##### Table of Contents

---



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 10-Q



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

| |  | SECURITIES EXCHANGE ACT OF 1934
| |  | -------------------------------



| |  | For the quarterly period ended: March 31, 2003
| |  | ----------------------------------------------



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|- |  | --------------------------------------------------------

| |  | SECURITIES EXCHANGE ACT OF 1934
| |  | -------------------------------



| |  | For the transition period from  to
| |  | ----------------------------------



Commission File Number 0-26582



---



WORLD
AIRWAYS, INC.

(Exact name of registrant as specified in its charter)



|DELAWARE                                                       |  | 94-1358276                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



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

(Address of Principal Executive Offices)



(770) 632-8000

(Registrants telephone number, including area code)



---



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 ̈



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



The number of shares of the registrants Common Stock outstanding on April 30, 2003 was 11,077,098.



---



---

##### Table of Contents



WORLD
AIRWAYS, INC.



MARCH 31, 2003 QUARTERLY
REPORT ON FORM 10-Q



TABLE OF CONTENTS



|                             |  | Page                                                                                                                  
|---------------------------- |  | ----------------------------------------------------------------------------------------------------------------------
|                            
|PART IFINANCIAL INFORMATION |  |                                                                                                                       
|                            
|Item 1.                      |  | Financial Statements                                                                                                  
|                            
|                             |  | Condensed Consolidated Balance Sheets, March 31, 2003 (Unaudited) and December 31, 2002                               
|                            
|                             |  | Condensed Consolidated Statements of Operations (Unaudited), Three Months Ended March 31, 2003 and 2002               
|                            
|                             |  | Condensed Consolidated Statement of Changes in Stockholders Deficiency (Unaudited), Three months ended March 31, 2003
|                            
|                             |  | Condensed Consolidated Statements of Cash Flows (Unaudited), Three months ended March 31, 2003 and 2002               
|                            
|                             |  | Notes to Condensed Consolidated Financial Statements                                                                  
|                            
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.                                
|                            
|Item 3.                      |  | Quantitative and Qualitative Disclosures about Market Risk                                                            
|                            
|Item 4.                      |  | Controls and Procedures                                                                                               
|                            
|PART IIOTHER INFORMATION    |  |                                                                                                                       
|                            
|Item 4.                      |  | Submission of Matters to a Vote of Securities Holders                                                                 
|                            
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                                      



2



---

##### Table of Contents



ITEM 1.
FINANCIAL STATEMENTS

WORLD AIRWAYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



ASSETS

(in thousands)



|                                                                                                             |  | March 31, 2003 |         | December 31, 2002
|------------------------------------------------------------------------------------------------------------ |  | -------------- | ------- | -----------------
|                                                                                                             |  | (unaudited)    |         |                  
|CURRENT ASSETS                                                                                               |  |                |         |                  
|Cash and cash equivalents, including restricted cash of $893 at March 31, 2003 and $665
at December 31, 2002 |  | $              | 16,828  |                  
|Accounts receivable, less allowance for doubtful accounts of $255 at March 31, 2003 and
December 31, 2002    |  |                | 38,569  |                  
|Prepaid expenses and other current assets                                                                    |  |                | 6,704   |                  
|                                                                                                             |  |                |         |                  
|Total current assets                                                                                         |  |                | 62,101  |                  
|                                                                                                             |  |                |         |                  
|EQUIPMENT AND PROPERTY                                                                                       |  |                |         |                  
|Flight and other equipment                                                                                   |  |                | 75,937  |                  
|Equipment under capital leases                                                                               |  |                | 9,463   |                  
|                                                                                                             |  |                |         |                  
|                                                                                                             |  |                | 85,400  |                  
|Less: accumulated depreciation and amortization                                                              |  |                | 43,943  |                  
|                                                                                                             |  |                |         |                  
|Net equipment and property                                                                                   |  |                | 41,457  |                  
|                                                                                                             |  |                |         |                  
|LONG-TERM OPERATING DEPOSITS                                                                                 |  |                | 18,560  |                  
|                                                                                                            
|OTHER ASSETS AND DEFERRED CHARGES, NET                                                                       |  |                | 1,550   |                  
|                                                                                                             |  |                |         |                  
|TOTAL ASSETS                                                                                                 |  | $              | 123,668 |                  
|                                                                                                             |  |                |         |                  



(Continued)



