FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

[ ]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
       ACT OF 1934 (FEE REQUIRED)

                                       OR

[X]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from July 1, 1997 to December 31, 1997
Commission file number            0-17846

                                   CCAIR, INC.
          DELAWARE                                              NO. 56-1428192
State or other jurisdiction of                                I.R.S. Employer ID
incorporation or organization

           P. O. BOX 19929, CHARLOTTE, NC                 28219-0929
      (Address of principal executive offices)            (Zip Code)

Registrant's telephone number, including area code:  704/359-8990


           Securities Registered Pursuant to Section 12(b) of the Act:
                                      None
           Securities Registered Pursuant to Section 12(g) of the Act:
                          Common Stock, $0.01 Par Value


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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229,405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

The aggregate market value of Common Stock held by non-affiliates (based upon
the closing price for the Common Stock on the small-cap stock market of the
National Association of Securities Dealers Automated Quotation System) on April
3, 1998 was approximately $29,802,788.

As of May 6, 1998, there were 8,365,695 shares of $0.01 par value Common Stock
outstanding.

                       Documents Incorporated by Reference

Portions of the Registrant's Definitive Proxy Statement, to be filed with the
Commission not later than 120 days after the end of the Registrant's fiscal year
ended December 31, 1997, are incorporated by reference in Part III hereof, as
specified.



<PAGE>


                                   CCAIR, INC.

                     1997 FORM 10-K TRANSITION PERIOD REPORT

                                TABLE OF CONTENTS


                                     PART I

<TABLE>
<CAPTION>
                                                                                  PAGE NO.
                                                                                  --------
<S>                                                                                   <C>
Item 1.  Business.................................................................... 1
Item 2.  Properties.................................................................. 6
Item 3.  Legal Proceedings........................................................... 7
Item 4.  Submission of Matters to a Vote of Security Holders......................... 8


                                                      PART II


Item 5.  Market for Registrant's Common Equity and Related
                   Stockholder Matters............................................... 8
Item 6.  Selected Financial Data..................................................... 9
Item 7.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations...............................10
Item 7A.          Quantitative and Qualitative Disclosure About Market Risk..........23
Item 8.  Financial Statements and Supplementary Data.................................24
Item 9.  Changes in and Disagreements with Accountants on
                   Accounting and Financial Disclosure...............................24


                                                     PART III


Item 10.          Directors and Executive Officers of the Registrant.................24
Item 11.          Executive Compensation.............................................24
Item 12.          Security Ownership of Certain Beneficial
                   Owners and Management.............................................24
Item 13.          Certain Relationships and Related Transactions.....................24


                                                      PART IV


Item 14.          Exhibits, Financial Statement Schedules and Reports
                  on Form 8-K........................................................24


                  Index to Financial Statements and Schedules........................F-1

                  Index to Exhibits..................................................E-1
</TABLE>



<PAGE>



                                     PART I


ITEM 1.           BUSINESS


GENERAL

         CCAIR, Inc. (the "Company") is a Charlotte, North Carolina based
regional air carrier providing regularly scheduled passenger service to 21
cities in Georgia, Kentucky, Ohio, North Carolina, South Carolina, Virginia, and
West Virginia, primarily from a hub at the Charlotte/Douglas International
Airport. The Company currently operates a fleet of 25 turboprop passenger
aircraft with 1,216 weekly departures scheduled over a route system covering
approximately 207,000 miles. The Company was incorporated under Delaware law in
July 1984 under the name Sunbird Airlines 1984, Inc. for the purpose of
purchasing substantially all of the assets of Sunbird Airlines, Inc. The Company
changed its name to CCAIR, Inc. in January 1986.

         The Company's business has principally involved providing service for
business travelers from small- and medium-sized communities in its market area
to connecting flights of major carriers, principally US Airways, Inc. ("US
Airways"), at the hub operations of US Airways at the Charlotte/Douglas
International Airport. In addition, the Company operates a small number of
flights into Raleigh, North Carolina. In order to market the Company's services,
the Company has an agreement with US Airways that permits the Company to operate
under the name "US Airways Express" and to charge their joint passengers on a
combined basis with US Airways. (See discussion under "Business Agreement with
US Airways" below). The Company believes that its use of US Airways "US" flight
designator code continues to be the most significant factor contributing to its
ability to compete for passengers and to its historical growth.

         In February, 1998 the Company and its Board of Directors adopted a
resolution to change the Company's fiscal year end from June 30 to December 31
of each year. The new fiscal year end more closely coincides with the Company's
annual business cycle. Unless otherwise indicated, references in this Annual
Report to years mean the Company's July 1 to June 30 fiscal years, "fiscal 1997"
means the fiscal year that began on July 1, 1996 and ended on June 30, 1997, and
references to the "1997 transition period" mean the six-month period that began
on July 1, 1997 and ended December 31, 1997. References to "1998" mean the
twelve-month fiscal year ending December 31, 1998.


FLEET COMPOSITION

         The Company undertook a fleet restructuring plan during the 1997
transition period (see "Properties - Fleet" and Note 7 of the Company's
Financial Statements). The following table sets forth certain information with
respect to the Company's passenger aircraft:

<TABLE>
<CAPTION>
                                                     NUMBER OF
                                                      AIRCRAFT            1998              1998          PROJECTED
                                    PASSENGER        IN SERVICE        SCHEDULED         SCHEDULED          FLEET
AIRCRAFT                            CAPACITY         12/31/97          DELIVERIES       RETIREMENTS        12/31/98
--------                            --------         --------          ----------       -----------        --------
<S>                                    <C>               <C>               <C>                <C>             <C>
Jetstream 31                           19                14                0                  14              0
Jetstream Super 31                     19                 2               18                   0             20
Dash 8-100                             37                 4                2                   0              6
                                                         --               --                  --             --
                                                         20               20                  14             26
</TABLE>

BUSINESS AGREEMENT WITH US AIRWAYS

         Approximately 80% of the Company's passenger revenue is generated by
passengers who are connecting with US Airways flights and is determined under an
agreement for the sharing of joint passenger fares and division of revenue with
US Airways (the "Agreement"). The Agreement expires on October 31, 1998. While
renewal of the Agreement is not automatic, the Company is confident that such
renewal will occur. The Company has been advised by representatives of US
Airways that negotiations are scheduled to begin early in the third quarter and
will be complete prior to the expiration of the current agreement. During the
last nine months the Company has consistently exceeded US Airways' operating
performance goals in the areas of on-time arrivals and departures, maintenance
reliability and controllable flight completion percentage, and as such has been
assured by US Airways that the Agreement will be extended.

                                        1

<PAGE>



         The Agreement provides that it may be terminated upon 180 days prior
written notice for any reason by either US Airways or the Company or upon ten
(10) days prior written notice by US Airways under certain conditions,
including: (i) the Company's failure to maintain at least a minimum required
operating schedule; (ii) if during any one month the Company's flight completion
percentage is less than 96% due to cancellations attributable to maintenance or
operational deficiencies within the Company's control; (iii) the Company's
failure to comply with the trademark licensing provisions of the Agreement; (iv)
the initiation of a bankruptcy or similar proceeding for the Company or its
assets; or (v) a change of control or ownership of 51% or more of the Company's
common stock without the consent of US Airways.

         The Agreement provides for coordinating schedules and reservations,
joint fares and advertising. In addition, the Agreement provides that US Airways
or its affiliates will provide to the Company check-in, ticketing, baggage
handling and security services at eleven (11) airports including
Charlotte/Douglas International Airport in Charlotte, North Carolina. As of
February 1, 1994, the Company assumed total responsibility for ground operations
at Concourse D of the Charlotte/Douglas International Airport from US Airways
pursuant to an agreement that requires US Airways to reimburse the Company
monthly for expenses incurred.

         The Agreement also authorizes the Company to operate as "US Airways
Express", to use the US Airways "US" flight designator code to identify its
flights and fares for purposes of computer reservations, printed schedules, and
tickets, and to display the US Airways colors and "US Airways Express" logo on
its fleet of aircraft. The Company does not have the exclusive rights to the "US
Airways Express" name or other attributes described above. US Airways has two
subsidiaries serving the Charlotte/Douglas International Airport, Piedmont
Airlines ("Piedmont") and PSA Airlines, Inc.; additionally, US Airways
affiliate, Mesa Airlines, Inc. serves the Charlotte/Douglas International
Airport. These regional airlines operate to destinations not served by the
Company but also utilize the "US Airways Express" name and other US Airways
attributes. The Company pays US Airways handling fees based on the number of
passengers boarded in cities where US Airways provides the Company flight
service and for reservations services.

         The Agreement is a significant factor in the Company's operation and
termination of the Agreement would have a material adverse effect on the
Company's business. Additionally, the Company's business could also be adversely
affected by events that adversely affect US Airways. In 1997 US Airways
announced its plan to discontinue service to certain unprofitable cities and to
retire two aircraft types from its fleet (Fokker F28-4000 and DC-9). US Airways
has also encouraged its affiliates to retire older aircraft fleets and replace
capacity with newer, faster aircraft. Additionally, US Airways plans to close at
least one crew base, along with two reservations centers and three maintenance
centers in 1998. These actions are designed to improve operating efficiency and
profitability for US Airways. In October 1997 US Airways and its pilots ratified
a new five-year labor contract. This contract provides for controlled labor
costs as well as provisions to allow for the entrance of a low cost, low fare
airline. US Airways believes that ratification of the pilot labor contract will
allow it to achieve a competitive cost structure that will strengthen its
position in its current and future markets. Ratification of the labor contract
also opened the door for US Airways to affirm its order for up to 400 Airbus
aircraft, 124 of which are on firm order, with delivery expected in 1998 through
2002.


OPERATING STRATEGY AND SEASONAL NATURE OF BUSINESS

         The Company's operating strategy is designed to attract interline
passengers from small- and medium-sized communities in its market area who wish
to connect with flights on major carriers, principally US Airways, at
Charlotte/Douglas International Airport. In addition, the Company seeks to
attract passengers for its local flights between destinations serviced by the
Company. The Company particularly emphasizes providing reliable and conveniently
scheduled service for business travelers.

         The Company typically experiences lower passenger load factors in
January and February of each year. This can be attributed to reduced business
travel following the holiday periods, reduced leisure travel during the winter
months and adverse weather conditions in the Company's operating area, which
results in increased flight delays and cancellations. These seasonal factors
have generally resulted in reduced revenues, profitability and cash flow for the
Company during this period.


ROUTES

         The Company operates a "hub and spoke" route system with Charlotte as
its hub. The Company's operations are a component of the "hub and spoke" route
system strategy employed by US Airways at Charlotte. The Company's route system
currently includes service between Charlotte/Douglas International Airport and
sixteen (16) other airports as well as service between Raleigh/Durham, North
Carolina and four (4) other airports.


                                        2

<PAGE>




         The following table sets forth selected information about the Company's
route system and scheduling as of April 5, 1998.

<TABLE>
<CAPTION>
                                                     DATE SERVICE                 FLIGHTS OPERATED
                                                     COMMENCED                       PER WEEKDAY
                                                     ---------                       -----------
<S>                                                       <C>                            <C>
         Georgia:
                  Athens                              May 1985                           5
                  Augusta                             May 1985                           6
                  Columbus                            November 1994                      5
         North Carolina:
                  Asheville1                          May 1985                           2
                  Charlotte                           May 1985                          84
                  Greenville                          May 1985                           9
                  Hickory                             May 1985                           9
                  Jacksonville                        May 1995                           8
                  Kinston                             July 1985                          5
                  Raleigh/Durham                      May 1985                           9
                  Rocky Mount/Wilson                  July 1986                          5
                  Southern Pines/Pinehurst            October 1991                       5
                  Winston-Salem                       May 1985                           4
         South Carolina:
                  Charleston1                         April 1995                         3
                  Greenville/Spartanburg2             May 1985                           6
         Kentucky:
                  Lexington                           May 1993                           5
         Ohio:
                  Cincinnati                          July 1993                          4
         Virginia:
                  Lynchburg                           May 1995                           9
                  Norfolk1                            February 1995                      3
         West Virginia:
                  Huntington                          April 1987                         5
                  Greenbrier/Lewisburg                February 1995                      1
</TABLE>


         1   Serviced through Raleigh-Durham, North Carolina.
         2   Serviced through Charlotte and Raleigh-Durham, North Carolina.


         In May, 1998 the Company will begin new service between Raleigh-Durham
and Myrtle Beach, South Carolina and between Raleigh-Durham and Roanoke,
Virginia. The Company is also beginning new service in May, 1998, between
Norfolk, Roanoke and Richmond, Virginia. In June, 1998 the Company will begin
new service between Raleigh-Durham and Savannah, Georgia and between
Raleigh-Durham and Washington, D.C. (Dulles International Airport). With these
cities, along with weekend service to Jacksonville and Southern Pines/Pinehurst,
the Company will serve 10 destinations from Raleigh-Durham. The Company
continues to evaluate other new destinations from Raleigh -Durham.

         The Company continually reviews and analyzes its route structure for
the purpose of proposing adjustments in flight schedules. These adjustments must
be approved by US Airways prior to implementation.


YIELD MANAGEMENT

         The Company closely monitors its inventory and pricing of seats
utilizing a computerized yield management system. In July, 1997 the Company
entered into an agreement to obtain enhanced yield management capabilities. The
Company agreed to pay a software licensing fee plus a nominal amount per
scheduled departure to a firm specializing in yield management. In return, the
yield management firm, through examination of the Company's past traffic,
pricing and booking trends, estimates the optimal allocation of seats by fare
class (the number of seats made available for sale at various fares). The firm's
analysts then monitor each flight, employing sophisticated yield management
software, to adjust seat allocations and overbooking levels, with the objective
of maximizing the total revenue for each flight.

                                        3

<PAGE>





FARES

         The Company derives its passenger revenues from joint fares involving
travel on the route system of both the Company and US Airways and from local
fares. Approximately 80% of the Company's passenger revenues are derived from
joint fares, that is, fares which are shared with US Airways. Local fares, which
are fares for flights provided by the Company within its route system, account
for the balance of the Company's passenger revenues.

         The Company's revenues from joint fares are dependent on pricing
decisions made by US Airways and the Company has little ability to influence
such pricing decisions. The Company prices its local fares to be comparable with
fares charged by major carriers in similar markets. The Company seeks to
maximize its passenger yields by restricting the number of discount fares on
flights with high passenger demand.

         The Company's average fare per passenger remained relatively constant
in the 1997 transition period as compared to the same six-month period in 1996,
decreasing from $81.39 to $81.18. Seasonal fluctuations in the customer base
provide for more discretionary travel in July through December as compared to
January through June of each year; the yield for discretionary travel is
typically lower than that of business travel, resulting in lower average fares.
Revenue per available seat mile increased over the same periods from 20.9(cent)
to 23.9(cent) as a result of the Company's fleet restructuring (see Management's
Discussion and Analysis of Financial Condition and Results of Operations - 1997
Transition Period and Note 7 to the Company's Financial Statements). During
fiscal 1997 the Company realized improved average passenger fares of $84.41,
comparing favorably with fares of $82.25 and $72.01 in fiscal 1996 and 1995,
respectively. The annual average fare increased as a result of a proportional
increase in high-yield business traffic. Fiscal 1995 fares were negatively
impacted by a competing airline's increased operations in the Company's service
area. US Airways reduced fares, including the joint fares shared with the
Company, to avoid losing market share and to stimulate traffic. The competitor
reduced operations in the Company's service area in the third quarter of fiscal
1995, which allowed US Airways to collect fares higher than those charged in the
previous environment. The Company projects fares to remain at levels achieved in
1997 throughout 1998. However, many factors, including, but not limited to,
competition, actions by US Airways, fuel costs, regulation, and general economic
conditions can impact fares charged by the Company.


WORKING CAPITAL

         The Company's air traffic receivables are settled through the Airlines
Clearing House and collected monthly, one month in arrears. To reduce the cash
flow issues caused by the collection of receivables one month in arrears, the
Company has obtained a line of credit in the amount of $4.0 million from British
Aerospace Asset Management ("BAAM"), an affiliate of British Aerospace, Inc.
("BAI").

         Under the line of credit, the air traffic receivables, after set-off of
amounts due US Airways and other airlines, are transferred from the Airlines
Clearing House to a pledge account with a bank. From that account, in accordance
with irrevocable instructions, funds are transferred to BAAM to pay for any sums
due under the line of credit and then to Jet Acceptance Corporation ("JACO"), an
affiliate of BAI, for payments due under lease obligations. The balance in the
pledge account is then paid to the Company.


MARKETING

         The Company's services are promoted primarily through displays in most
airlines' computer reservation systems and the Official Airline Guide and
through direct contact with travel agencies and corporate travel departments.
The Company and US Airways have agreed to coordinate advertising and public
relations for the US Airways Express program.

         In addition, the Company's services are advertised on a cooperative
basis with US Airways. The Company, from time to time, has offered promotional
fares to introduce new service and to stimulate traffic on special occasions and
holidays. The Company also has ticket arrangements with major United States and
foreign air carriers that allow these carriers to write interline tickets on the
Company's flights.



                                        4

<PAGE>



COMPETITION

         The Company competes primarily with regional and major air carriers and
ground transportation. The Company's competition from other air carriers varies
from location to location and, in certain areas, comes from regional and major
carriers who serve the same destinations as the Company but through different
hub and spoke systems. The principal customers for these services are business
travelers and competition is based upon scheduling and flight connections,
reliability and, to a lesser extent, pricing. The Company continually reviews
its scheduling and the frequency of its flights to reduce the layover time
experienced in connecting with a US Airways flight in order to minimize the
length of the combined trip and to compete effectively with similar service
offered by other airlines. In addition, the Company's competitive position
benefits from the large number of participants in US Airways "Dividend Miles"
frequent flyer program who fly regularly to or from the markets served by the
Company. The Company also competes with various forms of ground transportation,
primarily automobiles, which are used to travel to a hub or other airport
offering direct air service.

EMPLOYEES

         On December 31, 1997 the Company had 599 full-time and 46 part-time
employees, classified as follows:

              CLASSIFICATION            FULL-TIME      PART-TIME
              --------------            ---------      ---------
              Pilots                       164              --
              Flight Attendants             34              --
              Maintenance Personnel         66              --
              Station Personnel            256              46
              Administrative                79              --
                                          ----            ----
                                           599              46

         During the 1997 transition period, the Company took steps to enhance
its management group. This has been accomplished by the addition of vice
presidents in the areas of Maintenance, Marketing and Employee Resources.

         The Company's pilots are represented by the Air Line Pilots Association
(ALPA), its flight attendants by the Association of Flight Attendants (AFA) and
its mechanics by the International Brotherhood of Teamsters (Teamsters).

         The ALPA collective bargaining agreement was amendable on May 31, 1997.
Negotiations toward a new contract are ongoing. The Company's contract with the
AFA was renewed on May 16, 1996 and will become amendable on May 16, 2001. The
Company's contract with the Teamsters was ratified on January 1, 1994 and became
amendable on December 31, 1997. The Company believes that the wage rates and
benefits for its employee groups are comparable to similar groups at other
regional airlines and is unaware of other significant organizing activities by
labor unions among its employees at this time. The Company believes that
relations with its employees are favorable, and ongoing negotiations with
various union groups will be resolved satisfactorily.

FUEL

         Fuel costs constitute 8% to 11% of the Company's total operating
expenses, net of all restructuring charges. The Company obtains substantially
all of its fuel under a consortium agreement with other airlines. This
arrangement, however, does not assure the Company access to any specified
quantity of fuel and prices thereunder reflect market prices for fuel. To date,
this arrangement has provided adequate supplies of fuel for the Company. The
Company continues to negotiate with other fuel providers in an effort to obtain
more favorable pricing.


GOVERNMENTAL REGULATION

         The Company is subject to the Federal Aviation Act of 1958, as amended
(the "Federal Aviation Act"), under which the Department of Transportation (the
"DOT") and the Federal Aviation Administration (the "FAA") exercise regulatory
authority over air carriers. The FAA regulates air safety and flight operations
as well as aircraft noise emissions. The DOT regulates the economic and
consumer-related aspects of the airline industry. The FAA reviews operations of
all carriers, including the Company, on an ongoing basis to determine compliance
with FAA regulations and operating authorizations.

         The Company applied for a Certificate of Public Convenience and
Necessity under Section 401(d)(1) of the Federal Aviation Act (the "401
Certificate") in order to facilitate aircraft financing. The 401 Certificate was
granted on September 10, 1992.

                                        5

<PAGE>




         Although the Company cannot offer assurances in this regard, it
believes it is in compliance with all requirements necessary to maintain, in
good standing, its operating authorities granted by the DOT and the FAA, and
that its aircraft comply with all applicable Federal and local laws and
regulations pertaining to aircraft noise.

         The Company is subject to various Federal and local laws and
regulations pertaining to other issues of environmental protection. The Company
believes it is in compliance with all governmentally imposed environmental
protection standards.

