##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended: March 31, 2007

or



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

For the transition period from  to

Commission File Number 0-26582



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WORLD AIR HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|DELAWARE                                                       |  | 20-2121036                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

The HLH Building, 101 World Drive, Peachtree City, GA 30269

(Address of principal executive offices)

(770) 632-8002

(Registrants telephone number, including area code)



(Former name, former address and formal fiscal year, if changed since last
report)



---

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer ̈Accelerated filer  x    Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x

The number of shares of the registrants Common Stock outstanding on August 1, 2007 was approximately 22,616,717.



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##### Table of Contents

WORLD AIR HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

TABLE OF CONTENTS



|                                                                                                                                            |  |     
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                            |  | Page
|PART I  FINANCIAL INFORMATION                                                                                                              |  |     
|                                                                                                                                            | 
|Item 1. Financial Statements                                                                                                                |  |     
|                                                                                                                                            | 
|Condensed Consolidated Balance Sheets (Unaudited), March 31, 2007 and December 31, 2006                                                     |  | 3   
|                                                                                                                                            | 
|Condensed Consolidated Statements of Income (Unaudited), Three Months Ended March 31, 2007 and 2006                                         |  | 5   
|                                                                                                                                            | 
|Condensed Consolidated Statement of Changes in Stockholders Equity and Comprehensive Income (Unaudited), Three Months ended March 31, 2007 |  | 6   
|                                                                                                                                            | 
|Condensed Consolidated Statements of Cash Flows (Unaudited), Three Months ended March 31, 2007 and 2006                                     |  | 7   
|                                                                                                                                            | 
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                            |  | 8   
|                                                                                                                                            | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                                               |  | 14  
|                                                                                                                                            | 
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                                          |  | 17  
|                                                                                                                                            | 
|Item 4. Controls and Procedures                                                                                                             |  | 18  
|                                                                                                                                            | 
|PART II  OTHER INFORMATION                                                                                                                 |  |     
|                                                                                                                                            | 
|Item 1. Legal Proceedings                                                                                                                   |  | 19  
|                                                                                                                                            | 
|Item 6. Exhibits                                                                                                                            |  | 19  
|                                                                                                                                            | 
|SIGNATURES                                                                                                                                  |  | 20  
|                                                                                                                                            | 
|EX-31.1 Certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                  |  |     
|                                                                                                                                            | 
|EX-31.2 Certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                  |  |     
|                                                                                                                                            | 
|EX-32.1 Certification of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                  |  |     
|                                                                                                                                            | 
|EX-32.2 Certification of the CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                  |  |     



2



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##### Table of Contents

ITEM 1. FINANCIAL STATEMENTS

WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



|                                                                                                                                                |  |               |         |                  |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                                                                                                                                                |  | March 31,2007 |         | December 31,2006
|ASSETS                                                                                                                                          |  |               |         |                  |   |        
|Current assets                                                                                                                                  |  |               |         |                  |   |        
|Cash and cash equivalents                                                                                                                       |  | $             | 33,966  |                  | $ | 31,198 
|Restricted cash                                                                                                                                 |  |               | 1,915   |                  |   | 1,087  
|Short-term investments                                                                                                                          |  |               | 10,500  |                  |   |       
|Trade accounts receivable, less sales allowance and allowance for doubtful accounts of $2,074 at March 31, 2007 and $1,623 at
December 31, 2006 |  |               | 32,452  |                  |   | 27,944 
|Other receivables                                                                                                                               |  |               | 13,477  |                  |   | 16,112 
|Prepaid expenses and other current assets                                                                                                       |  |               | 18,426  |                  |   | 19,697 
|Deferred income taxes                                                                                                                           |  |               | 3,086   |                  |   | 1,261  
|                                                                                                                                                |  |               |         |                  |   |        
|Total current assets                                                                                                                            |  |               | 113,822 |                  |   | 97,299 
|Equipment and property                                                                                                                          |  |               |         |                  |   |        
|Flight and other equipment                                                                                                                      |  |               | 85,648  |                  |   | 84,048 
|Less: accumulated depreciation and amortization                                                                                                 |  |               | 49,523  |                  |   | 48,613 
|                                                                                                                                                |  |               |         |                  |   |        
|Net equipment and property                                                                                                                      |  |               | 36,125  |                  |   | 35,435 
|Goodwill and other intangible assets                                                                                                            |  |               |         |                  |   |        
|Goodwill                                                                                                                                        |  |               | 25,370  |                  |   | 25,370 
|Other intangible assets, net of accumulated amortization of $1,799 at March 31, 2007 and $1,614 at December 31, 2006                            |  |               | 6,296   |                  |   | 6,481  
|                                                                                                                                                |  |               |         |                  |   |        
|Net goodwill and other intangible assets                                                                                                        |  |               | 31,666  |                  |   | 31,851 
|Long-term deposits                                                                                                                              |  |               | 27,831  |                  |   | 28,481 
|Other assets and deferred charges, net of accumulated amortization of $246 at March 31, 2007 and $185 at December 31,
2006                      |  |               | 6,437   |                  |   | 5,684  
|                                                                                                                                                |  |               |         |                  |   |        
|Total assets                                                                                                                                    |  | $             | 215,881 |                  | $ | 198,750
|                                                                                                                                                |  |               |         |                  |   |        

See accompanying Notes to Condensed Consolidated Financial Statements



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##### Table of Contents

WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



|                                                                                                                                                                                         |  |               |         |                  |   |        
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                                                                                                                                                                                         |  | March 31,2007 |         | December 31,2006
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                     |  |               |         |                  |   |        
|Current liabilities                                                                                                                                                                      |  |               |         |                  |   |        
|Accounts payable                                                                                                                                                                         |  | $             | 60,552  |                  | $ | 52,372 
|Current portion of accrued rent                                                                                                                                                          |  |               | 4,575   |                  |   | 3,945  
|Current portion of deferred rent                                                                                                                                                         |  |               | 1,772   |                  |   | 2,007  
|Unearned revenue                                                                                                                                                                         |  |               | 17,760  |                  |   | 18,163 
|Accrued maintenance                                                                                                                                                                      |  |               | 13,726  |                  |   | 14,504 
|Accrued salaries, wages and profit sharing                                                                                                                                               |  |               | 17,305  |                  |   | 15,814 
|Accrued taxes                                                                                                                                                                            |  |               | 10,761  |                  |   | 6,413  
|                                                                                                                                                                                         |  |               |         |                  |   |        
|Total current liabilities                                                                                                                                                                |  |               | 126,451 |                  |   | 113,218
|                                                                                                                                                                                         |  |               |         |                  |   |        
|Deferred gain from sale-leaseback transactions, net of accumulated amortization of $5,365 at March 31, 2007 and $5,263 at
December 31, 2006                                              |  |               | 159     |                  |   | 244    
|Accrued post-retirement benefits                                                                                                                                                         |  |               | 8,067   |                  |   | 7,804  
|Accrued and deferred rent, net of current portion                                                                                                                                        |  |               | 9,027   |                  |   | 9,128  
|Deferred income taxes                                                                                                                                                                    |  |               |        |                  |   | 1,225  
|Other liabilities                                                                                                                                                                        |  |               | 3,442   |                  |   |       
|                                                                                                                                                                                         |  |               |         |                  |   |        
|Total liabilities                                                                                                                                                                        |  |               | 147,146 |                  |   | 131,619
|                                                                                                                                                                                         |  |               |         |                  |   |        
|Stockholders equity                                                                                                                                                                     |  |               |         |                  |   |        
|Preferred stock, $.001 par value (5,000,000 shares authorized; no shares issued or outstanding)                                                                                          |  |               |        |                  |   |       
|Common stock, $.001 par value (100,000,000 shares authorized; 22,551,217 shares issued and outstanding at March 31, 2007; 22,367,317
shares issued and outstanding at December 31, 2006) |  |               | 23      |                  |   | 22     
|Additional paid-in capital                                                                                                                                                               |  |               | 38,111  |                  |   | 37,021 
|Retained earnings                                                                                                                                                                        |  |               | 30,379  |                  |   | 29,861 
|Other comprehensive income                                                                                                                                                               |  |               | 222     |                  |   | 227    
|                                                                                                                                                                                         |  |               |         |                  |   |        
|Total stockholders equity                                                                                                                                                               |  |               | 68,735  |                  |   | 67,131 
|                                                                                                                                                                                         |  |               |         |                  |   |        
|Commitments and contingencies                                                                                                                                                            |  |               |        |                  |   |       
|Total liabilities and stockholders equity                                                                                                                                               |  | $             | 215,881 |                  | $ | 198,750
|                                                                                                                                                                                         |  |               |         |                  |   |        