3



---

##### Table of Contents



WORLD
AIRWAYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(continued)



LIABILITIES AND STOCKHOLDERS DEFICIENCY

(in thousands except
share amounts)



|                                                                                                                                                              |  | March 31, 2003 |         |   | December 31, 2002 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ----------------- | -
|                                                                                                                                                              |  | (unaudited)    |         |   |                   |  
|CURRENT LIABILITIES                                                                                                                                           |  |                |         |   |                   |  
|Notes payable                                                                                                                                                 |  | $              | 13,745  |   |                   | $
|Accounts payable                                                                                                                                              |  |                | 32,608  |   |                   |  
|Accrued rent                                                                                                                                                  |  |                | 15,004  |   |                   |  
|Unearned revenue                                                                                                                                              |  |                | 3,229   |   |                   |  
|Accrued maintenance                                                                                                                                           |  |                | 3,552   |   |                   |  
|Accrued salaries and wages                                                                                                                                    |  |                | 11,426  |   |                   |  
|Accrued taxes                                                                                                                                                 |  |                | 2,320   |   |                   |  
|Other accrued liabilities                                                                                                                                     |  |                | 2,080   |   |                   |  
|                                                                                                                                                              |  |                |         |   |                   |  
|Total current liabilities                                                                                                                                     |  |                | 83,964  |   |                   |  
|                                                                                                                                                              |  |                |         |   |                   |  
|LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES                                                                                                              |  |                | 40,545  |   |                   |  
|                                                                                                                                                             
|OTHER LIABILITIES                                                                                                                                             |  |                |         |   |                   |  
|Deferred gain from sale-leaseback transactions, net of accumulated amortization of
$2,288 at March 31, 2003 and $2,005 at December 31, 2002                   |  |                | 3,626   |   |                   |  
|Accrued post-retirement benefits                                                                                                                              |  |                | 3,235   |   |                   |  
|Deferred rent                                                                                                                                                 |  |                | 14,504  |   |                   |  
|                                                                                                                                                              |  |                |         |   |                   |  
|Total other liabilities                                                                                                                                       |  |                | 21,365  |   |                   |  
|                                                                                                                                                              |  |                |         |   |                   |  
|TOTAL LIABILITIES                                                                                                                                             |  |                | 145,874 |   |                   |  
|                                                                                                                                                              |  |                |         |   |                   |  
|STOCKHOLDERS DEFICIENCY                                                                                                                                      |  |                |         |   |                   |  
|Preferred stock, $.001 par value (5,000,000 shares authorized; no shares issued or
outstanding)                                                               |  |                |        |   |                   |  
|Common stock, $.001 par value (100,000,000 shares authorized;12,158,341 shares issued;
11,077,098 shares outstanding at March 31, 2003 and December 31, 2002) |  |                | 12      |   |                   |  
|Additional paid-in capital                                                                                                                                    |  |                | 24,407  |   |                   |  
|Accumulated deficit                                                                                                                                           |  |                | (33,768 | ) |                   |  
|Treasury stock, at cost (1,081,243 shares at March 31, 2003 and December 31,
2002)                                                                            |  |                | (12,857 | ) |                   |  
|                                                                                                                                                              |  |                |         |   |                   |  
|Total stockholders deficiency                                                                                                                                |  |                | (22,206 | ) |                   |  
|                                                                                                                                                              |  |                |         |   |                   |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                 |  |                |         |   |                   |  
|                                                                                                                                                             
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIENCY                                                                                                                |  | $              | 123,668 |   |                   | $
|                                                                                                                                                              |  |                |         |   |                   |  



See
accompanying Notes to Condensed Consolidated Financial Statements



4



---

##### Table of Contents



WORLD
AIRWAYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2003 and 2002

(in thousands except per share data)

(unaudited)



