<PAGE>
 
================================================================================


                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C.  20549
                           _________________________



                                   FORM 10-Q


               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
               ________________________________________________



  For the Quarter ended:  SEPTEMBER 30, 1996   Commission File Number 0-26582



                              WORLD AIRWAYS, INC.
            (Exact name of registrant as specified in its charter)



            DELAWARE                          94-1358276
            (State of incorporation)  (I.R.S. Employer Identification Number)

             13873 Park Center Road, Suite 490, Herndon, VA  20171
                   (Address of Principal Executive Offices)
                                (703) 834-9209
                        (Registrant's telephone number)



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

The number of shares of the registrant's Common Stock outstanding on November 8,
1996 was 11,298,064.


================================================================================
<PAGE>
 
                              WORLD AIRWAYS, INC.

                 SEPTEMBER 1996, QUARTERLY REPORT ON FORM 10Q

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
PART I - FINANCIAL INFORMATION


       Item 1.  Financial Statements
       <S>                                                                                              <C>
                Condensed Balance Sheets, September 30, 1996 and December 31, 1995...................... 3

                Condensed Statements of Operations,
                Three Months Ended September 30, 1996 and 1995.......................................... 5

                Condensed Statements of Operations,
                Nine Months Ended September 30, 1996 and 1995........................................... 6

                Condensed Statement of Changes in Common Stockholders' Equity,
                Nine months ended September 30, 1996.................................................... 7

                Condensed Statements of Cash Flows,
                Nine months ended September 30, 1996 and 1995........................................... 8

                Notes to Condensed Financial Statements................................................. 9

                Exhibit 11, Calculations of Earnings (Loss) Per Common Share............................11


       Item 2.  Management's Discussion and Analysis of Financial Condition
                and Results of Operations...............................................................13



PART II - OTHER INFORMATION

       Item 6.  Exhibits and Reports on Form 8-K........................................................25
</TABLE>

                                       2
<PAGE>
 
ITEM 1.  FINANCIAL STATEMENTS

                              WORLD AIRWAYS, INC.
                           CONDENSED BALANCE SHEETS
                                    ASSETS
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                      (unaudited)
                                                     September 30,  December 31,
                                                          1996          1995  
                                                     -------------- -----------
<S>                                                  <C>            <C> 
CURRENT ASSETS                                                         
 Cash and cash equivalents, including                                          
  restricted cash of $160 at September 30,                                     
  1996 and $619 at December 31, 1995                      $ 11,093    $ 25,271 
                                                                               
 Restricted short-term investments                             564         909 
                                                                               
 Trade accounts receivable, less allowance for                                 
  doubtful accounts of $358 at September 30, 1996                              
  and $258 at December 31, 1995                             22,789      15,472 
                                                                               
 Other receivables                                           3,265       3,314 
                                                                               
 Prepaid expenses and other current assets                   4,844       9,882 
                                                                               
 Assets held for sale                                          700         700 
                                                          --------    -------- 
                                                                               
  Total current assets                                      43,255      55,548 
                                                          --------    -------- 
                                                                               
ASSETS HELD FOR SALE                                         2,048       2,308 
                                                                               
EQUIPMENT AND PROPERTY                                                         
 Flight and other equipment                                 73,295      54,460 
 Equipment under capital leases                             11,466      11,466 
                                                          --------    -------- 
                                                            84,761      65,926 
 Less accumulated depreciation and amortization             17,713      13,497 
                                                          --------    -------- 
                                                                               
  Net equipment and property                                67,048      52,429 
                                                          --------    -------- 
                                                                               
LONG-TERM OPERATING DEPOSITS                                16,161      16,157 
                                                                               
OTHER ASSETS AND DEFERRED CHARGES                            3,014       4,253 
                                                          --------    -------- 
                                                                               
TOTAL ASSETS                                              $131,526    $130,695 
                                                          ========    ======== 
</TABLE>
                                                                   (Continued)

                                       3
<PAGE>
 
                              WORLD AIRWAYS, INC.
                           CONDENSED BALANCE SHEETS
                                  (CONTINUED)
                  LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
                                (IN THOUSANDS)
                                                                      
<TABLE>
<CAPTION>
                                                              (unaudited)
                                                           September 30,        December 31,    
                                                                1996                1995        
                                                           --------------       -------------   
<S>                                                        <C>                  <C>             
CURRENT LIABILITIES                                                                             
   Notes payable                                           $       4,241        $      6,764    
   Current maturities of long-term obligations                     9,866               9,398    
   Deferred aircraft rent                                            222                 533    
   Accounts payable                                               20,698              15,278    
   Net liabilities of discontinued operations                      9,419                  --    
   Unearned revenue                                                  188              10,417    
   Air traffic liability                                              --               2,332    
   Accrued maintenance in excess of reserves paid                 18,451               8,919    
   Accrued salaries and wages                                      9,067               8,716    
   Accrued taxes                                                   1,662               1,485    
   Due to affiliate                                                  709                 405    
   Other accrued liabilities                                         139                 184    
                                                                --------            --------    
     Total current liabilities                                    74,662              64,431    
                                                                --------            --------    
                                                                                                
LONG-TERM OBLIGATIONS                                             29,760              20,417    
                                                                                                
OTHER LIABILITIES                                                                               
  Deferred gain from sale-leaseback transactions,                                               
    net of accumulated amortization of $18,835 at                                               
    September 30, 1996 and $18,041 at December 31, 1995            6,516               7,310    
 Accrued maintenance in excess of reserves paid                    3,415               3,579    
 Accrued postretirement benefits                                   2,612               2,596    
 Other liabilities                                                 3,078               2,022    
                                                                --------            --------    
     Total other liabilities                                      15,621              15,507    
                                                                --------            --------    
                                                                                                
TOTAL LIABILITIES                                                120,043             100,355    
                                                                --------            --------    
                                                                                                
COMMON STOCKHOLDERS' EQUITY                                                                     
  Common stock, $.001 par value (40,000,000 shares                                              
    authorized, 12,000,064 shares issued and outstanding                                        
    at September 30, 1996 and December 31, 1995)                      12                  12    
  Additional paid-in capital                                      42,299              42,312    
  Contributed capital                                              3,000               3,000    
  Accumulated deficit                                            (33,828)            (14,984)   
                                                                --------            --------    
    Total common stockholders' equity                             11,483              30,340    
                                                                --------            --------    
                                                                                                
TOTAL LIABILITIES AND COMMON                                                                    
  STOCKHOLDERS' EQUITY                                     $     131,526        $    130,695    
                                                                ========            ========     
 </TABLE>

            See accompanying Notes to Condensed Financial Statements

                                       4
<PAGE>
 
                              WORLD AIRWAYS, INC.
                      CONDENSED STATEMENTS OF OPERATIONS
                   FOR THE THREE MONTHS ENDED SEPTEMBER 30,
                     (IN THOUSANDS EXCEPT PER SHARE DATA)
                                  (UNAUDITED)
                                                             
<TABLE>
<CAPTION>
                                                         1996           1995    
                                                       --------       --------  
<S>                                                    <C>            <C>       
OPERATING REVENUES                                                              
  Flight operations                                    $ 70,545       $ 68,094  
  Flight operations subcontracted to other carriers       5,016          1,108  
  Other                                                     263            192  
                                                        -------         ------  
     Total operating revenues                            75,824         69,394  
                                                        -------         ------  
                                                                                
OPERATING EXPENSES                                                              
  Flight                                                 16,911         20,835  
   Maintenance                                           13,855         10,678  
   Aircraft costs                                        18,982         17,766  
   Fuel                                                   6,628          6,496  
   Flight operations subcontracted to other carriers      4,809          1,323  
   Promotions, sales and commissions                      2,176            777  
   Depreciation and amortization                          2,055          1,525  
   General and administrative                             6,692          4,710  
                                                        -------         ------  
     Total operating expenses                            72,108         64,110  
                                                        -------         ------  
                                                                                
OPERATING INCOME                                          3,716          5,284  
                                                        -------         ------
                                                                                
OTHER INCOME (EXPENSE)                                                          
  Interest expense                                         (952)          (779) 
  Interest income                                           303            196  
  Other, net                                                 22            (12) 
                                                        -------         ------  
     Total other expense                                   (627)          (595) 
                                                        -------         ------
                                                                                
EARNINGS FROM CONTINUING OPERATIONS                                             
  BEFORE INCOME TAXES                                     3,089          4,689  
                                                                                
INCOME TAX EXPENSE                                         (180)          (191) 
                                                        -------         ------  
                                                                                
EARNINGS FROM CONTINUING OPERATIONS                       2,909          4,498  
                                                                                
DISCONTINUED OPERATIONS                                                         
  Loss from discontinued operations (less applicable                            
    income tax benefit of $96 in 1995)                       --         (1,139) 
  Income tax benefit from loss on disposal of                                   
    discontinued operations                                 180             --  
                                                        -------         ------  
                                                                                
NET EARNINGS (LOSS)                                    $  3,089        $ 3,359  
                                                        =======         ======  
                                                                                
EARNINGS (LOSS) PER COMMON EQUIVALENT SHARE:                                    
  Continuing operations                                $   0.24        $  0.44  
  Discontinued operations                                  0.02          (0.11) 
                                                        -------         ------  
  Net earnings (loss)                                     $0.26          $0.33  
                                                        =======         ======  
                                                                                
WEIGHTED AVERAGE COMMON AND COMMON                                              
  EQUIVALENT SHARES OUTSTANDING                          12,000         10,126  
                                                        =======         ======
</TABLE>

            See accompanying Notes to Condensed Financial Statements

                                       5
<PAGE>
 
                              WORLD AIRWAYS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                    FOR THE NINE MONTHS ENDED SEPTEMBER 30,
                      (IN THOUSANDS EXCEPT PER SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        1996                  1995    
                                                                      ---------             --------- 
<S>                                                                   <C>                   <C>       
OPERATING REVENUES                                                                                    
 Flight operations                                                    $215,523              $176,391  
 Flight operations subcontracted to other carriers                      11,728                 8,452  
 Other                                                                     582                   866  
                                                                      --------              --------  
   Total operating revenues                                            227,833               185,709  
                                                                      --------              --------  
                                                                                                      