         The Federal Communications Commission ("FCC") has jurisdiction over the
use of radio facilities by air carriers. Airlines, and in some cases their
personnel, operating transmitters and receivers must obtain licenses from the
FCC, which may be revoked for cause. The Company believes that it and its
personnel hold all required FCC licenses.


THE ESSENTIAL AIR SERVICE PROGRAM

         Pursuant to the Airline Deregulation Act of 1978, certain communities
in the United States are guaranteed specified levels of essential air service
(the "EAS Program"). The EAS Program provides for the payment of compensation to
carriers which volunteer to provide subsidized essential air service and are
selected by the DOT to provide such service. The Company has received subsidy
payments under the EAS Program for Danville and Shenandoah Valley, Virginia. The
Company received no DOT subsidy payments in the 1997 transition period or in
fiscal 1997. In fiscal 1996, subsidy payments comprised 0.5% of the Company's
operating revenues. Under provisions in the EAS Program, the Company ceased
service to Danville in October, 1995 and ceased to receive subsidized
compensation for service to Shenandoah Valley effective July, 1996. The Company
does not anticipate initiating service to cities under the EAS program in 1998.


EXECUTIVE OFFICERS OF THE COMPANY


<TABLE>
<CAPTION>
Name                       Age      Position
----                       ---      --------
<S>                        <C>      <C>             
Kenneth W. Gann            59       Director, President and Chief Executive Officer from November, 1990 to present.

Eric W. Montgomery         38       Vice President of Finance from February, 1995 to present; Secretary from February,
                                    1995 to present, Director from November, 1997 to present.

Peter J. Sistare           34       Vice President of Flight Operations from April, 1998 to present; Vice President of
                                    Operations from December, 1993 to April, 1998.
</TABLE>



ITEM 2.           PROPERTIES


GROUND FACILITIES

         The Company presently occupies approximately 11,018 square feet of
office space in the Charlotte/Douglas International Airport's old terminal
building, in Charlotte, North Carolina and 15,000 square feet of hangar space
and 10,000 square feet of space for operations, also at the Charlotte/Douglas
International Airport. The office space is used for the Company's principal
executive and administrative offices and the hangar facility contains the
Company's maintenance operations for its aircraft, as well as maintenance
support and inventory. The office space and hangar facility are leased under
commercial use permits with the City of Charlotte, North Carolina. The permits
are a month-to-month tenancy with an annual rental of $163,500 and are
cancelable upon thirty (30) days notice by either party.

         The Company's counter, baggage, gate and ramp spaces at the airports
served by the Company are provided by US Airways and its affiliates except at
nine (9) airports where the space is leased from the airport authorities. With
respect to the ground operations at Concourse D of the Charlotte/Douglas
International Airport, the Company provides those services under contract with
US Airways. US Airways reimburses the Company for its costs in providing the
services.


                                        6

<PAGE>





FLEET

         The Company has established the goal of simplifying its fleet by
eliminating unprofitable aircraft types while retaining the operating
flexibility necessary to respond to changes in market conditions. In September,
1997 the Company tentatively reached agreement with an aircraft lessor whereby
the nine Shorts aircraft leased by the Company would be returned to the lessor
in exchange for certain financial considerations (see Management Discussion and
Analysis - Liquidity and Capital Resources for further discussion). Pursuant to
this agreement, the Shorts aircraft were subsequently retired from service - the
last Shorts aircraft ceased operating scheduled service for the Company on
January 5, 1998.

         Under the accord reached with an aircraft lessor in November, 1997 the
Company agreed to replace its fourteen Jetstream 31 aircraft with twenty
Jetstream Super 31 aircraft. In return for renegotiated lease rates, the Company
agreed to lease fourteen of the Jetstream Super 31 aircraft for seven years, and
the additional six Jetstream Super 31 aircraft until December 31, 1998. The
Jetstream Super 31 aircraft are newer and faster than the predecessor
Jetstreams, and can operate with fewer weight restrictions. The final Jetstream
Super 31 aircraft is anticipated to be operational in the Company's system
before the end of April, 1998.

         The Company leases four Dash 8-100 aircraft that have leases which
extend to 2007. The Company has signed a Letter of Intent to acquire, via
operating leases, up to six additional Dash 8-100 aircraft in 1998. The
Company's current plans are to take delivery of two of these aircraft, both in
the spring of 1998. These leases expire in 24 to 36 months.

         Based upon scheduled aircraft retirements and deliveries, the Company
will operate 20 Jetstream Super 31 and six (6) Dash 8 aircraft in 1998 (see
Business, Fleet Composition).


MAINTENANCE OF AIRCRAFT

         The engines on all of the Company's aircraft are maintained under a
continuous airworthiness maintenance program. The engines on the Company's
Jetstream aircraft undergo disassembly inspection and repair after every 3,500
hours of operation. This interval is based on the manufacturer's approved
sampling program which allows for escalation at 500-hour intervals after the
completion of a satisfactory engine overhaul. The engines on the Dash 8 aircraft
undergo overhaul after every 12,000 hours of operation. This interval is also
based on the manufacturer's recommendation.

         Substantially all of the maintenance, service and inspection of
aircraft, except major engine and component overhaul, is performed by Company
personnel. Major engine repair is performed by the engine manufacturer or its
authorized overhaul agencies. Component overhaul is performed by the applicable
manufacturer or an appropriate contractor.


ITEM 3.           LEGAL PROCEEDINGS

         The Company is a party to routine litigation incidental to its
business, none of which is likely to have a material effect on the Company's
financial position. The FAA occasionally advises the Company that it may be
subject to payment of civil penalties for certain violations of Federal Aviation
Regulations. Such notices are commonplace in the industry and are unlikely to
result in actions of material consequence.

         The Company has been engaged with representatives of and counsel for
Her Majesty the Queen in Right of Canada as Represented by the Ministry of
Industry, Science and Technology (the "Ministry") in discussions and
negotiations regarding the reimbursement obligation, if any, of the Company to
the Ministry arising from the change in lessor for the four (4) de Havilland DHC
8-102 aircraft (the "Aircraft") leased by the Company. The Ministry has informed
the Company that the new lessor, CIT Group/Capital Equipment Financing, Inc.
("CIT") made a claim under certain economic development insurance provided by
the Ministry to the former lessor, Mellon Financial Services Corporation #3
("Mellon"), when the Company entered into new lease agreements with CIT for the
Aircraft in December of 1994. The Ministry asserts that it has a right to
reimbursement in the amount of $16,996,995 but has proposed that the Company
agree to pay $6,000,000 secured by a pledge of an undetermined number of shares
of the Company's common stock.


                                        7

<PAGE>




         The Company does not have an agreement with the Ministry regarding the
economic development insurance and has not acknowledged any obligation to
reimburse the Ministry for claims paid under the original leases at the same
time that the Company entered into new leases with CIT. The Company has made
certain proposals for future consideration to resolve the Ministry's claim and
is continuing negotiations with the Ministry. Company management, a former
member of the Board of Directors and outside counsel have been involved in
discussions of issues with the Ministry. In March, 1998 the Company and the
Ministry discussed utilizing various dispute resolution mechanisms, including
mediation, arbitration or third party review. It is uncertain whether the
Company and the Ministry will reach an agreement. Based on information presently
available to management, the ultimate outcome of this matter will not have a
material impact on the financial condition, results of operations or cash flows
of the Company.


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

         The annual meeting of shareholders of the Company was held in
         Charlotte, North Carolina on November 13, 1997. Of the 7,740,695 shares
         of common stock outstanding on the record date, 6,023,856 shares were
         present by proxy. Those shares were voted on the matters before the
         meeting as follows:

         A.       Election of Directors:

                  NAME OF DIRECTOR         NO. VOTES FOR:   NO. VOTES WITHHELD:
                  ----------------         --------------   -------------------
                  Kenneth W. Gann            5,954,056             69,800
                  Dean E. Painter, Jr.       5,961,044             62,812
                  K. Ray Allen               5,958,744             65,112
                  Gordon Linkon              5,951,644             72,212
                  George Murnane, III        5,956,556             67,300
                  Eric W. Montgomery         5,955,444             68,412

         B. Proposal to ratify the adoption of the Directors' Compensation Stock
Option Plan:

                  For:  5,494,952    Against:  482,654    Abstain:  46,250

         C.       Proposal to ratify the selection of Arthur Andersen LLP as
                  independent auditors of the Company for the fiscal year ending
                  June 30, 1998.

                  For:  5,974,811    Against:  24,650     Abstain:  24,395



                                     PART II


ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS

         The Company's common stock was first sold to the public in July of
1989, when the Company completed an initial public offering of 1,904,518 shares
of common stock, of which 1,283,872 shares were sold by the Company and the
balance was sold by existing Company stockholders. The Company's common stock is
traded in the over-the-counter market, called the SmallCap Stock Market of
NASDAQ. The results of operations in the 1997 transition period may affect the
listing of the common stock on the SmallCap Stock market. The common stock is
quoted under the symbol "CCAR". The following table sets forth the high and low
bid quotations for the Company's common stock in the over-the-counter market as
reported by NASDAQ for the quarters of the last two (2) fiscal years and for the
1997 transition period. These over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.

              1997 TRANSITION PERIOD ENDED
              DECEMBER 31, 1997         HIGH               LOW
              -----------------         ----               ---

              First Quarter             3 15/32           1 7/8
              Second Quarter            4 1/16            2 5/16


                                        8

<PAGE>




              FISCAL YEAR ENDED
              JUNE 30, 1997             HIGH               LOW
              -------------             ----               ---
              First Quarter             2 5/16            1 7/16
              Second Quarter            2 1/16            1 7/16
              Third Quarter             2 1/32            1 11/16
              Fourth Quarter            2                 1 13/16

              FISCAL YEAR ENDED
              JUNE 30, 1996             HIGH               LOW
              -------------             ----               ---
              First Quarter             3 15/16           2 1/4
              Second Quarter            2 5/8             1 7/8
              Third Quarter             2 3/8             1 1/2
              Fourth Quarter            2 3/8             1 5/8

         At March 27, 1998 there were approximately 381 stockholders of record.

         The transfer agent for the Company's common stock is First Union
National Bank of North Carolina, Charlotte, North Carolina.

         During its 1996 and 1997 fiscal years and its 1997 transition period,
the Company did not pay cash dividends on its common stock. Based upon its
forecast, the Company does not plan to pay cash dividends in 1998.

ITEM 6.         SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT INCOME PER SHARE)

<TABLE>
<CAPTION>
                                  SIX-MONTH PERIOD ENDED
                                         DECEMBER 31,                                  YEAR ENDED JUNE 30
                                  -------------------------- ---------------------------------------------------------
                                    1997        1996         1997        1996        1995        1994         1993
                                    ----        ----         ----        ----        ----        ----         ----
<S>                                  <C>          <C>         <C>         <C>          <C>         <C>         <C>    
Statement of operations data:
  Operating revenues:
    Passenger                        $32,212      $33,480     $67,020     $64,482      $60,804     $60,063     $61,296
     Public service                    ---          ---         ---           353          695         814         724
    Other                                624          513       1,467       1,399        1,540       1,215       1,159
                                     -------      -------    --------     -------      -------     -------     -------
          Total operating revenues    32,836       33,993      68,487      66,234       63,039      62,092      63,179
                                     -------      -------    --------     -------      -------     -------     -------

  Operating expenses:
    Flight operation                  10,523       11,673      23,539      23,490       22,416      25,586      24,131
    Fuel and oil                       2,813        3,805       7,117       6,262        5,406       5,202       5,858
    Maintenance materials, repairs
     and overhead                      7,617        5,806      12,381      12,566       11,619      11,270      11,448
    Ground operations                  4,463        4,196       8,373       7,839        7,391       9,026       8,100
    Advertising, promotion and
     commissions                       4,847        4,839       9,868       9,104        9,007       8,921       9,745
    General and administrative         2,656        1,967       4,115       4,273        4,802       4,369       3,821
    Fleet restructuring and other
     nonrecurring charges              9,881         ---         ---         ---          ---         ---         ---
    Depreciation and amortization        740          921       1,699       1,814        1,845       1,595       1,446
    Loss from write-off of
     preoperating costs                                                                                            684
                                     -------      -------    --------     -------      -------     -------     -------
          Total operating expenses    43,540       33,207      67,092      65,347       62,486      65,969      65,233
                                     -------      -------    --------     -------      -------     -------     -------
          Operating income (loss)    (10,704)         786       1,395         886          553      (3,877)    ( 2,054)
  Interest expense                  (    641)      (  407)   (    742)   (    761)    (    920)    (   819)   (    789)
 Other income (expense), net              27       (    3)          8   (      11)           5    (     60)         60
                                     -------      -------    --------     -------      -------     -------     -------
  Income (loss) before income taxes  (11,318)         376         661         114     (    362)     (4,756)    ( 2,783)
  Provision for income taxes          ---           ---       (   141)  (      18)     ---          ---        ---
                                     -------      -------    --------     -------      -------     -------     -------
  Net income (loss) before
   cumulative effect of a change
   in accounting principle           (11,318)         376         520         96      (    362)     (4,756)    ( 2,783)
</TABLE>


                                        9

<PAGE>



<TABLE>
<CAPTION>
                                  SIX-MONTH PERIOD ENDED
                                         DECEMBER 31,                                  YEAR ENDED JUNE 30
                                  -----------------------  ------------------------------------------------------------
                                       1997        1996         1997        1996        1995        1994         1993
                                       ----        ----         ----        ----        ----        ----         ----
<S>                                 <C>          <C>         <C>        <C>           <C>          <C>         <C>     
  Cumulative effect on prior years
   (to June 30, 1997) of changing
   to the accrual method for major
   component overhauls               (12,982)         ---         ---         ---          ---          ---        ---
                                    ---------    --------    --------   ---------     --------     -------     -------
          Net income (loss)         $(24,300)    $    376    $    520   $      96     $(   362)    $(4,756)    $(2,783)
                                    =========    ========    ========   =========     ========     =======     =======

Basic income (loss) per share       $ (3.10)    $   .05      $    .07    $   .01     $(  .05)    $(  .68)     $( .43)
                                    =========    ========    ========   =========     ========     =======     =======

Weighted average common shares
 outstanding                           7,842        7,741       7,741       7,565        7,382       7,006       6,547
                                    =========    ========    ========   =========     ========     =======     =======
Diluted income (loss) per share     $ (3.10)    $   .05      $    .07    $   .01     $(  .05)    $(  .68)     $( .43)
                                    =========    ========    ========   =========     ========     =======     =======
Weighted average common and
 common equivalent shares
 outstanding                           7,842        7,954       7,999       7,969        7,382       7,006       6,547
                                    =========    ========    ========   =========     ========     =======     =======
Cash dividends declared
 per common share                      - -          - -         - -         - -          - -         - -         - -
                                    =========    ========    ========   =========     ========     =======     =======

Balance sheet data:
  Current assets                     $ 8,751      $ 8,714     $13,458     $14,165      $ 9,713     $11,242     $11,458
  Current liabilities                 25,651       10,738      16,998      15,525       10,272      11,937       7,850
  Net property and
    equipment                          3,354       12,676      13,683      12,332       12,406      13,337      12,283
  Total assets                        12,140       22,022      27,971      27,130       22,153      24,629      23,793
  Long-term debt, less
    current portion (1)                2,642        5,071       3,346       4,010        4,876       5,902       6,866
  Shareholders'
    equity (deficit)                 (16,154)       6,213       6,357       5,837        5,032       5,372       7,320
</TABLE>

(1)      See Note 9 to financial statements regarding certain capital lease
         obligations which are included in long-term debt in this schedule.


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

         The following table sets forth selected operating data relating to the
Company's passenger service for the transition period ended December 31, 1997
and the comparative six months in 1996, and fiscal years 1997, 1996 and 1995.

<TABLE>
<CAPTION>
                                                SIX-MONTH PERIOD ENDED
                                                 DECEMBER 31,                             YEAR ENDED JUNE 30,
                                         ----------------------------       -----------------------------------------------
                                            1997              1996              1997             1996             1995
                                         ---------         ----------       -----------       ---------        ----------
<S>                                       <C>               <C>              <C>               <C>               <C>    
Operating revenue (000)                   $32,836           $33,993          $68,487           $66,234           $63,039
Operating expense, net of
 restructuring and other
 nonrecurring charges (000)                33,659            33,208           67,092            65,347            62,486
Revenue passengers carried                396,799           411,362          794,013           783,997           844,421
Revenue passenger miles (000) (1)          72,417            76,068          146,567           144,695           142,499
Available seat miles (000) (2)            134,831           160,390          305,086           311,967           305,388
Passenger load factor (3)                   53.7%            47.4%             48.0%            46.4%             46.7%
Passenger breakeven load factor (4)         56.1%            46.9%             47.6%            46.3%             46.9%
Yield per revenue passenger mile (5)        44.5(cent)       44.0(cent)        45.7(cent)       44.5(cent)        42.7(cent)
Passenger revenue per available seat mile   23.9(cent)       20.9(cent)        22.0(cent)       20.7(cent)        19.9(cent)
Operating cost per available seat mile (6)  25.0(cent)       20.7(cent)        22.0(cent)       20.9(cent)        20.5(cent)
Average passenger trip (miles)             182.5            184.9             184.6            183.9             168.7
Average daily aircraft utilization
  per plane (block hours)                    7.9              8.2               8.2              8.0               8.2
Average passenger fare                     $81.18           $81.39            $84.41           $82.25            $72.01
Completion factor                           96.4%            96.3%             95.9%            95.1%             95.1%
</TABLE>


                                       10

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS





         (1)      One revenue passenger transported one mile.
         (2)      The product of the number of aircraft miles and the number of
                  available seats on each stage, representing the total
                  passenger capacity offered.
         (3)      The ratio of revenue passenger miles to available seat miles,
                  representing the percentage of seats occupied by revenue
                  passengers.
         (4)      The percentage of available seat miles which must be flown by
                  revenue passengers for the airline to breakeven after
                  operating expenses, excluding restructuring and other
                  nonrecurring charges, changes in accounting principle and
                  taxes.
         (5)      The passenger revenue per revenue passenger mile.
         (6)      Total operating expenses, excluding restructuring and other
                  nonrecurring charges, interest expense, changes in accounting
                  principle and taxes, divided by available seat miles.

         The following table sets forth selected operating data relating to the
Company's passenger service for each quarter of the 1997 transition period and
fiscal year 1997 (see Note 16 of the financial statements):

<TABLE>
<CAPTION>
                                            1997 TRANSITION PERIOD                          1997 QUARTERLY DATA
                                            ----------------------     ----------------------------------------------
                                            FIRST         SECOND        FIRST        SECOND       THIRD        FOURTH
                                            QUARTER       QUARTER      QUARTER      QUARTER      QUARTER      QUARTER
                                            -------       -------      -------      -------      -------      -------
<S>                                         <C>           <C>          <C>          <C>          <C>          <C>    
Operating revenue (000)                     $16,745       $16,091      $17,370      $16,623      $16,484      $18,010
Operating income (loss) (000)                   638       (11,956)         511          275          363          246
Net income (loss) (000)                     (12,589)      (11,711)         321           55          126           18
Earnings (loss) per share                   (  1.61)      (  1.49)         .04          .01          .02          .00

Passengers carried                          205,149       191,650      208,580      202,782      172,116      210,535
Revenue passenger miles (000)                37,941        34,476       38,691       37,377       31,870       38,629
Available seat miles (000)                   71,318        63,513       82,391       77,999       70,620       74,076
Passenger load factor                         53.2%         54.3%        47.0%        47.9%        45.1%        52.1%
Passenger breakeven load factor               51.9%         60.5%        46.1%        47.8%        44.8%        51.7%
Yield per revenue passenger mile              43.4(cent)    45.7(cent)   44.3(cent)   43.7(cent)   49.7(cent)   45.8(cent)
Average passenger trip (miles)                184.9         179.9        185.5        184.3        185.2        183.5
Average passenger fare                      $ 80.21       $ 82.22      $ 82.13      $ 80.63      $ 92.05      $ 84.06
Operating cost net of
 restructuring and other
 nonrecurring charges
 per available seat mile                      22.6(cent)    27.6(cent)   20.5(cent)   21.0(cent)   22.8(cent)   24.0(cent)
</TABLE>

         1997 TRANSITION PERIOD

         The Company's operating results reflect the implementation of its fleet
restructuring plan in the 1997 transition period. In October, 1997 the Company
began returning its nine Shorts aircraft to the lessor to simplify its fleet
structure and reduce its operating expenses. All Shorts aircraft were out of
scheduled service by January 5, 1998. In addition, the Company contracted, in
November, 1997, to replace its fourteen Jetstream 31 aircraft with twenty
Jetstream Super 31 aircraft. In conjunction with these transactions, the Company
has recognized restructuring and other nonrecurring charges for the Shorts lease
terminations, write-off and write-down of assets related to the terminated
leases and estimated costs of compliance with return conditions in the
terminated leases. Further discussion of the Company's restructuring is set
forth below under "Liquidity and Capital Resources".

