SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            -------------------------


                                    FORM 10-Q


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


      For the Quarter Ended: MARCH 31, 1998 Commission File Number 0-26582


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


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

              13873 Park Center Road, Suite 490, Herndon, VA 20171
                    (Address of Principal Executive Offices)
                                 (703) 834-9200
                         (Registrant's telephone number)


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

The number of shares of the registrant's Common Stock outstanding on April 29,
1998 was 7,230,064.

<PAGE>

                               WORLD AIRWAYS, INC.

                  MARCH 31, 1998, QUARTERLY REPORT ON FORM 10Q

                                TABLE OF CONTENTS


                                                                            PAGE

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
----------------------------

Condensed Balance Sheets, March 31, 1998 and December 31, 1997.................3

Condensed Statements of Operations, Three Months Ended March 31,
1998 and 1997..................................................................5

Condensed Statement of Changes in Common Stockholders' Deficit,
Three months ended March 31,1998...............................................6

Condensed Statements of Cash Flows, Three months ended 
March 31, 1998 and 1997........................................................7

Notes to Condensed Financial Statements........................................8

Item 2. Management's Discussion and Analysis of 
Financial Condition and Results of Operations.................................11


PART II - OTHER INFORMATION

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

<PAGE>

ITEM 1.  FINANCIAL STATEMENTS

                               WORLD AIRWAYS, INC.
                            CONDENSED BALANCE SHEETS
                                     ASSETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                    (unaudited)
                                                                                       March 31,     December 31,
                                                                                        1998             1997
                                                                                     ----------       ----------
<S>                                                                               <C>              <C>
     Cash and cash equivalents, including restricted
         cash of $29 at March 31, 1998
         and $498 at December 31, 1997                                              $    10,691      $    25,887

     Restricted short-term investments                                                      145               --

     Trade accounts receivable, less allowance for
         doubtful accounts of $558 at March 31, 1998
         and $498 at December 31, 1997                                                    4,630            7,747

     Other receivables                                                                    8,263            9,485

     Due from affiliate, less allowance for
         doubtful accounts of $537 at March 31, 1998
         and $475 at December 31, 1997                                                    5,049            2,471

     Prepaid expenses and other current assets                                            7,603            7,995

     Assets held for sale                                                                   500              500
                                                                                        -------          -------

         Total current assets                                                            36,881           54,085
                                                                                        -------          -------

ASSETS HELD FOR SALE                                                                      2,590            2,734

EQUIPMENT AND PROPERTY
     Flight and other equipment                                                          87,156           86,774
     Equipment under capital leases                                                      12,266           12,266
                                                                                        -------          -------
                                                                                         99,422           99,040
     Less: accumulated depreciation and amortization                                     27,582           25,603
                                                                                        -------          -------

         Net equipment and property                                                      71,840           73,437
                                                                                        -------          -------

LONG-TERM OPERATING DEPOSITS                                                             15,886           16,059

OTHER ASSETS AND DEFERRED CHARGES, NET                                                    2,352            2,833
                                                                                        -------          -------

TOTAL ASSETS                                                                        $   129,549      $   149,148

                                                                                        =======          =======

                                                                                                     (Continued)
</TABLE>

<PAGE>

                               WORLD AIRWAYS, INC.
                            CONDENSED BALANCE SHEETS
                                   (CONTINUED)
                  LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
                        (IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                    (unaudited)
                                                                                      March 31,      December 31,
                                                                                        1998             1997
                                                                                    ------------     -----------
<S>                                                                                 <C>             <C>   
CURRENT LIABILITIES
     Notes payable                                                                  $     2,706      $     4,039
     Current maturities of long-term obligations                                         10,941            9,856
     Accounts payable                                                                    15,817           19,824
     Unearned revenue                                                                     2,691            2,486
     Accrued maintenance in excess of reserves paid                                       5,485            2,481
     Accrued salaries and wages                                                          12,103           10,976
     Accrued taxes                                                                        1,325            1,386
     Due to affiliate                                                                     1,158            3,304
     Other accrued liabilities                                                              511            1,553
                                                                                        -------          -------
         Total current liabilities                                                       52,737           55,905
                                                                                        -------          -------

LONG-TERM OBLIGATIONS, NET                                                               70,701           75,071

OTHER LIABILITIES
     Deferred gain from sale-leaseback transactions, net of
         accumulated amortization of $20,419 at March 31,
         1998 and $20,156 at December 31, 1997                                            4,932            5,195
     Accrued maintenance in excess of reserves paid, noncurrent                           9,036           10,575
     Accrued postretirement benefits                                                      2,794            2,752
     Other liabilities                                                                    4,684            4,421
                                                                                        -------          -------
         Total other liabilities                                                         21,446           22,943
                                                                                        -------          -------

TOTAL LIABILITIES                                                                       144,884          153,919
                                                                                        -------          -------

COMMON STOCKHOLDERS' DEFICIT
     Common stock, $.001 par value (40,000,000 shares authorized; 12,000,064
         shares issued and 7,230,064 outstanding at March 31, 1998 and
         12,000,064 shares issued and
         8,003,064 outstanding at December 31, 1997)                                         12               12
     Preferred stock, $.001 par value (5,000,000 shares authorized
         and no shares issued or outstanding at March 31, 1998
         and December 31, 1997)                                                              --               --
     Additional paid-in capital                                                          42,522           42,522
     Contributed capital                                                                  3,000            3,000
     Accumulated deficit                                                               (20,541)         (17,554)
     ESSOP guaranteed bank loan                                                           (144)            (227)
     Note receivable from WorldCorp                                                     (1,750)               --
     Treasury stock, at cost (4,770,000 shares at March 31,
         1998 and 3,997,000 shares at December 31, 1997)                               (38,434)         (32,524)
                                                                                       --------        ---------
         Total common stockholders' deficit                                            (15,335)          (4,771)
                                                                                       --------        ---------

COMMITMENTS AND CONTINGENCIES

TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
     DEFICIT                                                                        $   129,549      $   149,148
                                                                                       ========         ========

</TABLE>

            See accompanying Notes to Condensed Financial Statements


<PAGE>
                               WORLD AIRWAYS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                      FOR THE THREE MONTHS ENDED MARCH 31,
                      (IN THOUSANDS EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                         1998             1997
                                                                                    -----------      -----------
<S>                                                                                 <C>              <C>     
OPERATING REVENUES
     Flight operations                                                              $    68,899      $    78,421
     Flight operations subcontracted to other carriers                                      242              240
     Other                                                                                   81               87
                                                                                       --------          -------
         Total operating revenues                                                        69,222           78,748
                                                                                        -------          -------

OPERATING EXPENSES
     Flight                                                                              16,715           16,432
     Maintenance                                                                         15,572           16,678
     Aircraft costs                                                                      21,268           24,686
     Fuel                                                                                 5,440            3,040
     Flight operations subcontracted to other carriers                                      426              357
     Promotions, sales and commissions                                                    2,650            2,281
     Depreciation and amortization                                                        2,335            2,135
     General and administrative                                                           6,408            6,803
                                                                                        -------          -------
         Total operating expenses                                                        70,814           72,412
                                                                                        -------          -------

OPERATING INCOME (LOSS)                                                                 (1,592)            6,336
                                                                                        -------          -------

OTHER INCOME (EXPENSE)
     Interest expense                                                                   (1,827)          (1,163)
     Interest income                                                                        382              148
     Other, net                                                                              50             (51)
                                                                                       --------         --------
         Total other expense                                                            (1,395)          (1,066)
                                                                                       --------         --------

EARNINGS (LOSS) BEFORE INCOME TAXES                                                     (2,987)            5,270

INCOME TAX EXPENSE                                                                           --            (250)
                                                                                       --------         --------

