##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended: September 30, 2006

or



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

For the transition period from  to

Commission File Number 0-26582



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WORLD AIR HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



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

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

(Address of principal executive offices)

(770) 632-8002

(Registrants telephone number, including area code)



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



---

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

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

Large accelerated filer ̈Accelerated filer  x    Non-accelerated filer ̈

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

The number of shares of the registrants Common Stock outstanding on June 1, 2007 was approximately 22,570,717.



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##### Table of Contents

WORLD AIR HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2006

TABLE OF CONTENTS



|                                                                                           |  |                                                                                               |  |                                                                                                                       |  |   |  | 
|------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | - |  | 
|                                                                                           |  | Page                                                                                         
|PART I  FINANCIAL INFORMATION                                                             |  |                                                                                              
|                                                                                           |  |                                                                                              
|                                                                                           |  | Item 1. Financial Statements                                                                  |  |                                                                                                                      
|                                                                                           |  |                                                                                               | 
|                                                                                           |  |                                                                                               |  | Condensed Consolidated Balance Sheets (Unaudited), September 30, 2006 and December 31, 2005                           |  | 3
|                                                                                           |  |                                                                                               | 
|                                                                                           |  |                                                                                               |  | Condensed Consolidated Statements of Income (Unaudited), Three and Nine Months Ended September 30, 2006 and 2005      |  | 5
|                                                                                           |  |                                                                                               | 
|                                                                                           |  |                                                                                               |  | Condensed Consolidated Statement of Changes in Stockholders Equity (Unaudited), Nine Months ended September 30, 2006 |  | 6
|                                                                                           |  |                                                                                               | 
|                                                                                           |  |                                                                                               |  | Condensed Consolidated Statements of Cash Flows (Unaudited), Nine Months ended September 30, 2006 and 2005            |  | 7
|                                                                                           |  |                                                                                               | 
|                                                                                           |  |                                                                                               |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                      |  | 8
|                                                                                           |  |                                                                                              
|                                                                                           |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 18                                                                                                                   
|                                                                                           |  |                                                                                              
|                                                                                           |  | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |  | 25                                                                                                                   
|                                                                                           |  |                                                                                              
|                                                                                           |  | Item 4. Controls and Procedures                                                               |  | 25                                                                                                                   
|                                                                                           | 
|PART II  OTHER INFORMATION                                                                |  |                                                                                              
|                                                                                           |  |                                                                                              
|                                                                                           |  | Item 1. Legal Proceedings                                                                     |  | 27                                                                                                                   
|                                                                                           |  |                                                                                              
|                                                                                           |  | Item 6. Exhibits                                                                              |  | 27                                                                                                                   
|                                                                                           | 
|SIGNATURES                                                                                 |  | 28                                                                                           
|                                                                                           | 
|EX-31.1 Certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |                                                                                              
|                                                                                           | 
|EX-31.2 Certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |                                                                                              
|                                                                                           | 
|EX-32.1 Certification of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |                                                                                              
|                                                                                           | 
|EX-32.2 Certification of the CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |                                                                                              



2



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##### Table of Contents

ITEM 1. FINANCIAL STATEMENTS

WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



|                                                                                                                                                    |  |                   |         |                  |   |        
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                                                                                                                                    |  | September 30,2006 |         | December 31,2005
|ASSETS                                                                                                                                              |  |                   |         |                  |   |        
|Current assets                                                                                                                                      |  |                   |         |                  |   |        
|Cash and cash equivalents                                                                                                                           |  | $                 | 38,765  |                  | $ | 46,202 
|Restricted cash                                                                                                                                     |  |                   | 838     |                  |   | 6,262  
|Short-term investments                                                                                                                              |  |                   | 2,326   |                  |   | 827    
|Trade accounts receivable, less sales allowance and allowance for doubtful accounts of $1,453 at September 30, 2006 and $1,643 at
December 31, 2005 |  |                   | 37,411  |                  |   | 57,235 
|Other receivables                                                                                                                                   |  |                   | 14,662  |                  |   | 21,564 
|Prepaid expenses and other current assets                                                                                                           |  |                   | 19,548  |                  |   | 20,246 
|Deferred income taxes                                                                                                                               |  |                   | 1,707   |                  |   | 3,846  
|                                                                                                                                                    |  |                   |         |                  |   |        
|Total current assets                                                                                                                                |  |                   | 115,257 |                  |   | 156,182
|Equipment and property                                                                                                                              |  |                   |         |                  |   |        
|Flight and other equipment                                                                                                                          |  |                   | 83,790  |                  |   | 81,206 
|Less: accumulated depreciation and amortization                                                                                                     |  |                   | 47,799  |                  |   | 47,480 
|                                                                                                                                                    |  |                   |         |                  |   |        
|Net equipment and property                                                                                                                          |  |                   | 35,991  |                  |   | 33,726 
|Goodwill and other intangible assets                                                                                                                |  |                   |         |                  |   |        
|Goodwill                                                                                                                                            |  |                   | 25,370  |                  |   | 25,370 
|Other intangible assets, net of accumulated amortization of $1,425 at September 30, 2006 and $740 at December 31,
2005                              |  |                   | 6,670   |                  |   | 7,355  
|                                                                                                                                                    |  |                   |         |                  |   |        
|Net goodwill and other intangible assets                                                                                                            |  |                   | 32,040  |                  |   | 32,725 
|Long-term deposits                                                                                                                                  |  |                   | 31,162  |                  |   | 28,298 
|Other assets and deferred charges, net of accumulated amortization of $123 at September 30, 2006 and $3,558 at December 31,
2005                    |  |                   | 3,511   |                  |   | 9,715  
|                                                                                                                                                    |  |                   |         |                  |   |        
|Total assets                                                                                                                                        |  | $                 | 217,961 |                  | $ | 260,646
|                                                                                                                                                    |  |                   |         |                  |   |        

See accompanying Notes to Condensed Consolidated Financial Statements



3



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##### Table of Contents

WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



|                                                                                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                                                 |  | September 30,2006 |         |   | December 31,2005 |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Current liabilities                                                                                                                                                                                                              |  |                   |         |   |                  |   |         |  
|Current maturities of long-term debt                                                                                                                                                                                             |  | $                 |        |   |                  | $ | 24,000  |  
|Accounts payable                                                                                                                                                                                                                 |  |                   | 48,681  |   |                  |   | 59,484  |  
|Current portion of accrued rent                                                                                                                                                                                                  |  |                   | 3,983   |   |                  |   | 4,700   |  
|Current portion of deferred rent                                                                                                                                                                                                 |  |                   | 1,164   |   |                  |   | 2,455   |  
|Unearned revenue                                                                                                                                                                                                                 |  |                   | 18,912  |   |                  |   | 16,512  |  
|Accrued maintenance                                                                                                                                                                                                              |  |                   | 14,703  |   |                  |   | 9,739   |  
|Accrued salaries, wages and profit sharing                                                                                                                                                                                       |  |                   | 15,085  |   |                  |   | 25,576  |  
|Accrued taxes                                                                                                                                                                                                                    |  |                   | 6,162   |   |                  |   | 5,534   |  
|                                                                                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                                                        |  |                   | 108,690 |   |                  |   | 148,000 |  
|                                                                                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Deferred gain from sale-leaseback transactions, net of accumulated amortization of $5,161 at September 30, 2006 and $4,857 at
December 31, 2005                                                                                  |  |                   | 346     |   |                  |   | 650     |  
|Accrued post-retirement benefits                                                                                                                                                                                                 |  |                   | 8,159   |   |                  |   | 6,995   |  
|Accrued and deferred rent, net of current portions                                                                                                                                                                               |  |                   | 8,995   |   |                  |   | 14,551  |  
|Deferred income taxes                                                                                                                                                                                                            |  |                   | 850     |   |                  |   | 3,612   |  
|                                                                                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                                                |  |                   | 127,040 |   |                  |   | 173,808 |  
|                                                                                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Stockholders equity                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Preferred stock, $.001 par value (5,000,000 shares authorized; no shares issued or outstanding)                                                                                                                                  |  |                   |        |   |                  |   |        |  
|Common stock, $.001 par value (100,000,000 shares authorized; 25,553,533 shares issued and 24,513,839 shares outstanding at September 30,
2006; 25,002,645 shares issued and 23,921,402 shares outstanding at December 31, 2005) |  |                   | 26      |   |                  |   | 25      |  
|Additional paid-in capital                                                                                                                                                                                                       |  |                   | 70,111  |   |                  |   | 67,770  |  
|Retained earnings                                                                                                                                                                                                                |  |                   | 33,641  |   |                  |   | 32,153  |  
|Deferred stock-based compensation                                                                                                                                                                                                |  |                   |        |   |                  |   | (253    | )
|Treasury stock, at cost (1,039,694 shares at September 30, 2006 and 1,081,243 shares at December 31, 2005)                                                                                                                       |  |                   | (12,857 | ) |                  |   | (12,857 | )
|                                                                                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                                                                                       |  |                   | 90,921  |   |                  |   | 86,838  |  
|                                                                                                                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Commitments and contingencies                                                                                                                                                                                                    |  |                   |        |   |                  |   |        |  
|Total liabilities and stockholders equity                                                                                                                                                                                       |  | $                 | 217,961 |   |                  | $ | 260,646 |  
|                                                                                                                                                                                                                                 |  |                   |         |   |                  |   |         |  

See accompanying Notes to Condensed Consolidated Financial Statements



4



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##### Table of Contents

WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)