         Revenues for the six-month periods ended December 31, 1997 and 1996
were $32,836,000 and $33,993,000, respectively, which represents a 3.4% decline
in the 1997 transition period. Passenger revenues decreased 3.8%, as revenue
passenger miles (RPMs) decreased 4.8% and yield per passenger mile increased
1.1%. The phase-out of the Shorts aircraft resulted in a 15.9% reduction in
available seat miles (ASMs) in the 1997 transition period as compared to the
same period in the previous year. As a result of the reduction in ASMs, the
Company ceased service between Charlotte and Shenandoah Valley, Virginia in
July, 1997, suspended service between Charlotte and Montgomery, Alabama in
September, 1997 and reduced the frequency of service to several other markets.

                                       11

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS





         The Company's revised schedule was effective in reducing low load
factor flights, as the 15.9% reduction in capacity only resulted in a 4.8%
decrease in RPMs and a 3.5% reduction in passengers. The Company's load factor
increased from 47.4% to 53.7%. The average passenger trip decreased from 184.9
miles to 182.5 miles as a result of the cessation of service from Charlotte to
Montgomery, a long-haul market. The average fare remained relatively unchanged
at $81 per passenger for the six months ended December 31, 1997 and 1996. The
Company's revenue per ASM increased from 20.9(cent) in the six-month period
ended December 31, 1996 to 23.9(cent) for the 1997 transition period, a positive
reflection on the Company's efforts at revenue maximization.

         As aforementioned, the Company's yield increased 1.1%, from 44.0(cent)
per RPM in the six-month period ended December 31, 1996 to 44.5(cent) for the
comparable period in 1997. However, the yield increase achieved in the 1997
transition period was partially offset by the decrease in the average passenger
trip. Low fare competitors remained absent from the markets served by the
Company. Additionally, the Company constantly monitors fares in the local
markets it serves, and adjusts them as competition, demand and market factors
dictate. Comparative yield calculations are complicated by the expiration and
reimplementation of the federal ticket tax. The tax expired on December 31, 1995
and was reinstated in late August, 1996. The Company believes its passenger
revenues were stimulated during the periods the tax was not in effect, as the
absence of the tax effectively reduced the cost of air travel. The Company is
not able to determine the extent to which operating results were impacted by the
absence of the tax, although it does believe that the six-month period ended
December 31, 1996 was favorably impacted by the absence of the tax for a portion
of the period, whereby the tax was collected for the entirety of the six-month
period ended December 31, 1997, with a resultant negative impact on revenue.

         Operating costs increased substantially in the 1997 transition period
over the same period in 1996. The increase is primarily a result of the aircraft
fleet restructuring plan, which accounts for $9,881,000, or 22.7%, of the
reported operating expenses. Operating costs per ASM, net of restructuring
related expenses, were 25.0(cent) in the 1997 transition period as compared to
20.7(cent) in the same period of 1996. Contributing factors include increases in
aircraft maintenance and repair expenses, spare parts rental, customer service
wages, professional fees and property tax expense. These increases were
partially offset by the rent reductions negotiated for the Shorts aircraft,
continued savings realized in the premiums for the Company's aircraft hull
insurance, the decline in aviation fuel prices and the elimination of certain
operational expenses directly related to scheduled passenger service levels and
ASMs.

         Flight operations expense decreased by more than $1.1 million, or 9.8%,
in the 1997 transition period, to $10,523,000 from $11,673,000 in the same
period of 1996. The Company continues to benefit from reductions in the insured
value of the aircraft fleet, as well as declining hull insurance rates,
culminating in a $279,000 decrease over premium expense recognized in the same
period in 1996. Pursuant to the aircraft return agreement reached with Shorts
for the nine Shorts aircraft, the Company received aircraft rent abatements,
beginning with payments due in August, 1997, in the amount of $14,000 per
aircraft per month until the aircraft were returned. The lease abatement and
early return of the aircraft resulted in a $835,000 decrease in Shorts aircraft
rental expense in the 1997 transition period versus the comparable period in
1996. Pilot and flight operations payroll-related expenses decreased by 1.5% as
a result of attrition. The Company did not replace terminated pilots in the 1997
transition period due to the reduction in capacity during the period. The
reduction in these expenses was partially offset by annual seniority wage
increases and the enhancement of the training and crew scheduling departments.

         Aviation fuel expenditures declined $989,000, or 26%, as compared to
1996 consequent to price per gallon decreases of $0.11 and the 15.9% decrease in
ASMs flown in the 1997 transition period. The Company consumed 3.6 million
gallons of fuel at a cost of $2.8 million in the 1997 transition period, as
opposed to 4.3 million gallons at $3.8 million in the same period of 1996. ASMs
and gallons of fuel used both decreased approximately 16%, while price per
gallon decreased 13%. The average price per gallon of fuel purchased in the 1997
transition period was 77.5(cent), as compared to 88.6(cent) in 1996. Fuel prices
peaked from October 1996 through February 1997, with the most favorable prices
occurring in September and December 1997. In the transition period, fuel expense
was 8.3% of operating costs, net of restructuring charges; as such, the Company
does not believe it is cost effective to attempt to manage fuel price risk.
Thus, no derivatives or other off-balance sheet instruments are used for hedging
purposes.

                                       12

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS




         Maintenance material, repairs and overhead increased $1.8 million, or
31.1% in the 1997 transition period over the six-month period ended December 31,
1996. The increase in expenses reflects the higher costs incurred with operating
the aging Shorts and Jetstream 31 aircraft, increased payroll-related expenses
and higher spare parts rentals. Outside repair and materials expense was up over
$900,000 in the 1997 transition period versus the comparable prior-year period,
as costs of maintaining the fleet escalated. Maintenance salaries expenses
increased $347,000, primarily as a result of overtime hours and temporary labor
necessary to maintain the fleet, and accomplish the aircraft returns. Rental
expenses for spare aircraft parts, primarily engines, increased $386,000 in the
1997 transition period. In the six-month period ended December, 1996 the Company
received $303,000 in rental concessions from a major vendor to compensate for
engine performance issues raised by the Company.

         Ground operations expenses increased 6.3%, from $4,196,000 to
$4,463,000 in the 1997 transition period as compared to the same period in 1996.
US Airways' passenger handling fees continued to increase. In markets where US
Airways personnel provide customer service and handling, a fee is charged to the
Company. This fee was $8.10 per passenger during the 1997 transition period as
opposed to $7.75 in 1996. Fees per passenger have increased periodically as
follows: July 1995, $6.50; January 1996, $7.75; February 1997, $8.10. Although
passengers carried decreased 3%, passenger handling fees escalated 3.6%, or
$66,000 in the 1997 transition period. In addition to increased passenger
handling fees, the Company experienced increases in customer service salary- and
payroll-related expenses. In 1997, US Airways increased its commitment to
performance in the areas of on-time arrivals and departures, completed flights
and the reduction of passenger complaints. The Company took steps to remain in
concert with US Airways in these vital performance measures. While the Company
and US Airways were successful, additional staffing levels were necessary to
ensure compliance. The Charlotte (Concourse D) station increased full-time
equivalent employees from 169 at December 31, 1996 to 198 at December 31, 1997.
To retain employees, the Company also implemented an average increase of 5% in
the hourly wage scale, concentrated in the first five years' seniority. Because
of Charlotte's relatively higher employee turnover rate, the effects of this
adjustment were felt most acutely at that station. Customer service payroll
expenses were partially mitigated (approximately $60,000) by the closure of
Company-operated field stations in Shenandoah Valley, Virginia and Montgomery,
Alabama in July, 1997, and September, 1997, respectively.

         Ground operations expense is offset through the Company's reimbursement
agreement for operating, on behalf of US Airways, Concourse D at the
Charlotte/Douglas International Airport. Effective January, 1997, monthly
reimbursements received by the Company increased to $372,000. In August, 1996,
the reimbursement rate increased from $354,000 to $359,000 per month.

         Advertising, promotion and commissions expense remained stable at
$4,847,000 in the 1997 transition period versus $4,839,000 in the prior
comparative period. While passenger revenue decreased 3.8%, commissions and
reservations expense remained flat due to increased program fees charged by US
Airways.

         Total general and administrative expenses were $2,656,000 in the 1997
transition period as compared to $1,968,000 in 1996. Salaries and
payroll-related expenses increased $104,000 as a result of additions to the
executive management group. In December, 1996, the Company received refunds of
property tax payments made in prior years totaling $118,000, reducing the
expense recognized in the six months ended December 31, 1996. Audit, legal,
corporate and other professional fees increased $180,000 and were accrued for in
relation to the Company's decision to change its reporting year-end to December
31 of each year.

         Depreciation expense decreased 19.7%, or $181,000 in the 1997
transition period as compared to the same period in 1996, consequent to the
write-off and reclassification of all assets related to the terminated aircraft
leases for the Shorts and Jetstream 31 aircraft, including leasehold
improvements and spare rotable parts. The effect of the write-off and
reclassification of depreciation expense was minimized because depreciation was
taken on all assets through November, 1997, the time at which the Company
determined that all restructuring plans became irrevocable.

         The Company incurs interest expense principally as a result of its
lines of credit; interest expense is also recorded as it relates to capital
leases, long-term borrowings, and other short-term borrowings. The Company
incurred interest expense of $641,000 in the 1997 transition period, as compared
to $410,000 in the six months ended December 31, 1996. The increase was
primarily due to the higher average borrowings outstanding on the Company's Line
of credit, precipitated by the increase in the Line to $4 million from $3
million in July, 1997.


                                       13

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS




         As a result of the aircraft return plans, the Company has reduced all
related assets and leasehold improvements to net realizable value, or estimated
resale value, as appropriate. Certain spare parts are interchangeable between
the Jetstream 31 and Jetstream Super 31 aircraft; these parts have been excluded
from the net realizable value calculations. Losses due to impairment of assets
aggregate to $3,007,000; $1,491,000 attributable to the Shorts aircraft,
$472,000 to the Jetstream 31 aircraft, $344,000 in unusable interchangeable
parts and supplies and a valuation reserve of $700,000 established in
consideration of the unpredictability of the resale market.

         The Company recorded additional restructuring charges of $6,874,000
encompassing all other aspects of the aircraft retirements. These charges
included: lease termination settlement ($6,115,000); return condition
requirements ($1,805,000 to return the Shorts, $750,000 to return the Jetstream
31s and $691,000 to return leased spare engines); early termination of Jetstream
31 engine maintenance contract ($2,483,000); accrual for expenses related to
pilot requalifications and transition rents ($478,000); reclassification of
other costs related to retired aircraft until returned to lessor ($675,000),
consulting fees for the execution of the lease termination transaction
($241,000), write-off of remaining deferred credits on terminated leases
($1,032,000 offset to charges) and the elimination of accrued expenses for
future performance of component overhauls that are no longer required
($5,332,000 offset to charges).

         Effective July 1, 1997 the Company elected to change its method of
accounting for engine, propeller and landing gear overhauls from the deferral
method to the accrual method. Under the method previously utilized, the Company
capitalized these expenditures and amortized them over the estimated service
life of the overhaul. The change in accounting principle results in accrual for
future expenditures for overhauls based on flight hours incurred each month, at
a rate commensurate with the future expected cost of overhaul. Implementation of
the change in principle necessitated the write-off of previously capitalized
items, along with the related accumulated amortization, as of July 1, 1997. The
aggregate time since last overhaul, as of July 1, 1997 was utilized to determine
the beginning accrued overhaul expense as of the same date. This calculation was
performed for each aircraft type. The aggregate effect of the change in
accounting principle was $12,982,000. The Company believes the newly implemented
accounting principle more closely emulates its lease agreements and contracts
for repair and maintenance of these components.

         In the 1997 transition period, the Company reported operating losses
for financial and tax purposes. The losses generated for tax purposes may be
carried forward for use in future years. In the current period, the Company's
effective federal tax rate is 0%, as there were no alternative minimum tax
payments. At December 31, 1997, the Company had approximately $10,034,000 of
United States Federal regular tax operating loss carryforwards available to
offset future taxable income. These carryforwards begin expiring on December 31,
2004. Additionally, the Company had $109,000 in United States Federal
alternative minimum tax credits available to offset future regular tax payments
due; these credits do not expire.

         The estimates of future results included above are based upon present
information regarding operations and future trends. While the Company believes
that the estimates constitute its best judgment on future results, the actual
results may differ materially from the estimates.

         FISCAL 1997

         The Company achieved improved operating results in fiscal 1997,
continuing the trend from fiscal 1996. Operating income and net income in the
current year are $1,395,000 and $520,000, respectively, compared to fiscal 1996
operating income of $886,000 and net income of $96,000. Passenger revenues
increased by 3.9%, with operating expenses were held to a 2.7% increase. Yield
per passenger mile continued to improve in 1997, resulting in 45.7(cent) per
revenue passenger mile ("RPM") as compared to 44.5(cent) per RPM in fiscal 1996.

         Annual revenues increased in fiscal 1997 to $68,488,000 over fiscal
1996 revenues of $66,234,000. The 3.3% increase over prior year is attributable
primarily to increased average fares related to continued industrywide fare
growth. Low fare competitors remain absent from the markets served by the
Company. Additionally, the Company maintained local market fares introduced in
February 1996 to stimulate travel, resulting in enhanced revenues throughout
fiscal 1997. Annual and quarterly yield comparisons are complicated by the
expiration and reimplementation of the federal ticket tax in fiscal 1996 and
1997. The tax lapsed on December 31, 1995 and was reinstated in late August,
1996. The tax again expired on December 31, 1996 and was resumed in early March,
1997. The Company believes that its passenger revenues were stimulated during
the periods the tax was not in effect - the absence of the tax effectively
reduced the cost of air travel. The Company is not able to determine the extent
to which operating results in fiscal 1996 and 1997 benefited from the absence of
the tax, although it does believe that it had a positive impact on its operating
results.

                                       14

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS




         Available seat miles ("ASMs") decreased 2.2% from fiscal 1996. The
Company discontinued service between Shenandoah Valley, Virginia and Baltimore,
Maryland in December, 1996. Pursuant to an economic analysis of Shorts aircraft
utilization and profitability, the Company reduced the number of flights using
these aircraft in December, 1996. As such, only seven of the nine Shorts
aircraft were scheduled for the last seven months of fiscal 1997. While ASMs
thus decreased 6.1% for the last seven months of fiscal 1997 when compared to
1996, the load factor increased from 47.8% for the seven months in fiscal 1996
to 49.0% for the comparable period in fiscal 1997.

         The Company, while able to implement changes in its flight schedule
after receiving the consent of US Airways, has limited control over the cities
it serves as a US Airways Express carrier. The Company did receive approval to
discontinue service to Shenandoah Valley, Virginia and Montgomery, Alabama
effective July 8, 1997 and September 4, 1997, respectively, based upon
profitability and aircraft utilization studies.

         RPMs increased commensurately with revenue passengers, reflecting
growth of 1.3% over fiscal 1996. Elevated RPMs, passengers carried and average
fares are indicative of the overall health of the air transportation industry.
The Company continued to maintain its upward trend in average fares for fiscal
1997. The fiscal 1997 average fare was $84.41, compared to $82.25 in fiscal
1996.

         Operating costs per ASM escalated from 20.9(cent) to 22.0(cent) from
fiscal 1996 to fiscal 1997. Contributing factors include increases in
maintenance outside repair expenses, fuel cost, flight operations and customer
service wages and US Airways' fees for ticketing and passenger handling. These
increases were partially mitigated by cost reductions realized in the Company's
aircraft hull insurance, engine overhaul amortization expenses and savings
realized under the first full year of reduced Jetstream 31 lease payments.

         Flight operations expense stabilized in fiscal 1997 at $23,539,000, as
compared to $23,490,000 in fiscal 1996. Although the Company experienced
significant increases in pilot and flight management salaries, the additional
expenses were offset by reductions in hull insurance rates and aircraft lease
payments. The Company continued to benefit from reductions in the insured value
of the aircraft fleet and more favorable hull insurance rates resulting in
annual savings of $393,000 in 1997. Additionally, renegotiated lease payments
for the Jetstream 31 fleet finalized in 1996 resulted in further reductions to
lease expenses as compared to fiscal 1996. Pilot salaries escalated 4.9%, or
$336,000 over fiscal 1996 to $7,135,000 in fiscal 1997. Under the plan
negotiated with the Air Line Pilots Association ("ALPA"), pilot salaries were
initially reduced by 16% in October 1994, with 4% of the original concession
being reinstated after each subsequent four-month period. The final increase
scheduled under this plan occurred in February, 1996. Accordingly, fiscal 1997
was the first complete year under the fully reinstated salary levels.
Furthermore, annual seniority wage increases contributed to the increases in
pilot salary expense. Flight operations management and support salary expenses
also grew by $100,000 as compared to 1996; enhancement of the training and crew
scheduling departments are the primary factors.

         Crew travel expenses, comprised of meal allowances and accommodations
declined significantly, from $1,280,000 in fiscal 1996 to $1,078,000 in fiscal
1997. In April, 1996, 14 crews were placed in four newly established crew bases
in Lynchburg, Virginia; Cincinnati, Ohio; Lexington, Kentucky and Kinston, North
Carolina. Establishment and maintenance of these new crew bases resulted in
savings of $202,000 in fiscal 1997.

         The Company is obligated pursuant to its contract with its pilots to
match pilot contributions to the Company's 401(k) plan based upon an agreed-upon
earnings formula. The Company recorded $138,000 of compensation expense related
to its contractual obligation as flight operations expense in fiscal 1997. The
Company had insufficient earnings to trigger the matching provision in fiscal
1996.

         Market fluctuations in price variances in and ASMs flown cause annual
fuel and oil expenses to be volatile. Despite a 2.2% decline in ASMs flown, the
Company experienced a 14% increase in fuel and oil expense, with expenditures of
$7,117,000 in fiscal 1997 versus $6,262,000 in fiscal 1996. Fuel consumption was
8.2 million gallons at an average price per gallon of 87.4(cent) in fiscal 1997,
as compared to 8.3 million gallons at 75.8(cent) per gallon in fiscal 1996. Fuel
prices peaked from October, 1996 through February, 1997, averaging 93.8(cent)
per gallon during this period.

         Maintenance materials, repairs and overhead decreased 1.5% from fiscal
1996, as expense was $12,381,000 in fiscal 1997 versus $12,566,000 in fiscal
1996. Maintenance expenses typically fluctuate based upon flight hours and
takeoffs and landings. Maintenance expense per ASM remained relatively constant;
4.1(cent) in 1997 and 4.0(cent) in 1996.

                                       15

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS




         Ground operations expenses increased 6.8% over prior year, resulting in
fiscal 1997 expenditures of $8,373,000 versus $7,839,000 in fiscal 1996. US
Airways passenger handling fees continued to increase. In markets where US
Airways personnel provide customer service and handling, a fee is charged to the
Company; this fee increased 35(cent) per passenger in February, 1997. While
passengers carried increased by only 10,000, or 1.3%, passenger handling fees
escalated 18%, or $555,000 in fiscal 1997.

         Ground operations expense is offset in Charlotte, North Carolina
through the Company's reimbursement rate for operating Concourse D at the
Charlotte/Douglas International Airport. The Company's reimbursement increased
from $354,000 to $359,000 in August, 1996 and $372,000 in January, 1997.
Customer Service salaries at Company- operated stations increased $149,000 due
to the combination of general wage increases, service schedule alterations, and
additional overtime.

         Advertising, promotion and commissions expense increased from 14.1% of
passenger revenue in fiscal 1996 to 14.7% in fiscal 1997. On January 1, 1996, US
Airways implemented a new reservations fee structure which resulted in an
additional $.90 per passenger charge. Fiscal 1997 thus received an entire year,
or an additional $370,000 of this expense as compared to 1996. CRS fees also
increased on a per-passenger basis in fiscal 1997.

         Total general and administrative expenses in fiscal 1997 were
$4,116,000 as compared to $4,273,000 in fiscal 1996, for a decrease of 3.7%.
While salaries increased by $166,000, property taxes declined $303,000. The
property tax decrease was due to refunds of $118,000 resulting from personal
property reclassifications for tax purposes for the years allowed under local
statute (1991-1995). Other general and administrative decreases resulted from
$75,000 in refunded sales and use taxes related to off-road fuel taxes
originally remitted in 1994 through 1996.

         Depreciation and amortization expense declined slightly from $1,814,000
in fiscal 1996 to $1,699,000 in fiscal 1997, as asset additions for rotable
flight equipment, ground equipment and leasehold improvements were minimal in
the current year, and thus little depreciation was generated on current-year
property additions.

         In fiscal 1997, recognition of net operating loss carryforwards offset
income tax expense at the statutory rate; however, the Company's effective
federal income tax rate was 21.3% which reflects the impact of the alternative
minimum tax on operations. Income tax expense was $141,000 in fiscal 1997, as
compared to $18,100 for fiscal 1996. At June 30, 1997 the Company had
approximately $5,860,000 of United States Federal regular tax operating loss
carryforwards available to offset future taxable income. These carryforwards
begin expiring on June 30, 2005.


