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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



(Mark One)

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



For the quarterly period ended September 30, 2003



OR



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



For the transition period from  to



AirTran Holdings, Inc.

(Exact name of registrant as specified in its charter)



State of Incorporation:Nevada



9955 AirTran Boulevard, Orlando, Florida 32827

(Address of principal executive offices) (Zip Code)



(407) 251-5600

(Registrants
telephone number, including area code)



|Commission file number:1-15991 |  | I.R.S. Employer Identification No:58-2189551
|------------------------------ |  | --------------------------------------------



LOGO



AirTran Airways, Inc.

(Exact name of registrant as specified in its charter)



State of Incorporation:Delaware



9955 AirTran Boulevard, Orlando, Florida 32827

(Address of principal executive offices) (Zip Code)



(407) 251-5600

(Registrants telephone number, including area code)



|Commission file number:333-37487-09 |  | I.R.S. Employer Identification No:65-0440712
|----------------------------------- |  | --------------------------------------------



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  þ    No ̈



Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act).    Yes  þ    No ̈



As of November 10, 2003 there were approximately 84,127,000 shares of common stock of AirTran Holdings, Inc. and 1,100
shares of common stock of AirTran Airways, Inc. outstanding.



The registrant AirTran Airways, Inc. meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore participating in the filing of this form in the reduced disclosure format permitted by such
Instructions.



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##### Table of Contents

AIRTRAN HOLDINGS, INC.

&

AIRTRAN AIRWAYS, INC.



Form 10-Q



For the Quarter Ended September 30, 2003



INDEX



|                                  |  |                                                                                                                          |  | Page
|--------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ----
|PART I.     FINANCIAL INFORMATION |  |                                                                                                                         
|                                  |  |                                                                                                                         
|Item 1A.                          |  | Financial Statements - AirTran Holdings, Inc.                                                                            |  |     
|                                  |  | Condensed Consolidated Statements of Income - Three months and nine months ended September 30, 2003 and 2002 (unaudited) |  | 3   
|                                  |  | Condensed Consolidated Balance Sheets - September 30, 2003 (unaudited) and December 31, 2002                             |  | 4   
|                                  |  | Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2003 and 2002 (unaudited)              |  | 6   
|                                  |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                         |  | 7   
|                                  |  |                                                                                                                         
|Item 1B.                          |  | Financial Statements - AirTran Airways, Inc.                                                                             |  |     
|                                  |  | Condensed Consolidated Statements of Income - Three months and nine months ended September 30, 2003 and 2002 (unaudited) |  | 14  
|                                  |  | Condensed Consolidated Balance Sheets - September 30, 2003 (unaudited) and December 31, 2002                             |  | 15  
|                                  |  | Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2003 and 2002 (unaudited)              |  | 17  
|                                  |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                         |  | 18  
|                                  |  |                                                                                                                         
|Item 2.                           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                    |  | 22  
|                                  |  |                                                                                                                         
|Item 3.                           |  | Quantitative and Qualitative Disclosures About Market Risk                                                               |  | 30  
|                                  |  |                                                                                                                         
|Item 4.                           |  | Controls and Procedures                                                                                                  |  | 31  
|                                  | 
|PART II.     OTHER INFORMATION    |  |                                                                                                                         
|                                  |  |                                                                                                                         
|Item 1.                           |  | Legal Proceedings                                                                                                        |  | 31  
|                                  |  |                                                                                                                         
|Item 6.                           |  | Exhibits and Reports on Form 8-K                                                                                         |  | 31  
|                                  |  |                                                                                                                         
|                                  |  | Signatures                                                                                                               |  | 33  
|                                  |  |                                                                                                                         
|                                  |  | Exhibit Index                                                                                                            |  | 34  



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



ITEM 1A. FINANCIAL STATEMENTS



AirTran Holdings, Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

|                                                                                   |  | For the three months endedSeptember 30, |         |   | For the nine months endedSeptember 30, |  
|---------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | -------------------------------------- | -
|                                                                                   |  | 2003                                    |         |   | 2002                                   |  
|Operating Revenues:                                                                |  |                                         |         |   |                                        |  
|Passenger                                                                          |  | $                                       | 229,818 |   |                                        | $
|Cargo                                                                              |  |                                         |        |   |                                        |  
|Other                                                                              |  |                                         | 7,493   |   |                                        |  
|                                                                                   |  |                                         |         |   |                                        |  
|Total operating revenues                                                           |  |                                         | 237,311 |   |                                        |  
|                                                                                   |  |                                         |         |  
|Operating Expenses:                                                                |  |                                         |         |   |                                        |  
|Salaries, wages and benefits                                                       |  |                                         | 59,332  |   |                                        |  
|Aircraft fuel                                                                      |  |                                         | 45,364  |   |                                        |  
|Aircraft rent                                                                      |  |                                         | 32,692  |   |                                        |  
|Distribution                                                                       |  |                                         | 11,651  |   |                                        |  
|Maintenance, materials and repairs                                                 |  |                                         | 14,400  |   |                                        |  
|Landing fees and other rents                                                       |  |                                         | 13,644  |   |                                        |  
|Aircraft insurance and security services                                           |  |                                         | 5,121   |   |                                        |  
|Marketing and advertising                                                          |  |                                         | 5,902   |   |                                        |  
|Depreciation                                                                       |  |                                         | 3,322   |   |                                        |  
|Other operating                                                                    |  |                                         | 19,490  |   |                                        |  
|                                                                                   |  |                                         |         |   |                                        |  
|Total operating expenses                                                           |  |                                         | 210,918 |   |                                        |  
|                                                                                   |  |                                         |         |   |                                        |  
|Operating Income                                                                   |  |                                         | 26,393  |   |                                        |  
|                                                                                   |  |                                         |         |  
|Other (Income) Expense:                                                            |  |                                         |         |   |                                        |  
|Interest income                                                                    |  |                                         | (768    | ) |                                        |  
|Interest expense                                                                   |  |                                         | 7,287   |   |                                        |  
|Government grant                                                                   |  |                                         |        |   |                                        |  
|Payment received under the Emergency Wartime Supplemental Appropriations Act, 2003 |  |                                         |        |   |                                        |  
|Convertible debt discount amortization                                             |  |                                         |        |   |                                        |  
|SFAS 133 adjustment                                                                |  |                                         |        |   |                                        |  
|                                                                                   |  |                                         |         |   |                                        |  
|Other (income) expense, net                                                        |  |                                         | 6,519   |   |                                        |  
|                                                                                   |  |                                         |         |   |                                        |  
|Income Before Income Taxes                                                         |  |                                         | 19,874  |   |                                        |  
|Income tax expense (benefit)                                                       |  |                                         | 261     |   |                                        |  
|                                                                                   |  |                                         |         |   |                                        |  
|Net Income                                                                         |  | $                                       | 19,613  |   |                                        | $
|                                                                                   |  |                                         |         |   |                                        |  
|Earnings Per Common Share                                                          |  |                                         |         |   |                                        |  
|Basic                                                                              |  | $                                       | 0.27    |   |                                        | $
|Diluted                                                                            |  | $                                       | 0.24    |   |                                        | $
|                                                                                   |  |                                         |         |  
|Weighted-average Shares Outstanding                                                |  |                                         |         |   |                                        |  
|Basic                                                                              |  |                                         | 73,732  |   |                                        |  
|Diluted                                                                            |  |                                         | 92,132  |   |                                        |  



See
accompanying Notes to Condensed Consolidated Financial Statements.



3



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AirTran Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands)



|                                                                                                                                                    |  | September 30,2003 |         |   | December 31,2002 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | -
|                                                                                                                                                    |  | (Unaudited)       |         |   |                  |  
|ASSETS                                                                                                                                              |  |                   |         |   |                  |  
|Current Assets:                                                                                                                                     |  |                   |         |   |                  |  
|Cash and cash equivalents                                                                                                                           |  | $                 | 266,185 |   |                  | $
|Restricted cash                                                                                                                                     |  |                   | 42,556  |   |                  |  
|Accounts receivable, less allowance of $871 and $1,425 at September 30, 2003 and December 31, 2002, respectively                                    |  |                   | 22,744  |   |                  |  
|Spare parts, materials and supplies, less allowance for obsolescence of $2,208 and $1,212 at September 30, 2003 and December 31,
2002, respectively |  |                   | 12,013  |   |                  |  
|Prepaid expenses and other current assets                                                                                                           |  |                   | 13,281  |   |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|Total current assets                                                                                                                                |  |                   | 356,779 |   |                  |  
|                                                                                                                                                    |  |                  
|Property and Equipment:                                                                                                                             |  |                   |         |   |                  |  
|Flight equipment                                                                                                                                    |  |                   | 229,110 |   |                  |  
|Less: Accumulated depreciation                                                                                                                      |  |                   | (26,341 | ) |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|                                                                                                                                                    |  |                   | 202,769 |   |                  |  
|Purchase deposits for flight equipment                                                                                                              |  |                   | 45,362  |   |                  |  
|                                                                                                                                                    |  |                  
|Other property and equipment                                                                                                                        |  |                   | 42,592  |   |                  |  
|Less: Accumulated depreciation                                                                                                                      |  |                   | (21,187 | ) |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|                                                                                                                                                    |  |                   | 21,405  |   |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|Total property and equipment                                                                                                                        |  |                   | 269,536 |   |                  |  
|Other Assets:                                                                                                                                       |  |                   |         |   |                  |  
|Intangibles resulting from business acquisition                                                                                                     |  |                   | 10,438  |   |                  |  
|Trade names                                                                                                                                         |  |                   | 21,567  |   |                  |  
|Debt issuance costs                                                                                                                                 |  |                   | 10,946  |   |                  |  
|Other assets                                                                                                                                        |  |                   | 44,211  |   |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|Total other assets                                                                                                                                  |  |                   | 87,162  |   |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|Total assets                                                                                                                                        |  | $                 | 713,477 |   |                  | $
|                                                                                                                                                    |  |                   |         |   |                  |  



(Continued on next
page)



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AirTran Holdings, Inc.

Condensed Consolidated Balance Sheets (Continued)

(In thousands)



|                                           |  | September 30,2003 |         |   | December 31,2002 |  
|------------------------------------------ |  | ----------------- | ------- | - | ---------------- | -
|                                           |  | (Unaudited)       |         |   |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |                   |         |   |                  |  
|Current Liabilities:                       |  |                   |         |   |                  |  
|Accounts payable                           |  | $                 | 6,023   |   |                  | $
|Accrued liabilities                        |  |                   | 90,461  |   |                  |  
|Air traffic liability                      |  |                   | 94,672  |   |                  |  
|Current portion of long-term debt          |  |                   | 45,739  |   |                  |  
|                                           |  |                   |         |   |                  |  
|Total current liabilities                  |  |                   | 236,895 |   |                  |  
|                                           |  |                  
|Long-term debt, less current portion       |  |                   | 265,498 |   |                  |  
|                                           |  |                  
|Other liabilities                          |  |                   | 67,834  |   |                  |  
|                                           |  |                  
|Commitments and Contingencies              |  |                   |         |   |                  |  
|Stockholders Equity:                      |  |                   |         |   |                  |  
|Preferred stock                            |  |                   |        |   |                  |  
|Common stock                               |  |                   | 74      |   |                  |  
|Additional paid-in-capital                 |  |                   | 199,969 |   |                  |  
|Accumulated other comprehensive loss       |  |                   | (371    | ) |                  |  
|Accumulated deficit                        |  |                   | (56,422 | ) |                  |  
|                                           |  |                   |         |   |                  |  
|Total stockholders equity                 |  |                   | 143,250 |   |                  |  
|                                           |  |                   |         |   |                  |  
|Total liabilities and stockholders equity |  | $                 | 713,477 |   |                  | $
|                                           |  |                   |         |   |                  |  



See
accompanying Notes to Condensed Consolidated Financial Statements.