NET EARNINGS (LOSS)                                                                 $   (2,987)      $     5,020
                                                                                       ========         ========

NET EARNINGS (LOSS) PER SHARE
         Basic                                                                      $    (0.40)      $      0.45
                                                                                      =========         ========
         Diluted                                                                    $        *       $      0.45
                                                                                      =========         ========

WEIGHTED AVERAGE COMMON AND COMMON
     EQUIVALENT SHARES OUTSTANDING
         Basic                                                                           7,419            11,233
                                                                                         =====            ======
 
        Diluted                                                                             *             11,238
                                                                                         =====            ======

     *Amounts are anti-dilutive

</TABLE>

            See accompanying Notes to Condensed Financial Statements

<PAGE>



                               WORLD AIRWAYS, INC.
                         CONDENSED STATEMENTS OF CHANGES
                         IN COMMON STOCKHOLDERS' DEFICIT
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                  Note                    Total
                                               Additional                             ESSOP     Receivable  Treasury      Common
                                       Common    Paid-in  Contributed  Accumulated  Guaranteed     from       Stock,   Stockholders'
                                        Stock    Capital    Captital     Deficit     Bank Loan  WorldCorp    At Cost      Deficit
                                        -----    -------    -------      -------     ---------    ------     -------      -------
<S>                                   <C>       <C>          <C>        <C>          <C>      <C>           <C>          <C>
BALANCE AT
     DECEMBER 31, 1997                $    12   $ 42,522     $ 3,000    $ (17,554)   $ (227)  $      --     $(32,524)    $ (4,771)

Common stock repurchases                  --          --         --            --        --          --       (5,910)      (5,910)
     (773,000 shares)

Employee Savings and Stock
     Ownership Plan
     Guaranteed bank loan                 --          --         --            --        83          --           --           83

Note Receivable from
     WorldCorp                            --          --         --            --        --      (1,750)          --       (1,750)

Net Loss                                  --          --         --        (2,987)       --          --           --       (2,987)
                                     -------    --------     -------      --------     -----     -------     --------     --------

BALANCE AT MARCH 31, 1998            $    12    $ 42,522     $ 3,000     $(20,541)    $(144)    $(1,750)    $(38,434)    $(15,335)
                                     =======     =======     =======      ========     =====     =======     ========     ========

</TABLE>
            See accompanying Notes to Condensed Financial Statements

<PAGE>
                               WORLD AIRWAYS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                      FOR THE THREE MONTHS ENDED MARCH 31,
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                    1998                  1997
                                                                                -------------        --------------

<S>                                                                             <C>                  <C>   
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                $      25,887        $        7,028

CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)                                                                   (2,987)                 5,020
Adjustments to reconcile net income (loss) to cash
    provided (used) by operating activities:
    Depreciation and amortization                                                       2,335                 2,135
    Deferred gain recognition                                                           (264)                 (264)
    Provision for losses on accounts receivable                                           122                    --
    Other                                                                                 455                   133
    Changes in certain assets and liabilities net of effects of non-cash
       transactions:
       Decrease in accounts receivable                                                  1,639                 3,670
       (Increase) decrease in restricted short-term investments                         (145)                    10
       Decrease in deposits, prepaid expenses
          and other assets                                                                365                   610
       Decrease in accounts payable, accrued
          expenses and other liabilities                                              (4,358)               (3,141)
       Increase (decrease) in unearned revenue                                            205                 (451)
                                                                                    ---------             ---------
    Net cash provided (used) by operating activities                                  (2,633)                 7,722
                                                                                    ---------             ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property                                                     (382)               (2,659)
Proceeds from disposals of equipment and property                                          99                   182
                                                                                     --------              --------
    Net cash used by investing activities                                               (283)               (2,477)
                                                                                     --------              --------

CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in line of credit borrowing arrangement, net                                      --               (4,086)
Issuance of debt                                                                           --                   163
Repayment of debt                                                                     (4,552)               (5,264)
Purchase of World Airways common stock, at cost                                       (5,910)                 (476)
Debt issuance costs                                                                      (68)                    --
Loan to WorldCorp                                                                     (1,750)                    --
                                                                                     --------              --------
    Net cash used by financing activities                                            (12,280)               (9,663)
                                                                                     --------              --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                            (15,196)               (4,418)
                                                                                     --------              --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      $      10,691         $       2,610
                                                                                     ========              ========

</TABLE>

            See accompanying Notes to Condensed Financial Statements

<PAGE>

                               WORLD AIRWAYS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

1.    The condensed balance sheet of World Airways, Inc. ("World Airways" or the
      "Company") as of March 31, 1998, the related condensed statements of
      operations for the three month periods ended March 31, 1998 and 1997, the
      condensed statement of changes in common stockholders' deficit for the
      three months ended March 31, 1998, and the condensed statements of cash
      flows for the three months ended March 31, 1998 and 1997 are unaudited. In
      the opinion of management, all adjustments necessary for a fair
      presentation of such financial statements have been included. Such
      adjustments consisted only of normal recurring items. Interim results are
      not necessarily indicative of results for a full year.

      The condensed financial statements and notes are presented as required by
      Form 10-Q and do not contain certain information included in the Company's
      annual financial statements and notes. These financial statements should
      be read in conjunction with the financial statements and the notes
      included in the Company's Form 10-K for the year ended December 31, 1997.

2.    On August 26, 1997, the Company completed a private offering, issuing 
      $50.0 million of 8% convertible senior subordinated debentures (the
      "Debentures") due in 2004 (the "Offering"). The Debentures were
      subsequently registered with the Securities and Exchange Commission. In
      connection with the above-mentioned Offering, the Company and WorldCorp,
      Inc. ("WorldCorp") entered into an agreement (the "Agreement") on August
      20, 1997 for the purchase by World Airways of up to 4.0 million shares of
      common stock owned by WorldCorp at a purchase price of $7.65 per share. On
      September 18, 1997, the Company purchased 3,227,000 shares of its common
      stock from WorldCorp for approximately $24.7 million. Therefore, at
      December 31, 1997, WorldCorp and MHS owned approximately 46.3% and 24.9%
      of World Airways, respectively. The remaining shares were publicly traded.
      In accordance with a shareholders agreement, dated as of February 3, 1994,
      as amended, among WorldCorp, MHS and the Company, if WorldCorp were to
      dispose of its holdings in the Company with the result that WorldCorp's
      ownership interest in the Company falls below 51% of the outstanding
      shares of common stock, then MHS may either sell its shares to a third
      party or require WorldCorp to sell a pro rata number of shares held by MHS
      to the party purchasing WorldCorp's shares. Therefore, as a result of the
      purchase of 3,227,000 shares of common stock by World Airways from
      WorldCorp, MHS had the right to sell, and accordingly sold, 773,000 shares
      of its World Airways common stock to the Company for approximately $5.9
      million, effective January 23, 1998. Therefore, effective January 23,
      1998, WorldCorp and MHS own approximately 51.2% and 16.8%, respectively,
      of World Airways.

3.    In 1996, World Airways instituted a program to purchase up to one million
      shares of its publicly-traded Common Stock pursuant to open market
      transactions. As of March 31, 1998, World Airways had purchased 770,000
      shares of Common Stock at an aggregate cost of approximately $7.9 million
      pursuant to such program. The Company does not intend to purchase any
      additional shares at this time.

