# FORM 10-Q

# UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

[X]    
          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
          OF 1934.

| | For
the quarterly period ended September 30, 2003
| | -------------------------------------------------

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

| | For
the transition period from ___________________to____________________
| | ------------------------------------------------------------------------

| | Commission
file number        1-13934
| | -------------------------------------

MIDWEST EXPRESS
HOLDINGS, INC.(Exact name of
registrant as specified in its charter)

|Wisconsin                       | 39-1828757         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)

6744 South Howell AvenueOak Creek, Wisconsin 53154(Address
of principal executive offices) (Zip code)

414-570-4000(Registrants
telephone number, including area code)

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YesX No

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

YesX No

As of October 31, 2003, there were
15,517,411 shares of Common Stock, $.01 par value, of the registrant outstanding.

---

# MIDWEST EXPRESS
HOLDINGS, INC.

# FORM 10-Q

# For the period ended
September 30, 2003

# INDEX

|                                                                        
|------------------------------------------------------------------------
|PART I - FINANCIAL INFORMATION                                          
|Item 1.  Financial Statements (unaudited)                               
|Condensed Consolidated Statements of Operations                         
|Condensed Consolidated Balance Sheets                                   
|Condensed Consolidated Statements of Cash Flows                         
|Notes to Unaudited Condensed Consolidated Financial Statements          
|Item 2.  Management's Discussion and Analysis of Financial Condition and
|Results of Operations                                                   
|Item 3.  Quantitative and Qualitative Disclosures About Market Risk     
|Item 4.   Controls and Procedures                                       
|PART II - OTHER INFORMATION                                             
|Item 2.   Changes in Securities and Use of Proceeds                     
|Item 6.   Exhibits and Reports on Form 8-K                              
|SIGNATURES                                                              

1

---

# PART I - FINANCIAL
INFORMATION

# Item 1.  Financial
Statements (unaudited)

# MIDWEST EXPRESS
HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)(Unaudited)

|                                           | Three Months Ended
September 30, | Nine Months Ended
September 30,
|------------------------------------------ | -------------------------------- | -------------------------------
|
|Operating revenues:                        |                                  |                                
|Passenger service                          |                                  |                                
|Cargo                                      |                                  |                                
|Other                                      |                                  |                                
|                                           |                                  |                                
|Total operating revenues                   |                                  |                                
|                                           |                                  |                                
|Operating expenses:                        |                                  |                                
|Salaries, wages and benefits               |                                  |                                
|Aircraft fuel and oil                      |                                  |                                
|Commissions                                |                                  |                                
|Dining services                            |                                  |                                
|Station rental, landing and other fees     |                                  |                                
|Aircraft maintenance materials and repairs |                                  |                                
|Depreciation and amortization              |                                  |                                
|Aircraft rentals                           |                                  |                                
|Impairment loss                            |                                  |                                
|Other                                      |                                  |                                
|                                           |                                  |                                
|Total operating expenses                   |                                  |                                
|                                           |                                  |                                
|Operating loss                             |                                  |                                
|                                           |                                  |                                
|Other (expense) income:                    |                                  |                                
|Interest income                            |                                  |                                
|Interest expense                           |                                  |                                
|Other, net                                 |                                  |                                
|                                           |                                  |                                
|Total other (expense) income               |                                  |                                
|                                           |                                  |                                
|Loss before income tax credit              |                                  |                                
|Income tax credit                          |                                  |                                
|                                           |                                  |                                
|Net Loss                                   |                                  |                                
|                                           |                                  |                                
|Loss per common share  basic              |                                  |                                
|                                           |                                  |                                
|Loss per common share  diluted            |                                  |                                
|                                           |                                  |                                
|Weighted average shares  basic            |                                  |                                
|Weighted average shares  diluted          |                                  |                                

See notes to unaudited condensed
consolidated financial statements.

2

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# MIDWEST EXPRESS
HOLDINGS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS          (Dollars in
thousands, except per share amounts)(Unaudited)

|ASSETS                                                            | September 30,
2003 | December 31,
2002
|----------------------------------------------------------------- | ------------------ | -----------------
|Current assets:                                                   |                    |                  
|Cash and cash equivalents                                         |                    |                  
|Accounts receivable:                                              |                    |                  
|Traffic, less allowance for doubtful accounts of $95              |                    |                  
|and $133 at September 30, 2003  and December 31,                  |                    |                  
|2002, respectively                                                |                    |                  
|Income tax refund                                                 |                    |                  
|Other receivables                                                 |                    |                  
|                                                                  |                    |                  
|Total accounts receivable                                         |                    |                  
|Inventories                                                       |                    |                  
|Prepaid expenses:                                                 |                    |                  
|Commissions                                                       |                    |                  
|Other                                                             |                    |                  
|                                                                  |                    |                  
|Total prepaid expenses                                            |                    |                  
|Restricted cash                                                   |                    |                  
|Deferred income taxes                                             |                    |                  
|                                                                  |                    |                  
|Total current assets                                              |                    |                  
|Property and equipment, at cost                                   |                    |                  
|Less accumulated depreciation and amortization                    |                    |                  
|                                                                  |                    |                  
|Net property and equipment                                        |                    |                  
|Landing slots and leasehold rights, less accumulated amortization |                    |                  
|of $3,928 and $3,642 at September 30, 2003 and December 31,       |                    |                  
|2002, respectively                                                |                    |                  
|Aircraft purchase deposits and pre-delivery progress payments     |                    |                  
|Other assets                                                      |                    |                  
|                                                                  |                    |                  
|Total assets                                                      |                    |                  
|                                                                  |                    |                  
|                                                                  |                    |                  
|LIABILITIES AND SHAREHOLDERS' EQUITY                              |                    |                  
|Current liabilities:                                              |                    |                  
|Accounts payable                                                  |                    |                  
|Income taxes payable                                              |                    |                  
|Notes payable                                                     |                    |                  
|Current maturities of long-term debt                              |                    |                  
|Air traffic liability                                             |                    |                  
|Unearned revenue                                                  |                    |                  
|Accrued liabilities:                                              |                    |                  
|Vacation pay                                                      |                    |                  
|Scheduled maintenance expense                                     |                    |                  
|Frequent flyer awards                                             |                    |                  
|Other                                                             |                    |                  
|                                                                  |                    |                  
|Total current liabilities                                         |                    |                  
|Long-term debt                                                    |                    |                  
|Long-term debt on pre-delivery progress payments                  |                    |                  
|Deferred income taxes                                             |                    |                  
|Noncurrent scheduled maintenance expense                          |                    |                  
|Accrued pension and other postretirement benefits                 |                    |                  
|Deferred frequent flyer partner revenue                           |                    |                  
|Deferred revenue                                                  |                    |                  
|Other noncurrent liabilities                                      |                    |                  
|                                                                  |                    |                  
|Total liabilities                                                 |                    |                  
|Shareholders' equity:                                             |                    |                  
|Preferred stock, without par value; 5,000,000 shares authorized,  |                    |                  
|no shares issued and outstanding                                  |                    |                  
|Common stock, $.01 par value; 25,000,000 shares authorized,       |                    |                  
|16,224,531 shares issued                                          |                    |                  
|Additional paid-in capital                                        |                    |                  
|Treasury stock, at cost                                           |                    |                  
|Retained earnings                                                 |                    |                  
|Cumulative other comprehensive income                             |                    |                  
|                                                                  |                    |                  
|Total shareholders' equity                                        |                    |                  
|                                                                  |                    |                  
|Total liabilities and shareholders' equity                        |                    |                  
|                                                                  |                    |                  

See notes to unaudited condensed
consolidated financial statements.

3

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# MIDWEST EXPRESS
HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)(Unaudited)

|                                                              | Nine Months Ended
September 30,
|------------------------------------------------------------- | -------------------------------
|
|Operating activities:                                         |                                
|Net loss                                                      |                                
|Items not involving the use of cash:                          |                                
|Impairment loss                                               |                                
|Depreciation and amortization                                 |                                
|Deferred income taxes                                         |                                
|Other, net                                                    |                                
|                                                              |                                
|Changes in operating assets and liabilities:                  |                                
|Accounts receivable                                           |                                
|Inventories                                                   |                                
|Prepaid expenses                                              |                                
|Restricted cash                                               |                                
|Accounts payable                                              |                                
|Air traffic liability                                         |                                
|Unearned revenue                                              |                                
|Accrued liabilities                                           |                                
|Accrued pension                                               |                                
|Deferred frequent flyer partner revenue                       |                                
|                                                              |                                
|Net cash (used in) provided by operating activities           |                                
|                                                              |                                
|                                                              |                                
|Investing activities:                                         |                                
|Capital expenditures                                          |                                
|Aircraft purchase deposits and pre-delivery progress payments |                                
|Aircraft purchase deposits returned                           |                                
|Proceeds from sale of property and equipment                  |                                
|Other, net                                                    |                                
|                                                              |                                
|Net cash used in investing activities                         |                                
|                                                              |                                
|                                                              |                                
|Financing activities:                                         |                                
|Proceeds from convertible debt issuance                       |                                
|Funding of pre-delivery progress payments                     |                                
|Funds received from private equity placement                  |                                
|Return of pre-delivery progress payments                      |                                
|Payment on note payable                                       |                                
|Other, net                                                    |                                
|                                                              |                                
|Net cash provided by financing activities                     |                                
|                                                              |                                
|                                                              |                                
|Net decrease in cash and cash equivalents                     |                                
|Cash and cash equivalents, beginning of period                |                                
|                                                              |                                
|Cash and cash equivalents, end of period                      |                                
|                                                              |                                
|Supplemental non-cash activities:                             |                                
|Non-cash incentives                                           |                                
|Aircraft sale/leaseback                                       |                                
|Moratorium note payable to lenders                            |                                
|Stock warrants to lenders                                     |                                
|Supplemental cash flow information:                           |                                
|Cash (received) paid for:                                     |                                
|Income taxes                                                  |                                
|Interest                                                      |                                

See notes to unaudited condensed
consolidated financial statements.

4

---

# Midwest Express
Holdings, Inc.Notes to Unaudited Condensed
Consolidated Financial Statements

1.     Business
and Basis of Presentation

| | The
accompanying  unaudited condensed  consolidated financial statements for the three- and
nine-month periods ended September 30,      2003 and 2002 reflect all adjustments
 (consisting only of normal recurring  adjustments)  that are, in the opinion of
management,      necessary  for a fair  presentation  of the  financial  position and
 operating  results for the interim  periods  presented.  The      unaudited  condensed
 consolidated  financial  statements have been prepared in accordance with  accounting
 principles  generally      accepted in the United States of America for interim
financial  information,  in accordance with the instructions to Form 10-Q and
     Article 10 of  Regulation  S-X, and do not include all of the  information  and
notes  required for  complete,  audited  financial      statements.  The unaudited
 condensed  consolidated  financial  statements  should be read in  conjunction  with the
 consolidated      financial  statements and related notes thereto,  together with
 Management's  Discussion and Analysis of Financial  Condition and      Results of
Operations,  contained in the Midwest Express  Holdings,  Inc. (the "Company")  Annual
Report on Form 10-K for the year      ended  December 31, 2002.  The results of
 operations  for the three- and  nine-month  periods  ended  September  30, 2003 are not
     necessarily indicative of the results for the entire fiscal year ending December 31,
2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2.     Impairment
Loss

| | During
the first quarter  2002,  the Company  decided to accelerate  the  retirement of the DC-9
fleet of Midwest  Airlines,  Inc.      ("Midwest  Airlines") in anticipation  of
accelerated  deliveries of Boeing 717 aircraft.  In connection  with this decision,  the
     Company  performed  evaluations to determine,  in accordance with Statement of
Financial  Accounting  Standards  ("SFAS") No. 144,      "Accounting for the Impairment
or Disposal on Long-Lived  Assets,"  whether  probability-weighted  future cash flows
from an asset      (undiscounted and without interest  charges)  expected to result from
the use and eventual  disposition of these aircraft would be      less  than  the
 aggregate  carrying  amounts.  As a  result  of  the  evaluation,  the  Company
 determined  that  the  estimated      probability-weighted  future cash flows would be
less than the aggregate  carrying amounts,  resulting in impairment as defined by
     SFAS No. 144.  Consequently,  in the first  quarter  2002,  the cost bases of these
assets were reduced to reflect the fair market      value at the date of the decision,
 resulting in a $29.9 million (pre-tax) impairment loss, and the remaining depreciable
lives of      such assets were adjusted for the new  retirement  schedule.  In
 determining  the fair market value of these assets,  the Company      considered market
trends in aircraft dispositions, data from third parties and management estimates.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3.     Settlement
of Arbitration

| | Skyway
Airlines, Inc., doing business as Midwest Connect ("Midwest Connect"),  currently
operates 10 Fairchild 32-passenger 328JET      regional jets. In September  2001,
 Midwest Connect settled its arbitration  with Fairchild  Dornier GmbH  ("Fairchild")
 over the      cancellation  of the 428JET  program.  In the first quarter  2002,  the
Company  recorded as other income $39.5 million  (pre-tax)      associated with the
settlement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