OPERATING EXPENSES                                                                                    
 Flight                                                                 52,186                49,728  
 Maintenance                                                            44,348                31,265  
 Aircraft costs                                                         60,434                50,623  
 Fuel                                                                   14,698                12,429  
 Flight operations subcontracted to other carriers                      12,822                 8,676  
 Promotions, sales and commissions                                       3,864                   846  
 Depreciation and amortization                                           5,949                 4,162  
 General and administrative                                             17,870                13,173  
                                                                      --------              --------  
   Total operating expenses                                            212,171               170,902  
                                                                      --------              --------  

OPERATING INCOME                                                        15,662                14,807  
                                                                      --------              --------  
                                                                                                      
OTHER INCOME (EXPENSE)                                                                                
 Interest expense                                                       (2,528)               (2,572) 
 Interest income                                                           956                   522  
 Other, net                                                                 86                   532  
                                                                      --------              --------  
   Total other expense                                                  (1,486)               (1,518) 
                                                                      --------              --------  
                                                                                                      
EARNINGS FROM CONTINUING OPERATIONS                                                                   
 BEFORE INCOME TAXES                                                    14,176                13,289  
                                                                                                      
INCOME TAX EXPENSE                                                        (495)                 (542) 
                                                                      --------              --------  
                                                                                                      
EARNINGS FROM CONTINUING OPERATIONS                                     13,681                12,747  
                                                                                                      
DISCONTINUED OPERATIONS                                                                               
 Loss from discontinued operations (less applicable income                                            
   tax benefit of $83 in 1996 and $176 in 1995)                        (11,720)               (2,254) 
 Loss on disposal (less applicable income tax                                                         
   benefit of $412 in 1996)                                            (20,805)                   --  
                                                                      --------              --------  
                                                                                                      
NET EARNINGS (LOSS)                                                   $(18,844)             $ 10,493  
                                                                      ========              ========  
                                                                                                      
EARNINGS (LOSS) PER COMMON EQUIVALENT SHARE:                                                          
 Continuing operations                                                   $1.14                 $1.26  
 Discontinued operations                                                 (2.71)                (0.22) 
                                                                      --------              --------  
 Net earnings (loss)                                                    $(1.57)                $1.04  
                                                                      ========              ========  
                                                                                                      
WEIGHTED AVERAGE COMMON AND COMMON                                                                    
 EQUIVALENT SHARES OUTSTANDING                                          12,000                10,126  
                                                                      ========              ========   
</TABLE>

            See accompanying Notes to Condensed Financial Statements

                                       6
<PAGE>
 
                              WORLD AIRWAYS, INC.
                         CONDENSED STATEMENT OF CHANGES
                         IN COMMON STOCKHOLDERS' EQUITY
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
                                 (IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                              Total                
                                          Additional                                         Common              
                              Common       Paid-in       Contributed     Accumulated      Stockholders'            
                              Stock        Capital         Capital         Deficit            Equity               
                              ------      ----------     -----------     ------------     --------------           
<S>                           <C>         <C>            <C>             <C>              <C>                      
BALANCE AT                                                                                                         
  DECEMBER 31, 1995              $12        $42,312           $3,000        $(14,984)          $ 30,340            
                                                                                                                   
Costs relating to the sale                                                                                         
  of common stock in                                                                                               
  public offering                 --            (13)              --              --                (13)           
                                                                                                                   
Net loss                          --             --               --         (18,844)           (18,844)           
                              ------     ----------      -----------     -----------           --------            
                                                                                                                   
BALANCE AT                                                                                                         
  September 30, 1996             $12        $42,299           $3,000        $(33,828)          $ 11,483            
                              ======     ==========      ===========     ===========           ========             
</TABLE>

           See accompanying Notes to Condensed Financial Statements

                                       7
<PAGE>
 
                              WORLD AIRWAYS, INC.
                      CONDENSED STATEMENTS OF CASH FLOWS
                    FOR THE NINE MONTHS ENDED SEPTEMBER 30,
                            (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                           1996       1995
                                                         ---------  ---------
<S>                                                      <C>        <C>
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD           $ 25,271   $  4,054
                                                                             
CASH FLOWS FROM OPERATING ACTIVITIES                                          
Net earnings (loss)                                         (18,844)    10,493
Adjustments to reconcile net loss to cash                                     
 provided (used) by operating activities:                                     
 Depreciation and amortization                                5,949      4,162
 Deferred gain recognition                                     (794)      (797)
 Deferred aircraft rent payments, net                            --        153
 Gain on sale of property and equipment                         (25)       (44)
 Loss on disposal of discontinued operations                  7,641         --
 Other                                                            5         60
 Changes in certain assets and liabilities net of                             
   effects of non-cash transactions:                                          
   Increase in accounts receivable                           (7,268)    (7,309)
   Increase in restricted short-term investments                345         45
   Decrease in deposits, prepaid expenses                                     
     and other assets                                         3,677        842
   Increase in accounts payable, accrued                                      
     expenses and other liabilities                          18,859     10,224
   Decrease in unearned revenue                             (10,229)     1,319
   Increase in air traffic liability                           (192)     2,419
                                                           --------   --------
 Net cash provided (used) by operating activities              (876)    21,567
                                                           --------   --------
                                                                              
CASH FLOWS FROM INVESTING ACTIVITIES                                          
Additions to equipment and property                          (9,411)   (17,942)
Proceeds from disposals of equipment and property               321        644 
                                                           --------   -------- 
 Net cash used by investing activities                       (9,090)   (17,298)
                                                           --------   -------- 
                                                                               
CASH FLOWS FROM FINANCING ACTIVITIES                                           
Increase in line of credit borrowing arrangement, net         2,496        312 
Issuance of debt                                              5,884     19,357 
Repayment of debt                                           (12,479)   (18,000)
Debt issuance costs                                            (100)        -- 
Costs relating to sale of stock                                 (13)        -- 
                                                           --------   -------- 
 Net cash provided (used) by financing activities            (4,212)     1,669 
                                                           --------   -------- 
                                                                               
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS        (14,178)     5,938 
                                                           --------   -------- 
                                                                               
CASH AND CASH EQUIVALENTS AT END OF PERIOD                 $ 11,093   $  9,992 
                                                           ========   ======== 
</TABLE>

           See accompanying Notes to Condensed Financial Statements

                                       8
<PAGE>
 
                              WORLD AIRWAYS, INC.
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (UNAUDITED)



1.   The condensed balance sheet of World Airways, Inc. ("World Airways" or the
   "Company") as of September 30, 1996, the related condensed statements of
   operations for the three and nine month periods ended September 30, 1996 and
   1995, the condensed statement of changes in common stockholders' equity for
   the nine months ended September 30, 1996, and the condensed statements of
   cash flows for the nine months ended September 30, 1996 and 1995 are
   unaudited.  In the opinion of management, all adjustments necessary for a
   fair presentation of such financial statements have been included.  With the
   exception of an adjustment for discontinued operations, adjustments consisted
   only of normal recurring items.  Interim results are not necessarily
   indicative of results for a full year.

     The condensed financial statements and notes are presented as required by
  Form 10-Q and do not contain certain information included in the Company's
  annual financial statements and notes.  These financial statements should be
  read in conjunction with the financial statements and the notes included in
  the Company's Form 10-K for the year ended December 31, 1995.

2.   In July 1996, the Company announced its decision to exit its scheduled
   service operations by October 1996 and focus its operations on its core
   business: operating aircraft under contracts with international carriers, the
   U.S. Government, and international tour operators. Consistent with this
   decision, World Airways ceased all scheduled operations as of October 27,
   1996. As a result, the Company's scheduled service operations were reflected
   as discontinued operations as of June 30, 1996, and prior period results have
   been restated to reflect scheduled service operations as discontinued
   operations. Loss from discontinued operations (net of income tax effect)
   approximated $11.7 million for the nine months ended September 30, 1996. In
   addition, an estimated loss on disposal of $21.0 million (net of income tax
   effect) which was recorded as of June 30, 1996, included the following: $13.6
   million for estimated operating losses during the phase-out period; a $2.6
   million estimated loss to be incurred in connection with sub-leasing DC-10
   aircraft which will not be utilized in the Company's operations subsequent to
   the phase-out of scheduled service operations; a $2.3 million writeoff of
   related leasehold improvements; and $2.0 million for passenger reprotection
   expenses. The Company incurred approximately $13.2 million of these costs
   during the quarter ended September 30, 1996 and the Company believes that its
   remaining accrual for estimated losses on disposal will be adequate to meet
   the remaining costs to be incurred during the phase-out period. As of
   November 8, 1996, the Company believes that it has met substantially all of
   its cash obligations of the phase-out period. Other than the leased aircraft
   utilized in scheduled service operations, the Company does not have any
   significant assets related to its discontinued operations. As a result of the
   Company's decision to discontinue scheduled service operations, the Company
   has recently signed a letter of intent to lease two of its DC-10 aircraft to
   another carrier.

     In connection with the discontinuance of its scheduled service operations,
  World Airways may be subject to claims by third parties. Although no claims
  have been filed against World Airways, there can be no assurance that such
  claims will not be filed in the future.

3.   In November 1995, the Company signed a letter of intent with the
   manufacturer to lease two MD-11ER aircraft to be delivered in the first
   quarter of 1996. The agreement was completed in March 1996. Under the
   agreement, the Company leased each aircraft for a term of 24 years with an
   option to return the aircraft after a seven year period with certain fixed
   termination fees. As part of the agreement, $1.2 million in deposits
   previously paid to the manufacturer in 1992 was applied towards these two
   aircraft. In addition, the Company received spare parts financing from the
   lessor of $9.0 million of which $3.0 million was made available with the
   delivery of each aircraft, and the remaining $3.0 million will be made
   available in December 1996. As of September 30, 1996, approximately $4.9
   million had been received. Finally, the Company agreed to assume an existing
   lease of two additional MD-11 freighter aircraft for 20 years, beginning in
   1999, in the event that the other lessee terminates its lease with the
   manufacturer at that time.

                                       9
<PAGE>
 
4.   The Company purchased a spare engine which was delivered in March 1996 for
  approximately $8.0 million. The Company entered into an agreement with the
  engine's manufacturer to finance 80% of the purchase price over a seven-year
  term. The Company made payments of $1.2 million and $0.4 million towards this
  purchase in September 1995 and January 1996, respectively.