         FISCAL 1996

         The operating results for fiscal 1996 continued the positive trend from
fiscal 1995. Passenger revenues increased 6.0%, attributable to the improved
yield per revenue passenger mile of 44.5(cent) in fiscal 1996 from 42.7(cent) in
fiscal 1995. The result of these overall improvements was operating income of
$886,000 and a net income of $96,000 versus operating income of $553,000 and a
net loss of $362,000 in fiscal 1995. Operating expense increases of 4.6%
partially offset the revenue improvement.

         Annual revenues for the 1996 and 1995 fiscal years were $66,234,000 and
$63,039,000, respectively. The 5.1% increase over the prior year was due to the
absence of low-fare competitors in the Company's markets and to continued
industrywide fare growth. Additionally, in February, 1996 the Company
implemented local market fares for travel between Company-controlled
destinations, thus stimulating travel and increasing revenues. Revenues were
significantly hampered, however, by inclement weather in the Company's operating
area during the third quarter of 1996. Severe winter storms caused the
cancellation of approximately 1,200 flights during this quarter. As a result,
the Company estimates that operating revenues were adversely impacted by
approximately $1,100,000. Harsh weather in the northeast section of the United
States caused further revenue losses as connecting passengers with reservations
on the Company's flights were unable to initiate their trips.

         The Company experienced yield erosion in the months of May and June,
1996. The yield declined from 44.4(cent) in April to 42.5(cent) in May and
41.7(cent) in June. While some slippage in yield is normal, the presence of
low-cost/low fare competitors in the Company's service area exacerbated the
negative effects.


                                       16

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS



         Available seat miles increased 2.2% over fiscal 1995. The growth was
primarily due to increased daily service to longer-haul markets, including
Columbus, Georgia, Lexington, Kentucky and Lynchburg, Virginia, increasing total
weekday departures to 216 from 213 in fiscal 1995.

         While the number of revenue passengers carried decreased by 7.2%,
revenue passenger miles increased 1.6% as compared to fiscal 1995 as a result of
changes to the Company's service schedule. Passengers carried continued to
decline due to the absence of low-fare, traffic-stimulating competition which
existed in the Company's market until March, 1995. Additionally, the Company
continued to recognize the effects of discontinued service to several markets in
fiscal 1995. Because the low-fare competition in 1995 was not present in 1996 to
depress fares, the Company was able to maintain higher average ticket prices of
$82.25 in fiscal 1996 versus $72.01 in fiscal 1995, thus increasing yield per
revenue passenger mile to 44.5(cent), an increase of 4.2% over 1995.

         Operating costs per available seat mile increased from 20.5(cent) to
20.9(cent) for fiscal 1995 to 1996. Contributing factors include increases in
fuel costs, pilot training expenses, US Airways fees and engine overhaul
expenses. A portion of these increases were offset by cost reductions recognized
in the Company's aircraft hull insurance, professional fees and property tax
expenses.

         Flight operations expense increased 4.8% to $23,490,000 in 1996,
compared to $22,416,000 in fiscal 1995. In fiscal 1995 reductions in aircraft
lease rates were achieved through negotiations with lessors, which the Company
continued receiving the benefit of in fiscal 1996. Additionally, more favorable
hull insurance rates and reductions in the insured value of the Company's
aircraft yielded a decrease in hull insurance expense of 12.9% or $228,000 as
compared to 1995. Several factors impacted the pilot salaries, resulting in
escalations from $7,428,000 in fiscal 1995 to $8,512,000 in 1996, a 14.6%
increase. Pilot turnover in the fourth quarter was exceptionally high due to
recruiting and hiring by the major airlines. Because the internal pilot reserve
was depleted, the Company incurred significant training costs in order to
maintain necessary crew levels. Additionally, during the period of crew
shortages, flight lines were being covered by existing pilot crews at the higher
pay rates due to overtime. The effect of these factors in the fourth quarter of
1996 as compared to the same period of 1995 is an increase in salaries and
training costs of $480,000, or 30.2%. Furthermore, the final two increases under
the pilot salary reduction plan were phased in during October, 1995 and
February, 1996. Under the plan negotiated with the Air Line Pilots Association
("ALPA"), pilot salaries were initially reduced by 16% in October, 1994, with 4%
of the original concession being reinstated after each subsequent four-month
period. Flight attendant salaries increased 6.3% or $62,000 over the previous
fiscal year due to scheduled service increases.

         Crew travel expenses, encompassing meal allowances and accommodations,
remained relatively unchanged at $1,280,000 and $1,366,000 from fiscal year end
1995 to 1996, respectively. In April, 1996 four new crew bases were established
in Lynchburg, Virginia, Cincinnati, Ohio, Lexington, Kentucky and Kinston, North
Carolina, placing a total of 14 crews at these locations. While crew bases are
designed to reduce crew travel expenses, the savings were not evident for the
fiscal year ended June 30, 1996 because of expenses associated with moving the
crews.

         The escalation of market prices of fuel significantly affected fiscal
1996's fuel expense. Fuel expenditures totaled $5,406,000 in fiscal 1995, and
increased 15.8% to $6,262,000 in 1996, when the average price per gallon of fuel
increased from 67.1(cent) to 75.8(cent). Total fuel consumption was 8.3 million
gallons versus 8.1 million gallons in fiscal years 1996 and 1995, respectively.
The increase between years was directly related to the increased service
schedule. Fuel expense for 1996 includes the 4.3(cent) per gallon federal excise
tax on transportation fuels which the Company became obligated to pay on October
1, 1995.

         Maintenance materials, repairs and overhead experienced an 8.2%
increase over the previous year, from $11,619,000 to $12,566,000 in fiscal 1996.
The escalation was due exclusively to the increase in annual amortization of
engine and gear overhauls from $3,496,000 in 1995 to $4,393,000 in 1996. From
March, 1995 through the end of fiscal 1996, expenditures related to overhauls of
Dash 8 airframe and engine components were $1,509,000, with amortization lives
ranging from 11 to 48 months. Amortization of these overhaul additions was the
principal factor in the increase in overhaul expense for the fiscal year ended
1996.

         Ground operations expense increased 6.1% over 1995, as expenses went
from $7,386,000 to $7,839,000. The principal factor in the higher expenses is
the increase in US Airways handling fees that the Company pays as a result of US
Airways handling the Company's passengers in certain markets. Inclement weather
in the winter months caused an additional $200,000 in aircraft servicing charges
in fiscal 1996 as compared to 1995, as deicing fluid purchases drastically
increased.

                                       17

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS




         Advertising, promotion and commissions expense decreased from 14.8% of
passenger revenue in fiscal 1995 to 14.1% of passenger revenue in 1996. The
reason for this decrease was the revised rate structure for commissions paid to
travel agencies, which went into effect during March, 1995. Commissions paid on
travel agency-generated tickets decreased from an average of 10.0% in 1995 to
8.9% in 1996. As approximately 80% of tickets collected by the Company are
written by travel agencies, the 1996 savings from this structure change was
approximately $575,000. Partially offsetting this reduction was an increase in
reservations fees charged by US Airways. On January 1, 1996, the reservations
fee charged changed to a new fee structure resulting in an additional $360,000
in expense ($.90 per passenger) during the last two quarters of the 1996 fiscal
year over fees which would have been paid under the old structure.

         Total general and administrative expenses decreased 11.0% or $529,000
from 1995 to 1996. Contributing to this decrease were reductions in professional
fees incurred and property tax assessment adjustments. Professional fees were
lower due to the absence of extensive lease and union negotiations that were
present during prior years. Property tax assessments have been reduced as of the
tax year beginning January 1, 1996, going forward through the revaluation of the
aircraft fleet to market value as of the date of filing (January 1, 1996) in the
Company's most significant ad valorem taxing district, North Carolina. This
revaluation and other property tax adjustments resulted in savings in calendar
1996 of $200,000.

         Depreciation and amortization decreased slightly from $1,845,000 in
fiscal 1995 to $1,814,000 in 1996, as asset additions for rotable flight
equipment, ground equipment and leasehold improvements were minimal in fiscal
1996, and thus little depreciation was generated on 1996 property additions.

         In fiscal 1996, recognition of net operating loss carryforwards offset
income tax expense at the statutory rate, but the Company's effective federal
income tax rate was 15.9%, which reflects the impact of the alternative minimum
tax on operations. Income tax expense was thus $18,100 versus $0 in 1995. At
June 30, 1996 the Company had approximately $7,777,000 of United States Federal
regular tax operating loss carryforwards available to offset future taxable
income. These carryforwards begin expiring on June 30, 2005.


         FISCAL 1995

         The operating results for fiscal 1995 reflect significant improvement
over fiscal year 1994. The cost reduction plan initiated by the Company was the
principal reason for the improvement. This plan reduced operating costs by 5.3%,
even though capacity, as measured by available seat miles, increased 5.5%. The
operating expense reductions, while encompassing all functional areas within the
Company, were focused on the following areas: aircraft leases, pilot pay and
passenger handling. Operating results also benefitted from the improved yield
per revenue passenger mile, which increased from 40.3(cent) in fiscal 1994 to
42.7(cent) in fiscal 1995. The result of these improvements was operating income
of $553,000 and a net loss of $362,000, as compared to an operating loss of
$3,877,000 and net loss of $4,756,000 in fiscal 1994.

         Revenues for the years ended June 30, 1995 and 1994 were $63,039,000
and $62,092,000, respectively. The 6.0% increase in yield in fiscal 1995 was the
result of industrywide fare increases implemented in the third quarter of fiscal
1995 and the elimination of the low-fare division of Continental, Continental
Lite, in the same period. Continental Lite was a direct competitor of US Airways
and the Company in its service area, and US Airways reduced fares, including the
joint fares shared with the Company, to avoid losing market share and to
stimulate traffic in the winter of 1993. The Continental Lite pricing and
service strategy was eliminated by Continental Airlines in the third quarter of
fiscal 1995, which allowed US Airways to alter its pricing strategy and thus
resulted in increased yields for the Company based upon higher joint fares.

         The number of available seat miles (ASMs) increased 5.5% in fiscal 1995
over fiscal 1994, primarily as a result of changes in the Company's service
schedule. In conjunction with US Airways's strategy of eliminating jet service
to short haul markets and turning this flying over to US Airways Express
commuter operators, the Company initiated all turbo prop service to Augusta,
Georgia in February, 1995 and Jacksonville, North Carolina and Lynchburg,
Virginia in May 1995. Also during 1995, the Company ceased service to several
cities it had previously served on a shared basis with US Airways from
Charlotte, North Carolina. These cities were Wilmington, North Carolina,
Asheville, North Carolina, Tri- Cities, Tennessee, Columbia, South Carolina,
Huntsville, Alabama and Knoxville, Tennessee. The net effect of this schedule
change was an increase in ASMs, as fourth quarter capacity increased by 5.5%
over the third quarter and 6.9% over the same quarter in fiscal 1994.

                                       18

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS




         The number of revenue passengers carried decreased by 2.9% and revenue
passenger miles (RPMs) decreased by 4.3% in fiscal 1995 as compared to fiscal
1994. The primary reason for the reduced passengers and RPMs is the elimination
of the low-fare, traffic stimulation environment which existed in the Company's
service area until the cessation of Continental Lite as previously addressed.

         Operating costs per available seat mile in fiscal 1995 declined 10.1%
from 22.8(cent) to 20.5(cent), as compared to the previous fiscal year. The
increases in fuel, maintenance, advertising, general and administrative and
depreciation were more than offset by decreases in flight operations and ground
operations.

         Flight operations expense decreased by 12.4% in fiscal 1995 to
$22,416,000 compared to $25,586,000 in fiscal 1994. The principal reason for
this reduction was a 19.1% decrease in aircraft lease expense. See discussion
below under Liquidity and Capital Resources. In addition, pilots' salaries and
related costs decreased 4.7% in fiscal 1995 as a result of the implementation of
a salary reduction plan negotiated with the Air Line Pilots Association (ALPA).
The reduced pay levels began in October 1994 and will be phased back in over
sixteen months. The plan entailed an initial 16% pay reduction in October 1994.
After each subsequent four-month period, an additional 4% of the initial
reduction was reinstated until February 1996, at which time the salaries
reverted to the levels prior to October 1, 1994. The Company has previously
estimated that the ALPA agreement would result in savings of approximately
$850,000 from October 1, 1994 through January 31, 1996 at present staffing
levels, of which $638,000 would be realized in fiscal 1995. The actual savings
were $318,000, which differed from the projection due to the increased block
hours flown due to the service schedule increase in the fiscal 1995 fourth
quarter.

         Crew travel expenses were reduced by 9.7%, or $137,000, in fiscal 1995
as a crew base was established in Augusta, Georgia, to decrease crew per diem
and lodging expenses. A Jacksonville, North Carolina crew base was established
in August, 1995. Efficient utilization of pilots allowed the Company to operate
the increased capacity without adding new pilots, thus pilot training costs
consisted only of recurrent training. This efficiency enabled the Company to
reduce crew training costs by $160,000, or 34.0%. Flight attendant salaries and
related costs increased $77,000 or 7.3%, due to scheduled service increases, and
hull insurance expense increased 11.4%, or $182,000, due to rate increases.

         Fuel and oil expense increased to $5,406,000 in fiscal 1995 from
$5,202,000 in fiscal 1994. The average cost per gallon of fuel into plane
decreased to 67.1(cent) in 1995 from 68.3(cent) in 1994, reflecting the
continued savings to the Company from the purchase of fuel through a US Airways
subsidiary. Total fuel consumption was 8.1 million gallons in fiscal 1995 versus
7.7 million gallons in fiscal 1994. The increase from year to year was a direct
result of increased levels of operations.

         Maintenance materials, repairs and overhead increased from $11,270,000
in fiscal 1994 to $11,619,000 in fiscal 1995. The higher costs were attributable
to an increase in the number of flight hours flown, however, the cost of
maintenance repairs and materials per ASM in fiscal 1995 was 3.8(cent) compared
to 3.9(cent) per ASM in fiscal 1994.

         Ground operations expense decreased from $9,026,000 in fiscal 1994 to
$7,391,000 in fiscal 1995. In July of 1993, US Airways increased handling fees
that the Company pays for its passengers. At this time the Company was paying
$8.24 per passenger handled by US Airways. In March of 1994, the Company assumed
responsibility for ground operations at Concourse D at the Charlotte/Douglas
International Airport in conjunction with the implementation of cost cutting
measures by US Airways. The Company assumed the responsibility for the salaries
and benefits of the Concourse D employees, and in return received $296,900 per
month from US Airways and a reduction in passenger handling fees to $5.70 per
passenger.

         In January of 1995, the Company's reimbursement rate for operating
Concourse D increased to $340,000 per month. In March, 1995, the per-passenger
handling fee charged by US Airways increased to $6.20 and increased to $6.50 in
July, 1995. The reduction in ground operations expenses, while primarily due to
the Concourse D realignment, was also due to operational efficiencies
experienced at other stations operated by the Company.

         Advertising, promotion and commissions expense increased from
$8,921,000 in fiscal 1994 to $9,007,000 in fiscal 1995, a 1.0% increase. This
increase is directly related to the passenger revenue increase, as these
expenses as a percentage of passenger revenue remained constant, 14.8% of
revenue in fiscal 1995 and 14.9% of revenue in fiscal 1994.

                                       19

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS




         General and administrative expense increased to $4,802,000 in fiscal
1995 as compared to $4,369,000 in fiscal 1994. This increase was primarily
attributable to passenger liability and property insurance increases of
$230,000, or 19%. Passenger liability rate increases more than offset the
reduction in passengers and the resultant decrease in RPMs.

         Depreciation and amortization increased from $1,595,000 in fiscal 1994
to $1,845,000 in 1995, primarily as a result of increased depreciation on
rotable flight equipment reclassified from inventory in fiscal 1994.


LIQUIDITY AND CAPITAL RESOURCES

         The Company's cash needs result from continuing operations including
capital expenditures necessary to the operation of its aircraft, and the
continuing payment of creditors in accordance with its Plan of Reorganization.
The Plan of Reorganization was consummated in September, 1991 pursuant to
bankruptcy proceedings initiated by the Company. During the 1997 transition
period the Company satisfied its cash requirements through internally generated
funds and borrowings under a revolving line of credit agreement with an
affiliate of an aircraft manufacturer, secured by all of the Company's accounts
receivable. The Company also utilized short-term loans from certain directors
and officers and a line of credit with Centura Bank, both secured by owned
flight and ground equipment. In December, 1997, the Company issued 545,000
shares of its authorized and available common stock in a private placement
transaction. The shares were purchased by an investor group at a price that
approximated market on the date of the transaction. The Company received
proceeds, net of all fees, of $1,489,000.

         During the 1997 transition period, management implemented its strategy
to restructure the aircraft fleet, address short-term and long-term liquidity
needs and improve the overall financial condition of the Company. The key
components of the plan are as follows:

         1.   Elimination of the Shorts aircraft from the fleet.

         2.   Elimination of the Jetstream 31 aircraft from the fleet.

         3.   Introduction of newer, more efficient Jetstream Super 31 to the
              fleet.

         4.   Negotiate transaction for up to six additional Dash 8-100
              aircraft, deliveries to take place in 1998.

         5.   Issuance of 545,000 shares of the Company's common stock to
              improve short-term liquidity.

         6.   Strengthened management through promotions and recruitment.

         7.   Change year-end to December 31, beginning in 1997, which more
              closely corresponds with the Company's business cycle.

         8.   Discontinued unprofitable flying.

         9.   Strengthened the critical yield management area by licensing
              state-of-the-art technology and hiring experience yield management
              consultants to assist in the day-to-day management of seat
              inventory.

RESTRUCTURING

         On September 11, 1997 the Company entered into a transaction with
Lynrise Air Lease, Inc. ("Lynrise") to return the Company's nine leased Shorts
aircraft to Lynrise as lessor. The aircraft leases were scheduled to continue
through September, 2004, at a monthly rate of $34,000 per aircraft. These
aircraft did not meet US Airways criteria of cabin class service, as they are
unpressurized and slow. In addition, the lease expense per block hour was high,
and the operating expenses continued to escalate. The aircraft were returned
between November, 1997 and January, 1998. In return for this early termination
of the aircraft leases, the Company issued a promissory note in the amount of
$9,725,000. The promissory note was issued in contemplation of the Company's
obligations to lessor: lease termination and aircraft remarketing provisions -
$6.1 million, previously recorded liabilities in the form of accrued rent and
notes payable - $1.8 million and return condition obligations - $1.8 million.
This note is due on August 31, 1998.

                                       20

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS





         Before August 31, 1998, the Company may exercise its option issued in
conjunction with the note, whereby it would pay Lynrise $1,675,000 in cash or
stock and $130,000 in aircraft parts. Upon the option's exercise, the remainder
of the note, $7,920,000, would be converted to a subordinated note, which is
convertible to common stock at $7.50 per share. This subordinated note would be
due in 2004, with interest and principal payments to begin in 1999.
Principal payments may be paid in cash or stock, at the Company's option.

         Under an accord reached with an aircraft lessor in November, 1997 the
Company agreed to replace its fourteen Jetstream 31 aircraft with twenty
Jetstream Super 31 aircraft. In return for renegotiated lease rates, the Company
agreed to lease fourteen of the Jetstream Super 31 aircraft for seven years, and
the additional six Jetstream Super 31 aircraft until December 31, 1998. The
final Jetstream Super 31 aircraft is anticipated to be operational in the
Company's system before the end of April, 1998. The Jetstream Super 31 aircraft
are newer and faster than the predecessor Jetstreams, and can operate with fewer
weight restrictions. The Jetstream 31 aircraft are expected to be returned to
the lessor in the second quarter of 1998. The Company estimates that the return
condition specifications on these aircraft will cost approximately $50,000 per
aircraft. These costs have been provided for as restructuring charges in the
1997 transition period.

         As a result of the retirement of two aircraft types, the Company wrote
down its spare parts inventory to net realizable value at December 31, 1997. The
writedowns consisted of $1.2 million in Shorts parts; $100,000 in Jetstream
parts; $100,000 in ancillary parts required to maintain both fleets; and a
valuation reserve increase of $700,000 in contemplation of uncertainties in the
resale market. The Company anticipates to aggressively market its excess spares
in 1998. The net book value of parts held for resale was $1,200,000 on December
31, 1997. Additionally, the Company wrote off $680,000 in unamortized leasehold
improvements related to these two aircraft types.

         As a result of the restructuring plans undertaken to accomplish fleet
simplification and cost reductions, the Company estimates total annual expense
reductions in excess of $4 million per year, commencing in 1998. These savings
will result principally from the reduction in aircraft rentals, maintenance
expense, flight crew and other labor costs, landing fees and spare parts
inventory levels. In addition, the fleet simplification should improve the
Company's ability to achieve higher levels of reliability, resulting in fewer
flight cancellations and delays and increased revenues. The Company does not
anticipate any additional restructuring charges at this time.

