<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:  MARCH 31, 1997   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) 834-9200
                        (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 May 1, 1997
was 11,230,064.



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

                    MARCH 1997, QUARTERLY REPORT ON FORM 10Q

                               TABLE OF CONTENTS



                                                                         Page
                                                                         ----

PART I - FINANCIAL INFORMATION

       Item 1. Financial Statements
 
                Condensed Balance Sheets, March 31, 1997 and December 31,
                  1996...................................................  3
 
                Condensed Statements of Operations,
                 Three Months Ended March 31, 1997 and 1996..............  5
 
                Condensed Statement of Changes in Common Stockholders'
                  Equity, Three months ended March 31, 1997..............  6
 
                Condensed Statements of Cash Flows,
                 Three months ended March 31, 1997 and 1996..............  7
 
                Notes to Condensed Financial Statements..................  8
 
       Item 2.  Management's Discussion and Analysis of Financial
                Condition and Results of Operations...................... 10
 

PART II - OTHER INFORMATION

       Item 6.  Exhibits and Reports on Form 8-K......................... 21

                                       2
<PAGE>
   
ITEM 1.  FINANCIAL STATEMENTS

                              WORLD AIRWAYS, INC.
                            CONDENSED BALANCE SHEETS
                                     ASSETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
 
 
                                                        (unaudited)
                                                         March 31,    December 31,
                                                           1997           1996
                                                         ---------    ------------
<S>                                                      <C>          <C>
CURRENT ASSETS
     Cash and cash equivalents, including restricted
          cash of $49 at March 31, 1997 and
          $338 at December 31, 1996                       $  2,610        $  7,028
                                                                    
     Restricted short-term investments                       1,037           1,047
                                                                    
     Trade accounts receivable, less allowance for                  
          doubtful accounts of $413 at March 31, 1997               
          and December 31, 1996                             12,348          18,060
                                                                    
     Other receivables                                       6,747           4,464
                                                                    
     Due from affiliate                                      5,307           4,181
                                                                    
     Prepaid expenses and other current assets               7,174           7,778
                                                                    
     Assets held for sale                                      500             500
                                                          --------        --------
                                                                    
          Total current assets                              35,723          43,058
                                                          --------        --------
                                                                    
ASSETS HELD FOR SALE                                         3,300           3,426
                                                                    
EQUIPMENT AND PROPERTY                                              
     Flight and other equipment                             75,419          72,089
     Equipment under capital leases                         11,466          11,466
                                                          --------        --------
                                                            86,885          83,555
     Less: accumulated depreciation and amortization        20,368          18,553
                                                          --------        --------
                                                                    
          Net equipment and property                        66,517          65,002
                                                          --------        --------
                                                                    
LONG-TERM OPERATING DEPOSITS                                15,965          15,951
                                                                    
OTHER ASSETS AND DEFERRED CHARGES, NET                       2,357           2,687
                                                          --------        --------
                                                                    
TOTAL ASSETS                                              $123,862        $130,124
                                                          ========        ========
</TABLE>
                                                                    (Continued)

                                       3
<PAGE>
 
                              WORLD AIRWAYS, INC.
                            CONDENSED BALANCE SHEETS
                                  (CONTINUED)
                  LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
 
                                                                      (unaudited)
                                                                       March 31,    December 31,
                                                                         1997           1996
                                                                      ----------    ------------
<S>                                                                   <C>           <C>
CURRENT LIABILITIES
  Notes payable                                                         $  5,778        $ 11,386
  Current maturities of long-term obligations                              9,217           9,046
  Accounts payable                                                        19,350          22,749
  Net liabilities of discontinued operations                               1,017           1,834
  Unearned revenue                                                         2,595           3,046
  Accrued maintenance in excess of reserves paid                          18,293          13,737
  Accrued salaries and wages                                              10,039           9,351
  Accrued taxes                                                            1,164           1,225
  Due to affiliate                                                           541              83
  Other accrued liabilities                                                  145             157
                                                                        --------        --------
          Total current liabilities                                       68,139          72,614
                                                                        --------        --------
 
LONG-TERM OBLIGATIONS, NET                                                26,978          30,106
 
OTHER LIABILITIES
   Deferred gain from sale-leaseback transactions, net of
      accumulated amortization of $19,363 at March
      31, 1997 and $19,099 at December 31, 1996                            5,988           6,252
   Accrued maintenance in excess of reserves paid                          3,463           6,867
   Accrued postretirement benefits                                         2,596           2,545
   Other liabilities                                                       3,652           3,378
                                                                        --------        --------
          Total other liabilities                                         15,699          19,042
                                                                        --------        --------
 
TOTAL LIABILITIES                                                        110,816         121,762
                                                                        --------        --------
  
COMMON STOCKHOLDERS' EQUITY
   Common stock, $.001 par value (40,000,000 shares authorized;
      2,000,064 shares issued and 11,230,064 outstanding at
      March 31, 1997 and 12,000,064 shares issued and
      11,282,064 outstanding at December 31, 1996)                            12              12
    Preferred stock, $.001 par value (5,000,000 shares authorized
       and no shares issued or outstanding at March 31, 1997
       and December 31, 1996)                                                 --              --
     Additional paid-in capital                                           42,522          42,522
     Contributed capital                                                   3,000           3,000
     Accumulated deficit                                                 (23,986)        (29,006)
     ESSOP guaranteed bank loan                                             (665)           (805)
     Treasury stock, at cost (770,000 shares at March 31, 1997 
        and 718,000 shares at December 31, 1996)                          (7,837)         (7,361)
                                                                        --------        --------
          Total common stockholders' equity                               13,046           8,362
                                                                        --------        --------
 
COMMITMENTS AND CONTINGENCIES
 
TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
     EQUITY                                                             $123,862        $130,124
                                                                        ========        ========
</TABLE>
            See accompanying Notes to Condensed Financial Statements

                                       4
<PAGE>
 
                              WORLD AIRWAYS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                      FOR THE THREE MONTHS ENDED MARCH 31,
                      (IN THOUSANDS EXCEPT PER SHARE DATA)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
                                                1997      1996
                                              -------   -------- 
<S>                                           <C>       <C>
OPERATING REVENUES
   Flight operations                          $78,421    $64,505
   Flight operations subcontracted
      to other carriers                           240        664
     Other                                         87        196
                                               ------    -------
        Total operating revenues               78,748     65,365
                                              -------    -------
 