|                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                  |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                  |  | 2006                            |         |   | 2005                           |   |         | 2006 |  |   | 2005    |  
|Operating revenues                                |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Flight operations                                 |  | $                               | 230,888 |   |                                | $ | 216,703 |      |  | $ | 623,055 |   |  | $ | 546,814 |  
|Other                                             |  |                                 | 533     |   |                                |   | 477     |      |  |   | 1,276   |   |  |   | 1,797   |  
|                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total operating revenues                          |  |                                 | 231,421 |   |                                |   | 217,180 |      |  |   | 624,331 |   |  |   | 548,611 |  
|                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Operating expenses                                |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Flight                                            |  |                                 | 58,990  |   |                                |   | 62,532  |      |  |   | 174,360 |   |  |   | 156,283 |  
|Maintenance                                       |  |                                 | 44,829  |   |                                |   | 27,018  |      |  |   | 111,704 |   |  |   | 77,713  |  
|Aircraft costs                                    |  |                                 | 28,865  |   |                                |   | 31,368  |      |  |   | 88,815  |   |  |   | 79,567  |  
|Fuel                                              |  |                                 | 58,157  |   |                                |   | 42,063  |      |  |   | 147,456 |   |  |   | 103,872 |  
|Flight operations subcontracted to other carriers |  |                                 | 1,574   |   |                                |   | 339     |      |  |   | 3,685   |   |  |   | 2,064   |  
|Commissions                                       |  |                                 | 10,022  |   |                                |   | 8,165   |      |  |   | 28,374  |   |  |   | 24,726  |  
|Depreciation and amortization                     |  |                                 | 2,215   |   |                                |   | 1,872   |      |  |   | 5,525   |   |  |   | 5,292   |  
|Sales, general and administrative                 |  |                                 | 19,977  |   |                                |   | 21,088  |      |  |   | 61,122  |   |  |   | 48,392  |  
|Legal expense  California matter                 |  |                                 |        |   |                                |   | 12,500  |      |  |   |        |   |  |   | 12,500  |  
|                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total operating expenses                          |  |                                 | 224,629 |   |                                |   | 206,945 |      |  |   | 621,041 |   |  |   | 510,409 |  
|                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Operating income                                  |  |                                 | 6,792   |   |                                |   | 10,235  |      |  |   | 3,290   |   |  |   | 38,202  |  
|Other income (expense)                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Interest expense                                  |  |                                 | (58     | ) |                                |   | (1,217  | )    |  |   | (3,631  | ) |  |   | (3,344  | )
|Interest income                                   |  |                                 | 487     |   |                                |   | 400     |      |  |   | 1,254   |   |  |   | 910     |  
|Other, net                                        |  |                                 | 312     |   |                                |   | (575    | )    |  |   | (2      | ) |  |   | (1,801  | )
|                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total other income (expense)                      |  |                                 | 741     |   |                                |   | (1,392  | )    |  |   | (2,379  | ) |  |   | (4,235  | )
|                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Earnings before income tax expense (benefit)      |  |                                 | 7,533   |   |                                |   | 8,843   |      |  |   | 911     |   |  |   | 33,967  |  
|Income tax expense (benefit)                      |  |                                 | 2,108   |   |                                |   | 3,373   |      |  |   | (577    | ) |  |   | 13,093  |  
|                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net earnings                                      |  | $                               | 5,425   |   |                                | $ | 5,470   |      |  | $ | 1,488   |   |  | $ | 20,874  |  
|                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Basic earnings per share                          |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net earnings                                      |  | $                               | 0.22    |   |                                | $ | 0.23    |      |  | $ | 0.06    |   |  | $ | 0.94    |  
|                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Weighted average shares outstanding               |  |                                 | 24,237  |   |                                |   | 23,789  |      |  |   | 24,071  |   |  |   | 22,155  |  
|Diluted earnings per share                        |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net earnings                                      |  | $                               | 0.20    |   |                                | $ | 0.20    |      |  | $ | 0.06    |   |  | $ | 0.79    |  
|                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Weighted average shares outstanding               |  |                                 | 26,616  |   |                                |   | 27,072  |      |  |   | 26,579  |   |  |   | 26,734  |  

See accompanying Notes to Condensed Consolidated Financial Statements



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##### Table of Contents

WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES

IN STOCKHOLDERS EQUITY

NINE
MONTHS ENDED SEPTEMBER 30, 2006

(in thousands, except share amounts)

(unaudited)



|                                                                           |  |             |    |                          |   |        |                  |  |                                 |        |  |                       |      |   |                          |   |         |   |  |   |        |  
|-------------------------------------------------------------------------- |  | ----------- | -- | ------------------------ | - | ------ | ---------------- |  | ------------------------------- | ------ |  | --------------------- | ---- | - | ------------------------ | - | ------- | - |  | - | ------ | -
|                                                                           |  | CommonStock |    | AdditionalPaid-InCapital |   |        | RetainedEarnings |  | DeferredStock-BasedCompensation |        |  | TreasuryStock, atCost |      |   | TotalStockholdersEquity |  
|Balances at December 31, 2005                                              |  | $           | 25 |                          | $ | 67,770 |                  |  | $                               | 32,153 |  | $                     | (253 | ) |                          | $ | (12,857 | ) |  | $ | 86,838 |  
|Exercise of 333,675 stock options                                          |  |             | 1  |                          |   | 462    |                  |  |                                 |       |  |                       |     |   |                          |   |        |   |  |   | 463    |  
|Excess tax benefit of stock option exercises                               |  |             |   |                          |   | 1,163  |                  |  |                                 |       |  |                       |     |   |                          |   |        |   |  |   | 1,163  |  
|Amortization of warrants                                                   |  |             |   |                          |   | 102    |                  |  |                                 |       |  |                       |     |   |                          |   |        |   |  |   | 102    |  
|Stock-based compensation                                                   |  |             |   |                          |   | 917    |                  |  |                                 |       |  |                       |     |   |                          |   |        |   |  |   | 917    |  
|Reversal of award of deferred stock-based compensation                     |  |             |   |                          |   | (303   | )                |  |                                 |       |  |                       | 303  |   |                          |   |        |   |  |   |       |  
|Reversal of prior period amortization of deferred stock-based compensation |  |             |   |                          |   |       |                  |  |                                 |       |  |                       | (50  | ) |                          |   |        |   |  |   | (50    | )
|Net income                                                                 |  |             |   |                          |   |       |                  |  |                                 | 1,488  |  |                       |     |   |                          |   |        |   |  |   | 1,488  |  
|                                                                           |  |             |    |                          |   |        |                  |  |                                 |        |  |                       |      |   |                          |   |         |   |  |   |        |  
|Balances at September 30, 2006                                             |  | $           | 26 |                          | $ | 70,111 |                  |  | $                               | 33,641 |  | $                     |     |   |                          | $ | (12,857 | ) |  | $ | 90,921 |  
|                                                                           |  |             |    |                          |   |        |                  |  |                                 |        |  |                       |      |   |                          |   |         |   |  |   |        |  

See accompanying Notes to Condensed Consolidated Financial Statements



6



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##### Table of Contents

WORLD AIR HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005

(in thousands)

(unaudited)



|                                                                                       |  |      |         |   |      |   |         |  
|-------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                       |  | 2006 |         |   | 2005 |  
|Cash and cash equivalents at beginning of year                                         |  | $    | 46,202  |   |      | $ | 16,306  |  
|                                                                                       |  |     
|Cash flow from operating activities                                                    |  |      |         |   |      |   |         |  
|Net earnings                                                                           |  |      | 1,488   |   |      |   | 20,874  |  
|Adjustments to reconcile net earnings to net cash provided by operating activities:    |  |      |         |   |      |   |         |  
|Depreciation and amortization                                                          |  |      | 5,525   |   |      |   | 5,292   |  
|Amortization of deferred gain                                                          |  |      | (304    | ) |      |   | (486    | )
|Loss on disposals of equipment and property                                            |  |      | 725     |   |      |   | 951     |  
|Tax benefit of stock option exercises                                                  |  |      |        |   |      |   | 1,338   |  
|Amortization of warrants and debt issuance costs                                       |  |      | 2,892   |   |      |   | 1,413   |  
|Deferred income taxes                                                                  |  |      | (576    | ) |      |   | (2,494  | )
|Provision for doubtful accounts and sales allowance                                    |  |      | 166     |   |      |   | 228     |  
|Stock-based compensation                                                               |  |      | 917     |   |      |   |        |  
|Legal expense  California matter                                                      |  |      |        |   |      |   | 12,500  |  
|Other                                                                                  |  |      | 56      |   |      |   | 778     |  
|                                                                                       |  |     
|Changes in operating assets and liabilities, exclusive of acquisitions:                |  |      |         |   |      |   |         |  
|Trade and other receivables                                                            |  |      | 26,510  |   |      |   | 15,510  |  
|Restricted cash                                                                        |  |      | 5,424   |   |      |   | 1,721   |  
|Deposits, prepaid expenses and other assets                                            |  |      | 1,215   |   |      |   | (3,589  | )
|Accounts payable, accrued expenses and other liabilities                               |  |      | (22,102 | ) |      |   | (6,933  | )
|Unearned revenue                                                                       |  |      | 2,400   |   |      |   | (524    | )
|                                                                                       |  |      |         |   |      |   |         |  
|Net cash provided by operating activities                                              |  |      | 24,336  |   |      |   | 46,579  |  
|                                                                                       |  |      |         |   |      |   |         |  
|Cash flows from investing activities                                                   |  |      |         |   |      |   |         |  
|Purchases of equipment and property                                                    |  |      | (7,592  | ) |      |   | (5,669  | )
|Net sales (purchases) of short term investments                                        |  |      | (1,499  | ) |      |   | 3,650   |  
|Proceeds from disposals of equipment and property                                      |  |      | 314     |   |      |   | 27      |  
|Acquisition of North American, less cash acquired                                      |  |      |        |   |      |   | (24,951 | )
|                                                                                       |  |      |         |   |      |   |         |  
|Net cash used in investing activities                                                  |  |      | (8,777  | ) |      |   | (26,943 | )
|                                                                                       |  |      |         |   |      |   |         |  
|Cash flows from financing activities                                                   |  |      |         |   |      |   |         |  
|Repayment of debt                                                                      |  |      | (24,000 | ) |      |   |        |  
|Proceeds from exercise of stock options                                                |  |      | 463     |   |      |   | 1,649   |  
|Proceeds from exercise of warrants                                                     |  |      |        |   |      |   | 2,500   |  
|Excess tax benefit from employees stock-based compensation plan                        |  |      | 1,033   |   |      |   |        |  
|Debt issuance cost                                                                     |  |      | (492    | ) |      |   |         |  
|Repayment of aircraft rent obligations                                                 |  |      |        |   |      |   | (1,713  | )
|                                                                                       |  |      |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                                    |  |      | (22,996 | ) |      |   | 2,436   |  
|                                                                                       |  |      |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                                   |  |      | (7,437  | ) |      |   | 22,072  |  
|                                                                                       |  |      |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                             |  | $    | 38,765  |   |      | $ | 38,378  |  
|                                                                                       |  |      |         |   |      |   |         |  
|Supplemental information:                                                              |  |      |         |   |      |   |         |  
|Interest paid                                                                          |  | $    | 363     |   |      | $ | 750     |  
|Income taxes paid                                                                      |  | $    | 128     |   |      | $ | 14,902  |  
|Conversion of the Companys convertible senior subordinated debentures to common stock |  | $    |        |   |      | $ | 18,125  |  

See accompanying Notes to Condensed Consolidated Financial Statements



7



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##### Table of Contents

WORLD AIR HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



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

The unaudited Condensed Consolidated
Financial Statements include the accounts of World Air Holdings, Inc. (World Air Holdings or the Company), and its wholly-owned subsidiaries, World Airways, Inc. (World Airways), North American Airlines, Inc.
(North American), and World Risk Solutions, Ltd. (World Risk Solutions). World Airways Parts Company LLC is a wholly-owned subsidiary of World Airways. The Company acquired North American, a privately held airline based in
Jamaica, New York, on April 27, 2005. All significant inter-company accounts and transactions have been eliminated in consolidation for all periods presented.

Management believes that all adjustments necessary to present fairly the financial position of World Air Holdings, Inc. as of September 30, 2006 and the results of operations for the respective three and nine months ended
September 30, 2006 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 and nine month periods ended September 30, 2006 are not necessarily indicative of the
results to be expected for the year ending December 31, 2006.

The Consolidated Balance Sheet for December 31, 2005 is from the Consolidated
Financial Statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2005 (the 2005 Form 10-K). These interim period Consolidated Financial Statements and accompanying footnotes should be
read in conjunction with the Consolidated Financial Statements contained in the 2005 Form 10-K.

During the third quarter of 2005, the Company reclassified
certain excess DC-10 parts to assets held for sale. Assets held for sale are expected to be disposed of by selling the assets within a 12-month period. Since all of the assets were not sold during the last 12 months and the Company does not expect
the assets to be sold in the next 12 months, the Company has reclassified the remaining assets from assets held for sale, included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet, to Flight and other
equipment at September 30, 2006. Depreciation expense of approximately $0.2 million was recorded during the quarter ended September 30, 2006, which represents the amount of depreciation that would have been recorded over the last 12 months
if the assets had continued to be included in Flight and other equipment.



