##### 



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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: September 30, 2003

or

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


For the transition period from ________ to _______

Commission File Number 0-26582

WORLD 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   o


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes   o   No   x


The number of shares of the registrants Common Stock outstanding on
October 31, 2003 was 11,397,998.



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##### 



WORLD AIRWAYS, INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

TABLE OF CONTENTS

PagePART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets, September 30, 2003 (Unaudited)
and December 31, 2002
    
    
    3Condensed Consolidated Statements of Operations (Unaudited),
Three Months Ended September 30, 2003 and 2002
    
    
    5Condensed Consolidated Statements of Operations (Unaudited),
Nine Months Ended September 30, 2003 and 2002
    
    
    6Condensed Consolidated Statement of Changes in Stockholders Deficiency (Unaudited),
Nine months ended September 30, 2003
    
    
    7Condensed Consolidated Statements of Cash Flows (Unaudited),
Nine months ended September 30, 2003 and 2002
    
    
    8Notes to Condensed Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K
    
    
    18


2



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##### 



ITEM 1. FINANCIAL STATEMENTS
WORLD AIRWAYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS
(in thousands)

September 30,2003
    
    December 31,(unaudited)
    
    2002CURRENT ASSETSCash and cash equivalents, including restricted
cash of $1,750 at September 30, 2003 and
$665 at December 31, 2002
    
    $
    26,366
    
    
    $
    21,504Accounts receivable, less allowance for doubtful
accounts of $337 at September 30, 2003 and $255 at
December 31, 2002
    
    
    32,597
    
    
    
    28,391Prepaid expenses and other current assets
    
    
    7,546
    
    
    
    5,569Total current assets
    
    
    66,509
    
    
    
    55,464EQUIPMENT AND PROPERTYFlight and other equipment
    
    
    76,233
    
    
    
    74,868Equipment under capital leases
    
    
    9,463
    
    
    
    9,46385,696
    
    
    
    84,331Less: accumulated depreciation and amortization
    
    
    46,324
    
    
    
    42,475Net equipment and property
    
    
    39,372
    
    
    
    41,856LONG-TERM OPERATING DEPOSITS
    
    
    17,769
    
    
    
    18,513OTHER ASSETS AND DEFERRED CHARGES, NET
    
    
    1,937
    
    
    
    1,429TOTAL ASSETS
    
    $
    125,587
    
    
    $
    117,262


(Continued)

3



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##### 



WORLD AIRWAYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)

LIABILITIES AND STOCKHOLDERS DEFICIENCY
(in thousands except share amounts)

September 30,2003
    
    December 31,(unaudited)
    
    2002CURRENT LIABILITIESNotes payable
    
    $
    16,873
    
    
    $
    17,096Current maturities of convertible debentures
    
    
    40,545
    
    
    
    Accounts payable
    
    
    22,215
    
    
    
    30,497Accrued rent
    
    
    9,493
    
    
    
    17,993Unearned revenue
    
    
    2,873
    
    
    
    976Accrued maintenance
    
    
    3,504
    
    
    
    2,178Accrued salaries and wages
    
    
    15,578
    
    
    
    10,000Accrued taxes
    
    
    4,578
    
    
    
    2,663Other accrued liabilities
    
    
    2,342
    
    
    
    2,820Total current liabilities
    
    
    118,001
    
    
    
    84,223Long-term convertible debentures, net of current maturities
    
    
    
    
    
    
    40,545Deferred gain from sale-leaseback transactions, net of
accumulated amortization of $2,854 at September 30,
2003 and $2,005 at December 31, 2002
    
    
    3,060
    
    
    
    3,909Accrued post-retirement benefits
    
    
    3,235
    
    
    
    3,235Deferred rent
    
    
    15,048
    
    
    
    14,217TOTAL LIABILITIES
    
    
    139,344
    
    
    
    146,129STOCKHOLDERS DEFICIENCYPreferred stock, $.001 par value (5,000,000 shares authorized;
no shares issued or outstanding)
    
    
    
    
    
    
    Common stock, $.001 par value (100,000,000 shares authorized;
12,479,241 shares issued; 11,397,998 shares outstanding at
September 30, 2003 and 11,077,098 at December 31, 2002)
    
    
    12
    
    
    
    12Additional paid-in capital
    
    
    25,019
    
    
    
    24,361Accumulated deficit
    
    
    (25,931
    )
    
    
    (40,383
    )Treasury stock, at cost (1,081,243 shares at September 30, 2003 and
December 31, 2002)
    
    
    (12,857
    )
    
    
    (12,857
    )Total stockholders deficiency
    
    
    (13,757
    )
    
    
    (28,867
    )COMMITMENTS AND CONTINGENCIESTOTAL LIABILITIES AND STOCKHOLDERS DEFICIENCY
    
    $
    125,587
    
    
    $
    117,262


See accompanying Notes to Condensed Consolidated Financial Statements

4



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##### 



WORLD AIRWAYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2003 and 2002
(in thousands except per share data)
(unaudited)

OPERATING REVENUES
    
    2003
    
    2002Flight operations
    
    $
    111,038
    
    
    $
    107,273Other
    
    
    1,256
    
    
    
    650Total operating revenues
    
    
    112,294
    
    
    
    107,923OPERATING EXPENSESFlight
    
    
    35,889
    
    
    
