**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-K/A**

**Amendment No. 2**

 

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

 

**For the fiscal year ended December 31, 2004**

 

**Commission file number 0-21976**

 

**FLYi, INC.**

(Exact name of registrant as specified in itscharter)

 
| **Delaware**                                | ** ** | **13-3621051**                     |
|---------------------------------------------|------------|------------------------------------|
| (State of incorporation)                    |       | (IRS Employer  Identification No.) |
|                                        |       |                               |
| **45200 Business Court, Dulles,  Virginia** | ** ** | **20166**                          |
| (Address of principal  executive offices)   |       | (Zip Code)                         |

 

Registrant’s telephone number, including areacode: **(703) 650-6000**

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

Securitiesregistered pursuant to Section 12(g) of the Act:

 

**Common Stock par value $ .02**

(Title of Class)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes   ý                  Noo

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inExchange Act Rule 12b-2).

 

Yes   ý                  Noo

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. o

 

Theaggregate market value of voting stock held by nonaffiliates of the registrantas of June 30, 2004 was approximately $255.3 million.

 

Asof March 1, 2005, there were 50,410,787 shares of common stock of theregistrant issued and 45,339,810 shares of common stock outstanding.

 

Documents Incorporated by Reference

None

 

 

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**EXPLANATORY NOTE**

 

This Annual Report on Form 10-K/AAmendment No. 2 amends the Company’s previously filed Annual Reports on Form 10-Kand 10-K/A for the fiscal year ended December 31, 2004. This amendment isbeing filed to report (1) the Company’s management report on internalcontrol over financial reporting and the related attestation report of ourindependent registered public accounting firm and (2) the inclusion of Part III,Items 10 through 14.

 

**PART II**

 

**ITEM 9A. CONTROLS AND PROCEDURES**

 

**EVALUATION OF DISCLOSURE CONTROLSAND PROCEDURES**

 

TheCompany’s management is responsible for establishing and maintaining “disclosurecontrols and procedures,” as defined in Exchange Act Rule 13a-15(e).Management necessarily applied its judgment in assessing the costs and benefitsof such controls and procedures that, by their nature, can provide onlyreasonable assurance regarding management’s control objectives. Management doesnot expect that its disclosure controls and procedures will prevent all errorsand fraud. A control system, irrespective of how well it is designed andoperated, can only provide reasonable assurance, and cannot guarantee, that itwill succeed in its stated objectives.

 

TheCompany’s management, with the participation of the Company’s principalexecutive officer and principal financial officer, has carried out anevaluation of the effectiveness as of December 31, 2004 of the design andoperation of the Company’s disclosure controls and procedures. Based upon theforegoing evaluation, the principal executive officer and principal financialofficer concluded that, as of the end of the period covered by this Form 10-K,the Company’s disclosure controls and procedures were effective to providereasonable assurance that information required to be disclosed in the Company’sExchange Act reports is recorded, processed, summarized and reported within thetime periods specified by the SEC, and that material information relating tothe Company and its consolidated subsidiaries is made known to management,including the principal executive officer and principal financial officer,particularly during the period when the Company’s periodic reports are beingprepared.

 

**MANAGEMENT’S ANNUAL REPORT ONINTERNAL CONTROL OVER FINANCIAL REPORTING**

 

The Company’s management isresponsible for establishing and maintaining adequate internal control overfinancial reporting, as that term is defined in Exchange Act Rules 13a-15(f).  The Company’s internal control over financialreporting is designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with accounting principles generally accepted in theUnites States of America.  Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

The Company’s management,including the Chief Executive Officer and Chief Financial Officer, assessed theeffectiveness of the Company’s internal control over financial reporting at December 31,2004, as required by Section 404 of the Sarbanes Oxley Act of 2002 and SECregulations. Management’s assessment is based on criteria established in theInternal Control - Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this assessment, management concluded that the Companymaintained effective internal control over financial reporting as of December 31,2004.

 

2

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KPMG LLP, independentregistered public accounting firm, who audited and reported on the consolidatedfinancial statements of the Company included in this Annual Report, has issuedan attestation report on internal control over financial reporting as of December 31,2004, and management’s assessment of internal control over financial reporting. This KPMG attestation report follows.

 

# **Report of Independent RegisteredPublic Accounting Firm**

 

TheBoard of Directors and Stockholders

FLYi,Inc:

 

Wehave audited management’s assessment, included in the accompanying Management’sAnnual Report on Internal Control over Financial Reporting, that FLYi, Inc.and subsidiaries (the Company) maintained effective internal control overfinancial reporting as of December 31, 2004, based on**criteria established in *Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO)*.*The Company’s management is responsiblefor maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting.Our responsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the Company’s internal control over financialreporting based on our audit.

 

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal controlover financial reporting, evaluating management’s assessment, testing andevaluating the design and operating effectiveness of internal control, andperforming such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for ouropinions.

 

A company’sinternal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes thosepolicies and procedures that (1) pertain to the maintenance of recordsthat, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

Inour opinion, management’s assessment that the Company maintained effectiveinternal control over financial reporting as of December 31, 2004, isfairly stated, in all material respects, based on criteria established in *Internal Control—Integrated Framework*issuedby COSO. Also, in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of December 31,2004, based on criteria established in *InternalControl—Integrated Framework*issuedby COSO*.*

 

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheets ofFLYi, Inc. and subsidiaries as of December 31, 2004 and 2003, and therelated consolidated statements of operations, stockholders’ equity andcomprehensive income, and cash flows for each of the years in the three-yearperiod ended December 31, 2004, and our report dated March 25, 2005expressed an unqualified opinion on those consolidated financial statements andincluded an explanatory paragraph concerning matters that raise substantialdoubt about the Company's ability to continue as a going concern.

 

KPMGLLP

 

 

McLean,VA

April 29,2005

 

 

3

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PART III

**Item 10. Directors and Executive Officers of the Registrant**

 

The following table sets forth the names, ages and positions with theCompany of the persons who serve as our directors as of April 28, 2005.  There are no familyrelationships among the directors.

 
| **Name**                 | ** ** | **Age**    | ** ** | **Position**                                                 | ** ** | **Director  Since** | ** ** |
|--------------------------|------------|------------|------------|--------------------------------------------------------------|------------|---------------------|------------|
| ** **               | ** ** | ** ** | ** ** | ** **                                                   | ** ** | ** **          | ** ** |
| Kerry B. Skeen           |       | 52         |       | Chairman of the Board of Directors, Chief  Executive Officer |       | 1991                |       |
| Thomas J. Moore          |       | 48         |       | President, Chief Operating Officer and Director              |       | 1997                |       |
| C. Edward Acker          |       | 76         |       | Director                                                     |       | 1991                |       |
| Robert E. Buchanan       |       | 62         |       | Director                                                     |       | 1995                |       |
| Susan MacGregor-Coughlin |       | 59         |       | Director                                                     |       | 1997                |       |
| Caroline (Maury) Devine  |       | 54         |       | Director                                                     |       | 2002                |       |
| Daniel L. McGinnis       |       | 66         |       | Director                                                     |       | 2000                |       |
| James C. Miller III      |       | 62         |       | Director                                                     |       | 1995                |       |

 

*Kerry B. Skeen*.  Mr. Skeen is a co-founder of the Company and has been Chairman of the Boardof Directors since January 2000, a director since October 1991, and Chief Executive Officer since March 1995.  He was President from October 1992 through December 1999, Executive Vice President from October 1991 to October 1992, and Chief Operating Officer from October 1992 through March 1995.  Mr. Skeen was President of the Atlantic Coast division of WestAir CommuterAirlines, Inc. (“WestAir”)from 1989 until it was acquired by the Company in 1991.  From 1987 to 1989, Mr. Skeen was Vice President of Marketing and Sales of WestAir and, in1989, was named Senior Vice President of WestAir.  Mr. Skeen began his career in the airlineindustry with Delta Airlines in 1983.