---

4.     Other
Income

| | In
May 2003,  the Company  recorded  other  income of $11.4  million  (pre-tax)  received
 from the April 2003  Emergency  Wartime      Supplemental Appropriations Act for
reimbursement of security costs.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.     Private
Placement of Common Stock

| | During
the second quarter 2002, the Company  generated gross proceeds of $21.9 million through
the private  placement of 1,675,000      shares of the Company's common stock to
qualified  institutional  investors at $13.09 per share. Net proceeds,  after
 commissions      and expenses, of $20.5 million were used to reduce indebtedness and
provide general working capital.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6.     Segment
Reporting

| | Midwest
Airlines and Midwest Connect  constitute the reportable  segments of the Company.  The
Company's  reportable  segments are      strategic  units that are managed  independently
 because they provide  different  services,  with different  cost  structures and
     marketing  strategies.  Additional  detail on segment  reporting is included in the
 Company's  Annual Report on Form 10-K for the      fiscal year ended December 31, 2002.
 Financial  information for the three- and nine-month  periods ended September 30 for the
two      operating segments, Midwest Airlines and Midwest Connect, follows (in thousands).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

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# Three Months Ended
September 30, 2003

|                                                   | Midwest | Midwest
Connect | Elimination | Consolidated
|-------------------------------------------------- | ------- | --------------- | ----------- | ------------
|Operating revenues                                 |         |                 | $           | 77,587      
|Operating (loss) income                            |         |                 |             | (5,232      
|Depreciation and amortization expense              |         |                 |             | 4,076       
|Interest income                                    |         |                 |             | 254         
|Interest expense                                   |         |                 |             | (504        
|(Loss) Income before income tax (credit) provision |         |                 |             | (5,486      
|Income tax (credit) provision                      |         |                 |             | (1,920      
|Net (loss) income                                  |         |                 |             | (3,566      
|Total assets                                       |         |                 |             | 348,128     
|Capital expenditures                               |         |                 |             | 2,783       

# Three Months Ended
September 30, 2002

|                                      | Midwest | Midwest
Connect | Elimination | Consolidated
|------------------------------------- | ------- | --------------- | ----------- | ------------
|Operating revenues                    |         |                 | $           | 86,660      
|Operating loss                        |         |                 |             | (11,111     
|Depreciation and amortization expense |         |                 |             | 4,208       
|Interest income                       |         |                 |             | 371         
|Interest expense                      |         |                 |             | (774        
|Loss before income tax credit         |         |                 |             | (11,383     
|Income tax credit                     |         |                 |             | (4,212      
|Net loss                              |         |                 |             | (7,171      
|Total assets                          |         |                 |             | 317,852     
|Capital expenditures                  |         |                 |             | 1,820       

# Nine Months Ended
September 30, 2003

|                                      | Midwest | Midwest
Connect | Elimination | Consolidated
|------------------------------------- | ------- | --------------- | ----------- | ------------
|Operating revenues                    |         |                 | $           | 237,049     
|Operating loss                        |         |                 |             | (21,912     
|Depreciation and amortization expense |         |                 |             | 12,937      
|Interest income                       |         |                 |             | 809         
|Interest expense                      |         |                 |             | (1,491      
|Loss before income tax credit         |         |                 |             | (11,623     
|Income tax credit                     |         |                 |             | (4,067      
|Net loss                              |         |                 |             | (7,556      
|Total assets                          |         |                 |             | 348,128     
|Capital expenditures                  |         |                 |             | 13,662      

# Nine Months Ended
September 30, 2002

|                                                   | Midwest | Midwest
Connect | Elimination | Consolidated
|-------------------------------------------------- | ------- | --------------- | ----------- | ------------
|Operating revenues                                 |         |                 | $           | 272,613     
|Operating loss                                     |         |                 |             | (41,000     
|Depreciation and amortization expense              |         |                 |             | 13,143      
|Interest income                                    |         |                 |             | 998         
|Interest expense                                   |         |                 |             | (2,583      
|(Loss) Income before income tax (credit) provision |         |                 |             | (42,372     
|Income tax (credit) provision                      |         |                 |             | (15,677     
|Net (loss) income                                  |         |                 |             | (26,695     
|Total assets                                       |         |                 |             | 317,852     
|Capital expenditures                               |         |                 |             | 3,694       

7

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7.     Derivative
Instruments and Hedging Activities

| | The
Company  from time to time  utilizes  option  contracts to mitigate  exposure to the
 fluctuation  in aircraft  fuel prices in      accordance with the Company's  financial
risk management policy.  This policy was adopted by the Company to document the Company's
     philosophy toward financial risk and outline  acceptable use of derivatives to
mitigate that financial risk. The options establish      ceiling  prices for  anticipated
 jet fuel  purchases and serve as hedges of those  purchases.  The Company does not hold
or issue      derivative  instruments for trading  purposes.  At September 30, 2003, the
Company had no options in place for future periods.  If      options had been in place at
the end of the quarter,  the value of the options would be determined  using estimates of
fair market      value provided by the institutions that wrote the options.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company accounts for its fuel hedge derivative  instruments as cash flow hedges,  as
defined in SFAS No. 133,  "Accounting for      Derivative  Instruments  and Hedging
 Activities" and the  corresponding  amendments  under SFAS No. 138,  "Accounting for
Certain      Derivative  Instruments and Certain Hedging Activities" and SFAS No. 149,
 "Amendments of Statement 133 on Derivative  Instruments      and Hedging  Activities."
 Therefore,  all changes in the fair value of the  derivative  instruments  that are
 considered  highly      effective are recorded in other comprehensive  income until the
underlying hedged fuel is consumed,  when they are reclassified to      the income
statement as an offset of fuel expense.  Year-to-date, the Company recognized $1.1
million as an offset to fuel expense      in the income  statement,  which is comprised
 of $0.4  million reclassified  other  comprehensive  income and $0.7 million of
     changes in the fair market value of the hedges since  December 31, 2002.  Cumulative
 other  comprehensive  income was $0 and $0.4      million for the nine-month period
ended September 30, 2003 and the year ended December 31, 2002, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8.     Asset
Dispositions

| | In
June 2002, the Financial  Accounting  Standards Board (the "FASB") issued SFAS No. 146,
 "Accounting for Costs  Associated with      Exit or Disposal  Activities," which is
effective for exit or disposal activities that are initiated after December 31, 2002.
SFAS      No. 146 requires that liabilities for the costs associated with exit or
disposal  activities be recognized and measured  initially      at fair value only when
the liabilities are incurred,  rather than when an entity commits to effect an exit plan.
In third quarter      2003,  the Company  recorded $0.1 million  (pre-tax) of aircraft
 lease expense for one leased DC-9 aircraft  removed from Midwest      Airlines  service
 during the  quarter;  year to date,  $4.7  million  (pre-tax) of aircraft  lease
 expense has been  recorded in      accordance with SFAS No. 146. These non-cash
 expenses were included in the aircraft  rentals line of the Company's  statements of
     operations.  The expense reflects future obligations for these aircraft following
their out-of-service dates. The Company has four      additional  DC-9 leased  aircraft
that it plans to remove from service by April 2004. The Company  expects to record an
additional      non-cash charge of $2.1 million (pre-tax) in accordance with SFAS No. 146
in relation to these aircraft.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

---

9.     New
Accounting Pronouncements

| | In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial  Instruments
with Characteristics of Both Liabilities      and Equity," which requires issuers to
classify as liabilities certain classes of freestanding financial instruments
 (instruments      that are entered into separately from other  instruments or
 transactions  or are legally  detachable and separately  exercisable)      that
represent  obligations of the issuer.  SFAS No. 150 is effective for all public company
 freestanding  financial  instruments      entered into or modified  after May 31, 2003.
 The adoption of SFAS No. 150,  which was effective for the Company on July 1, 2003,
     has not had,  nor does the  Company  expect it to have,  a  material  impact on the
 Company's  condensed  consolidated  financial      statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2003, the FASB issued  Interpretation 46, "Consolidation of Variable Interest
Entities" ("FIN 46"). FIN 46 requires the      consolidation of certain types of entities
in which a company absorbs a majority of another entity's  expected losses,  receives a
     majority of the other entity's  expected  residual  returns,  or both, as a result
of ownership,  contractual  or other  financial      interests in the other entity.
 These entities are called "variable interest entities." The principal  characteristics
of variable      interest entities are (1) an insufficient  amount of equity to absorb
the entity's  expected losses,  (2) equity owners as a group      are not able to make
decisions  about the entity's  activities,  or (3) equity that does not absorb the
entity's losses or receive      the entity's  residual  returns.  "Variable  interests"
are contractual,  ownership or other monetary  interests in an entity that      change
with  fluctuations in the entity's net asset value. As a result,  variable  interest
 entities can arise from items such as      lease arrangements, loan arrangements,
guarantees or service contracts.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | If
an entity is determined to be a "variable  interest entity," the entity must be
consolidated by the "primary  beneficiary." The      primary  beneficiary is the holder
of the variable  interests that absorb a majority of the variable  interest  entity's
 expected      losses or receive a majority of the entity's residual returns in the event
no holder has a majority of the expected losses.  There      is no primary  beneficiary
in cases where no single holder  absorbs the majority of the expected  losses or receives
a majority of      the residual  returns.  The  determination  of the primary
 beneficiary  is based on projected  cash flows at the inception of the      variable
interests.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FIN
46 initially  applied to variable  interest entities created after January 31, 2003 and
to variable interest entities in which      a company  obtained an interest after that
date. The FASB recently  deferred the effective date of FIN 46 to December 31, 2003 for
     all interests in variable interest entities existing prior to January 31, 2003. The
Company is currently  evaluating the impact of      FIN 46 as it  relates  to its
 operations,  but does not  expect it to have a material  impact on its  results  of
 operations  or      financial condition.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10.     Other
Debt Obligations

| | On
August 29, 2003, the Company amended the agreement  relating to its bank credit facility
to extend the existing credit facility      to November 26, 2003. In addition to the
extension,  the amendment to the credit  facility  waived certain  defaults that occurred
     prior to the amendment,  removed certain financial covenants and modified a
requirement that the Company maintain a minimum amount      of unrestricted  cash. The
amendment gave the Company  additional time to seek long-term  financing while
maintaining its existing      letters of credit issued under the credit  facility.  As of
September 30, 2003,  the Company had repaid all  borrowings  under the      bank credit
facility,  and the Company had outstanding letters of credit under the facility totaling
 approximately $15.5 million.      The letters of credit are primarily used to support
 financing of the Company's  maintenance  facilities.  No additional credit is
     available under the credit facility.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

| | In
October 2003, the Company completed a transaction with Milwaukee County,  Racine County
and the State of Wisconsin that reduced      the  amount of  letters  of credit
 outstanding  under the  credit  facility.  Further  discussion  of this  matter is in
Note 16,      Subsequent  Events.  The Company plans to obtain releases of the remaining
 letters of credit and terminate the credit facility in      the fourth quarter 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11.     Non-cash
Incentives

| | Non-cash
incentives consist of purchase incentives (e.g. training,  spare parts credits,
 simulator rental) received from aircraft      and engine manufacturers upon delivery of
aircraft. These incentives will be recognized over the life of the related leases.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12.     Shareholders'
Equity

| | At
September 30, 2003, the Company had one stock-based employee  compensation plan, which is
described more fully in Note 8 of the      Notes to the Consolidated  Financial
 Statements of the Company's Annual Report on Form 10-K for the year ended December 31,
2002.      The Company has adopted the disclosure  requirements of SFAS No. 123,
 "Accounting for Stock-Based  Compensation"  ("SFAS 123") as      amended by SFAS No.
148,  "Accounting  for  Stock-Based  Compensation  - Transition  and  Disclosure."  The
Company has elected to      continue to follow the  provisions of  Accounting  Principles
 Board No. 25,  "Accounting  for Stock Issued to Employees"  and its      related
 interpretations;  accordingly,  no  compensation  cost has been  reflected  for the
stock  option  plan in the  condensed      consolidated financial statements in this
filing.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Had
 compensation  costs for the  Company's  stock  option plan been  determined  based on
their fair value at the grant dates for      awards under those plans  consistent with
the method of SFAS 123, the Company's net loss and net loss per share for the three- and
     nine-month  periods ended September 30 would have been increased to the pro forma
amounts  indicated  below (in thousands,  except      per share amounts):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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|                                               | Three Months Ended
September 30, | Nine Months Ended
September 30,
|---------------------------------------------- | -------------------------------- | -------------------------------
|
|Net loss:                                      |                                  |                                
|As reported                                    |                                  |                                
|Deduct: Total stock-based employee             |                                  |                                
|compensation expense determined under fair     |                                  |                                
|value based methods, net of related tax effect |                                  |                                
|                                               |                                  |                                
|Pro forma                                      |                                  |                                
|                                               |                                  |                                
|Net loss per share - basic:                    |                                  |                                
|As reported                                    |                                  |                                
|                                               |                                  |                                
|Net loss per share - diluted:                  |                                  |                                
|As reported                                    |                                  |                                
|                                               |                                  |                                