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AirTran Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                             |  | For the nine months endedSeptember 30, |        
|-------------------------------------------------------------------------------------------- |  | -------------------------------------- | -------
|                                                                                             |  | 2003                                   |        
|Operating activities:                                                                        |  |                                        |        
|Net income                                                                                   |  | $                                      | 78,840 
|Adjustments to reconcile net income to net cash provided by (used for) operating activities: |  |                                        |        
|Depreciation and amortization                                                                |  |                                        | 12,377 
|Amortization of deferred gains on sale-leaseback of aircraft                                 |  |                                        | (3,721 
|Loss on asset disposal                                                                       |  |                                        | 94     
|Provisions for uncollectible accounts                                                        |  |                                        | 352    
|Amortization of debt discount upon conversion of debt to equity                              |  |                                        | 1,812  
|Deferred income taxes                                                                        |  |                                        | 1,848  
|SFAS 133 adjustment                                                                          |  |                                        |       
|Changes in operating assets and liabilities:                                                 |  |                                        |        
|Restricted cash                                                                              |  |                                        | (8,383 
|Accounts receivable                                                                          |  |                                        | (3,976 
|Government grant receivable                                                                  |  |                                        |       
|Spare parts, materials and supplies                                                          |  |                                        | (3,575 
|Other assets                                                                                 |  |                                        | (15,335
|Accounts payable, accrued and other liabilities                                              |  |                                        | 11,747 
|Air traffic liability                                                                        |  |                                        | 37,492 
|                                                                                             |  |                                        |        
|Net cash provided by (used for) operating activities                                         |  |                                        | 109,572
|                                                                                             |  |                                       
|Investing activities:                                                                        |  |                                        |        
|Purchases of property and equipment                                                          |  |                                        | (16,528
|Payment of aircraft purchase deposits                                                        |  |                                        | (39,819
|Proceeds from disposal of equipment                                                          |  |                                        |       
|                                                                                             |  |                                        |        
|Net cash used for investing activities                                                       |  |                                        | (56,347
|                                                                                             |  |                                       
|Financing activities:                                                                        |  |                                        |        
|Issuance of long-term debt                                                                   |  |                                        | 125,000
|Debt issuance costs                                                                          |  |                                        | (3,869 
|Payments of long-term debt                                                                   |  |                                        | (18,909
|Proceeds from sale of common stock                                                           |  |                                        | 6,587  
|                                                                                             |  |                                        |        
|Net cash provided by (used for) financing activities                                         |  |                                        | 108,809
|                                                                                             |  |                                       
|Net increase (decrease) in cash and cash equivalents                                         |  |                                        | 162,034
|Cash and cash equivalents at beginning of period                                             |  |                                        | 104,151
|                                                                                             |  |                                        |        
|Cash and cash equivalents at end of period                                                   |  | $                                      | 266,185
|                                                                                             |  |                                        |        
|Supplemental Disclosure of Cash Flow Activities:                                             |  |                                        |        
|Non-cash investing and financing activities                                                  |  |                                        |        
|Purchase and sale-leaseback of equipment                                                     |  | $                                      | 22,359 
|Gain on sale-leaseback of aircraft and payment of debt                                       |  | $                                      | 3,000  
|Conversion of debt to equity                                                                 |  | $                                      | 5,500  



See
accompanying Notes to Condensed Consolidated Financial Statements.



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AirTran Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)



Note 1 - Summary of Significant Accounting Policies



Basis of Presentation:



Our accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of AirTran Holdings, Inc. (Holdings) and our wholly owned subsidiaries,
including our principal subsidiary, AirTran Airways, Inc (Airways). All significant intercompany accounts and transactions have been eliminated in consolidation for all periods presented. In the opinion of management, the accompanying Unaudited
Condensed Consolidated Financial Statements contain all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Certain information and
footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission for reports on Form 10-Q. It is suggested that these unaudited interim financial statements be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K
for the year ended December 31, 2002.



Our financial and operating results for
any interim period are not necessarily indicative of those for the entire year, because, among other things, the air transportation business is subject to seasonal fluctuations. Higher demand for air travel has traditionally resulted in more
favorable financial and operating results for the second and third quarters of the year than for the first and fourth quarters.



The preparation of the accompanying Unaudited Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates and such differences may be material to the
condensed consolidated financial statements.



Business:



Airways offers scheduled air transportation of passengers and mail,
serving markets primarily in the eastern United States.



Maintenance:



Prior to 2003, the Boeing 717 (B717)
aircraft parts and components were under warranty. During the first quarter of 2003, we commenced payments under previously negotiated agreements covering the maintenance, repair and overhaul of the major B717 aircraft parts and components. Under
these agreements, we pay monthly fees based on either the number of flight hours flown or the number of landings made. The contracts cover normal maintenance and repair costs on the major aircraft components excluding the airframe. Under these
contracts, maintenance costs will be expensed monthly as the aircraft are utilized. Maintenance costs not under these contracts will continue to be expensed as incurred.



Stock-Based Employee Compensation:



We have stock-based compensation plans covering officers, directors, key employees and consultants. We account for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation expense is not recognized for employee stock option grants unless the exercise price is less
than the fair value of our common stock on the grant date.



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The following table illustrates the effect on net income and earnings per common share if we had applied the fair value
based method to measure stock-based employee compensation, as required under the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS 148:



|                                                                                                                           |  | Three months endedSeptember 30, |        |   | Nine months endedSeptember 30, |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | -
|(in thousands, except per share amounts)                                                                                   |  | 2003                            |        |   | 2002                           |  
|Net income, as reported                                                                                                    |  | $                               | 19,613 |   |                                | $
|                                                                                                                           |  |                                 |        |  
|Add: Stock-based employee compensation expense included in reported income, net of related tax effects                     |  |                                 |       |   |                                |  
|                                                                                                                           |  |                                 |        |  
|Deduct: Stock-based employee compensation expense determined under the fair value based method, net of related tax
effects |  |                                 | (1,300 | ) |                                |  
|                                                                                                                           |  |                                 |        |   |                                |  
|Pro forma net income (loss)                                                                                                |  | $                               | 18,313 |   |                                | $
|                                                                                                                           |  |                                 |        |   |                                |  
|EARNINGS (LOSS) PER SHARE:                                                                                                 |  |                                 |        |   |                                |  
|                                                                                                                           |  |                                 |        |  
|Basic, as reported                                                                                                         |  | $                               | 0.27   |   |                                | $
|Basic, pro forma                                                                                                           |  | $                               | 0.25   |   |                                | $
|                                                                                                                           |  |                                 |        |  
|Diluted, as reported                                                                                                       |  | $                               | 0.24   |   |                                | $
|Diluted, pro forma                                                                                                         |  | $                               | 0.20   |   |                                | $



As required, the pro forma disclosures
in the previous table include options granted since January 1, 1995. Consequently, the effects of applying SFAS 123 for providing pro forma disclosures may not be representative of the effects on reported net income for future years until all
options outstanding are included in the pro forma disclosures. For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS No. 148 amends the transition and disclosure provisions of SFAS No. 123. We are currently evaluating SFAS No. 148 to determine whether we will adopt SFAS No. 123 to account for employee stock options
using the fair value method and, if so, when to begin transition to that method.



Reclassification:



During the
second quarter of 2003, we received a reimbursement of our proportionate share of security fees under the Emergency Wartime Supplemental Appropriations Act (Wartime Act) which we have classified in Other (Income) Expense in our condensed
consolidated statements of income. In 2001, we classified compensation received from the U. S. government under the Air Transportation Safety and System Stabilization Act in Operating Expenses in our condensed consolidated statements of
income as a separate line item called Government grant. The Emerging Issues Task Force (EITF) in EITF 01-10, Accounting for the Impact of the Terrorist Attacks of September 11, 2001, allowed for the compensation to be recorded either as
a separate line-item credit in operating expenses or as a gross amount in other non-operating income. We have reclassified the amounts reported as Government grant in the three and nine month periods ended September 30, 2002 from Operating
Expenses to Other (Income) Expense in our condensed consolidated statements of income consistent with our presentation of the payment received under the Wartime Act. This reclassification has no impact on net income for the period
(See Note 8 to the Unaudited Condensed Consolidated Financial Statements).



Note 2 - Earnings Per Common Share



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



8



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|                                                                      |  | For the three months endedSeptember 30, |        | For the nine months endedSeptember 30,
|--------------------------------------------------------------------- |  | --------------------------------------- | ------ | --------------------------------------
|                                                                      |  | 2003                                    |        | 2002                                  
|Numerator:                                                            |  |                                         |        |                                       
|Net income available to common stockholders                           |  | $                                       | 19,613 |                                       
|Plus income effect of assumed conversion-interest on convertible debt |  |                                         | 2,137  |                                       
|                                                                      |  |                                         |        |                                       
|Income before assumed conversion, diluted                             |  | $                                       | 21,750 |                                       
|                                                                      |  |                                         |        |                                       
|Denominator:                                                          |  |                                         |        |                                       
|Weighted-average shares outstanding, basic                            |  |                                         | 73,732 |                                       
|Effect of dilutive securities:                                        |  |                                         |        |                                       
|Stock options                                                         |  |                                         | 5,139  |                                       
|Convertible debt                                                      |  |                                         | 11,241 |                                       
|Stock warrants                                                        |  |                                         | 2,020  |                                       
|                                                                      |  |                                         |        |                                       
|Adjusted weighted-average shares outstanding, diluted                 |  |                                         | 92,132 |                                       
|                                                                      |  |                                         |        |                                       
|Earnings per common share:                                            |  |                                         |        |                                       
|Basic                                                                 |  | $                                       | 0.27   |                                       
|                                                                      |  |                                         |        |                                       
|Diluted                                                               |  | $                                       | 0.24   |                                       
|                                                                      |  |                                         |        |                                       



Shares issuable upon conversion of our
7% convertible notes are included in the diluted earnings per share calculation for the three and nine month periods ended September 30, 2003 since the stock price exceeded 110 percent of the conversion price for at least 20 trading days in the 30
consecutive trading days ending on September 30, 2003 (See Note 7 to the Unaudited Condensed Consolidated Financial Statements).



See Note 10 to the Unaudited Condensed Consolidated Financial Statements for a discussion of subsequent events affecting common stock and common stock equivalents
outstanding.



Note 3 - Comprehensive Income



Comprehensive income encompasses net income and other comprehensive income,
which includes all other non-owner transactions and events that change stockholders equity. Other comprehensive income is composed of reclassifications to earnings of deferred gains and losses related to derivative financial instruments that
qualified for hedge accounting. These derivative instruments were terminated in March 2002. Comprehensive income was $19.7 million and $2.6 million for the three months ended September 30, 2003 and 2002, respectively, and $79.3 million and $8.3
million for the nine months ended September 30, 2003 and 2002, respectively. The differences between net income and comprehensive income for each of these periods is as follows (in thousands):



|                                            |  | For the three months endedSeptember 30, |        | For the nine months endedSeptember 30,
|------------------------------------------- |  | --------------------------------------- | ------ | --------------------------------------
|                                            |  | 2003                                    |        | 2002                                  
|Net income:                                 |  | $                                       | 19,613 |                                       
|Unrealized income on derivative instruments |  |                                         | 121    |                                       
|                                            |  |                                         |        |                                       
|Comprehensive income                        |  | $                                       | 19,734 |                                       
|                                            |  |                                         |        |                                       



An analysis of the amounts included in
accumulated other comprehensive income is shown below (in thousands):



|                              |  | (Increase)Decrease |     
|----------------------------- |  | ------------------ | ----
|Balance at December 31, 2002  |  | $                  | (809
|Reclassification to earnings  |  |                    | 438 
|                              |  |                    |     
|Balance at September 30, 2003 |  | $                  | (371
|                              |  |                    |     



Note 4 - Fuel Risk Management



Aircraft fuel is a significant expenditure for us because our operations
are inherently dependent on the use of petroleum products. Aircraft fuel represented approximately 21.5 percent and 23.1 percent of total operating expenses for the three months ended September 30, 2003 and 2002, respectively, and 21.8 percent and
22.0 percent of total operating expenses for the nine months ended September 30, 2003 and 2002, respectively. Increases in fuel prices or a shortage of supply could have a material effect on our operations and operating results.



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Our efforts to reduce our exposure to increases in the price and availability of aviation fuel include the utilization of
fixed price fuel contracts and fuel cap contracts. Fixed price fuel contracts consist of agreements to purchase defined quantities of aviation fuel from a third party at defined prices. Fuel cap contracts consist of agreements to purchase defined
quantities of aviation fuel from a third party at a price not to exceed a defined price, limiting our exposure to upside market risk. Our fixed price fuel contracts and fuel cap contracts are not required to be accounted for as derivative financial
instruments, in accordance with Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities. As of September 30, 2003, utilizing fixed price fuel contracts we agreed to
purchase approximately 59.4 percent of our fuel needs through December 31, 2003 at a price no higher than $0.80 per gallon of aviation fuel including delivery to our operations hub in Atlanta and other locations. Additionally, we have fixed price
contracts covering 2004 for approximately 36.5 percent of our fuel needs at a price no higher than $0.76 per gallon of aviation fuel.



In March 2002, we terminated all of our fuel-related derivative agreements with the counterparty. The fair value of the derivative liability on the termination date was
estimated to be $0.5 million. The change in value of our fuel-related derivative contracts resulted in a $5.8 million non-cash credit adjustment to SFAS 133 adjustment in the accompanying Unaudited Condensed Consolidated Statements of
Income. Since this was an early termination of our derivative contracts, losses deferred in Other comprehensive loss on our Condensed Consolidated Balance Sheet are being reclassified to fuel expense as the related fuel is used through
September 2004. Approximately $0.1 million and $1.4 million of these deferred losses were reclassified to fuel expense during the three months ended September 30, 2003 and 2002, respectively and $0.4 million and $5.1 million of these deferred losses
were reclassified to fuel expense during the nine month periods ended September 30, 2003 and 2002, respectively.