See accompanying Notes to Condensed Consolidated Financial Statements



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WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)



|                                                  |  |                             |         |   |      |   |         |  
|------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                  |  | Three Months EndedMarch 31, |        
|                                                  |  | 2007                        |         |   | 2006 |  
|Operating revenues                                |  |                             |         |   |      |   |         |  
|Flight operations                                 |  | $                           | 222,477 |   |      | $ | 215,867 |  
|Other                                             |  |                             | 374     |   |      |   | 386     |  
|                                                  |  |                             |         |   |      |   |         |  
|Total operating revenues                          |  |                             | 222,851 |   |      |   | 216,253 |  
|                                                  |  |                             |         |   |      |   |         |  
|Operating expenses                                |  |                             |         |   |      |   |         |  
|Flight                                            |  |                             | 68,103  |   |      |   | 61,415  |  
|Maintenance                                       |  |                             | 33,575  |   |      |   | 30,434  |  
|Aircraft costs                                    |  |                             | 31,764  |   |      |   | 29,261  |  
|Fuel                                              |  |                             | 51,706  |   |      |   | 49,329  |  
|Flight operations subcontracted to other carriers |  |                             | 250     |   |      |   | 2,106   |  
|Commissions                                       |  |                             | 11,787  |   |      |   | 10,965  |  
|Depreciation and amortization                     |  |                             | 1,852   |   |      |   | 1,671   |  
|Sales, general and administrative                 |  |                             | 22,984  |   |      |   | 21,626  |  
|                                                  |  |                             |         |   |      |   |         |  
|Total operating expenses                          |  |                             | 222,021 |   |      |   | 206,807 |  
|                                                  |  |                             |         |   |      |   |         |  
|Operating income                                  |  |                             | 830     |   |      |   | 9,446   |  
|Other income (expense)                            |  |                             |         |   |      |   |         |  
|Interest expense                                  |  |                             | (1      | ) |      |   | (3,573  | )
|Interest income                                   |  |                             | 345     |   |      |   | 339     |  
|Other, net                                        |  |                             | (78     | ) |      |   | (114    | )
|                                                  |  |                             |         |   |      |   |         |  
|Total other income (expense)                      |  |                             | 266     |   |      |   | (3,348  | )
|                                                  |  |                             |         |   |      |   |         |  
|Earnings before income tax expense                |  |                             | 1,096   |   |      |   | 6,098   |  
|Income tax expense                                |  |                             | 578     |   |      |   | 2,556   |  
|                                                  |  |                             |         |   |      |   |         |  
|Net earnings                                      |  | $                           | 518     |   |      | $ | 3,542   |  
|                                                  |  |                             |         |   |      |   |         |  
|Basic earnings per share                          |  |                             |         |   |      |   |         |  
|Net earnings                                      |  | $                           | 0.02    |   |      | $ | 0.15    |  
|                                                  |  |                             |         |   |      |   |         |  
|Weighted average shares outstanding               |  |                             | 22,513  |   |      |   | 23,938  |  
|Diluted earnings per share                        |  |                             |         |   |      |   |         |  
|Net earnings                                      |  | $                           | 0.02    |   |      | $ | 0.13    |  
|                                                  |  |                             |         |   |      |   |         |  
|Weighted average shares outstanding               |  |                             | 24,714  |   |      |   | 26,569  |  

See accompanying Notes to Condensed Consolidated Financial Statements



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WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES

IN STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2007

(in thousands, except share amounts)

(unaudited)



|                                             |  |             |    |                          |   |                  |  |                                     |        |  |                          |     |   |  |   |        |  
|-------------------------------------------- |  | ----------- | -- | ------------------------ | - | ---------------- |  | ----------------------------------- | ------ |  | ------------------------ | --- | - |  | - | ------ | -
|                                             |  | CommonStock |    | AdditionalPaid-InCapital |   | RetainedEarnings |  | AccumulatedOtherComprehensiveIncome |        |  | TotalStockholdersEquity |    
|Balances at December 31, 2006                |  | $           | 22 |                          | $ | 37,021           |  | $                                   | 29,861 |  | $                        | 227 |   |  | $ | 67,131 |  
|Net income                                   |  |             |   |                          |   |                 |  |                                     | 518    |  |                          |    |   |  |   | 518    |  
|Other comprehensive income, net              |  |             |   |                          |   |                 |  |                                     |       |  |                          | (5  | ) |  |   | (5     | )
|                                             |  |             |    |                          |   |                  |  |                                     |        |  |                          |     |   |  |   |        |  
|Comprehensive income                         |  |             |    |                          |   |                  |  |                                     |        |  |                          |     |   |  |   | 513    |  
|Exercise of 185,400 stock options            |  |             | 1  |                          |   | 220              |  |                                     |       |  |                          |    |   |  |   | 221    |  
|Excess tax benefit of stock option exercises |  |             |   |                          |   | 563              |  |                                     |       |  |                          |    |   |  |   | 563    |  
|Amortization of warrants                     |  |             |   |                          |   | 34               |  |                                     |       |  |                          |    |   |  |   | 34     |  
|Stock-based compensation                     |  |             |   |                          |   | 273              |  |                                     |       |  |                          |    |   |  |   | 273    |  
|                                             |  |             |    |                          |   |                  |  |                                     |        |  |                          |     |   |  |   |        |  
|Balances at March 31, 2007                   |  | $           | 23 |                          | $ | 38,111           |  | $                                   | 30,379 |  | $                        | 222 |   |  | $ | 68,735 |  
|                                             |  |             |    |                          |   |                  |  |                                     |        |  |                          |     |   |  |   |        |  

See accompanying Notes to Condensed Consolidated Financial Statements



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WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2007 and 2006

(in thousands)