The following table is a
reconciliation of the weighted average shares outstanding for the three- and nine-month
periods ended September 30, 2003 and 2002 (in thousands):

|                               | Three Months Ended
September 30, | Nine Months Ended
September 30,
|------------------------------ | -------------------------------- | -------------------------------
|
|Weighted average shares        |                                  |                                
|outstanding                    |                                  |                                
|Effect of dilutive securities: |                                  |                                
|Stock options (1)              |                                  |                                
|Shares issuable under the 1995 |                                  |                                
|Stock Plan for Outside         |                                  |                                
|Directors (2)                  |                                  |                                
|Weighted average shares        |                                  |                                
|outstanding assuming dilution  |                                  |                                

|(1) | Stock
options outstanding under the 1995 Stock Option Plan of 51 and 0 were
               excluded from the calculations for the three months ended September 30,
2003 and                2002 as their effect was anti-dilutive. Stock options outstanding
under the 1995 Stock Option Plan of 10 and 38 were excluded from the calculations for the
nine months ended September 30, 2003 and 2002 as their effect was anti-dilutive.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Shares
issuable under the 1995 Stock Plan for Outside Directors of 23 and 16           were
excluded from the calculations for the three months ended September 30,           2003
and 2002 as their effect was anti-dilutive. Shares issuable under the 1995
          Stock Plan for Outside Directors of 21 and 15 were excluded from the
          calculations for the nine months ended September 30, 2003 and 2002 as their
          effect was anti-dilutive.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In connection with the final
restructuring agreements with the aircraft lessors and lenders discussed in Note 15, the
Company issued warrants to certain lessors and lenders that give the holders the right to
purchase in the aggregate 1,551,741 shares of the Companys common stock at an
exercise price per share of $4.78. The warrants expire in September 2013. The terms of the
warrants provide certain protection from dilutive issuances of common stock. None of the
warrants had been exercised as of September 30, 2003.

11

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# 13. Comprehensive Loss

Comprehensive loss was ($3.6) million
and ($11.3) million for the three- and nine-month periods ended September 30, 2003, and
($8.6) million and ($3.8) million for the three- and nine-month periods ended September
30, 2002, respectively.

# 14. Going Concern and
Managements Plan

Going Concern  The
consolidated financial statements presented in the Companys Annual Report on Form
10-K for the year ended December 31, 2002 and the unaudited condensed consolidated
financial statements in this filing have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company incurred substantial operating losses in 2001 and 2002,
and existing industry conditions  including higher fuel prices, depressed business
travel due to the stagnant economy and increased competitive pressures  will cause
the Company to incur an operating loss for 2003.

On March 7, 2003, the Company
suspended lease and debt payments associated with most of its aircraft, initially until
June 7, 2003. On June 12, 2003, the Company extended the payment suspension indefinitely
while it continued in negotiations with lessors and other affected lenders. (Note that the
obligations related to the Boeing 717 aircraft purchases and related leases were not
included in the payment moratorium.) The suspension was intended to provide the Company
the opportunity to negotiate a restructuring of the terms and conditions of the leases and
other financial obligations with the lessors and other affected lenders to bring them in
line with market conditions and better reflect the reduced market values of the aircraft.
Because the Company suspended payments without the consent of the lessors and other
affected lenders, the suspension of payments resulted in defaults under the terms of the
applicable leases and debt obligations, and a default under the terms of the
Companys bank credit agreement and the Companys credit card processing
agreement for MasterCard/Visa transactions. Such defaults provided the other parties to
these arrangements certain rights and remedies. For example, the default under the
Companys credit card processing agreement for MasterCard/Visa transactions resulted
in an increase of the reserve under that agreement to 100% of the card
processors exposure. On July 17, 2003, the Company announced that it had reached
preliminary agreements with aircraft lessors and lenders on the restructuring of leases
and debt obligations that had been under payment suspension. On August 22, 2003, the
Company announced that the agreements were finalized. These agreements are discussed in
more detail in Note 15. In addition, on September 30, 2003, the Company announced that it
had reached preliminary agreements to obtain approximately $40 million in additional
financing, which is also discussed in more detail in Note 15.

The Companys consolidated
financial statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classifications of liabilities
that might be necessary should the Company be unable to continue as a going concern. The
Companys ability to continue as a going concern is dependent on its ability to
generate sufficient cash flows to meet obligations on a timely basis and to obtain
additional financing should industry conditions not improve. Management is implementing a
number of plans to help alleviate these situations, as described below and in Note 15.

12

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Managements Plan The Company has implemented a number of actions to improve its profitability and
liquidity position. These actions focus on three key areas: 1) the launch of Midwest
Airlines Saver Service to address the growing low-fare segment of the market, 2) cost
reductions and internal restructuring, and 3) improved liquidity.

In February 2003, the Company
announced the launch of low-fare service in high demand, leisure-oriented markets, branded
as Midwest Airlines Saver Service. Saver Service was launched August 1, 2003 with existing
MD-80 aircraft that were converted to a two-by-three seating configuration, with a total
of eight MD-80 aircraft to be converted to the new configuration by year-end. Saver
Service is expected to enable the Company to serve high-volume leisure destinations more
profitably.

Detailed discussion of cost reduction
and restructuring activities and liquidity measures is included at Note 15.

# 15. Restructuring
Activities and Liquidity Measures

In February 2003, the Company
announced measures aimed at improving cash flow in addition to previous cost control
initiatives. Since then, the Company has reduced capacity, switched to a buy-onboard
dining service, discontinued standard travel agency commissions to match most of the
industry, and implemented service fee increases for nonrefundable tickets. In addition,
the Company implemented a second workforce reduction, and remaining non-union employees
received across-the-board temporary compensation reductions.

In July 2003, the Company announced
that it had reached preliminary agreements with labor unions, lessors and lenders on
permanent cost reductions. The Company reached final agreements regarding these matters in
August 2003; the restructured agreements are discussed in further detail below. The
Company is targeting these financial restructuring initiatives  along with numerous
internal cost-reduction measures, revenue enhancements and flight schedule changes
implemented since September 11, 2001  to improve profitability and reduce costs
relative to what the Company would have experienced if it had not effected these changes
by approximately $70 million annually going forward.

The cost reductions relate to the
following areas:

| |  | Labor
cost savings and productivity improvements from the Companys employee unions. All
three of the Companys represented employee groups amended their collective
bargaining agreements; the duration of these agreements is five years. Employee-related
cost savings are generated primarily by productivity improvements and work rule changes.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Identification
of opportunities to enhance productivity for non-represented employees. Efforts are
underway to identify productivity improvements for these work groups. Implementation of
identified opportunities will be completed by year end.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

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| |  | Adjustment
of the Companys fleet plan and delivery schedules to provide for more controlled
growth. The Company completed negotiations with aircraft manufacturers to adjust the
delivery schedule of its Boeing 717 aircraft program and defer its acquisition of Embraer
regional jets.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Renegotiation
of aircraft finance agreements. Amendments to aircraft financing agreements were
completed with the aircraft lessors and lenders participating in the restructuring
effort. These agreements reduced aircraft lease rates to bring them in line with current
market conditions and better reflect the reduced market values of the aircraft, and
restructured certain short-term debt to long-term obligations. Details of the
restructured agreements are as follows:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Debt related to three Fairchild 328JET aircraft was restructured to better reflect
aircraft values and the current interest rate environment. Loans on the three aircraft
were coming due in August 2003, November 2003 and January 2004 that would have resulted in
loan repayments totaling approximately $24 million. The restructuring resulted in the loan
term being extended to 2013 and reduced payments that better represent the current market
value for the aircraft.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Debt on one MD-80 was retired as part of a sale/leaseback transaction. The transaction
resulted in the retirement of approximately $7.0 million of debt related to the aircraft,
which had a book value of approximately $11.0 million on the date of the sale/leaseback;
thus, a loss of $4.0 million was recorded in the third quarter 2003 in relation to the
transaction.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | There were 34 aircraft leases and four aircraft loans that were renegotiated in the lease
and loan restructuring effort. All restructurings include lower payments to reflect
current market conditions. The Midwest restructurings included 10 McDonnell-Douglas DC-9
and four McDonnell-Douglas MD-80 aircraft. The Midwest restructuring also resulted in a
debt-financed MD-80 being converted into a lease with an extension of term from 2008 to
2013. At Midwest Connect, there were 15 Beechcraft 1900D aircraft and five 328JET aircraft
leases renegotiated in addition to the three 328JETs that had loans renegotiated. Cash flow savings
from the lease and loan restructurings exceed $1 million per month.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Lease
expense related to the restructured agreements was recorded during a portion of the
moratorium period (March through June 2003) at rates under the previous agreements.  The
difference between the new and old lease rates for that portion of the moratorium period
is being amortized over the term of the new leases.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | In connection with the final restructuring agreements with the aircraft lessors and
lenders, the Companys subsidiaries delivered subordinated promissory notes (the
Basic Moratorium Notes) to the lessors and lenders. Each of the Basic
Moratorium Notes was delivered pursuant to an agreement to amend the existing lease or
financing agreements, as applicable (each, an Agreement to Amend), between (1)
the Company and Midwest Airlines, a wholly owned subsidiary of the Company, or Skyway
Airlines, a wholly owned subsidiary of Midwest Airlines, as the case may be; and (2) the
lessor(s) or lender(s) party to the existing lease or financing agreements in question.
Each of the Basic Moratorium Notes constitutes payment in full for any basic rent,
principal and interest payments and any other regularly scheduled amounts due under such
lease and financing agreements, as amended by the respective Agreement to Amend
(collectively, the Regularly Scheduled Payments), that Midwest Airlines or
Skyway Airlines, as the case may be, failed to pay to the lessor(s) or lender(s) during
the Companys payment moratorium from and including February 28, 2003 through and
including August 30, 2003. The aggregate principal amount of the Basic Moratorium Notes is
$7,533,000. Principal and interest on the Basic Moratorium Notes are payable, in arrears,
in 36 monthly installments commencing on the later of (1) June 30, 2004 and (2) the
earlier of (a) the date on which the Company attains Financial Health (as defined below)
and (b) January 1, 2005. Financial Health for purposes of the Basic Moratorium
Notes means when the Company has either (i) unrestricted cash of $70 million or (ii)
achieved financial closing with respect to new financing in the amount of at least $30
million. The Basic Moratorium Notes bear interest at 10% per annum beginning June 30,
2004.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---

| | >> | As a result of the restructuring of lease and debt agreements described above, the Company
has significantly lowered its obligations compared with the obligations under the previous
lease and debt agreements. Included in the restructured agreements are clauses that would
make the Companys obligations, under certain default situations, increase to the
amounts under the previous agreements. The amount of such contingent obligation of the Company
is approximately $7.9 million as of September 30, 2003.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | >> | Also, in connection with the final restructuring agreements with the aircraft lessors and
lenders, the Company issued warrants to certain lessors and lenders. These warrants are
discussed in more detail in Note 12.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to completion of
restructuring related to cost savings, the Company also announced several completed or
preliminary agreements related to financing:

| |  | As
discussed in Note 10, the Company amended the agreement related to its bank credit
facility, which extends the existing facility to November 26, 2003. This extension gave
the Company additional time to secure long-term financing while maintaining existing
letters of credit issued under the credit facility. In October 2003, the Company
completed a transaction with Milwaukee County, Racine County and the State of Wisconsin
that reduced the amount of letters of credit outstanding under the credit facility.
Further discussion of this matter is in Note 16. The Company plans to obtain releases of
the remaining letters of credit and terminate the credit facility in fourth quarter 2003.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company reached a preliminary agreement to complete a sale/leaseback of Midwest Airlines headquarters
facility, which is expected to provide the Company with proceeds of approximately $9.5
million. This transaction closed on November 12, 2003, as further described in Note 16.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company entered into agreements under which it expects to raise financing of
approximately $33.0 million (net proceeds to be approximately $30.5 million, after
commissions and expenses). The first component involves the sale of $25.0 million in
convertible senior secured notes and is described in more detail below. The second
step in the sale of notes, for approximately $10.0 million, is contingent on shareholder
approval. The second component of the financing transactions consists of the sale of
common stock for $8.0 million and is also contingent on shareholder approval. Each
component involved, or will involve, a private placement to qualified institutional
buyers and accredited investors.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