         The Company's balance sheet reflects a deficit in working capital,
defined as current assets less current liabilities, of approximately $16,705,000
on December 31, 1997 as compared to $3,540,000 on June 30, 1997. Working capital
is affected by the short-term note issued to Lynrise leasing as already
discussed, as well as seasonality of operations and the timing of receipts from
the ACH. The Company intends to exercise its purchase option on the promissory
note, thereby converting the note to a long-term obligation. Funds necessary to
exercise the option will be generated through internal operations or by the
issuance of stock, or a combination of these methods. In addition, March through
October of each year are peak travel and thus are higher revenue months. The
Company's accounts receivable for passenger service provided in December, 1997
are thus less than amounts recorded in the peak months. The ACH mechanism of
collecting passenger revenue receivables has provided a predictable cash inflow
stream; 99% of the Company's revenues are collected through the Clearing House.
As such, the Company has traditionally been able to match payments to creditors
to its cash receipts from the ACH, which are received at the end of each month,
and to thus defer payments when necessary, or arrange for alternate financing.

         After recognition of the restructuring charges and the change in
accounting principle, the Company has a shareholders' deficit of $16,154,000. As
previously mentioned, the results of the restructuring are expected to provide
over $4 million in net cost savings beginning in 1998. In addition, many of the
obligations arising from the restructuring can be satisfied by the issuance of
stock, which will conserve cash and improve the Company's deficit position. The
Company's management and Board of Directors has had preliminary discussions
related to a secondary public offering of common stock, although no definitive
actions have been taken as yet and more common shares will have to be approved
by shareholders before any offering can be undertaken. The Company also has a
solid infrastructure, and has been able to exceed US Airways operating
performance goals consistently during the 1997 transition period.


                                       21

<PAGE>


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS



         FINANCING

         During the 1997 transition period the Company had available a line of
credit (the "Line") in an amount not to exceed $4,000,000 from British Aerospace
Asset Management ("BAAM"). BAAM is an affiliate of JACO and British Aerospace
Holdings, Inc., the company that had previously collateralized the Company's
bank line through a loan purchase agreement. The Line permits the Company to
borrow up to 70% of a borrowing base, which consists of the Company's
transportation and nontransportation charges to Airlines Clearing House, Inc.
("ACH") or such greater amount as BAAM shall determine, but in no event more
than $4,000,000. The Line is secured by all of the Company's accounts
receivable, bears interest at prime + 2% and is scheduled to terminate on July
31, 1998, but must be extended by BAAM for successive one-year periods until
December 31, 2001.

         In November, 1996 the Company secured a supplemental line of credit
(the "Centura Line") with its primary banking facility, Centura Bank. This is a
revolving line of credit not to exceed $400,000. The outstanding balance on the
Centura Line accrues interest at an annual rate of prime plus 2%, and terminates
June 30, 1998. The outstanding balance was $400,000 at December 31, 1997.

         During the 1997 transition period, the Company obtained several
short-term loans from certain directors, officers and other related parties.
Individual amounts borrowed under these loans ranged from $45,000 to $350,000,
and earned interest at the rate of ten percent. The aggregate maximum and
average amounts outstanding under these loans were $500,000 and $129,000,
respectively. In connection with these loans, the Company issued to the lending
parties noncompensatory options or warrants to purchase 23,550 shares of the
Company's common stock at the fair market value on the date of grant.

         CAPITAL EXPENDITURES

         Capital expenditures consist of fixed asset replacement. Capital
expenditures in the 1997 transition period were $382,000. These expenditures
were principally for rotable parts and aircraft leasehold improvements. The
Company projects 1998 capital expenditures to be approximately $1,000,000 for
rotable parts, leasehold improvements and other capital items. Effective July 1,
1997, the Company began accounting for major component overhauls using the
accrual method, as opposed to the deferral method practiced in prior years.
Accordingly, expenditures for overhauls in the upcoming year are not included in
the capital budget.

         OPERATING CASH FLOW

         The Company receives payments for airline tickets under interline
agreements through the Airlines Clearing House one month in arrears.
Historically, this payment in arrears has caused significant cash flow problems
in the last half of each month. The Company has a line of credit with BAAM to
provide a steady cash flow between ACH settlements. The Company believes that
the restructuring discussed above and improved revenue environment will provide
sufficient cash flows to provide for continuing operations, capital expenditures
and scheduled debt and bankruptcy payments absent adverse changes in current
market conditions. If operating cash flows and the Line are insufficient to meet
obligations, the Company may issue stock, secure short-term loans from officers
and directors, or extend terms with trade creditors.

         The Company received the December Airlines Clearing House ("ACH")
payment on the scheduled settlement date of December 30, 1997, and obligations
with British Aerospace Asset Management ("BAAM") and Jet Acceptance Corporation
("JACO") for the Line and aircraft lease payments were satisfied on December 31,
1997. In contrast to events as of June 30, 1997, the Company received its ACH
payment on June 30, 1997. However, because the first business day subsequent to
receipt of funds was July 1, 1997, the Company maintained possession of the full
settlement amount as of June 30, 1997. Ordinarily, BAAM receives payments from
the settlement on the first business day subsequent to the transfer to satisfy
the Line balance and accrued aircraft lease payments due to JACO. These
obligations were settled on July 1, 1997 for June, 1997.

         Accounts receivable decreased to $5,048,000 as of December 31, 1997
from $5,629,000 as of June 30, 1997. The decrease is due to lower passenger
revenue in December, 1997 versus June, 1997 attributable primarily to a seasonal
decrease in business traffic.


                                       22

<PAGE>



         Other noncurrent assets decreased from $829,000 as of June 30, 1997 to
$36,000 as of December 31, 1997 as a result of the change in the Company's
method of accounting for major component overhauls and the related escrow
funding with one of its aircraft lessors.

         Accounts payable increased to $8,129,000 in the 1997 transition period
as compared to $5,521,000 in fiscal 1997 due to liabilities resulting from
restructuring activities and seasonal fluctuations in revenue used to settle
obligations. Notes payable, including current maturities, increased from
$1,885,000 in fiscal 1997 to $10,783,000 in the 1997 transition period as a
result of the note payable issued in conjunction with the settlement reached
with the lessor of the returned Shorts.

         The Company is required to make payments of $166,000 to unsecured
creditors in annual installments in the third quarter of each calendar year
through 1999. The Company intends to make these payments when due.

         OTHER

         On January 16, 1998 US Airways notified the Company of amendments to
the Service Fees agreement, effective March 1, 1998. The per-passenger handling
fee of $8.10 remains unchanged; however, ticketing fees and frequent traveler
charges will increase due to changes in the calculation methodology. The Company
believes these fee structure alterations will negatively impact operating
expenses by approximately $700,000 in 1998.

         The Financial Accounting Standards Board (FASB) has issued several
statements that became effective for fiscal years beginning after December 15,
1997. These statements are SFAS No. 130, Comprehensive Income; SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information; and SFAS
No. 132, Employers Disclosures about Pensions and Other Post Retirement
Benefits. The Company will not be impacted by requirements or changes in
reporting requirements prescribed by SFAS No. 130 or 131. The Company does
anticipate broadened disclosures under SFAS No. 132 regarding the 401(k) plan it
sponsors. The Company does not provide for any other post-retirement benefits.

         YEAR 2000 COMPLIANCE

         The Company has evaluated its information infrastructure for Year 2000
compliance. The Company's financial and statistical reporting and its crew
scheduling systems are in the process of being updated, with completion of the
process expected in early 1999. Any costs associated with these modifications
will be expensed as incurred. The Company depends upon passenger reservations
and operational control systems maintained by other companies, vendors and
government entities. In the event that any of these systems are not Year 2000
compliant, the Company's operations could be adversely affected.

         FORWARD-LOOKING STATEMENTS

         Statements contained in this document and the notes to the financial
statements which are not historical in nature are forward-looking statements,
and are subject to risks and uncertainties that may cause future results to
differ materially from those set forth in such statements. The Company is not
obligated to update forward-looking statements to reflect events or
circumstances after the date of this report.


INFLATION

         Inflation has not had a material impact on the Company's operations.



ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
                  RISK

         The Company has no information to report under this Item.


                                       23

<PAGE>





ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information required by this item is submitted beginning on Page
F-1 of this Form 10-K.



ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

         None.



ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



ITEM 11.          EXECUTIVE COMPENSATION


                                    PART III


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT



ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Items 10 through 13 are incorporated by reference to the Company's
definitive proxy statement as filed with the Securities and Exchange Commission.

                                     PART IV


ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
                  FORM 8-K


         (a)      The following documents are filed as a part of this report:

                  1. & 2.  The financial statements and schedule required by
                           this Item can be found as indexed on Page F-1.

                  3.       Exhibits shown by index beginning on page E-1.

         (b)      Reports on Form 8-K.

                  No reports on Form 8-K were filed during the quarter ended
December 31, 1997.


                                       24

<PAGE>






                                   SIGNATURES



         Pursuant to the requirements of Section 13 or 15 (d) 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.

                                         CCAIR, INC.


DATE:    May 7, 1998                     BY:        /s/ Kenneth W. Gann
                                                  ---------------------
                                                  Kenneth W. Gann, President and
                                                  Chief Executive Officer

         Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         SIGNATURES                                           TITLE                          DATE
         ----------                                           -----                          ----
<S>                                         <C>                                               <C>
  /s/ Kenneth W. Gann                       Chairman of the Board of Directors,               May 7, 1998
----------------------------                Chief Executive Officer, President
Kenneth W. Gann                             (Principal Executive Officer)



  /s/ Eric W. Montgomery                    Vice President of Finance;                        May 7, 1998
----------------------------                (Principal Financial Officer,
Eric W. Montgomery                          Principal Accounting Officer)


  /s/ K. Ray Allen                          Director                                          May 7, 1998
--------------------------------
K. Ray Allen


  /s/ Gordon Linkon                         Director                                          May 7, 1998
------------------------------
Gordon Linkon


  /s/ George Murnane, III                   Director                                          May 7, 1998
-----------------------------
George Murnane, III


  /s/ Dean E. Painter, Jr.                  Director                                          May 7, 1998
------------------------------
Dean E. Painter, Jr.



                                       25

<PAGE>




                                   CCAIR, INC.

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULE


                                                                                PAGE NO.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                        F-2

FINANCIAL STATEMENTS:

         Balance Sheets as of December 31, 1997,
         June 30, 1997 and 1996                                                 F-3

         Statements of Operations for the Six-Month Periods
         ended December 31, 1997 and 1996 (unaudited); and
         for the Years ended June 30, 1997, 1996 and 1995                       F-4

         Statements of Changes in Shareholders' Equity (Deficit)
         for the Six-Month Period ended December 31, 1997
         and the Years ended June 30, 1997, 1996 and 1995                       F-5

         Statements of Cash Flows for the Six-Month Periods
         ended December 31, 1997 and 1996 (unaudited); and for
         the Years ended June 30, 1997, 1996 and 1995                           F-6

         Notes to Financial Statements                                          F-7


FINANCIAL STATEMENT SCHEDULE:


         II       Valuation and Qualifying Accounts for the Six Months ended
                  December 31, 1997 and 1996; and
                  for the Years ended June 30, 1997, 1996 and 1995              S-1




         All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted because they are not applicable, not required or the information
presented has been furnished elsewhere.




                                       F-1

<PAGE>





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




TO CCAIR, INC.:

         We have audited the accompanying balance sheets of CCAIR, Inc. (a
Delaware corporation) as of December 31, 1997, June 30, 1997 and 1996, and the
related statements of operations and changes in shareholders' equity (deficit)
and cash flows for the six-month period ended December 31, 1997 and for each of
the three years in the period ended June 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CCAIR, Inc. as of
December 31, 1997, June 30, 1997 and June 30, 1996, and the results of its
operations and its cash flows for the six-month period ended December 31, 1997
and for each of the three years in the period ended June 30, 1997, in conformity
with generally accepted accounting principles.

         As explained in Note 10 to the financial statements, effective July 1,
1997, the Company changed its method of accounting for engine, propeller and
landing gear overhauls.

         Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.





Charlotte, North Carolina,                              ARTHUR ANDERSEN LLP
  April 17, 1998.


                                       F-2

<PAGE>



                                   CCAIR, INC.

                                 BALANCE SHEETS
                    DECEMBER 31, 1997, JUNE 30, 1997 AND 1996
                            -------------------------




</TABLE>
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,        JUNE 30,          JUNE 30,
     ASSETS                                                          1997             1997              1996
                                                                 ------------      -----------       -----------
Current assets:
<S>                                                              <C>               <C>               <C>
  Cash and cash equivalents                                      $    11,647       $ 4,904,778       $ 5,059,665
  Receivables, principally traffic, less allowance
   for doubtful receivables of $113,700 at December
    31 and June 30, 1997 and $50,000 at June 30, 1996              5,047,701         5,628,959         5,937,222
  Inventories, less allowance for obsolescence of $466,000
   at December 31, 1997 and at June 30, 1997 and 1996                509,586         1,571,378         1,243,577
  Parts held for resale, net of valuation reserves of
   $700,000 at December 31, 1997 and $0 at June 30,
   1997 and 1996                                                   1,205,277           510,998           514,876
  Prepaid expenses                                                 1,976,896           842,320         1,410,113
                                                                 -----------       -----------       -----------
          Total current assets                                     8,751,107        13,458,433        14,165,453
                                                                 -----------       -----------       -----------

Property and equipment, at cost:
  Flight equipment and leasehold improvements                      5,525,291        24,417,631        20,700,870
  Ground and other property and equipment                          4,380,712         4,269,938         4,135,574
                                                                 -----------       -----------       -----------
                                                                   9,906,003        28,687,569        24,836,444
   Less accumulated depreciation and amortization                 (6,552,430)      (15,004,807)      (12,504,463)
                                                                 -----------       -----------       -----------

                                                                   3,353,573        13,682,762        12,331,981
                                                                 -----------       -----------       -----------
Other noncurrent assets                                               35,522           829,464           632,244
                                                                 -----------       -----------       -----------
          Total assets                                           $12,140,202       $27,970,659       $27,129,678
                                                                 ===========       ===========       ===========

     LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Notes payable and current maturities
   of long-term debt                                             $ 2,490,334       $   962,748       $   854,438
  Note payable expected to be refinanced                           7,920,000           ---               ---
  Short-term borrowings                                              900,000         3,951,000         3,310,000
  Current obligations under capital leases                           229,194           328,465           373,266
  Accounts payable                                                 8,129,043         5,520,553         5,546,146
  Accrued expenses                                                 5,982,891         6,316,240         5,441,201
                                                                 -----------       -----------       -----------
          Total current liabilities                               25,651,462        17,079,006        15,525,051
Long-term debt, less current maturities                              373,147           922,345         1,371,328
Capital lease obligations, less current obligations                2,269,230         2,342,517         2,638,967
Deferred credits, net of amortization of $2,293,263
 at June 30, 1997 and $1,805,462 at June 30, 1996                     ---            1,269,635         1,757,436
                                                                 -----------       -----------       -----------
          Total liabilities                                       28,293,839        21,613,503        21,292,782
                                                                 -----------       -----------       -----------

Commitments and contingencies (Notes 8, 9, 14 and 18)

Shareholders' equity (deficit):
  Common stock, $.01 par value, 10,000,000 shares
   authorized, 8,335,695 issued and outstanding at
   December 31, 1997 and 7,740,695 at June 30, 1997
   and 1996                                                           83,357            77,407            77,407
  Additional paid-in capital                                      19,508,276        17,725,184        17,725,184
  Accumulated deficit                                            (35,745,270)      (11,445,435)      (11,965,695)
                                                                 -----------       -----------       -----------
       Total shareholders' equity (deficit)                      (16,153,637)        6,357,156         5,836,896
                                                                 -----------       -----------       -----------

          Total liabilities and
           shareholders' equity (deficit)                        $12,140,202       $27,970,659       $27,129,678
                                                                 ===========       ===========       ===========
</TABLE>






           The accompanying notes to financial statements are an integral part
of these balance sheets.

                                       F-3

<PAGE>




                                   CCAIR, INC.

                            STATEMENTS OF OPERATIONS
     FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED);
                AND THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
                            ------------------------

<TABLE>
<CAPTION>
                                       SIX-MONTH PERIOD ENDED                         THE YEARS ENDED
                                    ----------------------------       ----------------------------------------------
                                     DECEMBER         DECEMBER            JUNE             JUNE              JUNE
                                        1997            1996              1997             1996              1995
                                    ------------     -----------       -----------      -----------       -----------
                                                     (Unaudited)
<S>                                 <C>              <C>               <C>              <C>               <C>
Operating revenue:
  Passenger                         $ 32,211,552     $33,479,757       $67,020,162      $64,482,156       $60,804,001
  Public service                         ---             ---               ---              352,888           695,047
  Other, principally
   freight and charter                   624,003         513,418         1,467,460        1,398,657         1,539,652
                                    ------------     -----------       -----------      -----------       -----------
                                      32,835,555      33,993,175        68,487,622       66,233,701        63,038,700
                                    ------------     -----------       -----------      -----------       -----------

Operating expenses:
  Flight operations                   10,522,782      11,672,573        23,539,207       23,490,322        22,415,288
  Fuel and oil                         2,813,162       3,805,346         7,117,089        6,261,716         5,406,055
  Maintenance materials
   and repairs                         7,616,664       5,805,596        12,380,857       12,565,634        11,619,432
  Ground operations                    4,463,474       4,195,739         8,372,738        7,838,926         7,390,643
  Advertising, promotion
   and commissions                     4,846,996       4,839,498         9,867,686        9,104,225         9,006,992
  Fleet restructuring and other
   nonrecurring charges (Note 7)       9,880,520         ---               ---              ---               ---
  General and administrative           2,656,042       1,967,529         4,115,530        4,273,030         4,802,454
  Depreciation and
   amortization                          739,831         921,269         1,699,181        1,813,533         1,844,683
                                    ------------     -----------       -----------      -----------       -----------
                                      43,539,471      33,207,550        67,092,288       65,347,386        62,485,547
                                    ------------     -----------       -----------      -----------       -----------

      Operating income (loss)        (10,703,916)        785,625         1,395,334          886,315           553,153

Interest expense                     (   641,394)     (  406,576)       (  742,437)      (  761,433)       (  920,528)
Other income (expense), net               27,291      (    3,237)            8,291       (   11,027)            5,252
                                    ------------     -----------       -----------      -----------       -----------
Income (loss) before income taxes
 and cumulative effect of a change
 in accounting principle             (11,318,019)        375,812           661,188          113,855        (  362,123)
Provision for income taxes               ---             ---            (  140,928)      (   18,100)          ---
                                    ------------     -----------       -----------      -----------       -------
Income (loss) before cumulative
 effect of a change in accounting
 principle                           (11,318,019)        375,812           520,260           95,755        (  362,123)
Cumulative effect on prior years
 (to June 30, 1997) of changing
 to the accrual method of
 accounting for major component
 overhauls (Note 10)                 (12,981,816)        ---               ---              ---               ---
                                    ------------     -----------       -----------      -----------       ------------

Net income (loss)                   $(24,299,835)    $   375,812       $   520,260      $    95,755       $(  362,123)
                                    ============     ===========       ===========      ===========       ===========

Basic income (loss) per
 common share (Note 4)              $  (   3.10)     $       .05       $       .07      $       .01       $(      .05)
                                    ===========      ===========       ===========      ===========       ===========
Weighted average common
 shares outstanding                   7,842,380        7,740,613         7,740,654        7,565,421         7,381,783
                                    ===========      ===========       ===========      ===========       ===========
Diluted income (loss)
 per share                          $  (   3.10)     $       .05       $       .07      $       .01       $(      .05)
                                    ===========      ===========       ===========      ===========       ===========
Weighted average common
 and common equivalent
 shares outstanding                   7,842,380        7,953,685         7,999,174        7,969,314         7,381,783
                                    ===========      ===========       ===========      ===========       ===========

Proforma amounts assuming the
 new method of accounting is
 applied retroactively
    Net Income (loss)                                $   188,885       $   350,240      $ 1,132,441       $(  514,364)
                                                     -----------       -----------      -----------       -----------
    Basic income (loss)
     per common share                                $       .02       $       .05      $       .15       $(      .07)
                                                     ===========       ===========      ===========       ============
</TABLE>


             The accompanying notes to financial statements are an integral part
of these statements.

                                       F-4

<PAGE>




                                   CCAIR, INC.

             STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

                FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1997
                AND THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
                            -------------------------

<TABLE>
<CAPTION>
                                                COMMON STOCK         ADDITIONAL
                                              -----------------        PAID-IN     ACCUMULATED
                                              SHARES     AMOUNT        CAPITAL       DEFICIT           TOTAL
                                              ------     ------        -------       -------           -----
<S>                                         <C>          <C>         <C>           <C>             <C>         
Balances, June 30, 1994                     7,381,195    $73,812     $16,997,186   $(11,699,327)   $  5,371,671

Net loss                                      ----         ---          ----        (   362,123)    (   362,123)

Exercise of options                            19,500        195          22,962        ----             23,157
                                            ---------    -------     -----------   ------------    ------------

Balances, June 30, 1995                     7,400,695    $74,007     $17,020,148   $(12,061,450)   $  5,032,705

Net income                                    ----         ---          ----             95,755          95,755

Issuance of stock to lessor                   325,000      3,250         687,375        ----            690,625

Exercise of options                            15,000        150          17,661        ----             17,811
                                            ---------    -------     -----------   ------------    ------------

Balances, June 30, 1996                     7,740,695    $77,407     $17,725,184   $(11,965,695)   $  5,836,896

Net income                                    ----         ---          ----            520,260         520,260
                                            ---------    -------     -----------   -------------   ------------

Balances, June 30, 1997                     7,740,695    $77,407     $17,725,184   $(11,445,435)   $  6,357,156

Net loss                                      ----         ---          ----        (24,299,835)    (24,299,835)

Exercise of options                            50,000        500     $    58,875        ---              59,375

Grant of compensatory
 warrants (Note 11)                           ----         ---           240,417        ---             240,417

Issuance of stock in
 private transaction                          545,000      5,450       1,483,800        ---           1,489,250
                                            ---------    -------     -----------   -------------   ------------
Balances, December 31, 1997                 8,335,695    $83,357     $19,508,276   $(35,745,270)   $(16,153,637)
                                            =========    =======     ===========   ============    ============
</TABLE>

             The accompanying notes to financial statements are an integral part
of these statements.

                                       F-5

<PAGE>



                                   CCAIR, INC.

                            STATEMENTS OF CASH FLOWS
     FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED);
                AND THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
                            ------------------------

<TABLE>
<CAPTION>
                                                 SIX-MONTH PERIOD ENDED                         THE YEARS ENDED
                                              -----------------------------      ----------------------------------------------
                                              DECEMBER 31,     DECEMBER 31,        JUNE 30,         JUNE 30,          JUNE 30,
                                                  1997             1996              1997             1996              1995
                                             ------------     -----------       -----------      -----------       -----------
                                                               (Unaudited)
<S>                                          <C>              <C>               <C>              <C>               <C>        
 Cash flows from operating activities:
   Net income (loss)                         $(24,299,835)    $   375,812       $   520,260      $    95,755       $( 362,123)
   Adjustments to reconcile net
    income (loss) to net cash
    provided by operating activities:
     Note discount amortization                    31,197          53,129            76,561          201,503           328,238
     Depreciation and amortization (1)            739,831        2,766,472        5,595,917         6,206,823        5,388,356
     Lease expense in excess of
      (less than) payments                    (   237,957)     (  232,095)       (  487,801)          20,496           696,788
     Loss (gain) on disposal of assets        (    19,332)           3,237            4,864            31,855           36,902
     Lease termination charge                   9,144,281          ----              ----             ----              ----
     Write-off leasehold improvements             680,012          ----              ----             ----             ----
     Write-off deferred credits                (1,031,677)         ----              ----             ----              ----
     Adjust property, plant and
      equipment to be disposed of
      to net realizable value                   1,882,913          ----              ----             ----              ----
     Change in accounting principle             7,407,549          ----              ----             ----             ----
     Compensatory warrants                        240,417          ----              ----             ----              ----
     Changes in certain assets
      and liabilities:
       Receivables, net                           581,258         879,287           308,263          579,850        (  272,290)
       Inventories, net                           367,513      (  190,798)       (  323,923)          26,432           407,334
       Accounts payable                         2,608,485      (  476,282)       (   25,593)       1,488,049         1,046,894
       Accrued expenses                        (  363,851)     (1,052,007)          875,039        1,152,881        (  562,790)
       Other note payable                            ----            ----              ----             ----        (  801,000)
       Other changes, net                      (  333,522)     (  308,361)          370,573       (  889,841)        1,594,916
                                             ------------     -----------       -----------      -----------       -----------
        Net cash provided (used)
         by operating activities               (2,602,718)      1,818,394         6,914,160        8,913,803         7,501,225
                                             ------------     -----------       -----------      -----------       -----------

 Cash flows from investing activities:
   Capital expenditures                        (  382,135)     (3,105,913)       (6,954,961)      (6,169,304)       (5,437,286)
   Proceeds from sale of assets                    20,351           2,400             3,400            4,250            44,539
                                             ------------     -----------       -----------      -----------       -----------
        Net cash used in
         investing activities                  (  361,784)     (3,103,513)       (6,951,561)      (6,165,054)       (5,392,747)
                                             ------------     -----------       -----------      -----------       -----------

 Cash flows from financing activities:
   Issuance of common stock                     1,548,625         ----              ----              17,811            23,157
   Issuance of notes and
    long-term debt                                361,645         110,000           573,434          530,281           620,211
   Short-term borrowings, net                  (3,051,000)     (3,023,000)          641,000        3,210,000           100,000
   Reductions of notes and long-term
    debt, including payments under
    capital lease obligations                  (  787,899)     (  851,556)       (1,331,920)      (1,504,171)       (3,445,871)
                                             ------------     -----------       -----------      -----------       -----------
        Net cash provided (used)
         by financing activities               (1,928,629)     (3,764,556)       (  117,486)       2,253,921        (2,702,503)
                                             ------------     -----------       -----------      -----------       -----------
 Net increase (decrease) in cash
  and cash equivalents                         (4,893,131)     (5,049,675)       (  154,887)       5,002,670        (  594,025)
 Cash and cash equivalents,
  beginning of period                           4,904,778       5,059,665         5,059,665           56,995           651,020
                                             ------------     -----------       -----------      -----------       -----------
 Cash and cash equivalents,
  end of period                              $     11,647     $     9,990       $ 4,904,778      $ 5,059,665       $    56,995
                                             ============     ===========       ===========      ===========       ===========
</TABLE>


(1) Amortization of capitalized overhauls is included in Maintenance, Materials
and Repairs expense in the accompanying statements of operations for fiscal
years 1997, 1996 and 1995, and the six-months ended December 31, 1996.


        The accompanying notes to financial statements are an integral part of
these financial statements.

                                       F-6

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------



1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         A summary of the significant accounting policies applied in the
         preparation of these financial statements follows:

         NATURE OF OPERATIONS AND BASIS OF PRESENTATION - CCAIR, Inc. is an
         independent regional airline providing scheduled passenger service as
         US Airways Express in the southeast United States. CCAIR, Inc. operates
         within one industry (air transportation) and, accordingly, no segment
         information is provided.

         REVENUE RECOGNITION - Passenger revenue is recognized when service is
         rendered. Public service revenue represents Federal subsidies received
         for providing Essential Air Service to certain communities which
         produce insufficient air traffic to profitably support such service.
         Rates for such transportation services are determined under the Federal
         Aviation Act by the Department of Transportation. Revenue is recognized
         when service is rendered.

         FREQUENT TRAVELER AWARDS - The Company does not sponsor its own
         frequent traveler program. It does honor the US Airways program but
         limits the available program seats. The Company's share of future
         travel awards to be incurred, if any, is not determinable but usage of
         such awards are believed by management to be immaterial.

         CASH AND CASH EQUIVALENTS - Cash equivalents include all investments
         with an original maturity of three months or less. Cash and cash
         equivalents are principally held by one bank.

         RECEIVABLES - The Company's air traffic receivables are settled through
         the Airlines Clearing House and collected monthly, one month in
         arrears.

         INVENTORIES - Inventories consist principally of expendable spare parts
         and parts held for resale, and are valued at the lower of cost or
         market, determined on an average cost basis. Expendable parts are
         recorded as inventory when purchased and charged to operations as used.

         PREPAID EXPENSES - Prepaid expenses include prepaid insurance and
         prepaid maintenance (see "Maintenance" section of Note 1 for additional
         discussion).

         DEPRECIATION AND AMORTIZATION - Property and equipment are depreciated
         to estimated residual values on the straight-line method over their
         economic useful service lives, ranging as follows:

               Flight equipment                            10 years
               Ground and other property and equipment     3-10 years

         Leasehold improvements and flight equipment held under capital leases
         are amortized using the straight-line method over the estimated useful
         service lives of the related assets, not exceeding the lease term. Cost
         and accumulated depreciation of property retired or otherwise disposed
         of are removed from the accounts, and the related gain or loss is
         included in other income.

         MAINTENANCE - With the exception of overhauls of engines, landing gears
         and propellers, the Company expenses maintenance events when incurred.
         The Company adopted the accrual method of accounting for major
         overhauls effective July 1, 1997 (see Note 10). Under this method, the
         Company accrues for current and future maintenance events on an ongoing
         basis in amounts estimated as sufficient to cover the cost of the
         overhaul when incurred. These accruals are estimated on a cost per
         flight hour basis for all aircraft.

         INCOME TAXES - Deferred tax liabilities and assets are determined based
         on the difference between the financial statement and tax basis of
         assets and liabilities using enacted tax rates in effect for the year
         in which the differences are expected to reverse (see Note 12).

                                       F-7

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------




         FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of the
         Company's financial instruments approximates fair value at December 31,
         1997, June 30, 1997 and 1996.

         INCOME (LOSS) PER COMMON SHARE - Income (loss) per common share is
         calculated according to the requirements of SFAS No. 128 and is based
         on the weighted average number of common shares outstanding. Prior
         years' earnings per share have been restated to conform with current
         year presentation (see Note 4).

         USE OF ESTIMATES - The preparation of financial statements in
         conformity with generally accepted accounting principles 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.

         RECLASSIFICATIONS - Certain amounts included in prior years' financial
         statements have been reclassified to conform with the December 31, 1997
         presentation.

         UNAUDITED STATEMENTS - The Statement of Operations and the Statement of
         Cash Flows for the six-month period ended December 31, 1996 have been
         included for comparative purposes. These statements are unaudited and
         reflect all adjustments which are, in the opinion of management,
         necessary for a fair statement of results under generally accepted
         accounting principles.


2.       PETITION FOR RELIEF UNDER CHAPTER 11

         THE FILING - As a result of cash flow difficulties and the need for
         protection based upon its defaults under certain leasing and financing
         arrangements, the Company filed for Chapter 11 bankruptcy on July 5,
         1990.

         THE PLAN OF REORGANIZATION (THE "PLAN")

         Under Chapter 11, certain claims against the Debtor in existence prior
         to the filing of the petition for relief under the Federal Bankruptcy
         laws are stayed while the Debtor continues business operations as
         Debtor-in-Possession. Additional claims arose subsequent to the filing
         date through September 3, 1991, the Plan's effective date. Such claims
         resulted from rejection of executory contracts, including leases, and
         from the determination by the Bankruptcy Court (or agreed to by the
         parties-in-interest) of allowed claims for contingencies and other
         disputed amounts. Claims secured against the Debtor's assets ("Secured
         Claims") also are stayed, although holders of such claims have the
         right to seek relief from the stay. Secured claims are collateralized
         primarily by liens on the Company's property and equipment.

         The Company received approval from the Bankruptcy Court (the "Court")
         to pay or otherwise honor certain of its prepetition obligations,
         including employee wages, insurance, and payables to US Airways in the
         normal course of business. The Company determined that there was
         insufficient collateral to cover the interest portion of scheduled
         payments on its prepetition debt obligations and discontinued accruing
         interest on these obligations. Contractual interest on those
         prepetition obligations was approximately $847,000, which was $739,000
         in excess of reported interest expense in 1991. Chapter 11 provides for
         reorganization of the Company's debt and equity structure and allows
         the business to continue operations. Subsequent to filing Chapter 11,
         the Company engaged in negotiations with its creditors and other
         parties-in-interest toward achieving a plan of reorganization and a
         settlement of outstanding claims against the Company. As a result of
         these negotiations, the Company filed a Plan of Reorganization on April
         10, 1991, a Revised Plan of Reorganization on May 3, 1991 and a Revised
         and Amended Plan of Reorganization on June 12, 1991 (the "Plan") with
         the Court. On July 19, 1991, the creditors and the Court confirmed the
         Plan effective September 3, 1991.


                                       F-8

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------




         In the process of developing the Plan intended to return the Company to
         profitable operations, management evaluated its aircraft fleet, route
         system, and relationship with US Airways, Inc. Under the Bankruptcy
         Code, the Company elected to assume or reject certain aircraft leases,
         real and personal property leases, service contracts and other
         executory prepetition contracts subject to the Court's review. During
         1991, the Company returned three (3) owned aircraft and twelve (12)
         leased aircraft, although subsequently the Company accepted and took
         back four (4) of the leased aircraft.

         DISTRIBUTION TO CREDITORS UNDER THE PLAN - The provisions of the Plan
         divide claims and interests into fourteen (14) classes and contain
         various repayment provisions and compromises of allowed claims. The
         principal Plan provisions vary depending on the class of claims and are
         as follows:

         1.       Payment of ten (10) to twenty (20) percent of allowed claims
                  at the time of the Plan's effective date, with the remainder
                  of such claims paid in equal annual installments over up to
                  eight (8) years;

         2.       Return of aircraft, parts or equipment in satisfaction of
                  allowed claims or in accordance with settlement agreements;

         3.       Release of certain liens on aircraft parts and equipment;

         4.       Issuance of common shares in payment of allowed claims;

         5.       Compromise of claims for prepetition and postpetition accrued
                  aircraft lease payments; assumption of certain aircraft
                  leases, payment of accrued prepetition and postpetition lease
                  payments on rejected aircraft leases and settlement payments
                  at the effective date as well as in future equal annual
                  installments over up to eight (8) years (see Note 8).

         All remaining Chapter 11 obligations are unsecured and are due in
         annual installments of $166,001. These obligations are as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER            JUNE              JUNE
                                                              31, 1997         30, 1997          30, 1996
                                                              --------         --------          --------
<S>                                                            <C>              <C>               <C>     
                  Notes payable, noninterest-bearing,
                   to unsecured vendors in annual
                   installments through 1999                   $296,393         $426,394          $533,170
                  Discount at 15%                                35,608           71,608           130,833
                                                               --------         --------          --------
                  Payments due                                  332,001          498,002           664,003
                  Less current portion                          166,001          166,001           166,001
                                                               --------         --------          --------
                  Long-term portion of payments due            $166,000         $332,001          $498,002
                                                               --------         --------          --------
</TABLE>


3.       US AIRWAYS AGREEMENT

         The Company and US Airways Group, Inc. ("US Airways"), an unaffiliated
         company, have entered into an agreement (the "Agreement") expiring on
         October 31, 1998, whereby the Company provides regional air service on
         air routes of US Airways. While renewal of the Agreement is not
         automatic, the Company is confident that such renewal will occur.
         During the last nine months the Company has consistently exceeded US
         Airways' operating performance goals in the areas of on-time arrivals
         and departures, maintenance reliability and controllable flight
         completion percentage, and as such has been assured by US Airways that
         the Agreement will be extended. The majority of passenger revenue is
         generated from the Agreement through joint passenger fares and division
         of revenue with US Airways. The Company receives use of various US
         Airways service marks including use of the designator code and US
         Airways logo and color patterns. Under the contract, the Company is
         obligated to pay US Airways for reservation services and various ground
         support services (exclusive of aircraft fueling).

                                       F-9

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------





         The Company is required to maintain certain flight completion factors
         and to meet other conditions as specified in the Agreement. As of
         December 31, 1997, the Company is in compliance with all requirements.
         Should an event of default occur, the Agreement provides that US
         Airways has the right to terminate the Agreement upon ten (10) days'
         written notice. The Agreement also provides that it may be terminated
         by either party upon 180 days' notice.

         The Company is responsible for all ground operations at Concourse D of
         the Charlotte/Douglas International Airport. Pursuant to an agreement
         with US Airways, the Company receives reimbursement for these services
         on a monthly basis. The reimbursement is currently $389,000 per month.
         This amount offsets expenses related to the operation of Concourse D
         and is recorded as a reduction of ground operations expense for
         financial reporting purposes. The Company recorded total reimbursements
         of $2,223,000 for the 1997 transition period and $2,122,000 in the
         comparative period in 1996.

         A summary of other transactions and year-end account balances with US
Airways and subsidiaries is as follows:

<TABLE>
<CAPTION>
                                                      DECEMBER            JUNE             JUNE              JUNE
                                                        1997              1997             1996              1995
                                                        ----              ----             ----              ----
<S>                                                  <C>               <C>              <C>               <C>        
         Service fees included in ground
          operations and advertising,
          promotions and commissions expense         $3,340,619        $6,516,445       $5,550,962        $ 4,839,916
         Passenger revenue
          receivable                                  4,076,448         4,897,651        4,992,157          4,878,676
         Amounts payable                              1,084,119         1,174,114        1,351,120          1,660,404
</TABLE>

4.       EARNINGS PER SHARE UNDER SFAS NO. 128

         In February, 1997 the FASB issued SFAS No. 128, Earnings Per Share.
         This statement establishes standards for computing and presenting EPS.
         It requires presentation of basic and diluted EPS on the face of the
         income statement for all entities with complex capital structures and
         requires reconciliation of the computation of basic EPS to diluted EPS.
         Basic EPS is computed by dividing income available to shareholders by
         the weighted average number of shares outstanding for the period.
         Diluted EPS gives effect to all dilutive potential common shares that
         were outstanding during the period. Prior period EPS has been restated
         to conform to the new statement. This statement was adopted by the
         Company beginning October 1, 1997.

<TABLE>
<CAPTION>
                                           SIX-MONTH PERIOD ENDED                         FISCAL YEAR ENDED
                                              DECEMBER 31, 1997                            JUNE 30, 1997
                                    ---------------------------------------      ------------------------------------
                                       Income         Shares      Per Share        Income       Shares      Per Share
                                     (Numerator)   (Denominator)   Amount        (Numerator) (Denominator)  Amount
                                    ---------------------------------------      ------------------------------------
<S>                                 <C>              <C>             <C>         <C>           <C>            <C>   
Basic earnings per share
  Income (loss) from operations     $(11,318,019)    7,842,380       $(1.44)     $520,260      7,740,654      $ 0.07
  Cumulative effect of
   accounting change                 (12,981,816)    7,842,380        (1.66)        ---        7,740,654        --
                                    -------------    ---------       -------     --------      ---------      ----
  Net income (loss)                 $(24,299,835)    7,842,380       $(3.10)     $520,260      7,740,654      $ 0.07

Effect of dilutive securities
 (options and warrants) 1                               ---                                     258,520
                                                     ---------                                 --------
Diluted earnings per share
  Income (loss) from operations     $(11,318,019)    7,842,380       $(1.44)     $520,260      7,999,174      $ 0.07
  Cumulative effect of
   accounting change                 (12,981,816)    7,842,380        (1.66)        ---        7,999,174        --
                                    -------------    ---------       -------     --------      ---------      ----
  Net income (loss)                 $(24,299,835)    7,842,380       $(3.10)     $520,260      7,999,174      $ 0.07
                                                     =========                                 =========
</TABLE>



                                      F-10

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------


<TABLE>
<CAPTION>
                                               FISCAL YEAR ENDED                         FISCAL YEAR ENDED
                                                 JUNE 30, 1996                             JUNE 30, 1995
                                    ---------------------------------------      -------------------------------------
                                       Income         Shares      Per Share        Income       Shares      Per Share
                                     (Numerator)   (Denominator)   Amount        (Numerator) (Denominator)  Amount
                                    ---------------------------------------      -------------------------------------
<S>                                 <C>              <C>             <C>         <C>           <C>            <C>
Basic earnings per share
  Net income (loss)                 $     95,755     7,565,421       $ 0.01      $(362,123)    7,381,783      $(0.05)
Effect of dilutive securities
 (options and warrants) 1                              403,893                                    ---
                                                     ---------                                 ----------
Diluted earnings per share
  Net income (loss)                 $     95,755     7,969,314       $ 0.01      $(362,123)    7,381,783      $(0.05)
                                                     =========                                 =========
</TABLE>

1 The effect of including stock options and warrants in the 1997 transition
period and 1995 would be antidilutive and therefore is excluded from the diluted
earnings per share calculation.