 

*Thomas J. Moore*.  Mr. Moore became President of the Company in January 2000 andhas been a director and Chief Operating Officer since April 1997.  He was Executive VicePresident from April 1997 through December 1999, andwas Senior Vice President of Maintenance and Operations from June 1994 until April 1997. Prior to joining the Company, Mr. Moore spentnearly ten years with Continental Airlines in Houston, Texas, where he servedat different times in the positions of Staff Vice President, Senior Director ofTechnical Planning, Director of Financial Planning and Division Controller.

 

*C. Edward Acker*.  Mr. Acker is a co-founder of the Company and has been a director since October 1991.  He was Chairman of theBoard of Directors from April 1993 through December 1999,Chief Executive Officer from October 1991 to March 1995, Vice Chairman from October 1991 to April 1993, and President from October 1991 to October 1992.  Mr. Acker continues to serve in an advisory capacity to the Chairman.  Mr. Acker served as Chairman and Chief ExecutiveOfficer of Pan American World Airways, Inc. from 1981until 1988.  Since 1988, Mr. Acker has served as Chairman of The Acker Group, a private company thatacts as both principal and adviser in airline-related transactions, and as apartner in Elsbury & Acker, an oil and natural gas explorationcompany.  From February 1995 until February 1996, Mr. Acker served asChairman and Chief Executive Officer of BWIA International Airways, Ltd.  From 1993 to the present, he has served asChairman of the Board and President of Air Assets, Inc., the parentof Martinaire Inc., which provides contract air cargo transportation for UPSand DHL.  Since 2004, Mr. Acker has served as the Managing Principal of Intrepid Equity.

 

 

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*Robert E. Buchanan*.  Mr. Buchanan has been a director since March 1995.  Mr. Buchanan is President of Buchanan Companies,LLC and is Principal of Buchanan Partners, LLC, a metropolitan Washington, D.C.real estate firm specializing in commercial and retail development,construction and property management in suburban Washington.  Mr. Buchanan presently serves on the Board ofDirectors of the Washington Airports Task Force and the Economic DevelopmentCommission of Loudoun County, Virginia (former Chairman), which is home to theCompany’s corporate office and its hub atWashington-Dulles International Airport. He is also a member of the advisory board for George WashingtonUniversity’s Virginia campus and a Trustee for theGreater Washington Initiative.

 

*Susan MacGregor Coughlin*.  Mrs. Coughlin has been a director since October 1997.  In June 2002, Mrs. Coughlin became President and Chief Executive Officer of the AviationSafety Alliance.  Prior to joining ASA,she served as President and Chief Operating Officer of the American TransportationResearch Institute, a position she held since November 2000.  Previously she was the Director and ChiefOperating Officer of the ATA Foundation, the research and educationorganization of the American Trucking Associations, from April 1998 to November 2000. She also has been the President of Air Safety Management Associates, anaviation consulting firm, since October 1997. From August 1995 to October 1997 shewas President and Chief Operating Officer of BDM Air Safety Management Corp.,which designs and develops air traffic control systems, and from April 1994 to August 1995 was a Senior Vice President and GeneralManager in the transportation systems division of BDM Federal, Inc.  She was confirmed by the UnitedStates Senate in 1990 as a member of the National Transportation Safety Boardand served until mid-1994.  She served as Board Vice Chairman for twoconsecutive terms in 1990 and 1992 and served as Acting Chairman in 1992.  She held various positions with the U.S.Department of Transportation from 1987 to 1990 and from 1981 to 1983, and withthe Export-Import Bank of the U.S. from 1983 to 1987.  Mrs. Coughlin also serves on the board of SensisCorporation, which specializes in the development of innovative surveillancetechnology applications for a growing international client base, including bothcommercial and civil markets.

 

*Caroline (Maury) Devine*.  Ms. Devine has been a director since June 2002.  She has most recently been a Fellow atHarvard University’s Belfer Center for Science and InternationalAffairs (2000-2003).  Prior to this, Ms. Devine heldvarious positions with Mobil Corporation. From 1996-2000,she was President of Mobil’s Norwegian affiliate engaged in theexploration and production of oil and gas in the North Sea and the NorwegianSea.  From 1994-1996, Ms. Devine servedas Secretary of Mobil Corporation. Elected by Mobil’s Board of Directors, she was responsible forshareholder relations and governance issues affecting Mobil and its 750affiliates and subsidiaries.  From 1990to 1994, Ms. Devine was responsible for Mobil’sinternational government relations with particular emphasis on Vietnam,Indonesia, Nigeria and Russia.  Beforejoining Mobil in 1988, Ms. Devine served 15 years in the U.S. Governmentin positions at the White House and the U.S. Department of Justice.  Ms. Devine is currently a member of the Councilon Foreign Relations and serves as Vice Chairman of the Board of Directors ofthe Norwegian multinational corporation, DNV (Det Norske Veritas).  She also serves on the Boards of the Friendsof the Corcoran Museum of Art, the Washington Jesuit Academy and the NationalForeign Language Center.

 

*Daniel L. McGinnis*.  Mr. McGinnis has been a director since March 2000.  From June 1999 until hisretirement in June 2002 he was President, CEO and Director ofSotas, Inc., a developer and manufacturer oftelecommunications equipment with subsidiaries in India and the UnitedKingdom.  From

 

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August 1998 until January 1999 he wasSenior Vice President of Tellabs Inc., a provider of voice and data transportand access systems, and General Manager of the N.E.T.S.  Group of Tellabs.  Prior to Tellabs, he was President, ChiefExecutive Officer and a Director of Coherent Communications Systems Corporationfrom 1988 until Tellabs acquired it in 1998. Previously, he served as Division Controller for Bausch & Lomb, and held senior engineering and sales management positions atAir Products & Chemicals, Clark, Ltd. (U.K.) and Hercules, Inc.  Other former positions heldinclude Chairman of Coherent UK, Ltd., Director of Cohpac, Ltd. (Australia),President of Bausch & Lomb Insurance Co., and Director of Sotas(India) Ltd.  Other current positionsinclude Director of the George C. Marshall International Center, member of theNorthern Virginia Roundtable, Managing Director of The Weatherly Company, LLC,member of the advisory board for George Washington University’sVirginia campus and the advisory board for an investment fund of the Robert W. BairdCompany.  Other former board positionsinclude the Washington Airports Task Force, the Loudoun County EconomicDevelopment Commission, and Loudoun Healthcare, Inc.