---

| |  | The
Company has entered into agreements providing for the sale of $25.0 million in
convertible senior secured notes. The sale of the convertible senior secured notes was to
be completed in two steps. The first, for $15.0 million, occurred September 29, 2003, the
proceeds being recorded as restricted cash, with release of proceeds from the sale
subject to the Company delivering security for the notes. Release of proceeds occurred on
October 21, 2003 (at which time the proceeds were recorded as unrestricted cash) when the
Company completed a transaction (also discussed below) with Milwaukee County, Racine
County and the State of Wisconsin that resulted in Milwaukee County becoming the
guarantor of principal and interest payments on approximately $14.2 million of industrial
development revenue bonds issued in 1998 and 2001 by the City of Milwaukee to finance the
construction of two airport-based maintenance facilities. Credit support for the bonds
was previously provided by letters of credit issued under the bank credit facility. The
guarantee provided by Milwaukee County enabled the Company to reduce its bank credit
facility exposure from $15.5 million to approximately $1.1 million. The Company cash
collateralized the remaining $1.1 million of letters of credit with the credit facility
banks, enabling the banks to release all other collateral previously provided as
security. Most of these assets, including aircraft, spare parts, and landing slots, were
then pledged as security to the convertible note holders, allowing for the release of
proceeds of approximately $15.0 million from escrow. The second step of the sale of
senior secured convertible notes, for $10.0 million, is subject to shareholder approval
and satisfaction of certain other conditions. All of the notes are convertible into
shares of common stock at a price of $5.00 per share, subject to terms that provide
protection from dilutive issuances of common stock. They bear interest at 6.75% per annum
and mature in October 2008.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
terms of the agreements specify that the Company is subject to certain operating
restrictions that, among other things, limit the Companys ability to sell assets
and make loans. In addition, the Company may not, except as required under certain
contracts, plans or arrangements, redeem, declare or pay any cash dividends or
distributions on common stock without the consent of the note holders. The agreements
also specify customary events of default for debt securities of this type, including,
among others, failure to make payments when due, breaches of covenant, breaches of
representations and warranties, cross-default to other indebtedness, bankruptcy and
insolvency defaults and unsatisfied judgment defaults. In addition, the agreements
require the Company to maintain a minimum unrestricted cash balance.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

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# 16. Subsequent Events

In October 2003, the Company
completed a transaction with Milwaukee County, Racine County and the State of Wisconsin
that resulted in Milwaukee County becoming the guarantor of principal and interest
payments on approximately $14.2 million of industrial development revenue bonds issued in
1998 and 2001 by the City of Milwaukee to finance the construction of two airport-based
maintenance facilities. Credit support for the bonds was previously provided by letters of
credit issued under the bank credit facility. The guarantee provided by Milwaukee County
enabled the Company to reduce its bank credit facility exposure from $15.5 million to
approximately $1.1 million. The Company cash collateralized the remaining $1.1 million of
letters of credit with the credit facility banks, enabling the banks to release all other
collateral previously provided as security. Most of these assets were then pledged as
security to the convertible note holders (discussed further in Note 15), allowing for the
release of proceeds of approximately $15.0 million from escrow.

On November 12, 2003, the Company
closed on an agreement to complete a sale/leaseback of its Oak Creek, Wisconsin
headquarters facility. This transaction provided the Company with net proceeds of
approximately $10.0 million after payment of the existing mortgage and transaction
expenses.

The Company is currently in the
process of soliciting shareholder approval for the $10.0 million second step of the sale
of $25.0 million convertible notes and the $8.0 million sale of common stock discussed
above. A Special Shareholders Meeting is scheduled for November 21, 2003.

17

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

# Overview

# Results of Operations

The Companys third quarter 2003
operating loss was ($5.1) million, a decrease in loss of $8.3 million from third quarter
2002 operating loss of ($13.4) million. Net loss for the quarter was ($3.6) million, a
decrease in loss of $5.0 million from third quarter 2002 net loss of ($8.6) million. For
the first nine months of 2003, operating loss was ($28.6) million, a decrease in loss of
$15.5 million from the operating loss for the first nine months of 2002 of ($44.1)
million. Year-to-date 2003 net loss was ($11.7) million, an increase in net loss of $7.9
million from the year-to-date 2002 net loss of ($3.8) million. Year-to-date 2003 net loss
per share on a diluted basis was ($0.75), a $0.49 increase in net loss per share from
year-to-date 2002 net loss per share on a diluted basis of ($0.26). Year-to date 2003
results include income of $11.4 million (pre-tax) received from the April 2003 Emergency
Wartime Supplemental Appropriations Act for reimbursement of security costs, as well as a
charge of $4.7 million related to the early recognition of lease expense on six leased
DC-9 aircraft removed from service prior to quarter end. Year-to-date 2002 results
included a $29.9 million (pre-tax) impairment charge related to the early retirement of
Midwest Airlines DC-9 fleet and other income of $39.5 million (pre-tax) associated
with Midwest Connects arbitration settlement with Fairchild over the cancellation of
the 428JET program.

The Companys total revenue in
third quarter 2003 decreased $9.0 million, or 8.7%, to $94.9 million, from third quarter
2002 total revenue of $103.9 million. Traffic, as measured by scheduled service revenue
passenger miles, increased 2.2% in third quarter 2003, while scheduled service capacity,
as measured by available seat miles (ASMs), decreased 15.1%. Midwest
Airlines capacity decreased 16.1% due primarily to four fewer aircraft in service
quarter over quarter, while capacity at Midwest Connect decreased by 7.8% due to the
realignment of service on certain routes between Midwest Airlines and Midwest Connect.

Third quarter revenue yield decreased
14.9% at Midwest Airlines and 13.7% at Midwest Connect. The decreases in revenue yield
were due in large part to a continued decline in high-yield business travel, heavy
industrywide fare discounting implemented to stimulate travel demand, and increased
competition in many markets, including Midwest Airlines main base of operations in
Milwaukee. Northwest Airlines, Frontier Airlines, and AirTran Airlines have all added
nonstop service from Milwaukee to new destinations during the second and third quarters of
2003. In addition, the introduction of Saver Service, which began operations in August
2003, contributed to the decline in revenue yield as fares are generally lower, by design,
for that service.

The Companys operating costs
decreased $17.2 million, or 14.7%, to $100.0 million in third quarter 2003. Most cost
categories showed declines, including a 39.0% decrease in commissions, a 68.4% decrease in
dining services costs, and a 31.6% decrease in maintenance expense. These decreases were
partially offset by charges related to the Companys restructuring efforts of $5.9
million (pre-tax), consisting of a $4.0 million loss on the sale/leaseback of one MD-80
aircraft, as well as $1.9 million of additional legal and other professional fees
associated with the restructuring. Year-to-date 2002 operating costs included a $29.9
million (pre-tax) impairment charge related to the early retirement of the Companys
DC-9 fleet. Additional detail on cost changes is included in subsequent sections.

18

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The Companys passenger traffic
and yields declined severely following the events of September 11, 2001. Since that time,
the Company has experienced significantly lower revenues and has incurred higher costs in
certain categories, particularly fuel. To mitigate the adverse financial situation, the
Company has taken, and continues to take, action intended to improve financial performance
by improving revenue and reducing costs.

# Recent Developments

Completion of County
Transaction

On October 21, 2003, the Company
completed a transaction that resulted in Milwaukee County becoming the guarantor of
principal and interest payments on approximately $14.2 million of industrial development
revenue bonds issued in 1998 and 2001 by the City of Milwaukee to finance the construction
of two airport-based maintenance facilities. Credit support for the bonds was previously
provided by letters of credit issued under the Companys bank credit facility. The
guarantee provided by Milwaukee County enabled the Company to reduce its bank credit
facility exposure from $15.5 million to approximately $1.1 million. The Company cash
collateralized the remaining $1.1 million of letters of credit with the credit facility
banks, enabling the banks to release all other collateral previously provided as security.
Most of these assets were then pledged as security to the holders of the Companys
convertible senior secured notes.

Private Placement of Debt
and Equity

On September 29, 2003, the Company
entered into agreements under which it expects to raise financing of approximately $33
million (net proceeds to be approximately $30.5 million, after commissions and expenses).
The financing includes two components: the sale of $25 million in convertible senior
secured notes (in two steps, one for $15 million, which has been completed, with proceeds
from the sale being released from escrow upon completion of the county transaction on
October 21, 2003), and one for $10, which is subject to shareholder approval) and the sale
of approximately 1,882,353 shares of the Companys common stock for an aggregate
purchase price of approximately $8 million (subject to shareholder approval). The Company
sold the convertible senior secured notes and the common stock in a private placement to
certain qualified institutional investors and accredited investors in accordance with and
in reliance upon the exemption from securities registration afforded by Section 4(2) of
the Securities Act of 1933, as amended, and Rule 506 under Regulation D as promulgated by
the United States Securities and Exchange Commission under the Securities Act of 1933.

The convertible senior secured notes
bear interest at 6.75% and mature on October 1, 2008. The notes are secured by certain
assets of the Company and its subsidiaries in accordance with a Security Agreement and by
a Mortgage granted by Midwest Connect. The notes are generally convertible at any time at
the option of the note holders into shares of common stock of the Company at an initial
conversion price of $5.00 per share, which price is subject to adjustment pursuant to
certain anti-dilution provisions. The note holders may not convert any portion of the
outstanding and unpaid principal of the notes to the extent that, after giving effect to
such conversion, the note holder (together with such note holders affiliates) would
beneficially own in excess of 4.99% or 9.99%, as the case may be for the respective note
holder, of the number of shares of common stock outstanding immediately after giving
effect to such conversion. A note holder may waive the 4.99% limitation with such waiver
being effective on the 61st calendar day after the Company receives notice of the waiver.

19

---

The Company will hold a special
shareholders meeting on November 21, 2003 to, among other things, request that
shareholders approve certain matters relating to the $10.0 million second step of the sale
of $25.0 million convertible senior secured notes and the $8.0 million sale of common
stock.

Sale/Leaseback

On November 12, 2003, the Company
closed on an agreement to complete a sale/leaseback of its Oak Creek, Wisconsin
headquarters facility. This transaction provided the Company with net proceeds of
approximately $10.0 million after payment of the existing mortgage and transaction
expenses.

Restructuring Efforts

In August 2003, the Company finalized
agreements with labor unions, lessors and lenders on permanent cost reductions. These
reductions were a continuation of the Companys actions to improve its profitability
and liquidity position that began in September 2001.

In February 2003, the Company
announced measures aimed at improving cash flow in addition to previous cost control
initiatives. Since then, the Company reduced capacity, switched to a buy-onboard dining
option, discontinued standard travel agency commissions to match the industry, and
implemented service fee increases for nonrefundable tickets. In addition, the Company
implemented an additional workforce reduction, and remaining non-union employees received
across-the-board compensation reductions.

The Company is targeting its
financial restructuring initiatives  along with numerous internal cost-reduction
measures, revenue enhancements and flight schedule changes implemented since September 11,
2001  to improve profitability and reduce costs, relative to what it would have
experienced if it had not effected these changes, by approximately $70 million annually
going forward. The cost reductions relate to the following areas:

| |  | Labor
cost savings and productivity improvements from the Companys employee unions. All
three of the Companys represented employee groups  the Midwest Air Line
Pilots Association, the Skyway Air Line Pilots Association and the Midwest Association of
Flight Attendants  ratified agreements. The duration of these agreements is five
years.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

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| |  | Identification
of opportunities to enhance productivity for non-represented employees. Non-represented
employee groups are currently working to develop process and productivity improvements,
which are expected to be implemented by the end of 2003.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Adjustment
of the Companys fleet plan and delivery schedules to provide for more controlled
growth. The Company completed negotiations with aircraft manufacturers to adjust the
delivery schedule of its Boeing 717 aircraft program and defer its acquisition of Embraer
regional jets. Midwest Airlines will continue to accept Boeing 717s at its current rate
of one each month through March 2004, when deliveries will change to approximately
quarterly. Under the new schedule, Midwest will acquire the 25 717s it has ordered by
October 2006. Midwest Connect will defer its acquisition of 20 Embraer regional jets from
January 2004 to July 2006, during which time the availability of long-term aircraft
financing is expected to improve. The Embraer contract has been amended to reflect this
agreement. Midwest Connect will not incur any cost or face claims for breach of contract
in relation to the deferral.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Renegotiation
of aircraft finance agreements. The Company restructured agreements that amend existing
finance agreements with 11 aircraft lessors and lenders to reflect current market
conditions. These agreements provided for the reduction of the present value of the prior
agreements by $60-70 million and reduced cash requirements by about $1.1 million per
month and converted $24 million of short-term debt into long-term obligations exceeding
10 years at low interest rates.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In connection with the restructuring
efforts, the Company issued warrants to the lessors and lenders relating to 1,551,741
shares of the Companys common stock, with an exercise price per share of $4.78. The
warrants expire in September 2013. None of the warrants had been exercised as of September
30, 2003. Also, in connection with the restructuring efforts, the Company agreed to grant
options to its employees (represented and non-represented) to purchase 1,551,741 shares of
the Companys common stock (subject to shareholder approval.) The terms of the
warrants and options provide certain protection from dilutive issuances of common stock.