5.   Effective June 30, 1996, the Company amended its Credit Agreement with BNY
   Financial Corporation ("BNY") to include the following: a $10.0 million spare
   parts loan and an $8.0 million revolving line of credit. This amended Credit
   Agreement, which expires in 1999, is collateralized by certain receivables,
   inventory, and equipment. As of September 30, 1996, the outstanding balance
   of the spare parts loan and the revolving line of credit was $9.4 million and
   $4.2 million, respectively, with $1.2 million capacity available on the
   revolving line of credit.

6.   World Airways recently announced its intention to purchase up to one
   million shares of its publicly-traded Common Stock pursuant to open market
   transactions. As of November 8, 1996, World Airways has purchased shares of
   its Common Stock for an aggregate cost of $7.2 million. There can be no
   assurances, however, that World Airways will purchase any additional shares.

7.   The Board of Directors of World Airways adopted an Employee Savings and
   Stock Ownership Plan (the "Plan") effective October 1, 1996. The Plan is
   intended to allow participating employees to share in the growth and
   prosperity of the Company, to encourage participants to save on a tax-favored
   basis, and to provide participants an opportunity to accumulate capital for
   their future economic security.

     The Plan is an amendment and continuation of the WorldCorp Employee Savings
  and Stock Ownership Plan (the "WorldCorp KSOP"). As a result of various
  business developments, the vast majority of the participants in the WorldCorp
  KSOP were Company employees. For that reason, the Company and WorldCorp agreed
  that the Company should assume WorldCorp's obligation under the WorldCorp
  KSOP. In connection with that action, the Trustees exchanged the unallocated
  shares of WorldCorp common stock held by the WorldCorp KSOP for a like-value
  of shares in Company common stock. The Company also made a special
  contribution of $50,000 to the Plan.

     The Plan will continue to hold the shares of WorldCorp common stock that
  were allocated the participants' accounts before October 1, 1996. No
  additional shares of WorldCorp common stock will be allocated under the Plan
  on or after that date. Instead, participants will have the opportunity to
  receive future allocations of Company common stock.

8.   For a discussion of commitments and contingencies see "Management's
   Discussion and Analysis of Financial Condition and Results of Operations -
   Other Matters".

9.   On January 1, 1996, the Company adopted Financial Accounting Standards
   Board Statements of Financial Accounting Standards No. 121, Accounting for
   the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
   of ("Statement 121") and No. 123, Accounting for Stock-based Compensation
   ("Statement 123"). Statement 121 requires that the Company review its long-
   lived assets for impairment whenever events or circumstances indicate that
   the carrying amount of an asset may not be recoverable. To the extent that
   the future undiscounted net cash flows expected to be generated from an asset
   are less than the carrying amount of the asset, an impairment loss will be
   recognized based on the difference between the asset's carrying amount and
   its fair market value. The adoption of Statement 121 had no impact on the
   accompanying financial statements.

     Statement 123 recommends, but does not require, the adoption of a fair
  value based method of accounting for stock-based compensation to employees,
  including common stock options. The Company has elected to continue recording
  stock-based compensation to employees under the intrinsic value method of
  accounting for stock-based compensation to employees as permitted by Statement
  123. Certain pro forma disclosures will be included in the Company's Form 10-K
  for the year ending December 31, 1996 as if the fair value based method had
  been adopted.

                                      10
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
     OF OPERATIONS
     -------------


  World Airways was organized in March 1948 and became a wholly owned subsidiary
of WorldCorp, Inc. ("WorldCorp") in a holding company reorganization in 1987. In
February 1994, pursuant to an October 1993 agreement, WorldCorp sold 24.9% of
its ownership to MHS Berhad ("MHS"), a Malaysian aviation company. Effective
December 31, 1994, WorldCorp increased its ownership in the Company to 80.1%
through the purchase of 5% of World Airways common stock held by MHS. In October
1995, the Company completed an initial public offering in which 2,000,000 shares
were issued and sold by the Company and 900,000 shares were sold by WorldCorp.
WorldCorp and MHS Berhad ("MHS") currently own 61.2% and 17.6%, respectively, of
the outstanding common stock of World Airways. The balance is publicly traded.

  The managements of WorldCorp and World Airways are currently exploring ways to
maximize value for the shareholders of each company. In addition to employee
initiatives, WorldCorp is evaluating the feasibility of a disposition of its
interest in World Airways to a third party. There can be no assurances, however,
that any such transactions will ultimately be consummated. In addition, World
Airways recently announced its intention to purchase up to one million shares of
its publicly-traded Common Stock pursuant to open market transactions. As of
November 8, 1996, World Airways has purchased shares of its Common Stock for an
aggregate cost of $7.2 million. There can be no assurances, however, that World
Airways will purchase any additional shares.

  The Private Securities Litigation Reform Act of 1995 (the "Act") was recently
passed by Congress. The Company desires to take advantage of the new "safe
harbor" provisions of 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 and other risks detailed from time to time in the Company's filings with
the Securities and Exchange Commission, including risk factors disclosed in the
Company's Form 10-K for the fiscal year ended December 31, 1995. These risks
could cause the Company's actual results for 1996 and beyond to differ
materially from those expressed in any forward looking statements made by, or on
behalf of, the Company.

OVERVIEW

GENERAL

  World Airways earns revenue primarily in three distinct markets within the air
transportation industry: passenger and cargo services to major international air
carriers; passenger and cargo services, on a fixed and ad hoc basis, to the U.S.
Government; and international tour operators in leisure passenger markets. In
July 1996, the Company announced its decision to exit its scheduled service
operations by October 1996 (see Recent Trends and Developments - Discontinuation
of Scheduled Service Operations). The remainder of this overview relates to the
Company's continuing operations.

  The Company generally charges customers on a block hour basis rather than a
per seat or per pound basis.  "Block hours" are defined as the elapsed time
computed from the moment the aircraft first moves under its own power at the
point of origin to the time it comes to rest at its final destination.  The
Company provides most services under two types of contracts:  basic contracts
and full service contracts.  Under basic contracts, the Company provides the
aircraft, cockpit crew, maintenance and insurance and the customer provides all
other operating services and bears all other operating expenses, including fuel
and fuel servicing, marketing costs associated with obtaining passengers and/or
cargo, airport passenger and cargo handling fees, landing fees, cabin crews,
catering, ground handling and aircraft push-back and de-icing services.  Under
full service contracts, the Company provides fuel, catering, ground handling,
cabin crew and all related support services as well.  Accordingly, the Company
generally charges a lower rate per block hour for basic contracts than full
service contracts, although it does not necessarily earn a lower profit.
Because of shifts in the mix between full service contracts and basic contracts,
fluctuations in revenues are not necessarily indicative of volume trends or
profitability.  It is important, therefore, to measure the Company's business
volume by block hours flown and to measure profitability by operating income per
block hour.

  As is common in the air transportation industry, the Company has relatively
high fixed aircraft costs. While the Company believes that the lease rates on
its MD-11 aircraft are favorable relative to lease rates of other MD-11

                                      11
<PAGE>
 
operators, the Company's MD-11 aircraft have higher lease costs (although lower
operating costs) than its DC10-30 aircraft. Therefore, achieving high average
daily utilization of its aircraft (particularly its MD-11 aircraft) at
attractive yields are two of the most critical factors to the Company's
financial results. In addition to fixed aircraft costs, a portion of the
Company's labor costs are fixed due to monthly minimum guarantees to cockpit
crewmembers and flight attendants.

CUSTOMERS

  The Company's business relies heavily on its contracts with Malaysian Airline
System Berhad ("Malaysian Airlines"), P.T. Garuda Indonesia ("Garuda") and the
U.S. Air Force's Air Mobility Command ("AMC"). These customers provided
approximately 39%, 10%, and 20%, respectively, of the Company's revenues and
46%, 10%, and 13%, respectively, of the total block hours during 1995. For the
first nine months of 1996, these customers provided approximately 30%, 14%, and
21%, respectively, of the Company's revenues and 38%, 16%, and 14%,
respectively, of total block hours. In addition to these customers, the Company
recently entered into an agreement with Philippine Airlines, Inc. ("Philippine
Airlines") to provide four MD-11 aircraft under year-round wet lease contracts.
As a result, the Company expects that the agreement with Philippine Airlines
will have a substantial impact on its revenues and block hours.

  World Airways has provided service to Malaysian Airlines since 1981, providing
wet lease services for Malaysian Airlines' scheduled passenger and cargo
operations as well as transporting passengers for the annual Hadj pilgrimage. In
1996, World Airways provided three aircraft for Hadj operations. The Company
recently entered into a new 32-month agreement for year-round operations
(including the Hadj) with Malaysian Airlines whereby the Company will provide
two aircraft with cockpit crews, maintenance and insurance to Malaysian
Airlines' newly-formed charter division through May 1999.

  As a means of improving aircraft utilization, the Company entered into a
series of multi-year contracts, with expiration dates running from 1997 through
2000, to provide basic services to Malaysian Airlines. The contracts provide for
the Company's operation of five MD-11 aircraft in passenger and cargo
configurations. Beginning in July 1996, and as mutually agreed between the
parties, the Company redeployed two aircraft operating under this contract into
other operations. The parties are currently in discussions regarding the future
redeployment of these aircraft into Malaysian Airlines' operations to meet the
contracts' original obligations. For 1995 and the first nine months of 1996, 29%
and 24%, respectively, of the Company's revenues and 37% and 32%,
respectively, of the Company's block hours flown resulted from these multi-year
contracts with Malaysian Airlines.