|                                                  |  | 2003 |         |   | 2002 |  
|------------------------------------------------- |  | ---- | ------- | - | ---- | -
|OPERATING REVENUES                                |  |      |         |   |      |  
|Flight operations                                 |  | $    | 123,277 |   |      | $
|Other                                             |  |      | 366     |   |      |  
|                                                  |  |      |         |   |      |  
|Total operating revenues                          |  |      | 123,643 |   |      |  
|                                                  |  |      |         |   |      |  
|OPERATING EXPENSES                                |  |      |         |   |      |  
|Flight                                            |  |      | 34,432  |   |      |  
|Maintenance                                       |  |      | 23,220  |   |      |  
|Aircraft costs                                    |  |      | 21,896  |   |      |  
|Fuel                                              |  |      | 21,361  |   |      |  
|Flight operations subcontracted to other carriers |  |      | 92      |   |      |  
|Commissions                                       |  |      | 4,659   |   |      |  
|Depreciation and amortization                     |  |      | 1,472   |   |      |  
|Sales, general and administrative                 |  |      | 8,848   |   |      |  
|                                                  |  |      |         |   |      |  
|Total operating expenses                          |  |      | 115,980 |   |      |  
|                                                  |  |      |         |   |      |  
|OPERATING INCOME                                  |  |      | 7,663   |   |      |  
|                                                 
|OTHER INCOME (EXPENSE)                            |  |      |         |   |      |  
|Interest expense                                  |  |      | (1,234  | ) |      |  
|Interest income                                   |  |      | 97      |   |      |  
|Other, net                                        |  |      | 89      |   |      |  
|                                                  |  |      |         |   |      |  
|Total other expense                               |  |      | (1,048  | ) |      |  
|                                                  |  |      |         |   |      |  
|NET EARNINGS                                      |  | $    | 6,615   |   |      | $
|                                                  |  |      |         |   |      |  
|BASIC EARNINGS PER SHARE                          |  |      |         |   |      |  
|Net earnings                                      |  | $    | 0.60    |   |      | $
|                                                  |  |      |         |   |      |  
|Weighted average shares outstanding               |  |      | 11,078  |   |      |  
|                                                 
|DILUTED EARNINGS PER SHARE                        |  |      |         |   |      |  
|Net earnings                                      |  | $    | 0.47    |   |      | $
|                                                  |  |      |         |   |      |  
|Weighted average shares outstanding               |  |      | 15,750  |   |      |  



See
accompanying Notes to Condensed Consolidated Financial Statements



5



---

##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS DEFICIENCY

Three Months Ended March 31, 2003

(in thousands except share amounts)

(unaudited)



|                             |  | Common Stock |    | Additional Paid-in Capital |   | Accumulated Deficit |  |   | Treasury Stock, at Cost |   |  | Total Stockholders Deficiency |        
|---------------------------- |  | ------------ | -- | -------------------------- | - | ------------------- |  | - | ----------------------- | - |  | ------------------------------ | -------
|Balance at December 31, 2002 |  | $            | 12 |                            | $ | 24,361              |  | $ | (40,383                 | ) |  | $                              | (12,857
|Amortization of warrants     |  |              |   |                            |   | 46                  |  |   |                        |   |  |                                |       
|Net earnings                 |  |              |   |                            |   |                    |  |   | 6,615                   |   |  |                                |       
|                             |  |              |    |                            |   |                     |  |   |                         |   |  |                                |        
|Balance at March 31, 2003    |  | $            | 12 |                            | $ | 24,407              |  | $ | (33,768                 | ) |  | $                              | (12,857
|                             |  |              |    |                            |   |                     |  |   |                         |   |  |                                |        



See
accompanying Notes to Condensed Consolidated Financial Statements.



6



---

##### Table of Contents

WORLD AIRWAYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2003 and 2002

(in thousands)

(unaudited)