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

The Company has two operating segments, World
Airways and North American. Financial and other information for the three month and nine month periods ended September 30, 2006 and 2005 by reporting segment is set forth below (in thousands, except block hour data).



|                         |  |                                       |         |               |   |                                                            |  |   |       |   |  |   |        
|------------------------ |  | ------------------------------------- | ------- | ------------- | - | ---------------------------------------------------------- |  | - | ----- | - |  | - | -------
|                         |  | Three Months Ended September 30, 2006
|                         |  | WorldAirways                          |         | NorthAmerican |   | World Air Holdings, World Risk Solutions, and Eliminations |  |   | Total
|Total operating revenues |  | $                                     | 154,841 |               | $ | 76,879                                                     |  | $ | (299  | ) |  | $ | 231,421
|Total operating expenses |  | $                                     | 149,969 |               | $ | 75,438                                                     |  | $ | (778  | ) |  | $ | 224,629
|Operating income         |  | $                                     | 4,872   |               | $ | 1,441                                                      |  | $ | 479   |   |  | $ | 6,792  
|Total assets             |  | $                                     | 134,398 |               | $ | 75,544                                                     |  | $ | 8,019 |   |  | $ | 217,961



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##### Table of Contents

|                         |  |                                       |         |                |   |         |                                                            |  |   |        |   |  |   |        
|------------------------ |  | ------------------------------------- | ------- | -------------- | - | ------- | ---------------------------------------------------------- |  | - | ------ | - |  | - | -------
|                         |  | Three Months Ended September 30, 2005
|                         |  | WorldAirways                          |         | NorthAmerican  |   |         | World Air Holdings, World Risk Solutions, and Eliminations |  |   | Total 
|Total operating revenues |  | $                                     | 152,478 |                | $ | 64,644  |                                                            |  | $ | 58     |   |  | $ | 217,180
|Total operating expenses |  | $                                     | 132,885 |                | $ | 74,657  |                                                            |  | $ | (597   | ) |  | $ | 206,945
|Operating income (loss)  |  | $                                     | 19,593  |                | $ | (10,013 | )                                                          |  | $ | 655    |   |  | $ | 10,235 
|Total assets             |  | $                                     | 155,812 |                | $ | 79,862  |                                                            |  | $ | 3,327  |   |  | $ | 239,001
|                         | 
|                         |  | Nine Months Ended September 30, 2006 
|                         |  | WorldAirways                          |         | NorthAmerican  |   |         | World Air Holdings, World Risk Solutions,
and Eliminations |  |   | Total 
|Total operating revenues |  | $                                     | 428,828 |                | $ | 196,169 |                                                            |  | $ | (666   | ) |  | $ | 624,331
|Total operating expenses |  | $                                     | 425,216 |                | $ | 196,650 |                                                            |  | $ | (825   | ) |  | $ | 621,041
|Operating income (loss)  |  | $                                     | 3,612   |                | $ | (481    | )                                                          |  | $ | 159    |   |  | $ | 3,290  
|Total assets             |  | $                                     | 134,398 |                | $ | 75,544  |                                                            |  | $ | 8,019  |   |  | $ | 217,961
|                         | 
|                         |  | Nine Months Ended September 30, 2005 
|                         |  | WorldAirways                          |         | NorthAmerican* |   |         | World Air Holdings, World Risk Solutions,
and Eliminations |  |   | Total 
|Total operating revenues |  | $                                     | 452,285 |                | $ | 96,268  |                                                            |  | $ | 58     |   |  | $ | 548,611
|Total operating expenses |  | $                                     | 403,641 |                | $ | 108,186 |                                                            |  | $ | (1,418 | ) |  | $ | 510,409
|Operating income (loss)  |  | $                                     | 48,644  |                | $ | (11,918 | )                                                          |  | $ | 1,476  |   |  | $ | 38,202 
|Total assets             |  | $                                     | 155,812 |                | $ | 79,862  |                                                            |  | $ | 3,327  |   |  | $ | 239,001

| | 
| | 

| | * | Financial data include the results of North American from April 28, 2005 to September 30, 2005.
| | - | -----------------------------------------------------------------------------------------------



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

Long-term deposits of $31.2 million at
September 30, 2006 consisted of aircraft and engine (flight equipment) deposits of $30.2 million and building and miscellaneous deposits of $1.0 million. At December 31, 2005, long-term deposits of $28.3 million consisted of aircraft and
engine deposits of $27.2 million and building and miscellaneous deposits of $1.1 million.



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

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



9



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##### Table of Contents

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



|                                                                  |  |                                       |       |                     |        |                 |   |     
|----------------------------------------------------------------- |  | ------------------------------------- | ----- | ------------------- | ------ | --------------- | - | ----
|                                                                  |  | Three Months Ended September 30, 2006
|                                                                  |  | Earnings(Numerator)                   |       | Shares(Denominator) |        | Per ShareAmount
|Basic EPS                                                         |  |                                       |       |                     |        |                 |   |     
|Earnings available to common shareholders                         |  | $                                     | 5,425 |                     | 24,237 |                 | $ | 0.22
|                                                                  |  |                                       |       |                     |        |                 |   |     
|Effect of dilutive securities                                     |  |                                       |       |                     |        |                 |   |     
|Warrants                                                          |  |                                       |      |                     | 1,701  |                 |   |     
|Options                                                           |  |                                       |      |                     | 675    |                 |   |     
|Restricted stock                                                  |  |                                       |      |                     | 3      |                 |   |     
|                                                                  |  |                                       |       |                     |        |                 |   |     
|Diluted EPS                                                       |  |                                       |       |                     |        |                 |   |     
|Earnings available to common shareholders plus assumed conversion |  | $                                     | 5,425 |                     | 26,616 |                 | $ | 0.20
|                                                                  |  |                                       |       |                     |        |                 |   |     
|                                                                  | 
|                                                                  |  | Three Months Ended September 30, 2005
|                                                                  |  | Earnings(Numerator)                   |       | Shares(Denominator) |        | Per ShareAmount
|Basic EPS                                                         |  |                                       |       |                     |        |                 |   |     
|Earnings available to common shareholders                         |  | $                                     | 5,470 |                     | 23,789 |                 | $ | 0.23
|                                                                  |  |                                       |       |                     |        |                 |   |     
|Effect of dilutive securities                                     |  |                                       |       |                     |        |                 |   |     
|Warrants                                                          |  |                                       |      |                     | 1,807  |                 |   |     
|Options                                                           |  |                                       |      |                     | 1,459  |                 |   |     
|Restricted stock                                                  |  |                                       |      |                     | 17     |                 |   |     
|                                                                  |  |                                       |       |                     |        |                 |   |     
|Diluted EPS                                                       |  |                                       |       |                     |        |                 |   |     
|Earnings available to common shareholders plus assumed conversion |  | $                                     | 5,470 |                     | 27,072 |                 | $ | 0.20
|                                                                  |  |                                       |       |                     |        |                 |   |     
|                                                                  | 
|                                                                  |  | Nine Months Ended September 30, 2006 
|                                                                  |  | Earnings(Numerator)                   |       | Shares(Denominator) |        | Per ShareAmount
|Basic EPS                                                         |  |                                       |       |                     |        |                 |   |     
|Earnings available to common shareholders                         |  | $                                     | 1,488 |                     | 24,071 |                 | $ | 0.06
|                                                                  |  |                                       |       |                     |        |                 |   |     
|Effect of dilutive securities                                     |  |                                       |       |                     |        |                 |   |     
|Warrants                                                          |  |                                       |      |                     | 1,725  |                 |   |     
|Options                                                           |  |                                       |      |                     | 773    |                 |   |     
|Restricted stock                                                  |  |                                       |      |                     | 10     |                 |   |     
|                                                                  |  |                                       |       |                     |        |                 |   |     
|Diluted EPS                                                       |  |                                       |       |                     |        |                 |   |     
|Earnings available to common shareholders plus assumed conversion |  | $                                     | 1,488 |                     | 26,579 |                 | $ | 0.06
|                                                                  |  |                                       |       |                     |        |                 |   |     



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|                                                                  |  |                                      |        |   |                     |        |                 |   |     
|----------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ------------------- | ------ | --------------- | - | ----
|                                                                  |  | Nine Months Ended September 30, 2005
|                                                                  |  | Earnings(Numerator)                  |        |   | Shares(Denominator) |        | Per ShareAmount
|Basic EPS                                                         |  |                                      |        |   |                     |        |                 |   |     
|Earnings available to common shareholders                         |  | $                                    | 20,874 |   |                     | 22,155 |                 | $ | 0.94
|                                                                  |  |                                      |        |   |                     |        |                 |   |     
|Effect of dilutive securities                                     |  |                                      |        |   |                     |        |                 |   |     
|Warrants                                                          |  |                                      |       |   |                     | 1,763  |                 |   |     
|Options                                                           |  |                                      |       |   |                     | 1,472  |                 |   |     
|8% convertible debentures                                         |  |                                      | 162    |   |                     | 1,336  |                 |   |     
|Restricted stock                                                  |  |                                      |       |   |                     | 8      |                 |   |     
|Amortization of debt issuance cost                                |  |                                      | 35     |   |                     |       |                 |   |     
|Aircraft lease restructuring fees                                 |  |                                      | (13    | ) |                     |       |                 |   |     
|                                                                  |  |                                      |        |   |                     |        |                 |   |     
|Diluted EPS                                                       |  |                                      |        |   |                     |        |                 |   |     
|Earnings available to common shareholders plus assumed conversion |  | $                                    | 21,058 |   |                     | 26,734 |                 | $ | 0.79
|                                                                  |  |                                      |        |   |                     |        |                 |   |     



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

On March 30, 2006 the Company prepaid the
remaining principal balance of $24.0 million outstanding under the $30.0 million term loan (the ATSB Loan), which was 90% guaranteed by the Air Transportation Stabilization Board (the ATSB) and 10% guaranteed by a third
party, with working capital. The Company had recorded the $24.0 million outstanding balance as a current liability as of December 31, 2005 in the accompanying Condensed Consolidated Balance Sheets due to covenant violations. As a result of this
prepayment, the Company expensed an additional $2.3 million in unamortized debt issuance and warrant costs associated with the ATSB Loan during the first quarter of 2006.

Additionally, in March 2006, World Airways and North American entered into a Loan and Security Agreement with Wachovia Bank, National Association (Wachovia Loan), for the issuance of loans and letters of
credit up to $50.0 million subject to certain terms, conditions, and limitations. The Company has obtained the necessary waivers through July 18, 2007 relating to the covenant violations for the submission of timely monthly consolidated
financial statements and excess funds held in domestic and foreign bank accounts. The facility terminates in March 2008.