4.    On April 20, 1998, WorldCorp consummated a transaction pursuant to which 
      it acquired an 80% interest in Paper Acquisition Corp., a Delaware
      corporation ("Paper"). Pursuant to the transaction, (i) WorldCorp
      exchanged seven-year warrants to acquire 35% (after the exercise of such
      warrants and the WorldCorp Acquisition Corp. options described below) of
      the issued and outstanding capital stock of WorldCorp Acquisition Corp. a
      Delaware corporation ("WorldCorp Acquisition"), held by WorldCorp for
      certain of the shares of Paper held by the Paper shareholders (the
      warrants are exercisable after one-year, at an exercise price of 125% of
      the estimated fair market value of the WorldCorp Acquisition stock at
      April 20, 1998 and payable with a seven-year, full-recourse, interest only
      note)(ii) WorldCorp contributed all of its shares of World Airways and the
      Paper shares received above, to WorldCorp Acquisition Corp., in exchange
      for 80% of the issued and outstanding capital stock of WorldCorp
      Acquisition and (iii) the holders of Paper contributed their shares of
      capital stock of Paper in exchange for (A) 20% of the issued and
      outstanding capital stock of WorldCorp Acquisition, (B) the assumption of
      approximately $15 million of debt, net of cash and investments, of Paper,
      (C) $15 million of 8% interest only promissory notes of WorldCorp
      Acquisition due in April 2003, (D) $1 million of 8% promissory notes of
      WorldCorp Acquisition due in March 1999 and (E) an earn-out based on the
      earnings before interest, taxes, depreciation and amortization of Paper
      during the next five years. The earn-out is payable, including interest at
      10%, in September 2002. WorldCorp has pledged all of its shares of common
      stock of both WorldCorp Acquisition and InteliData, and WorldCorp
      Acquisition has pledged all of its shares of common stock of both World
      Airways and Paper to the current Paper shareholders to collateralize the
      notes and the earn-out. One million shares of World Airways owned by
      WorldCorp were previously pledged to secure a loan of approximately $2.0
      million from World Airways to WorldCorp. After repayment of the loan and
      release of the shares, the shares will become subject to the pledge to the
      former Paper shareholders. The notes contain various restrictive
      covenants, including dividend restrictions on WorldCorp and its
      subsidiaries, limitations on transfers of cash to WorldCorp, as well as
      cross-default provisions. Upon an event of default, the note holders may
      assume control of the WorldCorp Acquisition board and the pledged
      collateral.

5.    On February 21, 1998, World Airways loaned WorldCorp $1.75 million, which
      was used by WorldCorp to pay debt obligations. The loan is collateralized
      by 1.0 million of World Airways shares owned by WorldCorp and bears
      interest at prime plus 2.5% and is due on April 28, 1998. The loan is
      included as a separate component of stockholders' deficit in the
      accompanying condensed balance sheet. Subsequent to March 31, 1998, the
      Company loaned WorldCorp an additional $0.25 million which bears the same
      terms as the original loan. WorldCorp failed to make the required payment
      on April 28, 1998.  Under the direction of the Board of Directors, the
      Company continues to examine all alternatives to complete this 
      transaction.

6.    Effective March, 1998 the Company amended its Credit Agreement with BNY
      Financial Corporation ("BNY") for three years. The amended line of credit
      has a maximum borrowing capacity of $25.0 million, subject to borrowing
      base amounts related to receivables and spare parts inventory, as defined.
      The receivables portion of the facility has a rate equal to the Prime
      Rate. The spare parts portion of the facility has a sub-limit of $11.0
      million at the Prime Rate +1/2of 1%. Further, the receivables facility
      allows for the issuing of Letters of Credit to a sub-limit amount of $4.0
      million. At the end of the first quarter, there were no outstanding
      amounts on this facility. The amended agreement contains certain dividend
      and borrowing restrictions as well as certain covenants related to the
      Company's financial condition and operating results, including Net Income,
      Tangible Net Worth and a Debt Coverage Ratio of 1:1. Borrowings under this
      amended Credit Agreement are collateralized by certain receivables,
      inventory, and equipment.

      At March 31, 1998, the Company was not in compliance with one covenant,
      but obtained a waiver of the covenant from the financial institution.

7.    For a discussion of commitments and contingencies see "Management's
      Discussion and Analysis of Financial Condition and Results of Operations -
      Legal and Administrative Proceedings".

8.    Earnings (loss) per share for the three months ended March 31, 1998 and
      1997 are computed as follows (amounts in thousands except share data):

<TABLE>
<CAPTION>

                                                                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                                                  ----------------------------------------------
                                                                      Loss           Shares            Per-Share
                                                                  (NUMERATOR)    (DENOMINATOR)           AMOUNT
                                                                  -----------    -------------     --------------
<S>                                                              <C>                   <C>         <C>  
     Basic EPS
         Net loss                                                 $    (2,987)            7,419     $       (0.40)
                                                                                                        =========
      Effect of Dilutive Securities
         Options                                                           --               --
         8% convertible debentures                                        967            5,618
                                                                      -------          -------
      Diluted EPS
         Net loss                                               $     (2,020)           13,037     $           *
                                                                      =======           ======          =========
</TABLE>
<TABLE>
<CAPTION>

                                                                     FOR THE THREE MONTHS ENDED MARCH 31, 1997
                                                                -------------------------------------------------
                                                                   Earnings         Shares           Per-Share
                                                                  (NUMERATOR)    (DENOMINATOR)         AMOUNT
                                                                  -----------    -------------     -------------
<S>                                                             <C>                   <C>          <C>  
      Basic EPS
         Net earnings available to common stockholders          $       5,020           11,233     $         0.45
                                                                                                        =========
      Effect of Dilutive Securities
         Options                                                           --                5
                                                                       ------           ------
      Diluted EPS
         Net earnings available to common stockholders          $       5,020           11,238     $         0.45
                                                                       ======           ======           ========

         *  Anti-dilutive
</TABLE>

9.   The Company adopted Statement of Financial Accounting Standards No. 130
     (FAS No. 130), "Reporting Comprehensive Income", effective January 1, 1998.
     FAS No. 130 established standards for the reporting and display of
     comprehensive income and its components in the financial statements. The
     adoption of FAS No. 130 does not impact the Company since the Company did
     not record any components of comprehensive income during the three months
     ended March 31, 1998 or March 31, 1997.

     In June 1997, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 131 (FAS No. 131), "Disclosure about
     Segments of an Enterprise and Related Information". FAS No. 131 requires
     the Company to present certain information about operating segments and
     related information, including geographic and major customer data, in its
     annual financial statements and in condensed financial statements for
     interim periods. The Company is required to adopt the provisions of this
     Statement during fiscal year 1998 The Company has not completed its
     analysis of the impact on the financial statements that will be caused by
     the adoption of this Statement.

<PAGE>

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of World Airways, Inc.
("World Airways" or "the Company") as reflected in its financial statements.

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 1998 and beyond to
differ materially from those expressed in any forward looking statements made
by, or on behalf of, the Company.

World Airways was organized in March 1948 and became a wholly owned subsidiary
of WorldCorp, Inc. ("WorldCorp") in a holding company reorganization in 1987. In
February 1994, pursuant to an October 1993 agreement, WorldCorp sold 24.9% of
its ownership to MHS Berhad ("MHS"), a Malaysian aviation company. Effective
December 31, 1994, WorldCorp increased its ownership in the Company to 80.1%
through the purchase of 5% of World Airways common stock held by MHS. In October
1995, the Company completed an initial public offering in which 2,000,000 shares
were issued and sold by the Company and 900,000 shares were sold by WorldCorp.
On September 18, 1997, the Company repurchased 3,227,000 shares of its common
stock from WorldCorp. At December 31, 1997, WorldCorp and MHS owned 46.3% and
24.9%, respectively, of the outstanding common stock of World Airways. The
balance was publicly traded. On January 23, 1998, the Company purchased 773,000
shares of its common stock from MHS in accordance with the shareholders
agreement. At March 31, 1998, WorldCorp and MHS own 51.2% and 16.8%
respectively, of the outstanding common stock of World Airways, with the balance
publicly traded.