 

*James C. Miller III*.  Dr. Miller has been a director since March 1995.  Since April 2002, Mr. Miller has been chairman of The CapAnalysis Group, LLC, an affiliate ofHowrey Simon Arnold & White, LLP. CapAnalysis provides assessments of complex financial, economic, andregulatory issues.  From October 1998 until April 2002, he was Chairman and DistinguishedFellow of Citizens for a Sound Economy Foundation, a citizen’sgroup that advocates market-based solutions to public policy problems.  Dr. Miller now serves as an Emeritus Member ofthat Foundation’s Board of Directors.  He also has served as a consultant to theFederal Home Loan Mortgage Corporation (Freddie Mac) since December 2000. He has been a Distinguished Fellow at the Center for Study of PublicChoice at George Mason University since October 1988.  Dr. Miller was appointed by President George W.Bush to serve on the Board of Governors of the U.S. Postal Service in April 2003, and was confirmed by the Senate in November 2004, andwas named Chairman of the Board of Governors in January 2005.  He also serves as an Emeritus Member of theBoards of Directors for the Tax Foundation and the Progress & Freedom Foundation.  Dr. Miller is a Senior Fellow (by courtesy) of the Hoover Institution atStanford University.  He is a directorand audit committee member of the J.P. Morgan Value Opportunities Fund as wellas three funds that are part of the American Funds’family of funds (Washington Mutual Investors Fund, the Tax Exempt Fund ofMaryland and the Tax Exempt Fund of Virginia). From 1985 to 1988, he served as Director of the Office of Management andBudget and as a member of President Reagan’s cabinet.  From 1981 to 1985, he was Chairman of theFederal Trade Commission.  Dr. Miller wrote his Ph.D. dissertation on airline scheduling andco-authored a Brookings Institution volume on airline regulation.

 

# **EXECUTIVEOFFICERS**

# ** **

The following table sets forth the name, age as of April 28, 2005, and position of each executive officer of the Company.  Background information for Messrs. Skeen and Moore is described above. There are no family relationships among the executive officers.

 
| **Name**           | ** ** | **Age**    | ** ** | **Position**                                                                          | ** ** | **Director  Since** | ** ** |
|--------------------|------------|------------|------------|---------------------------------------------------------------------------------------|------------|---------------------|------------|
| ** **         | ** ** | ** ** | ** ** | ** **                                                                            | ** ** | ** **          | ** ** |
| Kerry B. Skeen     |       | 52         |       | Chairman of the Board of Directors, Chief  Executive Officer                          |       | 1991                |       |
| Thomas J. Moore    |       | 48         |       | President, Chief Operating Officer and Director                                       |       | 1997                |       |
| Richard J. Surratt |       | 44         |       | Executive Vice President, Chief Financial Officer,  Treasurer and Assistant Secretary |       | 1999                |       |
| William E. Brown   |       | 42         |       | Senior Vice President – Maintenance and Operations                               |       | 2003                |       |
| Eric I. Nordling   |       | 40         |       | Senior Vice President – Marketing                                                |       | 2003                |       |
| Richard J. Kennedy |       | 50         |       | Vice President, General Counsel and Secretary                                         |       | 1996                |       |
| David W. Asai      |       | 49         |       | Vice President –Controller and Assistant Secretary                               |       | 1998                |       |

 

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*Richard J. Surratt*.  Mr. Surratt has served as Executive Vice President, Chief FinancialOfficer, Treasurer and Assistant Secretary since December 2001 andserved as Senior Vice President, Chief Financial Officer, Treasurer andAssistant Secretary from December 1999 to December 2001.  From 1990 until joining the Company Mr. Surratt was with Mobil Corporation. During that time he held a number of executive management positions incorporate finance, accounting and new businessdevelopment.  From April 1998 to December 1999, he was Director in the Mergers andAcquisitions Group, functioning as the lead finance member for that team.  Prior to that position he served as Treasurerof Latin America for the company.  Inaddition to his experience at Mobil, he also spent six years in variousmanagement and engineering positions with Advanced Marine Enterprises.  Mr. Surratt is a Certified Public Accountant.

 

*William E. Brown*.  AsSenior Vice President of Maintenance and Operations, Mr. Brown is responsible for all elements of flight operations,maintenance, labor relations and purchasing. He joined the Company in July 2003. He has 19 years of experience in the airline industry, spending fouryears with Midwest Airlines as Vice President of Maintenance and Engineeringfrom October 1999 to January 2003 and 13years with American Airlines from September 1986 to September 1999 invarious maintenance management positions, with his last position being ProductManager from February 1997 to September 1999.  In addition to his management experience, heis also a multi-engine rated pilot and holds an airframe and power plantlicense.

 

*Eric I. Nordling*.  Mr. Nordling has served as Senior Vice President, Marketing since September 2003.  Mr. Nordling has been with the Company since 1997 and previously held thepositions of Vice President of Corporate Planning from December 2000 to August 2003 and Vice President of Market Planningfrom May 1997 to November 2000.  Prior to 2001, during the period in which theCompany was responsible for its own route selection, aircraft scheduling,pricing and revenue management, he was in charge of those functions for theCompany as the Vice President of Market Planning.  He has 18 years experience in the airlineindustry, holding a variety of positions in the areas of marketing, planningand maintenance.  Before coming to theCompany, he spent two years with Delta Air Lines, where he served as Manager ofPricing and Revenue Management for the company’s western U.S.operations.  From 1994 to 1995, he wasdirector of revenue management for MarkAir in Anchorage Alaska.  From 1986 to 1992, Mr. Nordling held a variety of positions with United Airlines at theirworld headquarters outside Chicago and their maintenance operations base in SanFrancisco.

 

*Richard J. Kennedy*.  Mr. Kennedy has served as General Counsel and Secretary since May 1996 and was named Vice President in November 1997.  From October 1991 untiljoining the Company in May 1996, he was with British Aerospace Holdings, Inc., where he served in various capacities with duties that included contractnegotiation, aircraft finance, and financial restructuring.  Previously he was a private attorney inWashington, D.C. for over ten years.

 

*David W. Asai*.  Mr. Asai has served as Vice President, Controller and Assistant Secretarysince January 1998.  From December 1994 untilthat time, he served as Vice President, Controller and Chief Accounting Officerat Reno Air, Inc.  From July 1992 to November 1994, Mr. Asai was VicePresident - Finance and Chief Financial Officer of Spirit Airlines, Inc.  From 1981 to June 1992, Mr. Asai was employed by Midway Airlines, Inc. in various capacities, including Director of Financial Planning andAnalysis.  Mr. Asai is aCertified Public Accountant.

 

# **SECTION **16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

# ** **

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’sdirectors, executive officers and persons who own more than ten percent of theCommon Stock to file with the Securities Exchange Commission, the Nasdaq StockMarket and the Company, reports on Forms 4 and Forms 5 reflecting transactionsaffecting beneficial ownership.  Basedsolely upon its review of the copies of such forms, the Company believes that,during fiscal year 2004, all persons complied with such filing requirementsexcept that Mr. McGinnis failed to timely file one reportregarding four purchases.

 

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## ***Audit Committee***

## *** ***

The Company has a separately-designated standing Audit Committeeestablished in accordance with Section 3(a)(58)(A) of the Exchange Act.  The membersof the Audit Committee are Mrs. Coughlin, Mr. McGinnis, and Mr. Miller, who serves as Chairman.