Note 5 - Aircraft Purchase Commitments and Fleet Renewal Plan



As of September 30, 2003, we had contracted with The Boeing Company (Boeing) for the acquisition of 73 Boeing 717 (B717) aircraft to be acquired through the end of 2003,
68 of which have been delivered. We have lease-financing commitments to accept delivery of the remaining 5 B717 aircraft during 2003. In July 2003, we cancelled 6 B717 option aircraft and committed to acquire 10 additional B717 aircraft during 2004
and 2005 under committed lease-financing arrangements. We also obtained contingent options to acquire up to an additional 4 B717 aircraft under similar lease-financing arrangements.



We anticipate that all of our McDonnell Douglas DC-9 (DC-9) aircraft will be retired by the end of 2003 and will be replaced by B717
aircraft.



In July 2003, we separately contracted with Boeing and with an
aircraft leasing company to acquire 50 Boeing 737 (B737) aircraft with delivery dates between 2004 and 2008. In connection with these contracts, we obtained options and purchase rights from the manufacturer to acquire up to an additional 50 B737
aircraft between 2005 and 2010. We have lease-financing commitments for 22 of the B737 aircraft, and 6 related spare engines, to be delivered between 2004 and 2010 and backstop financing from an affiliate of the manufacturer for 80% of the purchase
price of an additional 16 of the B737 aircraft. Should we be unable to secure financing from the financial markets on acceptable terms, backstop financing may be used.



Note 6 - Income Taxes



Income tax expense (benefit) was $0.3 million and zero for the three months ended September 30, 2003 and 2002, respectively, and $1.8 million and $(0.8) million for the
nine months ended September 30, 2003 and 2002, respectively. During the three and nine month periods ended September 30, 2003, tax expense of $0.3 million and $1.8 million, respectively, represents the expected utilization of preacquisition net
operating loss (NOL) carryforwards related to the Airways Corporation (predecessor of Airways) due to earnings in the current period. For financial reporting purposes, a valuation allowance was recognized to offset the deferred tax assets related to
those carryforwards at the date of acquisition. Accordingly, when realized, the tax benefit of the preacquisition net operating loss carryforwards will be applied to reduce goodwill related to the acquisition of Airways Corporation.



The Job Creation and Worker Assistance Act passed by Congress in March 2002 resulted in a
retroactive suspension of the alternative minimum tax (AMT) NOL 90 percent limitation. This legislation resulted in a tax benefit of $0.8 million for the first quarter of 2002. In accordance with SFAS No. 109, Accounting for Income Taxes, the
effect of changes in tax laws or rates is included in income in the period that includes the enactment date, resulting in the recognition of the change in the first quarter of 2002.



We have not recognized any benefit from the future use of existing NOL carryforwards because our evaluation of all the



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available evidence does not indicate that it is more likely than not that we will generate sufficient future taxable
income to realize such benefit. We had consolidated federal income tax NOL carryforwards of approximately $116 million at December 31, 2002. Our NOL carryforwards will begin to terminate in 2012 to the extent they have not been used to reduce
taxable income prior to such time. Our ability to use our NOL carryforwards to reduce taxable income is dependent upon, among other things, our not experiencing an ownership change of more than 50 percent during any three-year testing
period as defined in the Internal Revenue Code. We do not believe we have experienced an ownership change in the three-year testing period immediately prior to December 31, 2002. Future changes in the ownership or constructive ownership of our
common stock (including, among other things, conversion of our Convertible Notes due 2023 into common stock  see Note 7 to the Unaudited Condensed Consolidated Financial Statements) could result in an aggregate change in ownership of more than
50 percent as defined in the Internal Revenue Code, which could substantially limit the availability of our NOL carryforwards.



Note 7 - Long-term Debt



In May 2003, Holdings completed a private placement of $125 million in convertible notes due in 2023. The proceeds are to be used to improve Holdings and Airways overall liquidity by providing working
capital and for general corporate purposes. The notes bear interest at 7% payable semi-annually on January 1 and July 1. The first interest payment on the notes was made July 1, 2003. The notes are unsecured senior obligations ranking equally with
Holdings existing unsecured senior indebtedness. The notes are unconditionally guaranteed by Airways and rank equally with all unsecured obligations of Airways. The unsecured notes and the note guarantee are junior to any secured obligations
of Holdings or Airways to the extent of the collateral pledged and are also effectively subordinated to all liabilities of our subsidiaries (other than Airways), including deposits and trade payables.



The notes are convertible into shares of Holdings common stock at a conversion rate of
89.9281 shares per $1,000 in principal amount of the notes which equals an initial conversion price of approximately $11.12 per share. This conversion rate is subject to adjustment in certain circumstances. Holders of the notes may convert their
notes if: (i) after June 30, 2003, the price of Holdings common stock exceeds 110 percent of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding quarter; (ii) the
trading price for the notes falls below certain thresholds; (iii) the notes have been called for redemption; or (iv) specified corporate transactions occur. Holdings may redeem the notes, in whole or in part, beginning on July 5, 2010 at a
redemption price equal to the principal amount of the notes plus any accrued and unpaid interest. The holders of the notes may require Holdings to repurchase the notes on July 1, 2010, 2013 and 2018 at a repurchase price of 100 percent plus any
accrued and unpaid interest. Holdings filed a shelf registration statement with the U.S. Securities and Exchange Commission covering the resale of the notes and the underlying common stock which became effective in October 2003. At September 30,
2003, condition (i) above had been satisfied and, accordingly, the notes are currently convertible into Holdings common stock.



In June 2003, Boeing Capital Corporation (Boeing Capital) exercised its remaining conversion rights related to Holdings 7.75% Series B Senior Convertible Notes. The
conversion resulted in a decrease in Holdings overall debt of $5.5 million. In connection with the conversion, Holdings issued approximately 1.0 million shares of its common stock to Boeing Capital. In accordance with accounting principles
generally accepted in the United States, Holdings expensed $1.6 million of debt discount and $0.2 million of debt issuance costs that had not been amortized. These amounts are shown on the accompanying condensed consolidated statements of income as
Other (Income) Expense  Convertible debt discount amortization.



In August 2003, we redeemed the remaining balance of $10.3 million of Holdings 13% Series A Senior Secured Notes. The terms of the debt agreement require mandatory prepayments equal to 25 percent of Airways net income on a
quarterly basis.



Note 8 - Government Compensation



On April 16, 2003, Congress approved and the President signed into law the Wartime Act which
provided, among other things, for certain financial relief to the United States airline industry, including (i) $100 million to compensate U.S. air carriers for certain costs associated with strengthening flight deck doors and locks on aircraft and
(ii) approximately $2.3 billion to be remitted to U.S. air carriers in the proportional share each such carrier has paid or collected in passenger security and air carrier security fees to the U.S. Transportation Security Administration (TSA). Such
legislation also discontinued the imposition of air carrier security fees for the period beginning June 1, 2003 and ended September 30, 2003 and continued currently existing government provided war risk coverage through August 31, 2004 (and permits
further extensions until December 31, 2004). The Wartime Act included a number of conditions to airlines being eligible for participation in the authorized funding and benefits of the legislation. We do not anticipate any difficulties in complying
with these limitations. We were paid approximately $38.1 million as our share of the security fee reimbursement which was recorded in Other (income) expense on our accompanying Unaudited Condensed Consolidated Statements of Income.



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During the third quarter of 2003, we received $1.7 million from the Federal Aviation Administration in reimbursement of
flight deck door reinforcement expenditures. We recorded as an offset to our capital costs for our B717 aircraft approximately $1.3 million and reduced our expense for our DC-9 aircraft by approximately $0.4 million.



Note 9 - Recently Issued Accounting Standards



In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No.
45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a liability for the fair value of an obligation for guarantees issued or
modified after December 31, 2002 be recorded in the financial statements of the guarantor. Guarantees that existed prior to the implementation of FIN 45 are required to be disclosed in financial statement issued after December 15, 2002. While we
have various guarantees included in contracts in the normal course of business, primarily in the form of indemnities, these guarantees would only result in immaterial increases in future costs, and do not represent significant commitments or
contingent liabilities of the indebtedness of others.



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



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



FIN 46 initially applied to VIEs created after January 31, 2003 and to VIEs in which a
company obtained an interest after that date. The FASB has recently deferred the effective date of FIN 46 to December 31, 2003 for all interests in VIEs existing prior to January 31, 2003. We have reviewed contractual agreements committed to since
January 31, 2003 and did not identify any entities that met the definition of a VIE under FIN 46. We are continuing to evaluate the impact of this complex interpretation and have identified an interest in one potential VIE with whom a relationship
began in late 2002. The assets and liabilities of this entity are not consolidated within our consolidated financial statements. We own one share of stock in a segregated portfolio company acquired in connection with our insurance
captive which allows us to access the international aircraft insurance markets at lower rates than might otherwise be available in the domestic aircraft insurance markets. We are in the process of assessing the impact of FIN 46 on our
relationship with this entity. If it is determined that this entity is a VIE, we have the following options under FIN 46: (i) consolidate the VIE into our financial statements; (ii) purchase selected assets from the VIE; or (iii) modify or replace
the agreements currently being utilized. None of these options, if required, are expected to have a material impact on our consolidated financial position, liquidity, or results of operations. Additionally, we do not believe that we have exposure to
loss due to our involvement with this entity.



We are the lessee in operating
leases covering all of our leased aircraft where we do not currently consolidate the entity serving as lessor. The lessors are trusts established specifically to lease aircraft to us. These leasing entities may meet the criteria for VIEs. We
generally would not be regarded as the primary obligor or the primary beneficiary of the leasing entities assuming the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee,
fixed-price purchase option or similar features that obligates us to absorb decreases in value or entitles us to participate in increases in values of the aircraft. We believe this is the case for all of our operating leases with the exception of
two aircraft leases entered into prior to January 31, 2003, which do contain a fixed-price purchase option that allows us to purchase the aircraft at predetermined prices on specific dates during the lease term. We do not currently believe that we
will be required to consolidate these two lessors under FIN 46 because, even when taking into consideration these purchase options, we would not be the primary beneficiary. Additionally, we do not believe that we have exposure to loss due to our
involvement with these lessors.



In May 2003, the FASB issued Statement of
Financial Accounting Standards No. 150 (SFAS 150), Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 requires that certain financial instruments be classified as liabilities in
statements of financial position. SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. We are currently
assessing the impact of this statement.



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Note 10 - Subsequent Events



On October 1, 2003, we completed a public offering of 9,116,000 shares of Holdings common stock at a price of $16.00 per share,
raising net proceeds of approximately $139.3 million, after deducting discounts and commissions paid to the underwriters and other expenses incurred with the offering.



On October 1, 2003, we used a portion of the proceeds of the public offering to purchase from Boeing Capital Loan Corporation (Boeing
Capital) warrants held by it to purchase one million shares of Holdings common stock based upon the public offering price of the stock of $16.00 less the exercise price of the warrants.



Additionally, from the proceeds, on October 1, 2003, we redeemed $35.0 million of principal
of Airways 11.27% Senior Secured Notes, due April 2008 held by Boeing Capital. On October 31, 2003, we redeemed the remaining $32.0 million of this debt. As a result of the early redemption of the $67 million in principal, we will take a
non-cash charge to earnings in the fourth quarter of 2003, of approximately $10.4 million.



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ITEM 1B. FINANCIAL STATEMENTS

AirTran Airways, Inc.