On August 26, 1997, the Company completed a private offering, issuing $50.0
million of 8% convertible senior subordinated debentures (the "Debentures") due
in 2004 (the "Offering"). The Debentures were subsequently registered with the
Securities and Exchange Commission. The Debentures are unsecured obligations,
convertible into shares of the Company's common stock at $8.90 per share,
subject to adjustment in certain events, and subordinated to all present and
future senior indebtedness of the Company. In the event of a change in control
of the Company, as defined, the holders of the Debentures could require the
Company to repurchase the outstanding Debentures. The Debentures are not
redeemable by the Company prior to August 26, 2000. The Company used the net
proceeds of the Offering to repurchase approximately 4.0 million shares of its
common stock, repay certain indebtedness, increase working capital and for
general corporate purposes.

In connection with the above-mentioned Offering, the Company and WorldCorp, Inc.
("WorldCorp") entered into an agreement (the "Agreement") on August 20, 1997 for
the purchase by World Airways of up to 4.0 million shares of common stock owned
by WorldCorp at a purchase price of $7.65 per share. On September 18, 1997, the
Company purchased 3,227,000 shares of its common stock from WorldCorp for
approximately $24.7 million. In accordance with a shareholders agreement dated
as of February 3, 1994, as amended, among WorldCorp, MHS and the Company, if
WorldCorp were to dispose of its holdings in the Company with the result that
WorldCorp's ownership interest in the Company falls below 51% of the outstanding
shares of common stock, then MHS may either sell its shares to a third party or
require WorldCorp to sell a prorata number of shares held by MHS the party
purchasing WorldCorp's shares. Therefore, as a result of the purchase of
3,227,000 shares of common stock by World Airways from WorldCorp, MHS had the
right to sell, and accordingly sold, 773,000 shares of common stock to World
Airways for approximately $5.9 million, effective January 23, 1998.

In 1996, World Airways instituted a program to purchase up to one million shares
of its publicly-traded Common Stock pursuant to open market transactions. As of
March 31, 1998, World Airways had purchased 770,000 shares of Common Stock at an
aggregate cost of approximately $7.9 million pursuant to such program. The
Company does not intend to purchase any additional shares at this time.

On April 20, 1998, WorldCorp consummated a transaction pursuant to which it
acquired an 80% interest in Paper Acquisition Corp., a Delaware corporation
("Paper"). Pursuant to the transaction, (I) WorldCorp exchanged seven-year
warrants to acquire 35% (after the exercise of such warrants and the WorldCorp
Acquisition Corp. options described below) of the issued and outstanding capital
stock of WorldCorp Acquisition Corp. a Delaware corporation ("WorldCorp
Acquisition"), held by WorldCorp for certain of the shares of Paper held by the
Paper shareholders (the warrants are exercisable after one-year, at an exercise
price of 125% of the estimated fair market value of the WorldCorp Acquisition
stock at April 20, 1998 and payable with a seven-year, full-recourse, interest
only note)(ii) WorldCorp contributed all of its shares of World Airways and the
Paper shares received above, to WorldCorp Acquisition Corp., in exchange for 80%
of the issued and outstanding capital stock of WorldCorp Acquisition and (iii)
the holders of Paper contributed their shares of capital stock of Paper in
exchange for (A) 20% of the issued and outstanding capital stock of WorldCorp
Acquisition, (B) the assumption of approximately $15 million of debt, net of
cash and investments, of Paper, (C) $15 million of 8% interest only promissory
notes of WorldCorp Acquisition due in April 2003, (D) $1 million of 8%
promissory notes of WorldCorp Acquisition due in March 1999 and (E) an earn-out
based on the earnings before interest, taxes, depreciation and amortization of
Paper during the next five years. The earn-out is payable, including interest at
10%, in September 2002. WorldCorp has pledged all of its shares of common stock
of both WorldCorp Acquisition and InteliData, and WorldCorp Acquisition has
pledged all of its shares of common stock of both World Airways and Paper to the
current Paper shareholders to collateralize the notes and the earn-out. One
million shares of World Airways owned by WorldCorp were previously pledged to
secure a loan of approximately $2.0 million from World Airways to WorldCorp.
After repayment of the loan and release of the shares, the shares will become
subject to the pledge to the former Paper shareholders. The notes contain
various restrictive covenants, including dividend restrictions on WorldCorp and
its subsidiaries, limitations on transfers of cash to WorldCorp, as well as
cross-default provisions.

OVERVIEW

GENERAL

World Airways is a global provider of long-range passenger and cargo air
transportation outsourcing services to major international airlines under fixed
rate, multi-year contracts. The Company's passenger and freight operations
employ 12 wide-body aircraft which are operated under contracts, a substantial
portion of which are with Pacific Rim airlines. These contracts generally
require the Company to supply aircraft, crew, maintenance and insurance ("ACMI"
or "wet lease"), while the Company's customers are responsible for the other
operating expenses, including fuel. World Airways' airline customers have
determined that outsourcing a portion of their wide-body passenger and cargo
requirements can be less expensive, and offers greater operational and financial
flexibility, than purchasing new aircraft and additional spare parts required
for such aircraft. World Airways also leads a contractor teaming arrangement
that is one of the largest single suppliers of commercial airlift services to
the United States Air Force's Air Mobility Command ("U.S. Air Force" or "USAF").

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

The Company's operating philosophy is to build on its existing ACMI
relationships to achieve a strong platform for future growth. World Airways
concentrates on ACMI contracts which shift yield, load factor and certain cost
risks to the customer. The customer bears the risk of filling the aircraft with
passengers or cargo and assumes operating expenses, including fuel. World
Airways has elected to emphasize its ACMI business because the Company perceives
a number of opportunities created by a growing global economy, particularly
growth in second and third world economies where the demand for airlift exceeds
capacity. World Airways attempts to maximize profitability by combining its
multi-year ACMI contracts with short term, higher-yielding ACMI agreements which
meet the peak seasonal requirements of its customers. The Company responds
opportunistically to rapidly changing market conditions by maintaining a
flexible fleet of aircraft that can be deployed in a variety of configurations.

As noted above, the Company has focused its business on ACMI contract services.
As is common in the air transportation industry, the Company has relatively high
fixed aircraft costs. World Airways operates a fleet of eight MD-11 and four
DC10-30 wide-body aircraft, and while the Company believes that the lease rates
on its MD-11 aircraft are favorable relative to lease rates of other MD-11
operators, the Company's MD-11 aircraft have higher lease costs (although lower
operating costs) than its DC10- 30 aircraft. Therefore, achieving high average
daily utilization of its aircraft (particularly its MD-11 aircraft) at
attractive yields are important factors to the Company's financial results. In
addition to fixed aircraft costs, a portion of the Company's labor costs are
fixed due to monthly minimum guarantees to cockpit crewmembers and flight
attendants. Factors that affect the Company's ability to achieve high
utilization in its ACMI business include the compatibility of the Company's
aircraft with customer needs and the Company's ability to react on short notice
to customer requirements (which can be unpredictable due to changes in traffic
rights, aircraft delivery schedules and aircraft maintenance requirements).
Other factors that affect the ACMI business include particular domestic and
foreign regulatory requirements, as well as a trend toward aviation deregulation
which is increasing the number of alliances and code share arrangements.

SIGNIFICANT CUSTOMER RELATIONSHIPS

During the first three months of 1998, the Company's business relied heavily on
its contracts with Malaysian Airline System Berhad ("Malaysian Airlines"),
Philippine Airlines, Inc. ("Philippine Airlines"), P.T. Garuda Indonesia
("Garuda") and the U.S. Air Force. In 1998, these customers provided
approximately 20%, 10%, 22% and 37%, respectively, of the Company's revenues and
20%, 12%, 25% and 24%, respectively, of total block hours. In 1997, these
customers provided approximately 33%, 36%, 13%, and 17%, respectively, of the
Company's revenues and 37%, 37%, 14%, and 10%, respectively, of total block
hours flown.