 

## ***Audit CommitteeFinancial Experts***

## *** ***

TheBoard of Directors has determined that all of the Company’scurrent Audit Committee members are financially literate and that Mr. Miller and Mr. McGinnis are audit committee financialexperts as defined by Item 401(h) of Regulation S-K under the Exechange Act andare independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.

 

## ***Method for Shareholdersto Recommend Director Nominees***

## *** ***

Since the process was described in the proxy statement for the Company’s2004 Annual Meeting of Shareholders, there have been no material changes to themethod by which the Company’s shareholders may recommend to nominees forthe Company’s Board of Directors.

 

## ***Codes of Conduct***

## *** ***

The Company has adopted the Code of Ethics for FLYi, Inc.’s Members of the Board of Directors, the Code of Ethics for FLYi, Inc.’s Chief Executive Officer and Senior Financial Officers and the Code ofEthics and Business Conduct for FLYi, Inc.’sEmployees.  These Codes are posted on theCompany’s website at www.flyi.com, under the “Company”heading.

 

**Item 11. Executive Compensation**

 

**Summary Compensation Table**

 

The following table sets forth information regarding the compensationof the Company’s Chief Executive Officer, the Company’sfour other most highly compensated executive officers serving as executiveofficers at December 31, 2004. Bonus amounts reflect amounts earned for the specified year regardlessof when paid.  

 
| ** **                                               | ** ** | **Annual Compensation** | ** ** | **Long Term  Compensation  Awards** | ** ** | ** **   | ** ** |
|----------------------------------------------------------|------------|-------------------------|------------|-------------------------------------|------------|--------------|------------|
| **Name and  Current  Position**                          | ** ** | **Year**                | ** ** | **Salary**                          | ** ** | **Bonus(1)** | ** ** | **Other Annual********Compensation(2)** | ** ** | **Securities********Underlying********Options(3)** | ** ** | **All Other********Compensation(4)** | ** ** |
| ** **                                               | ** ** | ** **              | ** ** | ** **                          | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Kerry B.  Skeen                                          |       | 2004                    |       | $                                   | 421,950    |         | $          | — |   | $ | 39,362 |   | 200,000 |   | $ | 435,000 |   |
| Chairman of  the Board and Chief                         |       | 2003                    |       | 403,212                             |       | 267,128      |       | 34,872 |   | 270,000 |   | 435,000 |   |
| Executive  Officer                                       |       | 2002                    |       | 400,535                             |       | 434,408      |       | 34,638 |   | 200,000 |   | 456,700 |   |
|                                                     |       |                    |       |                                |       |         |       |   |   |   |   |   |   |
| Thomas J.  Moore                                         |       | 2004                    |       | 266,750                             |       | —       |       | 14,615 |   | 100,000 |   | 275,000 |   |
| President  and Chief                                     |       | 2003                    |       | 254,904                             |       | 137,011      |       | 16,427 |   | 137,000 |   | 275,000 |   |
| Operating  Officer                                       |       | 2002                    |       | 253,312                             |       | 219,315      |       | 19,294 |   | 100,000 |   | 247,500 |   |
| Richard J.  Surratt                                      |       | 2004                    |       | 208,550                             |       | —       |       | 8,663 |   | 75,000 |   | 161,250 |   |
| Executive  Vice President, Chief                         |       | 2003                    |       | 199,289                             |       | 107,118      |       | 9,934 |   | 129,000 |   | 161,250 |   |
| Financial Officer and Treasurer                          |       | 2002                    |       | 197,758                             |       | 171,306      |       | 8,751 |   | 75,000 |   | 146,250 |   |
|                                                     |       |                    |       |                                |       |         |       |   |   |   |   |   |   |
| William E.  Brown (5)                                    |       | 2004                    |       | 167,308                             |       | —       |       | 9,636 |   | 25,000 |   | — |   |
| Senior Vice  President Maintenance & Operations |       | 2003                    |       | 75,757                              |       | 31,010       |       | 1,454 |   | 35,000 |   | — |   |
|                                                     |       |                    |       |                                |       |         |       |   |   |   |   |   |   |
| Eric I.  Nordling (6)                                    |       | 2004                    |       | 150,000                             |       | —       |       | 2,932 |   | 25,000 |   | — |   |
| Senior Vice  President Marketing                         |       | 2003                    |       | 124,154                             |       | 47,233       |       | — |   | 50,000 |   | — |   |
|                                                          |            |                         |            |                                     |            |              |            |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  The chart below summarizes and compares theannual cash compensation in 2002, 2003 and 2004, based on the sum of eachofficer’s annual salary and bonus.  Mr. Brownjoined the Company in July 2003.

 
| **Name**            | ** ** | **Year**                    | ** ** | **Aggregate of Annual Salary and  Bonus** | ** **    |
|---------------------|------------|-----------------------------|------------|-------------------------------------------|---------------|
| ** **          | ** ** | ** **                  | ** ** | ** **                                | ** **    |
| Kerry B.  Skeen     |       | 2004                        |       | $                                         |  421,950 |   |
|                |       | 2003                        |       | $                                         |  670,340 |   |
|                |       | 2002                        |       | $                                         |  869,581 |   |
|                |       |                        |       |                                      |          |
| Thomas J.  Moore    |       | 2004                        |       | $                                         |  266,750 |   |
|                |       | 2003                        |       | $                                         |  391,915 |   |
|                |       | 2002                        |       | $                                         |  491,921 |   |
|                |       |                        |       |                                      |          |
| Richard J.  Surratt |       | 2004                        |       | $                                         |  208,550 |   |
|                |       | 2003                        |       | $                                         |  306,407 |   |
|                |       | 2002                        |       | $                                         |  377,815 |   |
|                |       |                        |       |                                      |          |
| William E.  Brown   |       | 2004                        |       | $                                         |  167,308 |   |
|                |       | 2003(July to December) |       | $                                         |  106,767 |   |
|                |       |                        |       |                                      |          |
| Eric I.  Nordling   |       | 2004                        |       | $                                         |  150,000 |   |
|                |       | 2003                        |       | $                                         |  171,387 |   |

 

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(2)                                  Represents amounts reimbursed during eachyear for the payment of taxes in order to make the named executive officerswhole for medical and life insurance, financial planning assistance, long-

 

9

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term disability coverage and, for Mr. Skeenonly, costs associated with an automobile. Also includes perquisites where the dollar value of these personalbenefits in each reported year exceeded the lesser of $50,000 or ten percent ofeach executive officer’s salary and bonus amounts.

 

(3)                                  On March 15, 2005, Messrs. Skeen,Moore and Surratt voluntarily forfeited the options shown in this table thatwere granted to them in 2003 and 2002.

 

(4)                                  The amounts reported for 2004 representaccruals by the Company to deferred compensation accounts for each of the namedexecutive officers pursuant to employment agreements with each coveredexecutive.  Deferred compensationbenefits are applied to indirectly finance an insurance policy for the benefitof each executive.

 

(5)                                  Mr. Brown joined the Company in July 2003as Senior Vice President of Maintenance and Operations.

 

(6)                                  Mr. Nordling was promoted to Senior VicePresident, Marketing and became an executive officer in September 2003.