Condensed Consolidated Statements of Income

(In thousands)

(Unaudited)



|                                                                                   |  | For the three months ended September 30, |         |   | For the nine months ended September 30, |  
|---------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | --------------------------------------- | -
|                                                                                   |  | 2003                                     |         |   | 2002                                    |  
|Operating Revenues:                                                                |  |                                          |         |   |                                         |  
|Passenger                                                                          |  | $                                        | 229,818 |   |                                         | $
|Cargo                                                                              |  |                                          |        |   |                                         |  
|Other                                                                              |  |                                          | 7,493   |   |                                         |  
|                                                                                   |  |                                          |         |   |                                         |  
|Total operating revenues                                                           |  |                                          | 237,311 |   |                                         |  
|                                                                                   |  |                                          |         |  
|Operating Expenses:                                                                |  |                                          |         |   |                                         |  
|Salaries, wages and benefits                                                       |  |                                          | 59,332  |   |                                         |  
|Aircraft fuel                                                                      |  |                                          | 45,364  |   |                                         |  
|Aircraft rent                                                                      |  |                                          | 32,692  |   |                                         |  
|Distribution                                                                       |  |                                          | 11,651  |   |                                         |  
|Maintenance, materials and repairs                                                 |  |                                          | 14,400  |   |                                         |  
|Landing fees and other rents                                                       |  |                                          | 13,644  |   |                                         |  
|Aircraft insurance and security services                                           |  |                                          | 5,121   |   |                                         |  
|Marketing and advertising                                                          |  |                                          | 5,902   |   |                                         |  
|Depreciation                                                                       |  |                                          | 3,322   |   |                                         |  
|Other operating                                                                    |  |                                          | 19,490  |   |                                         |  
|                                                                                   |  |                                          |         |   |                                         |  
|Total operating expenses                                                           |  |                                          | 210,918 |   |                                         |  
|                                                                                   |  |                                          |         |   |                                         |  
|Operating Income                                                                   |  |                                          | 26,393  |   |                                         |  
|                                                                                   |  |                                          |         |  
|Other (Income) Expense:                                                            |  |                                          |         |   |                                         |  
|Interest income                                                                    |  |                                          | (752    | ) |                                         |  
|Interest expense (see Note 2)                                                      |  |                                          | 7,287   |   |                                         |  
|Government grant                                                                   |  |                                          |        |   |                                         |  
|Payment received under the Emergency Wartime Supplemental Appropriations Act, 2003 |  |                                          |        |   |                                         |  
|Parent company convertible debt discount amortization                              |  |                                          |        |   |                                         |  
|SFAS 133 adjustment                                                                |  |                                          |        |   |                                         |  
|                                                                                   |  |                                          |         |   |                                         |  
|Other (income) expense, net                                                        |  |                                          | 6,535   |   |                                         |  
|                                                                                   |  |                                          |         |   |                                         |  
|Income Before Income Taxes                                                         |  |                                          | 19,858  |   |                                         |  
|Income tax expense (benefit)                                                       |  |                                          | 261     |   |                                         |  
|                                                                                   |  |                                          |         |   |                                         |  
|Net Income                                                                         |  | $                                        | 19,597  |   |                                         | $
|                                                                                   |  |                                          |         |   |                                         |  



See
accompanying Notes to Condensed Consolidated Financial Statements.



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##### Table of Contents

AirTran Airways, Inc.

Condensed Consolidated Balance Sheets

(In thousands)



|                                                                                                                                                    |  | September 30,2003 |         |   | December 31,2002 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | -
|                                                                                                                                                    |  | (Unaudited)       |         |   |                  |  
|ASSETS                                                                                                                                              |  |                   |         |   |                  |  
|Current Assets:                                                                                                                                     |  |                   |         |   |                  |  
|Cash and cash equivalents                                                                                                                           |  | $                 | 261,775 |   |                  | $
|Restricted cash                                                                                                                                     |  |                   | 42,556  |   |                  |  
|Accounts receivable, less allowance of $871 and $1,425 at September 30, 2003 and December 31, 2002, respectively                                    |  |                   | 22,715  |   |                  |  
|Spare parts, materials and supplies, less allowance for obsolescence of $2,208 and $1,212 at September 30, 2003 and December 31,
2002, respectively |  |                   | 12,013  |   |                  |  
|Prepaid expenses and other current assets                                                                                                           |  |                   | 13,281  |   |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|Total current assets                                                                                                                                |  |                   | 352,340 |   |                  |  
|                                                                                                                                                    |  |                  
|Property and Equipment:                                                                                                                             |  |                   |         |   |                  |  
|Flight equipment                                                                                                                                    |  |                   | 229,110 |   |                  |  
|Less: Accumulated depreciation                                                                                                                      |  |                   | (26,341 | ) |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|                                                                                                                                                    |  |                   | 202,769 |   |                  |  
|Purchase deposits for flight equipment                                                                                                              |  |                   | 45,362  |   |                  |  
|                                                                                                                                                    |  |                  
|Other property and equipment                                                                                                                        |  |                   | 42,592  |   |                  |  
|Less: Accumulated depreciation                                                                                                                      |  |                   | (21,187 | ) |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|                                                                                                                                                    |  |                   | 21,405  |   |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|Total property and equipment                                                                                                                        |  |                   | 269,536 |   |                  |  
|                                                                                                                                                    |  |                  
|Other Assets:                                                                                                                                       |  |                   |         |   |                  |  
|Intangibles resulting from business acquisition                                                                                                     |  |                   | 10,438  |   |                  |  
|Trade names                                                                                                                                         |  |                   | 21,567  |   |                  |  
|Debt issuance costs                                                                                                                                 |  |                   | 7,296   |   |                  |  
|Other assets                                                                                                                                        |  |                   | 44,211  |   |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|Total other assets                                                                                                                                  |  |                   | 83,512  |   |                  |  
|                                                                                                                                                    |  |                   |         |   |                  |  
|Total assets                                                                                                                                        |  | $                 | 705,388 |   |                  | $
|                                                                                                                                                    |  |                   |         |   |                  |  



(Continued on next
page)



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##### Table of Contents

AirTran Airways, Inc.

Condensed Consolidated Balance Sheets (Continued)

(In thousands)



|                                                     |  | September 30,2003 |          |   | December 31,2002 |  
|---------------------------------------------------- |  | ----------------- | -------- | - | ---------------- | -
|                                                     |  | (Unaudited)       |          |   |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)       |  |                   |          |   |                  |  
|Current Liabilities:                                 |  |                   |          |   |                  |  
|Accounts payable                                     |  | $                 | 6,023    |   |                  | $
|Accrued liabilities                                  |  |                   | 88,298   |   |                  |  
|Air traffic liability                                |  |                   | 94,672   |   |                  |  
|Due to AirTran Holdings, Inc.                        |  |                   | 9,721    |   |                  |  
|Current portion of long-term debt                    |  |                   | 45,739   |   |                  |  
|                                                     |  |                   |          |   |                  |  
|Total current liabilities                            |  |                   | 244,453  |   |                  |  
|                                                     |  |                  
|Long-term debt, less current portion                 |  |                   | 140,498  |   |                  |  
|                                                     |  |                  
|Other liabilities                                    |  |                   | 67,834   |   |                  |  
|                                                     |  |                  
|Due to AirTran Holdings, Inc., less current portion  |  |                   | 186,271  |   |                  |  
|                                                     |  |                  
|Commitments and Contingencies                        |  |                   |          |   |                  |  
|Stockholders Equity (Deficit):                      |  |                   |          |   |                  |  
|Common stock                                         |  |                   |         |   |                  |  
|Additional paid-in-capital                           |  |                   | 208,665  |   |                  |  
|Accumulated other comprehensive loss                 |  |                   | (371     | ) |                  |  
|Accumulated deficit                                  |  |                   | (141,962 | ) |                  |  
|                                                     |  |                   |          |   |                  |  
|Total stockholders equity (deficit)                 |  |                   | 66,332   |   |                  |  
|                                                     |  |                   |          |   |                  |  
|Total liabilities and stockholders equity (deficit) |  | $                 | 705,388  |   |                  | $
|                                                     |  |                   |          |   |                  |  



See
accompanying Notes to Condensed Consolidated Financial Statements.



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##### Table of Contents

AirTran Airways, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                             |  | For the nine months endedSeptember 30, |        
|-------------------------------------------------------------------------------------------- |  | -------------------------------------- | -------
|                                                                                             |  | 2003                                   |        
|Operating activities:                                                                        |  |                                        |        
|Net income                                                                                   |  | $                                      | 78,793 
|Adjustments to reconcile net income to net cash provided by (used for) operating activities: |  |                                        |        
|Depreciation                                                                                 |  |                                        | 11,990 
|Amortization of deferred gains on sale-leaseback of aircraft                                 |  |                                        | (3,721 
|Loss on asset disposal                                                                       |  |                                        | 94     
|Provisions for uncollectible accounts                                                        |  |                                        | 352    
|Parent company amortization of debt discount upon conversion of debt to equity               |  |                                        | 1,812  
|Deferred income taxes                                                                        |  |                                        | 1,848  
|SFAS 133 adjustment                                                                          |  |                                        |       
|Changes in operating assets and liabilities:                                                 |  |                                        |        
|Restricted cash                                                                              |  |                                        | (8,383 
|Accounts receivable                                                                          |  |                                        | (3,952 
|Government grant receivable                                                                  |  |                                        |       
|Spare parts, materials and supplies                                                          |  |                                        | (3,575 
|Other assets                                                                                 |  |                                        | (15,335
|Accounts payable, accrued and other liabilities                                              |  |                                        | 10,026 
|Air traffic liability                                                                        |  |                                        | 37,492 
|                                                                                             |  |                                        |        
|Net cash provided by (used for) operating activities                                         |  |                                        | 107,441
|                                                                                             |  |                                       
|Investing activities:                                                                        |  |                                        |        
|Purchases of property and equipment                                                          |  |                                        | (16,528
|Payment of aircraft purchase deposits                                                        |  |                                        | (39,819
|Proceeds from disposal of equipment                                                          |  |                                        |       
|                                                                                             |  |                                        |        
|Net cash used for investing activities                                                       |  |                                        | (56,347
|                                                                                             |  |                                       
|Financing activities:                                                                        |  |                                        |        
|Payments of long-term debt                                                                   |  |                                        | (6,204 
|Increase in Due to AirTran Holdings, Inc.                                                    |  |                                        | 122,026
|Payment of Dividend to AirTran Holdings, Inc.                                                |  |                                        | (5,494 
|                                                                                             |  |                                        |        
|Net cash provided by (used for) financing activities                                         |  |                                        | 110,328
|                                                                                             |  |                                       
|Net increase (decrease) in cash and cash equivalents                                         |  |                                        | 161,422
|Cash and cash equivalents at beginning of period                                             |  |                                        | 100,353
|                                                                                             |  |                                        |        
|Cash and cash equivalents at end of period                                                   |  | $                                      | 261,775
|                                                                                             |  |                                        |        
|Supplemental Disclosure of Cash Flow Activities:                                             |  |                                        |        
|Noncash investing and financing activities                                                   |  |                                        |        
|Purchase and sale-leaseback of equipment                                                     |  | $                                      | 22,359 
|Gain on sale-leaseback of aircraft and payment of debt                                       |  | $                                      | 3,000  



See
accompanying Notes to Condensed Consolidated Financial Statements.



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##### Table of Contents

AirTran Airways, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)



Note 1 - Summary of Significant Accounting Policies



Basis of Presentation:



AirTran Airways, Inc. (Airways) is a wholly owned subsidiary of AirTran Holdings, Inc. (Holdings) and conducts all of the operations of Holdings.



Our accompanying Unaudited Condensed Consolidated Financial Statements include the accounts
of Airways and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements contain
all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for reports on Form
10-Q. It is suggested that these unaudited interim financial statements be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2002.



Our financial and operating results for any interim period are not necessarily indicative of
those for the entire year, because the air transportation business is subject to seasonal fluctuations. Higher demand for air travel has traditionally resulted in more favorable financial and operating results for the second and third quarters of
the year than for the first and fourth quarters.



The preparation of the
accompanying Unaudited Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes. Actual results may differ from those estimates and such differences may be material to the accompanying Unaudited Condensed Consolidated Financial Statements.



Business:



We offer scheduled air transportation of passengers and mail, serving markets primarily in
the eastern United States.



Maintenance:



Prior to 2003, Boeing 717 (B717) aircraft parts and components were under
warranty. During the first quarter of 2003, we commenced payments under previously negotiated agreements covering the maintenance, repair and overhaul of the major B717 aircraft parts and components. Under these agreements we pay monthly fees based
on either the number of flight hours flown or the number of landings made. The contracts cover normal maintenance and repair costs on the major aircraft components excluding the airframe. Historically, we expensed most maintenance and repair costs
as incurred. Under the new contracts, maintenance costs will be expensed monthly as the aircraft are utilized. Maintenance costs not under these contracts will continue to be expensed as incurred.



Stock-Based Employee Compensation:



Holdings has stock-based compensation plans covering officers, directors, key employees and
consultants. We account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation expense is not
recognized for employee stock option grants unless the exercise price is less than the fair value of Holdings common stock on the grant date.



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The following table illustrates the effect on net income and earnings per common share if we had applied the fair value
based method to measure stock-based employee compensation, as required under the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS 148:



|                                                                                                                           |  | Three months ended September 30, |        |   | Nine months ended September 30, |  
|-------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | -
|(in thousands, except per share amounts)                                                                                   |  | 2003                             |        |   | 2002                            |  
|Net income, as reported                                                                                                    |  | $                                | 19,597 |   |                                 | $
|                                                                                                                           |  |                                  |        |  
|Add: Stock-based employee compensation expense included in reported income, net of related tax effects                     |  |                                  |       |   |                                 |  
|                                                                                                                           |  |                                  |        |  
|Deduct: Stock-based employee compensation expense determined under the fair value based method, net of related tax
effects |  |                                  | (1,300 | ) |                                 |  
|                                                                                                                           |  |                                  |        |   |                                 |  
|Pro forma net income (loss)                                                                                                |  | $                                | 18,297 |   |                                 | $
|                                                                                                                           |  |                                  |        |   |                                 |  



As required, the pro forma disclosures
in the previous table include options granted since January 1, 1995. Consequently, the effects of applying SFAS 123 for providing pro forma disclosures may not be representative of the effects on reported net income for future years until all
options outstanding are included in the pro forma disclosures. For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS No. 148 amends the transition and disclosure provisions of SFAS No. 123. We are currently evaluating SFAS No. 148 to determine whether we will adopt SFAS No. 123 to account for employee stock options
using the fair value method and, if so, when to begin transition to that method.