MALAYSIAN AIRLINES. World Airways has provided wet lease services to Malaysian
Airlines since 1981, for scheduled passenger and cargo operations as well as
transporting passengers for the annual Hadj pilgrimage. MHS, which owns 16.8% of
the Company as of March 31, 1998, also owns 28% of Malaysian Airlines. The
Company also entered into a 32-month agreement for year-round operations
(including the Hadj) with Malaysian Airlines whereby the Company is providing
two passenger aircraft with cockpit crews, maintenance and insurance to
Malaysian Airlines' newly-formed charter division through May 1999. However, the
Company agreed to a five month reduction in the utilization of one aircraft
during 1997, although the aircraft was redeployed in other activity. Malaysian
Airlines has not informed the Company of any reductions for 1998. The Company
provided three aircraft for 1997 Hadj operations. MAS received notice from the
Malaysian Hadj Board that MAS would not participate in the 1998 Hadj pilgrimage.
As a result, the Company is providing two DC-10 aircraft to fly in the 1998
Indian Hadj on behalf of a contract entered into by MAS.

The Company has a long-term contract to operate three MD-11 cargo aircraft for
Malaysian Airlines. However, beginning in July 1996, and as mutually agreed by
the parties, World Airways redeployed two cargo aircraft, which had been
operating under these contracts, into other contracts. The two aircraft were
then redeployed to the Garuda Hadj in March 1998. The Company and Malaysian
Airlines are currently discussing the redeployment of these aircraft back into
Malaysian Airlines' operations during 1998 in order to meet the contracts'
original obligations. The Company can provide no assurances, however, that the
Company will, in fact, be able to do so.

Malaysian Airlines is subject to the financial difficulties associated with the
adverse economic conditions in Malaysia and the Asia Pacific Region, but it has
remained current with its payments for committed block hour minimums provided in
the contracts. Failure by Malaysian Airlines to meet its aircraft lease
obligations, if not offset by other business, would have a material adverse
effect on the financial condition, cash flows and results of operations of the
Company.

GARUDA. The Company has flown for Garuda periodically since 1973 and yearly
since 1988. Since 1988, the Company has been one of the largest providers of
passenger services to Indonesia for the Hadj pilgrimage. The Indonesian Hadj
pilgrimage is the world's largest due to the size of Indonesia's Islamic
population. In 1997, approximately 40,000 of the 200,000 Indonesians who
traveled to Jeddah for the Hadj pilgrimage flew on the Company's aircraft. The
Company is operating six aircraft during the 1998 pilgrimage.

PHILIPPINE AIRLINES. The Company had agreements with Philippine Airlines to
operate four passenger aircraft until November 1997. As a result of the economic
distress experienced in the Philippines, the Company negotiated to terminate the
agreements on two of the aircraft effective in August 1997, and received monthly
termination payments totaling $3.0 million through the original end of the
agreements in November 1997. In addition, the contracts on the remaining two
aircraft were extended until February 1998 and the per block hour rates for
those two aircraft were reduced slightly. The two aircraft which were removed
from Philippine Airlines service were redeployed by the Company under agreements
with other customers. The contract with Philippine Airlines expired in February
1998.

U.S. AIR FORCE. The Company has provided international air transportation to the
U.S. Air Force since 1956. In exchange for requiring pledges of aircraft to the
Civil Reserve Air Fleet ("CRAF") for use in times of national emergency, the
U.S. Air Force grants awards to CRAF participants for peacetime transportation
of personnel and cargo. Although the Company's agreements with the USAF provide
for full service contracts with certain minimum performance requirements, the
Company has risks similar to an ACMI agreement because the USAF agreements are
cost-plus contracts at attractive rates. The overall downsizing of the U.S.
military places a premium on the mobility of the U.S. armed forces. This is
reflected in the stable size over the past several years of the USAF's
procurement of commercial airlift services. It is uncertain, however, what
impact, if any, the instability within the Middle East will have upon the
Company's future flight operations.

The USAF awards points to air carriers acting alone or through teaming
arrangements in proportion to the number and type of aircraft such carriers make
available to CRAF. The Company utilizes such teaming arrangements to maximize
the value of potential awards. The Company leads a contractor teaming
arrangement that enjoys a large market share of the USAF's overall commercial
airlift requirement. During a period in which the U.S. military downsized
substantially, the Company's portion of the fixed USAF award increased from
$15.6 million for the government's 1992-93 fiscal year, to $73.4 million for the
government's 1997-98 fiscal year. The current annual contract commenced on
October 1, 1997 and expires on September 30, 1998. World Airways, however,
cannot determine how future cuts in military spending may affect future
operations with the U.S.
Air Force.

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

As a result of these and other contracts, the Company had an overall contract
backlog at March 31, 1998 of $252.1 million, compared to $414.0 million at March
31, 1997. Approximately $147.8 million of the backlog relates to operations
during 1998. The Company's backlog for each contract is determined by
multiplying the minimum number of block hours guaranteed under the applicable
contract by the specified hourly rate under such contract. Approximately 59% of
the backlog relates to its contracts with Malaysian Airlines, included in which
are the revenues associated with the three cargo aircraft for Malaysian Airlines
(see "Significant Customer Relationships-Malaysian Airlines" for further
discussion of these contracts). Consistent with prior years, the Company has
substantial uncontracted capacity in the third and fourth quarters of 1998 and
beyond and has historically been successful in obtaining new customers. Although
there can be no assurance that it will be able to secure additional business to
reduce this excess capacity, the Company is actively seeking customers for 1998
and beyond. The Company's financial results and financial condition would be
affected adversely if the Company is unable to secure additional business to
reduce this excess capacity.

SEASONALITY

Historically, World Airways' business has been significantly affected by
seasonal factors. During the first quarter, World Airways typically experiences
lower levels of utilization and yields due to lower demand for passenger and
cargo services relative to other times of the year. World Airways experiences
higher levels of utilization and yields in the second quarter, principally due
to peak demand for commercial passenger services associated with the annual Hadj
pilgrimage. In 1998, World Airways' flight operations associated with the Hadj
pilgrimage occurred from February 28 to May 12. Because the Islamic calendar is
a lunar-based calendar, the Hadj pilgrimage occurs approximately 10 to 12 days
earlier each year relative to the Western (Gregorian) calendar. As a result,
revenues resulting from future Hadj pilgrimage contracts will continue to shift
from the second quarter to the first quarter over the next several years.

GEOGRAPHIC CONCENTRATION

The Company derives a significant percentage of its revenues and block hours
from its operations in the Pacific Rim region. Any further economic decline or
any military or political disturbance in this area may interfere with the
Company's ability to provide service in this area. In 1997, the affects of the
adverse economic conditions in Malaysia and Indonesia and other countries in the
Asia Pacific Region included a national liquidity crisis, significant
depreciation in the value of the ringgit and rupiah, higher domestic interest
rates, reduced opportunity for refinancing or refunding of maturing debts, and a
general reduction in spending throughout the region. These conditions and
similar conditions in other countries in the Asia Pacific Region could have a
material adverse effect on the operations of Malaysian Airlines and Garuda
Indonesia, and therefore on the operations of the Company. However, management
also believes these conditions could provide new opportunities to wet lease
aircraft to airlines customers, particularly those who have deferred or canceled
new aircraft orders but are still in need of providing additional airlift.