Under the Wachovia Loan, the
Companys borrowings bear interest at fluctuating rates. The applicable rate will be one of the following three options, as designated by the Company: (1) the banks base lending rate, (2) the Federal Funds Rate, or (3) the
Eurodollar or London Interbank Offered Rate (LIBOR) plus an applicable percentage. The rates applicable to outstanding borrowings fluctuate based on many factors including, but not limited to, general economic conditions, and general
interest rates, including the prime rate, and the supply of and demand for credit in the London interbank market. At September 30, 2006, the Companys borrowing base was approximately $42.2 million, of which $3.4 million was utilized for
letters of credit issued under the facility. As a result, the available amount for borrowing was $38.8 million. The borrowing base fluctuates on a daily basis and is subject to a $50.0 million maximum and includes the sum of: (1) 85%90%
of eligible government receivables, (2) 70% of eligible unbilled government receivables, not to exceed $5.0 million, (3) 80% of eligible commercial receivables, (4) 75% of the value of eligible spare parts, not to exceed $15.0
million; less the face amount of issued and outstanding letters of credit and any applicable reserves. The Company had no borrowings outstanding at September 30, 2006.

In October 2006, the Company borrowed $21.0 million under the Wachovia Loan agreement to fund a modified Dutch Auction tender offer (Tender Offer) and related transaction costs to repurchase
Company stock. (see Note 8). The amount borrowed bore interest at the monthly LIBOR and was subsequently repaid on November 15, 2006.



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##### Table of Contents

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

The Company was obligated under an operating
lease for office space at its former headquarters in Herndon, Virginia, through April 2006. The Company had a liability balance of $0.4 million at December 31, 2005, representing the present value of the remaining lease obligation. During the
first quarter of 2006, the Company paid the remaining lease obligation.

In August 2006, the Company terminated a lease and purchased the related DC-10
aircraft from the lessor.

In September 2006, the Company signed letters of intent to extend the leases on three MD-11 passenger aircraft, three MD-11
freighters and two Boeing 757 extended range aircraft, scheduled to expire in 2008 through 2009, until 2013 and 2014. Additional future payments on these aircraft will be approximately $2.7 million in 2007, $13.6 million in 2008, $31.2 million in
2009, $37.3 million in 2010 and $109.8 million from 2011 through 2014.



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

At September 30,
2006, the Company had two stock-based compensation plans. The 1995 Stock Incentive Plan (the 1995 Plan) was amended in May 2004 to allow for various forms of equity awards including restricted stock. At September 30, 2006, the
Company has reserved 3,131,962 shares of common stock for issuance under the 1995 Plan. Options expire at the earlier of the stated expiration, which shall not exceed ten years from the date of grant, or one year after the termination of a
grantees employment with the Company. During 2005, the Company issued 50,000 shares of restricted stock with vesting over a four year required service period, and recorded compensation expense over the same period. In February 2006, the
employee to whom the stock was issued resigned and, accordingly, the restricted stock grant terminated and was cancelled effective on the date of termination. During the first quarter of 2006, the Company reversed $0.3 million of deferred
stock-based compensation related to the forfeiture of this restricted stock grant.

Under a Non-Employee Directors Stock Option Plan (the
Directors Plan), non-affiliate directors are granted options to purchase 10,000 shares of common stock, upon election or appointment to the Board of Directors of the Company. Options granted under the Directors Plan vest in
36 equal monthly installments following the award, as long as the individual remains a director of the Company. The Directors Plan provided that after December 31, 2005, no additional options could be granted from this plan.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payments(SFAS 123R).
This pronouncement requires companies to measure the cost of employee services received in exchange for an award of equity instruments (typically stock options) based on the grant-date fair value of the award. The fair value is estimated using
option-pricing models. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. Additionally, SFAS 123R requires the cash flows resulting from the
tax benefits in excess of the compensation expense recognized for those options (excess tax benefits) to be classified as financing cash flows.

Prior to
the adoption of SFAS 123R, the Company accounted for stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees(APB 25), and related interpretations.

The following table illustrates the effect on net earnings and earnings per share for the
three and nine month periods ended September 30, 2005, had the Company applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation(SFAS
123), to stock-based compensation (in thousands, except per share data):



|                                                                                                                                   |  |                                      |       |   |                                     |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | - | ----------------------------------- | - | ------ | -
|                                                                                                                                   |  | Three Months EndedSeptember 30, 2005 |       |   | Nine Months EndedSeptember 30, 2005 |  
|Net earnings, as reported                                                                                                          |  | $                                    | 5,470 |   |                                     | $ | 20,874 |  
|Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                      | (103  | ) |                                     |   | (434   | )
|                                                                                                                                   |  |                                      |       |   |                                     |   |        |  
|Pro forma net earnings                                                                                                             |  | $                                    | 5,367 |   |                                     | $ | 20,440 |  
|                                                                                                                                   |  |                                      |       |   |                                     |   |        |  
|Earnings per share                                                                                                                 |  |                                      |       |   |                                     |   |        |  
|Basic  as reported                                                                                                                |  | $                                    | 0.23  |   |                                     | $ | 0.94   |  
|Basic  pro forma                                                                                                                  |  | $                                    | 0.23  |   |                                     | $ | 0.92   |  
|Diluted  as reported                                                                                                              |  | $                                    | 0.20  |   |                                     | $ | 0.79   |  
|Diluted  pro forma                                                                                                                |  | $                                    | 0.20  |   |                                     | $ | 0.77   |  



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##### Table of Contents

Stock Options

For
stock option awards granted prior to January 1, 2006, but for which the vesting period is not complete, the Company adopted the modified prospective method of accounting permitted under SFAS 123R. Under this method, the Company
accounts for such awards on a prospective basis, with expense being recognized in the consolidated statements of income beginning in the first quarter of 2006, using the grant-date fair values previously calculated in prior pro forma disclosures.
The Company will recognize the related compensation cost not previously recognized in the pro forma disclosures over the remaining vesting periods.

The
fair value of stock options is determined at the grant date using a Black-Scholes option-pricing model, which requires the Company to make several assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the
expected term of the option at the time of grant. The dividend yield on the Companys common stock is assumed to be zero since the Company does not pay dividends and has no current plans to do so in the future. The market price volatility of
the Companys common stock is based on the historical volatility of the common stock price over an approximate four year time period. The expected life of the options is based on historical experience of all option grants.

During the third quarter of 2006, the Company granted options to purchase 333,400 shares under the 1995 Plan.
These stock options vest in 33 1/3% increments on the first three anniversary dates of the awards; thus, the
Company will recognize compensation expense for these awards on a straight-line basis over each awards vesting period. During the second quarter of 2005, the Company granted options to purchase 10,000 shares under the Directors Plan that
vest in 36 equal monthly installments from the day of grant.

The per share weighted-average fair value of the options to purchase 333,400 shares
granted during the third quarter of 2006 was $4.61 on the date of grant using the Black-Scholes options-pricing model. The per share weighted-average fair value of the options to purchase 10,000 shares granted during the second quarter of 2005 was
$4.29 on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



|                          |  |      |   |  |      |  
|------------------------- |  | ---- | - |  | ---- | -
|                          |  | 2006 |   |  | 2005 |  
|Expected dividend yield   |  | 0    | % |  | 0    | %
|Risk-free interest rate   |  | 4.6  | % |  | 3.9  | %
|Expected life (in years)  |  | 4.0  |   |  | 4.2  |  
|Expected stock volatility |  | 80.9 | % |  | 70.7 | %

The table below summarizes stock option award activity pursuant to the Companys plans for the nine months
ended September 30, 2006:



|                                  |  |                                |   |  |                               |      |                                                     |     |                                        |   |      
|--------------------------------- |  | ------------------------------ | - |  | ----------------------------- | ---- | --------------------------------------------------- | --- | -------------------------------------- | - | -----
|                                  |  | Number ofShares (in thousands) |   |  | WeightedAverageExercise Price |      | Weighted AverageRemainingContractual Term(in years) |     | AggregateIntrinsic Value(in thousands)
|Outstanding at December 31, 2005  |  | 1,728                          |   |  | $                             | 2.25 |                                                     |     |                                        |   |      
|Granted                           |  | 333                            |   |  | $                             | 7.44 |                                                     |     |                                        |   |      
|Exercised                         |  | (333                           | ) |  | $                             | 1.38 |                                                     |     |                                        |   |      
|Forfeited                         |  | (31                            | ) |  | $                             | 2.56 |                                                     |     |                                        |   |      
|                                  |  |                                |   |  |                               |      |                                                     |     |                                        |   |      
|Outstanding at September 30, 2006 |  | 1,697                          |   |  | $                             | 3.44 |                                                     | 4.7 |                                        | $ | 9,438
|                                  |  |                                |   |  |                               |      |                                                     |     |                                        |   |      
|Exercisable at September 30, 2006 |  | 1,139                          |   |  | $                             | 2.15 |                                                     | 3.8 |                                        | $ | 7,807
|                                  |  |                                |   |  |                               |      |                                                     |     |                                        |   |      

The total intrinsic value of options exercised for the nine month period ended September 30, 2006, determined
as of the date of exercise of options, was $2.6 million. The total intrinsic value of options exercised for the nine month period ended September 30, 2005, determined as of the date of exercise of options, was $3.9 million. Cash received from
option exercises during the nine month period ended September 30, 2006 totaled $0.5 million. Cash received from option exercises during the nine month period ended September 30, 2005 totaled $1.7 million.



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##### Table of Contents

The Company recorded $0.2 million of stock-based compensation expense to sales, general and administrative expense for
the nine month period ended September 30, 2006. The excess tax benefit realized, for the tax deduction from option exercises under the Company plan was $1.2 million for the nine month period ended September 30, 2006, which generated cash
flows from excess tax benefits, under the long-haul method of $1.0 million.

At September 30, 2006, there was approximately $1.3 million of total
unrecognized compensation expense related to non-vested stock options granted under the Companys stock incentive plans. That cost is expected to be recognized over a weighted-average period of 2.9 years.

Restricted Stock Awards

During the third quarter of 2006, the
Company granted 191,800 shares of restricted common stock to non-employee members of the board, executive officers, officers, and certain other management employees of the Company. The restricted shares were granted pursuant to the 1995 Plan. The
fair value at the date of grant of these shares was $1.7 million. Compensation expense for these awards will be recognized on a straight-line basis over each awards vesting period over a weighted-average requisite service period of 4.1 years.

The Company recorded $0.1 million of stock-based compensation expense to sales, general and administrative expense for the nine month period ended
September 30, 2006. At September 30, 2006, there was approximately $1.6 million of total unrecognized compensation expense related to non-vested restricted stock granted under the Companys stock incentive plan, which is expected to
be recognized over a weighted-average vesting period of 4.1 years.

Stock Option Awards Review

Subsequent to September 30, 2006, under the direction of the Audit Committee of the Board of Directors (Audit Committee), the Company voluntarily
initiated a review of its stock option awards from the date of the Companys initial public offering of its common stock in 1995 to date. In order to ensure independence and objectivity, the Audit Committee also retained an independent law firm
to perform a review of the Companys prior stock option awards. The independent counsel engaged to perform the review submitted its report to the Audit Committee, which accepted the report and deemed the review concluded. Based on its internal
review and the review of independent counsel, the Company concluded that, although no backdating or other intentional misconduct was identified, the Company had not properly accounted for certain options awarded in each of the years 1997 through
2003.

