SECURITIES AND EXCHANGE COMMISSION
                        WASHINGTON, DC 20549

                              FORM 10-K

 Pursuant to Rule 12b-25, the following items have been omitted from
                this Form 10-K and will be set forth
  in a Form 10-K/A filed within 15 calendar days following the due
                       date of this Form 10-K:
 Items 6, 7, 7A, 8, certain portions of Item 15 and certain Exhibits
                          to this 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, 2004

Commission file number 0-21976
                             FLYi, INC.
       (Exact name of registrant as specified in its charter)

               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 area code:  (703) 650-6000

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

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

               Common Stock par value $ .02
               (Title of Class)

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 whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2).

                    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 June 30, 2004 was approximately $255.3 million.

As of March 1, 2005, there were 50,410,787 shares of common stock of
the   registrant  issued  and  45,339,810  shares  of  common  stock
outstanding.
                 Documents Incorporated by Reference

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

Documents Incorporated by Reference                    Part of Form
10-K
Proxy Statement for 2005 Annual Meeting of Shareholders
Part III, Items 10-14
                     (to be filed subsequently)

                          Table of Contents
                                                              Page #
Forward Looking Statements                                       3

PART I
Item 1.    Business                                              4
        Overview
        Independence Air
        Financial Restructuring
        Marketing and Sales
        Fuel
        Competition
        Previous Code Share Operations
        Employees
        Pilot Training
        Industry Regulation and Airport Access
        Risk Factors Affecting the Company
        Risk Factors Affecting the Airline Industry
        Internet Website
Item 2.    Properties                                            29
Item 3.    Legal Proceedings                                     31
Item 4.    Submission  of Matters to a Vote  of
            Security  Holders                                    34

PART  II
Item 5.    Market  for  Registrant's  Common  Equity
            and  Related Stockholder Matters                     34
Item 6.    omitted from this filing
Item 7.    omitted from this filing
Item 7A.   omitted from this filing
Item 8.    omitted from this filing
Item 9.    Changes in and Disagreements with Accountants
            on Accounting and Financial Disclosures              36
Item 9A.   Controls and Procedures                               36
Item 9B.   Other Information                                     37

PART  III
Item 10.   Directors and Executive Officers of the Registrant    37
Item 11.   Executive Compensation                                37
Item 12.   Security Ownership of Certain Beneficial Owners
            and Management and Related Stockholder Matters       38
Item 13.   Certain Relationships and Related Transactions        38
Item 14.   Principal Auditor Fees and Services                   38

PART  IV

Item 15.   Exhibits and Financial Statement Schedules            38

Signatures                                                       41

					2

Forward Looking Statements

          This Annual Report on Form 10-K contains forward-looking
statements.  Statements in the Business sections of this filing,
together with other statements beginning with such words as
"believes", "intends", "plans", and "expects" include forward-
looking statements that are based on management's expectations given
facts as currently known by management on the date this Form 10-K
was first filed with the SEC.  Actual results may differ materially.
Factors that could cause the Company's future results to differ
materially from the expectations described here include:  the
ability of Independence Air to effectively implement its low-fare
business strategy utilizing regional jets and Airbus aircraft, and
to compete effectively as a low-fare carrier, including passenger
response to Independence Air's new West Coast service, and the
response of competitors with respect to service levels and fares in
markets served by Independence Air; the effects of high fuel prices
on Independence Air; the ability to successfully and timely complete
the acquisition of, maintain certification for, and secure financing
of, its Airbus aircraft, and to successfully integrate these
aircraft into its fleet; the ability to implement its assignment to
Delta of leases for 30 of the 328Jet aircraft that have been used in
the former Delta Connection operations; the ability to successfully
remarket or otherwise make satisfactory arrangements for its nine J-
41 aircraft not terminated as part of its restructuring and for
three 328Jet aircraft not assigned to Delta; the ability to
successfully hire, train and retain employees; the ability to reach
and ratify agreements with AMFA and AFA-CWA on mutually satisfactory
terms; the ability of government agencies involved in airport
operations to handle the increased number of flights and passengers
at Washington Dulles without interference with airline operations;
the ongoing deterioration in the industry's revenue environment; and
general economic and industry conditions, any of which may impact
Independence Air or the Company, its aircraft manufacturers and its
other suppliers in ways that the Company is not currently able to
predict.  The statements in this Annual Report are made as of the
date this Form 10-K was first filed with the SEC and the Company
undertakes no obligation to update any of the forward-looking
information included in this document, whether as a result of new
information, future events, changes in expectations or otherwise.

					3

				 PART I

Item 1.   Business

Overview

          FLYi, Inc. formerly known as Atlantic Coast Airlines Holdings,
Inc., a Delaware corporation ("FLYi" or the "Company"), is a holding
company with its primary subsidiary being Independence Air, Inc. ("IA).
IA is an air carrier and provides regularly scheduled low-fare air
service under the brand "Independence Air" to East Coast destinations
with a combination of 132-seat Airbus A319 ("A319") aircraft and 50-seat
Canadair regional jets ("CRJs"), and is introducing A319 service to six
new West Coast destinations between March and May 2005.  Previously, IA
was named and operated as Atlantic Coast Airlines ("ACA").  ACA operated
as a regional airline under code share agreements with United Airlines,
Inc. ("United"), providing service since 1992 as part of the United
Express program, and under code share agreements with Delta Air Lines,
Inc. ("Delta"),  providing service since 1999 as part of the Delta
Connection program.  IA transitioned out of the United Express program
between June 1, 2004 and August 3, 2004 and completed its transition out
of the Delta Connection Program on November 1, 2004.

          The Company is incorporated under the laws of Delaware and its
principal executive offices are located at 45200 Business Court, Dulles,
Virginia 20166.  Unless the context indicates otherwise, the terms "the
Company", "we", "us", or "our" refer herein to the holding company FLYi,
Inc.

Independence Air

          Operations under the Independence Air brand as a low-fare
airline with a hub at Washington Dulles International Airport
("Washington Dulles") commenced on June 16, 2004.  Independence Air's
strategy is to capitalize on and stimulate demand for air travel to, from
and through its Washington Dulles hub, utilizing A319 narrowbody aircraft
to primarily serve larger, long haul markets and CRJs to offer frequent
service primarily to smaller, short haul markets from Washington Dulles.
The Independence Air business model is based on providing reliable and
easy to use air transportation with excellent customer service, and
achieving simplicity in operations, high employee and asset productivity
and low overhead to offer low fares.

          As of March 1, 2005, Independence Air operated over 400 flights
on each business day, serving 41 destinations, including four
destinations in Florida plus Las Vegas served by A319s.  Independence Air
has announced its expansion of A319 service to five West Coast
destinations starting between April and May 2005.  In December 2004,
Independence Air reduced its flight schedule in connection with its sale
of four CRJs and announced the closure of two cities effective in January
2005.  In February 2005, Independence Air realigned operations at its
Washington Dulles hub from a continuos flow schedule where flights arrive
and depart continuously throughout the day, to a six bank schedule where
arrivals and departures occur within a short period of time, at various
intervals during the day, facilitating connections to multiple destinations.
These schedule changes were made in coordination with Independence Air's
planned removal of 24 CRJs, as described further below.  As compared to a
continuous flow operation, the six bank schedule will reduce daily
aircraft utilization on the CRJ fleet and, to a lesser extent, the A319
fleet, but will increase connecting opportunities for passengers.

          While Independence Air has been successful in stimulating
demand to, from and through its Washington Dulles hub, through February
2005 it has not achieved the load factor and yields projected in its
original business model and thus has not met revenue projections.

					4

Factors contributing to lower revenues than originally projected included
the addition of new competitive service in markets served by Independence
Air and a lower level of business traffic relative to leisure traffic
than had been anticipated.  This revenue shortfall combined with
unprecedented high fuel prices have caused Independence Air to sustain
higher than anticipated losses and to expend more cash than it
anticipated when it embarked on its strategy of becoming an independent
airline.  To address this situation, Independence Air has undertaken a
number of steps in addition to schedule changes discussed above, including
a financial restructuring and changes in its distribution strategy as
discussed below. While Independence Air believes that these actions have
provided it an opportunity to continue operating through 2005 and into
2006 by improving liquidity and generating additional sales, the Company
is operating in an extremely difficult industry environment that presents
a number of risks and uncertainties that could adversely affect the
Company's yield, liquidity and business plan. These are discussed in detail
below in "Business - Risk Factors".

Financial Restructuring

          The airline industry is characterized by high fixed costs,
consisting primarily of aircraft lease and financing costs.  In the
fourth quarter of 2004 and the first quarter of 2005, the Company took
the following steps to address liquidity.

A319 Aircraft:

          Independence Air entered into an agreement with Airbus' wholly-
owned affiliate AVSA S.A.R.L. ("AVSA") on November 12, 2004 to amend its
purchase agreement for 16 Airbus A319 aircraft.  Under the terms of the
amended aircraft purchase agreement, delivery of ten A319s originally
scheduled for 2005 has been rescheduled to 2007.  The rescheduling of
aircraft deliveries to 2007 reduced the amount of pre-delivery payments
due in 2004 and 2005 under the purchase agreement as these deposits are
not due until pre-set intervals prior to scheduled delivery.  The
amendment of the aircraft purchase agreement does not affect the
scheduled delivery of six Airbus A319s in early 2006 that Independence
Air has contracted to purchase from AVSA or the four remaining leased
aircraft to be delivered in April and May 2005.

CRJ Aircraft:

          Independence Air entered into an agreement with Bombardier in
December 2004 to further amend its aircraft purchase agreement in order
to access approximately $38.8 million on deposit with Bombardier for
aircraft orders.  Under the amended agreement, Independence Air applied
the majority of these deposits and progress payments against the
outstanding debt owed to an affiliate of Bombardier on two CRJs delivered
in October 2003 and against other outstanding trade payables owed to
Bombardier and its affiliates.  Independence Air thereafter effected the
sale of the two CRJs and of two other CRJs and one spare CRJ engine, all
of which it owned free and clear of any liens, for approximately $49
million.  Bombardier continues to hold $3.4 million as deposits for
Independence Air's commitment for 34 undelivered CRJs.  Independence
Air's commitments toward these undelivered aircraft continue to be
subject to certain conditions.

					5

          On February 18, 2005, the Company and Independence Air entered
into a series of agreements with GE Commercial Aviation Services, Inc.
and certain of its affiliates ("GECAS") as owner participant under
leveraged leases relating to 24 CRJs, and with the various parties as
loan participant under those leveraged leases, providing for the early
termination of the leases.  These agreements provide for the amendment of
the leases to shorten the term of the leases such that they expire
between February 2005 and July 2005.  The agreements also reduce the rent
between January 1, 2005 and the date of the lease expiration to the
amount of accrued interest on the underlying leveraged lease loans.
Under the agreements, Independence Air will be required to meet certain
amended return conditions and to deliver the aircraft to the lessors by
agreed dates, but upon satisfaction of these obligations will have no
further rent obligations with respect to periods after the amended lease
expiration dates, for these aircraft.  The termination of the 24 leases
will result in a non-cash accounting charge currently estimated at $7.5
million to be taken as the leases are terminated to reverse deferred
credits net of accruals for prepaid rents for these aircraft.  The return
of the 24 CRJs will save approximately $30 million in rent on an annual
basis.

          The Company and Independence Air also entered into an agreement
with GECAS on February 18, 2005 that establishes certain financial
milestones applicable to three-month periods ending in June, September,
October, November and December 2005 and January, February and March 2006
(Milestone Months).  The financial milestones consist of tests of (1) the
Company's unrestricted cash balance and (2) its earnings before interest,
taxes, depreciation, amortization, and aircraft rents as a percentage of
passenger revenues.  Should the Company fail to satisfy the tests for a
Milestone Month, or fail to provide the information necessary for the
measurement of the milestones, GECAS will have the option, exercisable
within ninety days following the delivery of the financial statements for
such Milestone Month, to terminate the lease for one additional CRJ
aircraft for each Milestone Month, up to a maximum of eight CRJ aircraft.
The terms of the termination of the leases would be similar to those for
the 24 aircraft to be early terminated as described above.

          Independence Air has amended, as of February 18, 2005, the
operative lease or loan agreements for a total of 52 CRJ aircraft that
are financed through leveraged leases or through mortgage loan
financings, to revise the rental and loan payment structure from semi-
annual payments to monthly payments and to defer approximately $70
million of the rent or loan payments that would have been due between
January 2005 and February 2007.  Depending on which operative lease or
loan agreement, interest at a rate of Libor plus 250 basis points or US
Treasury's plus 300 basis points will be charged on the outstanding
deferral balance.  The interest portion of the payments will be paid
monthly beginning January 1, 2005, and the principal portion of the
deferred rent and loan payments will be repaid on a monthly basis
beginning in May 2006.

          In exchange for concessions from CRJ aircraft financing
parties, the Company agreed to issue a total of 2,035,000 additional
shares of FLYi common stock, $0.02 par on February 18, 2005.  The shares
of common stock are to be issued to certain aircraft lessors and lenders
as partial consideration for their agreeing to participate in the
restructuring of the terms of their respective aircraft loans or leases
through the transactions described above.  The number of shares of common
stock issued to each lessor or lender was determined through arms-length
negotiations, and no separate valuation was assigned to the issuance of
the shares.  None of the shares of common stock were issued in exchange
for cash.  The shares were issued in privately negotiated transactions in
reliance upon the exemption from registration provided under Section 4(2)
of the Securities Act of 1933.

					6

J41 Aircraft:

          Independence Air has entered into a series of agreements for
the consensual early termination of leases for 21 of the 30 Jetstream 41
("J41") turboprop aircraft that were previously retired from Independence
Air's active fleet and are not currently used in Independence Air
operations.  The agreements are with the lessors of those aircraft, with
the lenders in the leveraged leases covering three of the aircraft, and
with the manufacturer that provided certain residual support in
connection with the leases.