    34,483Maintenance
    
    
    14,368
    
    
    
    17,086Aircraft costs
    
    
    20,979
    
    
    
    22,598Fuel
    
    
    18,020
    
    
    
    17,738Flight operations subcontracted to other carriers
    
    
    428
    
    
    
    188Commissions
    
    
    4,679
    
    
    
    4,085Depreciation and amortization
    
    
    1,259
    
    
    
    1,132Sales, general and administrative
    
    
    10,798
    
    
    
    7,840Total operating expenses
    
    
    106,420
    
    
    
    105,150OPERATING INCOME
    
    
    5,874
    
    
    
    2,773OTHER INCOME (EXPENSE)Interest expense
    
    
    (1,135
    )
    
    
    (1,097
    )Interest income
    
    
    92
    
    
    
    159Other, net
    
    
    11
    
    
    
    49Total other expense
    
    
    (1,032
    )
    
    
    (889
    )EARNINGS BEFORE INCOME TAXES
    
    
    4,842
    
    
    
    1,884INCOME TAXES
    
    
    3,398
    
    
    
    NET EARNINGS
    
    $
    1,444
    
    
    $
    1,884BASIC EARNINGS PER SHARENet earnings
    
    $
    0.13
    
    
    $
    0.17Weighted average shares outstanding
    
    
    11,290
    
    
    
    11,077DILUTED EARNINGS PER SHARENet earnings
    
    $
    0.11
    
    
    $
    0.17Weighted average shares outstanding
    
    
    18,630
    
    
    
    15,767


See accompanying Notes to Condensed Consolidated Financial Statements

5



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##### 



WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2003 and 2002
(in thousands except per share data)
(unaudited)

OPERATING REVENUES
    
    2003
    
    2002Flight operations
    
    $
    350,329
    
    
    $
    282,817Other
    
    
    2,239
    
    
    
    1,544Total operating revenues
    
    
    352,568
    
    
    
    284,361OPERATING EXPENSESFlight Operations
    
    
    105,862
    
    
    
    86,257Maintenance
    
    
    57,051
    
    
    
    38,855Aircraft rent and insurance
    
    
    63,727
    
    
    
    64,649Fuel
    
    
    58,005
    
    
    
    43,103Flight operations subcontracted to other carriers
    
    
    653
    
    
    
    924Commissions
    
    
    13,227
    
    
    
    12,343Depreciation and amortization
    
    
    4,040
    
    
    
    3,506Sales, general and administrative
    
    
    28,646
    
    
    
    22,619Total operating expenses
    
    
    331,211
    
    
    
    272,256OPERATING INCOME
    
    
    21,357
    
    
    
    12,105OTHER INCOME (EXPENSE)Interest expense
    
    
    (3,537
    )
    
    
    (3,439
    )Interest income
    
    
    282
    
    
    
    435Other, net
    
    
    (2
    )
    
    
    (269
    )Total other expense
    
    
    (3,257
    )
    
    
    (3,273
    )EARNINGS BEFORE INCOME TAXES
    
    
    18,100
    
    
    
    8,832INCOME TAXES
    
    
    3,648
    
    
    
    NET EARNINGS
    
    $
    14,452
    
    
    $
    8,832BASIC EARNINGS PER SHARENet earnings
    
    $
    1.30
    
    
    $
    0.80Weighted average shares outstanding
    
    
    11,159
    
    
    
    11,070DILUTED EARNINGS PER SHARENet earnings
    
    $
    0.92
    
    
    $
    0.71Weighted average shares outstanding
    
    
    17,309
    
    
    
    15,762


See accompanying Notes to Condensed Consolidated Financial Statements

6



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##### 



WORLD AIRWAYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS DEFICIENCY
Nine Months Ended September 30, 2003
(in thousands except share amounts)
(unaudited)

Additional
    
    
    
    
    
    Treasury
    
    TotalCommon
    
    Paid-in
    
    Accumulated
    
    Stock,
    
    Stockholders'Stock
    
    Capital
    
    Deficit
    
    at Cost
    
    DeficiencyBalance at December 31, 2002
    
    $
    12
    
    
    $
    24,361
    
    
    $
    (40,383
    )
    
    $
    (12,857
    )
    
    $
    (28,867
    )Amortization of warrants
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    
    
    
    
    138Exercise of 320,900 stock options
    
    
    
    
    
    
    280
    
    
    
    
    
    
    
    
    
    
    
    280Tax
benefit of stock option exercise
    
    
    
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    240Net earnings
    
    
    
    
    
    
    
    
    
    
    14,452
    
    
    
    
    
    
    
    14,452Balance at September 30, 2003
    
    $
    12
    
    
    $
    25,019
    
    
    $
    (25,931
    )
    
    $
    (12,857
    )
    
    $
    (13,757
    )


See accompanying Notes to Condensed Consolidated Financial Statements.