  The Company has provided international air transportation to the U.S. Air
Force since 1956. As compensation for pledges of aircraft to the Civil Reserve
Air Fleet ("CRAF") for use in times of national emergency, the U.S. Air Force
awards contracts to CRAF participants for peacetime transportation of personnel
and cargo. The U.S. Air Force awards contracts to air carriers acting alone or
through teaming arrangements in proportion to the number and type of aircraft
that the carriers make available to CRAF. As a result of the Company's
increasingly effective use of teaming arrangements, the Company's fixed awards
have grown in recent years and the Company has one of the largest U.S. Air Force
fixed award under the CRAF program for the U.S. Government's 1996-97 fiscal
year. The current annual contract commenced on October 1, 1996 and expires on
September 30, 1997. These contracts provide for a fixed level of scheduled
business from the U.S. Air Force with opportunities for additional short-term
expansion business on an ad hoc basis as needs arise. The Company's fixed award
for the current contract is $52.8 million compared to the $55.4 million fixed
award for the prior contract. Due to the utilization of a significant number of
the Company's aircraft under multi-year contracts and other contractual
commitments, it is unlikely that the Company will be able to accept all of the
available expansion business. Although overall Defense Department spending is
being reduced, the level of U.S. Air Force contract awards has remained
relatively constant in recent years. World Airways, however, cannot determine
how future cuts in military spending may affect future operations with the U.S.
Air Force.

  World Airways has provided wet lease services to Garuda since 1973 (operating
under an annual Hadj contract since 1988). The Company operated seven aircraft
in the 1996 Garuda Hadj.

  As mentioned above, the Company recently entered into an agreement with
Philippine Airlines, Inc. to provide four MD-11 aircraft under year-round wet
lease contracts. The first two aircraft began flying for Philippine Airlines in
June and July 1996, with the remaining two aircraft commencing operations in
October 1996. Under the

                                      12
<PAGE>
 
agreement, each aircraft will operate for an 18-month term. In addition,
Philippine Airlines has an option for the Company to operate a DC10-30 cargo
aircraft beginning late in 1996.

  As a result of these and other contracts, the Company had an overall contract
backlog at September 30, 1996 of $462.0 million. The Company's backlog for each
contract is determined by multiplying the minimum number of block hours
guaranteed under the applicable contract by the specified hourly rate under such
contract. Approximately 56% of the backlog (including a majority of the backlog
beginning in 1997) relates to the multi-year contracts with Malaysian Airlines.
The loss of any of these contracts or a substantial reduction in business from
any of these key customers, if not replaced, would have a material adverse
effect on the Company's financial condition and results of operations.

SEASONALITY

  Historically, the Company's business has been significantly affected by
seasonal factors. During the first quarter, the Company typically experiences
lower levels of utilization and yields as demand for passenger and cargo
services is lower relative to other times of the year. The Company experiences
higher levels of utilization in the second quarter, principally due to peak
demand for commercial passenger services associated with the annual Hadj
pilgrimage. During 1996, the Company's flight operations associated with the
Hadj pilgrimage occurred from March 22 to June 1. Because the Hadj occurs
approximately 10 to 12 days earlier each year, revenues resulting from future
Hadj contracts will begin to shift from the second quarter to the first quarter
over the next several years. Historically, fourth quarter utilization depended
primarily on the demand for air cargo services in connection with the shipment
of merchandise in advance of the U.S. holiday season.

  As discussed above, the Company announced in July 1996 its decision to exit
scheduled service operations by October 1996 to focus on its core business:
operating aircraft under contracts with international carriers, the U.S.
Government, and international tour operators. The Company believes that its 
year-round contracts with Malaysian Airlines, Philippine Airlines, and the U.S.
Air Force should lessen the effect of these seasonal factors.

AVIATION FUEL

  The Company's source of aviation fuel is primarily from major oil companies,
under annual delivery contracts, at often frequented commercial locations, and
from United States military organizations at military bases. The Company's
current fuel purchasing policy consists of the purchase of fuel within seven
days in advance of all flights based on current prices set by individual
suppliers. More than one supplier is under contract at several locations. The
Company purchases no fuel under long-term contracts nor does the Company enter
into futures or fuel swap contracts.

  The air transportation industry in general is affected by the price and
availability of aviation fuel. Both the cost and availability of aviation fuel
are subject to many economic and political factors and events occurring
throughout the world and remain subject to the various unpredictable economic
and market factors that affect the supply of all petroleum products.
Fluctuations in the price of fuel have not had a significant impact on the
Company's operations in recent years. The Company's exposure to fuel risk is
limited because (i) under the terms of the Company's basic contracts, the
customer is responsible for providing fuel, (ii) under the terms of its full
service contracts with the U.S. Government, the Company is reimbursed for the
cost of fuel it provides, and (iii) under the Company's charter contracts, the
Company is reimbursed for fuel price increases in excess of 5% of the price
agreed upon in the contract, subject to a 10% cap. However, a substantial
increase in the price or the unavailability of aviation fuel could have a
material adverse effect on the air transportation industry in general and the
financial condition and results of operations of the Company, in particular.

RESULTS OF OPERATIONS

  In July 1996, the Company announced its decision to exit its scheduled service
operations by October 1996 resulting in a loss of approximately $28.5 million
(net of income tax effect) which was recognized in the second quarter of 1996
(see Recent Trends and Developments - Discontinuation of Scheduled Service
Operations). Prior period results of operations have been restated to reflect
the scheduled service operations as discontinued operations.

                                      13
<PAGE>
 
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995

  Total block hours increased 2,530 hours, or 23%, to 13,327 hours in the third
quarter of 1996 from 10,797 hours in the comparable 1995 period, with an average
of 15.0 available aircraft per day in 1996 compared to 11.4 in 1995.  Average
daily utilization (block hours flown per day per aircraft) was 9.7 hours in the
third quarter of 1996 compared to 10.3 in 1995.  In the third quarter of 1996,
basic contracts accounted for 47% of total block hours, down from 57% in 1995 as
a result of increased scheduled service operations.

Continuing Operations
---------------------

  Block hours from continuing operations decreased 586 hours, or 6%, to 9,337
hours in the third quarter of 1996 from 9,923 hours in the comparable 1995
period. This decrease related primarily to a shift in the mix of the Company's
business from full service charter flying in 1995 to scheduled charter flying in
1996.  Results from scheduled charter flying are included within discontinued
operations.

  Operating Revenues.  Revenues from flight operations increased $6.4 million,
  ------------------                                                          
or 9%, to $75.8 million in the third quarter of 1996 from $69.4 million in 1995.
This increase was primarily attributable to an increase in military flying and
services to certain international carriers.  These increases were partially
offset by a decrease in cargo revenue primarily due to downtime associated with
the scheduled maintenance of one aircraft in the third quarter of 1996.

  Operating Expenses.  Total operating expenses increased $8.0 million, or 12%,
  ------------------                                                           
in the third quarter of 1996 to $72.1 million from $64.1 million in 1995.

  Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance.  Also
included are expenses related to flight dispatch and flight operations
administration.  Despite increased crew costs associated with the payment of
retroactive wages per the new flight attendant union agreement and the hiring of
additional crew personnel, flight operations expenses decreased $3.9 million, or
19%, in 1996 to $16.9 million from $20.8 million in 1995. This decrease resulted
primarly from a shift in the mix of business from charter to military flying.
In addition, the Company accrued profit sharing expenses in 1995 as a result of
earnings experienced during that period.  No such accrual is necessary in 1996
as a result of anticipated losses from the discontinuation of scheduled service
operations.

  Maintenance expenses increased $3.2 million, or 30%, in 1996 to $13.9 million
from $10.7 million in 1995.  This increase resulted primarily from the
integration of additional aircraft into the fleet, partially offset by a
decrease in block hours flown.  In addition, the Company experienced an increase
in costs associated with the MD-11 aircraft and related engines as a result of
certain manufacturer guarantees and warranties which began to expire in 1995 and
will fully expire by 1998.

  Aircraft costs increased $1.2 million, or 7%, in 1996 to $19.0 million from
$17.8 million in 1995.  This increase was primarily due to the lease of two MD-
11ER aircraft in the first quarter of 1996 and the lease of incremental DC10-30
aircraft which began in the fourth quarter of 1995 and the first quarter of
1996, partially offset by the return of two DC10-30 aircraft to the lessor in
the third quarter of 1995.

  Fuel expenses increased $0.1 million, or 2%, in 1996 to $6.6 million from $6.5
million in 1995.  This increase is due primarily from a slight increase in price
per gallon, partially offset by a decrease in full service block hours.

  Promotions, sales and commissions increased $1.4 million to $2.2 million in
the third quarter of 1996 compared to $0.8 million in 1995. This increase
resulted primarily from commissions paid in connection with the new Philippine
Airline contract and an increase in teaming arrangement commissions associated
with the larger fixed-award contract received from the U.S. Air Force beginning
October 1995.

  Depreciation and amortization increased $0.6 million, or 40%, in 1996 to $2.1
million from $1.5 million in 1995.  This increase resulted primarily from an
increase in spare parts required to support the additional MD-11 aircraft and
incremental DC10-30 aircraft described above as well as the amortization of
certain aircraft integration costs and other deferred costs.

                                      14
<PAGE>
 
  General and administrative expenses increased $2.0 million, or 43%, in 1996 to
$6.7 million from $4.7 million in 1995. This increase was primarily due to the
hiring of additional administrative personnel and an increase in certain legal
and professional fees.

Discontinued Operations
-----------------------

  In July 1996, the Company announced its decision to exit its scheduled service
operations by October 1996 and focus its operations on its core business:
operating aircraft under contracts with international carriers, the U.S.
Government, and international tour operators. Consistent with this decision,
World Airways ceased all scheduled operations as of October 27, 1996. As a
result, the Company's scheduled service operations were reflected as
discontinued operations as of June 30, 1996, and prior period results have been
restated to reflect scheduled service operations as discontinued operations.
Loss from discontinued operations (net of income tax effect) approximated $11.7
million for the nine months ended September 30, 1996. In addition, an estimated
loss on disposal of $21.0 million (net of income tax effect) which was recorded
as of June 30, 1996, included the following: $13.6 million for estimated
operating losses during the phase-out period; a $2.6 million estimated loss to
be incurred in connection with sub-leasing DC-10 aircraft which will not be
utilized in the Company's operations subsequent to the phase-out of scheduled
service operations; a $2.3 million writeoff of related leasehold improvements;
and $2.0 million for passenger reprotection expenses. The Company incurred
approximately $13.2 million of these costs during the quarter ended September
30, 1996 and the Company believes that its remaining accrual for estimated
losses on disposal will be adequate to meet the remaining costs to be incurred
during the phase-out period. As of November 8, 1996, the Company believes that
it has met substantially all of its cash obligations of the phase-out period.
Other than the leased aircraft utilized in scheduled service operations, the
Company does not have any significant assets related to its discontinued
operations.