 

**Option Grants in Last Fiscal Year**

 

The following table sets forth information regarding grants of stockoptions by the Company to the individuals named in the Summary CompensationTable above during the fiscal year ended December 31, 2004.

 
| **Name**            | ** ** | **Number of  Securities  Underlying  Options  Granted(1)** | ** ** | **% of Total  Options  Granted to  Employee in  Fiscal Year** | ** ** | **Exercise  Price(2)** | ** ** | **Expirati  on Date** | ** **          | **Potential Realizable Value at********A****ssumed Annual Rates of********Stock Price Appreciation(3)** | ** ** |
|---------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------------|------------|------------------------|------------|-----------------------|---------------------|---------------------------------------------------------------------------------------------------------|------------|
| ** **          | ** ** | ** **                                                 | ** ** | ** **                                                    | ** ** | ** **             | ** ** | ** **            | ** **          | **5%**                                                                                                  | ** ** | **10%** | ** ** |
|                |       |                                                       |       |                                                          |       |                   |       |                  |                |                                                                                                    |       |   |   |
| Kerry B.  Skeen     |       | 200,000                                                    |       | 20.30                                                         | %          | $                      | 3.67       |                  | July 31,  2014 |                                                                                                    | $          | 461,609 |   | $ | 1,169,807 |   |
| Thomas J.  Moore    |       | 100,000                                                    |       | 10.15                                                         | %          | 3.67                   |       | July 31,  2014   |                | 230,804                                                                                                 |       | 584,903 |   |
| Richard J.  Surratt |       | 75,000                                                     |       | 7.61                                                          | %          | 3.67                   |       | July 31,  2014   |                | 173,103                                                                                                 |       | 438,678 |   |
| William E.  Brown   |       | 25,000                                                     |       | 2.54                                                          | %          | 3.67                   |       | July 31,  2014   |                | 57,701                                                                                                  |       | 146,226 |   |
| Eric I.  Nordling   |       | 25,000                                                     |       | 2.54                                                          | %          | 3.67                   |       | July 31,  2014   |                | 57,701                                                                                                  |       | 146,226 |   |
|                     |            |                                                            |            |                                                               |            |                        |            |                       |                     |                                                                                                         |            |  |  |  |  |  |  |

 

----

(1)                                  Options vest in equal portions over afour-year period and become fully exercisable upon a change in control.

 

(2)                                  Exercise Price equals the closing marketprice per share of the Company’s Common Stock on the day prior to the date ofgrant.

 

(3)                                  Assumed value at the end of ten-year periodpursuant to SEC-prescribed calculations. These amounts do not reflect Company predictions of future stock priceappreciation, option holding periods or amounts that may actually be realizedby the named executives, which may in each case be higher or lower thanpresented.

 

10

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**Aggregate Option Exercises in 2004and Option Values at****December ****31, 2004**

 

The following table provides information regarding the exercise ofoptions during the year ended December 31, 2004and the number and value of unexercised options held at December 31, 2004 by the individuals named in the Summary Compensation Tableabove.

 
| ** **           | ** ** | ** **      | ** ** | ** **      | ** ** | **Number of Securities**  | ** ** | ** **               | ** ** |
|----------------------|------------|-----------------|------------|-----------------|------------|---------------------------|------------|--------------------------|------------|
| ** **           | ** ** | **Shares**      | ** ** | ** **      | ** ** | **Underlying**            | ** ** | **Value of Unexercised** | ** ** |
| ** **           | ** ** | **Acquired**    | ** ** | ** **      | ** ** | **Unexecercised**         | ** ** | **In-the-Money Options** | ** ** |
| ** **           | ** ** | **on**          | ** ** | **Value**       | ** ** | **Options at FY-End (2)** | ** ** | **at FY-End (3)**        | ** ** |
| **Name**             | ** ** | **Exercise(1)** | ** ** | **Realized(1)** | ** ** | **Exercisable**           | ** ** | **Unexercisable**        | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
|                 |       |            |       |            |       |                      |       |                     |       |   |   |   |   |
| Kerry B.  Skeen      |       | —          |       | $               | —     |                      | 878,219    |                     | 584,967    |   | $ | — |   | $ | — |   |
| Thomas J.  Moore (3) |       | —          |       | —          |       | 573,723                   |       | 252,750                  |       | — |   | — |   |
| Richard J.  Surratt  |       | —          |       | —          |       | 286,265                   |       | 239,756                  |       | — |   | — |   |
| William E.  Brown    |       | —          |       | —          |       | 8,750                     |       | 51,250                   |       | — |   | — |   |
| Eric I.  Nording     |       | —          |       | —          |       | 110,320                   |       | 75,000                   |       | — |   | — |   |
|                      |            |                 |            |                 |            |                           |            |                          |            |  |  |  |  |  |  |  |

 

----

(1)                                  None of the individuals named in the tableexercised any options during 2004.

 

(2)                                  On March 15, 2005, Messrs. Skeen,Moore and Surratt voluntarily forfeited 2,316,352 options, which were cancelledand returned to the Company.

 

(3)                                  Based upon a market value of the Common Stockof $1.77 per share as of December 31, 2004.

 

## ***Employment Agreements***

## *** ***

Agreements between the Company and each of its senior executiveofficers establish minimum base salaries and other compensation and benefits,including benefits in the event of a change in control.  In March 2005, thesesenior executive officers agreed to cuts in base pay.  In addition, in order to promote the Company’sefforts to reduce its costs on both a cash and accounting basis, the Companyand the senior executive officers also agreed to certain modifications to theiragreements to defer or reduce certain compensation and benefits.

 

Under an agreement between the Company and Kerry B. Skeen (the “SkeenAgreement”), which was amended and restated effectiveas of March 15, 2005, the Company has agreed to employ Mr. Skeen as Chief Executive Officer through May 31, 2006, subjectto automatic extensions unless terminated. The Skeen Agreement provides for a minimum annual base salary of$369,750, which amount may be increased from time to time by the Board’sCompensation Committee.  This base salarywas reduced from $435,000 effective as of April 1, 2005.  Prior to being amended and restated as of March 15, 2005, the Skeen Agreement provided for a deferred compensationaccrual at a rate of 100% of the annual base salary throughout the term of Mr. Skeen’s employment under the agreement, withbenefits under the deferred compensation arrangement being applied toindirectly finance an insurance policy issued in the name of and held by Mr. Skeen.  Mr. Skeen became fully vested in the deferred compensation arrangement on January 1, 2005.  In March 2005, Mr. Skeen and the Company agreed to amend theSkeen Agreement to (i) terminate the Company’sobligation to make on-going deferred compensation accruals and relatedinsurance premium payments, and (ii) effective as of May 1, 2005, release the Company’s interest in theinsurance policy in full satisfaction of its deferred compensation obligationsto Skeen.  In addition, under hisagreement, Mr. Skeen was entitled to a deferred compensationtax gross-up payment that the Company was obligated to pay to him in May 2005.  In order to save theCompany cash, in March 2005 Mr. Skeen agreedthat the Company would pay only 50% of the tax gross-up on May 1, 2005 and will pay the other 50% on May 1, 2006 (orearlier upon a change in control of the Company or upon his termination of

 

11

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employment by the Company without cause or bySkeen for good reason).  The SkeenAgreement also provides that Mr. Skeen shallparticipate in any bonus plan provided to executive officers generally and inemployee benefit and medical plans and other arrangements as the CompensationCommittee shall determine.  In addition,the Skeen Agreement provides that Mr. Skeen shall be granted options covering aminimum of 200,000 shares per year. Pursuant to the amended and restated Skeen Agreement, Skeen has agreedto forfeit options to purchase 1,263,186 shares of Company stock.