7



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WORLD AIRWAYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2003 and 2002
(in thousands)
(unaudited)

2003
    
    2002CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD
    
    $
    21,504
    
    
    $
    19,540CASH FLOWS FROM OPERATING ACTIVITIESNet earnings
    
    
    14,452
    
    
    
    8,832Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation and amortization
    
    
    4,040
    
    
    
    3,506Deferred gain recognition
    
    
    (849
    )
    
    
    (1,608
    )Loss on sale of property and equipment
    
    
    188
    
    
    
    331Other
    
    
    614
    
    
    
    15Provision for doubtful accounts receivable
    
    
    83
    
    
    
    (284
    )Increase (decrease) in cash resulting from changes
in operating assets and liabilities:Accounts receivable
    
    
    (4,289
    )
    
    
    (3,015
    )Deposits, prepaid expenses and other assets
    
    
    (1,977
    )
    
    
    (721
    )Accounts payable, accrued expenses and other liabilities
    
    
    808
    
    
    
    7,077Unearned revenue
    
    
    1,897
    
    
    
    (2,198
    )Net cash provided by operating activities
    
    
    14,967
    
    
    
    11,935CASH FLOWS FROM INVESTING ACTIVITIESPurchases of equipment and property
    
    
    (1,762
    )
    
    
    (1,703
    )Proceeds from disposal of equipment and property
    
    
    18
    
    
    
    148Net cash used in investing activities
    
    
    (1,744
    )
    
    
    (1,555
    )CASH FLOWS FROM FINANCING ACTIVITIESIncrease (decrease) in line of credit borrowing arrangement, net
    
    
    (223
    )
    
    
    (9,525
    )Repayment of debt
    
    
    
    
    
    
    (1,346
    )Proceeds from exercise of stock options
    
    
    280
    
    
    
    11Deferral (repayment) of aircraft rent obligations
    
    
    (8,418
    )
    
    
    9,702Net cash used in financing activities
    
    
    (8,361
    )
    
    
    (1,158
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    4,862
    
    
    
    9,222CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    26,366
    
    
    $
    28,762


See accompanying Notes to Condensed Consolidated Financial Statements

8



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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 nine months ended September 30, 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 September 30, 2003Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    AmountBasic EPSEarnings available to common stockholders
    
    $
    1,444
    
    
    
    11,290
    
    
    $
    0.13Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    282Options
    
    
    
    
    
    
    2,5028% convertible debentures
    
    
    519
    
    
    
    4,556Diluted EPSEarnings available to common stockholders
plus assumed conversions
    
    $
    1,963
    
    
    
    18,630
    
    
    $
    0.11


Three Months Ended September 30, 2002Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    AmountBasic EPSEarnings available to common stockholders
    
    $
    1,884
    
    
    
    11,077
    
    
    $
    0.17Effect of Dilutive SecuritiesOptions
    
    
    
    
    
    
    1348% convertible debentures
    
    
    818
    
    
    
    4,556Diluted EPSEarnings available to common stockholders
plus assumed conversions
    
    $
    2,702
    
    
    
    15,767
    
    
    $
    0.17


9



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##### 



Nine Months Ended September 30, 2003Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    AmountBasic EPSEarnings available to common stockholders
    
    $
    14,452
    
    
    
    11,159
    
    
    $
    1.30Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    Options
    
    
    
    
    
    
    1,5948% convertible debentures
    
    
    1,541
    
    
    
    4,556Diluted EPSEarnings available to common stockholders
plus assumed conversions
    
    $
    15,993
    
    
    
    17,309
    
    
    $
    0.92


Nine Months Ended September 30, 2002Earnings
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    AmountBasic EPSEarnings available to common stockholders
    
    $
    8,832
    
    
    
    11,070
    
    
    $
    0.80Effect of Dilutive SecuritiesOptions
    
    
    
    
    
    
    1368% convertible debentures
    
    
    2,426
    
    
    
    4,556Diluted EPSEarnings available to common stockholders
plus assumed conversions
    
    $
    11,258
    
    
    
    15,762
    
    
    $
    0.71




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



| |  | At September 30, 2003, the Company had three stock-based compensation
plans. The Company accounts for those plans under the recognition and
measurement principles of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based compensation cost is reflected in net
earnings, 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 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
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Net earnings, as reported
    
    $
    1,444
    
    
    $
    1,884
    
    
    $
    14,452
    
    
    $
    8,832Deduct: Total stock-based compensation expense
determined under fair value based method
for all awards, net of related tax effects
    
    
    (117
    )
    
    
    (221
    )
    
    
    (415
    )
    
    
    (675
    )Pro forma net earnings
    
    
    1,327
    
    
    
    1,663
    
    
    
    14,037
    
    
    
    8,157Earnings per shareBasic as reported
    
    $
    0.13
    
    
    $
    0.17
    
    
    $
    1.30
    
    
    $
    0.80Basic  pro forma
    
    $
    0.12
    
    
    $
    0.15
    
    
    $
    1.26
    
    
    $
    0.74Diluted as reported
    
    $
    0.11
    
    
    $
    0.17
    
    
    $
    0.92
    
    
    $
    0.71Diluted  pro forma
    
    $
    0.10
    
    
    $
    0.15
    
    
    $
    0.90
    
    
    $
    0.67


10



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##### 





| |  | The per share weighted-average fair value of stock options granted
during the third quarter of 2003 and 2002 was $2.83 and $0.67, and for
the first nine months of 2003 and 2002 was $0.97 and $0.88,
respectively, on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Quarter Ended September 30,
    
    Nine Months Ended September 30,2003
    
    2002
    
    2003
    
    2002Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    3.3
    %
    
    
    3.4
    %
    
    
    3.1
    %
    
    
    4.2
    %Expected life (in years)
    