(unaudited)



|                                                                                    |  |      |         |   |      |   |         |  
|----------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                    |  | 2007 |         |   | 2006 |  
|Cash and cash equivalents at beginning of year                                      |  | $    | 31,198  |   |      | $ | 46,202  |  
|                                                                                    |  |     
|Cash flow from operating activities                                                 |  |      |         |   |      |   |         |  
|Net earnings                                                                        |  |      | 518     |   |      |   | 3,542   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |      |         |   |      |   |         |  
|Depreciation and amortization                                                       |  |      | 1,852   |   |      |   | 1,671   |  
|Amortization of deferred gain                                                       |  |      | (102    | ) |      |   | (101    | )
|Loss on disposals of equipment and property                                         |  |      | 297     |   |      |   | 114     |  
|Amortization of warrants and debt issuance costs                                    |  |      | 95      |   |      |   | 2,701   |  
|Deferred income taxes                                                               |  |      | (2,296  | ) |      |   | (1,168  | )
|Provision for doubtful accounts                                                     |  |      | 529     |   |      |   | 50      |  
|Stock-based compensation                                                            |  |      | 273     |   |      |   | 111     |  
|Other                                                                               |  |      | (5      | ) |      |   | 35      |  
|                                                                                    |  |     
|Changes in operating assets and liabilities, exclusive of acquisitions:             |  |      |         |   |      |   |         |  
|Trade and other receivables                                                         |  |      | (2,402  | ) |      |   | 9,720   |  
|Restricted cash                                                                     |  |      | (828    | ) |      |   | 3,255   |  
|Deposits, prepaid expenses and other assets                                         |  |      | 418     |   |      |   | 3,555   |  
|Accounts payable, accrued expenses and other liabilities                            |  |      | 16,973  |   |      |   | (773    | )
|Unearned revenue                                                                    |  |      | (403    | ) |      |   | 1,005   |  
|                                                                                    |  |      |         |   |      |   |         |  
|Net cash provided by operating activities                                           |  |      | 14,919  |   |      |   | 23,717  |  
|                                                                                    |  |      |         |   |      |   |         |  
|Cash flows from investing activities                                                |  |      |         |   |      |   |         |  
|Purchases of equipment and property                                                 |  |      | (2,418  | ) |      |   | (2,238  | )
|Net (purchases) and sales of short term investments                                 |  |      | (10,500 | ) |      |   | (2      | )
|Proceeds from disposals of equipment and property                                   |  |      | 48      |   |      |   | 161     |  
|                                                                                    |  |      |         |   |      |   |         |  
|Net cash used in investing activities                                               |  |      | (12,870 | ) |      |   | (2,079  | )
|                                                                                    |  |      |         |   |      |   |         |  
|Cash flows from financing activities                                                |  |      |         |   |      |   |         |  
|Repayment of debt                                                                   |  |      |        |   |      |   | (24,000 | )
|Proceeds from exercise of stock options                                             |  |      | 221     |   |      |   | 166     |  
|Excess tax benefit from employees stock-based compensation plan                     |  |      | 498     |   |      |   | 59      |  
|                                                                                    |  |      |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                                 |  |      | 719     |   |      |   | (23,775 | )
|                                                                                    |  |      |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                                |  |      | 2,768   |   |      |   | (2,137  | )
|                                                                                    |  |      |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                          |  | $    | 33,966  |   |      | $ | 44,065  |  
|                                                                                    |  |      |         |   |      |   |         |  
|Supplemental information:                                                           |  |      |         |   |      |   |         |  
|Interest paid                                                                       |  | $    |        |   |      | $ | 363     |  
|Income taxes paid                                                                   |  | $    | 81      |   |      | $ | 39      |  

See accompanying Notes to Condensed Consolidated Financial Statements



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WORLD AIR HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



|1. | Basis of Presentation
|-- | ---------------------

The unaudited Condensed Consolidated
Financial Statements include the accounts of World Air Holdings, Inc. (World Air Holdings or the Company), and its wholly-owned subsidiaries, World Airways, Inc. (World Airways), North American Airlines, Inc.
(North American), and World Risk Solutions, Ltd. (World Risk Solutions). World Airways Parts Company LLC is a wholly-owned subsidiary of World Airways. All significant inter-company accounts and transactions have been
eliminated in consolidation for all periods presented.

Management believes that all adjustments necessary to present fairly the financial position of
World Air Holdings, Inc. as of March 31, 2007 and the results of operations for the respective three-months ended March 31, 2007 have been included in the unaudited Condensed Consolidated Financial Statements for the interim periods
presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the results
of operations for the three-month period ended March 31, 2007 are not necessarily indicative of the results to be expected for the year ending December 31, 2007.

The Consolidated Balance Sheet for December 31, 2006 is from the Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2006 (the
2006 Form 10-K). These interim period Consolidated Financial Statements and accompanying footnotes should be read in conjunction with the Consolidated Financial Statements contained in the 2006 Form 10-K.



|2. | Segment Reporting
|-- | -----------------

The Company has two operating segments, World
Airways and North American. Financial and other information for the three-month periods ended March 31, 2007 and 2006 by reporting segment is set forth below (in thousands).



|                         |  |                                   |         |               |   |        |                                                         |  |   |       |   |  |   |        
|------------------------ |  | --------------------------------- | ------- | ------------- | - | ------ | ------------------------------------------------------- |  | - | ----- | - |  | - | -------
|                         |  | Three Months Ended March 31, 2007
|                         |  | WorldAirways                      |         | NorthAmerican |   |        | World AirHoldings, WorldRisk Solutions, andEliminations |  |   | Total
|Total operating revenues |  | $                                 | 138,807 |               | $ | 84,827 |                                                         |  | $ | (783  | ) |  | $ | 222,851
|Total operating expenses |  | $                                 | 135,598 |               | $ | 86,803 |                                                         |  | $ | (380  | ) |  | $ | 222,021
|Operating income/(loss)  |  | $                                 | 3,209   |               | $ | (1,976 | )                                                       |  | $ | (403  | ) |  | $ | 830    
|Total assets             |  | $                                 | 119,755 |               | $ | 87,811 |                                                         |  | $ | 8,315 |   |  | $ | 215,881
|                         | 
|                         |  | Three Months Ended March 31, 2006
|                         |  | WorldAirways                      |         | NorthAmerican |   |        | World AirHoldings, WorldRisk Solutions, andEliminations |  |   | Total
|Total operating revenues |  | $                                 | 158,382 |               | $ | 58,098 |                                                         |  | $ | (227  | ) |  | $ | 216,253
|Total operating expenses |  | $                                 | 148,633 |               | $ | 57,786 |                                                         |  | $ | 388   |   |  | $ | 206,807
|Operating income (loss)  |  | $                                 | 9,749   |               | $ | 312    |                                                         |  | $ | (615  | ) |  | $ | 9,446  
|Total assets             |  | $                                 | 159,800 |               | $ | 78,062 |                                                         |  | $ | 2,854 |   |  | $ | 240,716



|3. | Long-Term Deposits
|-- | ------------------

Long-term deposits of $27.8 million at
March 31, 2007 consisted of aircraft and engine (flight equipment) deposits of $27.3 million and building and miscellaneous deposits of $0.5 million. At December 31, 2006, long-term deposits of $28.5 million consisted of aircraft and
engine deposits of $27.6 million and building and miscellaneous deposits of $0.9 million.