5.       ACCRUED EXPENSES

         Accrued expenses by major classification are as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER           JUNE              JUNE
                                                                          1997             1997              1996
                                                                       ----------       ----------        -------
<S>                                                                    <C>              <C>               <C>
         Salaries and wages, vacation pay
          and related payroll taxes                                    $2,226,404       $2,457,895        $2,505,445
         Accrued ground and passenger charges                           1,428,812        1,617,409         1,677,384
         Accrued property and excise taxes                                683,627          310,124           330,423
         Accrued leases                                                   520,621        1,816,233           898,233
         Accrued repair expense                                           883,639           ---                ---
         Other accrued expenses                                           239,788          114,579            29,716
                                                                       ----------       ----------        ----------
                                                                       $5,982,891       $6,316,240        $5,441,201
                                                                       ==========       ==========        ==========
</TABLE>

6.       SHORT-TERM BORROWINGS

         In February, 1995, the Company obtained a line of credit (the "Line of
         Credit") in an amount not to exceed $2,500,000 from British Aerospace
         Asset Management ("BAAM"), formerly JSX Capital Corporation, with
         increases to $3,000,000 in July, 1996 and to $4,000,000 in July, 1997.
         BAAM is an affiliate of Jet Acceptance Corporation, the leasing company
         for the Company's fleet of Jetstream aircraft, and British Aerospace
         Holdings, Inc., the company that had previously collateralized the
         Company's line of credit from NationsBank, N.A. through a loan purchase
         agreement.

         The Line of Credit permits the Company to borrow up to 70% of a
         borrowing base, consisting of the Company's transportation and
         nontransportation charges to Airlines Clearing House, Inc. or such
         greater amount as BAAM shall determine, but in no event more than $4.0
         million. The Line of Credit is secured by all of the Company's accounts
         receivable, bears interest at prime + 2% and is scheduled to terminate
         on July 31, 1998. BAAM has pledged to renew the Line for successive
         one-year periods through December 31, 2001. Under the provisions of the
         Line of Credit, the Company must comply with certain restrictive
         operational covenants. As of December 31, 1997, the Company is in
         compliance with all covenants. Average amounts outstanding under the
         credit line were approximately $3,259,000, $2,307,000 and $1,825,000
         during the 1997 transition period and the 1997 and 1996 fiscal years,
         respectively. There was $3,000,000 and $2,500,000 outstanding under the
         Line of Credit at June 30, 1997 and 1996, respectively. There was not
         an outstanding balance as of December 31, 1997.

         In November, 1996 the Company secured a line of credit with its primary
         banking facility, Centura Bank. This was a $400,000 revolving line of
         credit, with seasonal increases to $800,000 (not to exceed a total
         advance of all credit facilities on Airlines Clearing House net
         receivables). This line is secured by the titles to certain ground
         equipment and vehicles, bears interest at prime plus 2%, and expires on
         June 30, 1998. There was $400,000 and $751,000 outstanding under this
         line as of December 31, 1997 and June 30, 1997, respectively, with an
         average amount outstanding of $305,473 and $275,000, respectively.

                                      F-11

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------




         During the 1997 transition period and during the 1997 and 1996 fiscal
         years, the Company obtained short-term loans bearing interest at 10%
         annually from certain directors, officers and related parties.
         Individual amounts borrowed under these loans ranged from $45,000 to
         $350,000 during the 1997 transition period; from $44,000 to $400,000
         during fiscal 1997; and $50,000 to $400,000 during fiscal 1996. The
         aggregate maximum and average amounts outstanding under these loans
         were $500,000 and $129,000 during the 1997 transition period; $810,000
         and $79,000 during fiscal 1997; and $810,000 and $119,000 during fiscal
         1996. Amounts outstanding under these loans as of December 31 and June
         30, 1997 and June 30, 1996 were $500,000, $200,000 and $810,000,
         respectively. In connection with these loans, the Company issued to the
         lending parties options and warrants to purchase 23,550, 55,225 and
         59,625 shares of the Company's common stock during the respective
         reporting periods (see Note 13).


7.       FLEET RESTRUCTURING AND OTHER NONRECURRING CHARGES

         As part of the Company's restructuring plans, the Company entered into
         a transaction with Lynrise Air Lease, Inc. ("Lynrise") to return the
         Company's nine leased Shorts aircraft to Lynrise as lessor. Pursuant to
         this agreement, the aircraft were returned between October, 1997 and
         January, 1998. In return for the early termination of the aircraft
         leases, the Company issued a promissory note in the amount of
         $9,725,000. The promissory note was issued in contemplation of the
         Company's obligations to lessor, which consisted of: lease termination
         and aircraft remarketing provisions - $6.1 million, previously recorded
         liabilities in the form of accrued rent and notes payable - $1.8
         million and return condition obligations - $1.8 million. This note is
         due on August 31, 1998 and bears interest at 7% annually. Before August
         31, 1998 the Company may exercise its option issued in conjunction with
         the note, whereby it must pay $1,675,000 in cash or stock and $130,000
         in aircraft parts to Lynrise. Upon the option's exercise, the remainder
         of the note, $7,920,000, would be converted to a subordinated note. See
         footnote 7 for further description of the subordinated note.

         Under an accord reached with BAAM in November, 1997 the Company agreed
         to replace its fourteen Jetstream 31 aircraft with twenty Jetstream
         Super 31 aircraft. In return for renegotiated lease rates, the Company
         agreed to lease fourteen of the Jetstream Super 31 aircraft for seven
         years, and the additional six Jetstream Super 31 aircraft until
         December 31, 1998. The last Jetstream Super 31 aircraft is anticipated
         to be operational in the Company's system by the end of April, 1998.
         The Jetstream 31 aircraft are expected to be returned to the lessor in
         the second quarter of 1998. The Company estimates that return
         conditions on these aircraft will approximate $50,000 per aircraft.
         These costs have been provided for as restructuring charges in the 1997
         transition period.

         As a result of the retirement of the Shorts and Jetstream 31 aircraft,
         the Company recorded charges to reduce unusable spare parts inventory
         to resale value, write off leasehold improvements and accrue for
         aircraft return conditions, transition rents and pilot
         requalifications. In addition, the Company reclassified retired
         aircraft carrying charges to fleet restructuring expense. The following
         table summarizes the restructuring charges:

<TABLE>
<CAPTION>
         <S>                                                         <C>
         Revaluation and writedown of spare parts and other
         inventory to net resale value                               $ 2,327,000
         Leasehold improvements written off                              680,000
         Aircraft lease termination settlement                         6,115,000
         Return condition requirements                                 3,246,000
         Maintenance contract termination                              2,483,000
         Pilot qualifications                                            198,000
         Transition rents                                                280,000
         Retired aircraft carrying charges                               675,000
         Consulting fees                                                 241,000
         Writeoff of deferred credits associated with aircraft leases (1,032,000)
         Aircraft component overhaul accrual write-off                (5,332,000)
                                                                     -----------
                                                                     $ 9,881,000
                                                                     ===========
</TABLE>

                                      F-12

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------




8.       LONG-TERM DEBT AND NOTES PAYABLE

<TABLE>
<CAPTION>
         Long-term debt and notes payable are as follows:
                                                                       DECEMBER 31   JUNE 30      JUNE 30
                                                                          1997         1997         1996
                                                                       ----------   ----------   -------
<S>                                                                    <C>           <C>         <C>
         Note payable to aircraft manufacturer due in monthly
          installments of $22,625 through September 1, 1999,
          including interest at 10% before refinancing at
          December 31, 1997                                            $ ----       $  598,370   $  750,700
         Note payable to former aircraft lessor issued in
          conjunction with lease termination - due August
          31, 1998, at which time $7,920,000 is expected
          to be refinanced                                             $9,725,012      ----         ----
         Note payable to aircraft manufacturer due in monthly
          installments of $17,727 through December 31, 1999,
          including interest at 10%, less $46,844 discount at
          15% at December 31, 1997, $56,530 at June 30, 1997
          and $73,866 at June 30, 1996                                    337,319      426,008      564,570
         Notes payable, noninterest bearing, to unsecured
          vendors in annual installments through 1999, less $35,608
          discount at 15% at December 31, 1997 and $71,608 and
          $130,833 at June 30, 1997 and 1996, respectively (Note 2)       296,393      426,394      533,170
         Other notes payable                                              424,757      434,321      377,326
                                                                       ----------   ----------   ----------
                                                                       10,783,481    1,885,093    2,225,766
         Less current maturities                                        2,490,334      962,748      854,438
         Less amounts expected to be refinanced                         7,920,000      ----         ----
                                                                       ----------   ----------   -------
                                                                       $  373,147   $  922,345   $1,371,328
                                                                       ==========   ==========   ==========
</TABLE>

         Principal maturities of long-term debt and notes payable are
         $10,410,334 in 1998; $369,134 in 1999, and $4,013 in 2000.

         In September, 1997 management approved the restructuring plan related
         to the disposition of the Shorts aircraft. In connection with this
         restructuring, the Company entered into a lease termination agreement
         with the lessor of its Shorts aircraft (see Note 7). To consummate the
         agreement, the Company issued a promissory note in the amount of
         $9,725,000, due August 31, 1998. If the Company exercises its option
         issued in conjunction with the promissory note by paying $1,805,000 in
         cash, stock and aircraft parts, the remainder of the promissory note
         will convert to a subordinated note. This note (the Convertible
         Subordinated Note) is convertible to common stock at $7.50 per share,
         bears interest at 7% annually and requires principal payments of 5% of
         the original note amount each June and December, plus accrued interest,
         beginning in 1999. The final payment under the Convertible Subordinated
         Note is due in December, 2004. Principal payments may be paid in cash
         or stock, at the Company's option. The Company intends to exercise the
         option issued in conjunction with the promissory note in 1998. Until
         this exercise takes place, the portion of the promissory note expected
         to be converted to long-term in 1998 is classified on the balance sheet
         as a current liability - "Note payable expected to be refinanced".

         If the Convertible Subordinated Note is issued, the principal
         maturities of long-term debt and notes payable are: $2,295,000 in 1998,
         $1,381,000 in 1999, $796,000 in 2000, $792,000 in 2001, $792,000 in
         2002 and $4,727,000 thereafter.

         A portion of the promissory note issued represents the refinancing of a
         previous note payable to Shorts. In September, 1995 the Company reached
         an agreement with Shorts to restructure the payment of the entire
         remaining amount due to Shorts under the bankruptcy plan (approximately
         $466,000, net of $43,000 discount at 15%) as well as the balance of a
         note issued on March 21, 1995 ($378,500). This note was payable in
         forty-eight equal monthly installments of $22,625, consisting of
         principal and interest, beginning on October 1, 1995. Before
         refinancing in the 1997 transition period, $580,731 was outstanding
         under this note.


                                      F-13

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------



         In September, 1995, the Company reached an agreement with JACO to
         restructure the payment of the entire remaining amount due to JACO
         under the bankruptcy plan (approximately $1,232,000, net of $402,000
         discount at 15% as of June 30, 1995). Under this agreement, the Company
         issued a promissory note to JACO in the principal amount of $676,000,
         payable in forty-eight equal monthly installments of $17,727,
         consisting of principal and interest, beginning on January 30, 1996.
         Interest at 10% per annum accrued beginning on September 1, 1995.
         Additionally, the remaining balance due under the bankruptcy plan,
         subsequent to the issuance of the above promissory note, was satisfied
         with the issuance of 325,000 shares of the Company's common stock. At
         December 31, 1997, $337,319 was outstanding on this note.


9.       LEASE TRANSACTIONS

         The Company operates using significant amounts of leased property,
         including aircraft, equipment and facilities. Leases generally are on a
         long-term, net rent basis whereby taxes, insurance and maintenance are
         paid by the Company. Rental expenses incurred under all operating
         leases totaled approximately $4,846,000, $11,051,000, $11,200,000, and
         $10,934,000 for the six months ended December 31, 1997, and the years
         ended June 30, 1997, 1996 and 1995, respectively. Monthly rentals under
         one operating lease are required to be paid in full each month at the
         time receivables are collected from the Airlines Clearing House. Flight
         and ground equipment with a capitalized cost of approximately
         $3,287,000 and $4,498,000 is included in property and equipment at
         December 31, 1997 and both June 30, 1997 and 1996, respectively, less
         accumulated amortization at December 31, 1997, June 30, 1997 and 1996
         of approximately $1,516,000, $2,831,000 and $2,485,000, respectively.

         As part of the lease termination agreement with Shorts, lease payments
         were reduced by $14,000 per aircraft per month on the Shorts aircraft
         from August, 1997 until the return of the aircraft. The lease payments
         were recorded as rent expense until the aircraft was removed from
         scheduled service, and recorded as restructuring and other nonrecurring
         charges after the aircraft was removed from service until the aircraft
         met return conditions and was accepted by Shorts. Lease payments on the
         shorts aircraft had previously been renegotiated, effective October 1,
         1994. This revised agreement provided for reductions in lease payments
         aggregating approximately $94,000 per month for the remainder of the
         lease term.

         Under an accord reached with BAAM in November, 1997 the Company agreed
         to replace its fourteen Jetstream 31 aircraft with twenty Jetstream
         Super 31 aircraft. In return for renegotiated lease rates, the Company
         agreed to lease fourteen of the Jetstream Super 31 aircraft for seven
         years, and the additional six Jetstream Super 31 aircraft until
         December 31, 1998. The terminated leases on the Jetstream 31 aircraft
         would have expired on December 31, 2001. This new agreement with BAAM
         provides for reductions in lease payments of approximately $140,000 per
         month on the fourteen long-term Jetstream Super 31 leases as compared
         to the predecessor Jetstream 31 aircraft leases, as previously revised.
         The last Jetstream Super 31 aircraft is anticipated to be operational
         in the Company's system by the end of April, 1998; the first went into
         service on December 29, 1997.

         Previously, the Company entered into a revised agreement with Jet
         Acceptance Corporation ("JACO"), an affiliate of BAAM, effective
         September 1, 1994, for the Company's twelve Jetstream 31 aircraft. This
         revised agreement provided for reductions in lease payments aggregating
         approximately $98,000 per month through December 31, 1995. In
         September, 1995, JACO agreed to extend the lease reductions for the
         remainder of the lease term, in return for the Company's entering into
         leases on two additional Jetstream 31 aircraft. The Company accounted
         for the modifications to the JACO lease agreements as they occurred. As
         a result, the Company recorded a deferred credit of approximately
         $906,000, representing the excess of rent expense recorded on a
         straight line basis over actual payments made from September, 1994
         through September, 1995. This amount reduced lease expense over the
         remaining term of the leases. Upon the termination of the Jetstream
         leases in the 1997 transition period, the remaining unamortized
         deferred credit amount of $351,000 was eliminated.

                                      F-14

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------



         The Company leases four Dash 8 aircraft from CIT Leasing Corporation
         ("CIT"). In November, 1994, CIT acquired these aircraft from Mellon
         Financial Services Corporation ("Mellon") after the Company failed to
         meet certain payment obligations totaling approximately $585,000 under
         aircraft lease agreements with Mellon, resulting in cancellation of the
         related agreements. The Company subsequently signed new lease
         agreements with CIT, which expire in June, 2007, resulting in an annual
         reduction of approximately $516,000 in aircraft rental payments. As a
         result, during the second quarter of fiscal 1995, the Company reversed
         the $585,000 of accrued rental payments previously due to Mellon as a
         reduction of flight operations expense.

         Future minimum lease payments required under capital and noncancelable
         operating leases with terms of greater than one year, under these new
         lease agreements, are as follows:

<TABLE>
<CAPTION>
                                                                         CAPITAL                OPERATING
                  Years Ended December 31:                                LEASES                 LEASES
                                                                       ----------             ---------
<S>                        <C>                                            <C>                    <C>      
                           1998                                           392,992                6,510,000
                           1999                                           368,811                5,520,000
                           2000                                           365,470                5,520,000
                           2001                                           374,579                5,520,000
                           2002                                           335,875                5,520,000
                           Thereafter                                   1,533,601               18,403,636
                                                                       ----------             ------------
                                Total lease payments                    3,371,328             $ 46,993,636
                                                                                              ============
                  Less amounts representing interest                      872,904
                                                                       ----------
                                                                        2,498,424
                  Less current obligations                                229,194
                                                                       $2,269,230
</TABLE>


10.      CHANGE IN ACCOUNTING PRINCIPLE

         Effective July 1, 1997 the Company elected to change its method of
         accounting for engine, propeller and landing gear overhauls from the
         deferral method to the accrual method. Under the method previously
         utilized, the Company capitalized these expenditures and amortized them
         over the estimated service life of the overhaul. The change in
         accounting principle results in accrual for future expenditures for
         overhauls based on flight hours incurred each month, at a rate
         commensurate with the future expected cost of overhaul. Implementation
         of the change in principle necessitated the write-off of previously
         capitalized items, along with the related accumulated amortization, as
         of July 1, 1997. The aggregate time since last overhaul was utilized to
         determine the beginning accrued overhaul expense at July 1, 1997. This
         calculation was performed for each aircraft type. The cumulative effect
         of these transactions was a decrease in income of $12,982,000. The
         Company believes the newly implemented accounting principle more
         closely emulates its lease agreements and contracts for repair and
         maintenance of these components.


11.      RELATED-PARTY TRANSACTIONS

         On June 30, 1995, the Company entered into a sale and leaseback
         transaction with Adallipa Partners ("the Partnership"), a North
         Carolina partnership acting through its agent, CLG, Inc., whereby the
         Company sold and simultaneously leased back certain Shorts and
         Jetstream 31 aircraft engines. The Partnership was formed June 30,
         1995, by certain members of the Company's Board of Directors, for the
         purpose of entering into the sale and leaseback transaction. During
         fiscal 1997 CLG, Inc. was purchased by Centura Bank (the Company's
         primary banking facility) from a member of the Company's Board of
         Directors. The Company received $1,000,000 in consideration for the
         engines in July, 1995. Initially, the Company recorded a deferred gain
         of $70,000, in connection with the sale and leaseback transaction. The
         unamortized deferred gain was approximately $17,600 as of December 31,
         1997; this balance was eliminated as part of the aircraft fleet
         restructuring charges. To induce the Partnership to enter into this
         transaction, the Company issued to the Partnership a warrant to
         purchase 250,000 shares of the Company's common stock (see Note 13).

                                      F-15

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------



         The Company paid fees of $6,000, $58,000, $27,000 and $62,000 in the
         1997 transition period and in fiscal years 1997, 1996 and 1995,
         respectively, to a consulting firm which is fifty-percent owned by a
         member of the Board of Directors. Additionally, the Company has pledged
         to issue 150,000 warrants to purchase shares of the Company's common
         stock in return for fleet restructuring consulting services to a firm
         for which a member of the Board of Directors is the General Partner.
         The Company recorded an expense in the transition period of $241,000
         related to the compensatory value of these warrants.

12.      INCOME TAXES

         The Company's effective tax rate on income before income taxes differs
         from the U.S. statutory federal tax rate as follows:
<TABLE>
<CAPTION>
                                                                                     YEAR ENDED JUNE 30
                                                                  DECEMBER      ---------------------------------
                                                                   1997          1997         1996         1995
                                                                   ----          ----         ----         ----
<S>                                                                <C>            <C>         <C>         <C>    
         Income tax expense (benefit) at statutory rate            (35.0)%        35.0 %      35.0  %     (35.0)%
         NOL carryforwards recognized/not
          currently recognizable                                    35.0         (35.0)      (35.0)        35.0
         Impact of alternative minimum tax                           -0-          21.3        15.9           -0-
                                                                  --------      -------      -------      ------
         Effective income tax rate                                   -0- %        21.3 %      15.9  %        -0-%
                                                                  ========      =======      =======      =======
</TABLE>

         The provision (benefit) for income taxes for the six-month period ended
         December 31, 1997 and the years ended June 30, 1997, 1996 and 1995
         consists of the following:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED JUNE 30,
                                                    DECEMBER       ---------------------------------------------                   
         Provision for income taxes:                  1997             1997             1996          1995
                                                  ------------     -------------   ------------    -------------
<S>                                               <C>               <C>             <C>                <C>   
           Current
             Federal                              $   ---           $   140,928     $   18,100         $  ---
             State                                    ---               ---              ---              ---
                                                  ------------     -------------   ------------    -------------
                                                      ---               140,928         18,100            ---
                                                  ------------     -------------   ------------    -------------
           Deferred
             Federal                              $   ---      $        ---       $      ---          $   ---
             State                                    ---               ---              ---              ---
                                                  ------------     -------------   ------------    -------------
                                                      ---               ---              ---              ---
                                                  ------------     -------------   ------------    -------------
         Total provision for income taxes         $   ---          $    140,928    $    18,100        $   ---
                                                  ============     =============   ============    =============
</TABLE>


         Significant components of the Company's deferred income tax assets and
         liabilities at December 31, 1997, June 30, 1997 and 1996 are as
         follows:

<TABLE>
<CAPTION>
                                                                              JUNE 30
                                                    DECEMBER       ---------------------------
         Deferred tax assets:                          1997           1997             1996
                                                  -------------  --------------   ------------
<S>                                               <C>             <C>               <C>
           Receivables                            $    39,800     $    45,500       $   20,000
           Inventories                                163,100         186,400          186,000
           Accrued expenses                           629,200         336,300          319,000
           Rent obligations                        (  270,800)     (  100,500)         32,000
           Loss on impairment of assets             2,901,500           -0-              -0-
           Restructuring fees                       2,473,000           -0-              -0-
           Net operating loss carryforwards         2,708,000       2,343,800        3,111,000
           Alternative minimum tax carryforward       157,000         108,800           18,100
           Investment tax credit carryforwards         25,500          60,000           60,000
           Valuation allowance                    ( 7,289,000)     (  481,100)      (2,362,100)
                                                  -------------  --------------   ------------
           Total deferred tax asset                 1,537,300       2,499,200        1,384,000
         Deferred tax liabilities:
           Property and equipment                 ( 1,537,300)     (2,499,200)      (1,384,000)
                                                  -------------  --------------   ------------
         Net deferred tax                        $    -0-       $     -0-         $     -0-
                                                  =============  ==============   ============
</TABLE>


                                      F-16

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------



         The net current and noncurrent components of deferred income taxes
         reflected in the accompanying balance sheets as of December 31, 1997,
         June 30, 1997 and June 30, 1996 are as follows:

<TABLE>
<CAPTION>
                                                    DECEMBER            JUNE             JUNE
                                                       1997             1997             1996
                                                  --------------   --------------     -----------
<S>                                               <C>               <C>               <C>       
           Net current deferred
            tax asset                             $ 1,246,478       $   467,700       $  557,000
           Net noncurrent deferred
            tax liability                          ( 1,246,478)      (  467,700)     (   557,000)
                                                   -----------                        -----------
           Net deferred
            tax liability                         $       ---       $      ---        $     ---
                                                  ============      ===========       ===========
</TABLE>

         At December 31, 1997, the Company had approximately $10,034,000 of U.
         S. Federal regular tax operating loss carryforwards available to offset
         future U. S. Federal taxable income, which begin expiring on June 30,
         2005. A valuation allowance has been recognized to offset the related
         deferred tax assets due to the uncertainty of realizing the benefit of
         the loss carryforwards. The Company has $25,500 of investment tax
         credit carryforwards that expire beginning December 31, 1999 and
         $157,000 of alternative minimum tax credit carryforwards which are
         available to reduce future federal regular income taxes over an
         indefinite period.