    
    5.3
    
    
    
    4.9
    
    
    
    5.3
    
    
    
    4.9Expected volatility
    
    
    112
    %
    
    
    141
    %
    
    
    112
    %
    
    
    141
    %




|4. |  | 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 $27.0 million with respect to a $30.0 million term loan
facility. This approval is subject to several conditions, including:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | all the conditions contained in the Air Transportation
Safety and System Stabilization Act and regulations thereunder;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | structural and financial enhancements acceptable to the ATSB;
| | - |  | -------------------------------------------------------------



| |  |  | resolution of certain issues involving collateral;
| | - |  | --------------------------------------------------



| |  |  | receipt by the ATSB of additional compensation in amounts or on terms acceptable to the ATSB;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | final documents and agreements in form and substance satisfactory to the ATSB; and
| | - |  | ----------------------------------------------------------------------------------



| |  |  | satisfactory completion of due diligence by the ATSB.
| | - |  | -----------------------------------------------------



| |  | 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 the net proceeds of the ATSB guaranteed loan to
repay all borrowings outstanding with Wells Fargo Foothill, Inc.
(Foothill) and the balance for working capital purposes. There can
be no assurance that the conditions will be met and that this source
of financing will be available to the Company.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | Restructuring of Convertible Debentures
|-- |  | ---------------------------------------



| |  | On July 23, 2003, the Company commenced an exchange offer for its
outstanding 8% Convertible Senior Subordinated Debentures Due August
2004. The Company offered to exchange up to $40.5 million principal
amount of newly issued 8% Convertible Senior Subordinated Debentures
Due August 2009 for an equal principal amount of existing convertible
debentures tendered. The exchange offer was subject to various
conditions, including the tender of at least $38.5 million principal
amount, or approximately 95%, of the outstanding existing debentures.
This condition was not satisfied and the exchange offer expired on
October 9, 2003.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On November 11, 2003, the Company announced that it entered into
agreements with three institutional holders of its existing
debentures. Under the agreements, these investors will acquire
$25,545,000 principal amount of the Companys newly issued six-year
8% Convertible Senior Subordinated Debentures in exchange for
$22,545,000 principal amount of the Companys existing 8% Convertible
Senior Subordinated Debentures Due 2004 and $3,000,000 in cash. The
new debentures will be convertible at a price of $3.20 per share and
will not be callable for one year. The new debentures may be called
by the Company at 100% of the principal amount after one year if the
Companys common stock closes at a price equal to or greater than
200% of the conversion price for 20 of 30 consecutive trading days,
and after two years if the common stock closes for a similar period
at a price equal to or greater than 150% of the conversion price.
After three years, the Company may call the new debentures at any
time at 100% of the principal amount, regardless of stock price. The
closing is subject to various conditions including stockholder
approval, concurrent funding of the ATSB guaranteed loan, termination
of the Foothill loan facility, and the call for redemption of the
remaining outstanding existing debentures. The Companys goal is to
complete the debenture restructuring, receive final ATSB approval and
close the ATSB guaranteed loan by the middle of December. Upon
closing of the issuance and exchange of the convertible debentures
and ATSB guaranteed loan, the Company intends to call the entire
remaining principal amount of existing debentures at a redemption
price of 101.143% pursuant to the provisions of the indenture.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11



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##### 





| |  | Upon closing, as discussed in the preceding
paragraph, the Company may record a non-cash loss on debt
extinguishment. The amount of such a loss, if any, would result if
the fair market value of the new debentures exceeds the carrying
amount of the old debentures extinguished. Generally, the greater the
value of our stock at issuance, the greater the fair market value of
the new debentures and, therefore, the greater the potential loss on
debt extinguishment. The actual amount that the Company incurs, if
any, cannot be reasonably determined at this time due to the
volatility in the market price of the Companys common stock. As
an example, based upon a $4.12 closing price of our common stock on
November 11, 2003 and an estimate of the fair value of the new
debentures of $34.1 million (based upon advice from our outside
investment banker), the non-cash loss would be in the range of $7 to
$9 million upon closing the exchange.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|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. During the third quarter of 2003, the Company used $0.4 million
of the accrual, reviewed its estimates and assumptions at September
30, 2003, and determined that an additional $0.4 million should be
added to the accrual, resulting in a $2.0 million balance at September
30, 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. The Companys total remaining obligation at September 30, 2003 under the lease
was $4.0 million.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 eight percent.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7. |  | Union Negotiations
|-- |  | ------------------



| |  | The Company received notification on September 2, 2003, that its
flight attendants, approximately 44% of the Companys employees, who
are represented by the International Brotherhood of Teamsters (the
Teamsters), reached an agreement to extend the flight attendant
collective bargaining agreement. The new amendable date for the
agreement will be August 31, 2006, and includes pay increases and
other benefit changes requested by the flight attendants while
providing much needed work-rule changes. The agreement is supportive
of the Companys financial goals.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Companys cockpit crewmembers, approximately 27% of the Companys
employees, who are also represented by the Teamsters, are subject to a
collective bargaining agreement that became amendable June 30,
2003. The Company and the Teamsters have had informal discussions as
a prelude to the opening of formal negotiations.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|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 received $486,000 related to reimbursement of
security expenses in May 2003 and reported this as a reduction of
flight expenses in the second quarter of 2003. In the third quarter of
2003, the Company received approximately $200,000 from the
Transportation Security Administration as reimbursement for
reinforcing its passenger aircraft cockpit doors.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9. |  | Income Taxes
|-- |  | ------------



| |  | As a result of the Companys actual year-to-date and projected full
year earnings before income taxes for 2003, the Company now expects to
utilize all of its unrestricted federal net operating loss
carry-forwards and to pay income taxes in 2003, resulting in annual
income tax expense. The Companys estimated annual effective tax rate
for the nine months ended September 30, 2003, is 20.2%. This effective
rate differs from statutory rates due primarily to release of
valuation allowances in regards to net
operating loss carry-forwards.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12