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##### Table of Contents

|4. | Earnings per Share
|-- | ------------------

Basic earnings per share are computed by
dividing net earnings by the weighted average number of shares outstanding during the period. Diluted earnings per share include the effects of common equivalent shares outstanding during the period that are dilutive.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):



|                                                                  |  |                                   |       |                     |        |                 |   |     
|----------------------------------------------------------------- |  | --------------------------------- | ----- | ------------------- | ------ | --------------- | - | ----
|                                                                  |  | Three Months Ended March 31, 2007
|                                                                  |  | Earnings(Numerator)               |       | Shares(Denominator) |        | Per ShareAmount
|Basic EPS                                                         |  |                                   |       |                     |        |                 |   |     
|Earnings available to common shareholders                         |  | $                                 | 518   |                     | 22,513 |                 | $ | 0.02
|                                                                  |  |                                   |       |                     |        |                 |   |     
|Effect of dilutive securities                                     |  |                                   |       |                     |        |                 |   |     
|Warrants                                                          |  |                                   |      |                     | 1,562  |                 |   |     
|Options                                                           |  |                                   |      |                     | 598    |                 |   |     
|Restricted stock                                                  |  |                                   |      |                     | 41     |                 |   |     
|                                                                  |  |                                   |       |                     |        |                 |   |     
|Diluted EPS                                                       |  |                                   |       |                     |        |                 |   |     
|Earnings available to common shareholders plus assumed conversion |  | $                                 | 518   |                     | 24,714 |                 | $ | 0.02
|                                                                  |  |                                   |       |                     |        |                 |   |     
|                                                                  | 
|                                                                  |  | Three Months Ended March 31, 2006
|                                                                  |  | Earnings(Numerator)               |       | Shares(Denominator) |        | Per ShareAmount
|Basic EPS                                                         |  |                                   |       |                     |        |                 |   |     
|Earnings available to common shareholders                         |  | $                                 | 3,542 |                     | 23,938 |                 | $ | 0.15
|                                                                  |  |                                   |       |                     |        |                 |   |     
|Effect of dilutive securities                                     |  |                                   |       |                     |        |                 |   |     
|Warrants                                                          |  |                                   |      |                     | 1,735  |                 |   |     
|Options                                                           |  |                                   |      |                     | 889    |                 |   |     
|Restricted stock                                                  |  |                                   |      |                     | 7      |                 |   |     
|                                                                  |  |                                   |       |                     |        |                 |   |     
|Diluted EPS                                                       |  |                                   |       |                     |        |                 |   |     
|Earnings available to common shareholders plus assumed conversion |  | $                                 | 3,542 |                     | 26,569 |                 | $ | 0.13
|                                                                  |  |                                   |       |                     |        |                 |   |     



|5. | Long-term Debt
|-- | --------------

On March 30, 2006 the Company prepaid the
remaining principal balance of $24.0 million outstanding under the $30.0 million term loan (the ATSB Loan), which was 90% guaranteed by the Air Transportation Stabilization Board (the ATSB) and 10% guaranteed by a third
party, with working capital. As a result of this prepayment, the Company expensed an additional $2.3 million in unamortized debt issuance and warrant costs associated with the ATSB Loan during the first quarter of 2006.

Additionally, in March 2006, World Airways and North American entered into a Loan and Security Agreement with Wachovia Bank, National Association (Wachovia
Loan), for the issuance of loans and letters of credit up to $50.0 million subject to certain terms, conditions, and limitations. The facility terminates in March 2008.

Under the Wachovia Loan, the Companys borrowings bear interest at fluctuating rates. The applicable rate will be one of the following three options, as designated by the Company: (1) the banks base
lending rate, (2) the Federal Funds Rate, or (3) the Eurodollar or London Interbank Offered Rate (LIBOR) plus an applicable percentage. The rates applicable to outstanding borrowings fluctuate based on many factors including,
but not limited to, general economic conditions, and general interest rates, including the prime rate, and the supply of and demand for credit in the London interbank market. At March 31, 2007, the Companys borrowing base was
approximately $33.7 million, of which $3.7 million was utilized for letters of credit issued under the facility. As a result, the available amount for borrowing was $30.0 million. At December 31, 2006, the Companys borrowing



9



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##### Table of Contents

base was approximately $29.0 million, of which $3.4 million was utilized for letters of credit issued under the facility. As a result, the available amount
for borrowing was $25.6 million. The borrowing base fluctuates on a daily basis and is subject to a $50.0 million maximum and includes the sum of: (1) 85%90% of eligible government receivables, (2) 70% of eligible unbilled government
receivables, not to exceed $5.0 million, (3) 80% of eligible commercial receivables, (4) 75% of the value of eligible spare parts, not to exceed $15.0 million; less the face amount of issued and outstanding letters of credit and any
applicable reserves. The Company had no borrowings outstanding at March 31, 2007 or December 31, 2006.

The Company has obtained the necessary
waivers through August 17, 2007 relating to the covenant provisions for the submission of timely monthly consolidated financial statements, borrowing base certificates, and the failure to timely file Securities Exchange Commission
(SEC) required securities filings.



|6. | Lease Obligations
|-- | -----------------

During the second quarter of 2007, the Company
signed a letter of intent to lease two Boeing 747-400 (B747) Special Freighter aircraft. Deliveries are planned during 2008, at the discretion of the lessor. The term of the leases are 120 months each from the respective delivery dates.
Future minimum lease payments for these aircraft leases, excluding maintenance reserves, are $10.4 million, $19.2 million, $19.2 million, $19.2 million and $124.0 million for the years 2008, 2009, 2010, 2011, and thereafter, respectively. These
aircraft leases require the Company to pay certain maintenance reserves for airframes, engines, landing gear and auxiliary power units of approximately $1.2 million per year plus additional amounts based on flight hours and cycles. Certain return
conditions also must be met prior to returning the aircraft to the lessor.



|7. | Accounting for Stock-Based Compensation
|-- | ---------------------------------------

At March 31, 2007,
the Company had one stock-based compensation plan. The 1995 Stock Incentive Plan (the 1995 Plan) was amended in May 2004 to allow for various forms of equity awards including restricted stock.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based
Payments(SFAS 123R), using the modified-prospective transition method. Under the modified-prospective transition method, compensation cost recognized during the three-months ended March 31, 2007 and 2006 includes compensation
cost for all share-based awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123R.

Stock Options

The table below summarizes stock option award activity
pursuant to the Companys plans for the three-months ended March 31, 2007:



|                                 |  |                                |   |  |                               |      |                                                     |     |                                        |   |      
|-------------------------------- |  | ------------------------------ | - |  | ----------------------------- | ---- | --------------------------------------------------- | --- | -------------------------------------- | - | -----
|                                 |  | Number ofShares (in thousands) |   |  | WeightedAverageExercise Price |      | Weighted AverageRemainingContractual Term(in years) |     | AggregateIntrinsic Value(in thousands)
|Outstanding at December 31, 2006 |  | 1,624                          |   |  | $                             | 3.55 |                                                     |     |                                        |   |      
|Granted                          |  |                               |   |  |                               |     |                                                     |     |                                        |   |      
|Exercised                        |  | (185                           | ) |  | $                             | 1.19 |                                                     |     |                                        |   |      
|Forfeited                        |  | (4                             | ) |  | $                             | 7.44 |                                                     |     |                                        |   |      
|                                 |  |                                |   |  |                               |      |                                                     |     |                                        |   |      
|Outstanding at March 31, 2007    |  | 1,435                          |   |  | $                             | 3.85 |                                                     | 4.7 |                                        | $ | 9,695
|                                 |  |                                |   |  |                               |      |                                                     |     |                                        |   |      
|Exercisable at March 31, 2007    |  | 936                            |   |  | $                             | 2.56 |                                                     | 4.0 |                                        | $ | 7,526
|                                 |  |                                |   |  |                               |      |                                                     |     |                                        |   |      

The total intrinsic value of options exercised for the three-month period ended March 31, 2007, determined as
of the date of exercise of options, was $1.4 million. The total intrinsic value of options exercised for the three-month period ended March 31, 2006, determined as of the date of exercise of options, was $0.2 million. Cash received from option
exercises during the three-month periods ended March 31, 2007 and 2006, totaled $0.2 million and $0.2 million, respectively.

