##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C.
20549    FORM 10-Q þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2005
 or
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ___to ___
 Commission File Number 0-26582 WORLD AIR HOLDINGS, INC.  DELAWARE
(State or other jurisdiction
of incorporation or organization)
    
    20-2121036
(I.R.S. Employer
Identification Number)
 The HLH Building, 101 World Drive, Peachtree City, GA 30269
(Address of principal executive offices) (770) 632-8002
(Registrants telephone number, including area code) World Airways, Inc.  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. þ o
 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). o þ
 The number of shares of the registrants Common Stock outstanding on May 2, 2005 was
approximately 23,515,000.




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WORLD AIR HOLDINGS, INC. QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005 TABLE OF CONTENTS PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed
Consolidated Balance Sheets (Unaudited), March  31, 2005 and December 31, 2004
    
    3Condensed Consolidated Statements of Operations (Unaudited), Three Months Ended March 31, 2005 and 2004
    
    5Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited), Three months ended March 31, 2005
    
    6Condensed Consolidated Statements of Cash Flows (Unaudited), Three months ended March 31, 2005 and 2004
    
    7Notes to Condensed Consolidated Financial Statements
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    17Item 4.
    
    Controls and Procedures
    
    17PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    17Item 6.
    
    Exhibits
    
    17EX-10.1 STOCK PURCHASE AGREEMENTEX-10.2 GUARANTY OF AGREEMENTEX-10.3 ESCROW AGREEMENTEX-10.4 TERMINATION AND RELEASEEX-10.5 AMENDMENT NO. 1 AND WAIVER TO LOAN AGREEMENTEX-10.6 AMENDED AND RESTATED MORTGAGE AND SECURITY AGREEMENTEX-10.7 SUBSIDIARY GUARANTEEEX-10.8 HOLDINGS GUARANTY GUARANTYING WORLD AIRWAYS, INC.EX-10.9 HOLDINGS GUARANTY GUARANTYING NORTH AMERICAN AIRLINES, INC.EX-10.10 INTELLECTUAL PROPERTY SECURITY AGREEMENTEX-10.11 FORM OF IRRECOVABLE STOCK POWEREX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32.1 SECTION 906, CERTIFICATION OF THE CEOEX-32.2 SECTION 906, CERTIFICATION OF THE CFO
  2




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ITEM 1. FINANCIAL STATEMENTS
WORLD AIR HOLDINGS, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 ASSETS
(in thousands)
(unaudited) March 31,
    
    
    December 31,2005
    
    
    2004CURRENT ASSETSCash and cash equivalents
    
    $
    76,182
    
    
    $
    49,956Restricted cash
    
    
    4,160
    
    
    
    4,926Accounts receivable, less allowance for doubtful accounts
of $209 at March 31, 2005 and December 31, 2004
    
    
    46,607
    
    
    
    52,382Prepaid expenses and other current assets
    
    
    6,977
    
    
    
    8,335Deferred tax assets
    
    
    5,836
    
    
    
    6,685Total current assets
    
    
    139,762
    
    
    
    122,284EQUIPMENT AND PROPERTYFlight and other equipment
    
    
    85,430
    
    
    
    84,514Less: accumulated depreciation and amortization
    
    
    52,737
    
    
    
    51,321Net equipment and property
    
    
    32,693
    
    
    
    33,193LONG-TERM DEPOSITS
    
    
    18,079
    
    
    
    18,237OTHER ASSETS AND DEFERRED CHARGES, NET
    
    
    4,905
    
    
    
    5,603TOTAL ASSETS
    
    $
    194,629
    
    
    $
    179,317
 (Continued) 3




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##### Table of Contents



WORLD AIR HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued) LIABILITIES AND STOCKHOLDERS EQUITY
(in thousands except share amounts)
(unaudited) March 31,
    
    
    December 31,2005
    
    
    2004CURRENT LIABILITIESCurrent maturities of long-term debt
    
    $
    6,000
    
    
    $
    6,000Accounts payable
    
    
    36,758
    
    
    
    35,482Current portion of accrued rent
    
    
    8,414
    
    
    
    5,489Current portion of deferred rent
    
    
    548
    
    
    
    3,242Unearned revenue
    
    
    8,730
    
    
    
    6,293Accrued maintenance
    
    
    4,238
    
    
    
    4,179Accrued salaries, wages and profit sharing
    
    
    20,631
    
    
    
    20,463Accrued taxes
    
    
    9,058
    
    
    
    8,482Other accrued liabilities
    
    
    2,516
    
    
    
    1,861Total current liabilities
    
    
    96,893
    
    
    
    91,491Long-term debt, net of current maturities
    
    
    24,000
    
    
    
    43,879Deferred gain from sale-leaseback transactions, net of
accumulated amortization of $4,552 at March 31, 2005
and $4,269 at December 31, 2004
    
    
    1,362
    
    
    
    1,645Accrued post-retirement benefits
    
    
    4,206
    
    
    
    4,081Accrued and deferred rent, net of current portion
    
    
    3,095
    
    
    
    5,615Deferred income taxes
    
    
    2,221
    
    
    
    2,208TOTAL LIABILITIES
    
    
    131,777
    
    
    
    148,919STOCKHOLDERS EQUITYPreferred stock, $.001 par value (5,000,000 shares authorized;
no shares issued or outstanding)
    
    
    
    
    
    
    Common stock, $.001 par value (100,000,000 shares authorized;
24,591,695 shares issued and 23,510,452 shares outstanding at
March 31, 2005; 17,430,023 shares issued and 16,348,780 shares
outstanding at December 31, 2004)
    
    
    25
    
    
    
    18Additional paid-in capital
    
    
    65,261
    
    
    
    42,712Retained earnings
    
    
    10,423
    
    
    
    525Treasury stock, at cost (1,081,243 shares at March 31, 2005 and
December 31, 2004)
    
    
    (12,857
    )
    
    
    (12,857
    )Total stockholders equity
    
    
    62,852
    
    
    
    30,398COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    194,629
    
    
    $
    179,317
 See accompanying Notes to Condensed Consolidated Financial Statements 4




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WORLD AIR HOLDINGS, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2005 and 2004
(in thousands except per share data)
(unaudited)
 2005
    