OPERATING EXPENSES
   Flight                                      16,432     20,293
   Maintenance                                 16,678     14,529
   Aircraft costs                              24,686     18,615
   Fuel                                         3,040      5,493
   Flight operations subcontracted
      to other carriers                           357      1,061
   Promotions, sales and commissions            2,281        984
   Depreciation and amortization                2,135      1,983
   General and administrative                   6,803      5,732
                                              -------    -------
      Total operating expenses                 72,412     68,690
                                              -------    -------
 
OPERATING INCOME (LOSS)                         6,336     (3,325)
                                              -------    -------
 OTHER INCOME (EXPENSE)
   Interest expense                            (1,163)      (721)
   Interest income                                148        322
   Other, net                                     (51)        37
                                              -------    -------
      Total other expense                      (1,066)      (362)
                                              -------    -------
 
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
    BEFORE INCOME TAXES                         5,270     (3,687)
 
INCOME TAX EXPENSE                                250        --
                                              -------    -------
 
EARNINGS (LOSS) FROM CONTINUING OPERATIONS      5,020     (3,687)
 
DISCONTINUED OPERATIONS
     Loss from discontinued operations            --      (4,187)
                                              -------    -------
 
NET EARNINGS (LOSS)                           $ 5,020    $(7,874)
                                              =======    =======
 
EARNINGS (LOSS) PER COMMON EQUIVALENT SHARE:
     Continuing operations                    $  0.45    $ (0.31)
     Discontinued operations                       --      (0.35)
                                              -------    -------
     Net earnings                             $  0.45    $ (0.66)
                                              =======    =======
 
WEIGHTED AVERAGE COMMON AND
   COMMON EQUIVALENT SHARES
   OUTSTANDING                                 11,238     12,000
                                              =======    =======
</TABLE>
            See accompanying Notes to Condensed Financial Statements

                                       5
<PAGE>
 
                              WORLD AIRWAYS, INC.
                        CONDENSED STATEMENTS OF CHANGES
                         IN COMMON STOCKHOLDERS' EQUITY
                   FOR THE THREE MONTHS ENDED MARCH 31, 1997
                                 (IN THOUSANDS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
 
 
                                                                                                         Total
                                        Additional                                ESSOP    Treasury      Common
                                Common    Paid-in   Contributed  Accumulated   Guaranteed    Stock,   Stockholders'
                                Stock     Capital     Capital      Deficit      Bank Loan   at Cost      Equity
                              ----------  --------  -----------  ------------  -----------  --------  --------------
<S>                           <C>         <C>       <C>          <C>           <C>          <C>       <C>
 
 BALANCE AT
  DECEMBER 31, 1996                  $12   $42,522       $3,000     $(29,006)        $(805)  $(7,361)        $ 8,362
                                                                                             
Common stock repurchases              --        --           --           --            --      (476)           (476)
                                                                                             
Employee Savings and Stock                                                                   
  Ownership Plan                                                                             
  Guaranteed bank loan                --        --           --           --           140        --             140
                                                                                             
Net earnings                          --        --           --        5,020            --        --           5,020
                              ----------  --------  -----------  -----------   -----------   -------         -------
                                                                               
BALANCE AT                                                                     
  MARCH 31, 1997                     $12   $42,522       $3,000     $(23,986)        $(665)  $(7,837)        $13,046
                              ==========  ========  ===========  ===========    ==========   =======         =======
 
</TABLE>

           See accompanying Notes to Condensed Financial Statements

                                       6
<PAGE>
 
                              WORLD AIRWAYS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                      FOR THE THREE MONTHS ENDED MARCH 31,
                                 (IN THOUSANDS)
                                  (UNAUDITED)
                                        
<TABLE>
<CAPTION>
 
 
                                                                1997      1996
                                                              -------   --------
<S>                                                           <C>       <C>
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD              $ 7,028   $ 25,271
 
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)                                             5,020     (7,874)
Adjustments to reconcile net earnings (loss) to cash
     provided (used) by operating activities:
     Depreciation and amortization                              2,135      1,983
     Deferred gain recognition                                   (264)      (266)
     Other                                                        133         --
     Changes in certain assets and liabilities net of
          effects of non-cash transactions:
          Decrease in accounts receivable                       3,670      1,994
          Increase in restricted short-term investments            10         --
          Decrease in deposits, prepaid expenses
            and other assets                                      610        682
          Increase (decrease) in accounts payable, accrued
            expenses and other liabilities                     (3,141)     6,013
          Decrease in unearned revenue                           (451)    (6,452)
          Increase in air traffic liability                        --        185
                                                              -------   --------
     Net cash provided (used) by operating activities           7,722     (3,735)
                                                              -------   --------
 
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property                            (2,659)    (3,198)
Proceeds from disposals of equipment and property                 182        157
                                                              -------   --------
     Net cash used by investing activities                     (2,477)    (3,041)
                                                              -------   --------
 
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in line of credit borrowing
     arrangement, net                                          (4,086)      (473)
Issuance of debt                                                  163        184
Repayment of debt                                              (5,264)    (4,644)
Purchase of World Airways common stock, at cost                  (476)        --
                                                              -------   --------
     Net cash used by financing activities                     (9,663)    (4,933)
                                                              -------   --------
 
NET DECREASE IN CASH AND CASH EQUIVALENTS                      (4,418)   (11,709)
                                                              -------   --------
 
CASH AND CASH EQUIVALENTS AT END OF
     PERIOD                                                   $ 2,610   $ 13,562
                                                              =======   ========
</TABLE>   
           See accompanying Notes to Condensed Financial Statements

                                       7
<PAGE>
 
                              WORLD AIRWAYS, INC.
                    NOTES TO CONDENSED FINANCIAL STATEMENTS



1.   The condensed balance sheet of World Airways, Inc. ("World Airways" or the
     "Company") as of March 31, 1997, the related condensed statements of
     operations for the three month periods ended March 31, 1997 and 1996, the
     condensed statements of changes in common stockholders' equity for the 
     three months ended March 31, 1997 and 1996, and the condensed statements of
     cash flows for the three months ended March 31, 1997 and 1996 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, 1996.