UTILIZATION OF AIRCRAFT

Due to the large capital costs of leasing and maintaining World Airways'
aircraft, each of World Airways' aircraft must have high utilization at
attractive rates in order for World Airways to operate profitably. Although
World Airways' strategy is to enter into long-term contracts with its customers,
the terms of World Airways' existing customer contracts are substantially
shorter than the terms of World Airways' lease obligations with respect to the
aircraft. As mentioned above, a significant portion of World Airways' contract
backlog at March 31, 1998, relates to its multi-year contracts with Malaysian
Airlines which is subject to the financial difficulties associated with the
adverse economic conditions in Malaysia and the Asia Pacific region. In addition
the Company has substantial uncontracted capacity in the third and fourth
quarters of 1998 and beyond. There can be no assurance that World Airways will
be able to enter into additional contracts with new or existing customers or
that it will be able to obtain enough additional business to fully utilize each
aircraft. World Airways' financial position and results of operations could be
materially adversely affected even by relatively brief periods of low aircraft
utilization and yields. In order to maximize aircraft utilization, World Airways
does not intend to acquire new aircraft unless such aircraft would be necessary
to service existing needs or World Airways has obtained additional ACMI
contracts for the aircraft to service. World Airways is seeking to obtain
additional ACMI contracts with new and existing customers, to which such new
aircraft would be dedicated when placed in service, but World Airways can
provide no assurance that it will obtain new ACMI contracts or that existing
ACMI contracts will be renewed or extended.

MAINTENANCE

Engine maintenance accounts for most of the Company's annual maintenance
expenses. Typically, the hourly cost of engine maintenance increases as the
aircraft ages. The Company outsources major airframe maintenance and power plant
work to several suppliers. The Company has a 10-year contract expiring in August
2003 with United Technologies Corporation's Pratt & Whitney Group for all
off-wing maintenance on the PW 4462 engines that power its MD-11 aircraft. Under
this contract, the manufacturer agreed to provide such maintenance services at a
cost not to exceed specified rates per hour during the term of the contract. The
specified rates per hour are subject to annual escalation, increasing
substantially in 1998. Accordingly, while the Company believes the terms of this
agreement have resulted in lower engine maintenance costs than it otherwise
would incur, engine maintenance costs will increase substantially during the
last five years of the agreement. The Company began to accrue these increased
expenses in 1997 and such expenses will continue to increase during the
remainder of the term of the contract as the Company's aircraft fleet ages.

OPERATING LOSSES

While the Company generated operating income each year from 1987 through 1992
and in 1995, it sustained operating losses in 1993 and 1994 of $7.3 million and
$5.2 million, respectively, and net losses of $9.0 million in each of these two
years. For the year ended December 31, 1996, the Company incurred a net loss of
$14.0 million, which resulted from operating losses incurred in the Company's
scheduled service operations, which were discontinued in 1996, and the related
estimated loss on disposal. Earnings from continuing operations were $18.4
million for 1996. While the Company generated operating income for the year
ended December 31, 1997 of $16.9 million, there can be no assurance that the
Company will be able to continue generating operating income for 1998 or future
years.

CONTROL BY WORLDCORP; POTENTIAL CONFLICTS OF INTEREST

As of March 31, 1998, WorldCorp owned approximately 51.2% of the outstanding
World Airways common stock. WorldCorp is a holding company that owns positions
in two companies: InteliData and World Airways. WorldCorp is highly leveraged
and therefore requires substantial funds to cover debt service each year. As a
holding company, all of WorldCorp's funds are generated through its
subsidiaries, neither of which is expected to pay dividends in the foreseeable
future. As a result of WorldCorp's cash requirements, it may be required to sell
additional shares of common stock, and such sales, or the threat of such sales,
could have a material adverse effect on the market price of the common stock.
Except as limited by contractual arrangements with MHS, WorldCorp also is in a
position to control the outcome of many issues submitted to World Airways'
stockholders, including the election of all of World Airways' Board of
Directors, adoption of amendments to World Airways' Certificate of
Incorporation, and approval of mergers.

In connection with the aforementioned acquisition of Paper, WorldCorp
Acquisition entered into promissory notes which contain various restrictive
covenants, including dividend restrictions on WorldCorp and its subsidiaries,
including World Airways.

The Company loaned WorldCorp $1.75 million on February 27, 1998 and an
additional $0.25 million subsequent to March 31, 1998, which was used by
WorldCorp to pay debt obligations. The loan is collateralized by one million
shares of the Company's stock owned by WorldCorp and bears interest at prime
plus 2.5%.  WorldCorp failed to make the required payment on April 28, 1998.
Under the direction of the Board of Directors, the Company continues to examine
all alternatives available to complete this transaction.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

Total block hours decreased 2,905 hours, or 25%, to 8,909 hours in the first
quarter of 1998 from 11,814 hours in 1997, with an average of 12.0 available
aircraft per day in 1998 compared to 13.4 in 1997. This decrease is due to one
less aircraft in 1998 versus 1997 as well as low first quarter cargo wet lease
aircraft utilization in 1998 in comparison to four aircraft in high utilization
PAL flying in 1997. Average daily utilization (block hours flown per day per
aircraft) was 8.3 hours in 1998 and 9.8 hours in 1997. In 1998, wet lease
contracts accounted for 73% of total block hours, a decrease from 89% in 1997
due to continuous AMC flying in 1998 versus redeployment to Garuda Indonesia for
Hadj flying in 1997. Total operating revenues decreased $9.5 million, or 12%, to
$69.2 million in 1998 from $78.7 million in 1997.

OPERATING REVENUES. Revenues from flight operations decreased $9.5 million, or
13%, to $68.9 million in 1998 from $78.4 million in 1997. This decrease
corresponds primarily to a decrease in block hours flown in 1998 compared to
1997, partially offset by a shift in business during 1998 with an increase in
full service operations from wet lease operations.

OPERATING EXPENSES. Total operating expenses decreased $1.6 million, or 2%, in
1998 to $70.8 million from $72.4 million in 1997.

Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Flight operations expenses increased $0.3 million, or 2%, in
1998 to $16.7 million from $16.4 million in 1997. This increase resulted
primarily from a shift to full service flying offset by a slight decrease
related to cockpit crew headcount and training due to a decrease in the number
of aircraft in the fleet and in block hours.

Maintenance expenses decreased $1.1 million, or 7%, in 1998 to $15.6 million
from $16.7 million in 1997. This decrease resulted primarily from the decrease
in the number of aircraft from 13 to 12 and a reduction in overall hours flown,
offset by an additional maintenance accrual of $1.4 million relating to an
engine overhaul in the first quarter of 1998. The Company expects its
maintenance expense to increase in 1998 due to escalations in the specified
rates per hour under the Company's maintenance agreement.

Aircraft costs decreased $3.4 million, or 14%, in 1998 to $21.3 million from
$24.7 million in 1997. This decrease resulted primarily from the return of two
Pratt & Whitney engines in the fourth quarter of 1997 and one MD-11 aircraft in
the third quarter of 1997, and a decrease in aircraft insurance as a result of a
reduction in insurance policy rates.

Fuel expenses increased $2.4 million, or 80%, in 1998, to $5.4 million from $3.0
million in 1997. This increase is due primarily to an increase in military
contract fuel prices and a higher volume of military fuel uplifts.

Promotions, sales and commissions increased $0.4 million in 1998, or 17%, to
$2.7 million from $2.3 million in 1997. This increase resulted primarily from
expenses incurred in connection with increased revenues relating to increased
Air Mobility Command flying.

Depreciation and amortization increased $0.2 million, or 10%, in 1997 to $2.3
million from $2.1 million in 1997. This increase resulted primarily from an
increase in the depreciation of DC-10 and MD-11 engines offset by a decrease in
the depreciation of DC-10 leasehold improvements.

General and administrative expenses decreased $0.4 million, or 6%, in 1998 to
$6.4 million from $6.8 million in 1997. This decrease was primarily due to a
reduction in legal expenses offset by an increase in general insurance.