    
    2004REVENUESFlight operations
    
    $
    159,020
    
    
    $
    129,019Other
    
    
    529
    
    
    
    565Total revenues
    
    
    159,549
    
    
    
    129,584OPERATING EXPENSESFlight
    
    
    45,169
    
    
    
    40,802Maintenance
    
    
    24,955
    
    
    
    17,856Aircraft costs
    
    
    20,929
    
    
    
    19,671Fuel
    
    
    30,471
    
    
    
    18,202Flight operations subcontracted to other carriers
    
    
    508
    
    
    
    1,518Commissions
    
    
    8,859
    
    
    
    6,300Depreciation and amortization
    
    
    1,455
    
    
    
    1,287Sales, general and administrative
    
    
    10,025
    
    
    
    10,309Total operating expenses
    
    
    142,371
    
    
    
    115,945OPERATING INCOME
    
    
    17,178
    
    
    
    13,639OTHER INCOME (EXPENSE)Interest expense
    
    
    (985
    )
    
    
    (1,542
    )Interest income
    
    
    269
    
    
    
    122Other, net
    
    
    (203
    )
    
    
    (633
    )Total other income (expense)
    
    
    (919
    )
    
    
    (2,053
    )EARNINGS BEFORE INCOME TAX EXPENSE
    
    
    16,259
    
    
    
    11,586INCOME TAX EXPENSE
    
    
    6,361
    
    
    
    3,711NET EARNINGS
    
    $
    9,898
    
    
    $
    7,875BASIC EARNINGS PER SHARENet earnings
    
    $
    0.52
    
    
    $
    0.69Weighted average shares outstanding
    
    
    19,024
    
    
    
    11,448FULLY DILUTED EARNINGS PER SHARENet earnings
    
    $
    0.38
    
    
    $
    0.34Weighted average shares outstanding
    
    
    26,786
    
    
    
    24,434
 See accompanying Notes to Condensed Consolidated Financial Statements 5




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WORLD AIR HOLDINGS, INC. 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS EQUITY
Three months Ended March 31, 2005
(in thousands except share amounts)
(unaudited)
 Additional
    
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Retained
    
    
    Treasury Stock,
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    at Cost
    
    
    EquityBalances at December 31, 2004
    
    $
    18
    
    
    $
    42,712
    
    
    $
    525
    
    
    $
    (12,857
    )
    
    $
    30,398Amortization of warrants
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46Exercise of 425,025 stock options
    
    
    
    
    
    
    516
    
    
    
    
    
    
    
    
    
    
    
    516Exercise of warrants for 1,076,345
shares
    
    
    1
    
    
    
    2,499
    
    
    
    
    
    
    
    
    
    
    
    2,500Issuance of 5,660,302 shares for
debt conversions
    
    
    6
    
    
    
    18,578
    
    
    
    
    
    
    
    
    
    
    
    18,584Tax benefit of stock option exercises
    
    
    
    
    
    
    910
    
    
    
    
    
    
    
    
    
    
    
    910Net earnings and comprehensive
earnings
    
    
    
    
    
    
    
    
    
    
    9,898
    
    
    
    
    
    
    
    9,898Balances at March 31, 2005
    
    $
    25
    
    
    $
    65,261
    
    
    $
    10,423
    
    
    $
    (12,857
    )
    
    $
    62,852
 See accompanying Notes to Condensed Consolidated Financial Statements 6




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WORLD AIR HOLDINGS, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2005 and 2004
(in thousands)
(unaudited)
 2005
    
    
    2004CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD
    
    $
    49,956
    
    
    $
    30,535CASH FLOWS
FROM OPERATING ACTIVITIESNet earnings
    
    
    9,898
    
    
    
    7,875Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation and amortization
    
    
    1,455
    
    
    
    1,287Deferred gain recognition
    
    
    (283
    )
    
    
    (283
    )Loss on disposals of equipment and property
    
    
    32
    
    
    
    311Tax benefit of stock option exercises
    
    
    910
    
    
    
    Amortization of warrants and debt issuance costs
    
    
    455
    
    
    
    496Deferred income taxes
    
    
    709
    
    
    
    Provision for doubtful accounts
    
    
    
    
    
    
    841Other
    
    
    (43
    )
    
    
    (35
    )Changes in current operating assets and liabilities:Accounts receivable
    
    
    5,775
    
    
    
    (6,895
    )Restricted cash
    
    
    766
    
    
    
    18,602Deposits, prepaid expenses and other assets
    
    
    1,516
    
    
    
    1,758Accounts payable, accrued expenses and other liabilities
    
    
    570
    
    
    
    5,519Unearned revenue
    
    
    2,437
    
    
    
    826Net cash provided by operating activities
    
    
    24,197
    
    
    
    30,302CASH FLOWS FROM INVESTING ACTIVITIESPurchases of equipment and property
    
    
    (987
    )
    
    
    (459
    )Proceeds from disposals of equipment and property
    
    
    
    
    
    
    2Net cash used in investing activities
    
    
    (987
    )
    
    
    (457
    )CASH FLOWS FROM FINANCING ACTIVITIESRepayment of debt
    
    
    
    
    
    
    (18,000
    )Proceeds from exercise of stock options
    
    
    516
    
    
    
    32Proceeds from exercise of warrants
    
    
    2,500
    
    
    
    Payment of debt issuance costs
    
    
    
    
    
    
    (499
    )Net cash provided by (used in) financing activities
    
    
    3,016
    
    
    
    (18,467
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    26,226
    
    
    
    11,378CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    76,182
    
    
    $
    41,913SUPPLEMENTAL
INFORMATION:Interest paid
    
    $
    401
    
    
    $
    799Income taxes paid
    
    $
    4,590
    
    
    $
    534Non-cash
Financing Activities:The conversion of the Companys convertible senior subordinated debentures
    