The Company recorded
$0.2 million and $0.1 million of stock-based compensation expense related to non-vested stock options to sales, general and administrative expense for the three-month period ended March 31, 2007 and 2006, respectively. The excess tax benefit
realized for the tax deduction from option exercises under the Company plan was $0.6 million and $0.1 million for the three-month periods ended 2007 and 2006, which generated cash flows from excess tax benefits, under the long-haul method, of $0.5
million and $0.1 million, respectively.



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##### Table of Contents

At March 31, 2007, there was approximately $1.1 million of total unrecognized compensation expense related to
non-vested stock options granted under the Companys stock incentive plans. That cost is expected to be recognized over a weighted-average period of 2.4 years.

Restricted Stock Awards

The Company recorded $0.1 million of stock-based compensation expense related to non-vested
restricted stock awards to sales, general and administrative expense for the three-month period ended March 31, 2007. At March 31, 2007, there was approximately $1.3 million of total unrecognized compensation expense related to non-vested
restricted stock granted under the Companys stock incentive plan, which is expected to be recognized over a weighted-average vesting period of 4.0 years. The Company had no stock-based compensation expense related to non-vested restricted
stock awards for the three-month period ended March 31, 2006.



|10. | Post-Retirement Health Care Benefits Plan
|--- | -----------------------------------------

World Airways
cockpit crewmembers and eligible dependents are covered by a post-retirement health care and life insurance benefits plan until age 65. A small group of administrative retirees are also covered under a post-retirement health care and life insurance
benefits plan for life.

A summary of the net periodic post-retirement benefit costs for the three-month periods ended March 31, 2007 and 2006 is as
follows (in thousands):



|                                          |  |                             |     |   |      |   |    
|----------------------------------------- |  | --------------------------- | --- | - | ---- | - | ---
|                                          |  | Three Months EndedMarch 31,
|                                          |  | 2007                        |     |   | 2006
|Service cost                              |  | $                           | 192 |   |      | $ | 192
|Interest cost                             |  |                             | 113 |   |      |   | 111
|Amortization of prior service cost        |  |                             | (4  | ) |      |   | 3  
|Net amortized loss                        |  |                             |    |   |      |   | 19 
|                                          |  |                             |     |   |      |   |    
|Net periodic post-retirement benefit cost |  | $                           | 301 |   |      | $ | 325
|                                          |  |                             |     |   |      |   |    

The Company anticipates that it will contribute approximately $0.2 million to fund its health care obligations in
2007. For the three-month periods ended March 31, 2007 and 2006, less than $0.1 million of contributions had been made.



|11. | Major Customers and Products
|--- | ----------------------------

Information concerning customers for
the three-month periods ended March 31, 2007 and 2006 in which their revenues comprise 10% or more of the Companys total operating revenues is presented in the following table (in millions):



|                                             |  |                             |      |      |   |      
|-------------------------------------------- |  | --------------------------- | ---- | ---- | - | -----
|                                             |  | Three Months EndedMarch 31,
|World Airways                                |  | 2007                        |      | 2006
|U.S. Air Force (USAF) Air Mobility Command |  | $                           | 98.7 |      | $ | 125.0
|                                             | 
|                                             |  | Three Months EndedMarch 31,
|North American                               |  | 2007                        |      | 2006
|U.S. Air Force (USAF) Air Mobility Command |  | $                           | 62.8 |      | $ | 38.0 



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##### Table of Contents

Information concerning the Companys revenues comprising 10% or more of total operating revenues for the three-month
periods ended March 31, 2007 and 2006 is presented in the following table (in millions):



|                             |  |                             |       |      |   |      
|---------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                             |  | Three Months EndedMarch 31,
|World Airways                |  | 2007                        |       | 2006
|Passenger Charter Operations |  | $                           | 108.2 |      | $ | 130.8
|Cargo Charter Operations     |  | $                           | 30.2  |      | $ | 26.9 
|                             | 
|                             |  | Three Months EndedMarch 31,
|North American               |  | 2007                        |       | 2006
|Passenger Charter Operations |  | $                           | 69.2  |      | $ | 48.7 
|Passenger Scheduled Service  |  | $                           | 15.1  |      | $ | 9.2  



|12. | Commitments and Contingencies
|--- | -----------------------------

Union Negotiations and
Litigation:

World Airways Cockpit Crewmembers: The cockpit crewmembers, who account for approximately 29.7% of the total workforce
at World Airways and are represented by the International Brotherhood of Teamsters (IBT), are subject to a collective bargaining agreement which will become amendable on March 1, 2009.

World Airways Flight Attendants: The World Airways flight attendants, representing approximately 42.1% of World Airways
employees, are subject to a collective bargaining agreement that became amendable August 31, 2006. In July 2007, the flight attendants represented by the IBT reached a tentative agreement for a new contract.

North Americans Cockpit Crewmembers:The National Mediation Board (NMB) certified the IBT to represent North Americans cockpit
crewmembers (approximately 22.6% of the total employees at North American) on January 16, 2004. North American and the IBT commenced negotiations for their first collective bargaining agreement on April 6, 2004 and have met on numerous
occasions. Although representatives from North American and the IBT continue to negotiate the terms of a comprehensive final agreement under the auspices of the NMB, no collective bargaining agreement has yet been reached.

North Americans Flight Attendants: On July 26, 2005, the NMB authorized a union election (the IBT) among North Americans flight
attendants. Flight attendants comprise approximately 42.7% of employees at North American. On August 31, 2005, a majority of flight attendants voted for IBT representation. Negotiations began in 2006 between North American and the IBT and are
ongoing.

Other Litigation:

For
competitive and economic reasons, effective as of January 2005, North American unilaterally reduced cockpit crewmember wages and other benefits in addition to modifying certain work rules. The IBT thereafter filed suit against North American. The
United States District Court for the Northern District of California ruled in North Americans favor; the IBT appealed and the decision of the Ninth Circuit is pending. North American will continue to vigorously defend itself; however the
Company cannot give any assurance that this litigation will not have a material adverse effect on its financial condition, results of operations, or liquidity.

In March 2007, the Company entered into a settlement agreement with Virgin Atlantic Airways, Ltd. for damages sustained to a North American aircraft in 2004 that the Company had previously recorded a receivable of approximately $0.2
million. The Company received a total of approximately $1.0 million for the damages to the aircraft and recorded the settlement of adjusting expenses for the costs incurred for the damages of approximately $0.2 million to maintenance expense, $0.2
million to flight costs and $0.4 million to sales, general and administrative expense during the quarter ended March 31, 2007.