|                                                                                        |  | 2003 |         |   | 2002 |  
|--------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                        |  | $    | 21,504  |   |      | $
|                                                                                       
|CASH FLOWS FROM OPERATING ACTIVITIES                                                    |  |      |         |   |      |  
|Net earnings                                                                            |  |      | 6,615   |   |      |  
|Adjustments to reconcile net earnings to cash provided by operating
activities:         |  |      |         |   |      |  
|Depreciation and amortization                                                           |  |      | 1,472   |   |      |  
|Deferred gain recognition                                                               |  |      | (283    | ) |      |  
|Loss on sale of property and equipment                                                  |  |      | 21      |   |      |  
|Other                                                                                   |  |      | (75     | ) |      |  
|Provision for doubtful accounts receivable                                              |  |      |        |   |      |  
|Increase (decrease) in cash resulting from changes in operating assets and
liabilities: |  |      |         |   |      |  
|Accounts receivable                                                                     |  |      | (10,178 | ) |      |  
|Deposits, prepaid expenses and other assets                                             |  |      | (1,182  | ) |      |  
|Accounts payable, accrued expenses and other liabilities                                |  |      | 3,987   |   |      |  
|Unearned revenue                                                                        |  |      | 2,253   |   |      |  
|                                                                                        |  |      |         |   |      |  
|Net cash provided by operating activities                                               |  |      | 2,630   |   |      |  
|                                                                                        |  |      |         |   |      |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                    |  |      |         |   |      |  
|Purchases of equipment and property                                                     |  |      | (1,122  | ) |      |  
|Proceeds from disposal of equipment and property                                        |  |      | 28      |   |      |  
|                                                                                        |  |      |         |   |      |  
|Net cash used in investing activities                                                   |  |      | (1,094  | ) |      |  
|                                                                                        |  |      |         |   |      |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                    |  |      |         |   |      |  
|Decrease in line of credit borrowing arrangement, net                                   |  |      | (3,351  | ) |      |  
|Repayment of debt                                                                       |  |      |        |   |      |  
|Deferral (repayment) of aircraft rent obligations                                       |  |      | (2,861  | ) |      |  
|                                                                                        |  |      |         |   |      |  
|Net cash provided (used) by financing activities                                        |  |      | (6,212  | ) |      |  
|                                                                                        |  |      |         |   |      |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    |  |      | (4,676  | ) |      |  
|                                                                                        |  |      |         |   |      |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                              |  | $    | 16,828  |   |      | $
|                                                                                        |  |      |         |   |      |  



See
accompanying Notes to Condensed Consolidated Financial Statements.



7



---

##### Table of Contents



WORLD
AIRWAYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



|1. |  | Management believes that all adjustments necessary for a fair statement of results have been included in the Condensed Consolidated Financial Statements for the
interim periods presented, which are unaudited. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates and the results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These interim period Condensed Consolidated Financial
Statements and accompanying footnotes should be read in conjunction with the Consolidated Financial Statements contained in World Airways Annual Report on Form 10-K for the year ended December 31, 2002.



|2. |  | Earnings per Share
|-- |  | ------------------



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



|                                                                   |  | Three Months Ended March 31, 2003
|------------------------------------------------------------------ |  | ---------------------------------
|                                                                   |  | Earnings (Numerator)             
|Basic EPS                                                          |  |                                  
|Earnings available to common stockholders                          |  | $                                
|                                                                   |  |                                  
|Effect of Dilutive Securities                                      |  |                                  
|Options                                                            |  |                                  
|8% convertible debentures                                          |  |                                  
|                                                                   |  |                                  
|Diluted EPS                                                        |  |                                  
|Earnings available to common stockholders plus assumed conversions |  | $                                
|                                                                   |  |                                  



|                                                                   |  | Three Months Ended March 31, 2002
|------------------------------------------------------------------ |  | ---------------------------------
|                                                                   |  | Earnings (Numerator)             
|Basic EPS                                                          |  |                                  
|Earnings available to common stockholders                          |  | $                                
|                                                                   |  |                                  
|Effect of Dilutive Securities                                      |  |                                  
|Options                                                            |  |                                  
|8% convertible debentures                                          |  |                                  
|                                                                   |  |                                  
|Diluted EPS                                                        |  |                                  
|Earnings available to common stockholders plus assumed conversions |  | $                                
|                                                                   |  |                                  



|3. |  | Accounting for Stock-Based Compensation
|-- |  | ---------------------------------------



At March 31, 2003, the Company has three stock-based compensation plans. The Company accounts for those plans under the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net earnings, as all options
granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings and



8



---

##### Table of Contents



earnings per
share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based compensation (in thousands, except share data):



|                                                                                                                                   |  | Quarter Ended March 31, |      
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                                                                                   |  | 2003                    |      
|Net earnings, as reported                                                                                                          |  | $                       | 6,615
|Deduct: Total stock-based compensation expense determined under fair value based method
for all awards, net of related tax effects |  |                         | (374 
|                                                                                                                                   |  |                         |      
|Pro forma net earnings                                                                                                             |  |                         | 6,241
|Earnings per share                                                                                                                 |  |                         |      
|Basicas reported                                                                                                                  |  | $                       | 0.60 
|Basicpro forma                                                                                                                    |  | $                       | 0.56 
|Dilutedas reported                                                                                                                |  | $                       | 0.47 
|Dilutedpro forma                                                                                                                  |  | $                       | 0.45 