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 were restated to reflect scheduled service operations as
     discontinued operations.  Loss from discontinued operations (net of income
     tax effect) approximated $11.7 million for the year ended December 31,
     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 would 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 has incurred
     approximately $19.8 million of these costs through March 31, 1997 and
     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. In connection with the discontinuance of the Company's scheduled
     service operations, the Company is subject to claims by various third
     parties and may be subject to further claims in the future.

3.   In October 1996, World Airways announced its intention to purchase up to
     one million shares of its publicly-traded common stock pursuant to open
     market transactions.  As of March 31, 1997, World Airways has purchased
     770,000 shares of its common stock for an aggregate cost of $7.8 million.
     World Airways does not intend to purchase any additional shares at this
     time.

4.   Although the Company's strategy is to enter into long-term contracts with
     its customers, the terms of the Company's existing customer contracts are
     substantially shorter than the terms of the Company's lease obligations
     with respect to its aircraft.  The Company's financial results could be
     materially adversely affected even by relatively brief periods of low
     aircraft utilization and yields.  While the percentage of its 1997 block
     hour capacity that is currently under contract exceeds the comparable
     percentage in the past several years, the Company still has uncontracted
     capacity in the third and fourth quarters of 1997.  In addition, a
     significant portion of the Company's current contracts expire near the end
     of 1997.  Although there can be no assurance that it will be able to secure
     additional business to reduce this excess capacity, the Company is actively
     seeking customers for 1997 and beyond, and has historically been successful
     in obtaining new customers.

     A substantial portion of the Company's contracted business is with two
     customers: Malaysian Airlines and Philippine Airlines.  Although the
     Company's customers bear the financial risk of filling the Company's
     aircraft with passengers or cargo, the Company can be affected adversely if
     its customers are unable to operate the Company's aircraft profitably, or
     if one or more of the Company's customers experience a material adverse
     change in their market demand, financial condition or results of
     operations.  Under these circumstances,

                                       8
<PAGE>
 
     the Company can be adversely affected by receiving delayed or partial
     payments or by receiving customer demands for rate and utilization
     reductions, flight cancellations, and/or early termination of their
     agreements. Also, at Philippine Airlines' request, the Company agreed to a
     payment plan with respect to Philippine Airlines' wet lease obligations
     beginning in March 1997. Although Philippine Airlines is current on this
     plan to date, if Philippine Airlines defaults on this payment plan, or
     fails to meet its monthly aircraft lease obligations, this development, if
     not offset by other business, would have a material adverse effect on the
     cash flows, financial condition and results of operation of World Airways.

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

6.   In February 1997, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards ("SFAS") No. 128 (FAS #128)  Earnings per
     Share, and SFAS No. 129 ("FAS #129) Disclosure of Information About Capital
     Structure.  FAS #128 was issued to simplify the computation of earnings per
     share and to make the U.S. standard more compatible with the standards of
     other countries and that of the International Accounting Standards
     Committee.  FAS #128 replaces primary and full diluted earnings per share
     with basic earnings and diluted earnings per share.  FAS #129 will change
     some of the required disclosures about capital structure.  It is not
     expected that these statements will have a material effect on the Company's
     financial statements.  The statements are effective for the year ended
     December 31, 1997.

                                       9
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------  -----------------------------------------------------------------------
         OF OPERATIONS
         -------------


Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of World Airways, Inc.
("World Airways" or "the Company") as reflected in its financial statements.
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.  At March 31, 1997, WorldCorp and MHS owned 61.6% and 17.7%,
respectively, of the outstanding common stock of World Airways.  The balance was
publicly traded.

On March 14, 1997, World Airways announced that Charles W. Pollard departed as
President and Chief Executive Officer.  Russell L. Ray, Jr., Director, will act
as President on an interim basis pending the hiring of a new CEO.

The managements of WorldCorp and World Airways are currently exploring ways to
maximize value for the shareholders of each company.  WorldCorp is currently
evaluating the feasibility of a disposition of its interest in World Airways
through a secondary offering or to a third party.  There can be no assurances,
however, that any such transactions will ultimately be consummated.  In 1996,
the Company instituted a program to purchase up to one million shares of its
publicly-traded Common Stock pursuant to open market transactions.  As of March
31, 1997, World Airways has purchased 770,000 shares of its Common Stock for an
aggregate cost of $7.8 million.  World Airways does not intend to purchase any
additional shares at this time.

The Private Securities Litigation Reform Act of 1995 (the "Act") was recently
passed by Congress.  The Company desires to take advantage of the "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.  These risks could cause the Company's
actual results for 1997 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 is a leading global provider of long-range passenger and cargo air
transportation outsourcing services to major international airlines under fixed
rate, multi-year contracts.  The Company's passenger and freight operations
employ 13 wide-body aircraft which are currently operated under contracts,
primarily with Pacific Rim airlines.  These contracts generally require the
Company to supply aircraft, crew, maintenance and insurance ("ACMI" or "wet
lease"), while the Company's customers are responsible for a large portion of
the other operating expenses, including fuel.  World Airways' airline customers
have determined that outsourcing a portion of their wide-body passenger and
cargo requirements can be less expensive, and offer greater operational and
financial flexibility, than purchasing new aircraft and additional spare parts
required for such aircraft.  World Airways also leads a contractor teaming
arrangement that is the largest single supplier of commercial airlift services
to the United States Air Force's Air Mobility Command ("U.S. Air Force" or
"USAF").