The shares issuable upon the exercise
of warrants that the Company issued to its aircraft lessors and lenders, and options it
has agreed to issue to its employees, as well as any additional shares that may be issued
as part of any additional financing, will dilute the ownership interests of existing
shareholders. Further, any sales in the public market of the common stock issuable upon
such exercises and conversion could adversely affect prevailing market prices of the
Companys common stock. In addition, the existence of warrants, options and other
securities may encourage short selling by market participants.

A summary of revenue improvement/cost
reduction measures implemented as of September 30, 2003 is as follows:

21

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|Revenue Improvement/ Cost Reduction Measure                  | Estimated Annual Improvement
($ in millions)
|------------------------------------------------------------ | --------------------------------------------
|Headcount Reductions                                         |                                             
|Dining Services/Amenity Changes                              |                                             
|Capacity Reductions/Schedule Changes                         |                                             
|Travel Agent Commission Changes                              |                                             
|Advertising Reduction                                        |                                             
|Fuel Management Program                                      |                                             
|Passenger Fee Changes                                        |                                             
|Other Programs                                               |                                             
|                                                             |                                             
|Total of Revenue Improvement/Cost Reduction Measures         |                                             
|                                                             |                                             
|Restructuring Measure                                        | Estimated Annual Improvement
($ in millions)
|Aircraft Lessor Concessions                                  |                                             
|Represented Employees' Concessions                           |                                             
|Non-represented Employees' Concessions                       |                                             
|                                                             |                                             
|Total of Restructuring Measures                              |                                             
|                                                             |                                             
|Total of Revenue  Improvement/Cost  Reduction  Measures  and |                                             
|Restructuring Measures                                       |                                             
|                                                             |                                             

As of September 30, 2003, the Company had fully completed the
majority of the items listed above, and the results are included in the results of
operations and financial condition for the third quarter 2003. Items not fully completed
as of September 30, 2003 include represented and non-represented employee concessions and
the advertising reduction. The represented and non-represented employee concessions are in
the process of being implemented. The advertising reduction was not fully realized in
third quarter 2003 because the Company incurred more costs to support the introduction of
Saver Service, to respond to increased competition due to new entrants in Milwaukee, and
to advertise expanded serviced in the Kansas City base of operations.

Saver Service

Saver Service was launched on August
1, 2003 and complements the Companys existing premium (Midwest Airlines Signature
Service) and regional (Midwest Connect) products by offering flights to high-demand
leisure destinations at the lower fares leisure travelers want to pay. The decision to
offer low-fare service was based on extensive market research. The Company initiated
service with five MD-80 aircraft (already part of the Midwest Airlines fleet) that seat
143-147 passengers in a two-by-three configuration in a single-class cabin. It is expected
that a total of eight MD-80 aircraft will be converted to the new configuration by year
end. Pitch averages 33 inches, similar to Midwest Airlines Signature Service and more than
other low-fare carriers. Saver Service is expected to enhance the Companys
competitive position by serving a segment of the market that is growing more rapidly than
the business travel market, expanding to destinations that have not been economically
viable to serve with the premium product, and serving some existing destinations more cost
efficiently. As a result of the introduction of Saver Service, the Company expects that it
will compete with other low-fare carriers in ways that are different from its Signature
Service. Among other things, the Company will compete more clearly on the basis of fare
levels. There is no assurance that the Company will be able to compete successfully on
these bases.

22

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Increased Competition

On July 1, 2003, Northwest Airlines
added one nonstop roundtrip flight in each of the following six markets: from Milwaukee to
New York City, Washington, D.C., Orlando, Boston, Los Angeles and Las Vegas. Northwest
Airlines will also add seasonal service to Phoenix in February 2004. In addition, Frontier
Airlines and AirTran Airlines have added new nonstop service in the Milwaukee market.
Although the Company competes with other carriers in all markets it serves, this
competition is unique because it constitutes the addition of other carriers with nonstop
service in Midwest Airlines Milwaukee base of operations. The Company has
successfully competed with legacy and low-cost carriers in the past and has maintained
market share in these markets. However, there can be no assurance that the Company will be
able to successfully compete with competitors in the future.

Litigation

In May 2003, U.S. Bancorp Equipment
Finance, Inc. filed suit against the Company in U.S. District Court in Milwaukee, filing a
claim for unpaid lease payments and a motion for replevin in relation to two MD-80
aircraft leased to the Company by U.S. Bancorp Equipment Finance, Inc. In connection with
the renegotiation of the aircraft finance agreements, U.S. Bancorp Equipment Finance, Inc.
voluntarily dismissed the suit.

Business Alliance

In July 2003, the Company announced
that it had joined forces with Milwaukee-based The Mark Travel Corporation (Mark
Travel) to offer new opportunities and value to leisure travelers. Midwest Airlines
designated Mark Travel as the operator of its leisure vacation program, Midwest Airlines
Vacations, starting in 2004. In addition, Midwest Airlines will provide Funjet Vacations
 the flagship brand of Mark Travel  with aircraft capacity on some of
Funjets most popular routes.

23

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# Operating Statistics

The following table provides
selected operating statistics for Midwest Airlines and Midwest Connect.

|                                                | Three Months Ended
September 30, | Nine Months Ended
September 30,
|----------------------------------------------- | -------------------------------- | -------------------------------
|
|Midwest Airlines Operations                     |                                  |                                
|Origin & Destination Passengers                 |                                  |                                
|Revenue Passenger Miles (000s)                  |                                  |                                
|Scheduled Service Available Seat Miles (000s)   |                                  |                                
|Total Available Seat Miles (000s)               |                                  |                                
|Load Factor (%)                                 |                                  |                                
|Revenue Yield                                   |                                  |                                
|Revenue per Scheduled Service ASM (1)           |                                  |                                
|Total Cost per Total ASM (2)                    |                                  |                                
|Impairment Loss per Total ASM                   |                                  |                                
|Average Passenger Trip Length (miles)           |                                  |                                
|Number of Flights                               |                                  |                                
|Into-plane Fuel Cost per Gallon                 |                                  |                                
|Full-time Equivalent Employees at End of Period |                                  |                                
|Aircraft in Service at End of Period            |                                  |                                
|Midwest Connect Operations                      |                                  |                                
|Origin & Destination Passengers                 |                                  |                                
|Revenue Passenger Miles (000s)                  |                                  |                                
|Scheduled Service Available Seat Miles (000s)   |                                  |                                
|Total Available Seat Miles (000s)               |                                  |                                
|Load Factor (%)                                 |                                  |                                
|Revenue Yield                                   |                                  |                                
|Revenue per Scheduled Service ASM (1)           |                                  |                                
|Total Cost per Total ASM                        |                                  |                                
|Average Passenger Trip Length (miles)           |                                  |                                
|Number of Flights                               |                                  |                                
|Into-plane Fuel Cost per Gallon                 |                                  |                                
|Full-time Equivalent Employees at End of Period |                                  |                                
|Aircraft in Service at End of Period            |                                  |                                

(1)     Passenger,
cargo and other transport-related revenue divided by scheduled service ASMs.

(2)     Includes
impairment loss.

Note:  All statistics exclude
charter operations except the following: total available seat miles ("ASMs"), cost per
total ASM, impairment loss per total ASM, into-plane fuel cost, number of employees and
aircraft in service. Aircraft acquired but not yet placed into service are excluded from
the aircraft in service statistics. Numbers in this table may not be recalculated due to
rounding.

24

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The following table provides
operating revenues and expenses for the Company expressed as cents per total ASM,
including charter operations, and as a percentage of total revenues:

|                                       | Three Months Ended September 30, | Nine Months Ended September 30,
|-------------------------------------- | -------------------------------- | -------------------------------
|
|
|Operating Revenues:                    |                                  |                                
|Passenger service                      |                                  |                                
|Cargo                                  |                                  |                                
|Other                                  |                                  |                                
|                                       |                                  |                                
|Total Operating Revenues               |                                  |                                
|                                       |                                  |                                
|Operating Expenses:                    |                                  |                                
|Salaries, wages and benefits           |                                  |                                
|Aircraft fuel and oil                  |                                  |                                
|Commissions                            |                                  |                                
|Dining services                        |                                  |                                
|Station rental, landing, other fee     |                                  |                                
|Aircraft maint., materials and repairs |                                  |                                
|Depreciation and amortization          |                                  |                                
|Aircraft rentals                       |                                  |                                
|Impairment loss                        |                                  |                                
|Other                                  |                                  |                                
|                                       |                                  |                                
|Total Operating Expenses               |                                  |                                
|                                       |                                  |                                
|                                       |                                  |                                
|Total ASMs (000s)                      |                                  |                                

Note:  Numbers, percents and totals
in this table may not be recalculated due to rounding.

25

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# Three Months Ended
September 30, 2003 Compared WithThree Months Ended September
30, 2002

# Operating Revenues

Company operating revenues totaled
$94.9 million in third quarter 2003, a $9.0 million, or 8.7%, decrease from third quarter
2002. Passenger revenues accounted for 86.2% of total revenues and decreased $10.8
million, or 11.7%, from third quarter 2002 to $81.8 million. The decrease is attributable
to a 13.5% decrease in revenue yield, partially offset by a 2.2% increase in passenger
volume, as measured by revenue passenger miles.

Midwest Airlines passenger revenue
decreased $10.4 million, or 14.1%, from 2002 to $63.7 million. This decrease was primarily
caused by a 14.9% decrease in revenue yield. Revenue yield decreased due to a substantial
decline in high-yield business travel, the sluggish economy and increased competition in
many markets, including Midwest Airlines main base of operations in Milwaukee. The
introduction of Saver Service during the quarter also contributed to the decrease in
revenue yield. Origin and destination passengers were essentially unchanged quarter over
quarter. Total capacity, as measured by scheduled service ASMs, decreased 16.1% due to
four fewer aircraft in scheduled service during third quarter 2003 as the Company
attempted to align capacity with lower demand. Load factor increased from 58.3% in 2002 to
70.2% in 2003.

Midwest Connect passenger revenue
decreased $0.4 million, or 2.0%, from third quarter 2002 to $18.1 million. This decrease
was primarily caused by a 13.7% decrease in revenue yield. Revenue yield decreased due to
decreased business travel and lower fares that were used to stimulate travel demand. The decrease in revenue yield was
partially offset by a 13.5% increase in passenger volume, as measured by revenue passenger
miles. Total capacity, as measured by scheduled service ASMs, decreased 7.8% from third
quarter 2002 as schedules were adjusted to meet lower overall demand. Load factor
increased from 47.5% in third quarter 2002 to 58.5% in third quarter 2003. The average
passenger trip length increased 16 miles, or 4.9%.

Revenue from cargo, charter and other
services increased $1.8 million, or 15.9%, from third quarter 2002 to $13.1 million.
Revenue from charter sales increased $0.4 million in third quarter 2003 as the Company
obtained exclusive charter rights for one additional professional sports team. Revenue
from frequent flyer partnerships increased $1.2 million over 2002 due to increased volume
with the cobranded credit card. Cargo revenue decreased $0.4 million, or 30.6%, with most
of the decrease due to lower U.S. Postal Service mail volumes, in large part the result of
security directives and restrictions, as well as a new contract with the U.S. Postal
Service that has resulted in lower initial volumes.

# Operating Expenses

Third quarter 2003 operating expenses
decreased $17.2 million, or 14.7%, from third quarter 2002 to $100.0 million. Costs were
lowered in most categories, primarily due to planned cost reduction efforts and the
introduction of Saver Service in August 2003. Cost per total ASM at Midwest Airlines
increased 1.0% in third quarter 2003, while Midwest Connect cost per total ASM decreased
3.8% quarter over quarter.