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

Part I, Item 2 of this report should be read in conjunction with Part
II, Item 7 of World 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 (the 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 third quarter of 2003, the Companys earnings before income
taxes were $4.8 million compared to $1.9 million for the same period in
2002. As a result of its actual year-to-date and projected full year
earnings before income taxes for 2003, the Company now expects to
utilize all of its unrestricted federal net operating loss
carry-forwards and to pay income taxes in 2003, resulting in annual
income tax expense. For the third quarter of 2003, the Companys net
earnings were $1.4 million compared to $1.9 million for 2002.

The following table provides statistical data, used by management in
evaluating the operating performance of the Company, for the quarters
ended September 30, 2003 and 2002.

Quarter Ended September 30,2003
    
    2002Revenue block hours:Full service passenger
    
    
    5,842
    
    
    
    
    
    
    
    59
    %
    
    
    6,281
    
    
    
    
    
    
    
    61
    %Full service cargo
    
    
    1,440
    
    
    
    
    
    
    
    14
    %
    
    
    1,572
    
    
    
    
    
    
    
    15
    %ACMI passenger
    
    
    1,140
    
    
    
    
    
    
    
    11
    %
    
    
    773
    
    
    
    
    
    
    
    7
    %ACMI cargo
    
    
    1,359
    
    
    
    
    
    
    
    14
    %
    
    
    1,594
    
    
    
    
    
    
    
    15
    %Miscellaneous
    
    
    214
    
    
    
    
    
    
    
    2
    %
    
    
    178
    
    
    
    
    
    
    
    2
    %Total
    
    
    9,995
    
    
    
    
    
    
    
    100
    %
    
    
    10,398
    
    
    
    
    
    
    
    100
    %Aircraft at quarter-end
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    16Average
aircraft during period
    
    
    
    
    
    
    17.0
    
    
    
    
    
    
    
    
    
    
    
    16.0Average daily utilization
    
    
    
    
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    7.1(block hours flown per day per aircraft)


13



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##### 



For the first nine months of 2003, the Companys earnings before income
taxes were $18.1 million compared to $8.8 million for the same period in
2002. The Companys net earnings were $14.5 million for the first nine
months of 2003 compared to net earnings of $8.8 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 nine months ended September 30, 2003 and 2002.

Nine Months Ended September 30,2003
    
    2002Revenue block hours:Full service passenger
    
    
    16,491
    
    
    
    
    
    
    
    50
    %
    
    
    16,732
    
    
    
    
    
    
    
    61
    %Full service cargo
    
    
    8,084
    
    
    
    
    
    
    
    25
    %
    
    
    2,144
    
    
    
    
    
    
    
    8
    %ACMI passenger
    
    
    3,304
    
    
    
    
    
    
    
    10
    %
    
    
    2,235
    
    
    
    
    
    
    
    8
    %ACMI cargo
    
    
    4,347
    
    
    
    
    
    
    
    13
    %
    
    
    5,783
    
    
    
    
    
    
    
    21
    %Miscellaneous
    
    
    707
    
    
    
    
    
    
    
    2
    %
    
    
    551
    
    
    
    
    
    
    
    2
    %Total
    
    
    32,933
    
    
    
    
    
    
    
    100
    %
    
    
    27,445
    
    
    
    
    
    
    
    100
    %Aircraft at quarter-end
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    16Average
aircraft during period
    
    
    
    
    
    
    16.7
    
    
    
    
    
    
    
    
    
    
    
    15.5Average daily utilization
    
    
    
    
    
    
    7.2
    
    
    
    
    
    
    
    
    
    
    
    6.5(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 and nine months ended
September 30, 2003 and 2002 are as follows:

Quarter Ended September 30,
    
    Nine Months Ended September 30,2003
    
    2002
    
    2003
    
    2002USAF
    
    
    70.8
    %
    
    
    69.9
    %
    
    
    77.0
    %
    
    
    75.2
    %Ritetime
Aviation and Travel Services (Ritetime)
    
    
    8.8
    %
    
    
    
    %
    
    
    3.4
    %
    
    
    
    %Sonair Serviceo Aereo (Sonair)
    
    
    6.4
    %
    
    
    7.0
    %
    
    
    5.9
    %
    
    
    7.5
    %Emery Air Freight Corporation (Emery)
    
    
    5.8
    %
    
    
    5.3
    %
    
    
    5.6
    %
    
    
    5.8
    %


RESULTS OF OPERATIONS

Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002

Operating Revenues. Revenues from operations increased $4.4 million, or
4.1%, to $112.3 million in 2003 from $107.9 million in 2002. The revenue
increase in the third quarter of 2003 was due principally to significant
growth in both military cargo flying for the USAF and commercial
passenger full service flying. This increase in revenue was offset by a
reduction in military passenger revenue for the USAF and commercial
cargo full service flying. Total block hours decreased 3.9% to 9,995 in
2003 from 10,398 in 2002. The yield per block hour, however, increased
due to more full-service flying.

