                                                                                Atlantic Coast Airlines, Inc.
                                                                                                               and Subsidiary

                                                                                                  Consolidated Balance Sheets



(In thousands, except for share data and par values)
December 31,                                                                               
<CAPTION>
                                                                                     
                                                                                     1996                           1997

---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                        <C>    

Assets
Current:
    Cash and cash equivalents                                                                $  21,470          $   39,167
    Short term investments                                                                           -              10,737
    Accounts receivable, net                                                                    15,961              21,621
    Expendable parts and fuel inventory, net                                                     1,759               2,477
    Prepaid expenses and other current assets                                                    2,554               2,855
------------------------------------------------------------------------------------  -----------------  ------------------
        Total current assets                                                                    41,744              76,857
Property and equipment at cost, net of accumulated depreciation and
   amortization                                                                                 16,157              40,638
Preoperating costs, net of accumulated amortization                                                225               2,004
Intangible assets, net of accumulated amortization                                               2,882               2,613
Deferred tax asset                                                                               3,140                 688
Debt issuance costs, net of accumulated amortization                                                 -               3,051
Aircraft deposits                                                                                  570              19,040
Other assets                                                                                        40               4,101
------------------------------------------------------------------------------------  -----------------  ------------------
        Total assets                                                                         $  64,758           $ 148,992
------------------------------------------------------------------------------------  -----------------  ------------------
Liabilities and Stockholders' Equity
Current:
    Accounts payable                                                                         $   3,770         $     4,768
    Current portion of long-term debt                                                            1,319               1,851
    Current portion of capital lease obligations                                                 1,497               1,730
    Accrued liabilities                                                                         17,376              23,331
------------------------------------------------------------------------------------  -----------------  ------------------
        Total current liabilities                                                               23,962              31,680
Long-term debt, less current portion                                                             2,407              73,855
Capital lease obligations, less current portion                                                  3,266               2,290
Deferred credits, net                                                                              486               6,362
------------------------------------------------------------------------------------  -----------------  ------------------
        Total liabilities                                                                       30,121             114,187
------------------------------------------------------------------------------------  -----------------  ------------------
Stockholders' equity:
  Preferred Stock, $.02 par value per share; shares authorized
    5,000,000; no shares issued or outstanding in 1996 or 1997                                       -                   -
  Common stock: $.02 par value per share; shares authorized 15,000,000; shares
    issued 8,498,910 in 1996 and 8,739,507 in 1997; shares outstanding 8,486,410
    in 1996 and 7,267,007 in 1997                                                                  170                 175
  Class A common stock: nonvoting; par value; $.02 stated value per share; shares
    authorized 6,000,000; no shares issued or outstanding                                            -                   -
  Additional paid-in capital                                                                    37,689              40,296
  Less:  Common stock in treasury, at cost, 12,500 shares in 1996 and 1,472,500
      shares in 1997                                                                              (125)            (17,069)
  Retained earnings (deficit)                                                                   (3,097)             11,403
------------------------------------------------------------------------------------  -----------------  ------------------
        Total Stockholders' Equity                                                              34,637              34,805
------------------------------------------------------------------------------------  -----------------  ------------------
        Total Liabilities and Stockholders' Equity                                           $  64,758           $ 148,992
------------------------------------------------------------------------------------  -----------------  ------------------
        Commitments and Contingencies
------------------------------------------------------------------------------------  -----------------  ------------------
                                                                                                                    
     See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>
<TABLE>


                                                                                                      Atlantic Coast Airlines, Inc.
                                                                                                                     and Subsidiary
                                                                                              Consolidated Statements of Operations


(In thousands, except for per share data)
Years ended December 31,
<CAPTION>

                                                                                1995              1996              1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>             <C>   

Operating revenues:
  Passenger                                                                 $ 153,918         $ 179,370       $  202,540
  Other                                                                         3,050             3,114            2,904
---------------------------------------------------------------------------------------------------------------------------
         Total operating revenues                                             156,968           182,484          205,444
---------------------------------------------------------------------------------------------------------------------------
Operating expenses:
  Salaries and related costs                                                   40,702            44,438           49,661
  Aircraft fuel                                                                13,303            17,124           17,766
  Aircraft maintenance and materials                                           15,252            16,841           16,860
  Aircraft rentals                                                             25,947            29,137           29,570
  Traffic commissions and related fees                                         25,938            28,550           32,667
  Depreciation and amortization                                                 2,240             2,846            3,566
  Other                                                                        21,262            23,711           26,411
  Restructuring charges (reversals)
                                                                           (521)             (426)               -
---------------------------------------------------------------------------------------------------------------------------
         Total operating expenses                                             144,123           162,221          176,501
Operating income                                                               12,845            20,263           28,943
---------------------------------------------------------------------------------------------------------------------------
Other income (expense):
  Interest expense
                                                                          (1,802)           (1,013)           (3,450)
  Interest income                                                                  66               341            1,284
  Other income                                                                    181                17               62
---------------------------------------------------------------------------------------------------------------------------
         Total other expense
                                                                          (1,555)             (655)           (2,104)
---------------------------------------------------------------------------------------------------------------------------
             Income before income tax provision (benefit)
                 and extraordinary                                             11,290            19,608           26,839
item
  Income tax provision (benefit)                                                                    450           12,339
                                                                          (1,212)
---------------------------------------------------------------------------------------------------------------------------
             Income before extraordinary item                                  12,502            19,158           14,500
  Extraordinary Item                                                              400                 -                -
---------------------------------------------------------------------------------------------------------------------------
Net income                                                                   $ 12,902         $  19,158       $   14,500
---------------------------------------------------------------------------------------------------------------------------
Income per share:
         Basic
                    Income before extraordinary item                            $1.46             $2.25            $1.85
                    Extraordinary item                                           0.05                 -                -
                                                                      -----------------------------------------------------
                    Net income                                                  $1.51             $2.25            $1.85
                                                                      =====================================================
         Diluted
                    Income before extraordinary item                            $1.29             $2.15            $1.61
                    Extraordinary item                                           0.04                 -                -
                                                                      -----------------------------------------------------
                    Net income                                                  $1.33             $2.15            $1.61
                                                                      =====================================================

   Weighted average shares used in computation:
          Basic                                                                 8,342             8,481            7,824
          Diluted                                                               9,871             8,920            9,756
---------------------------------------------------------------------------------------------------------------------------
                                                                                                         
See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>
<TABLE>


                                                                                                       Atlantic Coast Airlines, Inc.
                                                                                                                      and Subsidiary

                                                                                     Consolidated Statements of Stockholders' Equity



(In thousands, except for share data)
<CAPTION>
                                               Common Stock         Additional         Treasury Stock             Retained
                                         ----------------------------Paid-In    -----------------------------     Earnings
                                                                     Capital                                      (Deficit)
                                              Shares       Amount                        Shares    Amount
---------------------------------------- ------------------------- ------------ ---------------------------- ------------------
<S>                                      <C>           <C>         <C>          <C>             <C>          <C>

Balance, December 31, 1994                   8,324,470      $  166     $ 36,703         12,500       $ (125)     $   (34,822)
                                                                                       
Exercise of common stock options                31,941           1           71                            -               -
Preferred stock dividends declared                   -           -            -                            -            (335)
Net Income                                           -           -            -                            -
                                                                                                                       12,902
---------------------------------------- ------------- ----------- ------------ -------------- ------------- -----------------
Balance, December 31, 1995                   8,356,411         167       36,774         12,500         (125)          (22,255)
Exercise of common stock options               142,499           3          351                            -                 -
Tax benefit of stock option exercise                 -           -          564                            -                 -
Net Income                                           -           -            -                            -           19,158
                                                                                                                        
---------------------------------------- ------------- ----------- ------------ -------------- ------------- -----------------
Balance December 31, 1996                    8,498,910         170       37,689         12,500         (125)           (3,097)
Exercise of common stock options               240,597           5        1,250                            -                 -
Tax benefit of stock option exercise                 -           -        1,357                            -                 -
Purchase of treasury stock                           -           -            -      1,460,000      (16,944)                 -
Net Income                                           -           -            -                            -
                                                                                                                        14,500
---------------------------------------- ------------- ----------- ------------ -------------- ------------- -----------------
Balance December 31, 1997                    8,739,507    $    175     $ 40,296      1,472,500    $ (17,069)      $     11,403
                                                               
---------------------------------------- ------------- ----------- ------------ -------------- ------------- -----------------
                                                                                                          
See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>
<TABLE>


                                                                                                       Atlantic Coast Airlines, Inc.
                                                                                                                      and Subsidiary

                                                                                               Consolidated Statements of Cash Flows
(In thousands)
Years ended December 31,
<CAPTION>
                                                                            1995               1996                     1997
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                <C>                  <C>    

Cash flows from operating activities:
    Net income                                                                $ 12,902           $ 19,158           $ 14,500
    Adjustments to reconcile net income (loss) to net cash provided
         by   (used in) operating activities:
          Extraordinary gain                                                     (400)                  -                  -
          Depreciation and amortization                                          1,815              2,434              3,111
          Amortization of intangibles and preoperating costs                       425                412                455
          Provision for uncollectible accounts                                     229                387                168
          Provision for inventory obsolescence                                     120                 50                 63
          Amortization of deferred credits                                           -               (27)              (243)
          Amortization of debt issuance costs                                        -                  -                181
          (Increase) decrease in deferred tax asset                            (1,500)            (1,640)              2,452
          Net (gain) loss on disposal of fixed assets                              (7)                  1                450
          Amortization of debt discount and finance                                  7                 46                 76
         costs
          Gain on disposal of                                                    (177)                  -                  -
         slots
    Changes in operating assets and liabilities:
              Accounts receivable                                              (1,169)            (1,741)            (5,829)
              Expendable parts and fuel inventory                                  686                 41              (781)
              Prepaid expenses and other current assets                          2,814              (796)                403
              Preoperating costs                                                     -                  -            (2,057)
              Other assets                                                          62                  -                  -
              Accounts payable                                                 (1,393)                238                998
              Accrued liabilities                                                1,259              1,590              7,313
                                                                      ---------------------------------------------------------
              Net cash provided by operating activities                         15,673             20,153             21,260
Net cash provided by (used in) operating  activities  Cash flows from  investing
activities:
   Purchase of property and equipment                                          (4,260)            (2,128)           (26,005)
   Proceeds from sales of fixed assets                                           1,916                  -                  -
   Purchase of short term investments                                                -                  -           (10,737)
   Proceeds from sale of intangible assets                                         375                  -                  -
   Payments for aircraft and other deposits                                          -               (61)           (18,447)
                                                                      ---------------------------------------------------------
              Net cash used in investing activities                            (1,969)            (2,189)           (55,189)
Cash flows from financing activities:
   Proceeds from issuance of long-term debt                                      4,210                486             75,220
   Payments of long-term debt                                                  (4,769)            (1,234)            (3,241)
   Payments of capital lease obligations                                         (689)            (1,171)            (2,258)
   Net decrease in lines of credit                                             (6,356)                  -                  -
   Proceeds from receipt of deferred credits and other                               -                513                809
   Deferred financing costs                                                       (66)              (239)            (3,215)
   Payment of convertible preferred stock dividend                                   -              (335)                  -
   Redemption of convertible preferred stock                                         -            (3,825)                  -
   Proceeds from exercise of stock options                                          72                915              1,255
   Purchase of treasury stock                                                        -                  -           (16,944)
              Net cash (used in) provided by financing activities              (7,598)            (4,890)             51,626
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents                                        6,106             13,074             17,697
Cash and cash equivalents, beginning of year                                     2,290              8,396             21,470
                                                                      ---------------------------------------------------------
Cash and cash equivalents, end of year                                        $  8,396           $ 21,470           $ 39,167
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                
See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>