26

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Salaries, wages and benefits
decreased $6.1 million, or 15.3%, from third quarter 2002 to $33.9 million. The labor cost
decrease quarter over quarter reflects the reduction of 591 full-time equivalent employees
companywide. The headcount decrease was primarily the result of furloughing employees to
align with lower capacity and increase employee productivity, as well as attrition. A
reduction in overtime pay and reductions in wages also contributed $0.9 million to
decreased labor costs. These decreases were partially offset by higher medical insurance
costs. On a cost per total ASM basis, labor costs were unchanged, at 4.2¢ in third
quarter of 2002 and 2003, respectively.

Aircraft fuel and oil and associated
taxes decreased $3.3 million, or 15.5% to $17.9 million in third quarter 2003. Into-plane
fuel prices increased 13.0% in third quarter 2003, averaging 96.8¢ per gallon versus
85.7¢ per gallon in third quarter 2002, and resulted in a $1.8 million (pre-tax)
unfavorable price impact. Fuel consumption decreased 25.2% in the quarter as a result of
the capacity reductions at both airlines, as well as lower fuel consumption rates for the
Boeing 717 aircraft compared with the DC-9 fleet. Fuel costs in October 2003 trended
upward, averaging 98.8¢ per gallon. As of October 31, 2003, no hedges relating to
fuel had been placed for fourth quarter 2003 or subsequent periods.

Commissions for travel agents and
commissions related to credit card transactions decreased $1.7 million, or 39.0%, from
third quarter 2002 to $2.6 million. The decrease was due primarily to the elimination of
standard travel agent commissions beginning March 1, 2003, as well as to an 11.7% decrease
in passenger revenue. In addition, savings were realized because of increased travel
booked directly through the Companys reservations center and Web site, and other
travel-related Web sites. Commissions as a percentage of passenger revenue decreased from
4.7% in third quarter 2002 to 3.2% in third quarter 2003.

Dining services costs decreased $3.5
million, or 68.4%, from third quarter 2002 to $1.6 million. The decrease was due primarily
to the elimination of complimentary onboard meal service in April 2003. Total dining
services costs per Midwest Airlines passenger decreased from $9.97 in third quarter 2002
to $3.17 for third quarter 2003.

Station rental, landing and other
fees decreased $1.4 million, or 14.9%, from third quarter 2002 to $7.8 million. The
decline is due primarily to a 14.1% decrease in the number of flight segments. On a cost
per total ASM basis, these costs increased 0.4% from third quarter 2002.

Aircraft maintenance material costs
decreased $3.8 million, or 31.6%, from third quarter 2002 to $8.2 million. The decrease at
Midwest Airlines was caused by lower costs for maintaining the DC-9 fleet as 11 of these
aircraft were removed from service quarter over quarter. Additional savings were generated
from lower purchased maintenance costs and lower usage of maintenance materials due to
fewer flight segments. Maintenance costs at Midwest Connect decreased $0.2 million. On a
cost per total ASM basis, these costs decreased 19.4% from third quarter 2002.

Depreciation and amortization was
essentially unchanged from third quarter 2002. The addition of one MD-80 aircraft to the
fleet in March 2003 and the acquisition of spare parts to support the Boeing 717 program
were offset by the decrease in depreciation related to the DC-9 aircraft retired from the
fleet quarter over quarter. On a cost per total ASM basis, these costs increased 17.2%
from third quarter 2002 as the Company reduced capacity 15.1%.

27

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Aircraft rental costs of $6.2 million
for third quarter 2003 were essentially unchanged from third quarter 2002. The increase in
costs due to the early recognition of $0.1 million (pre-tax) of lease expense on one
leased DC-9 aircraft removed from service during the quarter, as well as to the addition
of eight leased Boeing 717 aircraft to the Midwest Airlines fleet quarter over quarter,
was offset by the lower lease rates negotiated on all other leased aircraft remaining in
service. Lease expense was recorded in the third quarter 2003 at the new restructured
rates. On a cost per total ASM basis, these costs increased 16.0% from third quarter 2003.

Other operating expenses increased
$2.7 million, or 19.2%, from third quarter 2002 to $16.6 million. Other operating expenses
consist primarily of advertising and promotion, insurance, property taxes, crew hotel
rooms, reservation fees, legal fees, other professional services, administration and other
items. Higher legal and other professional service costs of $1.9 million, due to the
restructuring activities, along with a $4.0 million loss recorded on the sale/leaseback of
one MD-80 aircraft, were partially offset by lower crew hotel rooms, advertising and
insurance costs. The MD-80 aircraft sale/leaseback transaction was part of the overall
aircraft restructuring transactions. The transaction resulted in the retirement of
approximately $7.0 million of debt related to the aircraft, which had a book value of
approximately $11.0 million on the date of the sale/leaseback. On a cost per total ASM
basis, these costs increased 40.6% from third quarter 2002.

# Income Tax Credit

Income tax credit for third quarter 2003 was ($1.9) million, a $3.1 million decrease from the 2002 credit of ($5.0) million. The
effective tax rates for the third quarters of 2003 and 2002 were 35.0% and 37.0%,
respectively. The decrease in the effective tax rate was due to the economic uncertainty
related to the realization of state net operating loss carryforwards. For purposes of
calculating the Companys income tax expense and effective tax rate, the Company
treats amounts payable to Kimberly-Clark Corporation under a tax allocation and separation
agreement entered into in connection with the Companys initial public offering in
1995 as if they were payable to taxing authorities.

# Net Loss

Net loss for third quarter 2003 was
($3.6) million, a decrease in loss of $5.0 million from third quarter 2002 net loss of
($8.6) million.

28

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# Nine Months Ended
September 30, 2003 Compared WithNine Months Ended September
30, 2002

# Operating Revenues

Company operating revenues totaled
$285.9 million for the nine months ended September 30, 2003, a $38.0 million, or 11.7%,
decrease from the first nine months of 2002. Passenger revenues accounted for 85.7% of
total revenues and decreased $43.4 million, or 15.0%, from 2002 to $244.9 million. The
decrease was attributable to a 13.6% decrease in yield along with a 1.6% decrease in
passenger volume, as measured by revenue passenger miles. Load factor increased from 59.6%
in 2002 to 64.3% in 2003.

Midwest Airlines passenger revenue
decreased $39.7 million, or 17.0%, from 2002 to $193.5 million in 2003. This decrease was
primarily caused by a 14.4% decrease in revenue yield. Revenue yield decreased due to a
substantial decline in high-yield business travel, the sluggish economy and increased
competition in many markets, including Midwest Airlines main base of operations in
Milwaukee. The introduction of Saver Service during the quarter also contributed to the
decrease in revenue yield. A 3.1% decrease in passenger volume, as measured by revenue
passenger miles, also contributed to the decrease. Total Midwest Airlines capacity, as
measured by scheduled service ASMs, decreased 10.1% due to four fewer aircraft in
scheduled service at September 30, 2003 as the Company attempted to align capacity with
lower demand. Load factor increased from 61.2% in 2002 to 65.9% in 2003.

Midwest Connect passenger revenue
decreased by $3.7 million, or 6.6%, from 2002 to $51.4 million in 2003. Traffic increased
13.8% on a 1.6% increase in capacity due to the shifting of certain routes from Midwest
Airlines. Load factor increased from 47.0% in 2002 to 52.6% in 2003. Revenue yield
decreased 17.9%, from $0.40 in 2002 to $0.33 in 2003, primarily due to increased flight
lengths and lower-than-average system revenue yield, decreased business travel, and heavy
industrywide fare discounting to stimulate travel demand.

The Companys revenue from
cargo, charter and other services increased $5.3 million, or 14.9%, in 2003. Midwest
Airlines benefited from increased revenue from charter sales as more aircraft time was
available for charter service and the Company had exclusive charter rights for nine
professional sports teams as of September 30, 2003. The increased charter revenue was
partially offset by a $0.9 million decrease in cargo revenue. Most of this decrease was
due to lower U.S. Postal mail volumes, in large part the result of security directives and
restrictions, as well as a new contract with the U.S. Postal Service that has resulted in
lower initial volumes.

# Operating Expenses

2003 operating expenses decreased
$53.5 million, or 14.5%, from 2002 to $314.5 million. The Company realized savings from
companywide cost reduction efforts, with reduced costs in many categories, as detailed
below. 2002 operating costs include a $29.9 million (pre-tax) impairment charge related to
the early retirement of the Companys DC-9 fleet. The Companys cost per total
ASM decreased 6.4%, from 13.5¢ in 2002 to 12.6¢ in 2003.

Salaries, wages and benefits
decreased $10.0 million, or 8.5%, from 2002 to $107.6 million in 2003. The labor cost
decrease reflects the reduction of 591 full-time equivalent employees since September 30,
2002. The headcount decrease was primarily the result of furloughing employees to align
with reduced capacity and increase employee productivity, as well as attrition. A $0.7
million reduction in overtime also contributed to decreased labor costs. These decreases
were partially offset by increased benefit costs primarily due to higher medical insurance
costs. On a cost per total ASM basis, labor costs stayed constant, at 4.3¢ in 2002
and 2003.

29

---

Aircraft fuel and oil and associated
taxes increased $4.2 million, or 7.3%, from 2002 to $60.9 million in 2003. Into-plane fuel
prices increased 26.6% in 2003, averaging $1.01 per gallon in 2003 versus $0.80 per gallon
in 2002, resulting in a $12.7 million unfavorable pre-tax price impact. Fuel consumption
decreased 15.1% in 2003 because of a decrease in flight operations, as well as lower fuel
consumption rates of the Boeing 717 aircraft compared with the DC-9 fleet.

Travel agent and credit card
commissions decreased $5.2 million, or 37.2%, from 2002 to $8.8 million. On a cost per
total ASM basis, commissions decreased 31.2% from 2002. The decrease was primarily due to
the elimination of standard travel agency commissions beginning March 1, 2003, as well as
a 15.0% decrease in passenger revenue and savings realized because of increased travel
booked directly through the Companys reservations center and Web site, and other
travel-related Web sites. Commissions, as a percentage of passenger revenue, decreased
from 4.9% in 2002 to 3.6% in 2003.

Dining service costs decreased $9.0
million, or 58.7%, from 2002 to $6.3 million in 2003. The decrease was due to the
elimination of complimentary onboard meal service in April 2003 as well as a 4.9% decrease
in origin and destination passengers at Midwest Airlines. Total dining service costs per
Midwest Airlines passenger decreased 57.4%, from $10.00 in 2002 to $4.26 in 2003.

Station rental, landing and other
fees decreased $0.6 million, or 2.0%, from 2002 to $27.4 million in 2003. Costs were
essentially unchanged primarily because of fixed costs that were not absorbed as
efficiently following the Companys capacity reductions. Other factors include
increases in landing fee rates and airport rental and ground handling costs, as well as
the effect of nonrecurring credits from first quarter 2002. On a cost per total ASM basis,
these costs increased 7.4% from 2002.

Maintenance costs decreased by $7.9
million, or 25.2%, from 2002 to $23.4 million. The decrease was caused by lower engine
repair costs at Midwest Airlines due to the phase-out of the DC-9 program, and was
partially offset by increased maintenance costs at Midwest Connect due to additional
acquisitions and repairs of components for the 328JET aircraft. On a cost per total ASM
basis, this category decreased by 18.0% from 2002.

Depreciation and amortization
increased $0.1 million, or 0.6%, from 2002 to $16.0 million in 2003. Costs in this
category were essentially unchanged as the addition of one MD-80 aircraft to the fleet in
March 2003 and the acquisition of spare parts to support the Boeing 717 program were
offset by the decrease in depreciation related to the DC-9 aircraft retired from the fleet
year over year. On a cost per total ASM basis, these costs increased 10.2% from 2002.

30

---

Aircraft rental costs increased $6.0
million, or 31.6%, from 2002 to $24.9 million. The increase was due primarily to the early
recognition of $4.7 million (pre-tax) of lease expense on six leased DC-9 aircraft removed
from service prior to September 30, 2003, as well as the addition of eight leased Boeing
717 aircraft to the Midwest Airlines fleet year over year. The increase was partially
offset by the lower lease rates negotiated on all other leased aircraft remaining in
service. Lease expense was recorded in the third quarter 2003 at the new restructured
rates. On a cost per total ASM basis, these costs increased 44.2% from 2002.