The per
share weighted-average fair value of stock options granted during the first quarter of 2003 and 2002 was $0.77 and $0.47, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average
assumptions:



|                         |  | March 31, 2003 |  | March 31, 2002
|------------------------ |  | -------------- |  | --------------
|Expected dividend yield  |  | 0%             |  | 0%            
|Risk-free interest rate  |  | 3.0%           |  | 4.3%          
|Expected life (in years) |  | 5.5            |  | 4.9           
|Expected volatility      |  | 142%           |  | 141%          



|4. |  | Capital Stock
|-- |  | -------------



On or before May 19, 2003, the Company must demonstrate a closing bid price of at least $1.00 per share and immediately thereafter a
closing bid price of at least $1.00 for a minimum of ten consecutive trading days to comply with NASDAQ listing criteria. Beginning August 27, 2002, the Companys stock began trading under the symbol WLDAC. In the event that the Company is
deemed to have met the terms of the listing criteria, it shall continue to be listed on The NASDAQ SmallCap Market. At that time, the stock will return to its original symbol, WLDA.



|5. |  | Air Transportation Safety and System Stabilization Act
|-- |  | ------------------------------------------------------



On April 23, 2003, the Company was granted conditional approval from the Air Transportation Stabilization Board (ATSB) for a
federal loan guarantee of $27 million. This offer was extended, subject to satisfaction, as determined by the ATSB at its sole discretion, of all of the conditions in the Act and the regulations (14 CFR Part 1300) and the following:



| |  |  | Terms must include certain structural and financial enhancements acceptable to the ATSB.
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | Certain issues involving collateral must be resolved.
| | - |  | -----------------------------------------------------



| |  |  | The ATSB must receive additional compensation in amounts and on terms acceptable to the ATSB.
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | Final loan documents, certifications, the warrant and registration rights agreement, and appropriate opinions of counsel, all in form and substance satisfactory to
the ATSB, remain to be negotiated by the ATSB. The ATSB may require control rights, representations, warranties, covenants (including, without limitation, covenants relating to the Companys financial ratios), anti-dilution protections and
registration rights in connection with the warrants, and other customary lending provisions which are different from or in addition to those described in the Summary of Indicative Terms and Conditions included in the application. All of the
conditions referred to in the Summary of Indicative Terms and Conditions must be satisfied.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The ATSB will continue to perform business and legal due diligence as the transaction progresses and the Company will be working
expeditiously with the ATSB to meet the required conditions. The Company plans to use these funds for working capital as well as to support longer-term growth plans. There can be no assurance that the conditions will



9



---

##### Table of Contents



be met and
that this source of financing will be available to the Company.



|6. |  | Sub-lease Obligation
|-- |  | --------------------



The Company is obligated under an operating lease for office space at its former headquarters in Herndon, Virginia through April 2006. The
Company received rental income, sufficient to offset its lease expense through March 2002, after which time no rental income was received. The Company is currently seeking a new sub-lessee for this office space. As a result, the Company recognized a
$1.7 million liability at December 31, 2002 for costs that will continue to be incurred, without economic benefit to the Company, over the remaining term of its lease of this office space. During the first quarter of 2003, the Company used $0.4
million of the accrual for lease costs incurred during the quarter. The Company reviewed its estimates and assumptions at March 31, 2003, and determined that an additional $0.4 million should be added to the accrual, resulting in a $1.7 million
balance at March 31, 2003. The fair value of the liability was determined based on the remaining lease rentals, reduced by estimated sublease rentals that can be reasonably obtained for the property. The liability is included in other accrued
liabilities on the accompanying consolidated balance sheets.



If the Company is not successful in finding a suitable sub-lessee in the anticipated time or if the sublease rentals from a new sub-lessee are less than anticipated, the Company will be required to recognize an additional liability
for these costs. This liability will be adjusted for changes, if any, resulting from revisions to estimated cash flows, measured using the credit-adjusted risk-free rate that was used to measure the liability initially of 8 percent.