                                                  Atlantic Coast Airlines, Inc.
                                                                 and Subsidiary

                                     Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------
39


1.   Summary of Accounting     (a)   Basis of Presentation
     Policies
                                     The  accompanying   consolidated  financial
                                     statements include the accounts of Atlantic
                                     Coast  Airlines,   Inc.  ("ACAI")  and  its
                                     wholly-owned  subsidiary,   Atlantic  Coast
                                     Airlines    ("ACA"),     together,     (the
                                     "Company").  All  significant  intercompany
                                     accounts   and   transactions   have   been
                                     eliminated in consolidation. As of December
                                     31, 1997,  the Company  operated in the air
                                     transportation industry providing scheduled
                                     service for  passengers to 40  destinations
                                     in 17 eastern  states of the United States.
                                     All of the Company's  flights are currently
                                     operated  under  a code  sharing  agreement
                                     with United Airlines,  Inc.  ("United") and
                                     are identified as United Express flights in
                                     computer reservation systems.

                               (b)   Cash, Cash Equivalents and Short-Term 
                                     Investments

                                     The Company  considers  investments with an
                                     original  maturity of three  months or less
                                     when  purchased  to  be  cash  equivalents.
                                     Investments   with  an  original   maturity
                                     greater  than three  months are  considered
                                     short-term   investments.   All  short-term
                                     investments  are considered to be available
                                     for  sale.  Due  to  the  short  maturities
                                     associated with the Company's  investments,
                                     the amortized cost approximates fair market
                                     value. Accordingly,  no adjustment has been
                                     made to record unrealized holding gains and
                                     losses.

                               (c)   Airline Revenues

                                     Passenger  fares  and  cargo  revenues  are
                                     recorded as operating  revenues at the time
                                     transportation  is  provided.  The value of
                                     unused   passenger   tickets  sold  by  the
                                     Company is included in current liabilities.
                                     Accounts   receivable  are  stated  net  of
                                     allowances  for  uncollectible  accounts of
                                     approximately   $550,000,    $287,000   and
                                     $269,000 at  December  31,  1995,  1996 and
                                     1997,  respectively.   Amounts  charged  to
                                     costs  and   expenses   for   uncollectible
                                     accounts  in  1995,   1996  and  1997  were
                                     $229,000,     $387,000     and     $168,000
                                     respectively.    Write-off    to   accounts
                                     receivable were none, $650,000 and $186,000
                                     in 1995, 1996 and 1997, respectively.

                                     The   Company    participates   in   United
                                     Airlines,  Inc.'s  ("United")  Mileage Plus
                                     frequent  flyer  program.  The Company does
                                     not  accrue  for   incremental   costs  for
                                     mileage   accumulation   relating  to  this
                                     program  because the Company  believes such
                                     costs are immaterial. Incremental costs for
                                     awards  redeemed on the  Company's  flights
                                     are expensed as incurred.

                               (d)   Concentrations of Credit Risk

                                     The   Company   provides   commercial   air
                                     transportation   in  the   eastern   United
                                     States.  Substantially all of the Company's
                                     passenger  tickets  are sold by  other  air
                                     carriers.  The  Company  has a  significant
                                     concentration  of its  accounts  receivable
                                     with other air carriers with no collateral.
                                     At  December  31,  1996 and 1997,  accounts
                                     receivable   from  air   carriers   totaled
                                     approximately   $14.3   million  and  $18.7
                                     million,   respectively.    Such   accounts
                                     receivable   serve  as   collateral   to  a
                                     financial  institution  in connection  with
                                     the Company's  line of credit  arrangement.
                                     Of  the  total  amount,  approximately  $11
                                     million and $14.8  million at December  31,
                                     1996 and 1997, respectively,  were due from
                                     United.  Historically,  accounts receivable
                                     losses have been insignificant.

                               (e)   Risks and Uncertainties

                                     The airline industry is highly  competitive
                                     and   volatile.    The   Company   competes
                                     primarily  with  other  air  carriers  and,
                                     particularly  with  respect to its  shorter
                                     flights,   with   ground    transportation.
                                     Airlines  primarily  compete  in  areas  of
                                     pricing,  scheduling and type of equipment.
                                     The  Company's   operations  are  primarily
                                     dependent upon business-related  travel and
                                     are   not   subject   to   wide    seasonal
                                     fluctuation. However, some seasonal decline
                                     does occur  during  portions  of the winter
                                     months due to lesser demand. The ability of
                                     the   Company   to  compete   with   ground
                                     transportation   and  other  air   carriers
                                     depends  upon  public   acceptance  of  its
                                     aircraft and the  provision of  convenient,
                                     frequent  and   reliable   service  to  its
                                     markets at reasonable rates.

                                     The Company  operates  under a code-sharing
                                     agreement  with  United,  which  expires on
                                     March 31, 1999.  The  agreement  allows the
                                     Company to operate under  United's  colors,
                                     utilize  the  "United   Express"  name  and
                                     identify   its   flights   using   United's
                                     designator  code. The Company believes that
                                     its relationship with United  substantially
                                     enhances   its   ability  to  compete   for
                                     passengers.   The  loss  of  the  Company's
                                     affiliation   with  United   could  have  a
                                     material  adverse  effect on the  Company's
                                     business.

                                     The United Express  Agreements  require the
                                     Company  to  obtain  United's   consent  to
                                     operate   service  between  city  pairs  as
                                     "United    Express".    If   the    Company
                                     experiences  net  operating  expenses  that
                                     exceed   revenues  for  three   consecutive
                                     months on any required  route,  the Company
                                     may withdraw  from that route if United and
                                     the  Company  are  unable to  negotiate  an
                                     alternative  mutually  acceptable  level of
                                     service for that route.  The United Express
                                     Agreements  also  require  the  Company  to
                                     obtain  United's  approval if it chooses to
                                     enter into  code-sharing  arrangements with
                                     other carriers,  but do not prohibit United
                                     from  competing,   or  from  entering  into
                                     agreements  with other  airlines  who would
                                     compete,  on routes  served by the Company.
                                     The  United   Express   Agreements  may  be
                                     canceled  if  the  Company  fails  to  meet
                                     certain   financial  tests  or  performance
                                     standards  or  fails  to  maintain  certain
                                     minimum  flight  frequency  levels,  events
                                     which the Company,  based on  experience to
                                     date, believes to be unlikely.

                                     The Company's pilots are represented by the
                                     Airline Pilots  Association  ("ALPA"),  its
                                     flight  attendants  by the  Association  of
                                     Flight   Attendants   ("AFA"),    and   its
                                     mechanics   by   the   Aircraft   Mechanics
                                     Fraternal Association ("AMFA").

                                     The ALPA  collective  bargaining  agreement
                                     was  amended  on  February  26,  1997.  The
                                     agreement   is  for  three   years  and  is
                                     amendable  on February  28,  2000.  The new
                                     contract  modifies work rules to allow more
                                     flexibility,  introduces  regional  jet pay
                                     rates,   and  transfers   pilots  into  the
                                     Company's employee benefit plans.

                                     On March 11,  1994,  AMFA was  certified by
                                     the National Mediation Board (the "NMB") as
                                     the  collective  bargaining  representative
                                     elected by mechanics and related  employees
                                     of the  Company.  The Company and AMFA have
                                     been  attempting  to  negotiate  an initial
                                     contract  under  federal   mediation  since
                                     December  1994,  but have so far  failed to
                                     reach agreement. The NMB has indicated that
                                     it   is  in   favor   of   continuing   the
                                     negotiations,  and the Company  anticipates
                                     participating in further negotiations.

                                     If, at some  point,  the NMB should  decide
                                     that the parties were deadlocked,  then the
                                     NMB could  declare an impasse  along with a
                                     thirty  day  cooling  off  period.  At  the
                                     conclusion  of that period if an  agreement
                                     had not been  reached,  AMFA would have the
                                     authority  to  use  self  help,  up to  and
                                     including the right to strike.

                                     The Company's  contract with the AFA became
                                     amendable on April 30, 1997. In March 1998,
                                     a tentative  agreement  between the Company
                                     and  AFA  was  rejected  by a  vote  of the
                                     members.  The  Company  expects  to  resume
                                     negotiations  during  the  second  calendar
                                     quarter  of  1998  and  will   continue  to
                                     operate  under  the  terms of the  existing
                                     agreement until negotiations are completed.

                                     The  Company  believes  that the wage rates
                                     and benefits for other employee  groups are
                                     comparable  to  similar   groups  at  other
                                     regional  airlines.  The Company is unaware
                                     of  significant  organizing  activities  by
                                     labor   unions   among   other    non-union
                                     employees at this time.

                               (f)   Use of Estimates

                                     The preparation of financial  statements in
                                     accordance    with    generally    accepted
                                     accounting  principles  requires management
                                     to make certain  estimates and  assumptions
                                     regarding valuation of assets,  recognition
                                     of  liabilities  for costs such as aircraft
                                     maintenance,  differences  in timing of air
                                     traffic  billings  from  United  and  other
                                     airlines,  operating  revenues and expenses
                                     during  the  period   and   disclosure   of
                                     contingent  assets and  liabilities  at the
                                     date of the  financial  statements.  Actual
                                     results could differ from those estimates.

                               (g)   Expendable Parts

                                     Expendable parts and supplies are stated at
                                     the  lower  of  cost  or  market,  less  an
                                     allowance  for  obsolescence  of  $120,000,
                                     $169,950  and  $232,601 for the years ended
                                     December   31,   1995,   1996   and   1997,
                                     respectively. Expendable parts and supplies
                                     are  charged  to  expense as they are used.
                                     Amounts  charged to costs and  expenses for
                                     obsolescence  in 1995,  1996 and 1997  were
                                     $120,000, $49,950 and $62,652 respectively.