          BAE Systems (Operations), Limited and its affiliates ("BAE"),
the manufacturer of the J41 aircraft, had provided certain residual value
support to the lessors of 10 of the J41 aircraft that are subject to
early termination agreements.  The Company and Independence Air entered
into an agreement with BAE on February 18, 2005 to resolve certain issues
relating to BAE and to the lessors as a result of the early termination
of the leases, and to resolve any claims which BAE may have against the
Company or Independence Air resulting from the termination of those
leases.  BAE agreed to accept the applicability of its residual value
support agreements to the lessors upon the early termination of the
leases, and agreed that it would not pursue further claims against the
Company or Independence Air relating to those agreements.  The Company
and Independence Air agreed to provide consideration to BAE in exchange,
including a cash payment of $2.0 million and the issuance of a promissory
note of $3.5 million bearing interest at 6.75% payable monthly with
principal repayments beginning in June 2006 and ending in December 2007.
The Company and Independence Air also agreed to issue a non-interest
bearing convertible note in the amount of $5.0 million, convertible into
1 million shares of the Company's stock, and agreed to turn over all of
its remaining J41 spare engines, parts and tooling to BAE during 2005.
The Company and Independence Air also agreed that should BAE elect to
settle any of its residual value agreements by purchasing the aircraft
from the lessors, The Company and Independence Air would relinquish their
claim to any refund of the security deposits for any purchased aircraft.
The amount of the deposits is further described below.

          The agreements with the lessors of the J41 aircraft provide for
the early termination of the leases, the return of the aircraft to the
lessors, and the elimination of future rent obligations.  These
agreements were entered into as of January 14, 2005 for four aircraft and
as of February 18, 2005 for an additional 17 aircraft.  These lease
terminations are expected to reduce Independence Air's net payments
during the period from January 2005 through February 2007 by
approximately $13.5 million net of cash payments made by Independence
Air. Independence Air will be responsible for certain return obligations
with respect to these aircraft, but upon satisfaction of these
obligations will have no further rent obligations with respect to these
aircraft.  Independence Air posted, at the time it initially entered into
the original leases, a total of $3.7 million in security deposits
applicable to the J41 aircraft that are subject to these agreements.
Independence Air has permanently relinquished its claim to $2.2 million
of these deposits and conditionally relinquished its claim to the
remainder of these deposits.  Independence Air is not able to currently
estimate how much, if any, of the remaining $1.5 million of deposits may
be returned to it.  The Company previously recorded an early retirement
charge for the J41 aircraft as they were removed from operation.  The
early retirement charges previously recorded for these aircraft will be
reconciled as the actual costs of the lease terminations are recorded in
2005.

          The Company and Independence Air agreed to provide
consideration to the counterparties for entering into these agreements
including cash payments totaling approximately $3.5 million and the
issuance of interest bearing promissory notes totaling approximately $2.6
million bearing interest at 6.75% payable monthly and with equal payments
of principal and interest monthly from February 2007 through June 2010.
The Company also agreed to issue non-interest bearing convertible notes
in the total amount of $20,952,113, convertible into 3,559,586 shares of
the Company's stock.  Independence Air also agreed to various terms with
respect to the redelivery of the aircraft and in certain cases, to the
condition of the aircraft upon return.

					7

328Jet Aircraft:

          Independence Air had previously disclosed that, as a result of
the termination of its Delta Connection agreement without cause, it had
the right to assign to Delta Air Lines, Inc. ("Delta") leases for 30
Fairchild Dornier 328 regional jet (328Jet) aircraft formerly used in
Delta Connection operations and to require Delta to assume the leases.
In its prior disclosure, the Company indicated that it would continue to
be liable for future obligations under the leases in the event that Delta
at any time did not fulfill those obligations.  Independence Air is
currently in the process of delivering these aircraft to Delta in
connection with the assignment and assumption of the lease obligations.
As part of its restructuring effort, the Company has secured commitments
from lenders in the leveraged leases of these aircraft that, upon Delta's
assumption of the 328Jet leases, the lenders will effectively release the
Company and Independence Air from future obligations to them under the
328Jet leases.  While the owner participant in the leveraged leases, a
bankrupt entity that is in default of its obligations to the lenders and
the Company, has not committed to a release of the Company, the lenders,
which have an assignment of the owner participant's interest in the
leases and have a priority of payment superior to that of the owner
participant, have committed that they will not assert any claims against
the Company with respect to events occurring after assumption by Delta.
The lenders have also agreed that, if Independence Air is required to
make any payments under the leases and the lenders receive any portion of
such payments, they will return those payments to Independence Air.  In
consideration for this arrangement, the Company committed to issue 1.5
million shares of the Company's stock.  Independence Air obtained rent
deferrals similar to those reached on its CRJ fleet for the remaining two
leased 328Jets that are not being assigned to Delta in exchange for the
issuance of 130,000 shares of FLYi common stock and is actively marketing
for sale one unencumbered 328Jet owned by Independence Air.

Other Actions:

          Independence Air entered into a term loan agreement with GECAS
for $16.2 million and borrowed the full amount available under the term
loan.  The loan bears interest at a spread over three month LIBOR based
on an agreed market rate, and is payable in 60 monthly installments
ranging from approximately 1.4% of principal to approximately 2.0% of
principal, with a final maturity on February 18, 2010.  Independence Air
is not permitted to voluntarily prepay the loan for three years and may
do so thereafter only if it provides a letter of credit or other
acceptable security in an amount equal to the payments that are being
deferred under leases of 13 CRJ aircraft.  The loan is secured by
Independence Air's 11 CRJ spare engines and all of its CRJ spare parts.
The loan agreement also provides that the sum of the outstanding amounts
of the loan and lease deferral amounts may not exceed specified
percentages of the appraised values of the collateral.  If these
percentages are exceeded, Independence Air is required to make a partial
prepayment on the loans or provide additional collateral to restore
compliance.  Subject to these requirements, Independence Air is permitted
to dispose of collateral to the extent they become surplus to normal
operations.

          During the fourth quarter of 2004, Independence Air also
initiated and responded to proposals with other carriers to consider
arrangements that would supplement or substitute for its Independence Air
operations with respect to some or all of its operations or aircraft, and
during the first quarter of 2005 it continued to explore whether any such
arrangements might be available on attractive terms.  The Company also
continues to evaluate opportunities to finance the acquisition of
aircraft, engage in other financing transactions, sell additional equity
or debt securities, enter into credit facilities with lenders, or sell
underutilized assets, all for either strategic reasons or to further
strengthen our financial position.

					8

Marketing and Sales

          Independence Air initially adopted the distribution model used
by other low-cost carriers like Southwest and JetBlue that limited ticket
sales to its own web site and call centers.  However, during the fourth
quarter of 2004 Independence Air began to enter into agreements that
would allow it to offer its inventory through the Global Distribution
Systems ("GDSs").  Additional GDSs  were implemented during the first
quarter of 2005, and Independence Air now participates in most of the
major GDSs and a number of online travel sites including Travelocity and
Orbitz.  Participation in the GDSs is supported by Independence Air's
team of Sales professionals who solicit individual corporations and
travel agencies, creating additional interest and incentives for booking
Independence Air flights.

          Although 85% of Independence Air's total bookings are created
online or through the GDSs, the remaining volume is processed through
Independence Air's toll-free reservations phone lines.  Independence Air
maintains a reservations staff at its headquarters facility to monitor
and handle the most complex customer service matters and to solicit and
assist in corporate account bookings.  In addition, Independence Air has
contracted with a number of third party specialists to handle routine
reservations calls at various facilities operated by those parties.

          Independence Air offers a frequent flyer program known as
iCLUB.  Members earn iPOINTs based on the amount of money spent on
Independence Air travel.  iPOINTs are credited when travel is flown and
are good for 12 months.  Awards are posted to an iCLUB account when
thresholds are met within a specified period, and may be redeemed for
roundtrip fares on Independence Air.  The Company accounts for the
estimated cost of its frequent flyer program by accruing a liability for
the estimated incremental cost of providing service to those customers
who will redeem awards.

Fuel

          The Company's finances have been dramatically affected by
record high fuel prices.  Recently, Independence Air has purchased fuel
at a price of $1.65 per gallon.  When Independence Air operations
commenced in June 2004, fuel prices were $1.27 per gallon, and the
original business plan from June 2004 for Independence Air estimated fuel
prices, based on then-prevailing market prices, was at $.90 per gallon.
Independence Air estimates that it will consume approximately 100 million
gallons of jet fuel in 2005.  Independence Air has not hedged fuel costs.

Competition

          The airline industry is highly competitive.  Airline profits
are sensitive to adverse changes in fuel costs, average fare levels and
passenger demand.  Passenger demand and fare levels have historically
been influenced by, among other things, the general state of the economy,
international events, industry capacity and pricing actions taken by
other airlines.  The principal competitive factors in the airline
industry are fare pricing, customer service, routes served, flight
schedules, types of aircraft, safety record and reputation, code-sharing
relationships, in-flight entertainment systems and frequent flyer
programs.

          Recently competition has become even more intense as a result
of the initiatives of low-fare airlines, including Independence Air, to
introduce service to markets that have been traditionally served by
legacy carriers and by the initiatives of the legacy carriers in
response.  The legacy carriers, in some cases operating under the
protection of Federal bankruptcy laws and in the case of US Airways
operating with government provided financing, have reacted by matching
fares, reducing restrictions, offering additional frequent flyer

					9

incentives, increasing advertising, and by taking aggressive steps to
reduce their own costs.  They have also in several instances increased
their capacity in routes served by low-fare carriers.  United, for
example, responded to Independence Air's service introduction by
increasing capacity by 37% in markets served by Independence Air from
Washington Dulles.  In other markets where Independence Air competes, US
Airways, Delta, and Northwest have matched fares, added frequency to
existing markets, and/or started service to markets they previously did
not serve.  The result of this increased intensity in competition has
been a substantial increase in available flight options for the consumer
at substantially reduced prices, which has lead to an increase in overall
passenger traffic but at substantially reduced revenue for the airlines.
The intense competition has also limited the ability of carriers to
adjust pricing to reflect the increased cost of high fuel prices.

          Our competitors and potential competitors include major U.S.
airlines, low-fare airlines, regional airlines and new entrant airlines.
The major airlines are larger, generally have greater financial resources
and serve more routes. They also use advanced technologies, such as
ticketless travel, laptop computers and website bookings.  Our primary
competitors in the non-stop markets that we serve are United, US Airways
and, to a lesser extent, Southwest Airlines, each of which has greater
financial resources and name recognition than we do.  United and US
Airways have also benefited from their operation under bankruptcy court
protection, and US Airways has benefited from government provided
financing.

Seasonality

          The Company's business is highly seasonal in nature with the
winter months being the worst and the spring/summer months being the
best.  As such, the Company's quarterly results may not be indicative of
full year results.

Previous Code-Share Operations

          The Company's prior agreements with United ("UA Agreements")
defined the terms of IA's operation in the United Express program.  IA's
United Express operations accounted for approximately 71% of the
Company's 2004 passenger revenue and 100% of its 2003 passenger revenue
after excluding the discontinued Delta Connection operation.  In November
2000, the Company and United amended and restated the UA Agreements,
effectively changing from a revenue sharing arrangement to a fee-per-
departure arrangement. Under the UA Agreements in effect prior to
December 2000, IA was responsible for, among other things, scheduling,
pricing, and marketing its flights, in coordination with United's
operations, for which it paid United a portion of its revenues. Under the
fee-per-departure arrangement in effect as of December 1, 2000, IA
operated a flight schedule designated by United, for which United paid IA
an agreed amount per departure regardless of the number of passengers
carried, with IA being able to receive additional incentive payments
based on operational performance.  IA thereby assumed the risks
associated with operating the flight schedule and United assumed the risk
of scheduling, marketing, and selling seats to the traveling public.
Pursuant to the restated UA Agreements, United, at its own expense,
provided a number of additional services to IA.  These included
reservations, route planning, scheduling, pricing, revenue management,
revenue accounting, marketing, frequent flyer administration, and the
provision of ticket handling services, customer service, and ground
support services at most of the airports where both companies operate
flights concurrently.

          On December 9, 2002, UAL, Inc. and its subsidiaries, including
United, filed for protection under Chapter 11 of the United States
bankruptcy code. UAL has continued operating and managing its business
and affairs as a debtor in possession. In bankruptcy, United had the
right to assume or reject all executory agreements including the
Company's UA Agreements.  In July, 2003, the Company announced that it

					10

intended to utilize IA's assets to operate as an independent low-fare
airline in the event that United determined to reject the UA Agreements
as a part of United's reorganization in bankruptcy.  On April 5, 2004 the
Company announced it had reached an agreement with United providing for a
transition schedule and exit plan for all IA's United Express aircraft
and related operations as a result of United's decision to reject the UA
Agreements.  That agreement and United's rejection of the UA Agreements
was approved by the United States Bankruptcy Court for the Northern
District of Illinois, which oversees United's bankruptcy, on April 16,
2004.  IA subsequently phased out of United Express operations and
operated its last United Express service on August 3, 2004.

          The Company and United reached a settlement on the amounts owed
under the United Express agreement in a settlement agreement approved by
the bankruptcy court on October 15, 2004.  This settlement required
United to pay the Company $4.0 million in the fourth quarter of 2004.
Upon payment by United, the Company and United discharged each other from
any further charges related to the Company's participation in the United
Express program prior to September 30, 2004, the effective date of the
settlement agreement, except that the settlement does not affect the
Company's claim against United for damages from its rejection of the
Company's United Express Agreement.  The effect of the settlement
agreement was recognized in the fourth quarter.  Despite the settlement,
United continues to dispute certain billing matters, with the total
amount remaining in dispute believed to be approximately $0.4 million.

          The Company's Delta Connection Agreement ("DL Agreement")
defined the terms of IA's operation in the Delta Connection program.
Prior to being accounted for as a discontinued operation, IA's Delta
Connection operations accounted for approximately 20% of the Company's
2004 passenger revenue and approximately 17% of its 2003 passenger
revenues.  IA was compensated by Delta on a fee-per-block hour basis at
rates that were reset annually based on anticipated costs in the coming
year.  Under the fee-per-block hour arrangement, IA was contractually
obligated to operate a flight schedule designated by Delta, for which
Delta paid IA an agreed amount per block hour regardless of the number of
passengers carried, with incentive payments based on operational
performance.  IA thereby assumed the risks associated with operating the
flight schedule and Delta assumed the risks of scheduling, marketing, and
selling seats to the traveling public. Pursuant to the DL Agreement,
Delta, at its expense, provided a number of support services to the
Company. These included reservations, customer service, ground handling,
station operations, pricing, scheduling, revenue accounting, revenue
management, frequent flyer administration, marketing, a maintenance
hangar facility in Cincinnati, and other passenger, aircraft and traffic
servicing functions in connection with IA's Delta Connection operation.
On April 6, 2004, the Company announced it had received formal
notification from Delta that Delta will end its fee-per-block hour
agreement with IA by invoking its right under the Delta Connection
Agreement to terminate without cause upon 180 days notice. Subsequently a
transition agreement was entered into with Delta to specify the terms of
the transition, and IA completed its Delta Connection operations on
November 1, 2004.   The Company is treating the termination of the Delta
code share agreement as a discontinued operation and accordingly has
removed the revenues, expenses, and operating statistics attributable to
the Delta Connection operation from all reported operating results
presented in these financial statements and results of operations and is
including these amounts net of income tax as results from discontinued
operations.