The Companys total obligation at March 31, 2003 under
the lease is $4.8 million.



|7. |  | Flight Attendant Negotiations
|-- |  | -----------------------------



The Companys flight attendants, approximately 42% of the Companys employees, who are represented by the International
Brotherhood of Teamsters, are subject to a four-year collective bargaining agreement that became amendable July 1, 2000. In January 2003, the Company and the union signed a Letter of Agreement that restarted the negotiation process and also provided
flight attendants some additional medical coverage for a six-month period while negotiations were in process. The Company returned to mediation on April 15, 2003, at the request of the National Mediation Board. After mediation, a contract proposal
was presented to the flight attendant union, and the proposal was subsequently rejected by the flight attendant negotiating team. On April 21, 2003, the Company received notification from the National Mediation Board that its case with the flight
attendants was put in recess until further notice. This means that mediation efforts will be discontinued indefinitely and the current contract will remain in effect.



|8. |  | Emergency Wartime Supplemental Appropriations Act, 2003
|-- |  | -------------------------------------------------------



On April 16, 2003, President Bush signed into law the Emergency Wartime Supplemental Appropriations Act, 2003 (the Act) which
includes distribution of funds to air carriers to offset the increased costs of compliance with new federal safety and security regulations mandated following the events of September 11, 2001. There is also a provision allocating funds to be
disbursed specifically for the reimbursement of expenses related to cockpit door reinforcement. As a condition of accepting funds under the Act, the Company was required to enter into a contract limiting executive compensation, as defined in the
Act. The Company estimates that it will receive approximately $475,000 related to reimbursement of security expenses, with the first payment in mid-May. The Transportation Security Administration has not yet determined the manner in which funds will
be allocated to each air carrier for the expenses related to reinforcing the cockpit doors.



10



---

##### Table of Contents



ITEM2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of World Airways, Inc. (World Airways or the
Company) Annual Report on Form 10-K for the year ended December 31, 2002. The information contained herein is not a comprehensive management overview and analysis of the financial condition and results of operations of the Company, but
rather updates disclosures made in the aforementioned filing.



The Company desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the Act). Therefore, this report contains forward looking statements that are
subject to risks and uncertainties, including, but not limited to, the reliance on key strategic alliances, fluctuations in operating results 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 2003 and beyond to differ materially from those expressed in any forward looking statements made by, or on behalf of, the Company.



OVERVIEW



General



For the first quarter of 2003, the Companys net earnings were $6.6 million compared to net earnings of $4.9 million for the same period in 2002.



The following table provides statistical data, used by
management in evaluating the operating performance of the Company, for the quarters ended March 31, 2003 and 2002.



|                                         |  | Quarter Ended March 31, | 
|---------------------------------------- |  | ----------------------- | 
|                                         |  | 2003                    | 
|Revenue block hours:                     |  |                         | 
|Full service passenger                   |  | 6,178                   | 
|Full service cargo                       |  | 2,985                   | 
|ACMI passenger                           |  | 1,054                   | 
|ACMI cargo                               |  | 1,588                   | 
|Miscellaneous                            |  | 251                     | 
|                                         |  |                         | 
|Total                                    |  | 12,056                  | 
|                                         |  |                         | 
|Aircraft at quarter-end                  |  | 17                      | 
|Average available aircraft per day       |  | 16.1                    | 
|Average daily utilization                |  | 8.3                     | 
|(block hours flown per day per aircraft) |  |                         | 



Significant
Customer Relationships



The Company is highly dependent
on revenues from the U.S. Air Force (USAF). The loss of the USAF as a customer would have a material adverse effect on the Company. The Companys principal customers, and the percent of revenues from those customers, for the quarter
ended March 31, 2003 and 2002 are as follows:



|                                        |  | Quarter Ended March 31, |  
|--------------------------------------- |  | ----------------------- | -
|                                        |  | 2003                    |  
|USAF                                    |  | 85.6                    | %
|Sonair Serviceo Aereo (Sonair)        |  | 5.3                     | %
|Emery Air Freight Corporation (Emery) |  | 5.2                     | %



11



---

##### Table of Contents



RESULTS OF OPERATIONS



Three Months Ended March 31, 2003 Compared to Three
Months Ended March 31, 2002



Operating
Revenues. Revenues from operations increased $35.6 million, or 40.4%, to $123.6 million in 2003 from $88.0 million in 2002. The revenue increase in the first quarter of 2003 was due principally to an increase in both military passenger and
cargo flying under the contract with the USAF. The increase in revenue resulted from expansion flying and additional revenues from the Civil Reserve Air Fleet activation. Total block hours increased 38.6% and the yield per block hour increased
slightly due to more full-service flying.



Operating
Expenses. Total operating expenses increased $34.2 million, or 41.8% in 2003 to $116.0 million from $81.8 million in 2002.