 

Under the Skeen Agreement, if Mr. Skeen’semployment is terminated by the Company without cause, or if he terminates hisown employment with good reason (including any termination by the Company or byMr. Skeen within twenty-four months after achange in control), or upon Mr. Skeen’s death or disability,then: (1) all of Mr. Skeen’soptions become immediately exercisable; (2) he is paid anyyear-to-date bonus plus three times his target bonus; and (3) he is paid his full base salary and certain insurance benefits for 36months.  Upon a change in control of theCompany, as defined in the Skeen Agreement, Mr. Skeen wouldreceive the amounts and benefits of his severance compensation whether or nothis employment is terminated, and certain insurance and other benefits would beextended.  The March 2005 amendment to the Skeen Agreement reduced the amount the Companywould be obligated to pay under the foregoing situations by reducing the amountof Mr. Skeen’s salary that would beused in calculating the benefits and by eliminating the Company’sobligation to accrue and fund the deferred compensation arrangement for 36months.  The Skeen Agreement alsoprovides for additional benefits during the term of the Skeen Agreement andfollowing any change in control, including an excise tax gross-up.  The Skeen Agreement provides that Mr. Skeen will be eligible to retire at any time after the annualstockholders meeting to be held in 2006 and to receive benefits through age 75or for 15 years, whichever is greater. Benefits will include retirement payments from the fifth to tenth anniversary of his retirement at 75% of Mr. Skeen’shighest base salary in the 12 months preceding his retirement date,and at 50% for five years thereafter, as well as continuation of certain other benefits providedin the Skeen Agreement.  In addition, Mr. Skeen will be paid anannual consulting fee of 90% ofhis highest base salary in the 12 months preceding his retirement date for upto five years following his retirement to the extent he elects to provide consulting services during that period, andhis previously granted options will continue to vest and remain exercisable.

 

The Company has an agreement with Thomas J. Moore (the “MooreAgreement”), which was amended and restated as of March 15, 2005, under which he serves as President and Chief OperatingOfficer, and with Richard J. Surratt (the “Surratt Agreement”),which also was amended and restated as of March 15, 2005,under which he serves as Executive Vice President, Chief Financial Officer,Treasurer and Assistant Secretary.  TheMoore Agreement and the Surratt Agreement each provide for a one-year term thatis continuously extended unless terminated. The Moore Agreement and the Surratt Agreement are substantially similarto the Skeen Agreement except that:

 

•                                          The minimum annual base salary is $247,500and $193,500, respectively (which represent reductions from $275,000 and $215,000, respectively, effective as of April 1, 2005).

 

•                                          The Moore Agreement generally provides thathe will not receive any additional deferred compensation credits and that theCompany will release its interest in his split dollar insurance policy in fullsatisfication of its obligation to provide deferred compensation to Moore uponthe earliest of (i) January 1, 2006 (when he fully vests in the deferredcompensation), (ii) his termination of employment if he is notentitled to severance benefits, or (iii) when severance benefits end if he is entitledthereto.

 

•                                          The Surratt Agreement provides that Surrattgenerally will receive deferred compensation credits of 75% of base salarythrough January 1, 2008 (when he becomes 100% vested in thedeferred compensation; or, if earlier, upon his termination of employment or,if severance benefits are due, upon the end of the severance period), withbenefits under the deferred compensation arrangement being applied to indirectlyfinance an insurance policy for Mr. Surratt’s benefit, and that theCompany will release its interest in his policy in full satisfication of itsobligation to provide deferred compensation to Surratt upon the

 

12

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earliest of (i) January 1, 2008, (ii) histermination of employment if he is not entitled to severance benefits, or (iii) when severance benefits end if he is entitled thereto.

 

•                                          The minimum annual stock option grant underthe Moore Agreement is 100,000 shares and the Surratt Agreement does notcontain a minimum annual stock option grant.

 

•                                          The severance compensation is two years ofbase pay and bonus (or three years upon a change in control).

 

•                                          There is no retirement or post-employmentconsulting provision.

 

•                                          The disability period prior to termination issix months.

 

•                                          Mr. Moore agreed to forfeit options with respect to 677,145 shares andSurratt agreed to forfeit options with respect to 376,021 shares.

 

Under separate agreements between the Company and Mr. Brown and Mr. Nordling (collectively, the “OfficerAgreements”), the Company agreed to employ Mr. Brown as Senior Vice President – Operations and Mr. Nordling as Senior Vice President - Marketing , each for a one yearterm.  The Officer Agreements provide forautomatic twelve-month extensions unless earlier terminated, and for annualbase salaries, which may be and, for officers subject to Officer Agreements inthe past, have been increased from time to time by the Compensation Committeeto amounts above that specified in the original agreements.  The Officer Agreements provide that Messrs. Brown and Nordling shall participate in any bonus plan provided toexecutive officers generally, and in employee benefit and medical plans andother arrangements as the Compensation Committee shall determine.  In the event of termination by the Company “withoutcause,” the terminated officer shall receive hisfull base salary and medical insurance coverage for a period of twelve months,and a portion of any annual bonus shall be prorated to the date oftermination.  Change in controlprovisions are similar to the Moore Agreement except that compensation would beat a rate of two years of base pay and bonus.

 

The Company provides certain benefits for each of its executiveofficers and other vice presidents in the event of a change in control,including one-time compensation based on a sliding scale proportionate to rank,the continuation of certain benefits for a specified period, acceleration ofoption grants and protection against potential excise taxes.  In addition, if an optionee’semployment is terminated following a change in control, options remainexercisable for the longer of three months or the period equivalent to thenumber of years of severance payments provided for the optionee under theoptionee’s employment agreement or change in controlbenefits agreement, as applicable.  Forall executive officers and other vice presidents, in the event that anypayments made in connection with a change in control would be subjected to theexcise tax imposed on excess parachute payments by the Internal Revenue Code,the Company will “gross-up” the employee’scompensation for all such excise taxes and any federal, state and local incometax applicable to such excise tax, penalties and interest thereon.  In the event of a change in control, all vicepresidents would receive compensation in the form of one years’salary, bonus, and insurance, and all options held by them would become fullyexercisable.

 

## ***Director Compensation***

## *** ***

All directors who are not executive officers of the Company receive ascompensation for their service options to purchase shares of the Company’sCommon Stock, which options vest at the end of the year if the individualcontinues to serve as a director as of the end of the year of the grant or ifthe director retires by not standing for re-election at the annual meeting ofthe stockholders.  Each director who isnot an executive officer of the Company is granted options for 12,000 sharesannually.  The option exercise price forthese grants is equal to the closing price of the Company’sCommon Stock reported for the date prior to the date of the grant.  With the exceptions noted below, for 2005directors will receive an annual fee of $20,000 for their service.  Effective June 1, 2003, theBoard of Directors implemented meeting fees. The meeting fee schedule is $1,250 for each regularly scheduled boardmeeting attended in person or

 

13

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telephonically, $750 for attending anyspecial board meeting, and $750 for attending any committee meeting.  Directors also are reimbursed forout-of-pocket expenses incurred in attending meetings of the Board of Directorsor committees thereof.  Messrs. Skeen and Moore, as executive officers of the Company, do not receivecompensation for their service on the Board. The Company provides Mr. Acker, as an employee of the Company in hisadvisory role, a consulting fee of $10,000 per month in lieu of director cashcompensation, as well as an office, part-time secretary, and health benefitsfor Mr. Acker and his spouse.  In March 2004, theCompensation Committee approved extending Mr. Acker’scompensation arrangements for two years. Directors and their family members are entitled to certain flightbenefits made available to employees of the Company.