Employees

          As of March 1, 2005, the Company and Independence Air had 3,683
full-time and 339 part-time employees, classified as follows:

           Classification               Full-    Part-
                                         Time     Time
           Pilots                         947        -
           Flight attendants              560        -
           Station personnel            1,035      279
           Maintenance personnel          352        2
           Management,
           administrative and
             clerical personnel           789       58
           Total employees              3,683      339

						11


          Independence Air's pilots are represented by the Airline Pilots
Association ("ALPA"), flight attendants are represented by the
Association of Flight Attendants-Communications Workers of America ("AFA-
CWA"), and aviation maintenance technicians and ground service equipment
mechanics are represented by the Aircraft Mechanics Fraternal Association
("AMFA").

          In November 2003, the Company and Independence Air finalized an
amended collective bargaining agreement with ALPA on pay reductions and
work rule changes that were contingent on signing a purchase agreement
with an aircraft manufacture for delivery of twenty-five narrow body
aircraft.  The agreement extended the term of the collective bargaining
agreement such that it will next be amendable as of December 31, 2007,
and established pay rates and work-rules for pilots operating narrow-body
jets that the Company believes are competitive with other low-fare
carriers. The new agreement also included terms designed to decrease
costs and increase productivity for operating its regional jets including
a reduction in CRJ rates that took effect in June 2004.

          Independence Air's collective bargaining agreement with the AFA-
CWA, which was ratified in October 1998, became amendable in October
2002.  Independence Air and AFA-CWA reached a Tentative Agreement on
February 10, 2005.  A vote on the Tentative Agreement will be completed
on March 21st, 2005. If ratified by the Flight Attendants the new
agreement will be amendable July 31, 2007.  The agreement is designed to
address quality of life issues that were of concern to the work group and
to update work rules of interest to the parties.  If adopted, the
agreement would provide for the first pay rate increase to be effective
in August 2006.

          Independence Air's collective bargaining agreement with AMFA,
which was ratified in June 1998, became amendable in June 2002.
Independence Air has been in mediated negotiations with AMFA during
2004.  The Mediator recessed negotiations in October 2004 and
Independence Air and AMFA have not met in formal negotiations since.
Independence Air is unable to predict when meetings will resume, but does
not anticipate that any issues relating to these negotiations will have a
material effect on Independence Air's operations for the foreseeable
future.

          In the airline industry, labor relations are regulated by the
Railway Labor Act ("RLA").  Under the RLA, collective bargaining
agreements do not expire but, rather, become amendable.  The wage rates,
benefits and work rules contained in a contract that has become amendable
remain in place and represent the status quo until a successor agreement
is in place.  The parties may not resort to self-help, such as strikes or
lockouts, until the RLA processes for collective bargaining have been
exhausted.  It is impossible to predict how long the RLA processes will
take.

          Independence Air's other work groups are not unionized.
Independence Air believes that certain of its unrepresented labor groups
are from time to time approached by unions seeking to represent them.
However, Independence Air has not received any official notice of
organizing activity and there have been no representation applications
filed with the National Mediation Board by any of these groups.
Independence Air believes that the wage rates and benefits for non-union
employee groups are comparable to similar groups at other similarly
situated airlines.

					12

Pilot Training

          Independence Air conducts its CRJ pilot training through a
training program managed internally, conducted by in-house instructors,
and utilizing simulators operated by a third party.  Independence Air has
entered into agreements with Pan Am International Flight Academy
("PAIFA") for CRJ simulator usage at PAIFA's facility near Washington
Dulles.  This facility currently houses three CRJ simulators, and
Independence Air believes that these facilities will be adequate to
support its training requirements.  The agreements require Independence
Air to purchase an annual minimum number of CRJ simulator training hours
at agreed rates through 2010.  Independence Air's payment obligations for
CRJ simulator usage over the remaining years of the agreements total
approximately $6.8 million.  Independence Air has restructured its
agreements with PAIFA to reduce its simulator costs for 2005.

          Independence Air conducts its Airbus training through a
training program provided by Airbus.  The training is to be provided by
Airbus and certain rates have been agreed as part of the Airbus
acquisition agreement.  Independence Air is also free to purchase
training from alternative sources.  Independence Air believes that
adequate training services, including simulator time in North America,
will be available from Airbus to fulfill its training requirements for
the foreseeable future.  Independence Air is utilizing manufacturer
credits issued in lieu of payment for a portion of its initial training
requirements.  When these credits are fully utilized it will need to pay
cash for subsequent training.  In addition to the usage of the
manufacturer's training program, Independence Air may conduct a limited
amount of training using its own training program and instructors, and
will consider development of an in-house training program for A319s
pilots in the future.

Industry Regulation and Airport Access

          Economic.  The Department of Transportation ("DOT") has
extensive authority to issue certificates authorizing carriers to engage
in air transportation, establish consumer protection regulations,
prohibit certain unfair or anti-competitive practices, mandate certain
conditions of carriage and make ongoing determinations of a carrier's
fitness, willingness and ability to provide air transportation.  The DOT
can 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's Independence Air subsidiary holds a certificate
of public convenience and necessity, issued by the DOT, which authorizes
it to conduct scheduled and charter air transportation of persons,
property and mail between all points in the United States, its
territories and possessions with regional jet and narrow-body equipment.
In addition, Independence Air may conduct scheduled and charter air
transportation with regional jet aircraft to points outside the United
States, subject to obtaining any necessary authority from any foreign
country to be so served.  Were Independence Air to operate its narrow-
body aircraft outside of the United States, additional DOT authority
would be required to conduct such air transportation.  Independence Air's
certificate requires that Independence Air 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 that may impose
additional regulatory burdens and costs on Independence Air.  Imposition
of new laws and regulations on air carriers could increase the cost of
operation and or limit carrier management discretion.

					13

          Safety.  The FAA extensively regulates the safety-related
activities of air carriers.  Independence Air 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, the transportation of hazardous
materials and other matters affecting air safety.  To ensure compliance
with its regulations, the FAA requires commercial airlines under its
jurisdiction to obtain an operating certificate and operations
specifications for the particular aircraft and types of operations
conducted by such airlines.  The Company's Independence Air subsidiary
possesses an operating certificate and related authorities issued by the
FAA authorizing it to conduct operations with turboprop, regional jet and
narrow-body equipment.  Independence Air'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 penalties, which can
be substantial, criminal penalties, or suspension or revocation of
operating authority.

          From time to the time and with varying degrees of intensity,
the FAA conducts inspections of air carriers.  Such inspections may be
scheduled or unscheduled and may be triggered by specific events
involving either the specific carrier being inspected or other air
carriers.  In addition, the FAA may require airlines to demonstrate that
they have the capacity to properly manage growth and safely operate
increasing numbers of aircraft.

          In order to ensure the highest level of safety in air
transportation, the FAA has authority to issue maintenance directives and
other mandatory orders.  These relate to, among other things, the
inspection of aircraft and the mandatory removal and replacement of parts
or structures.  In addition, the FAA from time to time amends its
regulations and such amended regulations may impose additional regulatory
burdens on Independence Air, such as the required installation of new
safety-related items.  Depending upon the scope of the FAA's orders and
amended regulations, these requirements may cause Independence Air to
incur substantial, unanticipated expenses.

          On November 19, 2001 the President signed into law the Aviation
and Transportation Security Act (the "Security Act").  The Security Act
requires heightened passenger, baggage and cargo security measures to be
adopted as well as enhanced airport security procedures.  The Security
Act created the Transportation Security Administration ("TSA") that has
taken over the responsibility for conducting the screening of passengers
and their baggage at the nation's airports as of February 17, 2002.  The
activities of the TSA are funded in part by the application of a $2.50
per passenger enplanement security fee (subject to a maximum of $5.00 per
one way trip) and payment by all passenger carriers of a sum not
exceeding each carrier's passenger and baggage screening cost incurred in
calendar year 2000.  In the Administration's fiscal year 2006 budget it
has proposed to authorize TSA to collect an additional $3.00 per
passenger segment security fee, or $5.50 per segment and a maximum of
$8.00 per one-way trip.  If Congress accepts the Administration's
proposal, Independence Air will have to collect these additional fees
from its passengers, thereby making the cost of air transportation more
expensive which, in turn, may dampen demand for the services of
Independence Air.  In addition, competitive pressures in the industry may
preclude Independence Air from being able to pass on the added fee such
that the fee may further diminish Independence Air's air transportation
revenues.

          The Security Act imposes new and increased requirements for air
carrier employee background checks and additional security training of
flight and cabin crew personnel.  These additional and new requirements
have increased the security related costs of Independence Air.  The
Security Act also mandates and the FAA has adopted new rules requiring
the strengthening of cockpit doors, some of the costs of which have been
reimbursed by the FAA.  Independence Air has completed all mandatory
cockpit door modifications and has been reimbursed $2.7 million under the
Security Act, although the cost of such modifications exceeded this
amount.  At times when the aviation security threat level is elevated by
the Department of Homeland Security, Independence Air may experience
security-related disruptions, including reduced passenger demand,
resulting from enhanced passenger screening at airports and possible
flight cancellations. Independence Air believes that its exposure to such
disruptions is no greater than that faced by other providers of regional
air carrier services.

					14

          Although the TSA has taken over the former responsibilities of
the air carriers for the screening of all passengers and baggage, the
TSA, as with the FAA before it, requires air carriers to adopt and
enforce procedures designed to safeguard property, and to protect airport
and aircraft against terrorist acts.  The TSA, from time to time, may
impose additional security requirements on air carriers and airport
authorities based on specific threats or world conditions or as otherwise
required.  The TSA has issued a number of security directives and altered
procedures upon changes in the Office of Homeland Security announcements
of heightened threat levels, and Independence Air has adjusted its
security procedures on numerous occasions in response to these
directives.  Independence Air incurred 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.  Independence Air has policies against accepting
hazardous materials or other dangerous goods for transportation.
Employees of Independence Air are trained in the recognition of hazardous
materials and dangerous goods through an FAA approved training course.
Independence Air may ship aircraft and other parts and equipment, some of
which may be classified as hazardous materials, using the services of
third party carriers, both ground and air.  In acting in the capacity of
a shipper of hazardous materials, Independence Air must comply with
applicable regulations.  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, Independence Air 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.  Independence Air is also subject to the oversight of
the Occupational Safety and Health Administration concerning employee
safety and health matters.  Independence Air is subject to the Federal
Communications Commission's jurisdiction regarding the use of radio
frequencies.

          Federal law establishes maximum aircraft noise and emissions
limits.  At the present time, all of the aircraft operated by
Independence Air comply with all applicable federal noise and emissions
regulations.  Federal law generally preempts airports from imposing
unreasonable local noise rules that restrict air carrier operations.
However, under certain circumstances airport operators may implement
reasonable and nondiscriminatory local noise abatement procedures, which
could impact the ability of Independence Air to serve certain airports,
particularly in off-peak hours.

          Slots.  Slots are reservations for takeoffs and landings at
specified times and are required by governmental authorities to operate
at certain airports within the United States.  Independence Air has
rights to and utilizes takeoff and landing slots at New York-Kennedy, 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.  Under
law presently in effect, slot regulation at  Kennedy airport is scheduled
to end after January 1, 2007.  The rules also provide that, in addition
to those slots currently held by carriers, operators of regional jet
aircraft and new entrant air carriers may apply for, and the Secretary of
Transportation must grant, additional slots at New York-Kennedy in order
to permit the carriers to offer new service, increase existing service or
upgrade to regional jet service in qualifying smaller communities.  There
is no limit on the number of slots a carrier may request.  Prior to the

					15

commencement of services by Independence Air, Independence Air requested
and obtained from the FAA, under the provisions of current law, slots
necessary to operate its flight schedule to and from New York Kennedy
Airport.  The New York Kennedy Airport slots are permanent, subject to
loss due to nonuse.  To the extent Independence Air would seek to operate
narrow-body aircraft at Kennedy or any other slot controlled airport, it
will have to either purchase or lease slots from another air carrier or
be qualified to obtain such slots under the then current regulatory
regime.  Slots at White Plains, New York airport are held in the name of
Independence Air and are sufficient to conduct operations at the airport.
As a result of congestion at Chicago O'Hare Airport on January 21, 2004
the FAA entered an Order requiring the two largest O'Hare carriers,
United Airlines and American Airlines, to reduce their O'Hare flight
schedules, including the schedules operated by carriers affiliated with
these major carriers.  The FAA order was subsequently extended until
October 2004. Prior to its expiration, the FAA on August 18, 2004 issued
another order setting limits through April 30. 2005 on the number of air
carrier arrivals at O'Hare during peak hours to reduce the level of
airport congestion and applied the terms of the order to all domestic
carriers operating at O'Hare, including Independence Air.  The FAA has
proposed to extend the effectiveness of this order until October 30, 2005
during which time the FAA has indicated that it intends to propose and
adopt a longer term, more permanent solution to the issue of O'Hare
airport delays.  At the current time Independence Air has sufficient
rights to conduct flights at O'Hare during the controlled hours.  Should
the FAA propose additional limits on Independence Air flight arrivals, it
may not be able to develop a flight schedule that maximizes Independence
Air's revenue opportunities.

Risk Factors Affecting the Company

          The Company's business is subject to numerous risks and
uncertainties, as described below and in the section titled,
"Management's Discussion and Analysis of Results of Operations and
Financial Condition - Liquidity and Capital Resources" and "Quantitative
and Qualitative Disclosures About Market Risk".

Risk Factors Affecting the Company Relating to Independence Air


We face pressure to increase operating revenues and reduce operating
costs to avoid a liquidity crisis

          The fierce competition and weak revenue environment that
Independence Air operations have encountered, combined with lower than
expected passenger traffic and unprecedented high jet fuel prices have
resulted in Independence Air's revenue falling significantly below
anticipated levels and the Company expending cash at an unsustainable
rate.  Although we have implemented cost savings measures, we may not be
able to reduce our operating costs enough to offset the revenue
shortfall.