In July 1996, World Airways restructured its business to focus on the growing
and profitable ACMI contract services. As such, the Company ceased all scheduled
passenger and scheduled charter services as of October 27, 1996, taking a one-
time charge of $21.0 million (see "Discontinuation of Scheduled Service
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:  wet lease contracts and
full service contracts.  Under wet lease contracts, the Company provides the
aircraft, cockpit crew, maintenance and insurance and the customer provides all
other operating services

                                       10
<PAGE>
 
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 wet lease 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 wet lease 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 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 important 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

Historically, the Company's business has relied heavily on its contracts with
Malaysian Airline System Berhad ("Malaysian Airlines"), P.T. Garuda Indonesia
("Garuda") and the U.S. Air Force.  For the first quarter of 1997, these
customers provided approximately 33%, 13%, and 17%, respectively, of the
Company's revenues and 37%, 14%, and 10%, respectively, of total block hours.
These customers provided approximately 34%, 13%, and 25%, respectively, of the
Company's revenues and 42%, 14%, and 17%, respectively, of total block hours
from continuing operations during 1996.  In 1996, the Company commenced
operations for Philippine Airlines, Inc. ("Philippine Airlines") providing four
MD-11 aircraft under year-round wet lease contracts.  For the first quarter of
1997 and the twelve months ended December 31, 1996, respectively, these
operations provided approximately 36% and 15% of the Company's revenues and 37%
and 17% of its block hours from continuing operations.  The Company expects that
the agreement with Philippine Airlines will continue to have a substantial
impact on its revenues and block hours in 1997.

Malaysian Airlines.  World Airways has provided wet lease services 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.  MHS, which owned 17.7% of the Company as of March
31, 1997, also owns 29.1% of Malaysian Airlines.  In late 1994, the Company
entered into a series of multi-year contracts, with expiration dates ranging
from 1997 to 2000, to provide aircraft to Malaysian Airlines. 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.  The Company is providing three aircraft for
1997 Hadj operations.  The Company is currently in preliminary discussions with
Malaysian Airlines regarding a potential eleven-month reduction in the
utilization of one of these aircraft during the 32-month term of the contract.

Until recently, the Company operated four passenger aircraft for Malaysian
Airlines under the multi-year agreements described above.  The contract for two
of the four passenger aircraft for Malaysian Airlines expired in March 1997.
While the Company is deploying these two aircraft in the 1997 Hadj, and will
actively re-market the aircraft thereafter, the Company can provide no assurance
that it will be able to redeploy the two aircraft, beginning June 1997, at price
and utilization levels at least as favorable as under the terms of the Malaysian
Airlines contracts.
 
The Company originally operated three MD-11 cargo aircraft for Malaysian
Airlines.  However, beginning in July 1996, and as mutually agreed by the
parties, World Airways redeployed two cargo aircraft, which had been operating
under these contracts, into the Philippine Airlines contract.  The Company and
Malaysian Airlines are currently discussing the future redeployment of these
aircraft back into Malaysian Airlines' operations in order to meet the
contracts' original obligations.  The Company can provide no assurances,
however, that the Company will, in fact, be able to redeploy these two aircraft
back into Malaysian Airlines' operations to meet the contracts' original
obligations. Revenues associated with these contractual obligations are included
in the Company's backlog amount included herein.

                                       11
<PAGE>
 
Garuda.  The Company has flown for Garuda periodically since 1973 and yearly
------                                                                      
since 1988.  Since 1988, the Company has been one of the largest providers of
passenger services to Indonesia for the Hadj pilgrimage.  The Indonesian Hadj
pilgrimage is the world's largest due to the size of Indonesia's Islamic
population. In 1996, approximately 200,000 Indonesians traveled to Jeddah for
the Hadj pilgrimage.  During the 1996 Hadj pilgrimage, the Company provided
passenger service to Garuda with seven aircraft, flying approximately 40,000
Indonesians on Company aircraft. Due to the Company's capacity constraint during
the period of Hadj flying, the Company reached an agreement with Garuda to
operate six aircraft during the 1997 pilgrimage.

Philippine Airlines. In May 1996, the Company entered into a new ACMI contract
-------------------                                                           
with Philippine Airlines, thereby further expanding its presence in the Pacific
Rim.  The Company presently operates four MD-11 passenger aircraft for
Philippine Airlines under an agreement, with high minimum monthly utilization
levels. The Company, however, has recently received a written communication from
Philippine Airlines in which the airline contends that its leases for all four
aircraft expire on November 15, 1997.  The Company believes that this position
is contrary to the understanding of the parties that each of the MD-11s are to
be leased by Philippine Airlines for a period of 18 months from delivery of each
aircraft.  The parties are currently discussing the length of the lease term for
these aircraft.  The Company can provide no assurances, however, that Philippine
Airlines will agree to lease any of the four MD-11 passenger aircraft beyond
November 15, 1997, or that the Company will be able to secure other business at
as favorable price and utilization levels.

Also, subsequent to year-end, at Philippine Airlines' request, the Company
agreed to a payment plan with respect to Philippine Airlines' wet lease
obligations beginning in March 1997.  Although Philippine Airlines is current on
this payment plan to date, if Philippine Airlines defaults on this payment plan,
or fails to meet its monthly aircraft lease obligations, this development, if
not offset by other business, would have a material adverse effect on the cash
flows, financial condition and results of operations of World Airways.

U.S. Air Force.  The Company has provided international air transportation to
--------------                                                               
the U.S. Air Force since 1956. The overall downsizing of the U.S. military,
combined with a need to respond quickly to the growing number of global regional
conflicts places a premium on the mobility of the U.S. armed forces.  This is
reflected in the stable size over the past several years of the USAF's
procurement of commercial airlift services.  Although the Company's agreements
with the USAF provide for full service contracts with certain minimum
performance requirements, the Company has risks similar to an ACMI agreement
because the USAF agreements are cost-plus contracts at attractive rates.

The USAF awards points to air carriers acting alone or through teaming
arrangements in proportion to the number and type of aircraft such carriers make
available to Civil Reserve Air Fleet.  The Company utilizes such teaming
arrangements to maximize the value of potential awards.  The Company leads a
contractor teaming arrangement that enjoys a 44% market share of the USAF's
overall commercial airlift requirement.  During a period in which the U.S.
military downsized substantially, the Company's portion of the fixed USAF award
increased from $15.6 million for the government's 1992-93 fiscal year, to $52.8
million for the 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 and ad hoc basis as needs arise.  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 the U.S. Air Force's 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.

Although the Company's customers bear the financial risk of filling the
Company's aircraft with passengers or cargo, the Company can be affected
adversely if its customers are unable to operate the Company's aircraft
profitably, or if one or more of the Company's customers experience a material
adverse change in their market demand, financial condition or results of
operations.  Under these circumstances, the Company can be adversely affected by
receiving delayed or partial payments or by receiving customer demands for rate
and utilization reductions, flight cancellations, and/or early termination of
their agreements.