In the ordinary course
of business, the Company is party to various other legal proceedings and claims which we believe are incidental to the operations of our business. Management believes that the ultimate outcome of these proceedings to which the Company is currently a
party will not have a material adverse effect on the Companys financial condition, results of operations or liquidity.



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|13. | Income Tax Expense
|--- | ------------------

In June 2006, the FASB issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 (FIN 48). The Company adopted FIN 48 effective January 1, 2007. FIN 48 addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from uncertain tax positions only if it is at least more
likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on
the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. FIN 48 also provided guidance on derecognition, classification, interest and penalties on income taxes, accounting in
interim periods and requires increased disclosures.

Upon adoption of FIN 48, there was no cumulative catch-up adjustment to the Companys retained
earnings. At January 1, 2007 and March 31, 2007, the total amount of gross unrecognized tax benefits was $3.2 million and $3.4 million, respectively. At March 31, 2007, these amounts relate to $1.5 million of federal income taxes and $1.9 million of
state and foreign taxes. The impact on the Companys effective tax rate as a result of the $3.4 million of unrecognized tax benefits would be approximately $1.3 million. The Company recognizes accrued interest and penalties related to
unrecognized tax benefits in the provision for income tax expense. As of January 1, 2007 and March 31, 2007, the liability for gross unrecognized tax benefits included approximately $0.7 million and $0.9 million, respectively, of interest and
penalties.

The Company files income tax returns in the United States and various state and local jurisdictions. World Airways is presently under
examination by the Internal Revenue Service (IRS) for tax year ended December 31, 2004. North American is also under examination by the IRS for the income tax return filed for the year ended December 31, 2003 and the
S-Corporation tax return filed for the year ended December 31, 2004.

The Company does not anticipate any significant adjustment to unrecognized tax
benefits which will impact income tax expense, due to the settlement of audits and the expiration of statutes of limitations in the next 12 months. However, actual results could differ from those currently anticipated.

During the first quarter of 2007, additional reserves for tax uncertainties totaling less than $0.1 million and additional interest totaling approximately $0.1 million
were provided by the Company. As of March 31, 2007, the Company has recorded approximately $3.4 million of unrecognized tax benefits in other liabilities on the consolidated balance sheet.

The effective income tax rate for the Company was 52.7% for the three-months ended March 31, 2007 compared to 41.9% in the same quarter of 2006. The increase in the
effective rate is due to the impact of certain non-deductible items that do not fluctuate with the level of income, such as meal and entertainment expenses and penalties.



|14. | Subsequent Events
|--- | -----------------

On April 5, 2007, the Company announced
that it has entered into an agreement to be acquired by Global Aero Logistics, Inc. for $315.0 million in an all-cash transaction. Under the terms of the agreement as amended, World Air Holdings shareholders will receive $12.50 in cash for each
share of the Companys common stock owned. On July 18, 2007 at a special meeting of the shareholders, the merger agreement, as amended, was approved by a majority vote.



|15. | Recently Issued Accounting Standards
|--- | ------------------------------------

In June 2006, the FASB
ratified the Emerging Issues Task Force (EITF) consensus on EITF Issue No. 06-03 How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (EITF 06-03).
The scope of EITF 06-03 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer, and provides that a company may adopt a policy of presenting taxes either
gross within revenue or on a net basis. For any such taxes that are reported on a gross basis, a company should disclose the amounts of those taxes for each period for which an income statement is presented if those amounts are significant. This
statement is effective for financial reports for interim and annual reporting periods beginning after December 15, 2006. The Company adopted EITF 06-03 on January 1, 2007. Various taxes and fees on the sale of tickets to customers are
collected by the Company as an agent and remitted to the respective taxing authority. These taxes and fees have been presented on a net basis in the accompanying consolidated statement of income and recorded as a liability until remitted to the
respective taxing authority.

In September 2006, the FASB issued FASB Staff Position AUG AIR-1 (the FSP), Accounting for Planned Major
Maintenance Activities that eliminates the accrue-in-advance method as an acceptable method of accounting for planned major maintenance activities. The FSP is applicable to fiscal years beginning after December 15, 2006 and requires
retrospective application to all financial statements presented. The Company adopted this FSP on January 1, 2007 and believes it has no material impact on its financial statements.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Part I, Item 2 of
this report should be read in conjunction with Part II, Item 7 of the Companys 2006 Form 10-K. The information contained herein is not a comprehensive management overview and analysis of the financial condition and results of operations
of the Company, but rather updates disclosures made in the aforementioned filing.

The Company desires to take advantage of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 (the Act). Therefore, this report contains forward looking statements that are subject to risks and uncertainties, including, but not limited to, the reliance on key
strategic alliances, fluctuations in operating results, the ability to operate and manage successfully North American Airlines and World Airways and other risks detailed from time to time in the Companys filings with the SEC. These risks could
cause the Companys actual results for 2007 and beyond to differ materially from those expressed in any forward looking statements made by, or on behalf of, the Company.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31,
2006

For the first quarter of 2007, the Companys consolidated operating income was $0.8 million compared to operating income of $9.4 million
for the same period in 2006, a decrease of $8.6 million or 91.5%. Net income for the 2007 first quarter was $0.5 million compared to net income of $3.5 million for the first quarter of 2006, a decrease of $3.0 million or 85.7%.

The following table sets forth selected information for the periods indicated:



|                                                          |  |                             |         |   |      |   |         |  
|--------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                          |  | Three Months EndedMarch 31, |        
|                                                          |  | 2007                        |         |   | 2006 |  
|                                                          |  | (in thousands)              |        
|Operating revenue                                         |  |                             |         |   |      |   |         |  
|World Airways                                             |  | $                           | 138,807 |   |      | $ | 158,382 |  
|North American Airlines                                   |  |                             | 84,827  |   |      |   | 58,098  |  
|World Air Holdings, World Risk Solutions and Eliminations |  |                             | (783    | ) |      |   | (227    | )
|                                                          |  |                             |         |   |      |   |         |  
|Total operating revenue                                   |  |                             | 222,851 |   |      |   | 216,253 |  
|                                                          |  |                            
|Operating expense                                         |  |                             |         |   |      |   |         |  
|World Airways                                             |  |                             | 135,598 |   |      |   | 148,633 |  
|North American Airlines                                   |  |                             | 86,803  |   |      |   | 57,786  |  
|World Air Holdings, World Risk Solutions and Eliminations |  |                             | (380    | ) |      |   | 388     |  
|                                                          |  |                             |         |   |      |   |         |  
|Total operating expense                                   |  |                             | 222,021 |   |      |   | 206,807 |  
|                                                          |  |                            
|Operating income                                          |  |                             | 830     |   |      |   | 9,446   |  
|                                                          |  |                            
|Total other income/(expense)                              |  |                             | 266     |   |      |   | (3,348  | )
|                                                          |  |                             |         |   |      |   |         |  
|Earnings before income tax expense                        |  |                             | 1,096   |   |      |   | 6,098   |  
|Income tax expense                                        |  |                             | 578     |   |      |   | 2,556   |  
|                                                          |  |                             |         |   |      |   |         |  
|Net earnings                                              |  | $                           | 518     |   |      | $ | 3,542   |  
|                                                          |  |                             |         |   |      |   |         |  