          We expect to have substantial cash needs as we continue to
establish ourselves under the new brand "Independence Air" as a low-fare
carrier, including cash required to fund increases in accounts payable,
prepaid expenses, aircraft security deposits on new aircraft to be
leased, pre-delivery payments on new aircraft to be purchased, as well as
anticipated operating losses.  As of December 31, 2004, our debt of
$238.8 million exceeded our total capitalization. In addition to long-
term debt, we have a significant amount of other fixed obligations under
operating leases related to our aircraft, airport terminal space, other
airport facilities and office space. As of December 31, 2004, future
minimum lease payments under non-cancelable operating leases with initial
or remaining terms in excess of one year were approximately $1.7 billion
for 2005 through 2024, not including commitments for the remaining Airbus
A319 aircraft we intend to acquire.

          Future operating lease commitments for the eight leased Airbus
aircraft undelivered at December 31, 2004 are expected to be
approximately $325 million, and our purchase commitment for 16 additional
Airbus aircraft is expected to be approximately $560 million over the
next three years, including estimated amounts for contractual price
escalations. We will continue to incur additional debt and other fixed
obligations as we take delivery of new aircraft and other parts and
equipment and continue to expand into new markets. The leases for the
Airbus aircraft require security deposits to be held by the lessors in
addition to payments of monthly rent and maintenance reserves. The
purchase agreement for the Airbus aircraft requires progress payments to
be made for each aircraft as the delivery date approaches. We have
historically funded the majority of our aircraft acquisitions by entering
into off-balance sheet financing arrangements known as leveraged leases,
in which third parties provide equity and debt financing to purchase the
aircraft and simultaneously enter into long-term agreements to lease the
aircraft to us.  However, we do not anticipate that this source of

					16

financing will be available to us for the foreseeable future, and that we
will need to finance our aircraft through secured debt or operating
leases.  We are exposed to interest rate risks that can affect our costs
under any of these financing techniques.  There can be no assurance that
we will be able to secure lease and/or debt financing on terms acceptable
to us or at all.

          Our outstanding indebtedness and significant fixed obligations,
and our lack of a history of profitability for Independence Air
operations, could have important consequences. For example, they could:

     . adversely affect our ability to obtain additional financing to
     support our planned growth and for working capital and other general
     corporate purposes;

     . divert substantial cash flow from our operations and expansion plans
     in order to service our fixed obligations or to place deposits or
     collateral to secure financing;

     . require us to incur significantly more interest or rent expense than
     we currently do; and

     . place us at a possible competitive disadvantage compared to less
     leveraged competitors and competitors that have better access to capital
     resources.

          We have no lines of credit, other than letters of credit
collateralized by cash, and we will continue to rely on our existing cash
balances, cash flow from operations and other sources of capital to
satisfy our obligations.  In connection with our recently completed
financial restructuring, we pledged substantially all of our remaining
unencumbered collateral.  Even with the recent completion of our
financial restructuring, if passenger traffic or yield do not achieve
anticipated levels, fuel costs continue at current high levels or other
events affect its operations,the Company may again face liquidity concerns.
If the Company is not able to achieve its current business plan, cash
balances and cash flow from operations together with operating lease financing
and other available equipment financing may not be sufficient to enable the
Company to meet its working capital needs, expected operating lease financing
commitments, other capital expenditures, and debt service requirements as they
come due for the remainder of 2005 and into 2006. If we are unable to make
payments on our debt and other fixed obligations as they come due, we could
be forced to consider commencing a bankruptcy case under Chapter 11 of the
U.S. Bankruptcy Code or may be the subject of an involuntary Chapter 11 case
commenced against us by creditors.

Because we have limited operating history as a low-fare carrier, it is
difficult to evaluate our ability to succeed in this business

          Although we have operated as an airline since 1992, our past
results offer little meaningful guidance with respect to our future
performance because prior to June 16, 2004 we had not operated as an
independent carrier. In addition, we have not had responsibility for
route planning, scheduling, pricing, marketing, advertising, sales,
revenue management or revenue accounting functions since December 2000,
and for the first time we are operating our own distribution,
reservations and ticketing functions. Also, while previous operations
have been under the United and Delta brands, Independence Air is a new
brand, and has limited market recognition. As a result, because we have
only recently begun to operate as an independent, low-fare carrier, it is
difficult to evaluate our future prospects. Our future performance will
depend on a number of factors, including our ability to:

					17

       .  Further develop our Independence Air brand and product to make it
       attractive to our target customers;

       .  implement our business strategy by placing into service additional
       A319 aircraft into new and longer-haul markets than we have previously
       served;

       .  successfully choose new A319 markets and service levels, and
       successfully choose the markets and service levels to be operated by our
       reduced CRJ fleet;

       .  reduce our expenses to adjust to the current revenue and fuel cost
       environment, and to reflect a reduced number of aircraft in operation;

       .  secure favorable terms with airports, suppliers and other
       contractors;

       .  monitor and manage major operational and financial risks;

       .  return a significant number of aircraft to their lessors during
       2005, without incurring unexpected costs or disruption of ongoing
       operations;

       .  obtain and maintain necessary regulatory approvals, including
       airport "slots" where necessary;

       .  attract, retain and motivate qualified personnel;

       .  finance the necessary capital investments including future aircraft
       deliveries;

       .  maintain the safety and security of our operations; and

       .  react to responses from our competitors, including both legacy and
       low-fare airlines.

There can be no assurances that we will successfully address any of these
factors, and our failure to do so could harm our business.

Our recently completed financial restructuring may result in significant
expenditures and limits the flexibility of our operations

          As discussed above under "Item 1. Business - Financial
Restructuring," in connection with our recently completed financial
restructuring we have entered into agreements that require us to satisfy
certain obligations.  We may have to incur unexpected costs to satisfy
certain of these obligations, and our failure to satisfy these or other
obligations arising under our financial restructuring could limit the
flexibility of our operations.  We have reached agreements with the
lessors for 24 of Independence Air's CRJs and, as stated above, with the
lessors for 21 of the J-41 turboprops that were formerly used in our
United Express operations for the return of the aircraft to the lessors
and the elimination of our future rent obligations.  The terms of those
agreements include certain obligations with respect to the return of the
aircraft, including physical condition and timing of the return.  We may
incur unexpected charges arising from those obligations and/or may fail
to satisfy all of those obligations as to some or all of the aircraft.
We have also agreed to permit the lessor to require us to return up to
eight additional CRJ aircraft if we do not meet certain financial
milestones.  The removal of these aircraft could result in additional
costs, and could be harmful to the business plan if we are forced to
remove aircraft that are providing a positive contribution to our

					18

performance. The restructuring of the lease and loan payments on 52 CRJs
defers the payment of approximately $70 million that would have been due
between January 2005 and February 2007 and converts the previous semi-
annual payment dates to monthly payment dates.  The $70 million of
deferrals and associated interest will be repaid monthly over the
remaining term of the financing beginning in May 2006.

We are under pressure to control and reduce our costs

          The extensive competition, high fuel costs, excess capacity and
success of low-fare carriers has resulted in increased emphasis in the
airline industry on controlling and reducing expenses. Many of our
competitors are effecting cost reductions that will increase their
ability to compete against Independence Air.  In this environment, if we
are unable to align our costs with our business plan or to control and
reduce our costs in general, we may not be able to effectively compete
against other regional carriers flying for legacy carriers or other low-
fare carriers to maintain or expand our existing operations and carry out
our business plan.

We are subject to risks arising from fuel costs and availability of fuel

          Like all airlines, our finances have been dramatically affected
by record high fuel prices.  Recently we have purchased fuel at a price
of $1.65 per gallon.  When we first started Independence Air operations
in June 2004 we were purchasing fuel at $1.27 per gallon.  With about 100
million gallons projected to be consumed in 2005, at today's rates we
would incur approximately $38.1 million in additional cost for 2005
compared to what that fuel would have cost at prices that were prevailing
when we first started operations.  We have not hedged our fuel needs.  We
cannot predict the future cost and availability of fuel. Both fuel costs
and availability are subject to many economic and political factors and
events occurring throughout the world over which we have no control. Fuel
availability is also subject to periods of market surplus and shortage
and is affected by demand for both home heating oil and gasoline.
Because of the intense pricing competition, the ability of carriers to
adjust pricing to reflect higher fuel costs has been limited.  We do not
believe that this present situation is sustainable either for us or for
the industry as a whole, and that without either a reduction in fuel
prices or an increase in ticket prices, we, like many other airlines, may
not be successful.

          We rely on third parties and supply infrastructure to provide
sufficient fuel for our operations. The inability of these third parties
to perform, the interruption of fuel supplies at an airport, or the
inability to deliver sufficient fuel to us due to infrastructure
constraints could result in cancelled flights and/or higher fuel prices.

We have costs and possible exposure arising from the Fairchild Dornier
328 regional jet ("328Jet") and termination of our Delta Connection
operations

          In April 2002, Fairchild Dornier GmbH ("Fairchild"), the
manufacturer of the 32-seat 328Jet, was placed under the supervision of a
court-appointed interim trustee and in July 2002 Fairchild opened formal
insolvency proceedings in Germany.  The lack of manufacturer product
support, along with a high level of unscheduled maintenance events for
the engines that power the aircraft, resulted in an increase in the cost
to operate the 328Jet aircraft type and a decrease in the aircraft's
value.  Following Delta's notice that it would terminate the Delta
Agreement without cause upon 180 days notice, we notified Delta that we
were exercising our right under the terms of the Delta Agreement to
require Delta to assume the leases on 30 of the 33 328Jets used in the
Delta program.  We have entered into agreements with the loan
participants of those leveraged leases to relieve us of further
obligations to them under the leases provided we can complete the
assignment to Delta within a specified period of time.  We do not have

					19

such an agreement with the equity participant in such aircraft although
we believe that other circumstances relating to the structure of the
leases and to certain defaults to us by that party effectively insulates
us from further liability.  We are anticipating completing the assignment
to Delta in March 2005 but there can be no assurance that the assignments
will be successfully completed.  We are currently working with Delta and
their representatives to complete inspections and records review for each
aircraft. These detailed inspections of each aircraft and its related
records have caused the Company additional expense and time not originally
planned.  The delay in assigning the aircraft to Delta required the
Company to make the semi annual lease payment due on these aircraft. Delta
is currently repaying these rents on a weekly basis and is obligated to
make up any unamortized amounts upon assignment of the aircraft. Until the
assignments to Delta are complete, the Company is at risk of not
recovering the semi-annual rents it has already paid and remains
liable for the full lease term in the case Delta were to default on its
obligations.  We also are responsible for the remarketing of the two
leased 328Jet aircraft that we do not have a right to require Delta to
assume, as well as the spare parts inventory, tooling and ground equipment
unique to the 328Jet. There can be no assurance that we will be able to
redeploy in a profitable manner these two leased 328Jets. We recorded
impairment charges of $13.8 million in connection with our one owned
328Jet and 328Jet spare parts, early retirement charges of $7.2 million
in connection with the two leased 328Jets that we do not have the right to
require Delta to assume and may incur additional one-time costs in
connection with the termination of the Delta relationship.

We will incur cash charges and may incur other unexpected charges as we
return the J-41 aircraft to the lessors

          We have retired all J-41 type aircraft from our fleet.  As part
of our recently completed financial restructuring, we have reached
agreement with the lessors for 21 of those aircraft on the terms for the
return of the aircraft to the lessors and the elimination of our future
rent obligations.  The terms of those agreements include certain
obligations with respect to the return of the aircraft, including in some
cases physical condition, the production of certain records, and timing
of the returns.  We may incur unexpected charges arising from those
obligations and/or may fail to satisfy all of those obligations as to
some or all of the aircraft.  For the remaining nine J41 aircraft we are
still contractually required to continue to make payments under the
lease/loan agreements for the aircraft, and do not expect to be able to
obtain any significant amount of sublease income relative to our rent
obligations.


Our expansion of Independence Air requires significant new
infrastructures

          Our business strategy involves successfully establishing
Washington Dulles as the hub for a new low-fare airline, establishing the
Independence Air brand in regional jet markets we have been serving to
and from Washington Dulles, expanding our operation into certain markets
not previously served, and creating flight connection opportunities. We
must continue to establish and maintain significant new infrastructures
that are necessary to operate as an independent airline, including
scheduling, market planning and marketing, advertising, ground operations
and information systems. Achieving our business strategy is critical in
order for our business to create passenger connecting opportunities for
markets to be served with our existing fleet of CRJs and with the Airbus
A319 aircraft that we currently operate and are acquiring, and to achieve
economies of scale, both of which are critical to profitable operations.
Increasing the number of markets we serve depends on our ability to
successfully introduce the Airbus aircraft into our fleet, and to secure
suitable slots, gates, ticket counter positions and other facilities at
airports located in our targeted geographic markets.  In some of our
markets we must establish and maintain ground operations and in some
markets we compete with United and others for facilities and employees.
Opening new markets requires us to commit a substantial amount of
resources, even before new service commences. Expansion also requires
additional skilled personnel and equipment.  An inability to hire and
retain skilled personnel or to secure the required equipment and
facilities efficiently and cost-effectively or to successfully develop
and implement other necessary systems may affect our ability to achieve
our business strategy.  In addition, Independence Air operations may also

					20

increase the demands on management and our operating systems and internal
controls beyond levels we currently anticipate. Such expansion may strain
our existing management resources and operational, financial and
management information systems to the point that they may no longer be
adequate to support our operations, requiring us to make larger
expenditures in these areas than we currently anticipate.  There can be
no assurance that we will be able to develop these controls, systems or
procedures on a timely or cost-effective basis, and the failure to do so
could harm our business.

Failure to successfully implement our strategy for Independence Air could
harm our business

          Our business strategy for Independence Air involves, among
others, attractive schedule and connection opportunities to the markets
we serve, aggressive management of unit costs, and offering fares that
are significantly lower than existed prior to our entry in order to
stimulate demand.  While we have found that our new fare structure has in
fact stimulated passenger growth, our competitors' response in
aggressively matching our fares and increasing capacity on many of our
markets has resulted in an overcapacity of seats relative to the
increased passenger growth.  There can be no assurance that we will be
able to sufficiently balance our costs with the demand for our product,
and failure to do so may prevent us from successfully implementing our
strategy for Independence Air.