                               (h)   Property and Equipment

                                     Property and  equipment are stated at cost.
                                     Depreciation    is    computed    on    the
                                     straight-line  method  over  the  estimated
                                     useful  lives of the related  assets  which
                                     range   from   five   to   fifteen   years.
                                     Amortization  of capital leases is included
                                     in   depreciation   expense.   The  Company
                                     periodically  evaluates  whether events and
                                     circumstances   have  occurred   which  may
                                     impair  the  estimated  useful  life or the
                                     recoverability  of the remaining balance of
                                     its  long-lived  assets.  If such events or
                                     circumstances  were to  indicate  that  the
                                     carrying  amount of these  assets would not
                                     be recoverable,  the Company would estimate
                                     the future  cash flows  expected  to result
                                     from  the  use  of  the  assets  and  their
                                     eventual  disposition.  If  the  sum of the
                                     expected  future  cash flows  (undiscounted
                                     and without interest  charges) is less than
                                     the  carrying   amount  of  the  asset,  an
                                     impairment  loss would be recognized by the
                                     Company.


                               (i)   Preoperating Costs

                                     Preoperating  costs  represent  the cost of
                                     integrating  new  types of  aircraft.  Such
                                     costs,  which  consist  primarily of flight
                                     crew   training  and   aircraft   ownership
                                     related  costs,  are deferred and amortized
                                     over  a   period   of  four   years   on  a
                                     straight-line basis.

                                     In   1997,    the    Company    capitalized
                                     approximately  $1.8  million of these costs
                                     related to the introduction of the Canadair
                                     Regional  Jet  ("CRJ")  into the  Company's
                                     fleet.    Accumulated    amortization    of
                                     preoperating costs at December 31, 1996 and
                                     1997    were    $722,000    and    $53,000,
                                     respectively.    In    1997,    the    J-41
                                     preoperating    costs    were    completely
                                     amortized and written off.

                               (j)   Intangible Assets

                                     Goodwill  of  approximately  $3.2  million,
                                     representing  the  excess of cost above the
                                     fair  value of net assets  acquired  in the
                                     acquisition  of ACA, is being  amortized by
                                     the straight-line method over twenty years.
                                     The primary financial indicator used by the
                                     Company to assess the recoverability of its
                                     goodwill is undiscounted  future cash flows
                                     from operations.  The amount of impairment,
                                     if any,  is  measured  based  on  projected
                                     future  cash flows  using a  discount  rate
                                     reflecting  the  Company's  average cost of
                                     funds.  Slots  are being  amortized  by the
                                     straight-line  method  over  twenty  years.
                                     Accumulated   amortization   of  intangible
                                     assets at  December  31,  1996 and 1997 was
                                     $911,000 and $1.1 million, respectively.

                               (k)   Maintenance

                                     The Company's maintenance accounting policy
                                     is a  combination  of  expensing  events as
                                     incurred    and    accruing   for   certain
                                     maintenance events. The Company accrues for
                                     current and future maintenance events on an
                                     ongoing basis at rates it estimates will be
                                     sufficient to cover  maintenance  costs for
                                     the aircraft.  For the J-32  aircraft,  the
                                     Company  accrues for engine  overhaul costs
                                     on a per flight  hour  basis.  For the J-41
                                     aircraft,  the Company accrues for airframe
                                     component  and engine  overhaul  costs on a
                                     per  flight   hour   basis.   For  the  CRJ
                                     aircraft,   the  Company  accrues  for  the
                                     replacement of engine life limited parts on
                                     a per cycle  basis.  All other  maintenance
                                     costs are expensed as incurred.

                               (l)   Deferred Credits

                                     The Company  accounts for lease  incentives
                                     provided by the aircraft  manufacturers  as
                                     deferred   credits.   These   credits   are
                                     amortized  on a  straight-line  basis  as a
                                     reduction   to  lease   expense   over  the
                                     respective lease term. The lease incentives
                                     are  credits  that may be used to  purchase
                                     spare  parts,   satisfy   aircraft   return
                                     conditions and or be applied against future
                                     rental payments.

                               (m)   Income Taxes

                                     The Company  accounts for  deferred  income
                                     taxes using the asset and liability method.
                                     Under  the  asset  and  liability   method,
                                     deferred  tax  assets and  liabilities  are
                                     recognized for the future tax  consequences
                                     attributable  to  differences  between  the
                                     financial  statement  carrying  amounts for
                                     existing   assets   and   liabilities   and
                                     respective  tax bases.  Deferred tax assets
                                     and  liabilities are measured using enacted
                                     tax  rates  expected  to apply  to  taxable
                                     income  in  future  years  in  which  those
                                     temporary  differences  are  expected to be
                                     recovered or settled.

                                (n)  Stock Options

                                     The Company  accounts  for its  stock-based
                                     compensation   plans  using  the  intrinsic
                                     value method  prescribed  under  Accounting
                                     Principles  Board (APB) No. 25. Under these
                                     principles,     the     Company     records
                                     compensation expense for stock options only
                                     if the exercise price is less than the fair
                                     market   value   of   the   stock   on  the
                                     measurement date.

                               (o)   Income Per Share

                                     On March 3, 1997 the  Financial  Accounting
                                     Standards   Board   issued   Statement   of
                                     Financial  Accounting  Standards  No,  128,
                                     "Earnings  per  Share  (SFAS  128)",  which
                                     became  effective for the Company's  fiscal
                                     year ended  December  31, 1997 and required
                                     restatement of previously reported earnings
                                     per share data.  SFAS 128  provides for the
                                     calculation of Basic and Diluted income per
                                     share.

                                     Basic  income  per  share  is  computed  by
                                     dividing net income,  after  deducting  any
                                     preferred  dividend  requirements,  by  the
                                     weighted  average  number of common  shares
                                     outstanding.  Diluted  income  per share is
                                     computed  by  dividing  net  income,  after
                                     deducting    any     preferred     dividend
                                     requirements,   by  the  weighted   average
                                     number of  common  shares  outstanding  and
                                     common stock equivalents,  which consist of
                                     shares  subject to stock  options  computed
                                     using  the  treasury   stock   method.   In
                                     addition,  dilutive convertible  securities
                                     are  included  in  the  denominator   while
                                     interest,  net of tax, for convertible debt
                                     is included in the numerator.  In 1995, the
                                     dilutive    effect   of   the   convertible
                                     preferred  stock and the  convertible  debt
                                     are included in the  calculation of diluted
                                     income  per  share.  In  1996,  convertible
                                     preferred   stock  is  included,   but  the
                                     convertible  debt was  retired  in 1995 and
                                     therefore,   not   included   in  the  1996
                                     calculation.   In  1997,  the   calculation
                                     included   the   dilutive   effect  of  new
                                     convertible  debt, but not the  convertible
                                     preferred stock as it was redeemed in 1996.

                                     A  reconciliation   of  the  numerator  and
                                     denominator  used in  computing  income per
                                     share is as follows  (in  thousands  except
                                     per share amounts):

<TABLE>
                                                      1995                      1996                    1997
                                                      ----                      ----                    ----
<CAPTION>

                                               Basic      Diluted      Basic       Diluted      Basic      Diluted
       ---------------------------------------------------------------------------------------------------------------
<S>                                            <C>        <C>           <C>        <C>          <C>        <C>
  
     Share calculation:
       Average number of common shares
            outstanding                            8,342     8,342       8,481        8,481       7,824       7,824
                Common stock equivalents
           due to assumed exercise of                  -       414           -          311           -         350
           options
       Common stock equivalents due to
           assumed conversion of preferred
           stock                                       -       546           -          128           -           -
       Common stock equivalents due to
           assumed conversion of
           convertible debt                            -       568           -            -           -       1,582
                                            --------------------------------------------------------------------------
       Total common shares and common stock
           equivalents                             8,342     9,871       8,481        8,920       7,824       9,756

                                            --------------------------------------------------------------------------
       Adjustments to net income:
       Net income                              $  12,902 $  12,902   $  19,158    $  19,158    $ 14,500    $ 14,500
       Less:  Preferred dividend
           requirements based on average
           number of preferred shares              (335)         -        (64)            -           -           -
       Less:  Interest expense net of tax              -       237           -            -           -       1,187
                                            --------------------------------------------------------------------------
       Net income available to common
           shareholders                        $  12,567 $  13,139   $  19,094    $  19,158    $ 14,500    $ 15,686
                                            --------------------------------------------------------------------------

       Net income per share                  $      1.51 $   1.33    $  2.25       $ 2.15    $     1.85  $     1.61
                                                                    
       ---------------------------------------------------------------------------------------------------------------
</TABLE>

                               (p)   Reclassifications

                                     Certain amounts as previously reported have
                                     been  reclassified  to  conform  to to  the
                                     current year presentation.

<TABLE>

2.  Property and
     Equipment                 Property and equipment consist of the following:

                               (in thousands)
<CAPTION>
                               December 31,                                                           1996            1997
                               ---------------------------------------------------------- ---------------- ---------------
                               <S>                                                        <C>              <C>   
                               
                               Owned aircraft and improvements                                           -       $  18,916
                               Improvements to leased aircraft                                    $  2,350           3,521
                               Flight equipment, primarily rotable spare parts                      14,014          18,456
                               Maintenance and ground equipment                                      3,380           4,166
                               Computer hardware and software                                        1,464           2,029
                               Furniture and fixtures                                                  296             445
                               Leasehold improvements                                                  619           1,831
                               ---------------------------------------------------------- ---------------- ---------------
                                                                                                    22,123          49,364
                               Less:  Accumulated depreciation and amortization                      5,966           8,726
                               ---------------------------------------------------------- ---------------- ---------------
                                                                                                  $ 16,157        $ 40,638
                               ---------------------------------------------------------- ---------------- ---------------
</TABLE>
<TABLE>

3.  Accrued                    Accrued liabilities consist of the following:
     Liabilities
                               (in thousands)
                              <CAPTION>
                               December 31,                                                          1996            1997
                               ---------------------------------------------------------- ---------------- ---------------
                               <S>                                                         <C>             <C>   
                               
                               Accrued payroll and employee benefits                              $  4,929        $  6,914
                               Air traffic liability                                                 2,703           1,404
                               Interest                                                                 13           1,352
                               Aircraft rents                                                          564           1,644
                               Reservations and handling                                             2,454           2,441
                               Engine and airframe overhaul costs                                    3,311           3,589
                               Fuel                                                                  1,196             977
                               Accrued taxes payable                                                     -           2,704
                               Other                                                                 2,206           2,306
                               ---------------------------------------------------------- ---------------- ---------------
                                                                                                   $17,376         $23,331
                               ---------------------------------------------------------- ---------------- ---------------
</TABLE>

4.   Debt      On November  1, 1995,  the  Company  entered  into a line of
               credit agreement with a financial  institution  which, based on a
               specified   percentage  of  outstanding   interline   receivables
               (financing  base),  provides for borrowings of up to $20 million.
               The line of credit is collateralized by accounts  receivables and
               general  intangibles  and will expire on September  30, 2000,  or
               upon  termination  of the  United  Express  marketing  agreement,
               whichever  is sooner.  Interest  is payable  monthly at an annual
               rate of prime plus 1% (8.5% at December  31,  1997).  The Company
               has pledged approximately $7.7 million of this line as collateral
               to secure  letters of credit issued on behalf of the Company.  At
               December 31, 1997, the Company's  remaining  available  borrowing
               limit  was  approximately  $4  million.   There  was  no  balance
               outstanding  under the line of credit at December  31,  1996,  or
               December 31, 1997.