Reclassification:



During the second quarter of 2003, we received a reimbursement based on our proportionate share of security fees under the Emergency Wartime Supplemental Appropriations Act (Wartime Act) which we have classified in Other (Income)
Expense in our accompanying condensed consolidated statements of income. In 2001, we classified compensation received from the U. S. government under the Air Transportation Safety and System Stabilization Act in Operating Expenses
in our accompanying unaudited condensed consolidated statements of income as a separate line item called Government grant. The Emerging Issues Task Force (EITF) in EITF 01-10, Accounting for the Impact of the Terrorist Attacks of September 11,
2001, allowed for the compensation to be recorded either as a separate line-item credit in operating expenses or as a gross amount in other non-operating income. We have reclassified the amounts reported as Government grant in the three and
nine month period ended September 30, 2002 from Operating Expenses to Other (Income) Expense in our condensed consolidated statements of income consistent with our presentation of the payment under the Wartime Act. This
reclassification has no impact on net income for the period (See Note 8 to the Unaudited Condensed Consolidated Financial Statements).



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Note 2 - Related Party Transactions



Intercompany interest expense was $2.3 million and $0.7 million for the three months ended September 30, 2003 and 2002, respectively, and
$6.4 million and $2.2 million for the nine months ended September 30, 2003 and 2002, respectively. In May 2003, Holdings completed a private placement of $125 million in convertible notes, the proceeds of which were loaned to Airways (see Note 7 to
the Unaudited Condensed Consolidated Financial Statements). Additionally, included in the Due to AirTran Holdings, Inc. are amounts loaned to Airways by Holdings principally as a result of issuance of common stock by Holdings pursuant to stock
option plans and for settlement of litigation.



Note 3 -
Comprehensive Income



Comprehensive income encompasses net income and
other comprehensive income, which includes all other non-owner transactions and events that change stockholders equity. Other comprehensive income is composed of reclassifications to earnings of deferred gains and losses related to
derivative financial instruments that qualified for hedge accounting. These derivative instruments were terminated in March 2002. Comprehensive income was $19.7 million and $2.5 million for the three months ended September 30, 2003 and 2002,
respectively, and $79.2 million and $8.2 million for the nine months ended September 30, 2003 and 2002, respectively. The differences between net income and comprehensive income for each of these periods is as follows (in thousands):



|                                            |  | For the three months endedSeptember 30, |        | For the nine months ended September 30,
|------------------------------------------- |  | --------------------------------------- | ------ | ---------------------------------------
|                                            |  | 2003                                    |        | 2002                                   
|Net income:                                 |  | $                                       | 19,597 |                                        
|Unrealized income on derivative instruments |  |                                         | 121    |                                        
|                                            |  |                                         |        |                                        
|Comprehensive income                        |  | $                                       | 19,718 |                                        
|                                            |  |                                         |        |                                        



An analysis of the amounts included in
accumulated other comprehensive income is shown below (in thousands):



|                              |  | (Increase)Decrease |     
|----------------------------- |  | ------------------ | ----
|Balance at December 31, 2002  |  | $                  | (809
|Reclassification to earnings  |  |                    | 438 
|                              |  |                    |     
|Balance at September 30, 2003 |  | $                  | (371
|                              |  |                    |     



Note 4 - Fuel Risk Management



Refer to Note 4 in Holdings Notes to Condensed Consolidated
Financial Statements.



Note 5 - Aircraft Purchase Commitments and
Fleet Renewal Plan



Refer to Note 5 in Holdings Notes to Condensed
Consolidated Financial Statements.



Note 6 - Income Taxes



Refer to Note 6 in Holdings Notes to Condensed Consolidated
Financial Statements.



Note 7 - Long-term Debt



Refer to Note 7 in Holdings Notes to Condensed Consolidated Financial Statements.



Note 8 - Government Compensation



Refer to Note 8 in Holdings Notes to Condensed Consolidated Financial Statements.



Note 9 - Recently Issued Accounting Standards



Refer to Note 9 in Holdings Notes to Condensed Consolidated Financial Statements.



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Note 10 - Subsequent Events



Refer to Note 10 in Holdings Notes to Condensed Consolidated Financial Statements.



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



The information contained in this section: (i) has been derived from our historical financial statements and should be read together with our historical financial
statements and related notes included elsewhere in this document, in addition to our Annual Report on Form 10-K for the year ended December 31, 2002 as filed with the U.S. Securities and Exchange Commission; and (ii) is not a comprehensive
discussion and analysis of our financial condition and results of operations, but rather updates disclosures made in the aforementioned filing. The discussion below contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties including, but not limited to: consumer demand and acceptance of services
offered by us, our ability to achieve and maintain acceptable cost levels, fare levels and actions by competitors, regulatory matters, general economic conditions, commodity prices and changing business strategies. Forward-looking statements are
subject to a number of factors that could cause actual results to differ materially from our expressed or implied expectations, including, but not limited to: our performance in future periods, our ability to generate working capital from
operations, our ability to take delivery of and to finance aircraft, the adequacy of our insurance coverage and the results of litigation or investigations. Our forward-looking statements can be identified by the use of terminology such as
anticipates, expects, intends, believes, will or the negative thereof, or variations thereon or comparable terminology. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events or otherwise.



GENERAL INFORMATION



We operate in a
highly competitive industry that is characterized in general by cyclical financial performance, sensitivity to general economic conditions and large capital investments. This operating environment has most recently been affected by high fuel prices
and continuing tensions in the Middle East, as well as a weak domestic economy. In light of these conditions, we believe that we have performed well against our competitors both on a financial and operating performance basis. Despite these
challenges, we have remained profitable, increased our Boeing 717 (B717) aircraft fleet, announced a commitment to add up to 100 Boeing 737 aircraft to our fleet over the next five years, obtained debt financing, completed a stock offering,
inaugurated service to the West Coast and Ronald Reagan Washington National Airport, enhanced routes in existing markets, all while lowering our operating costs per available seat mile (CASM). Our on-going focus on controlling costs and providing
efficient service at low fares allowed us to report our sixth consecutive profitable quarter.



Our financial and operating results for any interim period are not necessarily indicative of those for the entire year, because the air transportation business is subject to seasonal fluctuations. Higher demand for
air travel has traditionally resulted in more favorable financial and operating results for the second and third quarters of the year than for the first and fourth quarters.



RESULTS OF OPERATIONS



The following tables set forth selected financial and operating data for the three months and nine months ended September 30, 2003 and 2002.



|                                         |  | Three Months EndedSeptember 30, |           |   | Percent Change |  
|---------------------------------------- |  | ------------------------------- | --------- | - | -------------- | -
|                                         |  | 2003                            |           |   | 2002 (a)       |  
|Revenue passengers                       |  |                                 | 3,120,762 |   |                |  
|Revenue passenger miles (000s)           |  |                                 | 1,910,161 |   |                |  
|Available seat miles (000s)              |  |                                 | 2,601,682 |   |                |  
|Operating margin                         |  |                                 | 11.1      | % |                |  
|Net margin (b)                           |  |                                 | 8.3       | % |                |  
|Block hours                              |  |                                 | 71,352    |   |                |  
|Passenger load factor                    |  |                                 | 73.4      | % |                |  
|Break-even load factor (c)               |  |                                 | 67.1      | % |                |  
|Average fare                             |  | $                               | 73.64     |   |                | $
|Average yield per RPM                    |  |                                 | 12.03     | ¢ |                |  
|Passenger revenue per ASM                |  |                                 | 8.83      | ¢ |                |  
|Operating cost per ASM                   |  |                                 | 8.11      | ¢ |                |  
|Average cost of aircraft fuel per gallon |  |                                 | 97.27     | ¢ |                |  
|Weighted-average number of aircraft      |  |                                 | 71        |   |                |  



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|                                         |  | Nine Months EndedSeptember 30, |           |   | Percent Change |  
|---------------------------------------- |  | ------------------------------ | --------- | - | -------------- | -
|                                         |  | 2003                           |           |   | 2002 (a)       |  
|Revenue passengers                       |  |                                | 8,643,229 |   |                |  
|Revenue passenger miles (000s)           |  |                                | 5,269,195 |   |                |  
|Available seat miles (000s)              |  |                                | 7,361,437 |   |                |  
|Operating margin                         |  |                                | 9.6       | % |                |  
|Net margin (d)                           |  |                                | 11.6      | % |                |  
|Block hours                              |  |                                | 203,055   |   |                |  
|Passenger load factor                    |  |                                | 71.6      | % |                |  
|Break-even load factor (e)               |  |                                | 62.8      | % |                |  
|Average fare                             |  | $                              | 76.20     |   |                | $
|Average yield per RPM                    |  |                                | 12.50     | ¢ |                |  
|Passenger revenue per ASM                |  |                                | 8.95      | ¢ |                |  
|Operating cost per ASM                   |  |                                | 8.34      | ¢ |                |  
|Average cost of aircraft fuel per gallon |  |                                | 98.56     | ¢ |                |  
|Weighted-average number of aircraft      |  |                                | 66        |   |                |  

---

|(a) | Certain 2002 amounts have been reclassified to conform to 2003 presentation.
|--- | ----------------------------------------------------------------------------

|(b) | Net margin for the three months ended September 30, 2002 includes a government grant of $0.6 million which increases net margin by 0.3 percentage points.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Break-even load factor for the three months ended September 30, 2002 includes a government grant of $0.6 million which decreases break-even load factor by 0.2 percentage points.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Net margin for the nine months ended September 30, 2003 includes a payment under the Emergency Wartime Supplemental Appropriations Act, 2003 and convertible debt discount
amortization of $38.1 million and $1.8 million, respectively. Combined these items increase net margin by approximately 5.2 percentage points. Net margin for the nine months ended September 30, 2002 includes a government grant of $0.6 million which
increases net margin by 0.1 percentage points.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Break-even load factor for the nine months ended September 30, 2003 includes a payment under the Emergency Wartime Supplemental Appropriations Act, 2003 and convertible debt
discount amortization of $38.1 million and $1.8 million, respectively. Combined, these items decrease break-even load factor by 3.9 percentage points. Break-even load factor for the nine months ended September 30, 2002 includes a government grant of
$0.6 million which decreases break-even load factor by 0.1 percentage points
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the three months ended September 30, 2003 and 2002



Summary



We recorded operating income
of $26.4 million, net income of $19.6 million and diluted earnings per common share of $0.24 for the three months ended September 30, 2003. For the comparative period in 2002, we recorded operating income of $7.0 million, net income of $1.2 million
and diluted earnings per common share of $0.02.



Operating Revenues



Our operating revenues for the quarter increased by $54.2 million (29.6
percent) primarily due to a $51.8 million (29.1 percent) increase in passenger revenues. The increase in passenger revenues is primarily due to a 33.9 percent increase in traffic, as measured by revenue passenger miles (RPMs) flown offset by a 3.6
percent decrease in average yield per revenue passenger mile.



Third quarter
2003 capacity, as measured by available seat miles (ASMs), increased 21.3 percent compared to the third quarter of 2002. The capacity increase resulted from the net addition of 10 aircraft between September 2002 through September 2003, including the
delivery of 25 B717 aircraft and the retirement of 15 DC-9 aircraft. When coupled with our RPM growth of 33.9 percent, our load factor increased 6.9 percentage points to 73.4 percent. Our average fare increased 1.0 percent from $72.91 to $73.64
while our average yield decreased by 3.6 percent to 12.03 cents per revenue passenger mile. Unit revenue or passenger revenue per available seat mile (RASM) increased 6.4 percent.