 

**Item 12. Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters**

 

# **SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS**

# ** **

The following table sets forth certain information, as of December 31, 2004 (except as noted otherwise), concerning beneficial ownershipof the Common Stock by each person known by the Company, based upon Schedule 13D/G filings with the SEC, to own beneficially more than five percentof the outstanding shares of the Common Stock. Except as noted otherwise, all amounts reflected in the table representshares in which the beneficial owners have sole voting and investment power.

 
| **Name and Addres**                                                                                                  | ** ** | **Amount and Nature of********Beneficial Ownership** | ** ** | **Percent of Class** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                           | ** ** | ** **                                           | ** ** | ** **           | ** ** |
| Wellington  Management Company, LLP

75 State  Street

Boston, MA  02109                                             |       | 5,585,500                                            | (1)        | 12.319               | %          |
|                                                                                                                 |       |                                                 |       |                 |       |
| PAR  Investment Partners, L.P.

One  International Place, Suite 2401

Boston, MA  02110                         |       | 4,525,000                                            | (2)        | 9.98                 | %          |
|                                                                                                                 |       |                                                 |       |                 |       |
| Hotchkis and  Wiley Capital Management, LLC

725 South  Figueroa Street, 39th Floor

Los Angeles,  CA 90017-5439     |       | 3,680,100                                            | (3)        | 8.1                  | %          |
|                                                                                                                 |       |                                                 |       |                 |       |
| S.A.C.  Capital Advisors, LLC

72 Cummings  Point Road

Stamford, CT  06902                                          |       | 3,392,000                                            | (4)        | 7.5                  | %          |
|                                                                                                                 |       |                                                 |       |                 |       |
| Barclays  Global Investors, NA., and

Barclays  Global Fund Advisors

45 Fremont  Street

San  Francisco, CA 94105   |       | 2,812,780                                            | (5)        | 6.2                  | %          |
|                                                                                                                 |       |                                                 |       |                 |       |
| Mellon  Financial Corporation

One Mellon  Center

Pittsburgh,  PA 15258                                             |       | 2,338,130                                            | (6)        | 5.16                 | %          |
|                                                                                                                 |       |                                                 |       |                 |       |
| Newcastle  Partners, L.P.

300 Crescent  Court, Suite 1110

Dallas, TX  75201                                   |       | 2,267,900                                            | (7)        | 5.0                  | %          |
|                                                                                                                 |       |                                                 |       |                 |       |
| Trident  Turboprop (Dublin) LTD

25/28 North  Wall Quay

International  Financial Services Centre

Dublin 1  Ireland |       | 2,688,581                                            | (8)        | 5.6                  | %          |

 

14

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----

(1)                                  Based solely upon a Schedule 13G filedby Wellington Management Company, LLP on April 8, 2005 reportingbeneficial ownership as of March 31, 2005.

 

(2)                                  Based solely upon a Schedule 13G/A filedby PAR Investment Partners, L.P. on February 14, 2005.

 

(3)                                  Based solely upon a Schedule 13G filedby Hotchkis and Wiley Capital Management, LLP on February 14, 2005.

 

(4)                                  Based solely upon a Schedule 13G filedby S.A.C. Capital Advisors, LLC on January 21, 2005 reporting beneficialownership as of January 11, 2005.

 

(5)                                  Based solely upon a Schedule 13G filedby Barclays Global Investors, NA. and Barclays Global Fund Advisors on February 14,2005.  Barclays Global Investors, NA.beneficially owns 2,277,117 shares, of which it has sole voting power withrespect to 2,031,873, and Barclays Global Fund Advisors beneficially owns535,663 shares

 

(6)                                  Based solely upon a Schedule 13G filedby Mellon Financial Corporation on February 15, 2005.  The Reporting Person has sole voting poweronly with respect to 1,808,930 of these shares.

 

(7)                                  Based solely upon a Schedule 13G filedby Newcastle Partners, L.P. on January 21, 2005 reporting beneficialownership as of January 11, 2005.

 

(8)                                  Based solely upon a Schedule 13G filedby Trident Turboprop (Dublin) LTD on March 31, 2005.

 

**Equity Compensation Plans**

 

Information as of December 31, 2004 regarding equity compensationplans approved and not approved by shareholders is summarized in the followingtable:

 
| ** **                                                  | ** ** | ** **        | ** ** | ** **            | ** ** | **Number of securities** | ** ** |
|-------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|--------------------------|------------|
| ** **                                                  | ** ** | ** **        | ** ** | ** **            | ** ** | **remaining**            | ** ** |
| ** **                                                  | ** ** | **Number of**     | ** ** | ** **            | ** ** | **available for**        | ** ** |
| ** **                                                  | ** ** | **securities to** | ** ** | ** **            | ** ** | **future issuance**      | ** ** |
| ** **                                                  | ** ** | **be issued**     | ** ** | ** **            | ** ** | **under equity**         | ** ** |
| ** **                                                  | ** ** | **upon**          | ** ** | ** **            | ** ** | **compensation**         | ** ** |
| ** **                                                  | ** ** | **exercise of**   | ** ** | **Weighted-average**  | ** ** | **plans**                | ** ** |
| ** **                                                  | ** ** | **outstanding**   | ** ** | **exercise price of** | ** ** | **(excluding**           | ** ** |
| ** **                                                  | ** ** | **options,**      | ** ** | **outstanding**       | ** ** | **securities**           | ** ** |
| ** **                                                  | ** ** | **warrants and**  | ** ** | **options, warrants** | ** ** | **reflected in**         | ** ** |
| ** **                                                  | ** ** | **rights**        | ** ** | **and rights**        | ** ** | **column (a))**          | ** ** |
| **Plan category**                                           | ** ** | **(a)**           | ** ** | **(b)**               | ** ** | **(c)**                  | ** ** |
|                                                        |       |              |       |                  |       |                     |       |
| **Equity  compensation plans approved by shareholders**     |       | 4,521,245         |       | $                     | 10.77      |                     | 291,452    |   |
|                                                        |       |              |       |                  |       |                     |       |
| **Equity  compensation plans not approved by shareholders** |       | 2,123,500         |       | $                     | 11.18      |                     | 150,252    |   |
|                                                        |       |              |       |                  |       |                     |       |
| **Total**                                                   |       | 6,644,745         |       | $                     | 10.90      |                     | 441,704    |   |

 

15

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The Company has two equity compensation plans that were not approved byshareholders, pursuant to which options, rights or warrants may be granted: theNon-Executive Officer Stock Option Plan (the “Non-Executive Officer Plan”) andthe Non-Officer Option Grant Program (the “Non-Officer Option Program”). TheCompany’s Board of Directors approved these two plans in 2000.