<PAGE>

<TABLE>

             Long-term debt consists of the following:
             (in thousands)
             December 31,      
<CAPTION>
                                                                                                         1996             1997
             
             ----------------------------------------------------------------------------- ------------------ ----------------
             <S>                                                                           <C>                <C>    
             Convertible  subordinated  notes,   principal  due  July  1,  2004,
                   interest   payable  in   semi-annual   installments   on  the     
                   outstanding principal with interest
                   at 7%, unsecured.                                                               $        -          $57,500

             EquipmentNotes  associated  with Pass Through  Trust  Certificates,
                      due January 1, 2008 and January 1, 2010, principal payable
                      annually
                   through January 1, 2006 and semi-annually  thereafter through
                   maturity,  interest payable semi-annually at 7.49% throughout
                   term of notes,
                   collateralized by J-41 aircraft.                                                         -           16,431

             Notes to institutional  lenders,  originally due between March 1998
                   and April 2001,  principal  and  interest  payable in monthly
                   installments   ranging  between  $9,500  and  $40,000,   with
                   interest   from  6.5%  to  12%,   collateralized   by  flight
                   equipment, spare engines and parts, and
                   ground equipment.                                                                    2,302              331

             Note payable to supplier, due May 15, 2000, principal payable monthly with
                   interest at 6.74%, unsecured.                                                            -            1,225

             Note  payable to airport  authority,  due April 1, 2001,  principal
                   payable  monthly with interest at 6.5% through March 31, 1995
                   and prime plus
                   1.5% thereafter through maturity, collateralized by expendable parts                   760                -
                   inventory.

             Note payable to institutional lender, due October 1, 1998, principal payable
                   monthly with interest at 6.61%, unsecured.                                             466              217

             Note  payable  to other  airline,  due  March 31,  1998,  principal
                   payable in quarterly installments of $38,400 with interest at
                   9%, collateralized
                   by ground support equipment.                                                           192                -

             Other                                                                                          6                2
             ----------------------------------------------------------------------------- ------------------ ----------------
             Total                                                                                      3,726           75,706
             ----------------------------------------------------------------------------- ------------------ ----------------
             Less:  Current Portion                                                                     1,319            1,851
             ----------------------------------------------------------------------------- ------------------ ----------------
                                                                                                       $2,407          $73,855
             ----------------------------------------------------------------------------- ------------------ ----------------
</TABLE>


                               In September 1997,  approximately $112 million of
                               pass  through   certificates  were  issued  in  a
                               private   placement  by  separate   pass  through
                               trusts,  which  used  the  proceeds  to  purchase
                               equipment notes (the "Equipment Notes") issued in
                               connection with (i) leveraged lease  transactions
                               relating to four J-41s and six CRJs (delivered or
                               expected  to be  delivered),  all of which are or
                               will  be  leased  to  the  Company  (the  "Leased
                               Aircraft"),  and (ii) the financing of four J-41s
                               owned by the Company (the "Owned Aircraft").  The
                               Equipment  Notes issued with respect to the Owned
                               Aircraft   are   direct   obligations   of   ACA,
                               guaranteed  by  ACAI  and  are  included  as debt
                               obligations   in   the   accompanying   financial
                               statements.   The  Equipment  Notes  issued  with
                               respect to the Leased  Aircraft  are neither debt
                               obligations  of ACA nor  guaranteed by ACAI.  The
                               Equipment  Notes for the Owned  Aircraft  carry a
                               weighted  average  interest rate of approximately
                               7.49%  with three  Equipment  Notes  maturing  on
                               January 1, 2008,  and one Equipment Note maturing
                               January 1, 2010. The aggregate  principal  amount
                               of the  notes  is  approximately  $16.4  million.
                               Aggregate  principal  payments  for the next five
                               years will be approximately $1 million in each of
                               the years of 1998  through  2001 and $1.1 million
                               in 2002.

                               With  respect  to one  CRJ  leased  aircraft,  at
                               December 31, 1997 (the "Prefunded Aircraft"), the
                               proceeds  from  the sale of the  Equipment  Notes
                               were deposited into  collateral  accounts,  to be
                               released  at the  closing  of a  leveraged  lease
                               related  to the  Prefunded  Aircraft.  In January
                               1998, an equity investor  purchased this aircraft
                               and  entered  into a  leveraged  lease  with  the
                               Company   and  the   collateral   accounts   were
                               released.

                               Pursuant to a Purchase Agreement executed on June
                               27, 1997,  between the Company and Alex.  Brown &
                               Sons,   Incorporated  and  The  Robinson-Humphrey
                               Company,  Inc. as Initial Purchasers,  on July 2,
                               1997,  the Company  issued $50 million  aggregate
                               principal  amount of 7% Convertible  Subordinated
                               Notes due July 1, 2004 (the "Notes"), pursuant to
                               Rule 144A under the  Securities  Act of 1933, and
                               received  net  proceeds  of  approximately  $48.3
                               million related to the sale of the Notes. On July
                               18, 1997 the Company  issued an  additional  $7.5
                               million  aggregate  principal amount of the Notes
                               to  cover   over-allotments,   and  received  net
                               proceeds of $7.3 million  related to the exercise
                               of the over-allotment option.

                               The Notes are  convertible  into shares of Common
                               Stock,  par  value  $0.02  of  the  Company  (the
                               "Common  Stock") by the holders at any time after
                               sixty days  following the latest date of original
                               issuance  thereof and prior to  maturity,  unless
                               previously   redeemed   or   repurchased,   at  a
                               conversion  price of $18 per  share,  subject  to
                               certain  adjustments.  Interest  on the  Notes is
                               payable  on April 1 and  October 1 of each  year,
                               commencing  October  1,  1997.  The Notes are not
                               redeemable  by the  Company  until  July 1, 2000.
                               Thereafter,  the Notes will be redeemable, at any
                               time, on at least 15 days notice at the option of
                               the  Company,   in  whole  or  in  part,  at  the
                               redemption  prices  set  forth  in the  Indenture
                               dated July 2, 1997,  in each case,  together with
                               accrued  interest.  The Notes are  unsecured  and
                               subordinated  in right of  payment in full to all
                               existing  and  future  Senior   Indebtedness   as
                               defined  in the  Indenture.  The  holders  of the
                               Notes  have  certain   registration  rights  with
                               respect  to the Notes and the  underlying  Common
                               Stock (see subsequent events footnote).

                               On April 1, 1997,  the  Company  executed  an $11
                               million  short-term  promissory note for deposits
                               related   to  the   acquisition   of  CRJs.   The
                               promissory  note was paid in full on July 2, 1997
                               from the  proceeds of the Notes issued on July 2,
                               1997 as described above. During 1997, the Company
                               retired  $3.1  million of certain  high  interest
                               rate  debt with the  proceeds  of the  Notes.  On
                               December 30, 1994, the Company entered into a $20
                               million  financing  agreement  with  JSX  Capital
                               Corporation  ("JSX"),  an  affiliate  of  British
                               Aerospace,   Inc.   ("BAI").   This   arrangement
                               included the conversion of an outstanding loan on
                               a  revolving  credit  facility  of $10 million to
                               equity,  an  additional  $1 million  cash  equity
                               investment,  creation of a term loan  facility in
                               the amount of $4 million,  issuance of redeemable
                               convertible preferred stock of approximately $3.8
                               million,  and  a new  revolving  line  of  credit
                               facility of $5 million.

                               The $4  million  convertible  term  loan  was due
                               October 31, 1999, with interest at prime plus 2%,
                               payable  monthly,  except that  through  June 30,
                               1995,  interest was deferrable and could be added
                               to  the  principal  balance,   at  the  Company's
                               option. The principal  repayment  consisted of 12
                               equal  payments of  principal  (plus the pro rata
                               portion of any unpaid interest)  payable on April
                               30,  July 31,  and  October  31 of the years 1996
                               through 1999. Any principal or interest unpaid as
                               of October 31, 1999, could, at the option of JSX,
                               be converted into common stock at $7 per share at
                               any time thereafter until paid. The term loan was
                               collateralized  by the Company's fixed assets and
                               accounts  receivable.  During  1995,  the Company
                               prepaid the  balance in full at a discount  which
                               resulted in an extraordinary gain of $400,000.

                               A total of 3,825  shares of  Series A  Redeemable
                               Convertible  Preferred  Stock at $1,000 per share
                               with  liquidation  preference of full face amount
                               plus  accrued  and unpaid  dividends  was issued,
                               resulting in total proceeds of $3.8 million.  The
                               shares  were to be redeemed by the Company at the
                               end of seven  years  and were  redeemable  at the
                               option of the Company,  prior to redemption.  The
                               Company redeemed, at par, the Series A Redeemable
                               Convertible Preferred Stock on March 29, 1996.



<PAGE>


                               As of December 31, 1997, maturities of long-term 
                               debt are as follows:
                               (in thousands)
                               -------------------------------------------------
                               1999                          1,650
                               2000                          1,403
                               2001                          1,042
                               2002                          1,115
                               2003-2010                    68,645
                               -------------------------------------------------
                                                           $75,706
                               -------------------------------------------------

                               The  Company  has  various   financial   covenant
                               requirements   associated   with   its  debt  and
                               marketing  agreements.  These  covenants  require
                               meeting certain financial ratio tests,  including
                               tangible net worth,  net earnings,  current ratio
                               and debt service levels.

5.  Obligations Under Capital Leases          
          
          The Company leases certain equipment for noncancellable  terms of more
          than one year. The net Under Capital book value of the equipment under
          capital  leases at December 31, 1996 and 1997 is $5.2  million  Leases
          and $4.5 million,  respectively.  The leases were  capitalized  at the
          present value of the lease  payments.  Interest rates for these leases
          ranged from 2.3% to 18.1%.
              