Our maintenance costs will increase as our regional jet fleet ages and as
certain aircraft are returned to the lessors and retired from our fleet

          As our fleet of regional jet aircraft ages, the maintenance
costs for such aircraft will likely increase.  In addition, the CRJs
being returned to lessors under our recently completed financial
restructuring are generally among our newer aircraft, and thus have
operated at lower costs than our average fleet.  Although we cannot
accurately predict how much our maintenance costs will increase in the
future, they may increase significantly. Any such increase could have an
adverse effect on our business, financial condition and results of
operations. We are vulnerable to any problems associated with the
aircraft in our fleet, including design defects, mechanical problems or
adverse perception by the public that would result in customer avoidance
or an inability to operate our aircraft.

Our business plan for Independence Air is heavily dependent on the
metropolitan Washington, D.C. market, including Northern Virginia, and a
reduction in demand for air travel in this market or the inability of
Washington Dulles to accommodate our operations would harm our business

          Our operations focus on flights to and from our primary base of
operations at Washington Dulles.  As a result, we are highly dependent
upon the Washington, D.C. and Northern Virginia markets. Our business
would be harmed by any circumstances causing a reduction in demand for
air transportation in the Washington, D.C. and Northern Virginia
metropolitan area, such as adverse changes in local economic conditions,
political disruptions or violence (including any terrorist attacks),
negative public perception of the city or region, significant price
increases linked to increases in airport access costs and fees imposed on
passengers or the impact of past or future terrorist attacks.  Likewise,
our business could be harmed by any disruption of service or facilities
at Washington Dulles.

We face competition as a low-fare airline from legacy carriers as well as
low-fare airlines to which we have not been previously exposed

          The airline industry is highly competitive, primarily due to
the effects of the Airline Deregulation Act of 1978, which substantially
eliminated government authority to regulate domestic routes and fares,

					21

and increased the ability of airlines to compete with respect to
destination flight frequencies and fares. Independence Air operates in a
new sector of the airline industry that is highly competitive and is
particularly susceptible to price discounting because airlines typically
incur only nominal costs to provide service to passengers occupying
otherwise unsold seats. Our competition includes legacy carriers and low-
fare carriers, which are aggressively responding to our new Independence
Air service to protect their markets and expand into new ones by adding
service in markets we serve or plan to serve, reducing fares to these
markets and/or providing frequent flyer and other incentives.  The
competitive response has included not only flights to and from Washington
Dulles, Reagan National and BWI airports, but has also included
origination and destination markets that we connect through Washington
Dulles.  Several legacy carriers, including United and Delta, have
introduced low-fare carriers to their operations.  In addition, because
of the nature of our past relationship with United and because we offer
service between key United hubs, United's response to our operation as
Independence Air has been and is expected to continue to be highly
competitive and unpredictable.  Independence Air also competes against
established brands used by both legacy carriers and low-fare carriers
that carry greater name recognition, both at Washington Dulles and at the
other cities that we serve.  Both legacy carriers and low-fare carriers
also continue to take delivery of regional jets, and we may face
increased competition from regional jets at Washington Dulles, including
the use of new 70 or 90 seat regional jets, which would be larger than
those we currently have in our regional jet fleet.  The use of new,
larger scale regional jets will allow competitors to serve markets
smaller than can now be served by low-fare carriers using larger
aircraft, with a seat mile cost that may be lower than ours.

          Our base of operations for Independence Air is Washington
Dulles, which is served by a number of larger airlines that have greater
name recognition and greater resources than we do.  These larger airlines
have and may in the future commence or increase their capacity and
service at Washington Dulles because there are currently no rules
restricting access at this airport.  We are competing in markets at fares
offered by airlines at other airports that currently serve the
Washington, D.C. metropolitan area, including Reagan National Airport and
Baltimore Washington International Airport. We may also face competition
from other airlines that may begin serving any of the markets we serve
and from ground transportation alternatives. Other airlines with greater
financial resources than ours also have or may in the future meet or
price their fares below our fares or introduce new nonstop service
between cities served by our flights to and from Washington Dulles,
Reagan National Airport or Baltimore Washington International Airport and
prevent us from attaining a share of the passenger traffic necessary to
operate profitably. We expect that competition will exist in all the
direct markets that we currently serve and will serve in the future, as
well as in the market for flights that connect through Washington Dulles.
We further expect that the competition for passengers connecting through
Washington Dulles will be both from airlines offering service through
Washington Dulles and from the large number of alternative hubs
throughout the U.S., instead of Washington Dulles, through which
connecting passengers can elect to route their travel.

          Our new West Coast services marks our entry into the highly
competitive transcontinental market.  Transcontinental routes were priced
aggressively by low-fare carriers prior to our entry, and our offering of
these routes poses a direct threat to legacy carriers on routes that we
believe have traditionally been more profitable for them.  We have
already seen substantial fare-cutting by United and other legacy carriers
on our new West Coast routes and anticipate a continued strong
competitive response to our service.

Our business model is dependent on our ability to continue to take
delivery of, place into service and integrate new Airbus A319 aircraft
into our operations

          As of March 14, 2005 we were operating eight Airbus A319
aircraft and have 20 additional Airbus single aisle aircraft on order.
The Airbus A319 aircraft will operate in markets that are important to

					22

serving a broad selection of cities from Washington Dulles, and providing
that service is critical to attracting customers to our airline.  The
A319 aircraft also will allow us to connect passengers to and from
markets served by the regional jets to additional long haul markets, and
we will thus rely on the Airbus A319 aircraft to generate incremental
revenues for the regional jet fleet.

          If we, Airbus or the aircraft lessors are unable or unwilling
to satisfy contractual obligations relating to the aircraft, we would be
required to obtain alternative aircraft.  A number of factors could limit
or preclude our ability to obtain the aircraft from Airbus, including:

         Airbus, the aircraft lessors or we could refuse, or not be
       financially able, to perform important obligations as set forth in the
       final agreement; and

         Airbus could experience a disruption to its operations that affects
       its ability to complete or timely fulfill its obligations.

          Our ability to execute our business plan could be materially
impaired if we were required to order alternate aircraft, or if the
delivery schedule for the Airbus aircraft were delayed for any meaningful
period.

          Acquisition of an all-new type of aircraft, such as the Airbus
A319 aircraft, involves a variety of risks relating to our ability to
successfully place those aircraft into service, including:

      delays in meeting the agreed upon aircraft delivery schedule;

      difficulties in obtaining financing on acceptable terms to complete
     our purchase or lease of all of the firm ordered aircraft;

      inability of the aircraft and all of its components to comply with
     agreed upon specifications and performance standards; and

      inability to successfully complete the required training of flight
     crews and maintenance staff.

          We have limited experience operating and maintaining the Airbus
A319 aircraft, and we therefore face risks in continuing to integrate the
aircraft into our existing infrastructure and operations, including among
other things, the additional costs, resources and time needed to hire
and/or train new or existing pilots, technicians and other skilled
support personnel. Our failure to successfully take delivery of, place
into service and integrate into our operations all of the new Airbus
single aisle aircraft could harm our business.

          In the event that our Airbus aircraft are removed from
scheduled service for repairs or other reasons (other than routine
maintenance), we could experience a disruption in our scheduled service
that would have an adverse effect on our operations. Similarly, our
operations could also be harmed by the failure or inability of Airbus to
provide sufficient parts or related support services on a timely basis.

We rely on maintaining a high daily aircraft utilization rate of our
Airbus to keep our costs low, which makes us especially vulnerable to
delays

          One of the key elements of the Independence Air business
strategy is to maintain a high daily aircraft utilization rate of our

					23

A319 aircraft, which is the amount of time that our aircraft spend in the
air carrying passengers. High daily aircraft utilization allows us to
generate more revenue from our aircraft and is achieved in part by
reducing turnaround times at airports so we can fly more hours on average
in a day.  Aircraft utilization is reduced by delays from various
factors, many of which are beyond our control, including, among others,
air traffic and airport congestion, inclement weather, security
requirements, crew availability, fueling and ground handling and
unscheduled maintenance.  Because many of our A319 routes will be to
distant markets that will be remote from our hub, we may have a
difficulty in recovering from irregular operations.  Furthermore, a
schedule that contemplates high aircraft utilization is subject to the
increased risk that once an aircraft falls behind schedule during the
day, it could remain behind schedule during the remainder of that day and
potentially into the next day, which can result in disruption in
operating performance leading to passenger dissatisfaction and missed
connections. All of the foregoing delays may increase our costs as well
as diminish our reputation among our customers.

We do not participate in the types of marketing alliances used by many of
our competitors

          Many airlines have marketing alliances with other airlines
under which they market and advertise their status as marketing alliance
partners.  Among other things, they share the use of flight designator
codes to identify their flights and fares in the computerized reservation
systems and permit reciprocity in their frequent flyer programs.  In
recent years, alliance activity among major carriers has significantly
expanded within the airline industry, increasing the scope of operations
and resources of our competitors, which, in turn, could adversely affect
our ability to compete.  Independence Air is not a member of any
marketing alliance. Our lack of a marketing alliance could harm our
business and competitive ability.  We also do not participate in
interline baggage handling agreements, under which we forward and receive
customer baggage to and from other airlines that may operate flights with
which our customers may be connecting, which may discourage potential
customers from flying on Independence Air.

We rely heavily on automated systems to operate our business and any
failure of these systems could harm our business

          We depend on automated systems to operate our business as
Independence Air, including our computerized airline reservation system,
our telecommunication systems, kiosks, and our website.  Our website and
reservation and check-in systems must be able to accommodate a high
volume of traffic and deliver important flight information.  Substantial
or repeated website, reservations system, kiosk, or telecommunication
systems failures could reduce the attractiveness of our services and
could cause our customers to purchase tickets from another airline.
While we have backup systems for some aspects of our operations, our
systems have not been fully tested for the volume of transactions
possible in our operations and are not fully redundant, and our disaster
recovery planning may not be sufficient for all eventualities.  In order
to provide a reservations system and the infrastructure to receive
customer calls, we contract with third party vendors to provide the
software, hardware, and technical support of the reservations system and
the physical location and staffing for a call center.  We also may need
to rely on third-party vendors to implement our back-up systems, which
would place aspects of maintaining important data beyond our control.
Any disruption in our or our third parties' systems or in the ability of
the third party vendors to provide their services could result in the
loss of customer bookings or important data, increase our expenses and
generally harm our business.

					24

Our inability to obtain and maintain approval from the FAA and the DOT to
operate aircraft could materially affect our operations

          We possess all of the DOT and FAA authority necessary to
operate our fleet of A319 and CRJ aircraft.  We are required to maintain
this authority and to satisfy on-going regulatory requirements in order
to continue our operations.  We recently paid a substantial civil penalty
to the FAA and are involved in an ongoing review by the FAA of the
Company's maintenance records program.  The outcome of this review cannot
be predicted at this time, but could result in additional fines or
actions by the FAA.


We may not be able to maintain access to suitable airports located in our
targeted geographic area

          Independence Air is materially dependent on our ability to
access suitable airports located in our targeted geographic markets for
both our larger, single aisle aircraft and our regional jets at costs
that are consistent with our low-fare strategy. Some airports served by
Independence Air are subject to FAA imposed capacity controls and,
although Independence Air currently has the slots necessary to conduct
operations at these airports, additional limits could be placed on the
airports that might restrict Independence Air's access to them.  In
August 2004 the FAA issued an order limiting hourly operations at
Chicago's O'Hare International Airport.  The effect of this order caused
the Company to shift the hours of certain of its operations and to place
an upper limit on the number of daily O'Hare arrivals through the end of
April 2005.  Other airports that are not currently capacity controlled
that become severely congested, which could include Washington Dulles,
could become the subject of some regulatory limit and thereby restrict
Independence Air's access to or operations at those airports. Any
condition that would deny, limit or delay our access to airports we serve
or seek to serve in the future would constrain our ability to grow.  A
change in the terms of our access to existing facilities or any increase
in the relevant charges paid by us as a result of the expiration or
termination of such arrangements and our failure to renegotiate
comparable terms or rates could have a material adverse effect on our
results of operations. We base our operations predominantly at Washington
Dulles. There can be no assurance that such airport will not impose
higher airport charges in the future or that such increases would not
adversely affect our operations

Our current operations benefit from government support for insurance
costs

          Following the September 11 terrorist attacks, the aviation
insurance industry imposed a worldwide surcharge on aviation insurance
rates as well as a reduction in coverage for certain war risks. In
response to the reduction in coverage, the Air Transportation Safety and
System Stabilization Act provides U.S. air carriers with the option to
purchase certain war risk liability insurance from the United States
government on an interim basis at rates that are more favorable than
those available from the private market. Prior to December 2002, we
purchased hull war risk coverage through the private insurance market,
and purchased liability war risk coverage through a combination of U.S.
government provided insurance and private insurance. In December 2002,
the U.S. government offered to provide additional war risk coverage that
included certain risks previously covered by private insurance. We have
purchased, at rates that are significantly lower than those charged by
private insurance carriers, hull and liability war risk coverage from the
U.S. government (through the FAA) through August 31, 2005.  Due to the
cost and difficulty in obtaining insurance in the commercial markets, we
anticipate renewing the insurance through the FAA for so long as it is
available. The FAA has indicated that the extension of its war risk
insurance program past August 31, 2005 is under consideration but has not
yet been approved.  The inability to obtain insurance at any cost or the
availability of insurance only at excessive rates, could affect our
ability to operate.

We have had difficulty implementing in a timely manner the documentation,
assessments,  testing  and  remediation  of  our  internal  control  over
financial  reporting necessary to allow our management to report  whether
our internal control over financial reporting is effective.

					25

          Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we
are required to include a report in our Annual Report on Form 10-K of
management's assessment of the design and effectiveness of our internal
control over financial reporting as of the fiscal year ending December
31, 2004.  Management, with the participation of the Company's principal
executive officer and principal financial officer,  is in the process of
conducting an evaluation of our internal control over financial reporting
based on the framework in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
Our auditors will then be required to attest to, and report on,
management's assessment.  They will also be required to report on the
effectiveness of our internal control over financial reporting.  As
reported in the Company's Form 10-Q for the quarter ended September 30,
2004, management had identified internal control weaknesses existing at
that time that constituted material weaknesses or significant
deficiencies.  The Company undertook to implement compensating controls
to remediate or mitigate those weaknesses, including segregation of
duties and monitoring controls over the purchasing process and monitoring
controls, to include adequate documentation, over the information
technology control environment.  See Part I Item 9A of this filing,
"Controls and Procedures."   Securities and Exchange Commission Release
No. 34-50754 provides certain companies, including us, up to 45
additional days beyond the required filing date of this Form 10-K for the
filing of management's annual report on internal control over financial
reporting, and the related attestation report of our auditors on
management's report on internal control over financial reporting and the
related report of the auditors on their own assessment of our internal
control over financial reporting.  There can be no assurance that
management will be able to complete the necessary work in a timely manner
to issue its report that our internal control was effective as of
December 31, 2004 or that, upon completing such work, our management will
conclude that our internal control over financial reporting was effective
as of December 31, 2004.  If we are not able to timely complete our
internal control work necessary for management's assessment and
regardless of whether our management concludes that our internal control
over financial reporting was effective as of December 31, 2004, our
auditor may issue an adverse report or qualify its report on management's
assessment of internal control over financial reporting and/or in its own
report on our internal control over financial reporting.  In addition, we
might be subject to sanctions or investigation by regulatory authorities.
Certain material weaknesses or significant deficiencies in our internal
controls also could have a material adverse effect on our results of
operations.  We also expect to incur additional expenses and diversion of
management's time as a result of performing the system and process
evaluation, testing and remediation required in order to comply with the
management certification and auditor attestation requirements.