    $
    18,113
    
    
    $
    
 See accompanying Notes to Condensed Consolidated Financial Statements 7




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WORLD AIR HOLDINGS, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)  1.
    Basis of PresentationThe unaudited Condensed Consolidated Financial Statements include the accounts of World Air
Holdings, Inc. (World Air Holdings or the Company) and its wholly-owned subsidiaries, World
Airways, Inc. (World Airways) and World Risk Solutions, Ltd. (World Risk Solutions). World
Airways Parts Company LLC is a wholly-owned subsidiary of World Airways. All significant
inter-company accounts and transactions have been eliminated.Management believes that all adjustments necessary for a fair statement of results have been
included in the unaudited Condensed Consolidated Financial Statements for the interim periods
presented. The preparation of financial statements in conformity with accounting principles

generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates and the results of operations for the three months ended March 31, 2005 are not
necessarily indicative of the results to be expected for the year ending December 31, 2005.The Condensed Consolidated Balance Sheet for December 31, 2004 is derived from the Consolidated
Financial Statements included in the Companys 2004 Form 10-K. These interim period Condensed
Consolidated Financial Statements and accompanying footnotes should be read in conjunction with
the Consolidated Financial Statements contained in World Air Holdings Annual Report on Form
10-K for the year ended December 31, 2004.Certain items in prior year financial statements included herein have been reclassified to
conform to the 2005 financial statement presentation2.
    Long-Term Operating DepositsLong-term operating deposits of $18.1 million at March 31, 2005 consisted of aircraft and engine
(flight equipment) deposits of $17.7 million and building and miscellaneous deposits of $0.4
million. At December 31, 2004, long-term operating deposits of $18.2 million consisted of
aircraft and engine deposits of $17.8 million and building and miscellaneous deposits of $0.4
million.3.
    Earnings per ShareBasic earnings per share are computed by dividing net earnings by the weighted average number of
 shares outstanding during the period. Diluted earnings per share include the effects of common
equivalent shares outstanding during the period. The following table sets forth the computation
of basic and diluted earnings per share (in thousands except per share data): Three Months Ended March 31, 2005Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSEarnings available to common stockholders
    
    $
    9,898
    
    
    
    19,024
    
    
    $
    0.52Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    2,190Options
    
    
    
    
    
    
    1,5198% convertible debentures
    
    
    163
    
    
    
    4,053Profit sharing
    
    
    (13
    )
    
    
    Amortization of debt issuance costs
    
    
    35
    
    
    
    Aircraft lease restructuring fees
    
    
    (28
    )
    
    
    Diluted EPSEarnings available to common stockholders
plus assumed conversions
    
    $
    10,055
    
    
    
    26,786
    
    
    $
    0.38
 8




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Three Months Ended March 31, 2004Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSEarnings available to common stockholders
    
    $
    7,875
    
    
    
    11,448
    
    
    $
    0.69Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    1,946Options
    
    
    
    
    
    
    2,4358% convertible debentures
    
    
    394
    
    
    
    8,605Profit sharing
    
    
    (8
    )
    
    
    Amortization of debt issuance costs
    
    
    42
    
    
    
    Aircraft lease restructuring fees
    
    
    (45
    )
    
    
    Diluted EPSEarnings available to common stockholders
plus assumed conversions
    
    $
    8,258
    
    
    
    24,434
    
    
    $
    0.34
  4.
    Accounting for Stock-Based CompensationAt March 31, 2005, the Company had three stock-based compensation plans. The Company accounts
for those plans under the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations.
No stock-based compensation cost is reflected in net earnings for the quarter ended March 31,
2005, as all options granted during those periods had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table illustrates the
effect on net earnings and earnings per share if the Company had applied the fair value
recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based compensation (in thousands, except per share data): Quarter Ended March 31 ,2005
    
    
    2004Net earnings, as reported
    
    $
    9,898
    
    
    $
    7,875Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    (185
    )
    
    
    (103
    )Pro forma net earnings
    
    $
    9,713
    
    
    $
    7,772Earnings per shareBasic as reported
    
    $
    0.52
    
    
    $
    0.69Basic  pro forma
    
    $
    0.51
    
    
    $
    0.68Diluted as reported
    
    $
    0.38
    
    
    $
    0.34Diluted  pro forma
    
    $
    0.37
    
    
    $
    0.33
  The per share weighted-average fair value of stock options granted during the first quarter
of 2004 was $4.06 (no stock options were granted during the first quarter of 2005) on the date
of grant using the Black Scholes option-pricing model with the following weighted-average
assumptions: Quarter Ended March 31,2005
    
    
    2004Expected dividend yield
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    3.5
    %
    
    
    3.0
    %Expected life (in years)
    
    
    4.4
    
    
    
    4.9Risk-free volatility
    
    
    78
    %
    
    
    91
    %
 9




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5.
    Virginia Lease ObligationThe Company is obligated under an operating lease for office space at its former headquarters
in Herndon, Virginia, through April 2006. In the first quarter of 2005, due to market
conditions, the Company fully accrued for the remaining payments under this operating lease.
The Company had a liability balance of $1.1 million at December 31, 2004. During the first
quarter of 2005, the Company reviewed market conditions and
determined that an additional net $0.6 million should be added to the liability. This resulted in a
$1.7 million balance at March 31, 2005, which is the present value of the total remaining cash
obligation under this lease. The liability is included in other accrued liabilities on the
accompanying Condensed Consolidated Balance Sheets at March 31, 2005.6.
    Union NegotiationsWorld Airways cockpit crewmembers, who constitute approximately 27% of its employees and are
represented by the International Brotherhood of Teamsters (the Teamsters), are subject to a
collective bargaining agreement that became amendable June 30, 2003. The Company continued
negotiations with the Teamsters during the first quarter of 2005, under the auspices of the
National Mediation Board.World Airways aircraft dispatchers, who are represented by the Transport Workers Union (TWU),
are subject to a collective bargaining agreement that became amendable December 31, 2003. Fewer
than 15 World Airways employees are subject to this collective bargaining agreement. The
Company continued negotiations with the TWU during the first quarter of 2005.7.
    Post-Retirement Health Care Benefits PlanWorld Airways cockpit crewmembers and eligible dependents are covered by a post-retirement
health care benefits plan. A summary of the net periodic post-retirement benefit costs for the
three months ended March 31 is as follows (in thousands): Quarter Ended March 31,2005
    
    
    2004Service cost
    
    $
    107
    
    
    $
    93Interest cost
    
    
    69
    
    
    