During the first quarter 2002, the
Company decided to accelerate the retirement of the Midwest Airlines DC-9 fleet in
anticipation of accelerated deliveries of Boeing 717 aircraft. In connection with this
decision, the Company performed evaluations to determine, in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal on Long-Lived Assets, whether
probability-weighted future cash flows from an asset (undiscounted and without interest
charges) expected to result from the use and eventual disposition of these aircraft would
be less than the aggregate carrying amounts. As a result of the evaluation, the Company
determined that the estimated probability-weighted future cash flows would be less than
the aggregate carrying amounts, resulting in impairment as defined by SFAS No. 144.
Consequently, in the first quarter 2002, the cost bases of these assets were reduced to
reflect the fair market value at the date of the decision, resulting in a $29.9 million
(pre-tax) impairment loss, and the remaining depreciable lives were adjusted for the new
retirement schedule. In determining the fair market value of these assets, the Company
considered market trends in aircraft dispositions, data from third parties and management
estimates.

Other operating expenses decreased
$1.2 million, or 3.0%, from 2002 to $39.1 million. Other operating expenses consist
primarily of advertising and promotion, insurance, property taxes, flight training, legal
fees, crew hotel rooms, reservation fees, administration and other items. The decrease was
primarily due to cost decreases in insurance, advertising, flight training and crew hotel
room expenses. These decreases were partially offset by increased legal and professional
services costs of $2.6 million, along with a $4.0 million loss recorded on the
sale/leaseback of one MD-80 aircraft. The MD-80 aircraft sale/leaseback transaction was
part of the overall aircraft restructuring transactions. The transaction resulted in the
retirement of approximately $7.0 million of debt related to the aircraft, which had a book
value of approximately $11.0 million on the date of the sale/leaseback. On a cost per
total ASM basis, these costs increased 6.3% from 2002.

# Other Income

Other income for 2003 reflects $11.4
million (pre-tax) received from the April 2003 Emergency Wartime Supplemental
Appropriations Act for reimbursement of security costs. In the first quarter 2002, the
Company recorded other income of $39.5 million (pre-tax) associated with the
Companys settlement of arbitration with Fairchild over the cancellation of its
428JET program.

# Income Tax Credit

Income tax credit for the first nine
months of 2003 was ($6.3) million, an increase in credit of $4.1 million from the 2002
credit of ($2.2) million. The effective tax rate for the first nine months of 2003 and
2002 was 35.0% and 37.0%, respectively. The decrease in the effective tax rate was due to
the economic uncertainty related to the realization of state net operating loss
carryforwards.

31

---

# Net Loss

Net loss for the first nine months of
2003 was ($11.7) million, which reflects an increase in loss of $7.9 million from 2002 net
loss of ($3.8) million. The net loss margin declined to (4.1)% in 2003 from (1.2%) in
2002.

# Liquidity and Capital
Resources

Cash and Working Capital

The Companys unrestricted cash
and cash equivalents totaled $29.1 million at September 30, 2003, compared with $41.5
million at December 31, 2002. Net cash used in operating activities totaled $15.5 million
in the first nine months of 2003. Net cash used in investing activities totaled $8.8
million in the first nine months of 2003. Net cash provided by financing activities in the
first nine months of 2003 totaled $11.9 million, due primarily to the increase in
restricted cash from receipt of proceeds from the first of the two steps in the issuance
of the convertible senior secured notes (the proceeds were recorded as restricted cash until they were released from escrow). The cash increase was partially offset by the
payment of principal under the bank credit facility in connection with consummation of the
county transaction. The Companys unrestricted cash and cash equivalents totaled
$52.4 million at October 31, 2003, which includes the proceeds from the first step of the sale of the convertible senior secured notes, as the proceeds were recorded as unrestricted cash upon their release from escrow on October 21, 2003.

The cash balance at September 30,
2003 reflects the effects of the significant restructuring of lease and debt payments
completed in third quarter 2003. As part of its restructuring efforts, the Company
suspended lease and debt payments on most of its aircraft from March to August 2003. The
aggregate amount of the payments that the Company had not made as a result of the lease
and debt payment moratorium was approximately $11.7 million. In July 2003, the Company
made payments totaling $4.8 million to the lessors and lenders in conjunction with the
signing of tentative agreements to restructure the aircraft financings. In August 2003,
the agreements were finalized and the Company paid an additional $2.3 million to the
lessors and lenders. For the remainder of the quarter, the Company made lease payments at
revised, lower lease rates. As discussed more fully below, the Companys subsidiaries
also delivered subordinated promissory notes to the lessors and lenders, the aggregate
principal amount of which is $7,533,000.

As of September 30, 2003, the Company
had a working capital surplus of $8.4 million compared with a $45.2 million deficit on
December 31, 2002. The improvement in working capital as of September 30, 2003 is primarily related to an increase
in restricted cash associated with the proceeds from the private placement of convertible
debt and an increase in the credit
card processor holdback (as discussed more fully below). A reduction in notes payable
related to the bank credit facility and a reduction in current maturities of long-term
debt related to the aircraft debt restructuring that was finalized in August 2003 also
contributed to the improvement in working capital.

32

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Receivables

The Company has agreements with
organizations that process credit card transactions arising from purchases of air travel
tickets by customers of the Company. The Company has one such agreement with an
organization that processes MasterCard/Visa transactions. Credit card processors have
financial risk associated with tickets purchased for travel in the future because although
the processor generally forwards the cash related to the purchase to the Company soon
after the purchase is completed, the air travel generally occurs after that time and the
processor would have liability if the Company does not ultimately deliver the travel. The
agreement with the organization that processes MasterCard/Visa transactions was amended in
January 2002 to allow the credit card processor to create and maintain a reserve account
that is funded by retaining cash that it otherwise would deliver to the Company (i.e.,
restricted cash). As of September 30, 2003, the retained cash amount was 100
percent of the credit card processors risk exposure, or approximately $30.5 million.
This became effective in conjunction with an agreement, executed August 29, 2003, to
extend the credit card processing agreement to February 28, 2004. The Company believes
that it will be able to either renew this agreement or find an alternative processor by
the expiration of this agreement. The extension included an increase in processing fees
and release of a second priority lien that exists on substantially all non-aircraft
personal property of the Company and certain aircraft, and of a third priority lien on the
Companys headquarters facility. As of September 30, 2003, American Express had
retained cash related to credit card processing totaling $1.0 million. If current industry
conditions persist, other credit card processors may require a holdback as well. The
aggregate amount of the risk exposure of the processors (other than amounts under
holdback) as of October 31, 2003 was approximately $2.3 million.

The Company offers the Midwest
Airlines MasterCard program. During 2002, the Company transitioned the program from Elan
Financial Services to Juniper Bank under an agreement effective July 1, 2002. The program
allows Midwest Airlines to offer a co-branded credit card to enhance loyalty to the
airline and increase frequent flyer membership. The Company generates income by selling
frequent flyer program miles to Juniper Bank, which in turn awards the miles to
cardholders for purchases made with their credit cards. In early fourth quarter 2002,
Juniper Bank paid the Company $20.0 million in accordance with the agreement between the
parties. This payment was a prepayment of amounts due the Company in anticipation of
mileage to be earned by cardholders in future periods. The Company recognized revenue
under the agreement (subject to the Companys revenue recognition policies for
frequent flyer miles) based on actual credit card purchase and mileage credit activity
rather than on the receipt of these or similar cash payments that the agreement may
obligate Juniper Bank to make. Accordingly, the Company reflected deferred revenue on its
balance sheet based on the amount by which the cash the Company received under the
agreement exceeded the revenue the Company had recognized under the Companys revenue
recognition policy. As of September 30, 2003, the deferred revenue was $0, as the
prepayment had been fully recognized. Current program miles sold to Juniper are recorded
as a receivable on the Companys balance sheet.

Capital Spending

Capital spending totaled $14.0
million for the nine months ended September 30, 2003. Capital expenditures consisted
primarily of costs associated with the startup of the Boeing 717 program, with the
majority of that spending related to the acquisition of spare parts for the program. In
addition, spending was incurred to convert some of the MD-80 fleet to the Saver Service
configuration. Capital spending for the remainder of the year is estimated at
approximately $3.0 million.

33

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Liabilities and Other
Obligations

In the second quarter 2002, Midwest
Airlines entered into a loan agreement to fund pre-delivery progress payments to The
Boeing Company for new Boeing 717 aircraft. Midwest Airlines entered into the loan
agreement with Kreditanstalt fur Wiederaufbau Bank (KfW) with the assistance
of Rolls-Royce Deutschland Ltd. & Co. KG (Rolls-Royce). Rolls-Royce agreed
to guarantee this loan agreement on behalf of Midwest Airlines. The loan agreement
provides up to $45.0 million in pre-delivery progress payment financing. To date, Midwest
Airlines has made pre-delivery progress payments of $46.7 million for the Boeing 717
aircraft program. As of September 30, 2003, Midwest Airlines has borrowed $34.9 million
under the loan agreement. Under a financing commitment between Midwest Airlines and Boeing
Capital Corporation (BCC), at each aircraft delivery BCC acquires and pays for
the aircraft delivered, including interest accrued on the debt owed KfW, and then leases
the aircraft to Midwest Airlines. At that time, BCC reimburses Midwest Airlines in full
for the pre-delivery progress payments Midwest Airlines has made. To the extent Midwest
Airlines originally funded such payments through KfW, Midwest Airlines uses the amounts
reimbursed to repay the related debt to KfW. To the extent Midwest Airlines originally
funded such payments with operating cash, the amounts reimbursed represent available cash.
The loan balance above reflects the net effect of pre-delivery progress payments and
delivery reimbursements as of September 30, 2003. Interest accrues from the date of
borrowing to the aircraft delivery date, and is included in the final purchase price as
capitalized interest. The interest rate on borrowings under the agreement is LIBOR plus
195 basis points. This debt has been classified as long-term in the accompanying condensed
consolidated balance sheet. There are no financial covenants associated with this debt
obligation.

With the loan agreement with KfW and
the BCC commitment, the Company believes it has requisite financing for the Boeing 717
program. Although BCC is able to terminate its financing commitment if it deems the
Company has experienced a material adverse change and the commitment is subject to other
conditions, the Company does not anticipate that the financing commitment will be
terminated or that the Company will be unable to meet the conditions.

Midwest Airlines has received credit
memos from certain suppliers associated with the delivery of each Boeing 717 aircraft to
be used for the acquisition of aircraft spare parts and maintenance tooling, employee
training, flight simulator rental, aircraft lease payments and engine maintenance
agreements. As of September 30, 2003, the amount of unused credit memos totaled $12.5
million and is recorded as Other Assets. Midwest Airlines will receive additional credit
memos on the delivery of each subsequent Boeing 717 aircraft, and will continue to use the
credits as needed to pay for applicable services. The benefit of these credit memos is
being recognized over the term of the leases.

34

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The Company maintains a qualified
defined benefit plan, the Pilots Supplemental Pension Plan (the Qualified
Plan), which provides supplemental retirement benefits to Midwest Airlines pilots,
and an unfunded nonqualified defined benefit plan to provide Midwest Airlines pilots with
annuity benefits for salary in excess of amounts permitted to be paid under the provisions
of the tax law to participants in the Qualified Plan. The discount rate used to determine
the funding requirements for the Qualified Plan was 6.75%. To determine this rate,
industry benchmarks were used, primarily the Moodys Aa Corporate Bond yield as of
December 31, 2002. The method used to determine the market-related value of plan assets is
the prior years market-related value of assets, adjusted by contributions,
disbursements, expected return on investments and 20% of investment gains (losses) during
the five prior years. The Qualified Plan assets are currently invested in money market and
other stable principal-type funds. 2003 funding requirements for the Qualified Plan are
$1.7 million. As of October 31, 2003, funding requirements for 2003 had been fulfilled,
and no additional cash will be paid for the remainder of the year. Estimated 2004 funding
requirements for the Qualified Plan are $1.6 million.

As discussed above, the
Companys subsidiaries delivered subordinated promissory notes (the Basic
Moratorium Notes) to the lessors and lenders as part of the restructuring
agreements. The aggregate principal amount of these notes is $7,533,000. Each of the Basic
Moratorium Notes was delivered pursuant to an Agreement to Amend. Each of the Basic
Moratorium Notes constitutes payment in full for any Regularly Scheduled Payments that
Midwest Airlines or Skyway Airlines, as the case may be, failed to pay to the lessor(s) or
lender(s) during the Companys payment moratorium from and including February 28,
2003 through and including August 30, 2003. Principal and interest on the Basic Moratorium
Notes are payable, in arrears, in 36 monthly installments commencing on the later of (1)
June 30, 2004 and (2) the earlier of (a) the date on which the Company attains Financial
Health and (b) January 1, 2005. The Basic Moratorium Notes bear interest at 10% per annum
beginning June 30, 2004.

As a result of the restructuring of
lease and debt agreements described above, the Company has significantly lowered its
obligations compared with the obligations under the previous lease and debt agreements.
Included in the restructured agreements are clauses that would make the Companys
obligations, under certain default situations, increase to the amounts under the previous
agreements. The amount of such contingent obligation of the Company is approximately $7.9
million as of September 30, 2003.