The impact of adjustments necessary to correct errors related to previously unrecognized compensation expense, for each of the years and in the
aggregate is as follows:



|                               |  |                |        |   |      |   |         |      |  |   |         |   |  |      |        |   |      |   |         |      |  |   |       |   |  |   |        |   |  |   |     |  
|------------------------------ |  | -------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ----- | - |  | - | ------ | - |  | - | --- | -
|                               |  | 1997           |        |   | 1998 |   |         | 1999 |  |   | 2000    |   |  | 2001 |        |   | 2002 |   |         | 2003 |  |   | Total |  
|                               |  | (in thousands) |       
|Stock Compensation Expense     |  | $              | 79     |   |      | $ | (20     | )    |  | $ |        |   |  | $    | 103    |   |      | $ | 256     |      |  | $ | 79    |   |  | $ | 73     |   |  | $ | 570 |  
|Tax effect                     |  |                |       |   |      |   |        |      |  |   |        |   |  |      |       |   |      |   |        |      |  |   |      |   |  |   | (15    | ) |  |   | (15 | )
|                               |  |                |        |   |      |   |         |      |  |   |         |   |  |      |        |   |      |   |         |      |  |   |       |   |  |   |        |   |  |   |     |  
|Total, net of tax              |  | $              | 79     |   |      | $ | (20     | )    |  | $ |        |   |  | $    | 103    |   |      | $ | 256     |      |  | $ | 79    |   |  | $ | 58     |   |  | $ | 555 |  
|                               |  |                |        |   |      |   |         |      |  |   |         |   |  |      |        |   |      |   |         |      |  |   |       |   |  |   |        |   |  |   |     |  
|Income/(loss) before taxes     |  | $              | 12,230 |   |      | $ | (10,905 | )    |  | $ | (13,653 | ) |  | $    | (3,159 | ) |      | $ | (26,037 | )    |  | $ | 2,041 |   |  | $ | 19,123 |   |  |   |     |  
|                               |  |                |        |   |      |   |         |      |  |   |         |   |  |      |        |   |      |   |         |      |  |   |       |   |  |   |        |   |  |   |     |  
|Percent of income before taxes |  |                | 0.6    | % |      |   | 0.2     | %    |  |   | 0.0     | % |  |      | 3.3    | % |      |   | 1.0     | %    |  |   | 3.9   | % |  |   | 0.4    | % |  |   |     |  
|                               |  |                |        |   |      |   |         |      |  |   |         |   |  |      |        |   |      |   |         |      |  |   |       |   |  |   |        |   |  |   |     |  

The impact of the compensation expense was not material to any of the prior periods or the current period.
Accordingly, the Company recorded an aggregate adjustment of $0.6 million for the prior year compensation expense to sales, general, and administrative expenses in its consolidated financial statements for the quarter ended September 30, 2006
to correctly reflect the cumulative impact of these option awards.



|8. | Tender Offer
|-- | ------------

On September 5, 2006, the Companys Board
of Directors authorized a modified Dutch Auction tender offer whereby the terms permitted the Company to repurchase up to 2.22 million shares of its common stock at a price per share not greater than $9.50 and not less than $9.00.



14



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##### Table of Contents

In October 2006, the Company completed the Tender Offer and purchased 2.22 million shares of its outstanding common
stock at a price per share of $9.20 which totaled approximately $20.4 million and was funded through borrowings under the Wachovia Loan. The shares purchased represented approximately 9.1% of the Companys outstanding common stock at
October 12, 2006.



|9. | North American Acquisition
|-- | --------------------------

On April 27, 2005, the Company
acquired North American, a privately-held airline based in Jamaica, New York. The Company commenced the consolidation of North American on April 28, 2005 and the acquisition was accounted for using the purchase method of accounting in
accordance with Statement of Financial Accounting Standards No. 141, Business Combinations.

The purchase price allocation for the acquisition
has been finalized with the exception of certain tax uncertainties related to amounts due from the seller.

Unaudited pro forma information for the Company
reflecting the acquisition of North American as if it had occurred on January 1, 2005 is as follows (in thousands, except per share amounts):



|                                    |  |                                      |        
|----------------------------------- |  | ------------------------------------ | -------
|                                    |  | Nine Months Ended September 30, 2005
|Total operating revenues            |  | $                                    | 624,571
|Net earnings                        |  | $                                    | 23,468 
|Basic earnings per share            |  | $                                    | 1.06   
|Weighted average shares outstanding |  |                                      | 22,155 
|Fully diluted earnings per share    |  | $                                    | 0.88   
|Weighted average shares outstanding |  |                                      | 26,734 

The above pro forma results include adjustments for the amortization of intangibles, adjustments to depreciation
to reflect the new basis and depreciable lives for equipment and property, and lost interest income/additional interest expense to reflect the impact of the cash payments related to the purchase of North American. These results are not indicative of
what actual results would have been or will be in the future.



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

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

A summary of the net periodic post-retirement benefit costs for the three and nine month periods ended September 30 is as
follows (in thousands):



|                                          |  |                                 |     |                                |   |      |  |      |       |  |   |      
|----------------------------------------- |  | ------------------------------- | --- | ------------------------------ | - | ---- |  | ---- | ----- |  | - | -----
|                                          |  | Three Months EndedSeptember 30, |     | Nine Months EndedSeptember 30,
|                                          |  | 2006                            |     | 2005                           |   | 2006 |  | 2005
|Service cost                              |  | $                               | 263 |                                | $ | 192  |  | $    | 790   |  | $ | 576  
|Interest cost                             |  |                                 | 135 |                                |   | 111  |  |      | 405   |  |   | 334  
|Amortization of prior service cost        |  |                                 | 2   |                                |   |     |  |      | 8     |  |   |     
|Net amortized loss                        |  |                                 | 39  |                                |   | 70   |  |      | 117   |  |   | 211  
|                                          |  |                                 |     |                                |   |      |  |      |       |  |   |      
|Net periodic post-retirement benefit cost |  | $                               | 439 |                                | $ | 373  |  | $    | 1,320 |  | $ | 1,121
|                                          |  |                                 |     |                                |   |      |  |      |       |  |   |      

The Company anticipates that it will contribute approximately $0.2 million to fund its health care obligations in
2006. As of September 30, 2006, approximately $0.2 million of contributions have been made.



15



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##### Table of Contents

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

Information concerning customers for
the three and nine month periods ended September 30, 2006 and 2005 in which their revenues comprise 10% or more of the Companys total operating revenues is presented in the following table (in millions):



|                                             |  |                                  |       |                                 |   |       |  |       |       |  |   |      
|-------------------------------------------- |  | -------------------------------- | ----- | ------------------------------- | - | ----- |  | ----- | ----- |  | - | -----
|                                             |  | Three Months Ended September 30, |       | Nine Months Ended September 30,
|World Airways                                |  | 2006                             |       | 2005                            |   | 2006  |  | 2005 
|U.S. Air Force (USAF) Air Mobility Command |  | $                                | 109.8 |                                 | $ | 108.1 |  | $     | 309.3 |  | $ | 346.9
|                                             |  |                                 
|                                             |  | Three Months Ended September 30, |       | Nine Months Ended September 30,
|North American                               |  | 2006                             |       | 2005                            |   | 2006  |  | 2005*
|U.S. Air Force (USAF) Air Mobility Command |  | $                                | 36.5  |                                 | $ | 36.3  |  | $     | 113.6 |  | $ | 53.2 

---

|* | Financial data include the results of North American from April 28, 2005 to September 30, 2005.
|- | -----------------------------------------------------------------------------------------------

Information concerning the Companys revenues comprising 10% or more of total operating revenues for the three and nine month periods ended September 30, 2006
and 2005 is presented in the following table (in millions):



|                             |  |                                  |       |                                 |   |       |  |       |       |  |   |      
|---------------------------- |  | -------------------------------- | ----- | ------------------------------- | - | ----- |  | ----- | ----- |  | - | -----
|                             |  | Three Months Ended September 30, |       | Nine Months Ended September 30,
|World Airways                |  | 2006                             |       | 2005                            |   | 2006  |  | 2005 
|Passenger Charter Operations |  | $                                | 130.1 |                                 | $ | 122.7 |  | $     | 347.1 |  | $ | 382.6
|Cargo Charter Operations     |  | $                                | 24.3  |                                 | $ | 29.4  |  | $     | 79.9  |  | $ | 68.0 
|                             |  |                                 
|                             |  | Three Months Ended September 30, |       | Nine Months Ended September 30,
|North American               |  | 2006                             |       | 2005                            |   | 2006  |  | 2005*
|Passenger Charter Operations |  | $                                | 53.1  |                                 | $ | 48.9  |  | $     | 152.5 |  | $ | 73.5 
|Passenger Scheduled Service  |  | $                                | 23.4  |                                 | $ | 15.7  |  | $     | 43.5  |  | $ | 22.7 

---

|* | Financial data include the results of North American from April 28, 2005 to September 30, 2005.
|- | -----------------------------------------------------------------------------------------------



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

Union Negotiations and
Litigation:

World Airways Cockpit Crewmembers: The cockpit crewmembers, who account for approximately 29.3% of the total workforce
at World Airways and are represented by the International Brotherhood of Teamsters (IBT), are subject to a collective bargaining agreement which will become amendable on March 1, 2009.

World Airways Flight Attendants: The World Airways flight attendants, representing approximately 43.4% of World Airways
employees, are subject to a collective bargaining agreement that became amendable August 31, 2006. Negotiations began in mid-August 2006 with the IBT.

North Americans Cockpit Crewmembers:The National Mediation Board (NMB) certified the IBT to represent North Americans cockpit crewmembers (approximately 22.2% of the total employees at North American)
on January 16, 2004. North American and the IBT commenced negotiations for their first collective bargaining agreement on April 6, 2004 and have met on numerous occasions. Although representatives from North American and the IBT continue
to negotiate the terms of a comprehensive final agreement under the auspices of the NMB, no collective bargaining agreement has yet been reached.

North Americans Flight Attendants: On July 26, 2005, the NMB authorized a union election (the IBT) among North Americans flight attendants. Flight attendants comprise approximately 43.3% of employees at North
American. On August 31, 2005, a majority of flight attendants voted for IBT representation. North American and the IBT have yet to commence negotiations for their first collective bargaining agreement.



16



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##### Table of Contents

Other Litigation:

On January 9, 2004, Whitebox Convertible Arbitrage Partners, L.P. and Pandora Select Partners, L.P. filed a complaint alleging breach of contract by World Airways in connection with its exchange in December 2003 of $22,545,000
aggregate amount of 8.0% Convertible Senior Subordinated Debentures due 2004 (the Old Debentures) for a like amount of the newly-issued Debentures. In August 2006, World Airways and the plaintiff agreed to settle this matter with a full
release, in exchange for approximately $0.4 million cash consideration. The settlement was accrued during the six month period ended June 30, 2006 and was subsequently paid in September 2006.

For competitive and economic reasons, effective as of January 1, 2005 and February 1, 2005, North American unilaterally reduced cockpit crewmember wages and
other benefits in addition to modifying certain work rules. The IBT thereafter filed suit against North American. The United States District Court for the Northern District of California (NDCA) ruled in North Americans favor and
the IBT appealed. The Ninth Circuit is expected to issue a decision in early 2007. North American will continue to vigorously defend itself. However, the Company cannot give any assurance that this litigation will not have a material adverse effect
on its financial condition, results of operations, or liquidity.

North American, along with certain unrelated entities, is a defendant in litigation
brought in the Dominican Republic for, among other things, breach of contract. Consequently, approximately $0.9 million of North Americans funds were embargoed and were not controlled by North American until August 2006, when the court in the
Dominican Republic lifted the embargo and the funds were returned to North American in October 2006. North American believes that the litigation is without merit, and intends to vigorously contest the claims. Management believes that the ultimate
outcome of these proceedings to which the Company is currently a party will not have a material adverse effect on the Companys financial condition, results of operations or liquidity.