    71Net amortized loss
    
    
    4
    
    
    
    4Net periodic post-retirement benefit cost
    
    $
    180
    
    
    $
    168
  The Company anticipates that it will contribute approximately $159,000 to fund its health care
obligations in 2005. As of March 31, 2005, $40,000 of contributions have been made.8.
    Other Comprehensive Income (Loss)The Company reports other comprehensive income in its Consolidated Statement of Changes in
Stockholders Equity. For the quarters ending March 31, 2005 and 2004, there were no items of
other comprehensive income or loss for the Company.9.
    Legal ProceedingsThe Companys flight attendants, representing approximately 44% of the Companys employees,
are represented by the International Brotherhood of Teamsters (Teamsters). On September 2,
2003, a new collective bargaining agreement was ratified, with an amendable date of August 31,
2006. The agreement includes pay increases and other benefit changes requested by the flight
attendants while providing the Company with work-rule changes in support of its financial
goals. In 1994, the Companys flight attendants argued that the ''scope clause of the
collective bargaining agreement was violated by the Companys use of foreign flight attendant
crews on the Companys flights for Garuda Indonesia which had historically been the Companys
operating procedure. In contracts with certain customers, the Company is obligated to permit
its customers to deploy their own flight attendants. While the arbitrator in this matter
denied in 1997 the Unions request for back pay to affected flight attendants for flying
relating to the 1994 Hadj, the arbitrator concluded that the Companys contract with its
flight attendants requires the Company to first actively seek profitable business
opportunities that require 10




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using the Companys flight attendants, before the Company may accept wet lease business
opportunities that use the flight attendants of the Companys customers. Since 1997, the
flight attendants have filed a number of similar ''scope clause grievances with respect to
other wet-lease contracts and in 2001, they filed another scope clause grievance with
respect to the 2001 Garuda Hadj agreement. An adverse decision on one or more of the
grievances could have a material adverse impact on the financial condition, results of
operations or liquidity of the Company.Miami-Dade County is currently investigating and remediating various environmental conditions
at the Miami International Airport (MIA). During the second quarter of 2001, the County filed
a lawsuit against a number of defendants, which does not currently include World Airways, in
an attempt to recover its past and future clean-up costs. This claim has been filed in the
Florida Circuit Court for the 11th Judicial District in Dade County Florida. In addition to
the defendants named in the lawsuit, several hundred other agencies and companies that were
prior tenants at MIA (potentially responsible parties, or PRPs), including World Airways,
were issued letters advising them of the lawsuit and indicating that any PRPs could be named
as additional defendants in the future depending upon a determination as to the levels of
contamination and the extent to which any PRP may have contributed to any alleged
contamination. At this time, certain PRPs, including World Airways, have joined a joint
defense group to respond to the Countys inquiries and investigation of the PRPs. This group
is conducting preliminary investigations of the site in question to determine each PRPs
potential exposure. At this time, the Company cannot determine the impact, if any, this matter
will have on the Companys financial condition, results of operations or liquidity.In January 2004, ten purported class action complaints (six in the United States District
Court for the Eastern District of New York, one in the United States District Court for the
Southern District of New York, one in the Superior Court of DeKalb County, Georgia, one in the
United States District Court for the Northern District of New Jersey and one in the United
States District Court for the Northern District of Illinois) and four individual complaints
(all in the United States District Court for the Eastern District of New York), and thirteen
small claims actions (one in California, three in New Jersey, one in Georgia and eight in New
York) were filed against the Company arising out of the discontinuance of charter flights upon
the expiration of the Companys obligation to provide services under an air services
agreement. Seven of the eight small claims actions in New York were settled for a total of
$14,000 (or $2,000 per plaintiff). The purported class action cases were consolidated for
discovery purposes into the Eastern District of New York. The Company had operated the charter
flights between cities in the United States and Lagos, Nigeria for Ritetime Aviation and
Travel Services, Inc. (Ritetime). The Companys obligation to perform air services for
Ritetime ended with the last chartered flight on December 30, 2003. From the allegations made
by the various plaintiffs, it appears that Ritetime continued to sell tickets to passengers
for flights purportedly scheduled to depart after the expiration of the Companys contractual
obligations for air services. The plaintiffs purport to act for themselves and on behalf of
other persons who held tickets issued by Ritetime for the non-contracted flights. Ritetime is
also named as a defendant in each of these lawsuits. The plaintiffs seek compensatory,
punitive and/or treble damages and costs and expenses, including attorneys fees, based on
various legal theories including breach of contract, fraud, negligent misrepresentation,
unjust enrichment, illegal/excess tax and violations of U.S. federal laws and regulations
governing air transportation and of the Federal Racketeer Influenced and Corrupt Organization
Statute. The Companys insurance carrier has responded and assumed the defense of these cases
and agreed to conditionally indemnify the Company on the costs of litigation and any resulting
judgment. In March 2004, Ritetime filed a Demand to Arbitrate in Peachtree City, Georgia, and
subsequently the Company responded and filed a counterclaim. The matter was heard in October
2004, and the arbitrator awarded the Company the amount of $2.2 million against Ritetime, plus
indemnification on all judgments, fees and expenses incurred by the Company in the Ritetime
litigation. However, it is doubtful that Ritetime has assets to pay the award. The Department
of Transportation (DOT) is investigating this matter and the Company is negotiating the
terms of a settlement with the DOT, without admitting or denying any allegations, which
settlement the Company believes will not be material to the Companys financial condition,
results of operations or liquidity.On January 9, 2004, Whitebox Convertible Arbitrage Partners, L.P. and Pandora Select Partners,
L.P. filed a complaint in the United States District Court for the District of Minnesota
alleging breach of contract by the Company in connection with its exchange in December 2003 of
$22,545,000 aggregate amount of the Old Debentures for a like amount of the newly-issued
Debentures. On May 10, 2004, by order of the United States District Court for the District of
Minnesota, this matter was transferred to the United States District Court for the Northern
District of Georgia. The plaintiffs in this lawsuit allege that they have held at all relevant
times $2,530,000 and $780,000 principal amount, respectively, of the Old Debentures and that
the Company breached the terms of the indenture governing the Old Debentures by purchasing the
Old Debentures from a selected group of holders rather than from holders determined by lot or
from all holders on a pro rata basis. The plaintiffs are seeking damages in an amount equal to
the difference in value between the Debentures and the Old Debentures held by the plaintiffs
and the interest lost by the plaintiffs on the Old Debentures through maturity on August 26,
2004 as well as costs and reasonable attorney fees. The Company believes that this claim is
without merit and intends to defend itself vigorously in this lawsuit, although it cannot give
any assurance that this litigation will not have a material adverse effect on 11