Operating Expenses. Total operating expenses increased $1.3 million, or
1.2%, in 2003 to $106.4 million from $105.1 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
$1.4 million, or 4.1%, in 2003. This resulted primarily from an
increase of $1.7 million in pilot crew costs, $1.1 million in flight
attendant costs, offset by lower landing/security/handling fees of $1.4
million. Flight operations expenses were higher due to an accrual for
estimated contractual profit sharing payments to flight employees for
2003 as well as additional simulator training and higher travel costs.
The remaining increase in flight costs is directly attributable to
increased cargo flying for the USAF as well as more commercial passenger
full service flying in the third quarter of 2003 compared to the same
period in 2002.

14



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##### 



Maintenance expenses decreased $2.7 million, or 15.9%, in 2003. In the
third quarter of 2003, the Company incurred $4.6 million less for engine
overhauls than in the 2002 third quarter. Maintenance materials and
component repairs increased $1.2 and $0.5 million, respectively, due to
the timing of scheduled maintenance checks as well as supporting two
additional aircraft which were added to the fleet since the third
quarter of 2002.

Aircraft costs, which include aircraft rent and insurance, decreased
$1.6 million, or 7.2%, in 2003. This decrease was due to the termination
of a higher rate DC-10 lease in December 2002 as compared to the rates
on a DC-10 as well as an MD-11 leased aircraft added in late 2002 and
early 2003, respectively, which are both power-by-the-hour operating
leases.

Sales, general and administrative expenses increased $3.0 million, or
37.7%, in 2003. The increase was primarily due to an accrual for
estimated profit sharing payments to management and administrative
employees for 2003 and higher outside professional fees.

The Company recorded $3.4 million of income tax expense in the third
quarter of 2003. The Company expects to utilize all of its unrestricted
federal net operating loss carry-forwards and to pay income taxes in
2003, resulting in annual income tax expense. The Companys estimated
annual effective tax rate for the nine months ended September 30, 2003,
is 20.2%. This effective rate differs from statutory rates due primarily
to release of valuation allowances in regards to net operating loss carry-forwards

Nine Months Ended September 30, 2003 Compared to Nine Months Ended
September 30, 2002

Operating Revenues. Revenues from operations increased $68.2 million,
or 24.0%, to $352.6 million in 2003 from $284.4 million in 2002. The
revenue increase was due principally to an increase in both military
cargo flying for the USAF and commercial cargo and passenger full
service flying. Total block hours increased 20.0% and the yield per
block hour increased due to more full-service flying.

Operating Expenses. Total operating expenses increased $59.0 million,
or 21.7%, in 2003 to $331.2 million from $272.3 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
$19.6 million, or 22.7%, in 2003. This resulted primarily from an
increase of $8.9 million in pilot crew costs, $4.7 million in flight
communication costs, $3.6 million of flight attendant expenses, and $1.6
million in landing/security/handling fees. Flight operations expenses
were higher due to an accrual for estimated contractual profit sharing
payments to flight employees for 2003, additional simulator training and
higher travel costs. The remaining increase in flight costs is directly
attributable to increased cargo flying for the USAF as well as
commercial cargo and passenger full service flying in the first nine
months of 2003 compared to the same period in 2002.

Maintenance expenses increased $18.2 million, or 46.8%, in 2003. In the
first nine months of 2003, the Company incurred $4.5 million more for
engine overhauls than in the same period of 2002. Landing gear overhaul
expense and airframe check expense increased $2.7 million due to the
timing of scheduled maintenance checks and overhauls. Component repairs,
materials, maintenance reserves and parts rental increased $2.7, $2.6,
$2.5 and $0.9 million, respectively, due to the 20.0% increase in block
hours flown, the timing of scheduled maintenance checks as well as
supporting two additional aircraft which were added to the fleet.

Fuel expenses increased $14.9 million, or 34.6%, in 2003 due to higher
per-gallon costs as well as higher fuel 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 $6.0 million, or
26.6% in 2003. The increase was primarily due to an accrual for
estimated profit sharing payments to management and administrative
employees for 2003, an additional loss accrual for the former office
space in Herndon, Virginia, in connection with adjusting the Companys
liability at September 30, 2003, and higher outside professional fees.

The Company recorded $3.6 million of income tax expense in the third
quarter of 2003. The Company expects to utilize all of its unrestricted
federal net operating loss carry-forwards and to pay income taxes in
2003, resulting in annual income tax expense. The Companys estimated
annual effective tax rate for the nine months ended September 30, 2003,
is 20.2%. This effective rate differs from statutory rates due primarily
to release of valuation allowances in regards to net operating loss carry-forwards

15



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##### 



LIQUIDITY AND CAPITAL RESOURCES

The Company is highly leveraged. At September 30, 2003, the Companys
current assets were $66.5 million and its current liabilities were
$118.0 million. The ratio of the Companys current assets to its current
liabilities (current ratio) was 0.6:1. At September 30, 2003, the
Company had outstanding short-term debt of $57.4 million, consisting of
$40.5 million of its 8% Convertible Senior Subordinated Debentures that
are due in August 2004 and $16.9 million under the Loan and Security
Agreement with Wells Fargo Foothill, Inc. (Foothill). The aggregate
amount of outstanding letters of credit was $3.1 million. At September
30, 2003, the Company had a nominal amount of unused availability under
the Foothill credit facility.