          At December 31, 1997, the future minimum payments,  by year and in the
          aggregate,  together  with the present  value of the net minimum lease
          payments, are as follows:

                                (in thousands)
                               Year Ending December 31,

                               -------------------------------------------------
                               1998                                   $    1,820
                               1999                                         1666
                               2000                                          581
                               2001                                          201
                               2002                                           19
                               -------------------------------------------------
                               Future minimum lease payments               4,287
                               Amount representing interest                  267
                               -------------------------------------------------
                               Present value of minimum lease payments     4,020
                               Less:  Current maturities                   1,730
                               -------------------------------------------------
                                                                      $    2,290
                               -------------------------------------------------
6.   Operating Leases 

          The  Company   leases  its  principal   administrative,   airport  and
          maintenance  facilities  under Leases  operating  leases expiring from
          2002 to 2023. Future minimum lease payments will average approximately
          $2.4 million per year.

          Future minimum lease payments under noncancellable  aircraft operating
          leases at December 31, 1997 are as follows:


                               (in thousands)
                               Year ending December 31,
                               -------------------------------------------------
                               1998
                               1999                                       35,146
                               2000                                       34,909
                               2001                                       33,304
                               2002                                       32,708
                               2003 - 2007                               134,212
                               2008 - 2012                                60,413
                               2013 - 2014                                12,829
                               ------------------------------------------------ 
                                     Total minimum lease payments      $ 379,558
                               -------------------------------------------------
                               The   noncancellable   aircraft  operating  lease
                               commitments  above  reflect  amounts  for one CRJ
                               pursuant to an operating lease with a third party
                               that was not signed  until  January  1998.  As of
                               December 31, 1997, and prior to entering into the
                               long term  operating  lease in January 1998,  the
                               Company  was   obligated   to  pay  rent  to  the
                               manufacturer  under a month  to  month  operating
                               lease agreement.  Certain of the Company's leases
                               require aircraft to be in a specified maintenance
                               condition at lease  termination or upon return of
                               the aircraft.

                               The Company's lease agreements  generally provide
                               that  the   Company   pay   taxes,   maintenance,
                               insurance and other operating expenses applicable
                               to leased  assets.  Operating  lease  expense was
                               $30.5 million;  $33.8 million;  and $35.7 million
                               for the years ended  December 31, 1995,  1996 and
                               1997, respectively.

7.  Stockholders'              Stock Option Plans
       Equity
                               The Company  has two  nonqualified  stock  option
                               plans which  provide for the  issuance of options
                               to  purchase  common  stock  of  the  Company  to
                               certain  employees  and directors of the Company.
                               Under  the  plans,  options  are  granted  by the
                               compensation  committee of the board of directors
                               and vest over a three year period, commencing one
                               year after the date of the grant.

                               The  Company  has  reserved  1,500,000  shares of
                               common  stock for  issuance  upon the exercise of
                               options granted under the plan.

                              A summary  of the  status of the  Company's  stock
                              options as of December 31, 1995, 1996 and 1997 and
                              changes  during the periods  ending on those dates
                              is presented below:

<TABLE>

                                                                1995                       1996                         1997
                                                                ----                       ----                         ----
                                                          Weighted-average           Weighted-average            Weighted-average
                                                            exercise                   exercise                  exercise price
                                                              price                      price
<CAPTION>
                                               Shares                      Shares                        Shares
                                            ------------- ------------- ------------ -------------  ------------- --------------
<S>                                         <C>           <C>           <C>          <C>           <C>           <C>

Outstanding at beginning of year                  653,002     $    2.32      729,558      $   2.86       958,392          $6.32
Granted                                           140,500     $    5.30      395,500       $ 11.42       342,000         $17.82
Exercised                                          31,941     $    2.25      142,499      $   2.49       240,597          $5.20
Canceled                                           32,003     $    3.02       24,167      $   7.85        31,334         $10.89
                                            ------------- ------------- ------------ ------------- ------------- --------------
Outstanding at end of year                        729,558     $    2.86      958,392      $   6.32     1,028,461         $10.27
                                            ------------- ------------- ------------ ------------- ------------- --------------

Options exercisable at year-end                   541,889     $    2.23      531,443      $   3.34       458,284          $4.54
                                            ------------- ------------- ------------ ------------- ------------- --------------

Weighted-average fair value of options
    granted during the year                         $4.03                      $8.49                      $12.98
</TABLE>

          The following table summarizes  information  about fixed stock options
          at December 31, 1997:

<TABLE>
                                                      Options Outstanding                          Options Exercisable
                                                       Weighted-average
                                          Number           remaining     Weighted-average       Number       Weighted-average
                                      outstanding at   contractual life   exercise price      exercisable     exercise price
<CAPTION>
      Range of exercise price            12/31/97           (years)                            12/31/97
------------------------------------ ----------------- ----------------- ----------------- ----------------- -----------------
<S>                                  <C>               <C>               <C>               <C>               <C>    
$2.08 - $3.45                                  340,500               4.9           $  2.15           321,503           $  2.12
$3.45 - $6.90                                   22,000               7.0           $  4.25            15,333           $  4.08
$6.90 - $10.35                                 116,619               7.9           $  8.96            51,613           $  8.83
$10.35 - $13.80                                247,342               8.9            $12.41            58,170            $11.89
$13.80 - $17.25                                162,500               9.1            $15.63            11,665            $16.04
$17.25 - $20.70                                  9,500               9.7            $19.17                 0           $  0.00
$20.70 - $24.15                                127,500               9.8            $22.17                 0           $  0.00
$27.60 - $31.05                                  2,500              10.0            $30.50                 0           $  0.00
                                     ----------------- ----------------- ----------------- ----------------- -----------------
                                             1,028,461               7.6            $10.27           458,284           $  4.54
</TABLE>

                              A risk-free  interest rate of 5.8%, 5.25% and 5.8%
                              for 1995,  1996,  and 1997, a  volatility  rate of
                              76%, 71% and 50% for 1995,  1996 and 1997, with an
                              expected  life of 7.5  years  for  1995,  1996 and
                              1997, was assumed in estimating the fair value. No
                              dividend rate was assumed for any of the years.

                              The  following  summarizes  the pro forma  effects
                              assuming  compensation  for such  awards  had been
                              recorded based upon the estimated fair value.  The
                              proforma  information  disclosed  below  does  not
                              include the impact of awards made prior to January
                              1, 1995 (in thousands, except per share data):

<TABLE>

                                           1995                      1996                           1997
<CAPTION>
                               As Reported         Pro       As Reported    Pro Forma     As Reported      Pro Forma
                                                  Forma
                              --------------- -------------- ------------- ------------- --------------- --------------
       <S>                    <C>             <C>            <C>           <C>           <C>             <C>

       Net Income             $  12,902       $  12,819      $  19,158     $  18,117     $  14,500       $  13,436

       Basic earnings
        per share             $      1.51     $      1.50    $      2.25   $     2.13    $      1.85     $     1.72

       Diluted earnings per
       share                  $      1.33     $      1.30    $      2.15   $      2.03   $      1.61     $     1.50

</TABLE>

                              Preferred Stock

                              The  Board  of   Directors   of  the   Company  is
                              authorized  to  provide  for the  issuance  by the
                              Company of  preferred  stock in one or more series
                              and to fix the  rights,  preferences,  privileges,
                              qualifications,   limitations   and   restrictions
                              thereof, including,  without limitation,  dividend
                              rights,  dividend rates, conversion rights, voting
                              rights,   terms  of  redemption   or   repurchase,
                              redemption or repurchase  prices,  limitations  or
                              restrictions thereon,  liquidation preferences and
                              the  number of shares  constituting  any series or
                              the  designation  of  such  series,   without  any
                              further vote or action by the stockholders.

                              At December  31, 1996,  and 1997,  the Company had
                              5,000,000 shares of $.02 par value preferred stock
                              authorized.  8,000 of those shares were designated
                              in  1994  as  Series  A   Cumulative   Convertible
                              Preferred Stock, of which 3,825 shares were issued
                              as of December 31, 1995.  These shares were issued
                              in connection with a financing arrangement entered
                              into by the Company on December 30, 1994.

                              In January 1996, the Company's  Board of Directors
                              declared  dividends  of  $334,688  on its Series A
                              Cumulative   Convertible   Preferred  Stock.  This
                              represents  accrued  dividends  for the year ended
                              December  31,  1995,   in   accordance   with  the
                              financing  arrangement entered into by the Company
                              in December 1994. The Company paid these dividends
                              in February 1996.

                              The  Company  redeemed  $3.8  million  in Series A
                              Redeemable Cumulative  Convertible Preferred Stock
                              on March 29, 1996.

8. Employee  Benefit Plans


          The Company  established an Employee Stock Ownership Plan (the "ESOP")
          covering substantially Plans all employees. For each of the years 1992
          through 1995,  the Company made  contributions  to the ESOP which were
          used in part to make loan and  interest  payments.  For the year ended
          December  31,  1995,  the  Company  made  contributions  to  the  ESOP
          amounting to  $131,040.  No  contributions  were made in 1996 or 1997.
          Shares of common  stock  acquired by the ESOP are to be  allocated  to
          each employee based on the employee's annual compensation.
                              

          Effective  January 1, 1992,  the  Company  adopted a 401(k)  Plan (the
          "Plan").  The Plan covers  substantially  all full-time  employees who
          meet the Plan's eligibility requirements. Employees may elect a salary
          reduction  contribution up to 17% of their annual  compensation not to
          exceed the maximum amount allowed by the Internal Revenue Service.

          Effective October 1, 1994, the Plan was amended to require the Company
          to make  contributions to the Plan for eligible pilots in exchange for
          certain  concessions.   These  contributions  are  in  excess  of  any
          discretionary  contributions  made for the pilots  under the  original
          terms of the plan. The  contribution is 100% vested and equal to 3% of
          the first $15,000 of compensation plus 2% of compensation in excess of
          $15,000.  The Company's  contributions for the pilots shall not exceed
          15% of the Company's  adjusted net income before  extraordinary  items
          for such plan year. The Company's  obligations  to make  contributions
          with  respect  to all plan years in the  aggregate  is limited to $2.5
          million.  Contribution expense was approximately  $395,000,  $370,000,
          and $445,000 for 1995, 1996 and 1997, respectively.
                              

          Effective  June 1, 1995,  the Plan was amended to allow the Company to
          make a discretionary  matching  contribution  for non-union  employees
          equal to 25% of salary  contributions up to 4% of total  compensation.
          Contribution expense was approximately  $13,000,  $29,000 and $133,000
          for 1995,  1996 and 1997,  respectively.  Effective April 1, 1997, all
          eligible pilots were included under the original terms of the Plan.