North American was a defendant in a legal action pending in California brought by a former pilot for various causes of action, including wrongful termination. In May
2006, North American and the plaintiff agreed to settle this matter with a full release in exchange for $2.3 million cash consideration. The settlement was accrued at December 31, 2005 and was paid in May 2006.

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



|13. | Income Tax Expense (Benefit)
|--- | ----------------------------

The effective income tax rate for the
Company was 28.0% and a benefit of 63.3% for the three and nine months ended September 30, 2006, respectively. Tax expense for the three and nine months ended September 30, 2006 includes a benefit from a decrease in state income taxes
based on actual and expected state activity, partially offset by an increase in foreign taxes.



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

On April 5, 2007, the Company announced
that it has entered into an agreement to be acquired by Global Aero Logistics, Inc. for $315.0 million in an all-cash transaction. Under the terms of the agreement, World Air Holdings shareholders will receive $12.50 in cash for each share of the
Companys common stock owned.

Delta Air Lines, Inc. (Delta) filed for bankruptcy in 2005. World Airways filed a claim against Delta for
certain maintenance and lease payments the Company had made to Delta under maintenance service and equipment lease agreements. In May 2007, World Airways reached a settlement agreement with Delta whereby the Company will have an allowed general
unsecured claim in Deltas bankruptcy case in the amount of $5.5 million.



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

In May 2005, the FASB issued
Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections,(SFAS 154).SFAS 154 requires that, when a company changes its accounting policies, it must apply the change
retrospectively to all prior periods presented, unless impracticable, instead of a cumulative effect adjustment in the period of the change. SFAS 154 may also apply when the FASB issues new rules requiring changes in accounting. However, if the new
rule allows cumulative effect treatment, it would take precedence over SFAS 154.



17



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##### Table of Contents

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and
Other Post-retirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158). SFAS 158 requires an entity to recognize in its statement of financial position an asset for a defined benefit pension or
post-retirement plans overfunded status or a liability for a plans underfunded status, and to recognize changes in that funded status through other comprehensive income in the year in which the changes occur. SFAS 158 will not
change the amount of net periodic benefit expense recognized in an entitys results of operations. SFAS 158 is effective for fiscal years ending after December 15, 2006. The Company has determined that the impact of the adoption of SFAS
158 will not have a material impact on the Companys financial statements.

In September 2006, the Securities and Exchange Commission (the
SEC) issued SAB 108. Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial
statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108 will not have a material impact on the Companys financial statements.

In September 2006, the FASB issued FASB Staff Position AUG AIR-1 (the FSP), Accounting for Planned Major Maintenance Activities that eliminates
the accrue-in-advance method as an acceptable method of accounting for planned major maintenance activities. The FSP is applicable to fiscal years beginning after December 15, 2006 and requires retrospective application to all financial
statements presented. The Company has not yet completed its review and assessment of the impact of the adoption of this FSP.

In July 2006, the FASB,
issued FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes which clarifies the accounting and disclosure requirements for uncertainty in tax positions, as defined. This interpretation is
effective for fiscal years beginning after December 15, 2006. FIN 48 requires a two-step approach to evaluate tax positions and determine if they should be recognized in the financial statements. The two-step approach involves recognizing any
tax positions that are more likely that not to occur and then measuring those positions to determine if they are recognizable in the financial statements. The Company will adopt FIN 48 effective January 1, 2007 and does not believe
its adoption will result in a material cumulative-effect adjustment.



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

Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of the Companys 2005 Form 10-K. The information contained herein is not a comprehensive management overview and analysis
of the financial condition and results of operations of the Company, but rather updates disclosures made in the aforementioned filing.

The Company desires
to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the Act). Therefore, this report contains forward looking statements that are subject to risks and uncertainties,
including, but not limited to, the reliance on key strategic alliances, fluctuations in operating results, the ability to operate and manage successfully North American Airlines and World Airways and other risks detailed from time to time in the
Companys filings with the SEC. These risks could cause the Companys actual results for 2006 and beyond to differ materially from those expressed in any forward looking statements made by, or on behalf of, the Company.

RESULTS OF OPERATIONS

Three Months Ended September 30,
2006 Compared to Three Months Ended September 30, 2005

For the third quarter of 2006, the Companys consolidated operating income was
$6.8 million compared to operating income of $10.2 million for the same period in 2005, a decrease of $3.4 million or 33.3%. Net income for the 2006 third quarter was $5.4 million compared to net income of $5.5 million for the third quarter of 2005,
a decrease of $0.1 million or 1.8%.

The following table provides statistical data, used by management in evaluating the operating performance of World
Airways, for the three month periods ended September 30, 2006 and 2005.



|                                                                   |  |                                  |  |       
|------------------------------------------------------------------ |  | -------------------------------- |  | ------
|                                                                   |  | Three Months Ended September 30,
|World Airways                                                      |  | 2006                             |  | 2005  
|Block hours                                                        |  | 14,304                           |  | 15,578
|Operating aircraft at quarter end                                  |  | 16                               |  | 17    
|Average available aircraft per day                                 |  | 16.0                             |  | 17.0  
|Average daily utilization (block hours flown per day per aircraft) |  | 9.7                              |  | 10.0  



18



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##### Table of Contents

The following table provides statistical data, used by management in evaluating the operating performance of North
American, for the three month periods ended September 30, 2006 and 2005.



|                                                                   |  |                                  |  |      
|------------------------------------------------------------------ |  | -------------------------------- |  | -----
|                                                                   |  | Three Months Ended September 30,
|North American                                                     |  | 2006                             |  | 2005 
|Block hours                                                        |  | 8,264                            |  | 7,012
|Operating aircraft at quarter end                                  |  | 9                                |  | 8    
|Average available aircraft per day                                 |  | 9.0                              |  | 8.0  
|Average daily utilization (block hours flown per day per aircraft) |  | 10.0                             |  | 9.5  

Operating Revenues.Total consolidated operating revenues increased $14.2 million, or 6.5%,
to $231.4 million in the third quarter of 2006 from $217.2 million in the third quarter of 2005. The increase was due to an $11.6 million increase in passenger charter revenue and a $7.7 million increase in scheduled service revenue, partially
offset by a $5.1 million decrease in cargo charter revenues.

Two key variables that impact the amount of revenues are listed below:



|                                       |  |                                  |        |           |   |            |   |   |        |   |  |      |   
|-------------------------------------- |  | -------------------------------- | ------ | --------- | - | ---------- | - | - | ------ | - |  | ---- | --
|                                       |  | Three Months Ended September 30, |        | Increase/ |   |            | % |  
|World Airways                          |  | 2006                             |        | 2005      |   | (Decrease) |   |   | Change |  
|Total block hours                      |  |                                  | 14,304 |           |   | 15,578     |   |   | (1,274 | ) |  | (8.2 | )%
|Total operating revenue per block hour |  | $                                | 10,825 |           | $ | 9,788      |   | $ | 1,037  |   |  | 10.6 | % 
|                                       |  |                                  |       
|                                       |  | Three Months Ended September 30, |        | Increase/ |   |            | % |  
|North American                         |  | 2006                             |        | 2005      |   | (Decrease) |   |   | Change |  
|Total block hours                      |  |                                  | 8,264  |           |   | 7,012      |   |   | 1,252  |   |  | 17.9 | % 
|Total operating revenue per block hour |  | $                                | 9,303  |           | $ | 9,219      |   | $ | 84     |   |  | 0.9  | % 

Operating Expenses. Total consolidated operating expenses increased $17.7 million, or 8.6%,
to $224.6 million for the third quarter of 2006, compared to $206.9 million for the comparable quarter in 2005. Below is information on the Companys operating expense per block hour:



|                                       |  |                                  |        |           |   |            |   |   |        |   |  |       |   
|-------------------------------------- |  | -------------------------------- | ------ | --------- | - | ---------- | - | - | ------ | - |  | ----- | --
|                                       |  | Three Months Ended September 30, |        | Increase/ |   |            | % |  
|World Airways                          |  | 2006                             |        | 2005      |   | (Decrease) |   |   | Change |  
|Total operating expense per block hour |  | $                                | 10,484 |           | $ | 8,530      |   | $ | 1,954  |   |  | 22.9  | % 
|                                       |  |                                  |       
|                                       |  | Three Months Ended September 30, |        | Increase/ |   |            | % |  
|North American                         |  | 2006                             |        | 2005      |   | (Decrease) |   |   | Change |  
|Total operating expense per block hour |  | $                                | 9,129  |           | $ | 10,647     |   | $ | (1,518 | ) |  | (14.3 | )%

Flight Operations

Consolidated flight operations 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. Consolidated flight expenses decreased $3.5 million, or 5.6%, to $59.0 million in the third quarter of 2006 compared to $62.5 million in the same period of 2005. The decrease was primarily due to a reduction in estimated
profit sharing expense and lower catering and other passenger related expenses.



19



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##### Table of Contents

Maintenance

Consolidated maintenance expenses increased $17.8 million, or 65.9%, to $44.8 million in the third quarter of 2006 compared to $27.0 million in the same period of 2005. In the third quarter of 2006, the Company incurred higher maintenance
expenses due to increased heavy scheduled engine maintenance, normal scheduled airframe structural checks, airworthiness directive compliance costs primarily related to MD-11 engines and significant maintenance required on the airframe of a
purchased DC-10 aircraft. The Company anticipates a continued high level of maintenance expense due to scheduled engine and airframe maintenance for the remainder of 2006.

Aircraft Costs

Consolidated aircraft costs, which include aircraft rent and insurance, decreased $2.5 million, or
8.0%, to $28.9 million in the third quarter of 2006 compared to $31.4 million in the third quarter of 2005. This is primarily due to a decrease in a lease restructuring fee which is based on estimated profitability, partially offset by an increase
in aircraft rent associated with aircraft lease extensions during 2006.

Fuel

Consolidated fuel expenses were higher by $16.1 million, or 38.3%, to $58.1 million in the third quarter of 2006 from $42.0 million in the third quarter of 2005. This was primarily due to an increase in fuel prices,
partially offset by a decrease in fuel gallons consumed. World Airways contracts with its customers provide for a pass-through of fuel costs on approximately 96% of fuel purchased, and thereby limit its exposure to increases in fuel prices.
North American is exposed to changes in fuel prices for its scheduled service operations, which accounted for 29% of North Americans block hours during the third quarter of 2006.

Flight Operations Subcontracted to Other Carriers

Consolidated flight operations subcontracted to other carriers
increased $1.2 million to $1.6 million from $0.4 million in the third quarter of 2005. The Company subcontracted flights to other carriers during the third quarter of 2006 due to unplanned maintenance events that caused disruptions mainly in
passenger charter operations.

Commissions

Consolidated commissions increased $1.8 million, or 22.0%, to $10.0 million in the third quarter of 2006, compared to $8.2 million in the third quarter of 2005. The Company pays commissions on scheduled passenger service for North American
to credit card companies and travel agencies. Commissions are also paid based on a percentage of USAF Air Mobility Command (AMC) revenues and are paid to the appropriate CRAF team member.