As a result of these and other contracts, the Company had an overall contract
backlog at March 31, 1997 of $414.0

                                       12
<PAGE>
 
million, compared to $430.4 million at March 31, 1996. Approximately $199.3
million of the backlog relates to 1997 operations. The Company's backlog for
each contract is determined by multiplying the minimum number of block hours
(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
destination) guaranteed under the applicable contract by the specified hourly
rate under such contract. Approximately 64% and 17% of the backlog relates to
its contracts with Malaysian Airlines and Philippine Airlines, respectively.
While the percentage of its 1997 block hour capacity that is currently under
contract exceeds the comparable percentage in the past several years, the
Company still has uncontracted capacity in the third and fourth quarters of
1997. In addition, a significant portion of the Company's current contracts
expire near the end of 1997. Although there can be no assurance that it will be
able to secure additional business to reduce this excess capacity, the Company
is actively seeking customers for 1997 and beyond. The Company's financial
results and financial condition would be affected adversely if the Company is
unable to secure additional business to reduce this excess capacity.

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 due to lower demand for passenger and cargo
services relative to other times of the year.  The Company experiences higher
levels of utilization and yields in the second quarter, principally due to peak
demand for commercial passenger services associated with the annual Hadj
pilgrimage.  In 1997, the Company's flight operations associated with the Hadj
pilgrimage will occur from March 15 to May 20. Because the Islamic calendar is a
lunar-based calendar, the Hadj pilgrimage occurs approximately 10 to 12 days
earlier each year relative to the Western (Gregorian) calendar.  As a result,
revenues resulting from future Hadj pilgrimage contracts will continue to shift
from the second quarter to the first quarter over the next several years.  World
Airways believes that its contracts with Malaysian Airlines and the USAF should
lessen the effect of these seasonal factors.

GEOGRAPHIC CONCENTRATION

The Company derives a significant percentage of its revenues and block hours
from its operations in the Pacific Rim region.  While the Company believes the
Pacific Rim region is a growth market for air transportation, any economic
decline or any military or political disturbance in this area may interfere with
the Company's ability to provide service in this area and could have a material
adverse effect on the financial condition or results of operations of the
Company.

UTILIZATION OF AIRCRAFT

Due to the large capital costs of leasing and maintaining the Company's
aircraft, each of the Company's aircraft must have high utilization at
attractive rates in order for the Company to operate profitably.  Although the
Company's strategy is to enter into long-term contracts with its customers, the
terms of the Company's existing customer contracts are substantially shorter
than the terms of the Company's lease obligations with respect to the aircraft.
There can be no assurance that the Company will be able to enter into additional
contracts with new or existing customers or that it will be able to obtain
enough additional business to fully utilize each aircraft.  The Company's
financial results could be materially adversely affected even by relatively
brief periods of low aircraft utilization and yields.  In order to maximize
aircraft utilization, the Company does not intend to acquire new aircraft unless
such aircraft would be necessary to service existing needs or the Company has
obtained additional ACMI contracts for the aircraft to service.  The Company is
seeking to obtain additional ACMI contracts with new and existing customers, to
which such new aircraft would be dedicated when placed in service, but the
Company can provide no assurance that it will obtain new ACMI contracts or that
existing ACMI contracts will be renewed or extended.

MAINTENANCE

Engine maintenance accounts for most of the Company's annual maintenance
expenses. Typically, the hourly cost of engine maintenance increases as the
aircraft ages.  The Company outsources major airframe maintenance and power
plant work to several suppliers.  The Company has a 10-year contract expiring in
August 2003 with United Technologies Corporation's Pratt & Whitney Group 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 specified rates per hour during the term of the
contract. The Company's maintenance costs associated with

                                       13
<PAGE>
 
the MD-11 aircraft and PW 4462 engines have been significantly reduced due in
part to manufacturer guarantees and warranties which began to expire in 1995 and
which will fully expire by 1998. In addition, the specified rates per hour are
subject to annual escalation, increasing substantially in 1998. Accordingly,
while the Company believes the terms of this agreement have resulted in lower
engine maintenance costs than it otherwise would incur, engine maintenance costs
will increase substantially during the last five years of the agreement. The
Company has begun to accrue these increased expenses in 1997. Therefore, the
Company expects that maintenance expenses will continue to increase during the
remainder of the term of the contract as the Company's aircraft fleet ages.

OPERATING LOSSES

While the Company generated operating income each year from 1987 through 1992
and in 1995, it 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.  For the year ended December 31, 1996, the Company incurred a net loss of
$14.0 million, which resulted from operating losses incurred in the Company's
scheduled service operations, which were discontinued in 1996, and the related
estimated loss on disposal.  Earnings from continuing operations were $18.4
million for 1996.  While the Company generated operating income for the quarter
ended March 31, 1997, there can be no assurance that the Company will be able to
continue generating operating income for the remainder of 1997 or future years.

DISCONTINUATION OF SCHEDULED SERVICE OPERATIONS

For its scheduled service operations, the Company commenced service between Tel
Aviv and New York in July 1995 and commenced service between the United States
and South Africa in June 1996.  In addition, the Company commenced scheduled
charter operations between the United States and various destinations within
Europe in May 1996.  The Company, however, was unable to operate these scheduled
service operations profitably.

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 were
restated to reflect scheduled service operations as discontinued operations.
Loss from discontinued operations (net of income tax effect) approximated $11.7
million for the year ended December 31, 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 would 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
$19.8 million of these costs through March 31, 1997 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. In
connection with the discontinuance of the Company's scheduled service
operations, the Company is subject to claims by various third parties and may be
subject to further claims in the future (see "Other Matters - Legal and
Administrative Procedures").