Our contracts with two of our unions currently are amendable

          Our contract with Aircraft Mechanics Fraternal Association
("AMFA"), which was ratified in June 1998, became amendable in June 2002,
and our contract with the Association of Flight Attendants-Communications
Workers of America ("AFA-CWA"), which was ratified in October 1998,
became amendable in October 2002. The AMFA contract covers all aviation
maintenance technicians and ground service equipment mechanics working
for us and the AFA-CWA contract covers all flight attendants working for
us.  In February 2005 we reached a tentative agreement with AFA-CWA, but
the agreement is still subject to the vote of the members.  We have
entered into discussions with AFA-CWA regarding a new agreement, and have
been in negotiations with AMFA since 2003 and more recently have been in
mediation under the Railway Labor Act. Although there can be no
assurances as to the outcome of these negotiations and mediation, we
anticipate ultimately being able to reach agreement with both unions on
mutually satisfactory contracts with no material effect on its results of
operations or financial position. However, the failure to resolve these
negotiations on appropriate terms could affect our ability to compete
effectively.

					26

Our results of operations will fluctuate

          We expect our quarterly operating results to fluctuate in the
future based on many factors including the extent of passenger revenue,
competition, changes in aircraft fuel costs, security costs, weather, the
timing and amount of maintenance and our ability to successfully develop
the "Independence Air" brand, including costs related to aircrafts and
marketing expenditures in this effort. Because a substantial portion of
airline travel (both business and personal) is discretionary, the
industry tends to experience adverse financial results during general
economic downturns. Any prolonged general reduction in airline traffic
may particularly affect us because our business plan is more dependent,
in part, on the stimulation of discretionary air travel. In addition,
seasonal variations in weather and traffic affect our operating results
from quarter to quarter.  Given our high proportion of fixed costs, this
seasonality affects our profitability from quarter to quarter.  Our base
of operations is located in the Washington, D.C. area, and many of our
areas of operations are located in the Northeast, which makes our
operations susceptible to air traffic and airport congestion as well as
bad weather conditions in the winter, causing increased costs associated
with deicing aircraft, cancelled flights and accommodating displaced
passengers.  Due to our geographic area of operations and our use of
regional jets, we are more susceptible to adverse weather conditions
along the East Coast than some of our competitors, who may be better able
to spread weather-related risks over more diverse route systems.  As we
enter new markets, we could be subject to additional seasonal variations.
Due to the factors described above, quarter-to-quarter comparisons of our
operating results may not be good indicators of our future performance.
In addition, it is possible that in any future quarter our operating
results could be below the expectations of investors and any published
reports or analyses regarding Independence Air.

Our business would be harmed if we lost the services of any key personnel

          Our success depends to a large extent on the continued service
of our executive management team and other key personnel. Although we
have employment agreements with certain executive officers, it is
possible that members of management may resign. Other key personnel may
depart the Company due to our financial condition.  We may incur
unexpected expenses and have difficulty replacing management or other key
personnel who leave and, therefore, the loss of the services of any of
these individuals could harm our business. We fund key-man life insurance
on certain executive officers only to the extent necessary to fund life
insurance commitments under employment agreements in the event of death.

Risk Factors Affecting the Airline Industry

The U.S. airline industry is experiencing significant restructurings and
bankruptcies

          Beginning in early 2001, the industry has experienced depressed
demand and shifts in passenger demand, lower unit revenues, increased
insurance costs, increased fuel costs, increased government regulations
and taxes, and tightened credit markets, evidenced by higher credit
spreads and reduced capacity to borrow. These factors are directly
affecting the operations and financial condition of participants in the
industry including aircraft manufacturers. Several major airlines have
used the bankruptcy process or the threat of bankruptcy to reduce their
expenses and streamline their operations. Our contractual relationships
with others may continue to be affected by other companies' bankruptcies
or by concerns regarding potential bankruptcies. The bankruptcy or
prospect of bankruptcy among other companies that operate in our industry
may result in unexpected expenses and create other risks or uncertainties
that we are not able to anticipate or plan around.

					27

The travel industry has been materially adversely affected by the
September 11, 2001 terrorist attacks and on-going security concerns

          The U.S. airline industry continues to recover from the events
of September 11, 2001 and increased concerns over additional acts of
terrorism. The major carriers continue to experience losses or operate
near break-even levels of profitability even after reducing capacity,
negotiating wage and work rule concessions and, for certain carriers,
filing for bankruptcy protection. Passenger traffic continues to be
negatively impacted by the general economic situation in the United
States, threats of terrorist activities, terrorist alerts, violence in
the Middle East, and increased security measures at the nation's
airports. Instability in the Middle East and other parts of the world has
increased the risk that the industry will continue to be adversely
affected by reduced demand, increased security costs, increased fuel
costs, and other factors. While our code share agreements allowed us to
recover certain of these additional expenses from our partners, no such
cost recovery arrangements are available for our Independence Air
operations, and the effects of any new terrorist attacks and/or security
measures, as well as increased security costs could impair our ability to
operate profitably.

Airlines are often affected by factors beyond their control, including
weather conditions, traffic congestion at airports and increased security
measures, any of which could harm our operating results and financial
condition

          As with other airlines, we are subject to delays caused by
factors beyond our control, including adverse weather conditions, air
traffic and airport congestion and increased security measures. Delays
frustrate passengers, reduce aircraft utilization and increase costs, all
of which negatively affect profitability. During periods of fog, snow,
rain, storms or other adverse weather conditions, flights may be
cancelled or significantly delayed. Cancellations or delays due to
weather conditions, traffic control problems and breaches in security
could harm our operating results and financial condition.

Changes in government regulations imposing additional requirements and
restrictions on our operations could increase our operating costs and
result in service delays and disruptions

          Airlines are subject to extensive regulatory and legal
requirements, both domestically and internationally, that involve
significant compliance costs. In the last several years, Congress has
passed laws, including extensive airline and airport security laws, and
the DOT, FAA and TSA have issued regulations relating to the operation of
airlines that have required significant expenditures. We expect to
continue to incur expenses in connection with complying with government
regulations. Additional laws, regulations, taxes and airport rates and
charges have been proposed from time to time that could significantly
increase the cost of airline operations or reduce the demand for air
travel. If adopted, these measures could have the effect of raising
ticket prices, reducing revenue and increasing costs. There can be no
assurance that these and other laws or regulations enacted in the future
will not harm our business.

The airline industry is characterized by low profit margins and high
fixed costs, and we may be unable to establish our brand or to compete
effectively against other airlines with greater financial resources or
lower operating costs

          The airline industry is characterized generally by low profit
margins and high fixed costs, primarily for personnel, aircraft fuel,
debt service and rent. The expenses of an aircraft flight do not vary
significantly with the number of passengers carried. As a result, a
relatively small change in the number of passengers or in pricing could
have a disproportionate effect on an airline's operating and financial
results. Accordingly, a minor shortfall in expected revenue levels could
harm our business. In addition, the airline industry is highly
competitive and is particularly susceptible to price discounting because

					28

airlines incur only nominal costs to provide service to passengers
occupying otherwise unsold seats. We compete with other airlines on
substantially all of our routes. Many of these airlines are larger and
have greater financial resources and name recognition or lower operating
costs or both than we do. Some of these competitors may chose to add
service, reduce their fares and/or increase frequent flyer or other
benefits, in some of our markets following or in anticipation of our
entry. Therefore, we may be unable to compete effectively against other
airlines that introduce service or discounted fares in the markets that
we serve which could harm our business.

Our  reputation and financial results could be harmed in the event of  an
accident or incident involving our aircraft

          An accident or incident involving one of our aircraft could
involve repair or replacement of a damaged aircraft and its consequential
temporary or permanent loss from service, and significant potential
claims of injured passengers and others. We are required by the DOT to
carry liability insurance. Although we believe we currently maintain
liability insurance in amounts and of the type generally consistent with
industry practice, the amount of such coverage may not be adequate and we
may be forced to bear substantial losses from an accident. Substantial
claims resulting from an accident in excess of our related insurance
coverage would harm our business and financial results. Moreover, any
aircraft accident or incident, even if fully insured, could cause a
public perception that we are less safe or reliable than other airlines,
which would harm our business.

Internet Website

          The Company's Internet website can be found at www.flyi.com.
The Company makes available free of charge on or through its Internet
website under the heading "Company, Investor Information", access to its
annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after such material is filed with, or furnished
to, the Securities and Exchange Commission.  The contents of these
websites are not a part of this Form 10-K.

Item 2.   Properties

          Flight Equipment - Operating:  The following table describes
Independence Air's operating fleet of aircraft, scheduled firm deliveries
and options as of March 10, 2005:

                 Total   Number   Number           Average
                Number     of      of     Passenger  Age   Aircraft
                  of    Aircraft Aircraft Capacity   In      On
               Aircraft  Leased   Owned             Years   Order  Options

Airbus A319         8       8      -       132       < 1     20     49
Bombardier CRJ200   82      74     8        50       4.3     34     80
                    90      82     8                 3.9     54    129

          The Company and Independence Air have entered into a series of
agreements with GE Commercial Aviation Services, Inc. and certain of its
affiliates ("GECAS") as owner participant under leveraged leases relating
to 24 CRJs, and with the various parties as loan participant under those
leveraged leases, providing for the early termination of the leases.
These 24 CRJs, which are included in the table above, are being returned
to GECAS between February and July 2005.

					29

          Independence Air's commitment to purchase 34 CRJ aircraft on
order is subject to certain conditions which, unless waived by
Independence Air by April 2005, can not be satisfied as a result of
United's rejection in bankruptcy of the Company's United Express
agreement.  Independence Air does not expect to waive the conditions and
therefore does not expect to take delivery of these ordered aircraft.  If
Independence Air does not waive the conditions, the remaining $3.4
million on deposit with Bombardier will be returned to Independence Air
in April 2005.

          As of March 14, 2005, Independence Air has taken delivery of
eight leased Airbus 319 aircraft and expects to take delivery of four
additional leased A319s during April and May 2005.  Independence Air also
has executed a purchase agreement with Airbus' wholly-owned affiliate
AVSA S.A.R.L. ("AVSA") to purchase 16 Airbus A319 aircraft with six
scheduled for delivery in 2006 and ten scheduled for delivery in 2007.

          Flight   Equipment  -  Non-Operating:   The   following   table
describes Independence Air's non-operating fleet of aircraft as of  March
10, 2005:

                                   Total      Number of   Number of
                                 Number of     Aircraft     Aircraft
                                  Aircraft      Leased       Owned

Fairchild 328Jet                    33           32           1
BAE J-41 Turboprops                 30           25           5
                                    63           57           6

          Independence Air has 33 Fairchild 328Jet aircraft that were
previously operated in the Delta Connection operation.  Independence Air
is in the process of assigning the leases on 30 of these 328Jets to Delta
pursuant to the terms of the Delta Connection agreement.  Upon assignment
to Delta, the Company and Independence Air expects to be released from
any further obligations on these 30 328Jets.  The Company has taken an
early retirement charge for the future rents due on the two remaining
leased 328Jets and recorded an impairment charge for the one owned 328Jet
to reflect estimated current value.  Independence Air is actively trying
to dispose of these three remaining 328Jets either through sale or
sublease transactions.

          Upon the termination of the United Express agreement,
Independence Air early retired its remaining J-41 turboprop aircraft and
recorded a charge for the future rents to be due.  Independence Air has
negotiated the early lease termination for 21 of the 30 J-41s it
previously operated.  Once the J-41s are returned and accepted by the
lessors, the Company and Independence Air will be relieved of any further
obligations on these aircraft.  Of the remaining nine J-41s, seven are
pledged as security under an Enhanced Equipment Trust Certificate
transaction which the Company and Independence Air continue to abide by,
one is owned with a related mortgage that Independence Air is actively
looking to sell, and one is leased from a lessor that Independence Air
will continue to negotiate with.

					30

          Leased Facilities

          Airports

          Independence Air enters into agreements for the use of
passenger terminals at most of the airports it serves and leases ticket
counter and office space at those locations where ticketing and its
aircraft are handled by Independence Air 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.  Independence Air occupies a 69,000 square foot passenger
concourse at Washington Dulles.  The concourse, designed to support
Independence Air's regional jet operation, is owned by the Metropolitan
Washington Airports Authority and leased to Independence Air under a
lease with a termination date of September 30, 2014.  Independence Air
also occupies additional gates on Concourse B at Washington Dulles for
its Airbus operation; these gates are owned by the Metropolitan
Washington Airports Authority and are operated under a 60 day Use Permit.
Finally, Independence Air leases gates and terminal space at locations
serviced by it.

          Corporate Offices

          The Company's executive, administrative, reservations and
system control departments are located in a three-story office building
encompassing 77,000 square feet of space under an operating lease ending
December 2010.  Independence Air's employee training and services center
is located in a nearby 79,000 square foot building under a lease ending
December 31, 2007.  Together, these properties provide the necessary
administrative facilities for the Company's and Independence Air's
operations.