Interest expense increased $0.6 million, or 50%, in 1998 to $1.8 million from
$1.2 million in 1997. This increase resulted primarily from the issuance of
$50.0 million of 8% senior subordinated debentures on August 26, 1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company is highly leveraged. The Company incurred substantial debt and lease
commitments during the past four years in connection with its acquisition of
MD-11 aircraft and related spare parts. In addition, the Company issued $50.0
million of convertible debentures in August 1997, as discussed below. As of
March 31, 1998, the Company had outstanding long-term debt and capital leases of
$70.7 million and notes payable and current maturities of long term obligations
of $13.6 million. In addition, the Company has significant future long-term
obligations under aircraft lease obligations relating to its aircraft.

The Company has historically financed its working capital and capital
expenditure requirements out of cash flow from operating activities, public and
private sales of its common stock, secured borrowings, and other financings from
banks and other lenders. The degree to which the Company is leveraged could have
important consequences to holders of common stock, including the following: (I)
World Airways' ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be limited;
(ii) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness; (iii)
World Airways' degree of leverage and related debt service obligations, as well
as its obligations under operating leases for aircraft, may make it more
vulnerable than some of its competitors in a prolonged economic downturn; (iv)
World Airways' ability to meet its payment obligations under existing and future
indebtedness, capital leases and operating leases may be limited; and (v) World
Airways' financial position may restrict its ability to pursue new business
opportunities and limit its flexibility in responding to changing business
conditions.

World Airways' cash and cash equivalents at March 31, 1998 and December 31, 1997
were $10.7 million and $25.9 million, respectively. As is common in the airline
industry, World Airways operates with a working capital deficit. Effective
January 23, 1998, the Company used approximately $5.9 million of its cash
balance to purchase the aforementioned 773,000 shares of common stock and on
February 27, 1998 loaned WorldCorp $1.75 million which was used by WorldCorp to
pay debt obligations. World Airways has substantial long-term aircraft lease
obligations with respect to its current aircraft fleet. At March 31, 1998, World
Airways' current assets were $36.9 million and current liabilities were $52.7
million.

In 1996, World Airways instituted a program to purchase up to one million shares
of its publicly-traded common stock pursuant to open market transactions. As of
March 31, 1998, World Airways had purchased 770,000 shares of common stock at an
aggregate cost of approximately $7.9 million pursuant to such program. The
Company does not intend to purchase any additional shares at this time.

In the event that World Airways enters into leases for additional aircraft,
World Airways will need to make capital expenditures for additional spare
engines and parts. No assurances can be given, however, that World Airways will
obtain all of the financing required for such capital expenditures.

Although there can be no assurances, World Airways believes that its existing
contracts and additional business which it expects to obtain in the near term,
along with its existing cash and financing arrangements will be sufficient to
allow World Airways to meet its cash requirements related to debt service and
the operating and capital requirements for its continuing operations for the
next 12 months.

CASH FLOWS FROM OPERATING ACTIVITIES

Operating activities used $2.6 million in cash for the three months ended March
31, 1998 compared to providing $7.7 million in the comparable period in 1997.
This decrease resulted primarily from a net loss in 1998 compared to net
earnings in 1997.

CASH FLOWS FROM INVESTING ACTIVITIES

Investing activities used $0.3 million in cash for the three months ended March
31, 1998, compared to using $2.5 million in the comparable period in 1997. In
1998, cash was used primarily for the purchase of rotable spare parts and
computer hardware and software.

CASH FLOWS FROM FINANCING ACTIVITIES

Financing activities used $12.3 million in cash for the three months ended March
31, 1998 compared to using $9.7 million in the comparable period in 1997. In
1998, cash was used primarily for the purchase of shares of the Company's common
stock for an aggregate cost of $5.9 million, to loan WorldCorp $1.75 million,
and to repay debt of approximately $4.6 million.

CAPITAL COMMITMENTS/FINANCING DEVELOPMENTS

In October 1992 and January 1993, the Company signed a series of agreements to
lease seven new MD-11 aircraft for initial lease terms of two to five years,
renewable for up to 10 years (and in the case of one aircraft, for 13 years) by
the Company with increasing rent costs. As of March 1995, the Company had taken
delivery of all seven aircraft, consisting of four passenger MD-11 aircraft, one
freighter MD-11, and two passenger/cargo convertible MD-11s. The Company
returned one aircraft in August 1997. In March 1996, the Company signed an
agreement with the manufacturer to lease two MD-11ER aircraft. Under the
agreement, the Company leased each aircraft for a term of 24 years with an
option to return the aircraft after a seven-year period with certain fixed
termination fees. In addition, the Company agreed to assume an existing lease of
two additional MD-11 freighter aircraft for 20 years, beginning in 1999, in the
event that the existing lessee terminates its lease with the manufacturer at
that time.

As of March 31, 1998, World Airways maintains leases for four DC10-30 aircraft.
Two of the leases expire in 1998, one expires in 1999, and one expires in 2003.

In March 1998, the Company renewed and amended a revolving line of credit
facility of up to $25.0 million for a period of 3 years, collateralized by
certain receivables, inventory and equipment. The proceeds from this facility
will be used to increase working capital and for general corporate purposes.

Under the terms of the amended Credit Agreement, the Company is not permitted
without prior written approval to (I) incur indebtedness in excess of $1.0
million (excluding capital leases), (ii) declare, pay, or make any dividend or
distribution in any six month period which aggregate in excess of 50% of net
income for the previous six months, (iii) apply any of its funds, property or
assets to the purchase, redemption or other retirement of any common or
preferred stock in excess of 5% of the total aggregate outstanding amount of
such stock. The Company must also maintain a certain quarterly tangible net
worth, net income (loss) and debt ratio requirements. The Company was not in
compliance with one of these covenants at March 31, 1998. While a wavier of this
covenant as of March 31, 1998 was obtained from the financial institution, no
assurances can be given that the Company will continue to meet these covenants
or, if necessary, obtain the required waivers.

As discussed above, the Company signed an agreement for the lease of two MD-11ER
aircraft beginning in the first quarter of 1996 to provide additional capacity
for growth opportunities. As part of the agreement for the MD-11 aircraft, the
Company received spare parts financing from the lessor of $9.0 million of which
$3.0 million was made available with the delivery of each aircraft, and the
remaining $3.0 million was made available in December 1996. As of March 31,
1998, approximately $7.8 million had been received.

As of March 31, 1998, annual minimum payments required under the Company's
aircraft and lease obligations totaled $60.0 million for the remainder of 1998.
The Company anticipates that its total capital expenditures in 1998, will
approximate $4.1 million which the Company expects to fund from its working
capital. As of March 31, 1998, the Company held approximately $3.1 million (at
book value) of aircraft spare parts currently available for sale.

OTHER MATTERS

LEGAL AND ADMINISTRATIVE PROCEEDINGS

World Airways has periodically received correspondence from the FAA with respect
to minor noncompliance matters. In November 1996, as the FAA has increased its
scrutiny of U.S. airlines, World Airways was assessed a preliminary fine of
$810,000 in connection with certain security violations by ground handling crews
contracted by World Airways for services at foreign airport locations. Under 49
U.S.C., Section 46301, any violation of pertinent provisions of 49 U.S.C.
Subsection 40101 or related rules is subject to a civil penalty for each
violation. Upon review of the evidence or facts and circumstances relating to
the violation, the statute allows for the compromise of proposed civil
penalties. The penalties were proposed by the FAA in connection with recent
inspections at foreign airport facilities and relate primarily to ground
handling services provided by World Airways' customers in connection with their
operations; specifically, the inspection procedures of its aircraft, passengers
and associated cargo. In each of these instances, World Airways was in
compliance with international regulations, but not the more stringent U.S.
requirements, despite the fact that the flights in question did not originate or
terminate in the United States. World Airways has taken steps to comply with the
U.S. requirements. In September 1997, the Company entered into a consent order
and settlement agreement with the FAA in connection with the above-mentioned
alleged violations. Pursuant to this agreement, the Company is liable for the
sum of $610,000, of which $405,000 was paid in September. The remaining $205,000
was suspended and will be forgiven if the Company complies with the provisions
of the settlement agreement, including not incurring any security violations
during the one year period following the execution of the settlement agreement.
While World Airways believes it is currently in compliance in all material
respects with all appropriate standards and has all required licenses and
authorities, any material non-compliance by World Airways therewith or the
revocation or suspension of licenses or authorities could have a material
adverse effect on the financial condition or results of operations of World
Airways.