CONTROL BY WORLDCORP; POTENTIAL CONFLICTS OF INTEREST

As of March 31, 1997, WorldCorp owned approximately 61.6% of the Company's
outstanding common stock.  WorldCorp is a holding company that owns positions in
two companies:  InteliData Technologies Corporation ("InteliData") and the
Company.  WorldCorp is highly leveraged and therefore requires substantial funds
to cover debt service each year.  As a holding company, all of WorldCorp's funds
are generated through its subsidiaries, neither of which is expected to pay
dividends in the foreseeable future.  As a result of WorldCorp's cash
requirements, it may be required to sell additional shares of the Company's
common stock during 1997, and such sales, or the threat of such sales, could
have a material adverse affect on the market price on the Company's common
stock.  The Company's ability to pay dividends is subject to certain
restrictions contained within a WorldCorp indenture (see "Other Matters -
Dividend Policy").  Except as limited by contractual arrangements with MHS,
WorldCorp also is in a position to control the outcome of substantially all
issues submitted to the Company's stockholders, including the election of all of
the Company's Board of Directors, adoption of amendments to the Company's
Certificate of Incorporation, and approval of mergers.  Under Delaware law,
WorldCorp may approve

                                       14
<PAGE>
 
certain actions by written consent without a meeting of the stockholders of the
Company. In addition, the Company's Board of Directors has eight members, one of
whom, T. Coleman Andrews, III, is Chairman of the Board of WorldCorp.

The managements of WorldCorp and World Airways are currently exploring ways to
maximize value for the shareholders of each company.  WorldCorp is currently
evaluating the feasibility of a disposition of its interest in World Airways
through a secondary offering or a sale to a third party.  There can be no
assurances, however, that any such transactions will ultimately be consummated.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996

Total block hours increased 1,180 hours, or 11%, to 11,814 hours in the first
quarter of 1997 from 10,634 hours in 1996, with an average of 13.4 available
aircraft per day in 1997 compared to 11.6 in 1996.  Average daily utilization
(block hours flown per day per aircraft) decreased to 9.8 hours in 1997 from
10.1 hours in 1996.  In 1997, wet lease contracts accounted for 89% of total
block hours, an increase from 66% in 1996.  Total operating revenues increased
$13.3 million, or 20%, to $78.7 million in 1997 from $65.4 million in 1996.

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

Block hours from continuing operations increased 1,980 hours, or 20%, to 11,814
hours in the first quarter of 1997 from 9,834 hours in 1996.

Operating Revenues.  Revenues from flight operations increased $13.9 million, or
------------------                                                              
22%, to $78.4 million in 1997 from $64.5 million in 1996.  This increase was
primarily attributable to the increase in block hours flown in 1997 over 1996.
In addition, the Company experienced a shift in its mix of business during 1997
with an increase in wet lease operations from full service operations.

Operating Expenses.  Total operating expenses increased $3.7 million, or 5%, in
------------------                                                             
1997 to $72.4 million from $68.7 million in 1996.

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 decreased $3.9 million, or 19%, in
1997 to $16.4 million from $20.3 million in 1996.  This decrease resulted
primarily from the shift in the mix of business from full service to wet lease
operations, partially offset by higher crew costs.  The Company expects that it
will experience increased training costs during 1997 as a result of crewmember
attrition.

Maintenance expenses increased $2.2 million, or 15%, in 1997 to $16.7 million
from $14.5 million in 1996.  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 and related engines as a result of certain
manufacturer guarantees and warranties which began to expire in 1995 and will
fully expire by 1998. As discussed previously, the Company expects its
maintenance expense to increase in 1997 due to escalations in the specified
rates per hour under the Company's maintenance agreement.

Aircraft costs increased $6.1 million, or 33%, in 1997 to $24.7 million from
$18.6 million in 1996.  This increase resulted from the increase in the number
of aircraft dedicated to the Company's continuing operations, primarily due to
the lease of two MD-11ER aircraft in March 1996 and the lease of additional
spare engines necessary to maintain the expanded fleet.

Fuel expenses decreased $2.5 million, or 45%, in 1997 to $3.0 million from $5.5
million in 1996.  This decrease is due primarily to the shift from full service
to wet lease operations where the Company is not responsible for fuel
costs.  This decrease was partially offset by a slight increase in price per
gallon.

Promotions, sales and commissions increased $1.3 million in 1997 to $2.3 million
from $1.0 million in 1996. This increase resulted primarily from commissions
paid in connection with the Philippine Airlines contract.

                                       15
<PAGE>
 
Depreciation and amortization increased $0.1 million in 1997 to $2.1 million
from $2.0 million in 1996.  This increase resulted primarily from an increase in
spare parts required to support the additional MD-11 aircraft described above,
offset by a decrease in the amortization of certain intangible assets.

General and administrative expenses increased $1.1 million, or 19%, in 1997 to
$6.8 million from $5.7 million in 1996.  This increase was primarily due to the
hiring of additional administrative personnel, subsequent to the first quarter
of 1996, necessary to support the growth in the Company's core business, an
increase in property tax accruals, and an increase in certain legal fees.

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

As mentioned above, the Company commenced service between Tel Aviv and New York
in July 1995.  In the first quarter of 1996, the Company generated $4.2 million
in losses related to these operations.  In the second quarter of 1996, the
Company expanded its scheduled service operations with service between the
United States and South Africa and introduced scheduled charter operations
between the United States and various destinations within Europe.  As the
Company was unable to operate these scheduled service operations profitably, in
July 1996, the Company announced its decision to exit its scheduled service
operations by October 1996 and focus its operations on its core wet lease
operations.  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 were restated to reflect scheduled service operations as
discontinued operations.

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.  At March 31, 1997, the Company had
total long-term indebtedness of approximately $27.0 million and notes payable
and current maturities of long-term obligations of $15.0 million.  In addition,
the Company has significant future long-term obligations under aircraft lease
obligations relating to its aircraft. 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. The degree to
which the Company is leveraged could have important consequences to holders of
Common Stock, including the following:  (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or other purposes may be limited; (ii) the Company's degree of
leverage and related debt service obligations, as well as its obligations under
operating leases for aircraft, may make it more vulnerable than some of its
competitors in a prolonged economic downturn; and (iii) the Company's financial
position may restrict its ability to pursue new business opportunities and limit
its flexibility in responding to changing business conditions.