          Maintenance Facilities

          The FAA's safety regulations mandate periodic inspection and
maintenance of commercial aircraft.  Independence Air performs most line
maintenance, service and inspection of its aircraft and engines at its
own maintenance facilities using its own personnel.  Independence Air
performs maintenance functions at an 112,000 square foot aircraft
maintenance facility at Washington Dulles, a 34,000 square foot hangar
facility in Columbia, South Carolina, and a 17,000 square foot hangar bay
at the Orlando International Airport.  The Washington Dulles aircraft
maintenance facility is comprised of 60,000 square feet of hangar space
and 52,000 square feet of support and administrative space.  The lease
term for the Washington Dulles aircraft maintenance facility expires
December 24, 2024.  The lease term for the Columbia facility expires on
June 1, 2005 and Independence Air has notified the Airport Authority that
it intends to renew the lease for one year.  The Orlando facility is a
single bay, of a 4 bay hangar operated by another commercial airline, is
leased under a monthly use agreement and can be terminated with 30 days
notice.

          Independence Air performs the majority of its maintenance
function for CRJs at the facility at Washington-Dulles.  Line station
maintenance for the Independence Air operation is provided by contract
maintenance.  Some high frequency stations are minimally staffed by FLYi
maintenance personnel.  Routine overnight maintenance for the Airbus
aircraft is performed by contract maintenance at line stations and by
Company mechanics at Washington Dulles and Orlando.  The heavier
overnight checks are performed at the Orlando hangar facility.

Item 3.   Legal Proceedings

          Independence Air is involved in legal proceedings related to
the insolvency of Fairchild Dornier GmbH ("Fairchild"), which was
initiated in 2002.  Independence Air holds a bond in the amount of $1.2

					31

million from an independent insurance company, which secures deposits
placed with Fairchild for undelivered aircraft, and has made a demand for
payment under this bond.  Fairchild's insolvency trustee has made a claim
for the collateral posted with the insurance company, and the insurance
company has withheld payment of the bond.  The matter is presently with
the U.S. Bankruptcy Court for the Western District of Texas.  The Company
has fully reserved for the potential exposure related to this matter.

          Independence Air was named in several lawsuits arising from the
terrorist activities of September 11, 2001.  These actions were commenced
by or on behalf of individuals who were injured or killed as a result of
the hijackings of the four flights.  These actions seek compensatory and
punitive damages.  However, pursuant to the Air Transportation Safety and
System Stabilization Act, Independence Air's liability for these claims
is limited to Independence Air's liability insurance.  In each case, the
plaintiffs have named the airlines operating at the airports from which
the flights originated, including Independence Air, under the theory that
all of the airlines are jointly responsible for the alleged security
breaches by the airport security contractor.  The court recently denied
the motion of American Airlines and other defendants, including
Independence Air, seeking dismissal of all ground victim claims on the
basis that the airline defendants do not owe a duty as a matter of law to
individuals injured or killed on the ground. The litigation is
proceeding; however, no discovery has been presented to the non-carrier
airlines. The Company anticipates that it will raise other defenses
including its assertion that it is not responsible for the incidents as
it had no control over the security checkpoints through which the
hijackers allegedly gained access to the hijacked aircraft. As of the end
of the year, only 26 pending claims remain, down from the peak of 101
claims.  While the ultimate number of claims is likely to decrease, there
is a remote possibility that they could rise as a result of potential
environmental claims, which are not subject to the standard statute of
limitation.

          From time to time, claims are made against Independence Air
with respect to activities arising from its airline operations. Typically
these involve injuries or damages incurred by passengers and are
considered routine to the industry. On April 1, 2002, one of Independence
Air's insurers on its comprehensive aviation liability policy, Legion
Insurance Company, a subsidiary of Mutual Risk Management Ltd.
("Legion"), was placed into rehabilitation by the Commonwealth of
Pennsylvania, its state of incorporation. The rehabilitation proceeding
is styled Koken v. Legion Insurance Company, No. 183 M.D. 2002 (Pa.
Commw. Ct.), and is before Judge Leavitt. Currently, Legion can pay no
claims, expenses or other items of debt without approval from
Pennsylvania, resulting in Independence Air directly carrying the
corresponding exposure related to Legion's contribution percentage for
payouts of claims and expenses that Legion represented on Independence
Air's all-risk hull and liability insurance for the 1999, 2000, 2001 and
2002 policy years. Those contribution percentages are 15% for claims
arising from incidents occurring in 1999, 19% for 2000, 15% for 2001, and
8.5% for the first quarter of 2002. Legion ceased to be an insurer for
Independence Air as of April 1, 2002, and there is, therefore, no
exposure with respect to Legion for claims arising after that date.

          The insurance held by Legion on Independence Air's policy was
fully covered by reinsurance, which means that other carriers are
contractually obligated to cover all claims that are direct obligations
of Legion. The Company believes that a "cut-through" provision exists
that causes funds to pass directly from the reinsurers to Independence
Air in situations such as the rehabilitation or insolvency of a primary
insurer. Other companies, including American Airlines, Inc. ("American"),
have similar policy provisions. American intervened in the Legion
rehabilitation and moved to have its cut-through provisions enforced. On
June 26, 2003, the Pennsylvania Commonwealth Court entered an order
enforcing American's cut-through provisions. The Court ruled that the
reinsurance contract proceeds at issue were not general assets of the
Legion estate. On July 25, 2003, the Court entered an Order of
Liquidation that incorporated the June 26, 2003 ruling. The Order
provides a means whereby a company can intervene to assert rights to its
own reinsurance. The Insurance Commissioner and others appealed. The

					32

appeal remains outstanding. Independence Air intervened in the matter
and, after consideration, the Court held on April 5, 2004, that
Independence Air's reinsurance policies contain an unambiguous cut-
through provision that provides Independence Air with direct access to
reinsurance proceeds in the event of Legion's insolvency or
rehabilitation.  That ruling is now on appeal. If the appeals related to
Independence Air's and American's reinsurance are upheld, the Legion
shortfall should be fully covered by reinsurance. However, if the rulings
are overturned on appeal, Independence Air will likely be underinsured
for these claims at the percentages set forth above. This underinsurance
would include September 11 related lawsuits and any other similar
lawsuits that are brought against Independence Air. Independence Air has
accrued what it believes are adequate reserves for its likely exposure on
claims known to date. No reserves have been accrued for the September 11
related claims.

          During the month of October 2004, Independence Air voluntarily
reported to the FAA that certain maintenance inspection tasks had not
been performed in a timely manner with respect to certain CRJ aircraft.
In all but one case, these inspection tasks were accomplished immediately
upon Independence Air's finding of each issue.  The reports of these
Company actions prompted the FAA to begin a review of certain aspects of
Independence Air's maintenance tracking procedures, which review is
continuing.  The outcome of this review cannot be predicted at this time,
but could result in additional fines or actions by the FAA.

          Independence Air also is the subject of ongoing FAA and TSA
civil penalty cases relating to alleged violations of FAA and TSA
enforced rules and regulations.  Independence Air believes that the
number of such cases and the amount of the civil penalties sought by the
FAA and TSA is consistent with the experience of other airlines with
operations of the size and scope of those provided by Independence Air,
and that the disposition of these cases is not likely to have a material
effect on the Company's financial position or the results of its
operations.

          FLYi, Inc. is a party to a legal proceeding in the Department
of Labor involving a former employee of Atlantic Coast Airlines, Stacey
M. Platone, who alleges that she was terminated from employment in
violation of the Sarbanes-Oxley Act for reporting what she believed to be
an improper arrangement between Atlantic Coast Airlines and one of its
unions.  The complainant's allegations were investigated by the
Occupational Safety and Health Administration (OSHA), the Labor
Department agency with responsibility for investigating allegations of
Sarbanes-Oxley employment violations; in July 2003 OSHA found the
complaint to be without merit.  The complainant filed objections to the
decision, and on April 30, 2004, a Labor Department administrative law
judge ruled that the complainant had been improperly terminated from
employment, although the judge also found that legitimate grounds had
existed to terminate the complainant's employment.  In the decision, the
judge has ordered that the complainant be paid back pay and benefits, and
the costs and expenses of litigation, including attorney's fees.  FLYi,
Inc. believes that this case was wrongly decided and is vigorously
pursuing the appeal.  The Labor Department's Administrative Review Board
granted the Company's petition for review of the judge's decision on July
30, 2004.  The parties have submitted briefs to the Board and are
awaiting its decision.  The Company intends to vigorously pursue the
appeal.

          One party participating as a lender in the leveraged lease of a
single   CRJ   aircraft  declined  to  participate  in  negotiations   to
restructure the transaction, and chose to exercise its available remedies
following  the Company's failure to pay the aircraft's lease  rents  when
due.   On January 27, 2005, the Company was served with a lawsuit in  the
Superior  Court  of  the State of New York, seeking  among  other  things
termination  of  the  lease, repossession of  the  aircraft  and  damages
resulting  from  the  early termination.  Because of  the  obligation  to
mitigate damages with respect to the aircraft, the Company cannot  assess
the amount, if any, that will ultimately be recovered in damages.

					33

          In addition to those matters discussed above, the Company is  a
party  to routine litigation  all of which is viewed to be incidental  to
its business, and none of which the Company believes are likely to have a
material effect on the Company's financial position or the 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,  2004,  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,  Related  Stockholder
          Matters and Issuer Purchases of Equity Securities

          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:

                                              High            Low
          2003
          First quarter                      $14.54         $  5.50
          Second quarter                     $13.31         $  6.38
          Third quarter                      $11.16         $  7.02
          Fourth quarter                     $12.68         $  8.54

          2004
          First quarter                     $ 10.17         $  6.77
          Second quarter                    $  7.82         $  5.33
          Third quarter                     $  5.61         $  3.56
          Fourth quarter                    $  4.04         $  1.23

          2005
          First quarter (through March 1)   $  2.06         $  1.40

          As of March 1, 2005, the closing sales price of the Common
Stock on NASDAQ/NM was $1.45 per share and there were approximately 205
holders of record of Common Stock.

          The Company has not paid any cash dividends on its Common Stock
and does not anticipate paying any cash dividends in the foreseeable
future.  The Company intends to retain earnings to finance the growth of
its operations.  The payment of 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 subsidiaries by certain of its financing agreements, the
prohibition of dividends imposed by the Company's line of credit, and
other factors deemed relevant by the Board of Directors.  In addition,
FLYi, INC. is a holding company and its only significant asset is its
investment in its subsidiary, Independence Air.

					34

          The Company's Board of Directors has approved the repurchase of
up to $40.0 million of the Company's outstanding common stock in open
market or private transactions.  As of December 31, 2003, the Company has
repurchased 2,171,837 shares of its common stock and has approximately
$21.0 million remaining of the $40.0 million authorized for repurchase.
The Company did not repurchase any stock during 2004 and has no plans to
repurchase stock in 2005.

Item 6.        Selected Financial Data

The information required by this item is omitted pursuant to Rule 12b-25
and will be filed in an amendment to the Form 10-K within 15 calendar
days.

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

The information required by this item is omitted pursuant to Rule 12b-25
and will be filed in an amendment to the Form 10-K within 15 calendar
days.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

The information required by this item is omitted pursuant to Rule 12b-25
and will be filed in an amendment to the Form 10-K within 15 calendar
days.


Item 8.        Consolidated Financial Statements


The information required by this item is omitted pursuant to Rule 12b-25
and will be filed in an amendment to the Form 10-K within 15 calendar
days.

					35


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

           None to report.

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

           The Company's management is responsible for establishing and
maintaining "disclosure controls and procedures," as defined in Exchange
Act Rule 13a-15(e).  Management necessarily applied its judgment in
assessing the costs and benefits of such controls and procedures that, by
their nature, can provide only reasonable assurance regarding
management's control objectives. Management does not expect that its
disclosure controls and procedures will prevent all errors and fraud. A
control system, irrespective of how well it is designed and operated, can
only provide reasonable assurance, and cannot guarantee, that it will
succeed in its stated objectives.

          On February 22, 2005, the Company issued a press release
stating that on February 18, 2005 it successfully completed a consensual
restructuring of its financial obligations.  The restructuring includes
agreements with a majority of the company's aircraft creditors.
Additional information regarding the restructuring is set forth through
Forms 8-K filed with the Securities and Exchange Commission on February
22, February 23 and February 25, 2005.  As a result of the timing of
completing the restructuring, the resources and personnel required to
complete and document the restructuring and the effects of
the financial restructuring on the Company's financial statements, the
Company has not been able to complete the work required to finalize
certain portions of this Form 10-K, including certain exhibits, by the
date of this Form 10-K.  Exchange Act Rule 12b-25(b) provides that, with
respect to any portion of a report on Form 10-K that is not timely filed
because the registrant is unable to do so without unreasonable effort or
expense, such report shall be deemed to be filed on the prescribed due
date for such report if, among other things, the portion thereof is
actually filed within no later than the fifteenth calendar day following
the prescribed due date.  The Company expects to file the information
omitted from this Form 10-K on or before the fifteenth calendar day
following the prescribed due date.

          The Company's management, with the participation of the
Company's principal executive officer and principal financial officer,
has carried out an evaluation of the effectiveness as of December 31,
2004 of the design and operation of the Company's disclosure controls and
procedures.  Based upon the foregoing evaluation, the principal executive
officer and principal financial officer 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 provide reasonable assurance that
information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time
periods specified by the SEC, and that material information relating to
the 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 being prepared.

					36

Evaluation of Internal Control over Financial Reporting

          The Company's management is responsible for establishing and
maintaining adequate internal control over financial reporting, as that
term is defined in Exchange Act Rules 13a-15(f).  The Company's
management, with the participation of the Company's principal executive
officer and principal financial officer, in the process of conducting an
evaluation of its internal control over financial reporting based on the
framework in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.  As
reported in the Company's Form 10-Q for the quarter ended September 30,
2004, management had identified internal control deficiencies existing at
that time that constituted material weaknesses or significant
deficiencies.  The Company undertook to implement compensating controls
to remediate or mitigate those weaknesses, including segregation of
duties and monitoring controls over the purchasing process and monitoring
controls, to include adequate documentation, over the information
technology control environment., The Company is continuing its efforts to
initiate enhancements to aspects of its existing internal control over
financial reporting and to establish and evaluate additional business
functions, controls and procedures related to the Company's Independence
Air operations.

          Management's evaluation of the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004 has not
yet been completed.  There can be no assurance that management and/or its
independent registered public accounting firm will conclude that the
weaknesses described in the Company's Form 10-Q for the quarter ended
September 30, 2004 were adequately addressed as of December 31, 2004, or
that other conditions will not be determined to have constituted
significant deficiencies and/or material weaknesses as of December 31,
2004.  Securities and Exchange Commission Release No. 34-50754 provides
certain companies, including the Company, up to 45 additional days beyond
the required filing date of this Form 10-K for the filing of management's
annual report on internal control over financial reporting, and the
related attestation report of the independent registered public
accounting firm on management's report on internal control over financial
reporting and the related report of the independent registered public
accounting firm.  The Company expects to file such materials in an
amendment to this Form 10-K, which is expected to be filed no later than
May 2, 2005.