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995

  Total block hours increased 9,845 hours, or 35%, to 37,868 hours in the first
nine months of 1996 from 28,023 hours in the comparable 1995 period, with an
average of 13.8 available aircraft per day in 1996 compared to 10.3 in 1995.
Average daily utilization (block hours flown per day per aircraft) was 10.0 in
each period.  In the first nine months of 1996, basic contracts accounted for
65% of total block hours, down from 73% in 1995 as a result of increased
scheduled service operations.

Continuing Operations
---------------------

  Block hours from continuing operations increased 4,196 hours, or 15%, to
31,344 hours in the first nine months of 1996 from 27,148 hours in the
comparable 1995 period.

  Operating Revenues.  Revenues from flight operations increased $42.1 million,
  ------------------                                                           
or 23%, to $227.8 million in the first nine months of 1996 from $185.7 million
in 1995. This increase was primarily attributable to an increase in military
flying and an increase in revenues generated from its 1996 Hadj operations and
services to certain international carriers.

  Operating Expenses.  Total operating expenses increased $41.3 million, or 24%,
  ------------------                                                            
in the first nine months of 1996 to $212.2 million from $170.9 million in 1995.

  Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Flight operations expenses increased $2.5 million, or 5%, in
1996 to $52.2 million from $49.7 million in 1995. This increase resulted
primarily from an increase in block hours flown and higher crew costs and up-
front training expenses in connection with the integration of additional
aircraft into the fleet after September 30, 1995. These increases were partially
offset by a decrease in accrued profit sharing expenses. In 1995, the Company
accrued profit sharing expenses as a result of earnings experienced during that
period. No such accrual is necessary in 1996 as a result of anticipated losses
from the discontinuation of scheduled service operations.

  Maintenance expenses increased $13.0 million, or 42%, in 1996 to $44.3 million
from $31.3 million in 1995.  This increase resulted primarily from the
integration of additional aircraft into the fleet and a corresponding increase
in block hours flown.  In addition, the Company experienced an increase in costs
associated with the MD-11 aircraft

                                      15
<PAGE>
 
and related engines as a result of certain manufacturer guarantees and
warranties which began to expire in 1995 and will fully expire by 1998.

  Aircraft costs increased $9.8 million, or 19%, in 1996 to $60.4 million from
$50.6 million in 1995. This increase was primarily due to the lease of two MD-
11ER aircraft in the first quarter of 1996 and the lease of incremental DC10-30
aircraft which began in the second and fourth quarters of 1995 and the first
quarter of 1996, partially offset by the return of two DC10-30 aircraft to the
lessor in the third quarter of 1995.

  Fuel expenses increased $2.3 million, or 19%, in 1996 to $14.7 million from
$12.4 million in 1995.  This increase is due primarily to an increase in fuel
utilized in connection with its military operations.

  Promotions, sales and commissions increased $3.1 million in the first nine
months of 1996 to $3.9 million from $0.8 million in 1995. This increase resulted
primarily from commissions paid in connection with the new Philippine Airlines
contract and an increase in teaming arrangement commissions associated with the
larger fixed-award contract received from the U.S. Air Force beginning October
1995.

  Depreciation and amortization increased $1.7 million, or 40%, in 1996 to $5.9
million from $4.2 million in 1995.  This increase resulted primarily from an
increase in spare parts required to support the additional MD-11 aircraft and
incremental DC10-30 aircraft described above as well as the amortization of
certain aircraft integration costs and other deferred costs.

  General and administrative expenses increased $4.7 million, or 36%, in 1996 to
$17.9 million from $13.2 million in 1995.  This increase was primarily due to
the hiring of additional administrative personnel necessary to support the
growth in the Company's core business and an increase in certain legal and
professional fees.

Discontinued Operations
-----------------------

  For a discussion of discontinued operations, see "Three Months Ended September
30, 1996 Compared to Three Months Ended September 30, 1995."

LIQUIDITY AND CAPITAL RESOURCES

  The Company is highly leveraged. The Company incurred substantial debt and
lease commitments during the past three years in connection with its acquisition
of MD-11 aircraft and related spare parts. The Company has historically financed
its working capital and capital expenditure requirements out of cash flow from
operating activities, public and private sales of its common stock, secured
borrowings, and other financings from banks and other lenders.

  In October 1995, the Company completed an initial public offering (the
"Offering") of 2,900,000 shares of the Company's common stock. Of the 2,900,000
shares sold, 2,000,000 shares were issued and sold by the Company and 900,000
shares were sold by WorldCorp, the Company's majority shareholder. As a result
of this offering, World Airways and WorldCorp received approximately $22.8
million and $10.2 million in net proceeds, respectively.

  The Company's cash and cash equivalents at September 30, 1996 and December 31,
1995 were $11.1 million and $25.3 million, respectively. At September 30, 1996
the Company's current assets were $43.3 million and current liabilities were
$74.7 million. The Company believes that the combination of the financings
consummated to date, income from continuing operations and the additional
financings described below will be sufficient to allow the Company to meet its
cash requirements related to the phase-out of its discontinued operations and
the operating and capital requirements for its continuing operations for at
least the next twelve months.

CASH FLOWS FROM OPERATING ACTIVITIES

  Operating activities used $0.9 million in cash for the nine months ended
September 30, 1996 compared to providing $21.6 million of cash in the comparable
period in 1995. This decrease in cash in 1996 resulted primarily from an
increase in losses from discontinued operations, an increase in accounts
receivable, and a decrease in unearned revenue partially offset by an increase
in accounts payable, accrued expenses, and other liabilities.

                                      16
<PAGE>
 
CASH FLOWS FROM INVESTING ACTIVITIES

  Investing activities used $9.1 million in cash for the nine months ended
September 30, 1996, compared to $17.3 million in the comparable period in 1995.
In 1996, cash was used primarily for the purchase of rotable spare parts
required for the integration of two MD-11 aircraft and incremental DC-10
aircraft and leasehold improvements required on one of the DC-10 aircraft
obtained in late 1995.

CASH FLOWS FROM FINANCING ACTIVITIES

  Financing activities used $4.2 million in cash for the nine months ended
September 30, 1996 compared to providing $1.7 million in the comparable period
in 1995.  This decrease in cash resulted primarily from an increase in
repayments of the Company's net borrowings in 1996 over 1995.

CAPITAL COMMITMENTS

  In October 1992 and January 1993, the Company signed a series of agreements to
lease seven new MD-11 aircraft for initial lease terms of two to five years,
renewable for up to 10 years (and in the case of one aircraft, for 13 years) by
the Company with increasing rent costs.  As of March 1995, the Company had taken
delivery of all seven aircraft, consisting of four passenger MD-11 aircraft, one
freighter MD-11, and two passenger/cargo convertible MD-11s. As part of the
lease agreements, the Company was assigned purchase options for four additional
MD-11 aircraft. In 1992, the Company made non-refundable deposits of $1.2
million toward the option aircraft.

  In March 1996, the Company signed an agreement with the manufacturer to lease
two MD-11ER aircraft. Under the agreement, the Company leased each aircraft for
a term of 24 years with an option to return the aircraft after a seven year
period with certain fixed termination fees. As part of the agreement, the above-
mentioned deposits were applied towards the deposits required on these two
aircraft. In addition, the Company agreed to assume an existing lease of two
additional MD-11 freighter aircraft for 20 years, beginning in 1999, in the
event that the existing lessee terminates its lease with the manufacturer at
that time.

  World Airways leases six long-term DC10-30 aircraft with terms expiring in
1998, 2003, and two each in 1997 and 1999.  As a result of the Company's
decision to discontinue scheduled service operations, the Company has recently
signed a letter of intent to lease two of these DC-10 aircraft to another
carrier.

  As of September 30, 1996, annual minimum payments required under the Company's
aircraft and lease obligations totaled $22.0 million and $87.2 million for the
remainder of 1996 and 1997, respectively.

  In August 1995, the Company amended its aircraft spare parts facility under
the Credit Agreement to provide for a variable rate borrowing of $10.5 million.
Approximately $2.5 million of this facility was used to pay off the previously
outstanding balance of the spare parts loan facility and $0.8 million was used
to purchase additional spare parts for MD-11s required during the remainder of
1995. The balance of this loan facility was used to increase cash balances which
were drawn down during the first half of 1995 to purchase MD-11 spare parts.

  In September 1995, the Company agreed to purchase a spare engine which was
delivered in March 1996. The engine cost approximately $8.0 million. The Company
entered into an agreement with the engine's manufacturer to finance 80% of the
purchase price over a seven-year term.  The Company made payments of $1.2
million and $0.4 million towards this purchase in September 1995 and January
1996, respectively.

  As discussed above, the Company signed an agreement for the lease of two MD-
11ER aircraft beginning in the first quarter of 1996 to provide additional
capacity for growth opportunities. As part of the agreement for the MD-11
aircraft, the Company received spare parts financing from the lessor of $9.0
million of which $3.0 million was made available with the delivery of each
aircraft, and the remaining $3.0 million will be made available in December
1996. As of September 30, 1996, approximately $4.9 million had been received. In
January 1996, the Company agreed to purchase an additional engine and received a
commitment from the engine manufacturer to finance 85% of its purchase price
over a seven-year term with an interest rate to be fixed at the time of
delivery.

  The Company's fixed assets increased approximately $18.8 million during 1996.
The majority of this amount relates to assets which were financed.  The Company
anticipates that its total capital expenditures in 1996, which

                                      17
<PAGE>
 
include the two spare engines, will approximate $28.0 million.  As discussed
above, the Company will receive approximately $22.6 million in financing, of
which $11.7 million was received during the first nine months of 1996.  The
remaining balance will be funded from its operating cash flow and available cash
balances. In March 1996, the Credit Agreement was amended to increase the limit
on capital expenditures by the Company to no more than $35.0 million and $25.0
million in 1996 and 1997, respectively.

  As of September 30, 1996, the Company held approximately $2.7 million (at book
value) of aircraft spare parts currently available for sale.

FINANCING DEVELOPMENTS

  In October 1995, the Company completed an initial public offering pursuant to
which World Airways and WorldCorp received approximately $22.8 million and $10.2
million in net proceeds, respectively.  World Airways used its proceeds to
increase cash reserves.