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the Companys financial condition, results of operation or liquidity.On May 27, 2004, one of the Companys MD-11 freighter aircraft flying for China Airlines, Ltd.
(China Airlines) was tail-tipped while a ground handling company, hired by China Airlines,
was unloading cargo in Los Angeles. The aircraft sustained significant damages approximating
$1.7 million and was out of service for over a one-month period. The Company has filed a
claim with its insurance carrier for the damages and it is expected that the carrier will in
turn file claims against China Airlines, the ground handler and their respective insurance
carriers. In February 2005, China Airlines instituted an arbitration proceeding against the
Company seeking to recover $1,690,172 in prepaid rental fees during the period the aircraft
was out of service ($150,172 for three days in May, 2004 and $1,540,000 for the entire month
of June, 2004). Under the terms of the wet lease, China Airlines was expressly responsible
for loading and unloading all cargo. The Company believes that this claim is without merit
and intends to defend itself vigorously, although it cannot give any assurance that this
arbitration will not have a material adverse effect on the Companys financial condition,
results of operation or liquidity.In February 2004, World Airways made a self-disclosure to the Federal Aviation Administration
(FAA) concerning aircraft record irregularities discovered upon preparing for the return of
two leased DC-10-30 aircraft. The Company subsequently received a letter from the FAA opening
an investigation into a possible violation of the Code of Federal Regulations. The Company
has complied with all requests of the FAA and is waiting to receive notification of the FAAs
findings. At this time, the Company cannot determine what impact, if any, the FAAs findings
will have on the Companys financial condition, results of operations or liquidity.In addition, World Airways is party to routine litigation and administrative proceedings
incidental to its business, none of which is believed by the Company to be likely to have a
material adverse effect on the financial condition, results of operations or liquidity of the
Company .10.
    Recently Issued Accounting StandardsIn December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 153, Exchanges of Nonmonetary Assets, an amendment
of APB Opinion No. 29(SFAS No. 153). SFAS No. 153 addresses the measurement of exchanges of
nonmonetary assets in eliminating the exception from fair value measurement for nonmonetary
exchanges of similar productive assets and replacing it with an exception for exchanges that do
not have commercial substance. SFAS No. 153 indicates a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change significantly as a
result of the exchange. The provisions of SFAS No. 153 will be effective for non-monetary
asset exchanges in fiscal years beginning after June 15, 2005, with earlier application
permitted. The Company has not completed evaluating the impact of the SFAS No. 153, but does
not expect any material impact on its consolidated results of operations, financial condition
or liquidity.In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS No. 123(R)), Share-Based
Payment.This Statement requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date fair value of
the award (with limited exceptions). That cost will be recognized over the period during which
an employee is required to provide service in exchange for the award  the requisite service
period (usually the vesting period). No compensation cost is recognized for equity instruments
for which employees do not render the requisite service. Employee share purchase plans will not
result in recognition of compensation cost if certain conditions are met. A public entity will
initially measure the cost of employee services received in exchange for an award of liability
instruments based on its current fair value; the fair value of that award will be remeasured
subsequently at each reporting date through the settlement date. Changes in fair value during
the requisite service period will be recognized as compensation cost over that period. SFAS
No. 123(R) is effective for all annual periods beginning after December 15, 2005. As of the
required effective date, all public entities will apply this Statement using a modified version
of prospective application. Under that transition method, compensation cost is recognized on or
after the required effective date for the portion of outstanding awards for which the requisite
service has not yet been rendered, based on the grant-date fair value of those awards
calculated under SFAS No. 123(R) for either recognition or pro forma disclosures. For periods
before the required effective date, entities may elect to apply a modified version of
retrospective application under which financial statements for prior periods are adjusted on a
basis consistent with the pro forma disclosures required for those periods by Statement 123(R).
The Company has not completed evaluating the impact of SFAS No. 123(R).11.
    Subsequent EventsOn April 27, 2005, World Air Holdings acquired North American Airlines, Inc. (North
American), a privately held air 12




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carrier based in Jamaica, N.Y., for $35 million in cash. North American had 2004 operating
revenues of $213 million. This acquisition expands World Air Holdings product mix in the
military and commercial charter markets, with North Americans three Boeing 767 and five Boeing
757 passenger aircraft. World Airways and North American will be managed independently under
their respective operating certificates. North American will maintain its operational
headquarters at John F. Kennedy International Airport in New York, with World Airways and World
Air Holdings continuing to be based in Peachtree City, Georgia. 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of World Air
Holdings, Inc.s (World Air Holdings or the Company) Annual Report on Form 10-K for the year
ended December 31, 2004. The information contained herein is not a comprehensive management
overview and analysis of the financial condition and results of operations of the Company, but
rather updates disclosures made in the aforementioned filing. The Company desires to take advantage of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the Act). Therefore, this report contains forward looking
statements that are subject to risks and uncertainties, including, but not limited to, the reliance
on key strategic alliances, fluctuations in operating results, the ability to operate and manage
successfully North American Airlines and other risks detailed from time to time in the Companys
filings with the Securities and Exchange Commission (the Commission). These risks could cause
the Companys actual results for 2005 and beyond to differ materially from those expressed in any
forward looking statements made by, or on behalf of, the Company. OVERVIEW General For the first quarter of 2005, the Companys operating income was $17.2 million compared to $13.6
million for the same period in 2004, an improvement of $3.6 million. Net earnings for the 2005
first quarter were $9.9 million compared to $7.9 million for the first quarter of 2004, an increase
of $2.0 million. The following table provides statistical data, used by management in evaluating the operating
performance of the Company, for the quarters ended March 31, 2005 and 2004. Quarter Ended March 31,2005
    