Sales, General and Administrative

Consolidated sales, general and
administrative expenses decreased $1.1 million, or 5.2%, to $20.0 million in the third quarter of 2006 compared to $21.1 million in the same quarter of 2005. This decrease is primarily due to a $2.7 million reduction in costs associated with
estimated profit sharing due to lower overall profitability, partially offset by the $0.6 million related to compensation expense as a result of the stock option review, $0.8 million of higher costs associated with increased headcount and merit
salary increases, $1.5 million related to higher professional fees, and an increase of $0.5 million in advertising expense due to new scheduled service routes in West Africa. The third quarter of 2005 also included approximately $1.8 million of one
time professional and legal fees associated with the acquisition of North American.

Legal Expense  California Matter

Prior to the acquisition by World Air Holdings, North American was a defendant in a legal action pending in California brought by a former pilot for various causes of
action, including wrongful termination for which North American had accrued an estimate of $0.2 million for damages. In the third quarter of 2005, North American recorded $12.5 million of expense, using its best estimates and advice of counsel, for
compensatory and punitive damages. However, in May 2006 North American and the plaintiff agreed to settle this matter with a full release, in exchange for $2.3 million cash consideration. During the fourth quarter of 2005, an adjustment of $10.4
million was recorded to reduce the previous estimated settlement. Therefore, the settlement amount of $2.3 million was fully accrued at December 31, 2005 and was paid in May 2006.

Other Income (Expense)

Consolidated other income (expense) net, increased $2.1 million to $0.7 million income in the
third quarter of 2006 compared to $1.4 million of expense in the third quarter of 2005. As a result of the prepayment of the ATSB Loan, the Company did not incur interest expense or amortization of debt issuance, warrant costs and guarantee fees
associated with this loan during the third quarter of 2006.



20



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##### Table of Contents

Income Tax Expense (Benefit)

Consolidated tax expense for the third quarter of 2006 includes a benefit from a decrease in state income taxes based on actual and expected state activity, partially offset by an increase in foreign taxes. The effective income tax rate for
the Company was 28.0% for the third quarter of 2006 compared to 38.1% in the same quarter of 2005.

Nine Months Ended September 30, 2006
Compared to Nine Months Ended September 30, 2005

The comparative financial information shown below is from World Air Holdings
consolidated financial statements for the nine months ending September 30, 2006. However, since North American was acquired on April 27, 2005 variances between North American results for the nine months ended September 30, 2006 to the
same period in 2005 will not be comparable. The variance explanations will reference World Airways only.

General

For the first nine months of 2006, the Companys consolidated operating income was $3.3 million compared to operating income of $38.2 million for the same period of
2005, a decrease of $34.9 million or 91.4%. Net income for the first nine months of 2006 was $1.5 million compared to net income of $20.9 million for the same period in 2005, a decrease of $19.4 million or 92.8%.

The following table provides statistical data, used by management, in evaluating the operating performance of World Airways, for the nine months ended September 30,
2006 and 2005.



|                                                                   |  |                                 |  |       
|------------------------------------------------------------------ |  | ------------------------------- |  | ------
|                                                                   |  | Nine Months Ended September 30,
|World Airways                                                      |  | 2006                            |  | 2005  
|Block hours                                                        |  | 42,076                          |  | 42,660
|Operating aircraft at end of period                                |  | 16                              |  | 17    
|Average available aircraft per day                                 |  | 16.5                            |  | 16.4  
|Average daily utilization (block hours flown per day per aircraft) |  | 9.3                             |  | 9.5   

The following table provides statistical data, used by management in evaluating the operating performance of North
American, for the full nine month period ended September 30, 2006 and for the period from April 28, 2005 through September 30, 2005 for the 2005 period.



|                                                                                                 |  |                                 |  |       
|------------------------------------------------------------------------------------------------ |  | ------------------------------- |  | ------
|                                                                                                 |  | Nine Months Ended September 30,
|North American                                                                                   |  | 2006                            |  | 2005* 
|Block hours                                                                                      |  | 20,044                          |  | 10,940
|Operating aircraft at end of period                                                              |  | 9                               |  | 8     
|Average available aircraft per day                                                               |  | 8.7                             |  | 8.0   
|Average daily utilization (block hours flown per day per aircraft)                               |  | 8.4                             |  | 8.8   
|*  Statistical data
include results of North American from April 28, 2005 to September 30, 2005.

Operating Revenues.Total consolidated revenues increased $75.7 million, or 13.8%, to $624.3
million in 2006 from $548.6 million in 2005. North Americans operating revenues increased $99.9 million in the first nine months of 2006. World Airways operating revenues declined by $24.2 million from the same period in 2005. The
decrease was due to a $37.4 million decline in military revenue, primarily related to World Airways failure to meet certain AMC contractual obligations for on-time performance resulting in AMCs decision to use other carriers for
expansion flights during the specified 90 day time period. This was partially offset by a $13.2 million increase in commercial business lines. In addition, a nine day pilot strike resulted in an estimated impact in reduced revenues related to
commercial business of approximately $5.0 million.

Two key variables that impact the amount of revenues are listed below:



|                                       |  |                                 |        |           |   |            |   |   |        |   |  |      |   
|-------------------------------------- |  | ------------------------------- | ------ | --------- | - | ---------- | - | - | ------ | - |  | ---- | --
|                                       |  | Nine Months Ended September 30, |        | Increase/ |   |            | % |  
|World Airways                          |  | 2006                            |        | 2005      |   | (Decrease) |   |   | Change |  
|Total block hours                      |  |                                 | 42,076 |           |   | 42,660     |   |   | (584   | ) |  | (1.4 | )%
|Total operating revenue per block hour |  | $                               | 10,192 |           | $ | 10,602     |   | $ | (410   | ) |  | (3.9 | )%



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|                                                                                                                   |  |                                 |        |           |   |            |  |        |  |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ------ | --------- | - | ---------- |  | ------ |  | -
|                                                                                                                   |  | Nine Months Ended September 30, |        | Increase/ |   | %         
|North American                                                                                                     |  | 2006                            |        | 2005*     |   | (Decrease) |  | Change
|Total block hours                                                                                                  |  |                                 | 20,044 |           |   | 10,940     |  |       |  | 
|Total operating revenue per block hour                                                                             |  | $                               | 9,787  |           | $ | 8,800      |  |       |  | 
|*  Financial and
statistical data include the results of North American from April 28, 2005 to September 30, 2005.

Operating Expenses. Total consolidated operating expenses increased $110.6 million, or 21.7%,
to $621.0 million in 2006, compared to $510.4 million for the comparable period in 2005. North Americans operating expenses increased $88.2 million while World Airways, World Air Holdings, and World Risk Solutions operating expenses increased
$22.4 million. Below is information on the Companys operating expense per block hour:



|                                       |  |                                 |        |           |   |            |  |        |     |  |     |  
|-------------------------------------- |  | ------------------------------- | ------ | --------- | - | ---------- |  | ------ | --- |  | --- | -
|                                       |  | Nine Months Ended September 30, |        | Increase/ |   | %          | 
|World Airways                          |  | 2006                            |        | 2005      |   | (Decrease) |  | Change |    
|Total operating expense per block hour |  | $                               | 10,106 |           | $ | 9,462      |  | $      | 644 |  | 6.8 | %



|                                                                                                   |  |                                 |       |           |   |            |  |        |  |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------- | ----- | --------- | - | ---------- |  | ------ |  | -
|                                                                                                   |  | Nine Months Ended September 30, |       | Increase/ |   | %         
|North American                                                                                     |  | 2006                            |       | 2005*     |   | (Decrease) |  | Change
|Total operating expense per block hour                                                             |  | $                               | 9,811 |           | $ | 9,889      |  |       |  | 
|*  Financial data
include the results of North American from April 28, 2005 to September 30, 2005.

Flight Operations

Consolidated flight operations expenses include all costs related directly to the operation of the aircraft other than maintenance, aircraft rent, insurance and fuel. Flight expenses increased $18.0 million, or 11.5%, to $174.3 million in
the first nine months of 2006 compared to $156.3 million in the same period of 2005. North Americans flight expense for the first nine months of 2006 increased $23.9 million. World Airways flight expenses decreased $5.9 million primarily
due to a $3.5 million reduction in estimated profit sharing expense, $6.1 million in lower flight attendant, catering, and ground handling cost due to changes in business mix, partially offset by the $2.6 million one time signing bonus associated
with the pilots ratification of the new collective bargaining agreement and $1.1 million additional expenses as a result of increased headcount and contractual salary increases.

Maintenance

Consolidated maintenance expenses increased $34.0 million, or 43.8%, to $111.7 million in the first nine
months of 2006 compared to $77.7 million in the same period of 2005. North American represents $13.9 million of the increase. The remaining $20.1 million increase is due to increased scheduled heavy engine maintenance, normal scheduled airframe
structural checks, airworthiness directive compliance costs primarily related to MD-11 engines and significant maintenance required on the airframe of a purchased DC-10 aircraft. The Company anticipates a continued high level of maintenance expense
due to scheduled engine and airframe maintenance for the remainder of 2006.



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Aircraft Costs

Consolidated aircraft costs, which include aircraft rent and insurance, increased $9.2 million, or 11.6%, to $88.8 million in the first nine months of 2006 compared to $79.6 million in the same period of 2005. This increase reflects $13.5
million related to North American and a decrease of $4.3 million related to World Airways. This is primarily due to a reduction in a lease restructuring fee which is based on estimated profitability, offset by an increase associated with aircraft
lease extensions during 2006.

Fuel

Consolidated fuel
expenses were higher by $43.6 million, or 42.0%, to $147.5 million in the first nine months of 2006 compared to $103.9 million in the same period of 2005. The impact of North American in the first nine months of 2006 was an increase of $29.2
million. World Airways fuel expense increased $14.4 million compared to the same period in 2005. This increase was primarily due to an increase in fuel prices, partially offset by a decrease in fuel gallons consumed. World Airways
contracts with its customers provide for a pass-through of fuel costs on approximately 96% of fuel purchased, and thereby limit its exposure to increases in fuel prices. North American is exposed to changes in fuel prices for its scheduled service
operations, which accounted for 23% of North Americans block hours during the first nine months of 2006.

Flight Operations Subcontracted to Other
Carriers

Consolidated flight operations subcontracted to other carriers increased $1.7 million, or 85.0%, to $3.7 million from $2.0 million in the
first nine months of 2005. The Company subcontracted flights to other carriers during the first nine months of 2006 due to a nine day pilot strike and unplanned maintenance events that caused disruptions mainly in passenger charter operations.

Commissions

Consolidated commissions increased $3.7
million, or 15.0%, to $28.4 million in the first nine months of 2006, compared to $24.7 million in the first nine months of 2005. North Americans commissions increased $6.2 million, which was partially offset by a $2.5 million decrease at
World Airways. The Company pays commissions on scheduled passenger service for North American to credit card companies and travel agencies, as well as a percentage of North Americans military revenues to its AMC contractor team for
distribution to its members. Commissions for World Airways are based on a percentage of AMC revenues and are paid to the appropriate CRAF team members. The decrease in commissions at World Airways is a direct result of the decrease in military
revenues.