          In  addition  to the pilot  401(k),  the  Company  has profit  sharing
          programs which result in periodic payments to all eligible  employees.
          Profit sharing  compensation,  which is based on attainment of certain
          performance and financial goals, was approximately $1.2 million,  $2.6
          million, and $3.6 million in 1995, 1996 and 1997, respectively.
       

9. Income Taxes

          The  provision  (benefit)  for income  taxes  includes  the  following
          components:
              
         <TABLE>
                              (in thousands)
         <CAPTION>
                              Year Ending December 31,                            1995             1996             1997
                             
                              ------------------------------------------------------------------------------------------------
                              <S>                                     <C>                <C>               <C>   
 
                              Federal:                                                                                            
                                                                                                                                 
                                                                                   238            1,699                7,342
                                   Deferred                                    (1,230)           (1,344)               1,907
                              --------------------------------------- ------------------ ----------------- ------------------- 
                              Total federal provision (benefit)                  (992)               355               9,249
                              --------------------------------------- ------------------ ----------------- ------------------- 
                              State:
                                   Current                                          50               391               2,545
                                   Deferred                                      (270)             (296)                 545
                              --------------------------------------- ------------------ ----------------- ------------------- 
                              Total state provision (benefit)                    (220)                95               3,090
                              --------------------------------------- ------------------ ----------------- ------------------- 
                              Total provision (benefit)                 $      (1,212)      $        450       $      12,339
                                                                                                    
                              --------------------------------------- ------------------ ----------------- ------------------- 
</TABLE>
                              
                              A reconciliation  of income tax expense  (benefit)
                              at the  applicable  federal  statutory  income tax
                              rate  of  35%  to  the  tax  provision   (benefit)
                              recorded is as follows:
<TABLE>

                              (in thousands)
                            <CAPTION>
                              Year ending December 31,                            1995               1996               1997
                              --------------------------------------- ------------------ ------------------ ------------------
                              <S>                                     <C>                <C>                <C>    
                              Income tax expense
                                  at statutory rate                           $ 4,092             $ 6,863            $ 9,394
                              Increase (decrease) in tax
                                expense (benefit):

                                   Change in valuation
                                      allowance                               (1,500)             (1,640)                  -
                                   Utilization of net operating
                                      loss carryforward                       (4,677)             (5,811)                  -
                                   Alternative minimum tax
                                      expense ("AMT")                             210                   -                  -
                                   Permanent differences
                                     and other                                     78                  58                937
                                   State income taxes, net
                                      of federal benefit                          585                 980              2,008
                              --------------------------------------- ------------------ ------------------ ------------------
                              --------------------------------------- ------------------ ------------------
                              Income tax expense (benefit)                   $(1,212)            $    450            $12,339
                              --------------------------------------- ------------------ ------------------ ------------------
</TABLE>

                              Deferred   income  taxes  result  from   temporary
                              differences  which are the result of provisions of
                              the tax laws that either require or permit certain
                              items of income or expense to be reported  for tax
                              purposes in different  periods than for  financial
                              reporting purposes.




<PAGE>


                              The  following  is  a  summary  of  the  Company's
                              deferred income taxes as of December 31, 1996, and
                              1997:
<TABLE>

                              (in thousands)
<CAPTION>
                              December 31,                                                           1996               1997
                              ------------------------------------------------ -------------------------- ------------------
                              <S>                                              <C>                        <C>    
                              Deferred tax assets:
                                   Engine overhaul reserve                                        $ 1,324          $ 1,489
                                   Intangible assets                                                1,195            1,139
                                   Revenue valuation reserves                                       1,362              746
                                   Reserve for bad debts                                              265              150
                                  Alternative minimum tax
                                      credit                                                          661                -
                                  carryforwards
                                   Deferred credits                                                     -            1,940
                                   Other                                                              358              715
                              ----------------------------------------- ------ -------------------------- ------------------
                                      Total deferred tax assets                                     5,165            6,179

                              Deferred tax liabilities:
                                   Depreciation and amortization                                  (1,935)          (4,614)
                                   Preoperating costs                                                (90)            (828)
                                   Other                                                                -             (49)
                              ------------------------------------------ ----- -------------------------- ------------------
                                       Total deferred tax liabilities                             (2,025)          (5,491)

                              ------------------------------------------ ----- -------------------------- ------------------
                              Net deferred income tax assets                                      $ 3,140         $    688
                              ------------------------------------------ ----- -------------------------- ------------------
</TABLE>

                              No valuation  allowance was  established in either
                              1996 or  1997 as the  Company  believes  that  the
                              future  realization  of the  deferred tax asset is
                              more likely than not.

                              The Tax Reform Act of 1986 enacted an  alternative
                              minimum  tax  system,   generally   effective  for
                              taxable years  beginning  after December 31, 1986.
                              The Company is not subject to alternative  minimum
                              tax for the year ended  December 31, 1997.  An AMT
                              tax credit carryover of approximately $564,000 was
                              fully utilized in 1997.

                              The Company  recorded a provision for income taxes
                              of approximately  $500,000 for 1996, compared to a
                              provision for income taxes of approximately  $12.3
                              million in 1997.  The 1996  effective  tax rate of
                              approximately  2.3% is significantly less than the
                              statutory  federal and state rates due principally
                              to the  full  utilization  of net  operating  loss
                              carryforwards and the elimination of the valuation
                              allowance.   The  1997   effective   tax  rate  of
                              approximately  46% is  higher  than the  statutory
                              federal and state rates.  The higher effective tax
                              reflects   a   more   conservative   approach   to
                              estimating  permanent  differences between taxable
                              and book income.

10. Commitments                 Aircraft

                                As of December 31, 1997, the Company had a total
                                of 18 CRJs on order from  Bombardier,  Inc.  The
                                initial  order  for 12 CRJs and 36  options  was
                                placed  on  January  28,   1997.   Options  were
                                exercised on November 20, 1997 for an additional
                                six firm and six conditional CRJ deliveries. The
                                first five CRJs were  delivered in the third and
                                fourth  quarters of 1997.  Nine  deliveries  are
                                scheduled  in  1998  and  nine   deliveries  are
                                scheduled  in  1999.  The  capital  cost  to the
                                Company for these 18 deliveries is approximately
                                $166.5  million  in 1998 and  $166.5  million in
                                1999.  As of December 31, 1997,  the Company has
                                made  $15  million  of  non-refundable  aircraft
                                purchase   deposits  on  these   aircraft   (see
                                Footnote 17, Subsequent Events).

                                The  Company is  exploring  various  third party
                                lease   financing    arrangements   for   future
                                aircraft.  However, the Company has backup lease
                                financing  arrangements or sufficient  financing
                                support  with  the  manufacturer  such  that the
                                Company  believes it will be able to acquire the
                                aircraft  at  competitive   rates.  The  Company
                                currently  has an agreement in principle  from a
                                third party for  approximately  $126  million in
                                debt financing  associated  with the purchase of
                                nine CRJ's to be delivered in 1998 and 1999.

                                In July 1997, the Company  entered into a series
                                of interest rate swap contracts in the amount of
                                $39.8  million.   The  swaps  were  executed  by
                                purchasing six contracts  maturing between March
                                and September 1998 with Bombardier,  Inc. as the
                                counter  party.   The  interest  rate  hedge  is
                                designed  to  limit  approximately  50%  of  the
                                Company's  exposure  to  interest  rate  changes
                                until permanent financing for its second six CRJ
                                aircraft,   which  are  scheduled  for  delivery
                                between March and September 1998, is secured. At
                                December 31, 1997, had all contracts  settled on
                                that date, the Company would have been obligated
                                to pay  the  counter  party  approximately  $1.4
                                million.  Gains  or  losses  resulting  from the
                                interest  rate swap  contracts  will be deferred
                                until the contracts are settled.

                                Maintenance Facility

                                In  June  1997,   the   Industrial   Development
                                Authority of Loudoun  County,  Virginia  ("IDA")
                                approved a $9.4 million tax exempt bond issuance
                                in  connection   with  the  Company's   proposed
                                construction   of  a  maintenance   facility  at
                                Washington-Dulles. These bonds were issued under
                                a  variable   interest  rate   structure  for  a
                                twenty-five  year term  including a  requirement
                                for a monthly  sinking fund  provision,  and are
                                collateralized  by  a  $9.6  million  letter  of
                                credit  issued  on behalf  of the  Company  by a
                                financial  institution.  The letter of credit is
                                collateralized  by $4.9 million of the Company's
                                line of credit and the Company's  leasehold deed
                                of  trust  on  the  maintenance  facility.   The
                                Company  will be  obligated  to pay rent for the
                                facility and the underlying land leasehold,  the
                                proceeds  from  which  the  IDA  will  make  the
                                required interest and sinking fund payments.  In
                                the event of a  default,  the  Company  would be
                                obligated to reimburse the financial institution
                                to the  maximum  amount of the letter of credit.
                                Annual rent is subject to escalation  every five
                                years.  In February 1998,  the Company  occupied
                                this building and began paying rent.

11.    Restructuring 

          In 1994 the Company commenced a major restructuring plan. The basis of
          the plan was to Charges  simplify the fleet by eliminating the EMB-120
          and Dash-8  aircraft  fleets in  conjunction  with the  elimination of
          unprofitable  routes, the consolidation of maintenance bases and other
          cost saving  measures.  As a result,  the Company  established  an $11
          million reserve for restructuring  costs in 1994. The Company reversed
          $521,000  and  $426,000 of  reserves  in 1995 and 1996,  respectively.
          There are no remaining reserves on the Company's balance sheet related
          to the restructuring.

12.    Litigation  

          The  Company  is a  party  to  routine  litigation  incidental  to its
          business,  none of which is  likely to have a  material  effect on the
          Company's financial position.

          The  Company  is a party to an action  pending  in the  United  States
          District  Court for the  Southern  District  of Ohio known as Peter J.
          Ryerson,  administrator  of the estate of David  Ryerson,  v. Atlantic
          Coast  Airlines,  Case No.  C2-95-611.  The Company  believes that all
          claims  resulting from this litigation  remain fully covered under the
          Company's  insurance  policy.  On March 10,  1997,  the Court  granted
          Plaintiff's  motion to the effect that liability  would not be limited
          to those damages available under the Warsaw Convention. The Company is
          currently  unable to estimate the monetary  award,  if any,  resulting
          from this litigation,  but believes it remains fully covered under the
          Company's insurance policy.

          The Company is also a party to an action  pending in the United States
          Court of Appeals  for the Fourth  Circuit  known as Afzal v.  Atlantic
          Coast Airlines,  Inc. (No.  98-1011).  This action is an appeal of the
          December  1997  decision  granted  in favor of the  Company  in a case
          claiming  wrongful  termination  of  employment  brought in the United
          States  District  Court for the Eastern  District of Virginia known as
          Afzal v. Atlantic Coast Airlines,  Inc. (Civil Action No.  96-1537-A).
          The  Company  does not  expect  the  outcome  of this case to have any
          material  adverse effect on its financial  condition or results of its
          operations.