    
    2004Block hours:Full service passenger
    
    
    8,079
    
    
    
    62
    %
    
    
    7,565
    
    
    
    67
    %ACMI* passenger
    
    
    1,067
    
    
    
    8
    %
    
    
    1,186
    
    
    
    11
    %Full service cargo
    
    
    
    
    
    
    0
    %
    
    
    283
    
    
    
    2
    %ACMI* cargo
    
    
    3,772
    
    
    
    29
    %
    
    
    2,013
    
    
    
    18
    %Miscellaneous
    
    
    198
    
    
    
    1
    %
    
    
    281
    
    
    
    2
    %Total
    
    
    13,116
    
    
    
    100
    %
    
    
    11,328
    
    
    
    100
    %Operating aircraft at quarter-end
    
    
    15
    
    
    
    
    
    
    
    16Average available aircraft per day
    
    
    15.7
    
    
    
    
    
    
    
    16.0Average daily utilization
    
    
    9.3
    
    
    
    
    
    
    
    7.8(block hours flown per day per aircraft)
  * ACMI contracts are
where the Company provides the aircraft, crew, maintenance and
insurance. For 2005, the Company expects to:  
    continue working to diversify the revenue mix by adding more commercial
customers, while continuing to provide excellent service to the Companys largest
customer, the U.S. military;
    continue to actively manage the Companys major cost categories;
    work on concluding a new collective bargaining agreement with its pilots and dispatchers;
    manage fleet plans to meet customer needs; and
    complete organizational changes, synergy enhancements and financial reporting
standardization tied to the acquisition 13




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of North American Airlines. Significant Customer Relationships The Company is highly dependent on revenues from the U.S. Air Force (USAF). The loss of the USAF
as a customer would have a material adverse effect on the Company. The Companys largest
customers, and the percent of revenues from those customers, for the quarter ended March 31, 2005
and 2004, are as follows: Quarter Ended March 31,2005
    
    
    2004USAF
    
    
    84.3
    %
    
    
    82.7
    %Sonair Serviceo Aereo
    
    
    4.1
    %
    
    
    5.3
    %Eva Airways
    
    
    3.3
    %
    
    
    
    %Menlo Worldwide
    
    
    3.2
    %
    
    
    3.4
    %China Airlines
    
    
    2.8
    %
    
    
    
    %
 RESULTS OF OPERATIONS Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Revenues. Revenues increased $29.9 million, or 23.1%, to $159.5
million in the first quarter of 2005 from $129.6 million in the first quarter of 2004. The Company
reported significant growth in military passenger flying for the USAF as well as commercial cargo
ACMI flying, offset by reductions in military cargo revenues for the USAF and commercial passenger
full-service flying. Two key variables that impact the amount of
revenues are listed below: Quarter Ended March 31,2005
    
    
    2004
    
    
    Change
    
    
    % ChangeTotal block hours
    
    
    13,116
    
    
    
    11,328
    
    
    
    1,788
    
    
    
    15.8
    %Revenue per block hour
    
    $
    12,165
    
    
    $
    11,439
    
    
    $
    726
    
    
    
    6.3
    %
 Operating Expenses. Total operating expenses increased $26.5 million to $142.4 million
for the first quarter of 2005, compared to $115.9 million for the comparable quarter in 2004.
Below is information on the Companys operating expense per block hour: Quarter Ended March 31,2005
    
    
    2004
    
    
    Change
    
    
    % ChangeOperating expense per block hour
    
    $
    10,855
    
    
    $
    10,235
    
    
    $
    620
    
    
    
    6.1
    %
 Flight expenses include all costs related directly to the operation of the aircraft other than
maintenance, aircraft rent, insurance and fuel. Also included are expenses related to flight
dispatch and flight operations administration. Flight expenses increased $4.4 million, or 10.7%,
to $45.2 million in the first quarter of 2005 compared to $40.8 million in the same period of 2004.
Flight costs were higher due to increases in the following areas:  
    $2.1 million in pilot and flight attendant costs;
    2.0 million in catering costs; and
    $0.5 million in flight communication costs. The higher flight expenses are directly attributable to an overall increase in total block hours,
as well as a required crew rest location change for certain USAF flights in the first quarter of
2005. Maintenance expenses increased $7.1 million, or 39.8%, to $25.0 million in the first quarter of
2005 compared to $17.9 million in the same period of 2004. In the first quarter of 2005, the
Company incurred $5.3 million for scheduled engine and thrust reverser overhauls and $2.1
million for maintenance reserve expenses related to the increase in total block hours. Aircraft costs, which include aircraft rent and insurance, increased $1.2 million, or 6.4%, to
$20.9 million in the first quarter of 2005 compared to $19.7 million in the first quarter of 2004.
This increase was primarily due to additional aircraft rent. World Airways added an MD-11 passenger
aircraft in December 2004 at a fixed monthly cost, experienced higher utilization of an MD-11
passenger aircraft under a power-by-the-hour operating lease, and leased two additional short-term
spare engines in the first quarter 14