Operating Expenses



Our operating expenses for the quarter increased by $34.7 million (19.7 percent) on ASM growth of 21.3 percent, resulting in a reduction on our CASM of 1.2 percent to
8.11 cents. Our operating expenses per ASM were as follows:



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|                                         |  | Three Months Ended September 30, |   |  | Percent Change |  
|---------------------------------------- |  | -------------------------------- | - |  | -------------- | -
|                                         |  | 2003                             |   |  | 2002           |  
|Salaries, wages and benefits             |  | 2.28                             | ¢ |  | 2.41           | ¢
|Aircraft fuel                            |  | 1.74                             |   |  | 1.90           |  
|Aircraft rent                            |  | 1.26                             |   |  | 0.92           |  
|Distribution                             |  | 0.45                             |   |  | 0.45           |  
|Maintenance, materials and repairs       |  | 0.55                             |   |  | 0.44           |  
|Landing fees and other rents             |  | 0.52                             |   |  | 0.51           |  
|Aircraft insurance and security services |  | 0.20                             |   |  | 0.34           |  
|Marketing and advertising                |  | 0.23                             |   |  | 0.26           |  
|Depreciation                             |  | 0.13                             |   |  | 0.19           |  
|Other operating                          |  | 0.75                             |   |  | 0.79           |  
|                                         |  |                                  |   |  |                |  
|Total CASM                               |  | 8.11                             | ¢ |  | 8.21           | ¢
|                                         |  |                                  |   |  |                |  



Salaries, wages and benefits
increased $7.6 million (14.8 percent) primarily due to the addition of flight crews and ground support personnel hired to operate and support the growth of our B717 aircraft fleet and new destinations added to our route system, as well as
contractual wage increases and higher costs associated with our employee benefit programs. On an ASM basis, salaries, wages and benefits decreased by 5.4 percent.



Aircraft fuel increased $4.7 million (11.6 percent) due to an increase in the price of aircraft fuel purchases and an increase in
block hours flown partially offset by fuel consumption improvements. Our average per gallon cost of fuel increased 5.0 percent to 97.27 cents and our fuel consumption decreased 9.4 percent to 654 gallons per block hour. We continue to realize
savings from reduced fuel consumption per block hour as we replace the DC-9 aircraft in our operating fleet with B717 aircraft that are comparatively more fuel-efficient. Fuel consumption per block hour improvements are expected to continue through
the remainder of this year when we expect to be operating an all-Boeing 717 aircraft fleet. Aircraft fuel expense decreased 8.0 percent on an ASM basis.



Aircraft rent increased $13.1 million (66.5 percent) due to lease-financing of 25 additional B717 aircraft between September 2002 and September 2003. We have
lease-financing commitments in place to accept delivery of 23 B717 aircraft in total during 2003. During the third quarter of 2003, we took delivery of 4 B717 aircraft which have been lease-financed in accordance with our commitments.



Distribution costs increased $1.9 million (19.7 percent) due to
increased revenue passengers. Distribution costs decreased 1.3 percent on an ASM basis. Our improvement in this area was primarily due to (i) a greater percentage of our passenger sales being generated online via our website and (ii) savings
generated by revisions to our commission structure. We recognize significant savings when our sales are transacted via our website as opposed to through travel agencies or global distribution systems. During the third quarter of 2003, sales booked
via the Internet were approximately 64 percent compared to 54 percent in the same period during 2002. The revision of our commission structure during the second quarter of 2002 eliminated most of the standard five percent commissions for travel
agencies and continues to reduce our overall commission expense. We continue to offer five percent commissions for sales transacted through the travel agency section of our website. Our commissions cost savings were partially offset by increased
computer reservation and credit card fees. The additional transaction volume derived from our growth in revenue passengers generated the escalation in these expenses.



Maintenance, materials and repairs increased $5.0 million (52.4 percent). On a block hour basis, maintenance costs increased 29.9
percent to $202 per block hour. During the first quarter of 2003, we entered into agreements covering the maintenance, repair and overhaul of the major B717 aircraft parts and components. Under these agreements we pay monthly fees based on either
the number of flight hours flown or the number of landings made. The contracts cover normal maintenance and repair costs on the major aircraft components excluding the airframe. Historically, we expensed most maintenance and repair costs as
incurred. Under the new contracts, maintenance costs will be expensed monthly as the aircraft are utilized. In general, we anticipate our maintenance costs will increase as the age of our B717 fleet increases.



Landing fees and other rents increased $2.8 million (25.8 percent) reflecting landing
fee rate increases, growth in the number of flights we operated and the leasing of facilities at the new destinations added to our route system.



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Aircraft insurance and security services decreased $2.1 million (29.5 percent) partially due to negotiated
reductions in aircraft insurance premiums for passenger liability and hull insurance as well as extensions to the government program providing supplemental third party war-risk insurance coverage at substantially lower premiums than prevailing
commercial rates. In November 2002, Congress passed the Homeland Security Act, which mandated that the federal government provide this insurance coverage through December 2003. The Wartime Act (see Note 8 to the Unaudited Condensed Consolidated
Financial Statements) extends the governments mandate to provide war-risk insurance through August 2004 and permits such coverage to be extended to December 2004. Aircraft insurance and security services decreased by 41.8 percent on an ASM
basis.



Marketing and advertising increased $0.4 million (7.5
percent) primarily reflecting our promotional efforts associated with the development of our new destinations and our efforts to stimulate demand in existing markets. Marketing and advertising decreased on an ASM basis by 11.4 percent.



Depreciation decreased $0.7 million (17.9 percent) primarily due to
the retirement of 15 owned DC-9 aircraft since September 30, 2002. Depreciation associated with additional spare parts and equipment provisioning for the B717 aircraft partially offset the expense reductions. On an ASM basis, depreciation decreased
by 32.3 percent.



Other operating expenses increased $2.1 million
(12.2 percent) primarily from added passenger related costs associated with the higher level of operations and contractual costs related to the opening of new destinations.



Nonoperating (Income) Expense



Other (income) expense, net increased by $0.7 million in expense primarily due to increased interest expense from our issuance of convertible notes in the second
quarter of 2003 and offset by the receipt in 2002 of a government grant of $0.6 million.



Income Tax Expense



Income tax expense
was $0.3 million and zero for the three months ended September 30, 2003 and 2002, respectively. During the three month period ended September 30, 2003, tax expense of $0.3 million represents the expected utilization of preacquisition net operating
loss (NOL) carryforwards related to the Airways Corporation due to its earnings in the current period. For financial reporting purposes, a valuation allowance was recognized to offset the deferred tax assets related to those carryforwards at the
date of acquisition. Accordingly, when realized, the tax benefit of the preacquisition net operating loss carryforwards will be applied to reduce goodwill related to the acquisition of Airways Corporation.



We have not recognized any benefit from the future use of existing NOL carryforwards because
our evaluation of all the available evidence does not indicate that it is more likely than not that we will generate sufficient future taxable income to realize such benefit. We had consolidated federal income tax NOL carryforwards of approximately
$116 million at December 31, 2002. Our NOL carryforwards will begin to terminate in 2012 to the extent they have not been used to reduce taxable income prior to such time. Our ability to use our NOL carryforwards to reduce taxable income is
dependent upon, among other things, our not experiencing an ownership change of more than 50 percent during any three-year testing period as defined in the Internal Revenue Code. We do not believe we have experienced an ownership change
in the three-year testing period immediately prior to December 31, 2002. Future changes in the ownership or constructive ownership of our common stock (including, among other things, conversion of our Convertible Notes due 2023 into common stock -
see Note 7 to the Unaudited Condensed Consolidated Financial Statements) could result in an aggregate change in ownership of more than 50 percent as defined in the Internal Revenue Code, which could substantially limit the availability of our NOL
carryforwards.



For the nine months ended September 30,
2003 and 2002



Summary



We recorded operating income of $65.5 million, net income of $78.8 million and diluted
earnings per common share of $0.99 for the first nine months of 2003. Included in the results for the nine months ended September 30, 2003, was a $38.1 million cash reimbursement under the Wartime Act and a non-cash charge of $1.8 million related to
the conversion of the remaining portion of a convertible note from Boeing Capital, which, net of income taxes, amounted to $0.43 per diluted share. For the comparative period in 2002, we recorded operating income of $16.2 million, net income of $3.2
million and diluted earnings per common share of $0.04.



Operating
Revenues



Our operating revenues for the period increased by $146.1
million (27.4 percent) primarily due to a $139.2 million (26.8 percent) increase in passenger revenues. The increase in passenger revenues is primarily due to a 28.2 percent increase in traffic, as measured by RPMs flown.



For the nine month period ended September 30, 2003, capacity, as measured by ASMs, increased
21.9 percent compared to the



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nine months ended September 30, 2002. The capacity increase resulted from the net addition of 10 aircraft between September 2002 through September 2003,
including the delivery of 25 B717 aircraft and the retirement of 15 DC-9 aircraft. When coupled with our RPM growth of 28.2 percent, our load factor increased 3.5 percentage points to 71.6 percent. Our average fare increased 4.8 percent from $72.69
to $76.20 while our average yield declined by 1.0 percent to 12.50 cents per revenue passenger mile. Unit revenue or passenger revenue per available seat mile (RASM) increased 4.1 percent.



Operating Expenses



Our operating expenses for the period increased by $96.8 million (18.7 percent). Our CASM improved 2.6 percent to 8.34 cents on ASM growth
of 21.9 percent. Our operating expenses per ASM were as follows:



|                                         |  | Nine Months Ended September 30, |   |  | Percent Change |  
|---------------------------------------- |  | ------------------------------- | - |  | -------------- | -
|                                         |  | 2003                            |   |  | 2002           |  
|Salaries, wages and benefits             |  | 2.33                            | ¢ |  | 2.45           | ¢
|Aircraft fuel                            |  | 1.81                            |   |  | 1.88           |  
|Aircraft rent                            |  | 1.21                            |   |  | 0.82           |  
|Distribution                             |  | 0.47                            |   |  | 0.55           |  
|Maintenance, materials and repairs       |  | 0.61                            |   |  | 0.58           |  
|Landing fees and other rents             |  | 0.52                            |   |  | 0.52           |  
|Aircraft insurance and security services |  | 0.19                            |   |  | 0.36           |  
|Marketing and advertising                |  | 0.26                            |   |  | 0.28           |  
|Depreciation                             |  | 0.14                            |   |  | 0.21           |  
|Other operating                          |  | 0.80                            |   |  | 0.91           |  
|                                         |  |                                 |   |  |                |  
|Total CASM                               |  | 8.34                            | ¢ |  | 8.56           | ¢
|                                         |  |                                 |   |  |                |  



Salaries, wages and benefits
increased $23.6 million (16.0 percent) primarily due to the addition of flight crews and ground support personnel hired to operate and support the growth of our B717 aircraft fleet and new destinations added to our route system, as well as
contractual wage increases and higher costs associated with our employee benefit programs. Salaries, wages and benefits decreased by 4.9 percent on an ASM basis.



Aircraft fuel increased $20.0 million (17.7 percent) due to increases in the price of aircraft fuel purchases and an increase in
block hours flown partially offset by fuel consumption improvements. Our average per gallon cost of fuel increased 9.9 percent to 98.56 cents and our fuel consumption decreased 8.3 percent to 667 gallons per block hour. We continue to realize
savings from reduced fuel consumption per block hour as we replace the DC-9 aircraft in our operating fleet with B717 aircraft that are comparatively more fuel-efficient. Fuel consumption per block hour improvements are expected to continue through
the remainder of this year when we expect to be operating an all-Boeing 717 aircraft fleet. Aircraft fuel expense decreased 3.5 percent on an ASM basis.



Aircraft rent increased $39.2 million (78.8 percent) due to lease-financing of 25 additional B717 aircraft between September 2002 and September 2003. We have
lease-financing commitments in place to accept delivery of 23 B717 aircraft in total during 2003. During the first nine months of 2003, we took delivery of 18 B717 aircraft which have been lease-financed in accordance with our commitments.



Distribution costs increased $1.5 million (4.5 percent) due to
increased revenue passengers. Distribution costs decreased 14.3 percent on an ASM basis. Our improvement in this area was primarily due to (i) a greater percentage of our passenger sales being generated online via our website and (ii) savings
generated by revisions to our commission structure. We recognize significant savings when our sales are transacted via our website as opposed to through travel agencies or global distribution systems. During the first half of 2003, sales booked via
the Internet were approximately 59 percent compared to 55 percent in the same period during 2002. The revision of our commission structure during the second quarter of 2002 eliminated most of the standard five percent commissions for travel agencies
and continues to reduce our overall commission expense. We continue to offer five percent commissions for sales transacted through the travel agency section of our website. Our commissions cost savings were partially offset by increased computer
reservation and credit card fees. The additional transaction volume derived from our growth in revenue passengers generated the escalation in these fees.



Maintenance, materials and repairs increased $9.9 million (28.3 percent). On a block hour basis, maintenance costs increased 10.0 percent to $221 per block
hour. During the first quarter of 2003, we entered into agreements covering the maintenance, repair and overhaul of the major B717 aircraft parts and components. Under these agreements we pay monthly fees based on



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either the number of flight hours flown or the number of landings made. The contracts cover normal maintenance and repair costs on the major aircraft
components excluding the airframe. Historically, we expensed most maintenance and repair costs as incurred. Under the new contracts, maintenance costs will be expensed monthly as the aircraft are utilized. In general, we anticipate our maintenance
costs will increase as the age of our B717 fleet increases.



Landing
fees and other rents increased $6.8 million (21.7 percent) reflecting landing fee rate increases, growth in the number of flights we operated and the leasing of facilities at the new destinations added to our route system. On an ASM basis,
landing fees and other rents remained unchanged.