  Effective June 30, 1996, the Company amended its Credit Agreement with BNY
Financial Corporation ("BNY") to include the following: a $10.0 million spare
parts loan and an $8.0 million revolving line of credit. This amended Credit
Agreement, which expires in 1999, is collateralized by certain receivables,
inventory, and equipment. As of September 30, 1996, the outstanding balance of
the spare parts loan and revolving line of credit was $9.4 million and $4.2
million, respectively, with $1.2 million capacity available on the revolving
line of credit.

  Under the terms of the amended Credit Agreement, the Company is not permitted
to (i) incur indebtedness in excess of $25.0 million (excluding capital leases),
(ii) declare, pay, or make any dividend or distribution in any six month period
which aggregate in excess of the lesser of $4.5 million or 50% of net income for
the previous six months, (iii) declare or pay dividends if after giving effect
to such dividends the Company's cash or cash equivalents would be less than $7.5
million or (iv) make capital expenditures in 1996 and 1997 of more than $35.0
million and $25.0 million, respectively, or in any subsequent year of more than
$15.0 million. The Company must also maintain a certain quarterly net worth and
net income (loss) requirements. As of September 30, 1996, the Company was in
compliance with these amended covenants. No assurances can be given, however,
that the Company will continue to meet these covenants or, if necessary, obtain
the required waivers. In addition, World Airways granted 50,000 Warrants to BNY 
in October 1996.

  In September 1995 the Company entered into an agreement with a lessor to
purchase a spare engine, previously under lease, for $5.5 million. The Company
paid $0.5 million upon closing and signed a note for the $5.0 million balance.
The note bears interest at a rate of 7.25% and is payable over a 40-month period
at $69,000 a month, with the balance of $3.3 million due on January 29, 1999. In
addition, the Company purchased an additional spare engine which was delivered
in March 1996. The engine cost approximately $8.0 million. The Company entered
into an agreement with the engine's manufacturer to finance 80% of the purchase
price over a seven-year term. The Company made payments of $1.2 million and $0.4
million towards this purchase in September 1995 and January 1996, respectively.
In January 1996, the Company agreed to purchase an additional engine and
received a commitment from the engine manufacturer to finance 85% if its
purchase price over a seven-year term with an interest rate to be fixed at the
time of delivery.

RECENT TRENDS AND DEVELOPMENTS

  Operating Losses.  While the Company was profitable each year from 1987
  ----------------                                                       
through 1992 and in 1995, the Company sustained operating losses in 1993 and
1994 of $7.3 million and $5.2 million, respectively, and net losses of $9.0
million in each of these two years.  During the first nine months of 1996, the
Company reported a net loss of $18.8 million, which resulted from operating
losses incurred in the Company's scheduled service operations and the related
estimated loss on disposal.  Earnings from continuing operations were $13.7
million for the nine months ended September 30, 1996.  While the Company expects
its continuing operations to remain profitable, there can be no assurance that
the Company will be able to maintain this profitability for the remainder of
1996 and future years.

  Discontinuation of Scheduled Service Operations.  In May 1996, the Company
  -----------------------------------------------                           
commenced scheduled charter operations between the United States and Germany,
Switzerland, Ireland, and the United Kingdom. For its scheduled service
operations, the Company commenced service between Tel Aviv and New York in July
1995 and commenced service between the U.S. and South Africa in June 1996.
However, the Company was unable to operate these

                                      18
<PAGE>
 
markets profitably.

  Based on disappointing results from these operations and a decision to refocus
the Company's strategic direction on its core business, the Company announced in
July 1996 its decision to exit its scheduled service operations by October 1996.
Consistent with this decision, World Airways ceased all scheduled operations as
of October 27, 1996. This decision resulted in a loss of approximately $28.5
million (net of income tax effect) which was recognized in the second quarter of
1996. This amount included an operating loss of approximately $7.5 million
relating to second quarter operations and a $21.0 million charge (net of income
tax effect) which includes the following: estimated operating losses during the
phase-out period; lease costs on unutilized aircraft; passenger reprotection
expenses; and the writeoff of certain leasehold improvements. The Company
incurred approximately $13.2 million of the costs during the quarter ended
September 30, 1996 believes that its remaining accrual for estimated losses on
disposal will be adequate to meet the remaining costs to be incurred during the
phase-out period. As of November 8, 1996, the Company believes that it has met
substantially all of its cash obligations of the phase-out period. As a result
of this decision, the Company will reduce its fixed overhead costs, primarily
through the elimination of costs related to discontinued operations.

  In connection with the discontinuance of its scheduled service operations,
World Airways may be subject to claims by third parties.  Although no claims
have been filed against World Airways, there can be no assurance that such
claims will not be filed in the future.

  As indicated above, the Company has shifted its strategic direction and will
focus its energies on its core business: operating aircraft under contracts with
international carriers, the U.S. government, and international tour operators.
From these continuing operations, the Company reported $13.7 million in earnings
for the nine months ended September 30, 1996. While the Company maintains a
contract backlog of $462.0 million as of that date and expects that its core
business will remain profitable, no assurances can be given that the Company
will be able to maintain profitability within its continuing operations.

  Maintenance.  The Company outsources major airframe maintenance and power
  -----------                                                              
plant work to several suppliers.  The Company has a 10-year contract ending in
August 2003 with United Technologies Corporation's Pratt & Whitney Group ("Pratt
and Whitney") for all off-wing maintenance on the PW 4462 engines that power its
MD-11 aircraft.  Under this contract, the manufacturer agreed to provide such
maintenance services at a cost not to exceed a specified rate per hour during
the term of the contract.  The specified rate per hour is subject to annual
escalation, and increases substantially in 1998.  Accordingly, while the Company
believes the terms of this agreement will result in lower engine maintenance
costs than it otherwise would incur during the first five years of the
agreement, these costs will increase substantially during the last seven years
of the agreement.

  The Company's maintenance costs associated with the MD-11 aircraft and PW 4462
engines have been significantly reduced due in part to manufacturer guarantees
and warranties, which guarantees and warranties began to expire in 1995 and will
fully expire by 1998.  Therefore, the Company expects that maintenance expense
will increase as these guarantees and warranties expire.

  Proposed Restructuring of World Airways.  The managements of WorldCorp and
  ---------------------------------------                                   
World Airways are currently exploring ways to maximize value for the
shareholders of each company.  In addition to employee initiatives, WorldCorp is
evaluating the feasibility of a disposition of its interest in World Airways to
a third party.  There can be no assurances, however, that any such transactions
will ultimately be consummated.

  In addition, World Airways recently announced its intention to purchase up to
one million shares of its publicly-traded Common Stock pursuant to open market
transactions.  As of November 8, 1996, World Airways has purchased shares of its
Common Stock pursuant to such purchases for an aggregate cost of $7.2 million.
There can be no assurances, however, that World Airways will purchase any
additional shares.

OTHER MATTERS

LEGAL AND ADMINISTRATIVE PROCEEDINGS

  The Company and WorldCorp (the "World Defendants") are defendants in
litigation brought by the Committee of Unsecured Creditors of Washington
Bancorporation (the "Committee") in August 1992, captioned Washington

                                      19
<PAGE>
 
Bancorporation v. Boster, et. al., Adv. Proc. 92-0133 (Bankr. D.D.C.) (the
"Boster Litigation"). The complaint asserts that the World Defendants received
preferential transfers or fraudulent conveyances from Washington Bancorporation
when the World Defendants received payment at maturity on May 4, 1990 of
Washington Bancorporation commercial paper purchased on May 3, 1990. Washington
Bancorporation filed for relief under the Federal Bankruptcy Code on August 1,
1990. The Committee seeks recovery of approximately $4.8 million from the
Company and approximately $2.0 million from WorldCorp, which are alleged to be
the amounts paid to each of the Company and WorldCorp by Washington
Bancorporation. On the motion of the World Defendants, among others, the Boster
Litigation was removed from the Bankruptcy Court to the District Court for the
District of Columbia on May 10, 1993. The World Defendants filed a motion to
dismiss the Boster Litigation as it pertains to them on June 9, 1993, and intend
to vigorously contest liability. On September 20, 1995, the District Court for
the District of Columbia granted the motion to dismiss filed by the World
Defendants with respect to three of the four counts alleged in the litigation,
but declined to grant a motion to dismiss the remaining claim regarding
fraudulent transfers. The District Court's ruling is subject to appeal in
certain cases. The World Defendants filed a summary motion with respect to the
remaining claim on October 19, 1995, which remains pending. In any event, the
Company believes it has substantial defenses to this action, although no
assurance can be given of the eventual outcome of this litigation. Depending
upon the timing of the resolution of this claim, if the Committee were
successful in recovering the full amount claimed, the resolution could have a
material adverse effect on the Company's financial condition and results of
operations.

  On November 6, 1996, the plaintiff in the Boster Litigation filed a "Motion
for Stay of Litigation Pending Settlement Becoming Effective" (the "Stay
Motion"). The Stay Motion recites that a settlement agreement has been reached
involving the plaintiff, the Federal Deposit Insurance Corporation, and an
individual resolving other litigation involving Washington Bancorp (the "FDIC
Settlement"). If the FDIC Settlement becomes final, the plaintiff has agreed to
dismiss with prejudice the Boster Litigation against all defendants, including
the World Defendants, with each party to bear its own costs. In that event, the
World Defendants would not have any further liability in the Boster Litigation.
The final resolution of the FDIC Settlement depends upon certain contingencies,
including a request for certain treatment from the Internal Revenue Service. The
FDIC Settlement provides that if all of the conditions to that settlement are
not satisfied by June 30, 1997, either party may elect to terminate that
settlement. The Stay Motion requests an indefinite stay of the Boster Litigation
pending the resolution of the FDIC Settlement.

  In addition, the Company is party to routine litigation and administrative
proceedings incidental to its business, none of which is believed by the Company
to be likely to have a material adverse effect on the financial condition of the
Company. In connection with the discontinuance of its scheduled service
operations, World Airways may be subject to claims by third parties.  Although
no claims have been filed against World Airways, there can be no assurance that
such claims will not be filed in the future.

EMPLOYEES

  The Company's cockpit crew members, who are represented by the International
Brotherhood of Teamsters (the "Teamsters"), are subject to a four-year
collective bargaining agreement that will become amendable in July 1998.