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The following table sets forth selected key metrics related to World Airways and North American Airlines financial and
statistical performance:



|                                                                   |  |                             |        |      |   |       
|------------------------------------------------------------------ |  | --------------------------- | ------ | ---- | - | ------
|                                                                   |  | Three Months EndedMarch 31,
|                                                                   |  | 2007                        |        | 2006
|Block Hours                                                        |  |                             |        |      |   |       
|World Airways                                                      |  |                             | 14,661 |      |   | 14,772
|North American Airlines                                            |  |                             | 8,286  |      |   | 5,836 
|                                                                   |  |                             |        |      |   |       
|Total                                                              |  |                             | 22,947 |      |   | 20,608
|                                                                   |  |                            
|Revenue per Block Hour                                             |  |                             |        |      |   |       
|World Airways                                                      |  | $                           | 9,468  |      | $ | 10,722
|North American Airlines                                            |  | $                           | 10,237 |      | $ | 9,955 
|Total                                                              |  | $                           | 9,712  |      | $ | 10,494
|                                                                   |  |                            
|Operating Expense per Block Hour                                   |  |                             |        |      |   |       
|World Airways                                                      |  | $                           | 9,249  |      | $ | 10,062
|North American Airlines                                            |  | $                           | 10,476 |      | $ | 9,902 
|Total                                                              |  | $                           | 9,675  |      | $ | 10,035
|                                                                   |  |                            
|Operating aircraft at quarter end                                  |  |                             |        |      |   |       
|World Airways                                                      |  |                             | 17     |      |   | 17    
|North American Airlines                                            |  |                             | 10     |      |   | 9     
|                                                                   |  |                            
|Average available aircraft per day                                 |  |                             |        |      |   |       
|World Airways                                                      |  |                             | 17.0   |      |   | 17.0  
|North American Airlines                                            |  |                             | 9.5    |      |   | 8.1   
|                                                                   |  |                            
|Average daily utilization (block hours flown per day per aircraft) |  |                             |        |      |   |       
|World Airways                                                      |  |                             | 9.6    |      |   | 9.7   
|North American Airlines                                            |  |                             | 9.7    |      |   | 8.0   

Operating Revenues.Total consolidated operating revenues increased $6.5 million, or 3.0%, to
$222.8 million in the first quarter of 2007. The increase was primarily driven by a $26.7 million increase in revenues at North American, offset by a $19.7 million decrease in revenues at World Airways. The North American performance was driven by a
65% increase in military revenue, primarily as a result of joining the Alliance team during the fourth quarter of 2006. Additionally, North Americans scheduled service revenues increased 64% associated with the maturing West Africa routes.
World Airways performance was driven by a 21% decline in military revenue due to a reduction in fixed buy flight hours in the first quarter of 2007 as compared to the first quarter 2006 and less overall demand for wide-body flying. This decline was
partially offset by a 12% increase in commercial cargo revenue.

Operating Expenses. Total consolidated operating expenses increased
$15.2 million, or 7.4%, to $222.0 million for the first quarter of 2007, compared to $206.8 million for the comparable quarter in 2006.

Consolidated
flight expenses increased $6.7 million, or 10.9%, to $68.1 million in the first quarter of 2007. The increase was due to a $12.2 million increase at North American, offset by a $5.5 million reduction at World Airways. The increase at North American
was primarily the result of a 42% increase in block hours flown during the first quarter of 2007. The decrease at World Airways was primarily the result of a 19% reduction in full service military block hours flown and a $2.6 million pilot signing
bonus expensed in the first quarter of 2006 that did not repeat in the first quarter of 2007.

Consolidated maintenance expenses increased $3.2 million, or
10.5%, to $33.6 million in the first quarter of 2007. The increase was driven by a $2.3 million increase at North American resulting from more time driven maintenance expense related to the increase in block hours flown. World Airways increased $2.3
million due to higher maintenance reserve payments to lessors as a result of rate increases and an unforeseen engine overhaul resulting from foreign object damage. During the first quarter of 2007, the Company received $1.4 million insurance
proceeds related to a maintenance event. This amount was recorded as a reduction to maintenance expense during the quarter.



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Consolidated aircraft costs, which include aircraft rent and insurance, increased $2.4 million, or 8.2%, to $31.7 million
in the first quarter of 2007. This is primarily due to the addition of a B-767 aircraft during the first quarter of 2007, plus the full quarter effect of the B-767 added in March 2006.

Consolidated fuel expenses were higher by $2.4 million, or 4.9%, increasing to $51.7 million in the first quarter of 2007. This was primarily driven by the 15% increase in full service block hours flown, partially
offset by a decrease in average fuel price per gallon. The exposure to fuel cost at World Airways is partially reduced by contracts with customers to provide for a pass-through of fuel costs on approximately 98% of fuel purchased. North American is
exposed to changes in fuel prices for its scheduled service operations, which accounted for 23% of North Americans block hours during the first quarter of 2007.

Consolidated flight operations subcontracted to other carriers decreased $1.8 million to $0.3 million. During the first quarter of 2006, the Company incurred increased subcontracted flights to other carriers as a
result of a pilot strike at World Airways, which did not repeat in the first quarter of 2007.

Consolidated sales, general and administrative expense
increased $1.4 million or 6.5% to $23.0 million in the first quarter of 2007. This increase was primarily due to higher legal and professional fees.

Consolidated other income (expense) net, increased $3.6 million to $0.3 million income in the first quarter of 2007. This favorable variance was primarily a result of the prepayment of the ATSB Loan. The impact of the prepayment was that
the Company did not incur any interest expense, amortization of debt issuance, warrant costs, or guarantee fees associated with this loan during the first quarter of 2007.

The effective income tax rate for the Company was 52.7% for the first quarter of 2007 compared to 41.9% in the same quarter of 2006. The increase in the effective rate is due to the impact of certain non-deductible
items that do not fluctuate with the level of income, such as meal and entertainment expenses and penalties.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2007, the Company had $44.5 million of cash and cash equivalents and short-term investments compared to $31.2 million at
December 31, 2006. Restricted cash was $1.9 million at March 31, 2007 and $1.1 million at December 31, 2006 representing prepayments from customers for flights that are scheduled to be flown within 30 to 60 days of the respective
balance sheet date (unearned revenue).

Cash Flows from Operating Activities

Operating activities provided $14.9 million in cash for the three-months ended March 31, 2007. The cash provided in 2007 principally reflects the $0.5 million net earnings, a $16.2 million effect in cash due to
changes in operating assets and liabilities other than trade accounts receivable, a $0.6 million increase from net non-cash charges, and a $2.4 million decrease due to an increase in trade accounts receivable. The cash provided for the three-months
ended March 31, 2006 of $23.7 million principally reflects the $3.5 million net income, a $7.1 million effect in cash due to changes in operating assets and liabilities other than trade accounts receivable, a $3.4 million increase from net
non-cash charges, and a $9.7 million increase due to a reduction in trade accounts receivable.