Aircraft insurance
and security services decreased $7.4 million (34.1 percent) partially due to negotiated reductions in aircraft insurance premiums for passenger liability and hull insurance as well as extensions to the government program providing supplemental
third party war-risk insurance coverage at substantially lower premiums than prevailing commercial rates. In November 2002, Congress passed the Homeland Security Act, which mandated that the federal government provide this insurance coverage through
December 2003. The Wartime Act (see Note 8 to the Unaudited Condensed Consolidated Financial Statements) extends the governments mandate to provide war-risk insurance through August 2004 and permits such coverage to be extended to December
2004. During the second quarter of 2003, we received approximately $2 million in reimbursements from TSA for security services provided by Airways. Aircraft insurance and security services decreased by 46.0 percent on an ASM basis.



Marketing and advertising increased $2.3 million (13.8 percent)
primarily reflecting our promotional efforts associated with the development of our new destinations and our efforts to maintain a high level of demand in existing markets. Marketing and advertising decreased on an ASM basis by 6.7 percent.



Depreciation decreased $2.7 million (21.5 percent) primarily due to
the retirement of 15 owned DC-9 aircraft since September 30, 2002. Depreciation associated with additional spare parts and equipment provisioning for the B717 aircraft partially offset the expense reductions. On an ASM basis, depreciation decreased
by 35.6 percent.



Other operating expenses increased $3.6 million (6.5
percent) primarily from added passenger related costs associated with the higher level of operations, contractual costs related to the opening of new destinations. On an ASM basis, other operating expenses decreased by 12.7 percent.



Nonoperating (Income) Expense



Other (income) expense, net increased by $29.0 primarily due to the receipt of a
$38.1 million cash reimbursement under the Wartime Act (see Note 8 to the Unaudited Condensed Consolidated Financial Statements) offset by a non-cash charge of $1.8 million related to the conversion of the remaining portion of a convertible note
from Boeing Capital (see Note 7 to the Unaudited Condensed Consolidated Financial Statements).



Income Tax Expense (Benefit)



Income
tax expense (benefit) was $1.8 million and $(0.8) million for the nine months ended September 30, 2003 and 2002, respectively. During the nine month period ended September 30, 2003, tax expense of $1.8 million represents the expected utilization of
preacquisition net operating loss (NOL) carryforwards related to the Airways Corporation (predecessor of Airways) due to its earnings in the current period. For financial reporting purposes, a valuation allowance was recognized to offset the
deferred tax assets related to those carryforwards at the date of acquisition. Accordingly, when realized, the tax benefit of the preacquisition net operating loss carryforwards will be applied to reduce goodwill related to the acquisition of
Airways Corporation.



The Job Creation and Worker Assistance Act passed by
Congress in March 2002 resulted in a retroactive suspension of the alternative minimum tax (AMT) NOL 90 percent limitation. This legislation resulted in a tax benefit of $0.8 million for the first quarter of 2002. In accordance with SFAS No. 109,
Accounting for Income Taxes, the effect of changes in tax laws or rates is included in income in the period that includes the enactment date, resulting in the recognition of the change in the first quarter of 2002.



We have not recognized any benefit from the future use of existing NOL carryforwards because
our evaluation of all the available evidence does not indicate that it is more likely than not that we will generate sufficient future taxable income to realize such benefit. We had consolidated federal income tax NOL carryforwards of approximately
$116 million at December 31, 2002. Our NOL carryforwards will begin to terminate in 2012 to the extent they have not been used to reduce taxable income prior to such time. Our ability to use our NOL carryforwards to reduce taxable income is
dependent upon, among other things, our not experiencing an ownership change of more than 50 percent during any three-year testing period as defined in the Internal Revenue Code. We do not believe we have experienced an ownership change
in the three-year testing period



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immediately prior to December 31, 2002. Future changes in the ownership or constructive ownership of our common stock (including, among other things,
conversion of our Convertible Notes due 2023 into common stock - see Note 7 to the Unaudited Condensed Consolidated Financial Statements) could result in an aggregate change in ownership of more than 50 percent as defined in the Internal Revenue
Code, which could substantially limit the availability of our NOL carryforwards.



LIQUIDITY AND CAPITAL RESOURCES



As of September 30, 2003, our
cash and cash equivalents, including restricted cash, totaled $308.7 million compared to $138.3 million at December 31, 2002. Operating activities for the first nine months of 2003 provided $109.6 million of cash including $38.1 million from
a reimbursement under the Wartime Act, as described below. Investing activities used $56.3 million of cash primarily due to the purchase of spare parts, equipment provisioning for the B717 aircraft fleet, upgrades to our computer systems and
aircraft purchase deposits on our new Boeing 737 aircraft which will begin entering the fleet in 2004. Financing activities provided $108.8 million of cash primarily from our private placement of $125 million in convertible notes due 2023 and
the sale of common stock associated with the exercise of stock options, offset by payments of debt and debt issuance costs.



The Wartime Act was approved by Congress in April 2003 which includes a supplemental appropriations bill that requires reimbursement to domestic, commercial air carriers
based on their proportional share of passenger security fees paid or collected through the date of enactment of the legislation. Highlights of the provision relating to air carriers are as follows:



| |  | $2.3 billion for reimbursement of airline security fees that have been paid or collected by the carriers as of the date of enactment. The reimbursement will occur not later than 30
days from the date of enactment of the legislation. Additionally, the collection of the passenger security fees will be suspended during the period beginning June 1, 2003 and ended September 30, 2003.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | $100 million to compensate carriers for direct costs associated with installing strengthened cockpit doors and locks.
| | - | ---------------------------------------------------------------------------------------------------------------------



| |  | Aviation war-risk insurance provided by the government is extended through August 2004 with an option to extend the coverage through December 2004.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



During the second quarter of 2003, we received $38.1 million, our proportional share of the
funds from the Wartime Act. Additionally during the third quarter of 2003, we received $1.7 million as reimbursement of flight deck door reinforcement expenditures.



Generally, we rely primarily on operating cash flows to provide working capital. During the second quarter of 2003, we completed a private
placement of $125 million in convertible debt. Additionally on October 1, 2003, we closed on a stock offering that provided $139.3 million in net proceeds. The proceeds received from this debt offering will be used for working capital and general
corporate purposes while $67 million of the proceeds from the stock offering were used, during October 2003, to retire Airways 11.27% Senior Secured Note held by Boeing Capital. We currently have no lines of credit or short-term borrowing
facilities. We generally must satisfy all of our working capital expenditure requirements from cash provided by operating activities, from external capital sources or from the sale of assets. Substantial portions of our assets have been pledged to
secure various issues of our outstanding indebtedness. To the extent the pledged assets are sold, the applicable financing agreements generally require the sales proceeds to be applied to repay the corresponding indebtedness when the sales proceeds
exceed a certain specified limit. To the extent our access to capital is constrained, we may not be able to make certain capital expenditures or continue to implement certain other aspects of our strategic plan.



Commitments



As of September 30, 2003, we had contracted with The Boeing Company (Boeing) for the acquisition of 73 Boeing 717 (B717) aircraft to be
acquired through the end of 2003, 68 of which have been delivered. We have lease-financing commitments to accept delivery of the remaining 5 B717 aircraft during 2003. In July 2003, we cancelled 6 B717 option aircraft and committed to acquire 10
additional B717 aircraft during 2004 and 2005 under committed lease-financing arrangements. We also obtained contingent options to acquire up to an additional 4 B717 aircraft under similar lease-financing arrangements.



We anticipate that all of our McDonnell Douglas DC-9 (DC-9) aircraft will be retired by the
end of 2003 and will be replaced by B717 aircraft.



In July 2003, we separately
contracted with Boeing and with an aircraft leasing company to acquire 50 Boeing 737 (B737) aircraft with delivery dates between 2004 and 2008. In connection with these contracts, we obtained options and purchase rights from the manufacturer to
acquire up to an additional 50 B737 aircraft between 2005 and 2010. We have lease-financing commitments for 22 of the B737 aircraft, and 6 related spare engines, to be delivered between 2004 and 2010 and backstop financing from an affiliate of the
manufacturer for 80% of the purchase price of an additional 16 of the B737 aircraft. Should we be unable to secure financing from the financial markets on acceptable terms, backstop financing may be used.



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OTHER INFORMATION



Long-term Debt



In May 2003, Holdings completed a private placement of $125 million in convertible notes due in 2023. The proceeds are to be used to improve Holdings and Airways overall
liquidity by providing working capital and for general corporate purposes. The notes bear interest at 7% payable semi-annually on January 1 and July 1. The first interest payment on the notes was made July 1, 2003. The notes are unsecured senior
obligations ranking equally with Holdings existing unsecured senior indebtedness. The notes are unconditionally guaranteed by Airways and rank equally with all unsecured obligations of Airways. The unsecured notes and the note guarantee are
junior to any secured obligations of Holdings or Airways to the extent of the collateral pledged and are also effectively subordinated to all liabilities of our subsidiaries (other than Airways), including deposits and trade payables.



The notes are convertible into shares of Holdings common stock at a conversion rate of
89.9281 shares per $1,000 in principal amount of the notes which equals an initial conversion price of approximately $11.12 per share. This conversion rate is subject to adjustment in certain circumstances. Holders of the notes may convert their
notes if: (i) after June 30, 2003, the price of Holdings common stock exceeds 110 percent of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding quarter; (ii) the
trading price for the notes falls below certain thresholds; (iii) the notes have been called for redemption; or (iv) specified corporate transactions occur. Holdings may redeem the notes, in whole or in part, beginning on July 5, 2010 at a
redemption price equal to the principal amount of the notes plus any accrued and unpaid interest. The holders of the notes may require Holdings to repurchase the notes on July 1, 2010, 2013 and 2018 at a repurchase price of 100 percent plus any
accrued and unpaid interest. Holdings filed a shelf registration statement with the U.S. Securities and Exchange Commission covering the resale of the notes and the underlying common stock which became effective in October 2003. At September 30,
2003, condition (i) above had been satisfied and, accordingly, the notes are currently convertible into Holdings common stock.



In June 2003, Boeing Capital Corporation (Boeing Capital) exercised its remaining conversion rights related to Holdings 7.75% Series B Senior Convertible Notes. The
conversion resulted in a decrease in Holdings overall debt of $5.5 million. In connection with the conversion, Holdings issued approximately 1.0 million shares of its common stock to Boeing Capital. In accordance with accounting principles
generally accepted in the United States, Holdings expensed $1.6 million of debt discount and $0.2 million of debt issuance costs that had not been amortized. These amounts are shown on the condensed consolidated statements of income as Other
(Income) Expense  Convertible debt discount amortization.



In
August 2003, we redeemed the remaining balance of $10.3 million of Holdings 13% Series A Senior Secured Notes. The terms of the debt agreement require mandatory prepayments equal to 25 percent of Airways net income on a quarterly basis.



Labor Negotiations



On June 23, 2003, we reached a tentative labor agreement with the Association of Flight
Attendants, AFL-CIO (AFA). The AFA represents approximately 1,100 flight attendants. On July 23, 2003, the AFA informed us that the union membership declined to ratify the tentative agreement. We have reconvened discussions with the AFA.



New Service



We inaugurated service to Denver, Colorado, Las Vegas, Nevada and Los Angeles, California
during the second quarter of 2003. We began service to Ronald Reagan Washington National Airport in Washington, D.C. on October 23, 2003. Additionally we announced service to San Francisco, CA to begin November 12, 2003. The addition of San
Francisco represents the 45th destination in our route network.



Recently Issued Accounting Standards



In November 2002,
the Financial Accounting Standards Board (FASB) issued Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a
liability for the fair value of an obligation for guarantees issued or modified after December 31, 2002 be recorded in the financial statements of the guarantor. Guarantees that existed prior to the implementation of FIN 45 are required to be
disclosed in financial statement issued after December 15, 2002. While we have various guarantees included in contracts in the normal course of business, primarily in the form of indemnities, these guarantees would only result in immaterial
increases in future costs, and do not represent significant commitments or contingent liabilities of the indebtedness of others.



The FASB issued Interpretation 46, Consolidation of Variable Interest Entities(FIN 46), in January 2003. FIN 46 requires the consolidation of certain types of
entities in which a company absorbs a majority of another entitys expected losses, receives a majority of the other entitys expected residual returns, or both, as a result of ownership, contractual or other financial interests



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in the other entity. These entities are called variable interest entities (VIE). The principal characteristics of VIEs are (1) an insufficient
amount of equity to absorb the entitys expected losses, (2) equity owners as a group are not able to make decisions about the entitys activities, or (3) equity that does not absorb the entitys losses or receive the entitys
residual returns. Variable interests are contractual, ownership or other monetary interests in an entity that change with fluctuations in the entitys net asset value. As a result, variable interest entities can arise from items
such as lease agreements, loan arrangements, guarantees or service contracts.