Item 9B.  Other Information

none.

                                PART III

Item 10.  Directors and Executive Officers of the Registrant

          The information required by this Item 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.


Item 11.  Executive Compensation

          The information required by this Item 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.

					37


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

          The information required by this Item 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.

Item 13.  Certain Relationships and Related Transactions

          The information required by this Item 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.

Item 14.  Principal Auditor Fees and Services

          The information required by this Item 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 15.  Exhibits and Financial Statement Schedules

     (a)  1.   Financial Statements

               The  information required by this item is omitted pursuant
               to  Rule 12b-25 and will be filed in an amendment  to  the
               Form 10-K within 15 calendar days.

          2.   Consolidated Financial Statement Schedules

               The  information required by this item is omitted pursuant
               to  Rule 12b-25 and will be filed in an amendment  to  the
               Form 10-K within 15 calendar days.

          3.   Exhibits

					38

Exhibit
Number                Description of Exhibit

3.1 (note 3)     Restated Certificate of Incorporation of the Company.
3.2 (note 5)     Restated By-laws of the Company.
4.1 (note 1)     Specimen Common Stock Certificate.
4.19 (note 18)   Rights Agreement between Atlantic Coast Airlines
                 Holdings, Inc. and Continental Stock Transfer & Trust
                 Company dated as of January 27, 1999.
4.2 (note 5)     Indenture, dated as of February 25, 2004, by and between
                 Atlantic Coast Airlines Holdings, Inc. and U.S. Bank
                 National Association, as trustee (including form of 6%
                 Convertible Note due 2034.
4.21 (note 5)    Registration Rights Agreement, dated as of February 25,
                 2004, by and between Atlantic Coast Airlines Holdings,
                 Inc., Morgan Stanley & Co. Incorporated, as Initial
                 Purchaser.
10.1 (notes 20 & 22)
                 Atlantic Coast Airlines, Inc. 1992 Stock Option Plan.
10.6 (notes 13 & 21)
                 United Express Agreement, dated as of November 22, 2000,
                 as amended as of February 6, 2001, among United Airlines,
                 Inc., Atlantic Coast Airlines and the Company.
10.6(a) (notes 10 & 21)
                 Amendment dated June 4, 2002 to United Express Agreement,
                 dated as of November 22, 2000, among United Airlines, Inc.,
                 Atlantic Coast Airlines and the Company.
10.8 (notes 16 & 21)
                 Delta Connection Agreement, dated as of September 9, 1999
                 among Delta Air Lines, Inc., Atlantic Coast Airlines
                 Holdings, Inc. and Atlantic Coast Jet, Inc.
10.8(a) (notes 7 & 21)
                 Amendment No. 1, dated June 29, 2000, Amendment No. 2,
                 dated February 6, 2001, Amendment No. 3, dated January 29,
                 2002, and Amendment No. 4, dated January 22, 2003, to
                 the Delta Connection Agreement, dated as of September 9,
                 1999 among Delta Air Lines, Inc., Atlantic Coast
                 Airlines Holdings, Inc. and Atlantic Coast Airlines.
10.12(a) (notes 12 & 22)
                 Second Amended and Restated Severance Agreement, dated as
                 of July 25, 2001, between the Company and Kerry B. Skeen.
10.12(b) (notes 11 & 22)
                 Amended and Restated Severance Agreement, dated as of
                 December 28, 2001, between the Company and Thomas J. Moore.
10.12(c) (notes 1 & 22)
                 Amended and Restated Severance Agreement between the
                 Company and Richard J. Surratt, dated as of December 30, 2004.
10.12(d) (notes 1 & 22)
                 Form of Severance Agreement substantially similar to the
                 agreements with William Brown and Eric Nordling, dated
                 as of December 30, 2004.
10.12(f) (notes 6 & 22)
                 Letter Agreement Clarifying the Severance Agreement with
                 Thomas J. Moore, dated as of December 16, 2003.
10.13(a) (note 8)Form of Indemnity Agreement. The Company has entered
                 into substantially identical agreements with the
                 individual members of its Board of Directors.
10.23 (note 6)   Amended and Restated Loan and Security Agreement dated
                 July 31, 2003 between Atlantic Coast Airlines and
                 Wachovia Bank, National Association.
10.24 (notes 17 & 22)
                 Atlantic Coast Airlines, Inc. 1995 Stock Incentive Plan, as
                 amended as of May 5, 1998.
10.245 (notes 14 & 22)
                 2000 Stock Incentive Plan of Atlantic Coast Airlines Holding,
                 Inc.

					39

10.246 (notes 8 & 22)
                 Non-Executive Officer Stock Plan of Atlantic Coast Airlines
                 Holdings, Inc.
10.247 (notes 8 & 22)
                 Non-Officer Option Grant Program of Atlantic Coast Airlines
                 Holdings, Inc.
10.25(a)(notes 7 & 22)
                 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. The exercise price, vesting schedule, and certain
                 other terms vary among grants, as reflected in the form
                 of agreement.
10.25(b) (notes 7 & 22)
                 Form of Incentive Stock Option Agreement. The Company enters
                 into substantially this agreement, adjusted to reflect
                 the terms of any employment agreements, with corporate
                 officers who have been granted incentive stock options
                 pursuant to the Stock Incentive Plans. The exercise
                 price, vesting schedule, and certain other terms vary
                 among grants, as reflected in the form of agreement.
10.25(c) (notes 7 & 22)
                 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. The exercise price, vesting schedule,
                 and certain other terms vary among grants, as reflected
                 in the form of agreement.
10.25(d) (notes 7 & 22)
                 Form of Non-Qualified Stock Option Agreement. The Company
                 enters into substantially this agreement, adjusted to
                 reflect the terms of any employment agreements, with
                 corporate officers who have been granted non-qualified
                 stock options pursuant to the Stock Incentive Plans. The
                 exercise price, vesting schedule, and certain other
                 terms vary among grants, as reflected in the form of
                 agreement.
10.25(e) (notes 17 & 22)
                 Form of Restricted Stock Agreement. The Company entered into
                 this agreement with corporate officers who were granted
                 restricted stock pursuant to the Stock Incentive Plans.
10.25(f) (notes 7 & 22)
                 Form of Director's Stock Option Agreement. The Company enters
                 into this agreement with directors who have been granted
                 stock options pursuant to the Company's Stock Incentive
                 Plans.  The exercise price, vesting schedule, and
                 certain other terms vary among grants, as reflected in
                 the form of agreement.
10.27 (notes 15 & 22)
                 Form of Split Dollar Agreement and Agreement of Assignment
                 of Life Insurance Death Benefit as Collateral.  The Company
                 has entered into substantially identical agreements with
                 Kerry B. Skeen, Thomas J. Moore and Richard J. Surratt.
10.31 (notes 6 & 22)
                 Summary of Senior Management Incentive Plan.  The Company
                 has adopted a plan as described in this exhibit for 2004 and
                 for the four previous years.
10.32 (notes 6 & 22)
                 Summary of Management Incentive Plan and Share the Success
                 Program.  The Company has adopted plans as described in
                 this exhibit for 2004 and for the four previous years.
10.40A (notes 17 & 21)
                 Purchase Agreement between Bombardier Inc. and Atlantic Coast
                 Airlines Relating to the Purchase of Canadair Regional
                 Jet Aircraft dated January 8, 1997, as amended through
                 December 31, 1998.
10.40A(1)(notes 16 & 21)
                 Contract Change Orders No. 13, 14, and 15, dated
                 April 28, 1999, July 29, 1999, and September 24, 1999,
                 respectively, amending the Purchase Agreement between
                 Bombardier Inc. and Atlantic Coast Airlines relating to the
                 purchase of Canadair Regional Jet Aircraft dated
                 January 8, 1997.
10.41 (notes 16 & 21)
                 Purchase Agreement between Bombardier Inc. and Atlantic Coast
                 Airlines relating to the Purchase of Canadair Regional
                 Jet Aircraft dated July 29, 1999, as amended through
                 September 30, 1999.

					40

10.41(a) (notes 16 & 21)
                 Purchase Agreement between Bombardier Inc. and Atlantic Coast
                 Airlines relating to the Purchase of Canadair Regional
                 Jet Aircraft dated July 29, 1999, as amended.
10.41A(1) (notes 9 & 21)
                 Contract Change Orders No. 1, 2, 3, 4, 5 and 6 dated September
                 24, 1999, August 2, 2000, December 6, 2000, November 7,
                 2001, December 20, 2001 and July 19, 2002, respectively,
                 amending the Purchase Agreement between Bombardier Inc.
                 and Atlantic Coast Airlines relating to the purchase of
                 Canadair Regional Jet Aircraft dated July 29, 1999.
10.41A(2) (notes 2 & 21)
                 Letter Agreement between Independence Air, Inc. and Bombardier
                 Aerospace dated November 29, 2004 relating to the sale
                 of BCI Financed Aircraft and Deposits Allocation.
10.42 (notes 4 & 21)
                 Airbus A319/A320/A321 Purchase Agreement by and between AVSA,
                 S.A.R.L, a societe a responsabilite limitee organized
                 and existing under the laws of the Republic of France,
                 and Atlantic Coast Airlines, dated April 1, 2004.
10.43 (notes 2 & 21)
                 General Terms of Sale Between IAE International Aero
                 Engines Ag and Atlantic Coast Airlines Dated Effective
                 September 30, 2004.
10.50(a) (note 19)
                 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 19)
                 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 19)
                 Form of Pass Through Trust Certificate.
10.50(d) (note 19)
                 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 19)
                 Guarantee, dated as of September 30, 1997, from the
                 Company.
10.51 (note 5)   Purchase agreement dated February 19, 2004, between
                 Atlantic Coast Airlines Holdings, Inc. and Morgan,
                 Stanley & Co. Incorporated, as Initial Purchaser,
                 related to issuance of Atlantic Coast Airlines Holdings,
                 Inc.'s 6% Convertible Senior Notes due 2034.
10.80 (note 19)  Ground Lease Agreement Between The Metropolitan
                 Washington Airports Authority And Atlantic Coast
                 Airlines dated as of June 23, 1997.
10.85 (note 17)  Lease Agreement Between The Metropolitan Washington
                 Airports Authority and Atlantic Coast Airlines, with
                 amendments as of January 1, 1999.
12.1 note 2)     Ratio of Earnings to Fixed Charges
21.1 (note 1)    Subsidiaries of the Company.
23.1 (note 2)    Consent of KPMG LLP.
31.1 (note 1)    Certification of CEO.
31.2 (note 1)    Certification of CFO.
32.1 (note 2)    Certification pursuant to 8 U.S.C. section 1350, as
                 adopted pursuant to section 906 of the Sarbanes-Oxley
                 Act of 2002.

					41

Notes

(1)  Filed as an Exhibit to this Annual Report on Form 10-K for the
       fiscal year ended December 31, 2004.
(2)  Omitted pursuant to Rule 12b-25 and to be filed as an Exhibit in an
amendment to the Form 10-K within 15 calendar days.
(3)  Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
three-month period ended September 30, 2004.
(4)  Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
three-month period ended June 30, 2004.
(5)  Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
three-month period ended March 31, 2004.
(6)  Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2003.
(7)  Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
three-month period ended March 31, 2003.
(8)  Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2002.
(9)  Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
three-month period ended September 30, 2002.
(10) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
three-month period ended June 30, 2002.
(11) Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2001.
(12) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
three-month period ended September 30, 2001.
(13) Filed by Exhibit to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.
(14)   Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
       three-month period ended June 30, 2000.
(15)   Filed as an Exhibit to the Amended Annual Report on Form 10-K/A
       for the fiscal year ended December 31, 1999.
(16)   Filed as Exhibit to the Quarterly Report on Form 10-Q for the
       three month period ended September 30, 1999.
(17)   Filed as an Exhibit to the Annual Report on Form 10-K for the
       fiscal year ended December 31, 1998.
(18)   Filed as Exhibit 99.1 to Form 8-A (File No. 000-21976).
(19)   Filed as an Amendment to the Annual Report on Form 10-K for the
       fiscal year ended December 31, 1997.
(20)   Filed as an Exhibit to Form S-1, Registration No. 33-62206,
       effective July 20, 1993.
(21)   Portions of this document have been omitted pursuant to a request
       for confidential treatment that has been granted or has been
       requested.
(22)   This document is a management contract or compensatory plan or
       arrangement.

					42



Reports on Form 8-K:

Feb. 28, 2005         Item 9.01        Results of operations for 2004
Feb. 25, 2005         Items 1.01, 2.03, 3.02, 8.01  Details of
                                        restructuring of aircraft financing
Feb. 23, 2005         Item 7.01        FAQ's on restructuring announcement
Feb. 22, 2005         Item 7.01        Press release announcing successful
                                        restructuring of aircraft financing
Feb. 16, 2005         Item 7.01        Disclosure that the Company did not
                                        make the interest payment due on its
                                        6% convertible note
Feb. 11, 2005         Item 2.04(b)     Disclosure that one CRJ lessor reposed
                                        its aircraft
Jan. 11, 2005         Item 1.01        Agreement with GECAS
Jan. 6, 2005          Item 1.01        Agreements with certain executive
                                        officers
Dec. 9, 2004          Item 1.01        Agreement with IAE
Dec. 3, 2004          Item 1.01        Agreement with Bombardier
Nov. 11, 2004         Item 1.01        Agreement with Airbus

					43



                             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, 2005.

                                                          FLYi, INC.

                                                     By        /S/
                                                      :
                                /                     Kerry B. Skeen
                                               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, 2005.

Name                            Title


           /S/                  Chairman of the Board of Directors
Kerry B. Skeen                  and Chief Executive Officer
                                (Principal executive officer)

           /S/                  Director, President and
Thomas J. Moore                 Chief Operating Officer


           /S/                  Executive Vice President,Treasurer and
Richard J. Surratt              Chief Financial Officer
                                (Principal financial officer)

           /S/                  Vice President, and Controller
David W. Asai                   (Principal accounting officer)


           /S/                                /S/
C. Edward Acker                 Robert E. Buchanan
Director                        Director

           /S/                                /S/
Susan MacGregor Coughlin        Caroline M. Devine
Director                        Director

           /S/                                /S/
Daniel L. McGinnis              James C. Miller III
Director                        Director



					44