13.    Related Party Transactions

          The Company paid approximately $25,000 for the year ended December 31,
          1995 in  consulting  Transactions  fees to The Acker Group,  a Company
          owned by one of the  Company's  officers/stockholders.  The  agreement
          under which the fees were paid ended as of February 1995.

14.    Financial Instruments  

          In  December  1995,  the  Company   adopted   Statement  of  Financial
          Accounting Standards No. Instruments 107, "Disclosure of Fair Value of
          Financial Instruments" (SFAS 107). SFAS 107 requires the disclosure of
          the fair value of financial  instruments;  however,  this  information
          does not represent  the aggregate net fair value of the Company.  Some
          of the  information  used to determine  fair value is  subjective  and
          judgmental in nature; therefore, fair value estimates,  especially for
          less marketable securities, may vary. The amounts actually realized or
          paid upon settlement or maturity could be significantly different.
                                 
          Unless quoted  market price  indicates  otherwise,  the fair values of
          cash  and  cash  equivalents  and  short  term  investments  generally
          approximate market because of the short maturity of these instruments.
          The  Company has  estimated  the fair value of long term debt based on
          quoted market prices.

          The estimated fair values of the Company's financial instruments, none
          of which are held for  trading  purposes,  are  summarized  as follows
          (brackets denote liability):
<TABLE>

                                 ----------------------------------------------------------------------------------------------
                                 (in thousands)
                                 ----------------------------------------------------------------------------------------------
                                                                       December 31, 1996               December 31, 1997
<CAPTION>
                                 ------------------------------- ------------------------------ -------------------------------
                                                                  Carrying      Estimated         Carrying     Estimated
                                                                   Amount       Fair Value         Amount      Fair Value
                                                                --------------- --------------- -------------- ----------------
<S>                                                                  <C>             <C>            <C>            <C>      
                                 Cash and cash equivalents           $21,470         $21,470        $39,167        $  39,167
                                 Short-term investments                    -               -         10,737           10,737
                                 Long-term debt                      (3,726)         (3,912)       (75,706)        (120,125)
                                 ------------------------------ --------------- --------------- -------------- ----------------

</TABLE>

15.    Supplemental Cash Flow Information         

Year ended December 31, (in thousands)
Supplemental disclosures of cash flow information:
                           
             
           
Cash paid during the period
for:                              
<TABLE>
<CAPTION>

                                                                       1995                    1996                  1997
                                                                      ----                    ----                  ----
<S>                              <C>                            <C>             <C>                  <C>   

                                       - Interest                  $1,804                  $   883                $1,778
                                       - Income taxes                  190                   1,319                 5,767
                                 ------------------------------ --------------- -------------------- --------------------------
</TABLE>

                                 The following non cash  investing and financial
                                 activities took place in 1995, 1996 and 1997:

                                 In 1995,  the Company  acquired $2.3 million in
                                 rotable parts under  capital lease  obligations
                                 and by  issuing  notes.  These  purchases  were
                                 financed by suppliers.

                                 In December 1995, the Company accrued dividends
                                 of   $335,000   on  its  Series  A   Cumulative
                                 Convertible Preferred Stock (see Note 9).

                                 In 1996,  the Company  acquired $1.2 million in
                                 rotable  parts,  ground  equipment,   telephone
                                 system  upgrades and  Director's  and Officer's
                                 Liability   Insurance   under   capital   lease
                                 obligations   and  by  issuing   notes.   These
                                 purchases   were   financed  by  suppliers  and
                                 outside lenders.

                                 In 1997,  the Company  acquired $2.9 million in
                                 rotable parts,  spare engines,  market planning
                                 software and other fixed assets and  expendable
                                 parts  under  capital  lease   obligations  and
                                 through the use of manufacturers credits. As of
                                 December  31,  1997,   there  was  a  remaining
                                 balance  of  $700,000  in  unused  manufacturer
                                 credits which is reflected in prepaid  expenses
                                 and other current assets.

                                 In November  1997,  the Company  received  $4.3
                                 million in additional  manufacturers credits of
                                 which  $261,000 was received in cash by the end
                                 of 1997  leaving a balance of $4.1  million due
                                 from the  manufacturer as of December 31, 1997.
                                 Such  amount  has  been   classified  as  other
                                 assets.


16. Year 2000 Compliance

          The Company has started to review its computer systems and application
          programs for Compliance  year 2000  compliance.  The Company  believes
          that  the  cost  to  modify  any  of  its  non-compliant   systems  or
          applications will not have a material effect on its financial position
          or results of its  operations.  However,  the Company can not give any
          assurances  that the systems of other  parties  upon which the Company
          must rely, will be year 2000 compliant on a timely basis.  Examples of
          systems  operated  by others that the Company may use and or rely upon
          are: FAA Air Traffic Control,  Computer Reservation Systems for travel
          agent sales and United Airlines'  reservation,  passenger check in and
          ticketing systems. The Company's business,  financial condition and or
          results of operations  could be materially  adversely  affected by the
          failure of its systems and applications or those operated by others.

17.   Subsequent Events

          In January 1998,  holders of approximately $5.9 million face amount of
          the 7% Events Convertible Subordinated Notes ("Notes") exercised their
          option to  convert  the Notes  into  330,413  shares of the  Company's
          common  stock.  On March 3, 1998,  the Company  notified the remaining
          holders of the Notes that the  Company  was  reducing  the  conversion
          price in order to induce the Note  holders to redeem  their  Notes for
          common stock.  The Note holders have until April 8, 1998 to accept the
          Company's inducement. The Company will record a non-operating one time
          charge  for the  fair  value  of the  cost of the  inducement.  If all
          holders of the Notes accept the Company's  inducement,  the fair value
          of the cost of the inducement would be approximately $2.3 million.
                                 

          In January 1998, the Company  entered into a contract to purchase fuel
          from United Aviation Fuels Company ("UAFC"), a wholly-owned subsidiary
          of United Airlines during the period February through  September 1998.
          The Company has committed to purchase 33,000 barrels of fuel per month
          during the term of this contract at a delivered  price excluding taxes
          and into plane  fees of 52.2  cents per  gallon.  In March  1998,  the
          Company  extended the contract  through  December 1998,  committing to
          purchase  33,000 barrels per month,  October  through  December,  at a
          delivered price excluding taxes and into plane fees of 50.35 cents per
          gallon. Fuel purchased under this arrangement represents approximately
          46% of the Company's anticipated 1998 fuel requirements.
                                 
          On March 4, 1998,  the Company  agreed to a one-year  extension  until
          March 31, 1999 of its code sharing  agreements  with United  Airlines,
          Inc.

          On March 4, 1998, the Company  converted five  conditional  orders for
          CRJ's into firm  deliveries.  With this change,  the Company will take
          delivery  of nine CRJ's in 1998 and an  additional  nine in 1999.  The
          Company  also has options for 25  additional  CRJ's.  The Company took
          delivery under operating leases,  one CRJ in January and one in March,
          1998.
       
18.  Recent Accounting
       Pronouncements           

          Recently,  the  American  Institute of  Certified  Public  Accountants
          issued a proposed  statement  of position on  accounting  for start-up
          costs, including preoperating costs related to the introduction of new
          fleet types by airlines.  The  proposed  accounting  guidelines  would
          require  companies to expense  start-up  costs as  incurred.  The FASB
          recently  approved the proposed  guidelines  and they will take effect
          for fiscal years  beginning  after  December 15, 1998. The Company has
          deferred  certain  start-up costs related to the  introduction  of the
          CRJs and is amortizing  such costs to expense ratably over four years.
          The  Company  will be  required  to expense  any  unamortized  amounts
          remaining as of January 1, 1999.  The Company  estimates the remaining
          unamortized  balance for deferred start-up costs will be approximately
          $1.4 million on January 1, 1999.


19.  Selected
     Quarterly
     Financial Dat
     (Unaudited)         

<TABLE>
(in thousands, except per share amounts)
                                                                       Quarter Ended
<CAPTION>
                                                   March 31,              June 30,       September 30,         December 31,
                                                      1997                   1997              1997                  1997
<S>                                                 <C>                  <C>             <C>                   <C>    
       Operating revenues                           $41,114              $53,220             $54,864                $56,246
       Operating income                               1,037                9,968               9,054                  8,884
       Net income                                       703                5,885               4,844                  3,068
       Net income per share
          Basic                                    $   0.08             $   0.69            $   0.68               $   0.43
          Diluted                                  $   0.08             $   0.67            $   0.51               $   0.34
       Weighted average shares
            outstanding                               8,501                8,510               7,093                  7,197

</TABLE>
<TABLE>
                                                                       Quarter Ended
        
<CAPTION>
                                                   March 31,               June 30,       September 30,         December 31,
                                                     1996                    1996                 1996                 1996
<S>                                                 <C>                  <C>                 <C>                <C>    
       Operating revenues                           $37,857              $50,366             $49,541                $44,720
       Operating income                               1,118                9,203               7,674                  2,268
       Net income                                       862                8,464               7,131                  2,701
       Net income per share
          Basic                                    $   0.10             $   1.00            $   0.84               $   0.32
          Diluted                                  $   0.10             $   0.96            $   0.81               $   0.31
       Weighted average shares
            outstanding                               8,355                8,467               8,477                  8,479

</TABLE>

<PAGE>


Item 9.  Changes in and Disagreements with Accountants on Accounting and 
         Financial Disclosure

         Reference is hereby made to the Company's Form 8K Item 4. filed October
         29, 1997.

                                                                             
PART III

                  The  information  required  by this Part III (Items 10, 11, 12
and 13) is hereby incorporated by reference from the Company's  definitive proxy
statement  which is  expected  to be filed  pursuant  to  Regulation  14A of the
Securities  Exchange  Act of 1934 not later  than 120 days  after the end of the
fiscal year covered by this report.

                                                                              
PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

         (a)      1.       Financial Statements

                           The Consolidated  Financial Statements listed in the 
                           index in Part II, Item 8, are filed as part of this 
                           report.

                  2.       Consolidated Financial Statement Schedules

                           Reference   is  hereby   made  to  the   Consolidated
                          Financial  Statements and the Notes thereto  included 
                           in this filing in Part II, Item 8.