The Company's cash and cash equivalents at March 31, 1997 and December 31, 1996
were $2.6 million and $7.0 million, respectively.  As is common in the airline
industry, the Company operates with a working capital deficit. At March 31, 1997
the Company's current assets were $35.7 million and current liabilities were
$68.1 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 remaining phase-out of its discontinued
operations and the operating and capital requirements  for its continuing
operations for the next twelve months.

In 1996, the Company instituted a program to purchase up to one million shares
of its publicly-traded Common Stock pursuant to open market transactions.  As of
March 31, 1997, the Company had purchased 770,000 shares of its Common Stock at
an aggregate cost of approximately $7.8 million pursuant to such purchases.  The
Company does not intend to repurchase any additional shares at this time.

CASH FLOWS FROM OPERATING ACTIVITIES

Operating activities provided $7.7 million in cash for the quarter ended March
31, 1997 compared to using $3.7 million in the comparable period in 1996.  This
increase in cash in 1997 resulted primarily from an increase in net earnings and
a decrease in accounts receivable, partially offset by a decrease in accounts
payable, accrued expenses, and other liabilities.

                                       16
<PAGE>
 
CASH FLOWS FROM INVESTING ACTIVITIES

Investing activities used $2.5 million in cash for the quarter ended March 31,
1997, compared to $3.0 million in the comparable period in 1996.  In 1997, cash
was used primarily for the purchase of rotable spare parts and engine upgrades
required for the integration of two MD-11 aircraft.

CASH FLOWS FROM FINANCING ACTIVITIES

Financing activities used $9.7 million in cash for the quarter ended March 31,
1997 compared to using $4.9 million in the comparable period in 1996.  This
decrease in cash resulted primarily from an increase in repayments of the
Company's net borrowings and the purchase of shares of the Company's common
stock for an aggregate cost of $0.5 million in 1997.

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.  As of March 31, 1997,
annual minimum payments required under the Company's aircraft and lease
obligations totaled $66.0 million for the remainder of 1997.

As of March 31, 1997, World Airways leases one short-term DC10-30 aircraft and
four long-term DC10-30 aircraft with terms expiring in 1999, 2003, and two in
1997.

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 was made available in December 1996.  As of March 31,
1997, approximately $7.1 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, which is
expected to be during 1997.

The Company anticipates that its total capital expenditures in 1997, which
includes the spare engine, will approximate $10.2 million of which the Company
will receive approximately $6.1 million in financing.  The Company expects that
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 $25.0 million in
1997.

                                       17
<PAGE>
 
As of March 31, 1997, the Company held approximately $3.8 million (at book
value) of aircraft spare parts currently available for sale.

FINANCING DEVELOPMENTS

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 is collateralized by certain receivables, inventory, and equipment.
As of March 31, 1997, the outstanding balance of the spare parts loan and
revolving line of credit was $5.8 million and $2.7 million, respectively, with
$0.4 million 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 1997 of more than $25.0 million or
in any subsequent year of more than $15.0 million. Recently, the date that World
Airways is required to pay any outstanding amounts under the line of credit was
extended to December 31, 2000. The aircraft security agreement remains payable
in 1999.  The Company must also maintain a certain quarterly net worth and net
income (loss) requirements.  While the Company was in compliance with these
covenants at March 31, 1997, no assurances can be given that the Company will
continue to meet these covenants or, if necessary, obtain the required waivers.
In addition, World Airways granted warrants to BNY in October 1996 to purchase
up to 50,000 shares of common stock.

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 at a cost of 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% of its
purchase price over a seven-year term with an interest rate to be fixed at the
time of delivery.

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 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 World Airways and approximately
$2.0 million from WorldCorp. Under a settlement agreement which remains subject
to certain contingencies, 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. On January 28,
1997, the U.S. District Court conditionally dismissed the Boster Litigation
subject to reinstatement if the settlement is not finalized by May 15, 1997. 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 financial condition or results of
operations of the Company.

The Company has periodically received correspondence from the FAA with respect
to minor noncompliance matters.  Most recently, as the FAA has increased its
scrutiny of U.S. airlines, the Company was assessed a preliminary fine of
$810,000 in connection with certain minor security violations by ground handling
crews contracted by the

                                       18
<PAGE>
 
Company for services at foreign airport locations. In each of these instances,
the Company was in compliance with international regulations, but not the more
stringent U.S. requirements. The Company has taken steps to comply with the U.S.
requirements and believes that any fines ultimately imposed by the FAA will not
have a material adverse effect on the financial condition or results of
operations of the Company. The Company believes the amount of fines it will
ultimately be assessed will be below the preliminary assessment. This estimated
amount is included in liabilities in the accompanying balance sheet at March 31,
1997.

In connection with the discontinuance of the Company's scheduled service
operations, the Company is subject to claims by various third parties and may be
subject to further claims in the future.  One claim has been filed in connection
with the Company's discontinuance of scheduled service to South Africa, seeking
approximately $37.8 million in compensatory and punitive damages.  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 plaintiff were successful in recovering
the full amount claimed, the resolution could have a material adverse effect on
the Company's financial condition or results of operations.

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.

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, who are also represented by the Teamsters, are
subject to a four-year collective bargaining agreement that will expire in
August 2000.  The Company's flight attendants challenged 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 arbitrator in this matter
recently denied the Union's request for back pay to affected flight attendants
for flying relating to the 1994 Hadj, the arbitrator concluded that the
Company's contract with its flight attendants requires the Company to first
actively seek profitable business opportunities that require using the Company's
flight attendants, before the Company may accept wet lease business
opportunities that use the flight attendants of the Company's customers.  The
Company can provide no assurances as to how the imposition of this requirement
will affect the Company's financial condition and results of operations.

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.

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

                                       19
<PAGE>
 
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
61.6% of the Company's common stock as of March 31, 1997, is subject to the
provisions of an indenture, terminating in 2004, which causes the Company not to
pay dividends upon the occurrence of any events of default by WorldCorp under
such indenture.

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, 1996,
the Company had NOLs for federal income tax purposes of $104.7 million which, if
not utilized to offset taxable income in future periods, will expire from 1998
to 2011. Of this amount, $38.1 million is subject to a $6.9 million annual
limitation resulting from the 1991 Ownership Change.

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.