Other Factors Affecting
Liquidity

In second quarter 2003, the Company
received a grant of $11.4 million (pre-tax) for reimbursement of security costs as a
result of the April 2003 Emergency Wartime Supplemental Appropriations Act. In addition,
the Company received $0.5 million in third quarter 2003 related to the reimbursement of
cockpit door reinforcement costs. The Company does not expect to receive any additional
reimbursement under the Act.

35

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# Pending Developments

This Form 10-Q filing, particularly
this Pending Developments section and the discussion under the heading
Recent Developments in the Overview section of this Form 10-Q,
contains forward-looking statements that may state the Companys or managements
intentions, hopes, beliefs, expectations or predictions for the future. In the following
discussion and elsewhere in the report, statements containing words such as
expect, anticipate, believe, estimate,
goal, objective or similar words are intended to identify
forward-looking statements. It is important to note that the Companys actual results
could differ materially from projected results due to factors that include but are not
limited to:

| |  | the
Companys ability to generate sufficient cash flows to meet obligations on a timely
basis;
| | - | ----------------------------------------------------------------------------------------------

| |  | the
Companys ability to successfully achieve the desired profit-improvement and growth
measures; o the Companys ability to benefit from premium pricing;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | uncertainties
concerning ongoing financing for operations, including the ability to finance the
acquisition of new aircraft;
| | - | ----------------------------------------------------------------------------------------------------------------------------

| |  | uncertainties
related to general economic factors;
| | - | --------------------------------------------------

| |  | increased
competition in the Companys primary markets and other competitive developments; o
industry conditions;
| | - | -----------------------------------------------------------------------------------------------------------------

| |  | labor
relations;
| | - | ----------------

| |  | scheduling
developments;
| | - | ------------------------

| |  | government
regulations, including increased costs for compliance with new or enhanced government
regulations; o aircraft maintenance and refurbishment schedules;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | potential
delays related to acquired aircraft;
| | - | ----------------------------------------------

| |  | increases
in fuel costs or the failure of fuel costs to decline;
| | - | ----------------------------------------------------------------

| |  | interest
rates;
| | - | ---------------

| |  | increased
costs for security-related measures;
| | - | ----------------------------------------------

| |  | higher
fixed costs associated with the Boeing 717 aircraft that the Company is acquiring;
| | - | -----------------------------------------------------------------------------------------

| |  | potential
aircraft incidents and other events beyond the Companys control (for example,
traffic congestion and weather conditions); and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| |  | terrorist
 attacks or fear of terrorist  attacks,  and other world events,  including  U.S.
 military  involvement in overseas        operations.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

Additional information concerning
factors that could cause actual results to differ materially from those in the
forward-looking statements is contained from time to time in the Companys
Securities and Exchange Commission filings.

Boeing 717 Aircraft  In
April 2002, Midwest Airlines announced that it had amended its Boeing 717 aircraft order.
Midwest Airlines placed a firm order for 25 new Boeing 717 aircraft, with purchase rights
for an additional 25 aircraft. The firm order is valued at $940 million. Under an amended
purchase agreement, delivery of the aircraft began in February 2003 and was to continue
into 2005 at a rate of one aircraft every month. In July 2003, Midwest Airlines announced
that it was further amending the delivery schedule for the Boeing 717 aircraft. Midwest
Airlines will now receive one aircraft per month through March 2004; subsequent deliveries
will take place approximately one aircraft per quarter until all 25 aircraft on order are
delivered by October 2006.

36

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Eight Boeing 717 aircraft entered
scheduled service in the nine months ended September 30, 2003. These aircraft replaced
Midwest Airlines DC-9 aircraft and are being used to expand service in existing and new
markets. The purchase will significantly affect Midwest Airlines cost structure by
adding higher fixed costs because the Boeing 717 aircraft will have higher ownership costs
(i.e., purchase costs and lease payment expenses) than Midwest Airlines DC-9
aircraft. Benefits of the Boeing 717 aircraft, which are not fixed in amount, include
greater fuel efficiency, lower maintenance costs, improved dispatch reliability, increased
aircraft utilization, reduced regulatory compliance costs and higher revenues through
potential increased demand for air travel due to the fact that Midwest Airlines is using
these aircraft. There is no assurance that the benefits of the Boeing 717 aircraft will
outweigh the costs associated with these aircraft.

Regional Jet Aircraft
In April 2001, Midwest Connect signed a memorandum of understanding placing firm orders
for 20 new Embraer regional jets, with options to purchase 20 additional aircraft. The
firm order is valued at $400 million. In August 2001, the parties signed a purchase
agreement related to this order. Under this purchase agreement, delivery of the 20
aircraft was scheduled to begin in January 2002. In October 2001, due to ramifications of
the events of September 11, Midwest Connect reached an agreement with Embraer to delay
deliveries of the first aircraft to January 2003. For similar reasons, Midwest Connect
reached further agreement with Embraer in March 2002 to delay delivery of the first
aircraft until January 2004. This delay was intended to allow Midwest Connect to
concentrate on the introduction of Boeing 717 aircraft to the Midwest Airlines fleet and
provide additional time for Midwest Connect to evaluate financing alternatives. Midwest
Connect plans to use the new Embraer regional jets to expand service in existing and new
markets. Because the regional jets are produced in three sizes, they are expected to
provide Midwest Connect with flexibility to serve markets with differing capacity demands.
The Embraer regional jet program requires less significant pre-delivery payments than the
Boeing 717 program but will require long-term financing on or after delivery. Midwest
Connect believes long-term financing will be difficult to obtain given current industry
conditions and Company financial results, and for these reasons, Midwest Connect reached
agreement with Embraer in July 2003 to defer acquisition of these aircraft until July
2006. The contract has been amended to reflect this agreement. Midwest Connect will not
incur any cost or face claims for breach of contract in relation to the deferral.

Insurance  Due to the
events of September 11, aviation insurance carriers have significantly increased the
premiums for aviation insurance, as well as hull and war-risk coverage (insurance coverage
available to commercial air carriers for liability to persons other than employees or
passengers for claims resulting from acts of terrorism, war or similar events). Under the
Air Transportation Safety and System Stabilization Act, U.S. air carriers may 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 private aviation
insurance carriers. The Company received an extension of this war-risk liability insurance
through December 10, 2003. As a result of the Emergency Wartime Supplemental
Appropriations Act of 2003, the Company expects to receive extensions of this coverage
through August 31, 2004.

37

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Commercial air carriers are required
by the Department of Transportation to obtain appropriate aviation insurance coverage. The
effects of September 11 insurance losses, additional terrorist attacks or other
unanticipated events could result in aviation insurers further increasing their premiums,
or a future shortage of available aviation insurance. Significant increases in insurance
premiums or a shortage of available insurance could result in the curtailment or
discontinuation of scheduled service.

Codeshare In September
2003, Midwest Airlines announced that the codeshare agreement with American Eagle, which
provides connecting service to and from Boston, Dallas/Ft. Worth and Los Angeles, will be
terminated effective February 24, 2004. The Company does not expect the termination of
this agreement to have a material impact on the Companys results of operations.

Name Change  In April
2003, shareholders of the Company approved a change in the name of the corporation from
Midwest Express Holdings, Inc. to Midwest Air Group, Inc. This name change is expected to
be implemented in first quarter 2004.

# Item 3. Quantitative and
Qualitative Disclosures About Market Risk

There have been no material changes
in the Companys market risk since December 31, 2002. As of September 30, 2003, the
Company no longer had debt that was subject to changes in interest rates.

38

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# Item 4. Controls and
Procedures

(a)    
          Evaluation of disclosure controls and procedures. In accordance with Rule
          13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act),
          as of the end of the period covered by this Quarterly Report on Form 10-Q, the
          Companys management evaluated, with the participation of the
          Companys principal executive officer and principal financial officer, the
          effectiveness of the design and operation of the Companys disclosure
          controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act).
          Based upon their evaluation of these disclosure controls and procedures, the
          Companys Chairman of the Board, President and Chief Executive Officer and
          the Companys Senior Vice President and Chief Financial Officer have
          concluded that the disclosure controls and procedures were effective as of the
          date of such evaluation to ensure that material information relating to the
          Company, including its consolidated subsidiaries, was made known to them by
          others within those entities, particularly during the period in which this
          Quarterly Report on Form 10-Q was being prepared.

(b)    
          Changes in internal controls. There was no change in the Companys
          internal control over financial reporting that occurred during the period
          covered by this Quarterly Report on Form 10-Q that has materially affected, or
          is reasonably likely to materially affect, the Companys internal control
          over financial reporting.

39

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# PART II  OTHER
INFORMATION

# Item 2. Changes in
Securities and Use of Proceeds.

Incorporated by reference to the
discussion contained under the subheading Private Placement of Debt and Equity
of the heading Recent Developments of the Overview section of Part
I, Item 2.

# Item 6. Exhibits and
Reports on Form 8-K

| | (a) | Exhibits
| | --- | --------

Exhibit No.                 Description

| | (31.1) | Certification
of the Chief Executive Officer Pursuant to Section 302 of the  Sarbanes-Oxley  Act
                    and Rule 13a-14(a) of 15d-14(a) under the Securities Exchange Act of
1934.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (31.2) | Certification
of the Chief Financial Officer Pursuant to Section 302 of the  Sarbanes-Oxley  Act
                    and Rule 13a-14(a) of 15d-14(a) under the Securities Exchange Act of
1934.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (32.1) | Written
 Statement of the Chief  Executive  Officer and Chief Financial  Officer  Pursuant to 18
                    U.S.C. Section 1350.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Reports
on Form 8-K
| | --- | -------------------

| | The
following reports on Form 8-K were filed during the quarter ended September 30, 2003:
| | -----------------------------------------------------------------------------------------

|Date Filed    | Date of Report | Item                                                                                                                                                 
|------------- | -------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|July 15, 2003 | July 11, 2003  | The Company filed a news release under Item 12 of Form 8-K
reporting June  performance  data for its Midwest Airlines
and Skyway Airlines operations.
|July 15, 2003 | July 11, 2003  | The Company  filed a news release under Item 5 of Form 8-K
announcing  additional  information  on its  restructuring
efforts.                       
|July 21, 2003 | July 16, 2003  | The Company  filed a news release under Item 5 of Form 8-K
announcing  completion  of  preliminary  agreements on its
restructuring efforts.         

40

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|July 21, 2003     | July 17, 2003   | The Company  filed a news release under Item 5 of Form 8-K
announcing    achievement   of   certain   restructuring
initiatives and plans for the future.  
|----------------- | --------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|July 22, 2003     | July 22, 2003   | The Company filed a news release under Item 12 of Form 8-K
reporting financial results for the quarter ended June 30,
2003.                                
|August 4, 2003    | July 30, 2003   | The Company filed a news release under Item 12 of Form 8-K
reporting  revised financial results for the quarter ended
June 20, 2003.                       
|August 29, 2003   | August 29, 2003 | The Company  filed a news release under Item 5 of Form 8-K
announcing the extension of the Company's  credit facility
and credit card processing agreement.
|September 5, 2003 | August 20, 2003 | The Company  filed a news release under Item 5 of Form 8-K
reporting  events  related to the Company's  restructuring
efforts.                             

41

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SIGNATURES

Pursuant to the requirements of the
Securities and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

|                         | Midwest Express Holdings, Inc.      
|------------------------ | ------------------------------------
|Date:  November 14, 2003 | By /s/ Timothy E. Hoeksema          
|                         | Timothy E. Hoeksema                 
|                         | Chairman of the Board, President and
|                         | Chief Executive Officer             
|Date:  November 14, 2003 | By /s/ Robert S. Bahlman            
|                         | Robert S. Bahlman                   
|                         | Senior Vice President and           
|                         | Chief Financial Officer             

42

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# EXHIBIT INDEX MIDWEST EXPRESS
HOLDINGS, INC.QUARTERLY REPORT ON
FORM 10-Q

# FOR THE QUARTER ENDED
SEPTEMBER 30, 2003

Exhibit No.                 Description

| | (31.1) | Certification
of the Chief Executive Officer Pursuant to Section 302 of the  Sarbanes-Oxley  Act
                    and Rule 13a-14(a) of 15d-14(a) under the Securities Exchange Act of
1934.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (31.2) | Certification
of the Chief Financial Officer Pursuant to Section 302 of the  Sarbanes-Oxley  Act
                    and Rule 13a-14(a) of 15d-14(a) under the Securities Exchange Act of
1934.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (32.1) | Written
 Statement of the Chief  Executive  Officer and Chief Financial  Officer  Pursuant to 18
                    U.S.C. Section 1350.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------

43