                  3.       Exhibits

<TABLE>
<CAPTION>
Exhibit
Number                       Description of Exhibit
<S>                          <C>   

3.1  (note 6)           Restated Certificate of Incorporation of the Company.
3.1(a)  (note 4)        Certificate of Correction to the Restated Certificate of Incorporation.
3.2  (note 4)           Restated By-laws of the Company.  
4.1  (note 7)                  Specimen Common Stock Certificate.
4.2  (note 7)                  Stockholders' Agreement, effective as of October 15, 1991, among the Company, the stockholders and
                               the holder of warrants of the Company named on the signature pages thereto and a trust established 
                               pursuant to the Atlantic Coast Airlines, Inc. Employee Stock Ownership Plan, together with Amendment
                               and Second Amendment thereto dated as of February 24, 1992 and May 1, 1992 respectively.
4.3  (note 7)                  Registration Rights Agreement, dated as of September 30, 1991,among the Company and the stockholders
                               named on the signature pages thereto(the "Stockholders Registration Rights Agreement").
4.4  (note 7)                  Form of amendment to the Stockholders Registration Rights Agreement.
4.17  (note 3)                 Indenture, dated as of July 2, 1997, between the Company and First Union National Bank of Virginia
4.18  (note 3)                 Registration Rights Agreement, dated as of July 2, 1997, by and among the Company, Alex. Brown & Sons
                               Incorporated and the Robinson-Humphrey Company, Inc.
10.1  (note 7)                 Atlantic Coast Airlines, Inc. 1992 Stock Option Plan.
10.2  (note 4)                 Restated Atlantic Coast Airlines, Inc. Employee Stock Ownership Plan, effective October 11, 1991, as 
                               amended through December 31, 1996.
10.4  (note 4)                 Restated Atlantic Coast Airlines 401(k) Plan, as amended through February 3, 1997.
10.4(a) (note 1)               Amendment to the Atlantic Coast Airlines 401(k) Plan effective May 1, 1997
10.6 (notes 7 & 8)             United Express Agreement, dated October 1, 1991, among United Airlines, Inc., Atlantic Coast Airlines
                               and the Company, together with Amendment No. 1, dated as of April 1, 1993.
10.6(a) (note 1)               Third Amendment to United Express Agreement, dated March 3, 1998, among United Airlines, Inc., 
                               Atlantic Coast Airlines and the Company.
10.7 (notes 7 & 8)             Agreement to Lease British Aerospace Jetstream-41 Aircraft, dated December 23, 1992, between British 
                               Aerospace, Inc. and Atlantic Coast Airlines.
10.12(b)  (note 5)             Amendment and Restated Severance Agreement, dated as of October 18, 1995 between the Company and 
                               Kerry B. Skeen.
10.12(c)  (note 4)             First Amendment To Severance Agreement For Kerry B. Skeen effective as of October 16, 1996.
10.12(h)  (note 4)             Form of Severance Agreement.  The Company has entered into substantially identical agreements with 
                               Thomas J. Moore and with Michael S. Davis, both dated as of January 1, 1997, and with Paul H. Tate, 
                               dated as of February 1, 1998.
10.13(a)  (note 4)             Form of Indemnity Agreement.The Company has entered into substantially identical agreements with the 
                               individual members of its Board of Directors.
10.20  (note 6)                Stock Purchase Agreement, dated the 30th day of December 1994, by and among JSX Capital Corporation, 
                               Atlantic Coast Airlines, and Atlantic Coast Airlines, Inc.
10.21  (note 6)                Acquisition Agreement, dated as of December 30, 1994, by and among Jetstream Aircraft, Inc., JSX
                               Capital Corporation, and Atlantic Coast Airlines.
10.21(a)  (note 4)             Amendment Number One to Acquisition Agreement, dated as of June 17, 1996, by and among Jetstream 
                               Aircraft, Inc., JSX Capital Corporation, and Atlantic Coast Airlines.
10.23  (note 4)                Loan and Security Agreement, dated as of October 12, 1995, between Atlantic Coast Airlines and
                               Shawmut Capital Corporation.
10.23(a) (note 1)              First Amendment to Loan and Security Agreement dated June 1, 1997 among the Company, Atlantic Coast
                               Airlines, and Fleet Capital Corporation.
10.23(b) (note 1)              Second Amendment to Loan and Security Agreement dated December 1, 1997 among the Company, Atlantic 
                               Coast Airlines, and Fleet Capital Corporation.
10.24  (note 5)                Stock Incentive Plan of 1995.
10.25  (note 5)                Form of Incentive Stock Option Agreement.  The Company enters into this agreement with employees who 
                               have been granted incentive stock options pursuant to the Stock Incentive Plans.
10.26  (note 5)                Form of Non-Qualified Stock Option Agreement. The Company enters into this agreement with employees
                               who have been granted non-qualified stock options pursuant to the Stock Incentive Plans.
10.27  (note 5)                Split Dollar Agreement, dated as of December 29, 1995, between the Company and Kerry B. Skeen.
10.27(a)  (note 4)             Form of Split Dollar Agreement.The Company has entered into substantially identical agreements with 
                               Thomas J. Moore and with Michael S.Davis,both dated as of July 1, 1996, and with Paul H. Tate, dated 
                               as of February 1, 1998.
10.29  (note 5)                Agreement of Assignment of Life Insurance Death Benefit As Collateral,dated as of December 29, 1995, 
                               between the Company and Kerry B. Skeen.
                               10.29(a)  (note 4) Form of Agreement of Assignment  of Life  Insurance
                               Death   Benefit  As   Collateral.   The  Company   has  entered   into
                               substantially  identical  agreements  with  Thomas  J.  Moore and with
                               Michael S.  Davis,  both  dated as of July 1,  1996,  and with Paul H.
                               Tate, dated as of February 1, 1998.
10.31  (note 4)                Summary of Senior Management Bonus Program. The Company has adopted a plan in substantially the form 
                               as outlined in this exhibit for 1998 and 1997.
10.32  (note 1)                Summary of "Share the Success" Profit Sharing Plan.  The Company has adopted a plan in substantially 
                               this form for 1998, 1997 and 1996.
10.40 (notes 4 & 8)            Purchase Agreement between Bombardier Inc. and Atlantic Coast Airlines Relating to the Purchase of 
                               Canadair Regional Jet Aircraft dated
                               January 8, 1997.
10.50(a) (note 1)              Form of Purchase Agreement, dated September 19, 1997, among the Company, Atlantic Coast Airlines, 
                               Morgan Stanley & Co. Incorporated and First
                               National Bank of Maryland, as Trustee.
10.50(b) (note 1)              Form of Pass Through Trust Agreement, dated as of September 25, 1997, among the Company, Atlantic 
                               Coast Airlines, and First National Bank of Maryland, as Trustee.
10.50(c) (note 1)              Form of Pass Through Trust Certificate.
10.50(d) (note 1)              Form of Participation Agreement, dated as of September 30, 1997, Atlantic Coast Airlines, as Lessee 
                               and Initial Owner Participant, State Street Bank and Trust Company of Connecticut, National 
                               Association, as Owner Trustee, the First National Bank of Maryland, as Indenture Trustee, 
                               Pass-Through Trustee, and Subordination Agent, including, as exhibits thereto, Form of Lease 
                               Agreement, Form of Trust Indenture and Security Agreement, and Form of Trust Agreement.
10.50(e) (note 1)              Guarantee, dated as of September 30, 1997, from the Company.
10.60  (note 4)                Form of Lease Agreement between Atlantic Coast Airlines and Finova Capital Corporation. The Company 
                               has entered into four substantially identical agreements during 1996 for four J-41 aircraft.
10.80 (note 1)                 Ground Lease Agreement Between The Metropolitan Washington Airports Authority And Atlantic Coast 
                               Airlines dated as of June 23, 1997 
10.90 (notes 1 & 8)            ISDA Master Agreement between the Company and Bombardier Inc. dated as of July 11, 1997.
11.1                           Computation of Per Share Income.
21.1  (note 7)                 Subsidiaries of the Company.
23.1 (note 1)                  Consent of KPMG Peat Marwick.
23.2  (note 1)                 Consent of BDO Seidman.


<FN>
Notes

(1)           To be filed as an Amendment to this Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
(2)           Filed as an Exhibit to the Amendment to the Annual Report on form 10-K/A filed on November 25, 1997, incorporated 
              herein by reference.
(3)           Filed as an Exhibit to the Quarterly Report on Form 10-Q for the three month period ended June 30, 1997, incorporated
              herein by reference.
(4)           Filed as an Amendment to the Annual Report on Form 10-K for the fiscal year ended December 31, 1996, incorporated 
              herein by reference.
(5)           Filed as an Exhibit to the Annual report on Form 10-K for the fiscal year ended December 31, 1995, incorporated herein
              by reference.
(6)           Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31,1994, incorporated herein 
              by reference.
(7)           Filed as an Exhibit to Form S-1, Registration No. 33-62206, effective July 20, 1993, incorporated herein by reference.
(8)           Portions of this document have been omitted pursuant to a request for confidential treatment that has been granted.


               Reports on Form 8-K.



                --------------------------------------------- ------------------------------------------------------------
                Date                                          Subject
                --------------------------------------------- ------------------------------------------------------------
                October 6, 1997                               Item 5.  Other Events:  Announcement of closing the sale
                                                              of $111.6 million of Pass Through Trust Certificates.
                October 29, 1997                              Item 4.  Change in Registrant's Certifying Accountants.

                --------------------------------------------- ------------------------------------------------------------










<PAGE>


                                   SIGNATURES

          Pursuant to the  requirements of Section 13 of 15(d) 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 on
          March 16, 1998.                    

                                                   ATLANTIC COAST AIRLINES, INC.

                                                  By:  _________________________
                                                                 C. Edward Acker
                                                           Chairman of the Board 

                                                                                                       
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities indicated on March 16, 1998.

Name                                                      Title


                                                          Chairman of the Board of Directors
---------------------------------------------------
C. Edward Acker


                                                          Director, President
---------------------------------------------------       and Chief Executive Officer
Kerry B. Skeen                                            (principal executive officer)

                                                          

                                                          Director, Executive Vice President
---------------------------------------------------       and Chief Operating Officer
Thomas J. Moore                                           


                                                          Senior Vice President, Treasurer and
---------------------------------------------------       Chief Financial Officer
Paul H. Tate                                              (principal financial officer)
                                                          


                                                          Vice President, Financial Planning and Controller
---------------------------------------------------       (principal accounting officer)

David W. Asai                                             


                                                         
---------------------------------------------------       -----------------------------------------------------------
John Sullivan                                             Susan M. Coughlin
Director                                                  Director



---------------------------------------------------       -----------------------------------------------------------
Robert Buchanan                                           James Kerley
Director                                                  Director



---------------------------------------------------       -----------------------------------------------------------
Joseph Elsbury                                            James Miller
Director                                                  Director                                            
</FN>
</TABLE>