 

**Non-Executive Officer Stock Option Plan**

 

The Non-Executive Officer Plan is substantially identical to theCompany’s 2000 Stock Incentive Plan, which was approved by shareholders. TheNon-Executive Officer Plan allows the Company to grant equity compensationunder non-qualified stock options and restricted stock awards. Eligibleparticipants are employees, as defined under Securities and Exchange CommissionForm S-8, and prospective employees of the Company or any of itsaffiliates who are not executives or directors of the Company. A maximum of 2million shares of common stock are authorized for issuance under theNon-Executive Officer Stock Option Plan. The exercise price of options grantedunder the plan can not be less than 100% of the fair market value of a share ofthe Company’s stock on the option grant date. Awards are granted by the ChiefExecutive Officer of the Company with approval from the Compensation Committeeof the Board of Directors. The terms of awards granted under the Non-ExecutiveOfficer Plan, including vesting, forfeiture, post-termination exercisabilityand the effects (if any) of a change in control, are set by the planadministrator subject to certain restrictions set forth in the Non-ExecutiveOfficer Plan.

 

**Non-Officer Option Grant Program**

 

There are 400,000 shares reserved for issuance under the Non-OfficerOption Program. Options granted under the Non-Officer Option Program aresubject to the same terms as non-qualified stock options granted under theCompany’s 1995 Stock Incentive Plan or the Company’s 2000 Stock Incentive Plan(both of which were approved by shareholders), as specified in the terms of anysuch grant. The exercise price of options granted under the plan can not beless than 100% of the fair market value of a share of the Company’s stock onthe option grant date. Options are granted by the Chief Executive Officer ofthe Company with approval from the Compensation Committee of the Board ofDirectors. Stock options granted under the Non-Officer Option Program generallyvest over a period ranging from three to five years and expire 10 years afterthe date of grant.

 

# **SECURITYOWNERSHIP OF MANAGEMENT**

# ** **

The following table sets forth certain information, as of April 15, 2004, concerning beneficial ownership of the Company’sCommon Stock by (i) each director of the Company, (ii) each executive officer of the Company named in the Summary CompensationTable, and (iii) all directors and executive officers of theCompany as a group.  Except for theeffect of community property laws and as noted otherwise all amounts reflectedin the table represent shares in which the beneficial owners have sole votingand investment power.

 
| **Name**                  | ** ** | **Shares****(1) ****(2)** | ** ** | **Percent** | ** ** |
|---------------------------|------------|--------------------------------|------------|-------------|------------|
| ** **                | ** ** | ** **                     | ** ** | ** **  | ** ** |
| Kerry B.  Skeen           |       | 294,093                        |       |        | *          |
| Thomas J.  Moore          |       | 147,569                        |       |        | *          |
| C. Edward  Acker          |       | 588,400                        |       | 1.2         | %          |
| Robert E.  Buchanan       |       | 114,200                        |       |        | *          |
| Susan  MacGregor Coughlin |       | 77,660                         |       |        | *          |
| Caroline  (Maury) Devine  |       | 40,000                         |       |        | *          |
| Daniel L.  McGinnis       |       | 51,500                         |       |        | *          |
| James C.  Miller III      |       | 104,000                        |       |        | *          |

 

16

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| Richard J.  Surratt                                           |   | 46,193    |   |   | * |
|---------------------------------------------------------------|--------|-----------|--------|--------|---|
| Eric I.  Nordling                                             |   | 123,544   |   |   | * |
| William E.  Brown                                             |   | 8,750     |   |   | * |
| All  directors and executive officers as a group (13 persons) |   | 1,865,570 |   | 3.8    | % |

 

----

* Less than one percent

 

(1)                                  Includes options that are exercisable on orwithin 60 days after April 15, 2005, as follows: Mr. Skeen, 200,000shares; Mr. Moore, 49,328 shares; Mr. Acker, 48,000 shares; Mr. Buchanan,76,000 shares; Mrs. Coughlin, 76,000 shares; Ms. Devine, 36,000shares; Mr. McGinnis,48,000 shares; Mr. Miller, 76,000 shares; Mr. Surratt,37,500 shares; Mr. Nordling, 122,820 shares; Mr. Brown, 8,750 shares;and All directors and executive officers as a group, 1,016,558shares.

 

(2)                                  For Messrs. Skeen, Moore and Surratt,these numbers reflect a reduction in beneficial ownership due to Messrs. Skeen,Moore and Surratt voluntarily forfeiting 2,316,352 options (of which 1,785,379were exercisable on or within 60 days after April 15, 2005), which werecancelled and returned to the Company, on March 15, 2005.

 

**Item 13. Certain Relationships and Related Transactions**

 

None.

 

**Item 14. Principal Accounting Fees and Services.**

 

## ***Auditor Fees***

## *** ***

In 2003, the Audit Committee adopted a policy that, beginning in fiscalyear 2004, the aggregate fees paid to the Company’sindependent auditor for non-audit services shall not exceed the aggregate feespaid for audit and related services (including audit fees, audit-related feesand tax compliance and preparation fees) in any fiscal year.  The following is a description of the audit,audit-related and non-audit fees billed to the Company by KPMG for the yearsended December 31, 2003 and 2004:

 

*Audit Fees*: Fees for audit services billed by KPMG to the Company in connectionwith KPMG’s audit of the Company’sannual financial statements for the year ended December 31, 2004and KPMG’s review of the Company’sinterim financial statements included in its quarterly reports on Forms 10-Q during that year, including requirements ofSarbanes Oxley Section 404, were approximately $1.2 million.  For the year ended December 31, 2003, such fees were $213,200.

 

*Audit-related fees*: Fees for audit-related services, as definedby the SEC, consisting mainly of an audit of the Company’s401K plan, and accounting consultation, were approximately $67,500 for the yearended December 31, 2004. Fees for audit-related services, consisting mainly of an employeebenefit plan audit and accounting consultation, were approximately $45,750 forthe year ended December 31, 2003.

 

*Tax fees*: Tax services for 2004 consisted of tax compliance and returnpreparation services and tax consulting related primarily to other generalconsultation.  Tax fees wereapproximately $229,300 for the year ended December 31, 2004,of which approximately $201,500 related to services on tax compliance mattersand preparation of returns.  For the yearended December 31, 2003, tax fees were approximately$291,250, of which approximately $119,360 related to services on tax compliancematters and preparation of returns.

 

*All Other Fees*: No fees were billed to the Company by KPMGduring the year ended December 31, 2004 and December 31, 2003for services other than those described above.

 

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**PART IV**

 

**ITEM 15. EXHIBITS AND FINANCIALSTATEMENT SCHEDULES**

 

31.1 Rule 13a-14 (a) Certification

31.2 Rule 13a-14 (a) Certification

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 of15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized on April 29, 2005.

 

 
|   |   | **FLYi, INC.**                    |
|--------|--------|-----------------------------------|
|   |   |                              |
|   |   |                              | By: /s/ Richard J. Surratt |
|   |   | Richard J. Surratt                |
|   |   | Executive Vice President  and CFO |

 

INDEX TO EXHIBITS

EXHIBIT NUMBER DESCRIPTIONOF DOCUMENT

 

31.1 Rule 13a-14 (a) Certificationof CEO

31.2 Rule 13a-14 (a) Certificationof CFO

 

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