  The Company's flight attendants are also represented by the Teamsters under a
collective bargaining agreement that became amendable in 1992. The parties
exchanged their opening contract proposals in 1992. In June 1996, the Company
signed a new four year labor agreement with the Teamsters which provides for
retroactive pay increases for the flight attendants and work rule flexibility
and lengthened duty time rules for the Company. The agreement was ratified by
the flight attendants in August 1996. The Company's flight attendants continue
to challenge the use of foreign flight attendant crews on the Company's flights
for Malaysian Airlines and Garuda Indonesia which has historically been the
Company's operating procedure. The Company is contractually obligated to permit
its Southeast Asian customers to deploy their own flight attendants. While the
Company intends to contest this matter vigorously in an upcoming arbitration, an
unfavorable ruling for the Company could have a material adverse effect on the
Company.

  The Company's aircraft dispatchers are represented by the Transport Workers
Union (the "TWU"). This contract became amendable on June 30, 1993. In May 1995,
the parties reached agreement with respect to a new four-year contract. This
contract was ratified in February 1996. Fewer than 12 Company employees are
covered by this collective bargaining agreement.

                                      20
<PAGE>
 
  The Company is unable to predict whether any of its employees not currently
represented by a labor union, such as the Company's maintenance personnel, will
elect to be represented by a labor union or collective bargaining unit. The
election by such employees of representation in such an organization could
result in employee compensation and working condition demands that could have a
material adverse effect on the financial results of the Company.

DIVIDEND POLICY

  The Company has not declared or paid any cash dividends or distributions on
its common stock since the payment of a distribution to WorldCorp in 1992. Any
future decision concerning the payment of dividends on the common stock will
depend upon the results of operations, financial condition and capital
expenditure plans of the Company, as well as such other factors as the Board of
Directors, in its sole discretion, may consider relevant.

  Under the terms of a shareholders agreement among the Company, WorldCorp, and
MHS, the Company has agreed to declare and distribute all dividends properly
payable, subject to the requirements of law and general overall financial
prudence. The Credit Agreement with BNY Financial Corporation (as amended
through September 1995, the "Credit Agreement") contains restrictions on the
Company's ability to pay dividends on the common stock. The Credit Agreement
provides that the Company shall not declare, pay or make any dividends or
distributions in any six-month period which aggregate in excess of the lesser of
$4.5 million or 50% of the Company's net income for the previous six months and
requires that the Company have a cash balance of not less than $7.5 million
after giving effect to such dividend or distribution. Additionally, WorldCorp,
which owns approximately 61.2% of the Company's common stock as of November 8,
1996, is subject to the provisions of an indenture expiring in 2004 under which
it is obligated to cause the Company not to pay dividends upon the occurrence of
any events of default by WorldCorp under such indenture. Further, under the
indenture terminating in 1997, WorldCorp has agreed to cause World Airways not
to pay dividends unless WorldCorp has a positive adjusted net worth (as defined
therein). As of November 1, 1996, WorldCorp's adjusted net worth was negative
and under the indenture terminating in 1997 WorldCorp is, therefore, obligated
to cause World Airways not to pay dividends.

ESSOP

  The Board of Directors of World Airways adopted an Employee Savings and Stock
Ownership Plan (the "Plan") effective October 1, 1996.  The Plan is intended to
allow participating employees to share in the growth and prosperity of the
Company, to encourage participants to save on a tax-favored basis, and to
provide participants an opportunity to accumulate capital for their future
economic security.

  The Plan is an amendment and continuation of the WorldCorp Employee Savings
and Stock Ownership Plan (the "WorldCorp KSOP"). As a result of various business
developments, the vast majority of the participants in the WorldCorp KSOP were
Company employees. For that reason, the Company and WorldCorp agreed that the
Company should assume WorldCorp's obligation under the WorldCorp KSOP. In
connection with that action, the Trustees exchanged the unallocated shares of
WorldCorp common stock held by the WorldCorp KSOP for a like-value of shares in
Company common stock. The Company also made a special contribution of $50,000 to
the Plan.

  The Plan will continue to hold the shares of WorldCorp common stock that were
allocated the participants' accounts before October 1, 1996.  No additional
shares of WorldCorp common stock will be allocated under the Plan on or after
that date.  Instead, participants will have the opportunity to receive future
allocations of Company common stock.

INCOME AND OTHER TAXES

  In August 1991, 5.7 million shares of WorldCorp common stock were sold by a
group of existing shareholders. This transaction constituted an ownership change
of WorldCorp (and thus of the Company) as defined under Section 382 of the Code
(the "1991 Ownership Change"). The 1991 Ownership Change subjected WorldCorp to
an annual limitation in 1991 and future years in the use of net operating losses
("NOLs") that were available to WorldCorp (and thus allocable to the Company) on
the date on which the 1991 Ownership Change occurred. As of December 31, 1995,
the Company had NOLs for federal income tax purposes of $99.9 million which, if
not utilized to offset taxable income in future periods, will expire from 1997
to 2009. Of this amount, $61.5 million is subject to a $6.9 million annual
limitation resulting from the 1991 Ownership Change. The remaining $38.4 million
was generated after the 1991 Ownership Change and, therefore, is not currently
subject to annual limitation.

                                      21
<PAGE>
 
  Use of the Company's net operating loss carryforwards in future years could be
further limited if an Ownership Change were to occur in the future. While the
Company believes that the sale of common stock in its initial public offering
(the "Offering") did not cause an Ownership Change, the application of the Code
in this area is subject to interpretation by the Internal Revenue Service. Also,
any future transactions in the Company's or WorldCorp's stock could cause an
Ownership Change. In the event that more than approximately $5.0 million of the
outstanding convertible debentures of WorldCorp are converted into WorldCorp
common stock, the Company believes an Ownership Change will occur.

  There can be no assurance that the operations of the Company will generate
taxable income in future years so as to allow the Company to realize a tax
benefit from its NOLs. The NOLs are subject to examination by the IRS and, thus,
are subject to adjustment or disallowance resulting from any such IRS
examination. In addition to the change in ownership that might occur upon the
conversion of the WorldCorp debentures, additional ownership changes of the
Company may occur in the future and may result in the imposition of a lower
annual limitation on the Company's NOLs existing at the time of any such
ownership change.

  The valuation allowance for deferred tax assets as of December 31, 1995 was
$39.5 million. The Company's estimate of the required valuation allowance is
based on a number of factors, including historical operating results. While the
Company expects to generate net earnings from continuing operations in 1996, it
will continue to assess the appropriateness of the valuation allowance based on
future operations.

INFLATION

  The Company believes that inflation has not had a material effect on the
Company's revenues during the past three years.

                                      22
<PAGE>
 
<TABLE>
<CAPTION>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------

(a) Exhibits

No.     Description
---     -----------
<S>     <C>                                                                                                <C>
1.1     Form of Underwriting Agreement to be entered into among the Company,                               Incorporated
        WorldCorp, Inc. and the Underwriters.                                                              By Reference

3.1     Amended and Restated Certificate of Incorporation.                                                 Incorporated
                                                                                                           By Reference

3.2     Amended and Restated Bylaws.                                                                       Incorporated
                                                                                                           By Reference

4.1     Article IV of the Company's Amended and Restated Certificate of                                    Incorporated
        Incorporation, incorporated by reference to Exhibit 3.1 filed herewith, and                        By Reference
        Section 6 of the Company's Bylaws, incorporated by reference to Exhibit
        3.2 filed herewith.

5.1     Opinion of Hunton & Williams.                                                                      Incorporated
                                                                                                           By Reference

10.1    The Company's 1995 Stock Option Plan.                                                              Incorporated
                                                                                                           By Reference

10.2    Form of Directors' Indemnification Agreement.                                                      Incorporated
                                                                                                           By Reference

10.3    Employment Agreement between the Company and Charles W. Pollard,                                   Incorporated
        dated as of January 1, 1995.                                                                       By Reference

10.4    Amendment No. 1 to the Employment Agreement between the Company                                    Incorporated
        and Charles W. Pollard, dated as of May 31, 1995.                                                  By Reference

10.5    Stock Option Agreement between the Company and Charles W. Pollard,                                 Incorporated
        dated as of January 1, 1995.                                                                       By Reference

10.6    Amendment No. 1 to the Stock Option Agreement between the Company                                  Incorporated
        and Charles W. Pollard, dated as of May 31, 1995.                                                  By Reference

10.7    Agreement between the Company and Flight Attendants represented by                                 Incorporated
        International Brotherhood of Teamsters. (Filed as Exhibit 10.67 to                                 By Reference
        WorldCorp, Inc.'s Form S-3 Registration Statement (Commission File No.
        91998) filed on December 10, 1987 and incorporated herein by reference.)

10.8    Office Lease--The Hallmark Building dated as of September 20, 1989                                 Incorporated
        between the Company and GT Renaissance Centre Limited Partnership.                                 By Reference
        (Filed as Exhibit 10.38 to WorldCorp, Inc.'s Annual Report on Form 10-K
        for the fiscal year ended December 31, 1989 and incorporated herein by
        reference.)

10.9    Aircraft Lease Agreement for Aircraft Serial Number 48518 dated as of                              Incorporated
        September 30, 1992 between the Company and International Lease Finance                             By Reference
        Corporation. (Filed as Exhibit 10.38 to WorldCorp, Inc.'s Annual Report
        on Form 10-K for the fiscal year ended December 31, 1992 and
        incorporated herein by reference.)

10.10   Amendment No. 1 to Aircraft Lease Agreement for Aircraft Serial Number                             Incorporated
        48518 dated as of November 1992 between the Company and International                              By Reference
        Lease Finance Corporation. (Filed as Exhibit 10.68 to WorldCorp, Inc.'s
        Annual Report on Form 10-K for the fiscal year ended December 31, 1993
        and incorporated herein by reference.)
</TABLE> 
 
                                      23
<PAGE>
 
<TABLE>
<S>     <C>                                                                                              <C>
10.11   Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Number                           Incorporated
        48518 dated as of March 8, 1993 between the Company and International                            By Reference
        Lease Financial Corporation. (Filed as Exhibit 10.69 to WorldCorp, Inc.'s
        Annual Report on Form 10-K for the fiscal year ended December 31, 1993
        and incorporated herein by reference.)