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of 2005. This increase was partially offset by the return of two DC-10 cargo and one DC-10
passenger aircraft in 2004, and a DC-10 passenger aircraft in the first quarter of 2005. Fuel expenses were higher by $12.3 million, or 67.4%, to $30.5 million in the first quarter of 2005
from $18.2 million in the first quarter of 2004. Fluctuations in the price of fuel did not have a
significant impact in the first quarter of 2005 because the Companys contracts with its customers
provided for a pass-through of fuel costs of 97% of fuel purchased and thereby limited the Companys
exposure to increases in fuel prices. Commissions increased $2.6 million, or 40.6%, to $8.9 million in the first quarter of 2005,
compared to $6.3 million in the first quarter of 2004. This increase was primarily due to the
higher military revenue associated with the USAF contract in the first quarter of 2005 compared to
the same period in 2004. Sales, general and administrative expenses (SG&A) decreased $0.3 million, or 2.8%, to $10.0
million in the first quarter of 2005 compared to $10.3 million in the same quarter of 2004. In the
first quarter of 2005, due to market conditions, the Company fully accrued for the remaining
payments under an operating lease for office space at its former headquarters in Herndon, Virginia.
Rental expense is higher by $0.4 million in the first quarter of 2005, compared to the same quarter
in 2004. In the first quarter of 2004, the Company recorded $0.8 million of bad debt expense
related to a contract with TM Travel Services, Inc. (TM Travel). The Department of Transportation
decided to not renew TM Travels public charter prospectus, prompting the Company to evaluate TM
Travels ability to meet its contractual obligations and the recording of this bad debt expense. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2005, the Company had $76.2 million of cash and cash equivalents compared to $50.0
million at December 31, 2004. Restricted cash was $4.2 million at March 31, 2005, which consisted
of $3.7 million for letters of credit that had to be collateralized and $0.5 million of prepayments
from customers for flights that are scheduled to be flown within 30 days of the balance sheet date
(unearned revenue). Restricted cash was $4.9 million at December 31, 2004, which consisted of $4.8
million for letters of credit and $0.1 million related to unearned revenue. The restricted cash
balance at December 31, 2004 included a $1.0 million letter of credit which was issued on behalf of
TM Travel and provided to an insurance company to support surety bonds issued to the Department of
Transportation (DOT) and the State of Hawaii. No monies were drawn from the two surety bonds, and
they expired in July 2004. The letters of credit were cancelled in the first quarter of 2005, and
the cash collateral was returned to unrestricted cash. At March 31, 2005, the Companys current assets were $139.8 million and its current liabilities
were $96.9 million. The ratio of the Companys current assets to its current liabilities (current
ratio) was 1.4:1. In the first quarter of 2005, The Boeing Company exercised warrants to purchase 1,000,000 shares of
Common Stock at $2.50 per share. In addition, the Air Transportation Stabilization Board (ATSB)
exercised warrants to purchase 111,111 shares, and pursuant to the net exercise provisions of the
warrants, received 76,345 shares of the Companys Common Stock. On February 22, 2005, World Air Holdings issued a notice of redemption of its 8.0% Convertible
Senior Subordinated Debentures due in 2009 (the Debentures), giving the holders until March 22,
2005 to exercise their conversion rights at a conversion price of $3.20 per share. The holders
converted all of the Debentures outstanding by March 22, 2005. Future annual interest expense will
be reduced by approximately $2 million due to the conversion of all of the Debentures. In April 2005, World Air Holdings purchased North American for $35 million in an all-cash
transaction. Although this was a significant use of cash, the Company believes that both entities
will be able to provide sufficient cash from operations in order to meet funding requirements. The Company has significant long-term obligations relating to operating leases for aircraft and
spare engines. In 2002 and 2001, the Company paid amounts less than its original contractual
aircraft rent obligations under agreements with its lessors that amended the terms of the original
aircraft lease agreements to provide for the repayment of the unpaid contractual rent obligations.
At March 31, 2005, the accrual for these unpaid contractual aircraft rent obligations was $1.7
million and is included as accrued rent in the current liabilities section of the Condensed
Consolidated Balance Sheets. The Company paid this $1.7 million obligation in April 2005. In the
first quarter of 2004, the Company reached an agreement with one of its MD-11 lessors to
restructure certain leases. In exchange for reduced fixed monthly lease rates, the Company agreed
to an annual restructuring fee based on net income. Payments commenced in 2005 based on 2004
results, and continue through the lease terminations in 2011, which will be paid in 2012. Over the
term of the agreement, the total obligation of the Company is limited to no more than $24.2 million
on a cumulative basis. In individual years, the cash disbursement is capped at $1.6 million in
2005, $3.6 million per year for 2006 through and including 2011, and $1.0 million in 2012. Although
cash disbursements are capped each year, due to the cumulative nature of the agreement, 15




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expense recognized in a given year may exceed the cash obligation to be disbursed in the following
year. In April 2005, the Company paid $1.6 million of this liability based on 2004 results. The Companys indebtedness outstanding under its $30.0 million term loan, which is supported by a
$27.0 million guarantee issued by the Air Transportation Stabilization Board (the ATSB Loan) and
a $3.0 million guarantee by another third party, is secured by substantially all of the Companys
assets. The ATSB Loan and the operating leases relating to some of the Companys aircraft contain
restrictive covenants that impose significant operating and financial restrictions on the Company.
Under the agreement governing the ATSB Loan, the Company is subject to certain covenants pursuant
to which it must satisfy various financial requirements to maintain a certain amount of
unrestricted cash or cash equivalents and to comply with certain financial ratios as well as
certain negative covenants. In addition, the ATSB Loan contains restrictive provisions that require
prepayments in the event the Company sells any significant assets, receives proceeds from future
borrowings from other sources or issuances of certain securities, or receives net proceeds from
insurance or condemnation. These restrictions and requirements may limit the Companys financial
and operating flexibility. In addition, if the Company fails to comply with these restrictions or
to satisfy the related covenant requirements, its obligations under the ATSB Loan and its operating
leases may be accelerated. The Company cannot provide assurance that it could satisfy all of these
obligations upon acceleration. The failure to satisfy these obligations would materially adversely
affect the Companys business, operations, financial results or liquidity. Although there can be no assurances, World Air Holdings believes that the combination of its
existing contracts and additional business, that it expects to obtain, along with its existing
cash, and financing arrangements, will be sufficient to allow the Company to meet its cash
requirements related to operating and capital requirements through 2005. Cash Flows from Operating Activities Operating activities provided $24.2 million in cash during the three months ended March 31, 2005
compared to providing $30.3 million for the comparable 2004 period. The cash provided in the 2005
period principally reflects the $9.9 million net earnings, a $5.3 million increase in cash due to
changes in operating assets and liabilities excluding trade accounts receivable, net non-cash
statement of operations charges of $3.2 million, and a $5.8 million increase due to trade accounts
receivable decreasing. The cash provided in the 2004 period principally reflects the $7.9 million
net earnings, a $26.7 million increase in cash due to changes in operating assets and liabilities
excluding trade accounts receivable, and net non-cash statement of operations charges of $2.6
million, less a $6.9 million decrease due to trade accounts receivable increasing. Cash Flows from Investing Activities Investing activities used $1.0 million in the first three months of 2005 compared to using $0.5
million in the comparable period of 2004. In both 2005 and 2004, cash was used for the purchase of
rotable spare parts and other fixed assets. The Companys capital expenditures for 2005 are expected to be approximately $7.0 million,
principally for the purchase of aircraft related assets, which it expects to finance from working
capital. Cash Flows from Financing Activities Financing activities provided $3.0 million in cash for the three months ended March 31, 2005,
which was primarily due to $2.5 million of proceeds related to the exercise of warrants and $0.5
million of proceeds related to the exercise of stock options. For the three months ended March 31,
2004, financing activities used $18.5 million, which was primarily due to the $18.0 million used
to pay the principal on the convertible bonds that were called on December 30, 2003, and redeemed
on January 28, 2004. 16