In addition, the Company has significant long-term obligations relating
to operating leases for aircraft and spare engines. In 2002 and 2001,
the Company paid amounts less than its original contractual aircraft
rent obligations under agreements with its lessors that amended the
terms of the original aircraft lease agreements to provide for the
repayment of the unpaid contractual rent obligations. The accrual for
unpaid contractual rent obligations is $8.9 million and is included as
accrued rent in the current liabilities section of the Balance Sheet at
September 30, 2003. During the remainder of 2003, the Company is not
liable for any repayment of this contractual accrued rent obligation.
However, the Company will repay this obligation in 2004 based on a
percentage of 2003 net income, and in later years if necessary.

On April 23, 2003, the Company was granted conditional approval from the
Air Transportation Stabilization Board (ATSB) for a federal loan
guarantee of $27.0 million with respect to a $30.0 million term loan
facility. This approval is subject to several conditions, including:



| |  |  | all the conditions contained in the Air Transportation
Safety and System Stabilization Act and regulations
thereunder;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | structural and financial enhancements acceptable to the ATSB;
| | - |  | -------------------------------------------------------------



| |  |  | resolution of certain issues involving collateral;
| | - |  | --------------------------------------------------



| |  |  | receipt by the ATSB of additional compensation in amounts or on terms acceptable to the ATSB;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | final documents and agreements in form and substance satisfactory to the ATSB; and
| | - |  | ----------------------------------------------------------------------------------



| |  |  | satisfactory completion of due diligence by the ATSB.
| | - |  | -----------------------------------------------------

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
the net proceeds of the ATSB guaranteed loan to repay all borrowings
outstanding with Foothill and the balance for working capital purposes.
There can be no assurance that the conditions will be met and that this
source of financing will be available to the Company.

On July 23, 2003, the Company commenced an exchange offer for its
outstanding 8% Convertible Senior Subordinated Debentures Due August
2004. The Company offered to exchange up to $40.5 million principal
amount of newly issued 8% Convertible Senior Subordinated Debentures Due
August 2009 for an equal principal amount of existing convertible
debentures tendered. The exchange offer was subject to various
conditions, including the tender of at least $38.5 million principal
amount, or approximately 95%, of the outstanding existing debentures. This
condition was not satisfied and the exchange offer expired on October 9,
2003.

On November 11, 2003, the Company announced that it entered into
agreements with three institutional holders of its existing debentures.
Under the agreements, these investors will acquire $25,545,000 principal
amount of the Companys newly issued six-year 8% Convertible Senior
Subordinated Debentures in exchange for $22,545,000 principal amount of
the Companys existing 8% Convertible Senior Subordinated Debentures Due
2004 and $3,000,000 in cash. The new debentures will be convertible at a
price of $3.20 per share and will not be callable for one year. The new
debentures may be called by the Company at 100% of the principal amount
after one year if the Companys common stock closes at a price equal to
or greater than 200% of the conversion price for 20 of 30 consecutive
trading days, and after two years if the common stock closes for a
similar period at a price equal to or greater than 150% of the
conversion price. After three years, the Company may call the new
debentures at any time at 100% of the principal amount, regardless of
stock price. The closing is subject to various conditions including
stockholder approval, concurrent funding of the ATSB guaranteed loan,
termination of the Foothill loan facility, and the call for redemption
of the remaining outstanding existing debentures. The Companys goal is
to complete the debenture restructuring, receive final ATSB approval and
close the ATSB guaranteed loan by the middle of December. Upon closing
of the issuance and exchange of the convertible debentures and ATSB
guaranteed loan, the Company intends to call the entire remaining
principal amount of existing

16



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##### 



debentures at a redemption price of 101.143% pursuant to the provisions
of the indenture.

As a result of the Companys high financial leverage:


The Company has very limited ability to obtain additional
financing. The Companys existing debt is secured by substantially
all of its assets. In addition, the terms of its existing credit
facility restrict its ability to incur additional indebtedness or
issue equity securities unless it uses the proceeds of those
transactions to prepay amounts outstanding under the credit
facility. The ATSB guaranteed loan, if obtained, will also be
secured by substantially all of the Companys assets and will
contain restrictive provisions which would require prepayments in
the event that the Company sells any significant assets, receives
proceeds from future borrowings from other sources and issuances of
certain securities or receives net proceeds from insurance and
condemnation.

 The Companys ability to fund general corporate requirements,
including capital expenditures, may be impaired. The Company has
substantial obligations to pay principal and interest on its debt
and other recurring fixed costs. Further, if the Company obtains
the ATSB guaranteed loan, it may be required to prepay portions of
such loan under various circumstances. Accordingly, the Company may
have to use its working capital to fund such payments and other
recurring fixed costs instead of funding general corporate
requirements.