Flight operations expenses include all expenses related directly to the operation of the aircraft other than aircraft costs, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations administration. Flight operations expenses increased $9.2 million, or 36.5%, in 2003. This resulted primarily from an increase of $2.7 million in flight communication costs, $2.3
million in pilot crew costs, $2.0 million in landing/security/handling fees, and $1.8 million of flight attendant expenses. These higher costs are directly attributable to increased full-service and cargo flying for the USAF in the first quarter of
2003 compared to the same period in 2002. In addition, the flight operations expenses were higher due to an accrual for estimated contractual profit sharing payments to flight employees for 2003.



Maintenance expenses increased $12.9 million, or 125.7%, in 2003. In the first
quarter of 2003, the Company incurred $6.0 million more for engine overhauls than in the 2002 first quarter. Landing gear overhaul expense increased $1.6 million due to two overhauls in the first quarter of 2003, compared to none in the first
quarter of 2002. Maintenance reserves and component repairs increased $1.8 and $0.7 million, respectively, due to the 38.6% increase in block hours flown as well as supporting two additional aircraft which were added to the fleet.



Fuel expenses increased $9.2 million, or 75.4%, in 2003 due to higher
per-gallon costs as well as more consumption associated with the increase in full service flying. The Company is generally able to pass fuel cost increases through to its customers.



Sales, general and administrative expenses increased $1.7 million, or 23.7% in 2003. The increase was primarily due to an
accrual for estimated profit sharing payments to management and administrative employees for 2003, higher travel costs for administrative employees whose job functions are directly affected by the increased volume in flying, and net rental expense
for the former office space in Herndon, Virginia, for the first quarter of 2003, whereas in the first quarter of 2002 the Companys rental expense was offset by sub-lease income.



LIQUIDITY AND CAPITAL RESOURCES



The Company is highly leveraged. At March 31, 2003, the Companys current assets were $62.1 million and current
liabilities were $84.0 million. The ratio of the Companys current assets to its current liabilities (current ratio) was 0.7:1. Also, as of March 31, 2003, the Company had outstanding long-term debt of $40.5 million, that is due in
August 2004. In December 2002, the Company hired an outside investment banker to assist in evaluating the Companys financing options with respect to these convertible bonds. In addition, the Company has significant long-term obligations
relating to operating leases for aircraft and spare engines. At March 31, 2003, the loan outstanding under the Loan and Security Agreement (the Agreement) with Foothill Capital Corporation (Foothill) was $13.7 million and the
aggregate amount of outstanding letters of credit was $2.1 million. At March 31, 2003, the Company had a nominal amount of unused availability.



In fiscal 2002 and 2001, the Company paid amounts less than its original contractual aircraft rent obligations under agreements with its lessors that
amended the terms of the original aircraft lease agreements to provide for the repayment of the unpaid contractual rent obligations. The accrual for unpaid contractual rent obligations is $14.5 million and is included as accrued rent in the current
liabilities section of the Balance Sheet at March 31, 2003. During the remainder of 2003, the Company will repay approximately $6.2 million of this contractual accrued rent obligation.



On April 23, 2003, the Company was granted conditional approval from the Air Transportation Stabilization Board
(ATSB) for a federal loan guarantee of $27 million. This offer was extended, subject to satisfaction, as determined by



12



---

##### Table of Contents

the ATSB at its sole discretion, of all of the conditions in the Act and the regulations (14 CFR Part
1300) and the following:



| | - |  | Terms must include certain structural and financial enhancements acceptable to the ATSB.
| | - |  | ----------------------------------------------------------------------------------------



| | - |  | Certain issues involving collateral must be resolved.
| | - |  | -----------------------------------------------------



| | - |  | The ATSB must receive additional compensation in amounts and on terms acceptable to the ATSB.
| | - |  | ---------------------------------------------------------------------------------------------



| | - |  | Final loan documents, certifications, the warrant and registration rights agreement, and appropriate opinions of counsel, all in form and substance satisfactory to
the ATSB, remain to be negotiated by the ATSB. The ATSB may require control rights, representations, warranties, covenants (including, without limitation, covenants relating to the Companys financial ratios), anti-dilution protections and
registration rights in connection with the warrants, and other customary lending provisions which are different from or in addition to those described in the Summary of Indicative Terms and Conditions included in the application. All of the
conditions referred to in the Summary of Indicative Terms and Conditions must be satisfied.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The ATSB will continue to perform business and legal due diligence as the transaction progresses and the Company will be working expeditiously with the ATSB to meet the required conditions. The Company
plans to use these funds for working capital as well as to support longer-term growth plans. There can be no assurance that the conditions will be met and that this source of financing will be available to the Company.