10.12   Aircraft Lease Agreement for Aircraft Serial Number 48519 dated as of                            Incorporated
        September 30, 1992 between the Company and International Lease Finance                           By Reference
        Corporation. (Filed as Exhibit 10.39 to WorldCorp, Inc.'s Annual Report
        on Form 10-K for the fiscal year ended December 31, 1992 and
        incorporated herein by reference.)

10.13   Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Number                           Incorporated
        48519 dated as of April 23, 1993 between the Company and International                           By Reference
        Lease Finance Corporation.

10.14   Amendment No. 3 to Aircraft Lease Agreement for Aircraft Serial Number                           Incorporated
        48519 dated as of April 1993 between the Company and International                               By Reference
        Lease Finance.

10.15   Aircraft Lease Agreement for Aircraft Serial Number 48437 dated as of                            Incorporated
        September 30, 1992 between the Company and International Lease Finance                           By Reference
        Corporation. (Filed as Exhibit 10.40 to WorldCorp, Inc.'s Annual Report
        on Form 10-K for the fiscal year ended December 31, 1992 and
        incorporated herein by reference.)

10.16   Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Number                           Incorporated
        48437 dated as of March 31, 1993 between the Company and International                           By Reference
        Lease Finance Corporation. (Filed as Exhibit 10.73 to WorldCorp, Inc.'s
        Annual Report on Form 10-K for the fiscal year ended December 31, 1993
        and incorporated herein by reference.)

10.17   Amendment No. 3 to Aircraft Lease Agreement for Aircraft Serial Number                           Incorporated
        48437 dated as of April 15, 1993 between the Company and International                           By Reference
        Lease Finance Corporation. (Filed as Exhibit 10.74 to WorldCorp, Inc.'s
        Annual Report on Form 10-K for the fiscal year ended December 31, 1993
        and incorporated herein by reference.)

10.18   Aircraft Lease Agreement for Aircraft Serial Number 48633 dated as of                            Incorporated
        September 30, 1992 between the Company and International Lease Finance                           By Reference
        Corporation. (Filed as Exhibit 10.41 to WorldCorp, Inc.'s Annual Report
        on Form 10-K for the fiscal year ended December 31, 1992 and
        incorporated herein by reference.)

10.19   Aircraft Lease Agreement for Aircraft Serial Number 48631 dated as of                            Incorporated
        September 30, 1992 between the Company and International Lease Finance                           By Reference
        Corporation. (Filed as Exhibit 10.42 to WorldCorp, Inc.'s Annual Report
        on Form 10-K for the fiscal year ended December 31, 1992 and
        incorporated herein by reference.)

10.20   Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Number                           Incorporated
        48631 dated as of April 28, 1995 between the Company and International                           By Reference
        Lease Finance Corporation.

10.21   Aircraft Lease Agreement for Aircraft Serial Number 48632 dated as of                            Incorporated
        September 30, 1992 between the Company and International Lease Finance                           By Reference
        Corporation. (Filed as Exhibit 10.43 to WorldCorp, Inc.'s Annual Report
        on Form 10-K for the fiscal year ended December 31, 1992 and
        incorporated herein by reference.)
</TABLE>
 
                                      24
<PAGE>
 
<TABLE>
<S>     <C>                                                                                              <C>
10.22   Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Number                           Incorporated
        48632 dated as of April 28, 1995 between the Company and International                           By Reference
        Lease Finance Corporation.

10.23   Accounts Receivable Management and Security Agreement dated as of                                Incorporated
        December 7, 1993 between the Company and BNY Financial Corporation.                              By Reference
        (Filed as Exhibit 10.46 to WorldCorp, Inc.'s Annual Report on Form 10-K
        for the fiscal year ended December 31, 1993 and incorporated herein by
        reference.)

10.24   Amendment (No. 1) to the Accounts Receivable Management and Security                             Incorporated
        Agreement between the Company and BNY Financial Corporation dated                                By Reference
        March 15, 1995 and effective as of January 1, 1995.

10.25   Amendment No. 2 to the Accounts Receivable Management and Security                               Incorporated
        Agreement between the Company and BNY Financial Corporation dated                                By Reference
        August 1995.

10.26   Long Term Aircraft Charter Agreement dated August 20, 1986 between the                           Incorporated
        Company and Malaysian Airline System Berhad (Filed as Exhibit 10.79 to                           By Reference
        WorldCorp's Annual Report on Form 10-K for the year ended December
        31, 1986).

10.27   Amendment dated April 10, 1991 to the Long Term Aircraft Charter                                 Incorporated
        Agreement dated August 20, 1986 between the Company and Malaysian                                By Reference
        Airline System Berhad.

10.28   Stock Purchase Agreement by and among the Company, WorldCorp, Inc.,                              Incorporated
        and Malaysian Helicopter Services Berhad dated as of October 30, 1993.                           By Reference
        (Filed as Exhibit 10.87 to WorldCorp, Inc.'s Annual Report on Form 10-K
        for the fiscal year ended December 31, 1994 and incorporated herein by
        reference.)

10.29   Stock Registration Rights Agreement between the Company and Malaysian                            Incorporated
        Helicopter Services Berhad dated as of October 30, 1993. (Filed as Exhibit                       By Reference
        10.88 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
        year ended December 31, 1994 and incorporated herein by reference.)

10.30   Shareholders Agreement between Malaysian Helicopter Services Berhad,                             Incorporated
        WorldCorp, Inc. and the Company, dated as of February 3, 1994. (Filed                            By Reference
        as Exhibit 10.89 to WorldCorp, Inc.'s Annual Report on Form 10-K for
        the fiscal year ended December 31, 1994 and incorporated herein by
        reference.)

10.31   Amendment No. 1 to Shareholders Agreement dated as of February 28,                               Incorporated
        1994, among WorldCorp, the Company and Malaysian Helicopter Services                             By Reference
        Berhad. (Filed as Exhibit 10.90 to WorldCorp  Inc.'s Annual Report on
        Form 10-K for the fiscal year ended December 31, 1994 and incorporated
        herein by reference.)

10.32   Agreement between the Company and the International Brotherhood of                               Incorporated
        Teamsters representing the Cockpit Crewmembers employed by the                                   By Reference
        Company dated August 15, 1994-June 30, 1998. (Filed as Exhibit 10.98 to
        WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended
        December 31, 1994 and incorporated herein by reference.)

10.33   Aircraft Services Agreement dated September 26, 1994 by and between the                          Incorporated
        Company and Malaysian Airline System Berhad. (Filed as Exhibit 10.101                            By Reference
        to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year
        ended December 31, 1994 and incorporated herein by reference.)
</TABLE>

                                      25
<PAGE>
 
<TABLE>
<S>     <C>                                                                                              <C>
10.34   Freighter Services Agreement dated October 6, 1994 by and between the                            Incorporated
        Company and Malaysian Airline System Berhad. (Filed as Exhibit 10.102                            By Reference
        to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year
        ended December 31, 1994 and incorporated herein by reference.)

10.35   Amendment No. 1 to Passenger Aircraft Services and Freighter Services                            Incorporated
        Agreement dated December 31, 1994 by and between the Company and                                 By Reference
        Malaysian Airline System Berhad. (Filed as Exhibit 10.107 to WorldCorp,
        Inc.'s Annual Report on Form 10-K for the fiscal year ended December
        31, 1994 and incorporated herein by reference.)

10.36   Amendment No. 2 to the Aircraft Services and Freighter Services                                  Incorporated
        Agreements by and between the Company and Malaysian Airline System                               By Reference
        Berhad, dated February 9, 1995.

10.37   Amendment No. 3 to the Freighter Services Agreement by and between the                           Incorporated
        Company and Malaysian Airline System Berhad dated May, 1995.                                     By Reference

10.38   1995 U.S. Air Force Contract F11626-94-D0027 dated October 1, 1994                               Incorporated
        between the Company and Air Mobility Command. (Filed as Exhibit                                  By Reference
        10.103 to WorldCorp, Inc.'s Annual Report on Form 10-K/A for the fiscal
        year ended December 31, 1994 and incorporated herein by reference.)

10.39   FY1996 Contractor Team Agreement among the Company, Continental                                  Incorporated
        Airlines, Inc., Emery Worldwide Airlines, Inc., Evergreen International                          By Reference
        Airlines, Inc., Miami Air International, Inc., Northwest Airlines, Inc. and
        Rich International Airways, Inc. dated April 3, 1995.

10.40   Lease agreement for Aircraft Serial Number 48485 dated as of January 15,                         Incorporated
        1991 between the Company and First Security National Bank of Utah,                               By Reference
        N.A. (Filed as Exhibit 10.65 to WorldCorp, Inc.'s Annual Report on Form
        10-K for the fiscal year ended December 31, 1991 and incorporated herein
        by reference).

10.41   Maintenance Agreement between Malaysian Airline System Berhad and the                            Incorporated
        Company dated March 1, 1995.                                                                     By Reference

10.42   Form of Master Services Agreement between the Company and                                        Incorporated
        WorldCorp, Inc.                                                                                  By Reference

10.43   1996 U.S. Air Force Contract dated October 1, 1995 between the                                   Incorporated
        Company and Air Mobility Command.                                                                By Reference

10.44   Amendment No. 3 to the Accounts Receivable Management and Security                               Incorporated
        Agreement between the Company and BNY Financial Corporation dated as                             By Reference
        of September 28, 1995.

10.45   Amendment No. 4 to the Accounts Receivable Management and Security                               Incorporated
        Agreement between the Company and BNY Financial Corporation dated as                             By Reference
        of September 28, 1995.

10.46   Form of Non-Employee Directors' Stock Option Plan.                                               Incorporated
                                                                                                         By Reference

11      Computation of earnings (loss) per share.                                                        Filed
                                                                                                         Herewith

27      Financial Data Schedule for the quarter ended September 30, 1996                                 Filed
                                                                                                         Herewith
(b)     Reports on Form 8-K

        None.
</TABLE> 

                                      26
<PAGE>
 
                                  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.



                                        WORLD AIRWAYS, INC.



                                        By: /s/ Michael E. Savage
                                           ---------------------
                                        (Michael E. Savage)
                                        Chief Financial Officer



Date:  November 14, 1996

                                      27