INFLATION

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

                                       20
<PAGE>
 
                                    PART IV

ITEM 6.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
 
(a)  Exhibits

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

 4.1    Article IV of the Company's Amended and Restated Certificate     Incorporated
        of Incorporation, incorporated by reference to Exhibit 3.1       By Reference
        filed herewith, and 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                                  Incorporated
        Plan.                                                            By Reference
 
10.2    Form of Directors'                                               Incorporated
        Indemnification Agreement.                                       By Reference
 
10.9    Aircraft Lease Agreement for Aircraft Serial Number 48518        Incorporated
        dated as of September 30, 1992 between the Company and           By Reference
        and International 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.

10.10   Amendment No. 1 to Aircraft Lease Agreement for Aircraft         Incorporated
        Serial Number 48518 dated as of November 1992 between the        By Reference
        Company and International 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.)
 
10.11   Amendment No. 2 to Aircraft Lease Agreement for                  Incorporated
        Aircraft Serial Number 48518 dated as of March 8, 1993           By Reference
        between the Company and International 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        Incorporated
        dated as of September 30, 1992 between the Company and           By Reference
        International Lease Finance 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         Incorporated
        Serial Number 48519 dated as of April 23, 1993 between           By Reference
        the Company and International Lease Finance Corporation.

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

                                       21
<PAGE>
<TABLE>
<CAPTION>

<S>     <C>                                                              <C> 
10.15   Aircraft Lease Agreement for Aircraft Serial Number 48437        Incorporated
        dated as of September 30, 1992 between theInternational          By Reference
        Lease Finance 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                  Incorporated
        Aircraft Serial Number 48437 dated as of March 31, 1993          By Reference
        between the Company and International 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                  Incorporated
        Aircraft Serial Number 48437 dated as of April 15, 1993          By Reference
        between the Company and International 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              Incorporated
        48633 dated as of September 30, 1992 between the Company         By Reference
        and International Lease Finance 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              Incorporated
        48631 dated as of September 30, 1992 between the Company         By Reference
        and International Lease Finance 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                  Incorporated
        Aircraft Serial Number 48631 dated as of April 28, 1995          By Reference
        between the Company and International Lease Finance
        Corporation.
 
10.21   Aircraft Lease Agreement for Aircraft Serial Number              Incorporated
        48632 dated as of September 30, 1992 between the Company         By Reference
        and International Lease Finance 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.)
 
10.22   Amendment No. 2 to Aircraft Lease Agreement for Aircraft         Incorporated
        Serial Number 48632 dated as of April 28, 1995 between           By Reference
        the Company and International Lease Finance Corporation.
 
10.23   Accounts Receivable Management and Security                      Incorporated
        Agreement dated as of December 7, 1993 between the               By Reference
        Company and BNY Financial Corporation. (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                     Incorporated
        Management and Security Agreement between the Company and        By Reference
        BNY Financial Corporation dated March 15, 1995 and
        effective as of January 1, 1995.
 
10.25   Amendment No. 2 to the Accounts Receivable                       Incorporated
        Management and Security Agreement between the Company and        By Reference
        BNY Financial Corporation dated August 1995.
</TABLE>

                                       22
<PAGE>

<TABLE> 
<S>     <C>                                                               <C>   
10.28   Stock Purchase Agreement by and among the Company,                Incorporated
        WorldCorp, Inc., and Malaysian Helicopter Services Berhad         By Reference
        dated as of October 30, 1993. (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                   Incorporated
        Company and Malaysian Helicopter Services Berhad dated as         By Reference
        of October 30, 1993. (Filed as Exhibit 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               Incorporated
        Services Berhad, WorldCorp, Inc. and the Company, dated           By Reference
        as of February 3, 1994. (Filed 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                Incorporated
        of February 28, 1994, among WorldCorp, the Company and            By Reference
        Malaysian Helicopter Services 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               Incorporated
        Brotherhood of Teamsters representing the Cockpit                 By Reference
        Crewmembers employed by the 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,                   Incorporated
        1994 by and between the Company and Malaysian Airline             By Reference
        System Berhad. (Filed as Exhibit 10.101 to WorldCorp,
        Inc.'s Annual Report on Form 10-K for the fiscal year
        ended December 31, 1994 and incorporated herein by
        reference.)
 
10.34   Freighter Services Agreement dated October 6, 1994                Incorporated
        by and between the Company and Malaysian Airline System           By Reference
        Berhad. (Filed as Exhibit 10.102 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                Incorporated
        Freighter Services Agreement dated December 31, 1994 by           By Reference
        and between the Company and 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                      Incorporated
        Freighter Services Agreements by and between the Company          By Reference
        and Malaysian Airline System Berhad, dated February 9,
        1995.
 
10.37   Amendment No. 3 to the Freighter Services Agreement               Incorporated
        by and between the Company and Malaysian Airline System           By Reference
        Berhad dated May, 1995.
 
10.39   FY1996 Contractor Team Agreement among the Company,               Incorporated
        Continental Airlines, Inc., Emery Worldwide Airlines,             By Reference
        Inc., Evergreen International Airlines, Inc., Miami Air
        International, Inc., Northwest Airlines, Inc. and Rich
        International Airways, Inc. dated April 3, 1995.
 
10.41   Maintenance Agreement between Malaysian Airline                   Incorporated
        System Berhad and the Company dated March 1, 1995.                By Reference
 
10.42   Form of Master Services Agreement between the                     Incorporated
        Company and WorldCorp, Inc.                                       By Reference
</TABLE> 
                                       23 
<PAGE>

<TABLE> 
<S>     <C>                                                               <C>     
10.44   Amendment No. 3 to the Accounts Receivable                        Incorporated
        Management and Security Agreement between the Company and         By Reference
        BNY Financial Corporation dated as of September 28, 1995.
 
10.45   Amendment No. 4 to the Accounts Receivable                        Incorporated
        Management and Security Agreement between the Company and         By Reference
        BNY Financial Corporation dated as 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 March 31,           Filed
        1997                                                              Herewith
 

(b)   Reports on Form 8-K
</TABLE>

     None.


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

                                       24
<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/ Mark S. Lynch
                                             -----------------------
                                             Mark S. Lynch
                                             Chief Financial Officer



Date: May 15, 1997