Although there can be no assurances, World Airways believes that the
combination of its existing contracts and additional business which it expects to obtain, along with its existing cash and financing arrangements, will be sufficient to allow the Company to meet its cash requirements related to operating and capital
requirements for 2003.



Cash Flows from Operating
Activities



Operating activities provided $2.6 million
in cash during the three months ended March 31, 2003 compared to providing $3.5 million in the comparable 2002 period. The cash provided in 2003 principally reflects the $6.6 million net earnings offset by a $10.2 million increase in accounts
receivable, plus a $ 5.0 million increase in cash due to changes in other operating assets and liabilities, and net non-cash income statement charges of $1.1 million. The cash provided in 2002 is mainly due to the $4.9 million net earnings, net
non-cash income statement charges of $0.7 million and a net decrease of $1.2 million in other operating assets and liabilities offset by a $3.3 million increase in accounts receivable.



Cash Flows from Investing Activities



Investing activities used $1.1 million in the first three months of 2003 compared to using $0.2 million in the comparable
period of 2002. In both 2003 and 2002, cash was used for the purchase of rotable parts. In 2002, this outflow was partially offset by proceeds form the disposal of equipment and property.



Cash Flows from Financing Activities



Financing activities used $6.2 million in cash for the three months ended March 31, 2003, which was primarily due to a
reduction in the amount owed under the Agreement with Foothill of $3.4 million and deferred aircraft rent payments of $2.9 million. For the three months ended March 31, 2002, financing activities provided $58,000 of cash, which was due to deferred
aircraft rent obligations of $3.9 million offset by a reduction in the amount owed under the Accounts Receivable Management and Security Agreement with GMAC Commercial Credit, LLC of $3.4 million and debt repayments of $0.5 million.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Part I, Item 3 of this report should be read in conjunction with Part II, Item 7a of World Airways, Inc. Annual Report on Form 10-K for the year ended December 31, 2002. The information contained
herein is not a quantitative and qualitative discussion about market risk the Company faces, but rather updates disclosures made in the aforementioned filing.



World Airways continues to not have any material exposure to market risks.



13



---

##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES



We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from
unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of management, including our Chief Executive Officer and Chief
Financial Officer, within 90 days prior to the filing date of this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting
them to material information required to be included in our periodic Securities and Exchange Commission filings. No significant changes were made to our internal controls or other factors that could significantly affect these controls subsequent to
the date of their evaluation.



PART II



ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None



ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



(a) Exhibits



|No.  |  | Description                                                                                                    
|---- |  | ---------------------------------------------------------------------------------------------------------------
|    
|99.1 |  | Certification Pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|    
|99.2 |  | Certification Pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002



(b) Reports on Form 8-K



None



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





14



---

##### Table of Contents



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/    GILBERTO M. DUARTE,
JR.Principal Accounting and Financial Officer




Date: May 14, 2003



---

##### Table of Contents

CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002



I, Gilberto M. Duarte, Jr., Chief Financial Officer of World Airways, Inc (the Company), certify pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, that:



| | 1) |  | I have reviewed this quarterly report on Form 10-Q of World Airways, Inc.
| | -- |  | -------------------------------------------------------------------------



| | 2) |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or fail to state a material fact necessary to make the
statements not misleading with respect to the period covered by this quarterly report, in light of the circumstances under which such statements were made;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3) |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4) |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5) |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6) |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: 05/14/03



/s/    GILBERTO M. DUARTE,
JR.Gilberto M. Duarte, Jr. Chief Financial Officer of World Airways, Inc.






---

##### Table of Contents



CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002



I, Hollis L. Harris, Chairman and Chief Executive Officer of World Airways, Inc (the Company),
certify pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, that:



| | 1) |  | I have reviewed this quarterly report on Form 10-Q of World Airways, Inc.
| | -- |  | -------------------------------------------------------------------------



| | 2) |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or fail to state a material fact necessary to make the
statements not misleading with respect to the period covered by this quarterly report, in light of the circumstances under which such statements were made;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3) |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4) |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5) |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6) |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: 5/14/03



/s/    HOLLIS L. HARRISHollis L. Harris Chairman and Chief Executive Officer of World Airways, Inc.