In connection with the discontinuance of World Airways' scheduled service
operations, World Airways is subject to claims by various third parties and may
be subject to further claims in the future. A claim has been filed in Germany
against the Company by a tour operator seeking approximately $3.5 million in
compensation related to the cancellation of a summer program in 1996. The
Company believes it has substantial defenses to this action, although no
assurance can be given of the eventual outcome of this litigation.

In addition, World Airways is party to routine litigation and administrative
proceedings incidental to its business, none of which is believed by World
Airways to be likely to have a material adverse effect on the financial
condition and results of operations of World Airways.

EMPLOYEES

The Company's cockpit crew members, who are represented by the International
Brotherhood of Teamsters (the "Teamsters"), are subject to a four-year
collective bargaining agreement that will become amendable in July 1998.
Approximately 37% of the Company's employees are covered under this collective
bargaining agreement. The Company expects to begin negotiations in the third
quarter of 1998 and cannot predict the outcome of the negotiations or their
possible impact on the Company's financial condition and results of operations.

The Company's flight attendants, who are also represented by the Teamsters, are
subject to a four-year collective bargaining agreement that will expire in
August 2000. The Company's flight attendants have argued that the "scope clause"
of the collective bargaining agreement had been violated by the Company and
challenged the use of foreign flight attendant crews on the Company's flights
for Malaysian Airlines and Garuda Indonesia which has historically been the
Company's operating procedure. The Company is contractually obligated to permit
its Southeast Asian customers to deploy their own flight attendants. While the
arbitrator in this matter denied in 1997 the Union's request for back pay to
affected flight attendants for flying relating to the 1994 Hadj, the arbitrator
concluded that the Company's contract with its flight attendants requires the
Company to first actively seek profitable business opportunities that require
using the Company's flight attendants, before the Company may accept wet lease
business opportunities that use the flight attendants of the Company's
customers. Subsequently, in 1997, the flight attendants challenged and filed
"scope clause" grievances with respect to four separate wet-lease contracts. The
Company and the Teamsters are presently in discussions regarding these
grievances. At this time, however, the Company can give no assurance that these
discussions will be successful and the grievances will not be submitted to
formal arbitration. The Company can provide no assurances as to how the
resolution of this matter will affect the Company's financial condition and
results of operations.

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

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

DIVIDEND POLICY

The Company has not declared or paid any cash dividends or distributions on its
common stock since the payment of a distribution to WorldCorp in 1992. The
Company currently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future. Any future decision
concerning the payment of dividends on its common stock will depend upon the
results of operations, financial condition and capital expenditure plans of the
Company, provisions of certain financing instruments as well as such other
factors as the Board of Directors, in its sole discretion, may consider
relevant.

Under the terms of the shareholders agreement among the Company, WorldCorp, and
MHS, the Company has agreed to declare and distribute all dividends properly
payable, subject to the requirements of law and general overall financial
prudence. The Credit Agreement with BNY Financial Corporation (as amended in
March 1998, the "Credit Agreement") contains restrictions on the Company's
ability to pay dividends or make any distributions of common stock in excess of
5% of the total aggregate outstanding amount of stock, except that the Company
may make quarterly dividends so long as in any six month period, such dividends
do not exceed 50% of the Company's aggregate net income for the previous six
months.

In connection with the aforementioned acquisition of Paper, WorldCorp
Acquisition entered into promissory notes which contain various restrictive
covenants, including dividend restrictions on WorldCorp and its subsidiaries,
including World Airways.

INCOME AND OTHER TAXES

As of December 31, 1997, World Airways had net operating loss carryforwards
("NOLs") for federal income tax purposes of $92.2 million ($27.8 million of
which is subject to a $6.9 million annual limitation as a result of an ownership
change of World Airways for tax purposes in 1991). These NOLs, if not utilized
to offset taxable income in future periods, would expire between 1998 and 2011.
Use of World Airways' NOLs in future years could be further limited if an
ownership change were to occur in the future. While World Airways believes that
as of March 31, 1998, no Ownership Change has occurred since the 1991 Ownership
Change, the application of the Internal Revenue Code (the "Code") in this area
is subject to interpretation by the Internal Revenue Service. The NOLs are
subject to examination by the IRS and, thus, are subject to adjustment or
disallowance resulting from any such IRS examination. In addition, conversion of
the Debentures or future transactions in the Company's common stock or the
common stock of the Company's stockholders, including conversions of a portion
of the outstanding WorldCorp debentures into common stock, may cause an
ownership change, which could result in a substantial reduction in the annual
limitation in the use of the NOLs and the loss of a substantial portion of the
NOLs available to the Company.

YEAR 2000

The Company has begun a comprehensive review of its computer system to identify
the systems that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. The Company presently
believes that, with modifications to existing software and converting to new
software, the Year 2000 problem will not pose significant operational problems
for the Company's computer systems as so modified and converted. However, if
such modifications and conversion are not completed timely, the Year 2000
problem may have a material impact on the operations of the Company. The Company
has not yet estimated the cost of modifying its computer systems.

EFFECTS OF NEW ACCOUNTING STANDARDS

The Company adopted Statement of Financial Accounting Standards No. 130 (FAS No.
130), "Reporting Comprehensive Income", effective January 1, 1998. FAS No. 130
established standards for the reporting and display of comprehensive income and
its components in the financial statements. The adoption of FAS No. 130 does not
impact the Company since the Company did not record any components of
comprehensive income during the quarter.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (FAS No. 131), "Disclosure about Segments
of an Enterprise and Related Information". FAS No. 131 requires the Company to
present certain information about operating segments and related information,
including geographic and major customer data, in its annual financial statements
and in condensed financial statements for interim periods. The Company is
required to adopt the provisions of this Statement during fiscal year 1998 The
Company has not completed its analysis of the impact on the financial statements
that will be caused by the adoption of this Statement.

INFLATION

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

<PAGE>

                                     PART IV

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

(a)  Exhibits

 NO.       DESCRIPTION
------     -----------


10.34      Employment Agreement dated December 2, 1997 
           between World Airways, Inc. and T. Coleman
           Andrews, III.                                         Filed Herewith

10.35      Amended and Restated Employment Agreement 
           dated December 2, 1997 between World Airways,
           Inc. and Russell L. Ray, Jr.                          Filed Herewith

10.36      Employment Agreement dated December 1,  1997
           between World Airways, Inc. and James D. Douglas.     Filed Herewith

10.37      Employment Agreement dated October 1, 1996 
           between World Airways, Inc. and Ahmad M. Khatib.      Filed Herewith

10.38      Employment Agreement dated October 1, 1996 
           between World Airways, Inc. and Vance Fort.           Filed Herewith

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

27         Financial data schedule for the quarter 
           ended March 31, 1998.                                 Filed Herewith


(b)   Reports on Form 8-K

      None


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

<PAGE>






                                   SIGNATURES



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



                                     WORLD AIRWAYS, INC.



                                     By: /JAMES DOUGLAS
                                     Principal Accounting and Financial Officer




Date: May 15, 1998