Sales, General and Administrative

Consolidated sales, general and administrative expenses increased $12.7 million, or 26.2%, to $61.1 million in the first nine months of 2006 compared to $48.4 million in the same period of 2005. The increase reflects a $12.4 million
increase in costs related to North American and an increase of $0.3 million of costs related to World Air Holdings, World Airways, and World Risk Solutions. This increase is due primarily to $3.1 million of higher costs associated with increased
headcount, merit salary increases and professional fees related to efforts to remediate material weaknesses identified through the Sarbanes-Oxley Act Section 404 compliance review, $0.6 million related to compensation expense as a result of the
stock option review, partially offset by $3.4 million of lower estimated profit sharing expense due to lower overall profitability.

Legal Expense
 California Matter

Prior to the acquisition by World Air Holdings, North American was a defendant in a legal action pending in California brought
by a former pilot for various causes of action, including wrongful termination for which North American had accrued an estimate of $0.2 million for damages. In the third quarter of 2005, North American recorded $12.5 million of expense, using its
best estimates and advice of counsel, for compensatory and punitive damages. However, in May 2006 North American and the plaintiff agreed to settle this matter with a full release, in exchange for $2.3 million cash consideration. During the fourth
quarter of 2005, an adjustment of $10.4 million was recorded to reduce the previous estimated settlement. Therefore, the settlement amount of $2.3 million was fully accrued at December 31, 2005 and was paid in May 2006.

Other Income (Expense)

Consolidated other income (expense) net,
decreased $1.8 million, or 42.9% to $2.4 million of expense in the first nine months of 2006 compared to $4.2 million of expense in the first nine months of 2005. As a result of the prepayment of the ATSB Loan, the Company recorded approximately
$2.3 million in additional interest expense, representing the write-off of unamortized debt issuance, warrant costs and guarantee fees associated with this loan during the first quarter of 2006 which was offset by a $1.9 million reduction in
interest expense in the second and third quarters of 2006, a $0.4 million increase in interest income and $1.8 million lower miscellaneous other expense.



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Income Tax Expense (Benefit)

Consolidated tax expense for the nine months ended September 30, 2006 includes a benefit from a decrease in state income taxes based on actual and expected state activity, partially offset by an increase in foreign taxes. The effective
income tax rate for the Company was a benefit of 63.3% for the nine months ended September 30, 2006 compared to 38.5% to the same period in 2005.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2006, the Company had $41.1 million of cash and cash equivalents and short-term
investments compared to $47.0 million at December 31, 2005. Restricted cash was $0.8 million at September 30, 2006 representing prepayments from customers for flights that are scheduled to be flown within 30 to 60 days of the balance sheet
date (unearned revenue). Restricted cash, current and non-current, was $7.1 million at December 31, 2005, which consisted of $4.2 million for the collateralization of letters of credit, $2.1 million related to unearned revenue and approximately
$0.8 million held by the courts in the Dominican Republic which was returned to the Company in October 2006.

Additionally, at September 30, 2006, the
Company had $3.4 million of letters of credit issued under the Wachovia Loan. At September 30, 2005, the Company had $4.5 million of letters of credit that were 100% collateralized by cash.

Cash Flows from Operating Activities

Operating activities provided
$24.3 million in cash for the nine months ended September 30, 2006. The cash provided in 2006 principally reflects the $1.5 million net income, a $13.1 million decrease in cash due to changes in operating assets and liabilities other than trade
accounts receivable, a $9.4 million increase from net non-cash statement of income charges, and a $26.5 million increase due to a reduction in trade accounts receivable. The cash provided in 2005 of $46.6 million principally reflects the $20.9
million net earnings, a $9.3 million decrease in cash due to changes in operating assets and liabilities other than trade accounts receivable, net non-cash statement of income charges of $19.5 million, and a $15.5 million increase due to a reduction
in trade accounts receivable.

Cash Flows from Investing Activities

Investing activities used $8.7 million of cash for the nine months ended September 30, 2006. The Companys capital expenditures for the first nine months of 2006 were approximately $7.5 million, principally
for the purchase of a DC-10 aircraft and other aircraft-related assets. The Company financed these capital expenditures through internally generated funds. Cash flow from investing activities also includes the proceeds from disposals of equipment
and property of $0.3 million. Additionally the Company purchased $1.5 million in short term investments. For the nine months ended September 30, 2005, net cash of $25.0 million was used by the Company to acquire North American. Short-term
investments decreased $3.7 million during the first nine months of 2005. Additionally, in 2005, $5.6 million cash was used for the purchase of rotable spare parts and other fixed assets.

Cash Flows from Financing Activities

Financing activities used $23.0 million in cash for the nine months ended
September 30, 2006. This was principally due to the use of $24.0 million of cash to prepay the remaining principal balance of the ATSB Loan and $0.5 million of debt issuance costs associated with the Wachovia Loan. This amount was partially
offset by proceeds and related tax benefits from the exercise of stock options of $1.5 million. For the nine months ended September 30, 2005, financing activities provided $2.4 million, which was due to the exercise of warrants and stock
options of $2.5 million and $1.6 million, respectively, partially offset by the repayment of aircraft rent obligations of $1.7 million.

At
September 30, 2006, the Companys current assets were $115.3 million and its current liabilities were $108.7 million. The ratio of the Companys current assets to its current liabilities (current ratio) was approximately
1.1:1.

Description of Certain Indebtedness

On
December 31, 2005, the Companys indebtedness consisted of $24.0 million outstanding under its $30.0 million ATSB Loan which was secured by substantially all of the Companys assets. The ATSB Loan contained restrictive covenants that
imposed significant operating and financial restrictions on the Company. Under the agreement governing the ATSB Loan, the Company was subject to certain covenants requiring it to maintain a certain amount of unrestricted cash or cash equivalents and
to comply with certain financial ratios as well as certain non-financial negative covenants.

On March 30, 2006, the Company prepaid the remaining
principal balance of $24.0 million under the ATSB Loan with working capital. The Company had recorded the $24.0 million outstanding balance as a current liability as of December 31, 2005 in the Consolidated Balance Sheet due to covenant
violations. As a result of this prepayment, during the first quarter of 2006, the Company expensed an additional $2.3 million in unamortized debt issuance and warrant costs associated with the ATSB Loan.



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Additionally, in March 2006, World Airways and North American entered into a Loan and Security Agreement with Wachovia
Bank, National Association (Wachovia Loan), for the issuance of loans and letters of credit up to $50.0 million subject to certain terms, conditions, and limitations. The Company has obtained the necessary waivers through July 18,
2007 relating to the covenant violations for the submission of timely monthly consolidated financial statements and excess funds held in domestic and foreign bank accounts. The facility terminates in March 2008.

Under the Wachovia Loan, the Companys borrowings bear interest at fluctuating rates. The applicable rate will be one of the following three options, as designated
by the Company: (1) the banks base lending rate, (2) the Federal Funds Rate, or (3) the Eurodollar or London Interbank Offered Rate (LIBOR) plus an applicable percentage. The rates applicable to outstanding
borrowings fluctuate based on many factors including, but not limited to, general economic conditions, and general interest rates, including the prime rate, and the supply of and demand for credit in the London interbank market. At
September 30, 2006, the Companys borrowing base was approximately $42.2 million, of which $3.4 million was utilized for letters of credit issued under the facility. As a result, the available amount for borrowing was $38.8 million. The
borrowing base fluctuates on a daily basis and is subject to a $50.0 million maximum and includes the sum of: (1) 85%90% of eligible government receivables, (2) 70% of eligible unbilled government receivables, not to exceed $5.0
million, (3) 80% of eligible commercial receivables, (4) 75% of the value of eligible spare parts, not to exceed $15.0 million; less the face amount of issued and outstanding letters of credit and any applicable reserves. The Company had
no borrowings outstanding at September 30, 2006.

In October 2006, the Company borrowed $21.0 million under the Wachovia Loan agreement to fund the
Tender Offer and related transaction costs to repurchase Company stock. (see Note 8). The amount borrowed bore interest at the monthly LIBOR and was subsequently repaid on November 15, 2006.



|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 2005 Form 10-K. The information contained herein is not a quantitative and qualitative discussion about market risk the Company faces, but
rather updates disclosures made in the aforementioned filing.

There have been no material changes in market risks from the information provided in
Item 7A Quantitative and Qualitative Disclosures About Market Risk included in the Companys 2005 Form 10-K, except as follows:

Aircraft fuel:North Americans results of operations are affected by changes in the price and availability of aircraft fuel. Based on North Americans fuel consumption for scheduled service and maintenance ferries for the
first nine months ended September 30, 2006, a 10% increase in the average price per gallon of fuel would have increased fuel expense for the first nine months of 2006 by approximately $5.1 million. The Company does not currently purchase fuel
under long-term contracts or enter into futures or swap contracts.

Interest rates:Under the Wachovia Loan agreement, the Companys borrowings
bear interest at fluctuating rates. The rates applicable to outstanding borrowings fluctuate based on many factors including, but not limited to, general economic conditions, general interest rates, including the prime rate, and the supply of and
demand for credit in the London interbank market. As of September 30, 2006, the Company had $3.4 million in letters of credit issued and no loan amounts outstanding under this facility. In October 2006, the Company borrowed approximately $21.0
million under the Wachovia Loan agreement to fund the Tender Offer to repurchase Company stock. (See Note 8). This amount borrowed bore interest at the monthly LIBOR and was subsequently repaid on November 15, 2006.

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



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

A. Disclosure Controls
and Procedures

This evaluation of Disclosure Controls and Procedures should be read in conjunction with Item 9A Controls and Procedures
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2005 (2005 Form 10-K) filed with the SEC on July 7, 2006.



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

An evaluation was performed under the supervision and with the participation of the Companys management, including its CEO and CFO, of the effectiveness of its disclosure controls and procedures as of September 30, 2006. This
evaluation included a review of (i) material weaknesses in internal control over financial reporting reported in the Companys 2005 Form 10-K, and (ii) inquiries of process owners concerning changes in internal control procedures
during the three month period ended September 30, 2006. Based on the evaluation as of the end of the period covered by this report, the Companys CEO and CFO concluded that the disclosure controls and procedures were not effective. In
light of the material weaknesses reported in the Companys 2005 Form 10-K, the Company implemented additional analyses and procedures to ensure that its consolidated financial statements are prepared in accordance with GAAP and are fairly
presented in all material respects. The Company has performed the additional analyses and procedures with respect to this Quarterly Report on Form 10-Q. Accordingly, the Company believes that the unaudited condensed consolidated financial statements
included in this Quarterly Report on Form 10-Q fairly present, in all material respects, the Companys financial position, results of operations and cash flows for the periods presented.

B. Changes in Internal Control Over Financial Reporting

During the three month period ended September 30, 2006, the Company engaged in efforts to address the material weakness in its internal control over financial reporting and the ineffectiveness of the disclosure controls and procedures. The
Company instituted monthly update meetings between the operating and accounting departments to facilitate communication on contract issues, including changes to existing contracts, new contracts in process and newly-executed contracts. Additionally,
monthly meetings are held between the accounting department and maintenance personnel to identify and communicate the timing of the completion of maintenance events.

The Company completed the risk assessment and documentation of procedures related to internal control over financial reporting at North American. Additionally the Company improved information technology general
controls at North American by documenting processes and implementing standard practices already in effect at World Airways.

C. Inherent
Limitations of Any Control System

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



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##### Table of Contents

PART II



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

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



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



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

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



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SIGNATURES

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

Date: July 3, 2007



WORLD AIR HOLDINGS, INC.By:

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




28