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Part I, Item 3, of this report should be read in conjunction with Part II, Item 7a of the
Companys Annual Report on Form 10-K for the year ended December 31, 2004. The information
contained herein is not a quantitative and qualitative discussion about market risk the Company
faces, but rather updates disclosures made in the aforementioned filing. World Air Holdings continues to have no material exposure to market risks. 
 ITEM 4. CONTROLS AND PROCEDURES We maintain a system of controls and procedures designed to provide reasonable assurance as to the
reliability of the financial statements and other disclosures included in this Quarterly Report,
as well as to safeguard assets from unauthorized use or disposition. We evaluated the
effectiveness of the design and operation of our disclosure controls and procedures under the
supervision and with the participation of management, including the Chief Executive Officer and
Chief Financial Officer, as of the end of the period covered by this Quarterly Report. Based upon
this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to material information
required to be included in our periodic filings with the Securities and Exchange Commission. No
significant changes were made to our internal controls or other factors that could significantly
affect these controls subsequent to the date of their evaluation. 
 PART II 
 ITEM 1. LEGAL PROCEEDINGS The information required by this Item is incorporated by reference to Note 9 to the
Condensed Consolidated Financial Statements included elsewhere herein. 
 ITEM 6. EXHIBITS No.
    
    Description10.1
    
    Stock Purchase Agreement, dated as of April 27, 2005, by and among World Air Holdings, Inc.,
North American Airlines, Inc., Dan McKinnon, individually, and Dan McKinnon, as Trustee of the
Dan and Janice McKinnon Family Trust dated January 15, 2005.10.2
    
    Guaranty of Agreement, dated as of April 27, 2005, by World Airways, Inc. for the benefit of
Dan McKinnon, as Trustee of the Dan and Janice McKinnon Family Trust dated January 15, 2005.10.3
    
    Escrow Agreement, dated as of April 27, 2005, by and among World Air Holdings, Inc., Dan
McKinnon, as Trustee of the Dan and Janice McKinnon Family Trust dated January 15, 2005, and
SunTrust Bank, as escrow agent.10.4
    
    Termination and Release, dated as of April 27, 2005, by and among Dan McKinnon, Janice
McKinnon, Dan McKinnon, as Trustee of the Dan and Janice McKinnon Family Trust dated January
15, 2005, and World Air Holdings, Inc.10.5
    
    Amendment No. 1 and Waiver to Loan Agreement, dated as of April 27, 2005, by and among World
Airways, Inc., World Air Holdings, Inc., North American Airlines, Inc., World Airways Parts
Company, LLC, Govco Incorporated, as Primary Tranche A Lender, Citicorp North America, Inc.,
as Govco Administrative Agent, the other Lenders party thereto, Citibank, N.A., as Agent for
the Lenders, Citibank, N.A., as Collateral Agent, International Lease Finance Corporation, as
Supplemental Guarantor, and the Air Transportation Stabilization Board.10.6
    
    Amended and Restated Mortgage and Security Agreement, dated as of April 27, 2005, by and
among World Air Holdings, Inc., World Airways, Inc., World Airways Parts Company, LLC, and
North American Airlines, Inc., as Grantors in favor of Citibank, N.A., as Collateral Agent.
 17




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##### Table of Contents



No.
    
    Description10.7
    
    Subsidiary Guarantee, dated as of April 27, 2005, executed by North American Airlines, Inc.
in favor of Citibank, N.A. as Agent, International Lease Finance Corporation as Supplemental
Guarantor, Citicorp North America, Inc. as Govco Administrative Agent, Phoenix American
Financial Services, Inc., as Loan Administrator, and the Air Transportation Stabilization
Board.10.8
    
    Holdings Guaranty, dated as of April 27, 2005, by World Air Holdings, Inc. in favor of and
for the benefit of International Lease Finance Corporation (ILFC) guarantying World Airways,
Inc.s obligations pursuant to certain ILFC aircraft leases.10.9
    
    Holdings Guaranty, dated as of April 27, 2005, by World Air Holdings, Inc. in favor of and
for the benefit of International Lease Finance Corporation (ILFC) guarantying North American
Airlines, Inc.s obligations pursuant to certain ILFC aircraft leases.10.10
    
    Intellectual Property Security Agreement, dated as of April 27, 2005, by North American
Airlines, Inc. in favor of Citibank, N.A. as Collateral Agent, Govco Incorporated as Primary
Tranche A Lender, Citibank, N.A. as Alternate Tranche A Lender, Citicorp USA, Inc. as Tranche
B Lender, the Air Transportation Stabilization Board, and the International Lease Finance
Corporation.10.11
    
    Form of Irrevocable Stock Power of World Air Holdings, Inc., assigning interest in the
shares of North American Airlines, Inc.10.12*
    
    Amended and Restated Employment Agreement, dated as of May 1, 2005, by and between North
American Airlines, Inc. and Steven E.Harfst (incorporated by reference to Exhibit 99.1 to
World Air Holdings, Inc.s Current Report on Form 8-K , filed with the SEC on May 3, 2005).31.1
    
    Certification of Chief Executive
Officer pursuant to Rule 13a-14(a) to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Certification pursuant to 18 U.S.C. §1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification pursuant to 18 U.S.C. §1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
    Management
contract or compensatory plan or arrangement. *    *   *   *   *   *   *   *   *   *   *   *   *   *   * 18




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized. Date: May 13, 2005 WORLD AIR HOLDINGS, INC.By:
    
    /s/ Gilberto M. Duarte, Jr.Gilberto M. Duarte, Jr.Chief Financial Officer
 19