 The Companys ability to respond to competitive developments and
adverse economic conditions may be limited. Without the ability to
obtain additional financing and with substantial fixed costs, the
Company may not be able to fund the capital expenditures required
to keep it competitive or to withstand prolonged adverse economic
conditions.


If the Company does not obtain the ATSB guaranteed loan and, therefore,
does not terminate its existing Foothill credit
facility, under the terms of such credit facility, the Company will
be obligated to complete by May 29, 2004 an amendment to, extension
or refinancing of, or other modification to the existing debentures
in form and on terms and conditions satisfactory to Foothill. If
the Company fails to so amend, extend, refinance or modify the
existing debentures, the Companys lenders may declare all of its
obligations under the existing Foothill credit facility immediately
due and payable.

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

Cash Flows from Operating Activities

Operating activities provided $15.0 million in cash during the nine
months ended September 30, 2003 compared to providing $11.9 million in
the comparable 2002 period. The cash provided in 2003 principally
reflects the $14.5 million net earnings offset by a $4.3 million
increase in accounts receivable, plus a $0.7 million increase in cash
due to changes in other operating assets and liabilities, and net
non-cash statement of operations charges of $4.1 million. The cash
provided in 2002 principally reflects the $8.8 million net earnings, a
$7.1 million increase in accounts payable and accrued expenses, and net
non-cash income statement charges of $2.2 million, offset by a $3.3
million increase in accounts receivable and a net increase of $2.9
million in other operating assets and liabilities.

Cash Flows from Investing Activities

Investing activities used $1.7 million in the first nine months of 2003
compared to using $1.6 million in the comparable period of 2002. In both
2003 and 2002, cash was used for the purchase of rotable spare parts and
other fixed assets.

Cash Flows from Financing Activities

Financing activities used $8.4 million in cash for the nine months ended
September 30, 2003, which was primarily due to the payment of deferred
aircraft rent. For the nine months ended September 30, 2002, financing
activities used $1.2 million, which was primarily due to a reduction in
the amount owed under the Accounts Receivable Management and Security
Agreement with GMAC Commercial Credit, LLC of $9.5 million and debt
repayments of $1.3 million offset by deferred aircraft rent obligations
of $9.7 million.

17



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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Part I, Item 3, of this report should be read in conjunction with Part
II, Item 7a of the Companys Annual Report on Form 10-K for the year
ended December 31, 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 have no material exposure to market risks.

ITEM 4. CONTROLS AND PROCEDURES

The Companys management, with participation of the Companys Chief
Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Companys disclosure
controls and procedures as of the end of the quarter ended September 30,
2003. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and
procedures as of the end of the quarter ended September 30, 2003 have
been designed and are functioning effectively to provide reasonable
assurance that the information required to be disclosed by the Company
in reports filed under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods
specified in the Commissions rules and forms. The Company believes
that a controls system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the controls system
are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company
have been detected.

PART II

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



|(a) |  | Exhibits
|--- |  | --------

No.
    
    Description31.1
    
    Certification of Hollis L. Harris, Chairman of the Board and Chief Executive Officer.31.2
    
    Certification of Gilberto M. Duarte, Jr., Chief Financial Officer.32.1
    
    Certification of Hollis L. Harris Pursuant to 18 U.S.C. §1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Gilberto M. Duarte, Jr. 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
|--- |  | -------------------

1. The Company filed a Current Report on Form 8-K to the
Securities and Exchange Commission on July 25, 2003 in connection
with a press release issued on July 25, 2003, announcing the
tentative agreement to extend the flight attendant collective
bargaining agreement until August 31, 2006, subject to
ratification by the flight attendants.

2. The Company filed a Current Report on Form 8-K to the
Securities and Exchange Commission on August 1, 2003 in connection
with a press release issued on July 31, 2003, announcing the
extension of an existing contract with Sonair Serviceo Aero,
S.A.R.L. of Luanda, Angola.

18



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3.
The Company furnished a Current Report on Form 8-K to the
Securities and Exchange Commission on August 4, 2003 in connection
with a press release issued on August 4, 2003, announcing the
Companys financial results for the quarter ended June 30, 2003.

4. The Company filed a Current Report on Form 8-K to the
Securities and Exchange Commission on September 9, 2003 in
connection with a press release issued on September 10, 2003,
announcing that the Companys flight attendants ratified the
collective bargaining agreement proposed in July to extend the
flight attendant collective bargaining agreement until August 31,
2006.

5. The Company filed a Current Report on Form 8-K to the
Securities and Exchange Commission on September 10, 2003 in
connection with a press release issued on September 10, 2003,
announcing the signing of a new contract with TM Travel to provide
service between Honolulu, Hawaii and Las Vegas, Nevada.

6. The Company filed a Current Report on Form 8-K to the
Securities and Exchange Commission on September 17, 2003 in
connection with a press release issued on September 17, 2003,
announcing the signing of a $126 million contract to support Air
Force passenger flying and an update on 2003 financial guidance
(the fifth paragraph of the press release was furnished pursuant
to Regulation FD and thus not deemed filed with the Commission).

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

19



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SIGNATURES

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

Date: November 14, 2003WORLD AIRWAYS, INC.By:
    
    /s/ Gilberto M. Duarte, Jr.Gilberto M. Duarte, Jr.Principal Accounting and
Financial Officer