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



FIN 46 initially applied to VIEs created after January 31, 2003 and to VIEs in which a company obtained an interest after that date. The FASB has recently deferred the
effective date of FIN 46 to December 31, 2003 for all interests in VIEs existing prior to January 31, 2003. We have reviewed contractual agreements committed to since January 31, 2003 and did not identify any entities that met the definition of a
VIE under FIN 46. We are continuing to evaluate the impact of this complex interpretation and have identified an interest in one potential VIE with whom a relationship began in late 2002. The assets and liabilities of this entity are not
consolidated within our consolidated financial statements. We own one share of stock in a segregated portfolio company acquired in connection with our insurance captive which allows us to access the international aircraft insurance
markets at lower rates than might otherwise be available in the domestic aircraft insurance markets. We are in the process of assessing the impact of FIN 46 on our relationship with this entity. If it is determined that this entity is a VIE, we have
the following options under FIN 46: (i) consolidate the VIE into our financial statements; (ii) purchase selected assets from the VIE; or (iii) modify or replace the agreements currently being utilized. None of these options, if required, are
expected to have a material impact on our consolidated financial position, liquidity, or results of operations. Additionally, we do not believe that we have exposure to loss due to our involvement with this entity.



We are the lessee in operating leases covering all of our leased aircraft where we do not
currently consolidate the entity serving as lessor. The lessors are trusts established specifically to lease aircraft to us. These leasing entities may meet the criteria for VIEs. We generally would not be regarded as the primary obligor or the
primary beneficiary of the leasing entities assuming the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed-price purchase option or similar features that obligates us to
absorb decreases in value or entitles us to participate in increases in values of the aircraft. We believe this is the case for all of our operating leases with the exception of two aircraft leases entered into prior to January 31, 2003, which do
contain a fixed-price purchase option that allows us to purchase the aircraft at predetermined prices on specific dates during the lease term. We do not currently believe that we will be required to consolidate these two lessors under FIN 46
because, even when taking into consideration these purchase options, we would not be the primary beneficiary. . Additionally, we do not believe that we have exposure to loss due to our involvement with these lessors.



In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150),
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 requires that certain financial instruments be classified as liabilities in statements of financial position. SFAS 150 is effective for
all financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. We are currently assessing the impact of this statement.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



There have been no material changes in market risk from the information provided in Part II, Item 7A Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, other than those discussed below.



Aviation Fuel



Aircraft fuel is a significant
expenditure for us because our operations are inherently dependent on the use of petroleum products. Aircraft fuel represented approximately 21.5 percent and 23.1 percent of total operating expenses for the three months ended September 30, 2003 and
2002, respectively and 21.8 percent and 22.0 percent of total operating expenses for the nine months ended September 30 2003 and 2002, respectively. Increases in fuel prices or a shortage of supply could have a material effect on our operations and
operating results.



Our efforts to reduce our exposure to increases in the
price and availability of aviation fuel include the utilization of fixed price



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fuel contracts and fuel cap contracts. Fixed price fuel contracts consist of agreements to purchase defined quantities of aviation fuel from a third party at
defined prices. Fuel cap contracts consist of agreements to purchase defined quantities of aviation fuel from a third party at a price not to exceed a defined price, limiting our exposure to upside market risk. Our fixed price fuel contracts and
fuel cap contracts are not required to be accounted for as derivative financial instruments, in accordance with Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities.
As of September 30, 2003, utilizing fixed price fuel contracts we agreed to purchase approximately 59.4 percent of our fuel needs through December 31, 2003 at a price no higher than $0.80 per gallon of aviation fuel including delivery to our
operations hub in Atlanta and other locations. Additionally, we have fixed price contracts covering 2004 for approximately 36.5 percent of our fuel needs at a price no higher than $0.76 per gallon of aviation fuel.



In March 2002, we terminated all of our fuel-related derivative agreements with the
counterparty. The fair value of the derivative liability on the termination date was estimated to be $0.5 million. The change in value of our fuel-related derivative contracts resulted in a $5.8 million non-cash credit adjustment to SFAS 133
adjustment in the Unaudited Condensed Consolidated Statements of Income. Since this was an early termination of our derivative contracts, losses deferred in Other comprehensive loss on our Condensed Consolidated Balance Sheet are
being reclassified to fuel expense as the related fuel is used through September 2004. Approximately $0.1 million and $1.4 million of these deferred losses were reclassified to fuel expense during the three months ended September 30, 2003 and 2002,
respectively and $0.4 million and $5.1 million of these deferred losses were reclassified to fuel expense during the nine month period ended September 30, 2003 and 2002, respectively.



ITEM 4. CONTROLS AND PROCEDURES



Our Chief
Executive Officer and Chief Financial Officer have concluded, based on their evaluation within 90 days of the filing date of this report, that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the
information we are required to disclose in our reports under the Securities Exchange Act of 1934. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the
date of the previously mentioned evaluation.



PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



From time to time, we
are engaged in litigation arising in the ordinary course of business. We do not believe that any such pending litigation will have a material adverse effect on our results of operations or financial condition.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



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



|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|1.1           |  | Underwriting Agreement, dated September 25, 2003, by and between Morgan Stanley & Co. Incorporated and AirTran Holdings, Inc.                                                                                                                                                                                                                          
|              | 
|10.1*         |  | Aircraft General Terms Agreement Number AGTA-CQT, dated July 3, 2003, by and between The Boeing Company (Boeing), and AirTran Airways, Inc.
(AirTran).                                                                                                                                                                                             
|              | 
|10.2*         |  | Purchase Agreement Number 2444, dated July 3, 2003 (Purchase Agreement 2444), between Boeing and AirTran, as supplemented by Purchase Agreement 2444 Supplement No. 1,
by and between Boeing and AirTran.                                                                                                                                            
|              | 
|10.3*         |  | Letter Agreements to Purchase Agreement 2444, each dated July 3, 2003, by and between Boeing and AirTran.                                                                                                                                                                                                                                              
|              | 
|10.4*         |  | General Terms Agreement No. CFM-03-0017 (GTA CFM-03-0017), dated June 30, 2003, by and between CFM International Inc. (CFM) and AirTran, as supplemented by
Letter Agreement No. 1 to GTA CFM-03-0017, dated June 30, 2003, by and between CFM and AirTran, and Letter Agreement No. 1-A, dated September 10, 2003, by and between CFM and AirTran.



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|      |  
|----- | -
|10.5  | *
|      |  
|10.6  |  
|      |  
|10.7  | *
|      |  
|10.8  |  
|      |  
|10.9  | *
|      |  
|10.10 | *
|      |  
|10.11 | *
|      |  
|10.12 | *
|      |  
|10.13 | *
|      |  
|31.1  |  
|      |  
|31.2  |  
|      |  
|32.1  |  
|      |  
|32.2  |  

---

|* | Pursuant to 17 CFR 240.24b-2, confidential information has been omitted and has been filed separately with the Securities and Exchange Commission pursuant to a Confidential
Treatment Request filed with the Commission.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | We filed the following Current Reports on Form 8-K during the three months ended September 30, 2003:
|--- | ----------------------------------------------------------------------------------------------------



|Date of Report     |  | Subject of Report                                                                                                                             
|------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|July 1, 2003       |  | Press release announcing the placement of an order for 100 new Boeing 737-700 and -800 series aircraft and up to 10 Boeing 717 aircraft.      
|                   | 
|July 2, 2003       |  | Press release announcing the conversion of $5.5 million principal amount of 7.75% Series B Convertible Notes                                  
|                   | 
|July 23, 2003      |  | Press release announcing that the Association of Flight Attendants, AFL-CIO (AFA) union membership declined to ratify its tentative agreement.
|                   | 
|July 29, 2003      |  | Press release announcing results for the second quarter of 2003.                                                                              
|                   | 
|September 19, 2003 |  | Press release announcing our intention to offer 8,650,000 shares of common stock.                                                             
|                   | 
|September 19, 2003 |  | Press release announcing the amendment of the 10-Qs for the first and second quarters of 2003.                                                
|                   | 
|September 26, 2003 |  | Press release announcing the pricing of the offering of 8,650,000 shares of common stock.                                                     



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SIGNATURES



Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized.



|                        |  | AirTran Holdings, Inc.                      
|----------------------- |  | --------------------------------------------
|                        |  | (Registrant)                                
|                        | 
|Date: November 14, 2003 |  | /s/ Stanley J. Gadek                        
|                        |  | Stanley J. Gadek                            
|                        |  | Senior Vice President, Finance,             
|                        |  | Treasurer and Chief Financial Officer       
|                        |  | (Principal Accounting and Financial Officer)
|                        | 
|                        |  | AirTran Airways, Inc.                       
|                        |  | (Registrant)                                
|                        | 
|Date: November 14, 2003 |  | /s/ Stanley J. Gadek                        
|                        |  | Stanley J. Gadek                            
|                        |  | Senior Vice President, Finance,             
|                        |  | Treasurer and Chief Financial Officer       
|                        |  | (Principal Accounting and Financial Officer)



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EXHIBIT INDEX



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



|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                            
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               | 
|1.1            |  | Underwriting Agreement, dated September 25, 2003, by and between Morgan Stanley & Co. Incorporated and AirTran Holdings, Inc.                                                                                                                                                                                                                          
|               | 
|10.1*          |  | Aircraft General Terms Agreement Number AGTA-CQT, dated July 3, 2003, by and between The Boeing Company (Boeing), and AirTran Airways, Inc.
(AirTran).                                                                                                                                                                                             
|               | 
|10.2*          |  | Purchase Agreement Number 2444, dated July 3, 2003 (Purchase Agreement 2444), between Boeing and AirTran, as supplemented by Purchase Agreement 2444 Supplement No. 1,
by and between Boeing and AirTran.                                                                                                                                            
|               | 
|10.3*          |  | Letter Agreements to Purchase Agreement 2444, each dated July 3, 2003, by and between Boeing and AirTran.                                                                                                                                                                                                                                              
|               | 
|10.4*          |  | General Terms Agreement No. CFM-03-0017 (GTA CFM-03-0017), dated June 30, 2003, by and between CFM International Inc. (CFM) and AirTran, as supplemented by
Letter Agreement No. 1 to GTA CFM-03-0017, dated June 30, 2003, by and between CFM and AirTran, and Letter Agreement No. 1-A, dated September 10, 2003, by and between CFM and AirTran.
|               | 
|10.5*          |  | Maintenance Cost Per Hour Engine Service Agreement, dated August 13, 2003, by and between GE Engine Services, Inc. and AirTran.                                                                                                                                                                                                                        
|               | 
|10.6           |  | Aircraft Lease Common Terms Agreement, dated August 15, 2003, by and between Aviation Financial Services, Inc. and AirTran.                                                                                                                                                                                                                            
|               | 
|10.7*          |  | Form of Aircraft Lease Agreement entered into with respect to twenty-two (22) Boeing model 737-700 aircraft, together with the cover page from each of the twenty-two (22)
individual Aircraft Lease Agreements.                                                                                                                                       
|               | 
|10.8           |  | Engine Lease Common Terms Agreement, dated August 15, 2003, by and between Aviation Financial Services, Inc. and AirTran.                                                                                                                                                                                                                              
|               | 
|10.9*          |  | Form of Engine Lease Agreement entered into with respect to six (6) CFM International model CFM56-7B20 engines, together with the cover pages from each of the six (6) individual
Engine Lease Agreements.                                                                                                                                             
|               | 
|10.10*         |  | Letter Agreement 5-1005-JSW-737, dated July 3, 2003, by and between Boeing and AirTran.                                                                                                                                                                                                                                                                
|               | 
|10.11*         |  | Amendment No. 11 to Purchase Agreement No. DAC95-40-D, dated July 3, 2003, by and between McDonnell Douglas Corporation, a wholly owned subsidiary of Boeing (MDC), and
AirTran.                                                                                                                                                                     
|               | 
|10.12*         |  | Amendment No. 6 to Letter Agreement No. 1 to Purchase Agreement No. DAC95-40-D, dated July 3, 2003, by and between MDC and AirTran.                                                                                                                                                                                                                    
|               | 
|10.13*         |  | B717 Lease Financing Letter Agreement, dated July 3, 2003, by and between Boeing and AirTran.                                                                                                                                                                                                                                                          
|               | 
|31.1           |  | CEO certification pursuant to Rule 13(a)-14 or 15(d)-14.                                                                                                                                                                                                                                                                                               
|               | 
|31.2           |  | CFO certification pursuant to Rule 13(a)-14 or 15-(d)-14.                                                                                                                                                                                                                                                                                              
|               | 
|32.1           |  | CEO certification pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                                                  



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|     | 
|---- | 
|32.2 | 

---

|* | Pursuant to 17 CFR 240.24b-2, confidential information has been omitted and has been filed separately with the Securities and Exchange Commission pursuant to a Confidential
Treatment Request filed with the Commission.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35