Cash Flows from Investing Activities

Investing activities used $12.9 million of cash for the three-months ended March 31, 2007. The Companys capital expenditures for the first three months of 2007
were approximately $2.4 million, principally for the purchase of aircraft-related assets. Additionally the Company purchased $10.5 million in short term investments. For the quarter ended March 31, 2006, investing activities used $2.1 million,
of which the Company used $2.2 million for the purchase of aircraft-related assets offset by $0.1 million in proceeds from the disposal of equipment and property.

Cash Flows from Financing Activities

Financing activities provided $0.7 million in cash for the three-months ended March 31, 2007,
primarily the result of proceeds and related tax benefits from the exercise of stock options. For the three-months ended March 31, 2006, financing activities used $23.8 million, which was principally due to the use of $24.0 million of cash to
prepay the remaining balance of the ATSB loan. This amount was partially offset by proceeds and related tax benefits from the exercise of stock options of $0.2 million.

Description of Certain Indebtedness

On March 30, 2006, the Company prepaid the remaining principal balance of
$24.0 million under the ATSB Loan with working capital. As a result of this prepayment, during the first quarter of 2006, the Company expensed an additional $2.3 million in unamortized debt issuance and warrant costs associated with the ATSB Loan.



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Additionally, in March 2006, World Airways and North American entered into a Loan and Security Agreement with Wachovia
Bank, National Association (Wachovia Loan), for the issuance of loans and letters of credit up to $50.0 million subject to certain terms, conditions, and limitations. The facility terminates in March 2008.

Under the Wachovia Loan, the Companys borrowings bear interest at fluctuating rates. The applicable rate will be one of the following three options, as designated
by the Company: (1) the banks base lending rate, (2) the Federal Funds Rate, or (3) the Eurodollar or London Interbank Offered Rate (LIBOR) plus an applicable percentage. The rates applicable to outstanding
borrowings fluctuate based on many factors including, but not limited to, general economic conditions, and general interest rates, including the prime rate, and the supply of and demand for credit in the London interbank market. At March 31,
2007, the Companys borrowing base was approximately $33.7 million, of which $3.7 million was utilized for letters of credit issued under the facility. As a result, the available amount for borrowing was $30.0 million. At December 31,
2006, the Companys borrowing base was approximately $29.0 million, of which $3.4 million was utilized for letters of credit issued under the facility. As a result, the available amount for borrowing was $25.6 million. The borrowing base
fluctuates on a daily basis and is subject to a $50.0 million maximum and includes the sum of: (1) 85%90% of eligible government receivables, (2) 70% of eligible unbilled government receivables, not to exceed $5.0 million,
(3) 80% of eligible commercial receivables, (4) 75% of the value of eligible spare parts, not to exceed $15.0 million; less the face amount of issued and outstanding letters of credit and any applicable reserves. The Company had no
borrowings outstanding at March 31, 2007 or December 31, 2006.

The Company has obtained the necessary waivers through August 17, 2007
relating to the covenant provisions for the submission of timely monthly consolidated financial statements, borrowing base certificate, and the failure to timely file Securities Exchange Commission (SEC) required securities filings.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Part I, Item 3, of this report should be read in
conjunction with Part II, Item 7A of the Companys 2006 Form 10-K. The information contained herein is not a quantitative and qualitative discussion about market risk the Company faces, but rather updates disclosures made in the
aforementioned filing.

There have been no material changes in market risks from the information provided in Item 7A Quantitative and Qualitative
Disclosures About Market Risk included in the Companys 2006 Form 10-K, except as follows:

Aircraft fuel:North Americans results of
operations are affected by changes in the price and availability of aircraft fuel. Based on North Americans fuel consumption for scheduled service and maintenance ferries for the first three months ended March 31, 2007, a 10% increase in
the average price per gallon of fuel would have increased fuel expense by approximately $2.2 million. The Company does not currently purchase fuel under long-term contracts or enter into futures or swap contracts.

Interest rates: Under the Wachovia Loan agreement, the Companys borrowings bear interest at fluctuating rates. The applicable rate is determined by either
the banks base lending rate, the Federal Funds Rate, the Eurodollar or London Interbank Offered Rate (LIBOR) plus an applicable percentage. The rates applicable to outstanding borrowings fluctuate based on many factors including,
but not limited to, general economic conditions and interest rates, including the prime rate, and the supply of and demand for credit in the London interbank market. There were no amounts outstanding on this loan facility at March 31, 2007.

Foreign currency exchange rate risks: Although some of the Companys revenues are derived from foreign customers, all revenues and
substantially all expenses are denominated in U.S. dollars. The Company maintains minimal balances in foreign bank accounts to facilitate the payment of expenses.



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|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------



| | A. | Disclosure Controls and Procedures
| | -- | ----------------------------------

This evaluation of Disclosure
Controls and Procedures should be read in conjunction with Item 9A Controls and Procedures included in the Companys Annual Report on Form 10-K for the year ended December 31, 2006 (2006 Form 10-K) filed with the
SEC on July 5, 2007.

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)) are controls and other procedures that are designed to provide reasonable assurance that the information that the Company is required to disclose in the reports that are filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to the Companys management, including the Chief Executive
Officer (CEO) and the Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure.

An
evaluation was performed under the supervision and with the participation of the Companys management, including its CEO and CFO, of the effectiveness of its disclosure controls and procedures as of March 31, 2007. This evaluation included
a review of (i) material weaknesses in internal control over financial reporting reported in the Companys 2006 Form 10-K, and (ii) inquiries of process owners concerning changes in internal control procedures during the three-month
period ended March 31, 2007. Based on the evaluation as of the end of the period covered by this report, the Companys CEO and CFO concluded that the disclosure controls and procedures were not effective. In light of the material
weaknesses reported in the Companys 2006 Form 10-K, the Company implemented additional analyses and procedures to ensure that its consolidated financial statements are prepared in accordance with GAAP and are fairly presented in all material
respects. The Company has performed the additional analyses and procedures with respect to this Quarterly Report on Form 10-Q. Accordingly, the Company believes that the unaudited condensed consolidated financial statements included in this
Quarterly Report on Form 10-Q fairly present, in all material respects, the Companys financial position, results of operations and cash flows for the periods presented.



| | B. | Changes in Internal Control Over Financial Reporting
| | -- | ----------------------------------------------------

During the
three-month period ended March 31, 2007, the Company did not have significant activities to address the material weaknesses in its internal control over financial reporting and the ineffectiveness of the disclosure controls and procedures, due
to efforts related to completing its annual audit for the year ended December 31, 2006.



| | C. | Inherent Limitations of Any Control System
| | -- | ------------------------------------------

Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with existing policies or procedures may deteriorate.



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PART II



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

The information required by this Item is incorporated by reference to Note 12 to the Condensed
Consolidated Financial Statements included elsewhere herein.



|ITEM 6. | EXHIBITS
|------- | --------



|     |  |                                                                                                                                            
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|No.  |  | Description                                                                                                                                
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) to Section 302 of the Sarbanes-Oxley Act of 2002.                      
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) to Section 302 of the Sarbanes-Oxley Act of 2002.                      
|     | 
|32.1 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*    *    *    *    *    *    *    *    *    * 
   *    *    *    *    *



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SIGNATURES

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

Date: August 3, 2007



WORLD AIR HOLDINGS, INC.By:

/s/ Michael W. ToweMichael W. ToweChief Financial Officer




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