13.      STOCK OPTIONS

         The Company has adopted two stock option plans for incentive
         compensation of officers and directors. The Fifth Amended and Restated
         Stock Option Plan (the "Stock Option Plan") provides for the grant of
         incentive or nonqualified stock options for officers, key employees and
         directors. The Directors' Compensation Stock Option Plan (the
         "Directors' Plan") provides for the annual grant of stock options in
         lieu of fees for the Company's directors. The exercise price for
         options under either plan is the fair market value on the date of
         grant. Options granted under either plan may be exercisable over a
         period not to exceed ten years. As of December 31, 1997 65,000 shares
         are reserved for future option grants under the Directors' Plan; 24,925
         are shares available under the Stock Option Plan.

         Warrants to purchase shares of common stock have been issued to
         directors from time to time as additional consideration in certain
         lending transactions. As discussed in Note 5, warrants to purchase
         250,000 shares of common stock were issued in connection with a
         sale-and-leaseback transaction with four directors in June, 1995. Since
         that time, directors have provided certain short-term loans as needed
         by the Company to meet cash flow deficits under resolution adopted by
         the Board of Directors, warrants to purchase 2,500 shares of common
         stock were granted for each $100,000 in loan amount. One director has
         elected to receive options under the Stock Option Plan instead of
         warrants for loans made by that director to the Company. The exercise
         price for all warrants has been the fair market value on the date of
         issuance of the warrant. The outstanding warrants have either a
         five-year or ten-year exercise period. Upon consummation of the
         transaction concerning the Shorts aircraft discussed in Note 11, the
         Company will issue Barlow Partners, L.P. a warrant to purchase 150,000
         shares of the Company's common stock.

         As of December 31, 1997, 1,427,743 shares of common stock may be issued
         upon the exercise of currently outstanding stock options and warrants.

         The Company applies Accounting Principles Board Opinion No. 25,
         ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, in accounting for its stock
         option plans. Accordingly, no compensation expense has been recognized
         for these plans. Had compensation expense for the Company's stock
         option plans been determined based on the fair value at the grant dates
         for awards under these plans consistent with SFAS No. 123, Accounting
         for Stock- Based Compensation, the Company's net earnings would have
         decreased by approximately $94,426 ($0.01 per share), $65,444 ($0.01
         per share) and $36,890 (less than $0.01 per share) in the 1997
         transition period and fiscal years 1997 and 1996, respectively.

                                      F-17

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------

         The fair value of each option was estimated on the date of grant using
         the Black-Scholes option-pricing model with the following
         weighted-average assumptions: risk-free interest rate of 6.2% in the
         1997 transition period and in fiscal 1997 and 6.1% in fiscal 1996, no
         dividends paid, expected life of seven years for 1997 and 1996, and
         volatility of 62% for 1997 and 70% for 1996. The weighted-average fair
         value of an option granted during 1997 and 1996 was $1.05 and $1.43,
         respectively.

         A summary of the status of the Company's fixed stock option plans as of
         December 31, 1997 and June 30, 1997, 1996 and 1995 was as follows:


<TABLE>
<CAPTION>
==========================================================================================
                                               OPTION PRICE          WEIGHTED AVERAGE
                            # OF SHARES       RANGE PER SHARE         EXERCISE PRICE
==========================================================================================
<S>                             <C>            <C>                             
June 30, 1994                   666,668        $ .50 - $4.50                N/A
------------------------------------------------------------------------------------------
Granted                         943,425         1.00 - 3.25
-----------------------------------------------------------------
Exercised                       (19,500)        1.19 - 4.50
-----------------------------------------------------------------
Cancelled                      (625,000)        1.81 - 4.50
==========================================================================================
June 30, 1995                   965,593        $ .50 - $3.25                N/A
------------------------------------------------------------------------------------------
Granted                         179,375         1.81 - 2.38
-----------------------------------------------------------------
Exercised                       (15,000)           1.19
-----------------------------------------------------------------
Cancelled                        (5,000)           1.81
==========================================================================================
June 30, 1996                 1,124,968        $ .50 - $3.25              $1.78
------------------------------------------------------------------------------------------
Granted                         185,225         1.44 - 2.06                1.57
------------------------------------------------------------------------------------------
Cancelled                        (6,000)        1.44 - 2.00                1.19
==========================================================================================
June 30, 1997                 1,304,193        $ .50 - $3.25              $1.75
==========================================================================================
Granted                         173,550         2.67 - 3.50                3.01
==========================================================================================
Exercised                       (50,000)           1.19                    1.19
==========================================================================================
December 31, 1997              1,427,743       $ .50 - $3.50               $1.92
==========================================================================================
</TABLE>


Stock options and warrants exercisable were 1,274,000, 1,291,000, 1,120,000 and
929,000 at December 31, 1997 and June 30, 1997, 1996 and 1995, respectively.


                                      F-18

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------



Summary information regarding options and warrants for the Company's stock as of
December 31, 1997 is as follows:

<TABLE>
<CAPTION>
========================================================================================================================
                                  RANGE OF                NUMBER           WEIGHTED AVERAGE        WEIGHTED AVERAGE
                               EXERCISE PRICES          OUTSTANDING         REMAINING LIFE          PRICE PER SHARE
------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                         <C>              <C>                    <C>  
Options outstanding                 $ .50                       41,668           2.91                   $ .50
                                 1.00 - 1.75                   746,000           7.34                    1.28
                                 1.81 - 2.38                   209,025           8.03                    1.96
                                 2.66 - 3.50                   431,050           4.41                    3.09
------------------------------------------------------------------------------------------------------------------------
Total options                   $ .50 - 3.50                 1,427,743           6.44                    1.92
outstanding
------------------------------------------------------------------------------------------------------------------------
Options exercisable                $ .50                        41,668           2.91                   $ .50
                                 1.00 - 1.75                   746,000           7.34                    1.28
                                 1.81 - 2.38                   209,025           8.03                    1.96
                                 2.66 - 3.50                   277,500           1.44                    3.15
------------------------------------------------------------------------------------------------------------------------
Total options                   $ .50 - 3.50                 1,274,193           6.02                    1.79
exercisable
========================================================================================================================
</TABLE>

         During fiscal 1995, the Company cancelled 533,000 outstanding options
         to purchase shares of the Company's common stock, which options had
         been previously granted under the Stock Option Plan. Simultaneously,
         the Company granted 533,000 additional options at an exercise price
         equal to the market price on the date of grant, subject to terms as
         defined in the Stock Option Plan.

         During the 1997 transition period and fiscal years 1997, 1996 and 1995,
         in connection with the short-term loans from officers and directors
         discussed in Note 6, the Company issued to certain officers options to
         purchase 3,550, 12,725, 17,125 and 22,125 shares, respectively, of the
         Company's common stock, at an exercise price equal to the market price
         on the date of grant. The Company also issued to certain directors
         warrants to purchase 20,000, 42,500, 52,500 and 56,250 shares of the
         Company's common stock, at an exercise price equal to market price on
         the date of grant during the 1997 transition period and fiscal 1997,
         1996 and 1995, respectively.

         On June 30, 1995, in connection with the sale and leaseback transaction
         discussed in Note 11, the Company issued to the Partnership a warrant
         to purchase 250,000 shares of the Company's common stock, at an issue
         price equal to the fair market value of the Company's common stock on
         June 30, 1995. The warrant carries a three-year term for exercise.


14.      COMMITMENTS AND CONTINGENCIES

         The Company has been engaged with representatives of and counsel for
         Her Majesty the Queen in Right of Canada as Represented by the Ministry
         of Industry, Science and Technology (the "Ministry") in discussions and
         negotiations regarding the reimbursement obligation, if any, of the
         Company to the Ministry arising from the change in lessor for the four
         (4) de Havilland DHC-8-102 aircraft (the "Aircraft") leased by the
         Company. The Ministry has informed the Company that the new lessor, CIT
         Group/Capital Equipment Financing, Inc. ("CIT") made a claim under
         certain economic development insurance provided by the Ministry to the
         former lessor, Mellon Financial Services Corporation #3 ("Mellon"),
         when the Company entered into new lease agreements with CIT for the
         Aircraft in December of 1994. The Ministry asserts that it has a right
         to reimbursement in the amount of $16,996,995 but has proposed that the
         Company agree to pay $6,000,000 secured by a pledge of an undetermined
         number of shares of the Company's common stock.

                                      F-19

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------



         The Company does not have an agreement with the Ministry regarding the
         economic development insurance and has not acknowledged any obligation
         to reimburse the Ministry for claims paid under the original leases at
         the same time that the Company entered into new leases with CIT. The
         Company has made certain proposals for future consideration to resolve
         the Ministry's claim. The Company has continued its negotiations with
         the Ministry. These negotiations have involved the following
         representatives of the Company discussing the issues with the Ministry:
         management, a former member of the Board of Directors and outside
         counsel. As late as March, 1998 the Company and the Ministry have
         discussed utilizing various dispute resolution mechanisms mediation,
         arbitration or third party review. It is uncertain whether the Company
         and the Ministry will reach an agreement on future considerations.
         Based on information presently available to CCAIR, management believes
         that the ultimate outcome of this matter will not have a material
         impact on the financial condition, results of operations or cash flows
         of the Company.

         The Company is subject to the regulatory authority of the Federal
         Aviation Administration and the Department of Transportation. These
         agencies require compliance with their standards and conduct safety and
         compliance audits. Violations, if any, of these regulations subject the
         Company to fines or sanctions. As of December 31, 1997 the FAA has
         proposed fines of $94,500 related to alleged violations of certain
         regulations. The Company intends to contest these fines. The Company is
         also subject to other claims arising in the ordinary course of
         business. In the opinion of management, the outcome of these matters
         will not have a material adverse impact on the Company's financial
         condition, results of operations or cash flows.

15.      SUPPLEMENTAL CASH FLOW INFORMATION

         Cash flows include interest paid of approximately $451,000, $723,000,
         $804,000 and $627,000 in the 1997 transition period and in the years
         ended June 30, 1997, 1996 and 1995, respectively. Income taxes paid,
         net of refunds, totaled $97,000 in the year ended June 30, 1997.

         Noncash transactions include:
<TABLE>
<CAPTION>
                                                         SIX-MONTH PERIOD
                                                               ENDED                      YEAR ENDED JUNE 30
                                                           DECEMBER 31,         ----------------------------------
                                                                1997              1997           1996       1995
                                                         -----------------      --------      ----------   -------
<S>                                                      <C>                    <C>           <C>         <C>       
         Sale and leaseback of engines, for
          which consideration is recorded
          as other receivable                               ----                   ----         ----      $1,000,000
         Issuance of promissory note for
          previously due lease payments
          and bankruptcy plan installments                  ----                   ----         ----         573,200
         Issuance of 325,000 shares and
          650,000 shares of Common Stock
          during fiscal 1996 with proceeds
          applied to annual bankruptcy payments             ----                   ----      $ 690,625        ----
</TABLE>


16.      SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

         The following table presents selected quarterly unaudited financial
         data for the six months ended December 31, 1997 and the years ended
         June 30, 1997, 1996, and 1995:

<TABLE>
<CAPTION>
                                             FIRST             SECOND            THIRD            FOURTH
                                            QUARTER            QUARTER          QUARTER          QUARTER
                                            -------            -------          -------          -------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 TRANSITION PERIOD
----------------------
<S>                                         <C>               <C>               <C>              <C>         
Operating revenue                           $16,745           $16,091             N/A              N/A
Operating income (loss)                         638           (11,956)            N/A              N/A
Net income (loss)                           (12,589)          (11,711)            N/A              N/A
Income (loss) per share                     (  1.61)          (  1.49)            N/A              N/A
</TABLE>


                                      F-20

<PAGE>


                                   CCAIR, INC.
                          NOTES TO FINANCIAL STATEMENTS

                               ------------------




<TABLE>
<CAPTION>
                                             FIRST             SECOND            THIRD            FOURTH
                                            QUARTER            QUARTER          QUARTER          QUARTER
                                            -------            -------          -------          -------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                         <C>               <C>               <C>              <C>    
FISCAL 1997
Operating revenue                           $17,370           $16,623           $16,484          $18,010
Operating income                                511               275               363              246
Net income                                      321                55               126               18
Income per share                                .04               .01               .02              .00

FISCAL 1996
Operating revenue                           $16,230           $16,045           $15,790          $18,169
Operating income (loss)                         539               228               310           (  191)
Net income (loss)                               379                39                70           (  392)
Income (loss) per share                         .05               .01               .01           (  .05)

FISCAL 1995
Operating revenue                           $15,909           $15,096           $14,960          $17,074
Operating income (loss)                      (  353)              636            (   26)             296
Net income (loss)                            (  570)              437            (  274)              45
Income (loss) per share                      (  .08)              .06            (  .04)             .01
</TABLE>


17.      EMPLOYEE SAVINGS PLAN

         The Company sponsors an employee savings plan (the "Plan") which
         permits participants to make contributions by tax deferred salary
         reductions pursuant to Section 401(k) of the Internal Revenue Code. In
         accordance with the Plan document and the Company's contract with its
         pilots, prescribed earnings levels were attained in the 1997 fiscal
         year which require the matching of 25% of contributions made by the
         pilots for the Plan year ended December 31, 1997. The Company recorded
         the matching contribution as a component of flight operations expense
         in fiscal 1997 and reflected the related liability in accrued expenses
         at December 31, 1997. Pending Board of Directors approval, the Company
         has accrued a matching contribution of 25% of contributions made during
         the Plan year ended December 31, 1997 for certain employees not subject
         to the employment contract described above. The Company has recorded
         the matching contributions, awaiting Board approval, as a component of
         general and administrative expenses in the 1997 transition period and
         is reflected as an accrued expense at December 31, 1997.


18.      SUBSEQUENT EVENTS

         Certain elements of the Company's restructuring were not completed
         until subsequent to December 31, 1997. The final Shorts aircraft was
         removed from scheduled service on January 7, 1998. Although the Company
         had reached an agreement in principal to return the Shorts aircraft in
         the 1997 transition period, the final Return Agreement and the related
         promissory note described in Notes 7 and 8 were not signed until April
         17, 1998. Also, the Company plans to accept the last of twenty
         Jetstream Super 31 aircraft in April, 1998, and return all Jetstream 31
         aircraft before June 30, 1998. Expenditures necessary to bring the
         Jetstream 31 aircraft to conditions required by the lease have been
         accrued at December 31, 1997 as restructuring and other nonrecurring
         charges.

                                      F-21

<PAGE>



                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
                              --------------------


<TABLE>
<CAPTION>
    COLUMN A                             COLUMN B                COLUMN C                    COLUMN D               COLUMN E
----------------                     --------------- --------------------------------------------------         -------------
                                                                   ADDITIONS                                    
                                         BALANCE AT  ------------------------------------                          BALANCE AT
                                         BEGINNING    CHARGED TO COSTS       CHARGED TO                                END
  DESCRIPTION                            OF PERIOD      AND EXPENSES       OTHER ACCOUNTS    DEDUCTIONS             OF PERIOD
  -----------                            ---------      ------------       --------------    ----------             ---------
<S>                                  <C>            <C>                    <C>               <C>                 <C>
1997 TRANSITION PERIOD

Reserve for doubtful
 receivables and pricing

 adjustments                         $   113,700                                                                 $   113,700

Reserve for inventory obsolescence       466,000                                                                     466,000

Reserve for resale inventory
 valuation                                ----       $   700,000                                                     700,000

Reserve for medical claims
 incurred but not reported               165,000          45,000                                                     210,000

1997

Reserve for doubtful
 receivables and pricing
 adjustments                         $    50,000     $    68,400                          $     4,700            $   113,700

Reserve for inventory obsolescence       466,000                                                                     466,000

Reserve for medical claims
 incurred but not reported               219,000                                          $    54,000                165,000

1996

Reserve for doubtful
 receivables and pricing
 adjustments                         $   86,800      $    13,200                          $   50,000             $    50,000

Reserve for inventory obsolescence      466,000                                                                      466,000

Reserve for medical claims
 incurred but not reported              239,000                                               20,000                 219,000

1995

Reserve for doubtful
 receivables and pricing
 adjustments                         $   186,800                                          $   100,000            $    86,800

Reserve for inventory obsolescence       466,000                                                                     466,000

Reserve for medical claims
 incurred but not reported               226,000     $    13,000                                                     239,000
</TABLE>


                                      S-1
<PAGE>


<TABLE>
<S> <C>



ITEM 16.  EXHIBITS.

2.                Plan of Reorganization of CCAIR, Inc., effective September 3, 1991. (5)
3.2               Amended and Restated Bylaws of CCAIR, Inc. (18)
4.                Specimen Common Stock Certificate. (1)
10.1     (a)      The Company's Stock Option Plan dated May 18, 1989 with forms of Incentive Stock Option
                  Agreement and Nonqualified Stock Option Agreement attached. (1)
         (b)      Amendment to the Amended and Restated Stock Option Plan, dated February 6, 1992. (6)
         (c)      Second Amended and Restate Stock Option Plan, dated February 6, 1993. (13)
         (d)      Third Amended and Restated Stock Option Plan of the Company, dated February 23, 1994.  (10)
         (e)      Fourth Amended and Restated Stock Option Plan of the Company, dated November 15, 1994. (14)
10.2     (a)      Agreement dated October 16, 1991 between CCAIR,  Inc. and The Air Line Pilots in the service
                  of CCAIR, Inc. as represented by the Air Line Pilots Association International. (6)
         (b)      Letter of Agreement amendment dated December 14, 1991 between CCAIR, Inc. and The Air Line
                  Pilots in the service of CCAIR, Inc. as represented by the Air Line Pilots Association International. (6)
         (c)      Letter of Agreement amendment dated February 28, 1992 between
                  CCAIR, Inc. and The Air Line Pilots in the service of CCAIR,
                  Inc. as represented by the Air Line Pilots Association
                  International. (6)
         (d)      Letter of Agreement amendment dated February 28, 1992 between
                  CCAIR, Inc. and The Air Line Pilots in the service of CCAIR,
                  Inc. as represented by The Air Line Pilots Association
                  International. (6)
10.3     (a)      Service Agreement between USAir, Inc. and CCAIR, Inc. dated November 1, 1988. (1)
         (b)      First Amendment to Service Agreement between USAir, Inc., and CCAIR, Inc., dated July 1, 1990. (3)
         (c)      Supplemental Agreement between USAir, Inc., and CCAIR, Inc., dated July 30, 1990. (4)
         (d)      Second Amendment to Service Agreement between USAir, Inc., and CCAIR, Inc., dated January 23,
                  1991. (4)
         (e)      Third Amendment to Service Agreement between USAir, Inc., and
                  CCAIR, Inc., dated August 1, 1991. (8)
         (f)      Ground Handling Agreement, dated February 1, 1994, between CCAIR. Inc., and USAir, Inc. (10)
 10.4    (a)      Loan Agreement dated as of September 4, 1991, between CCAIR, Inc., and NCNB National Bank of North Carolina. (4)
         (b)      Revolving Credit Promissory Note by CCAIR, Inc. in favor of NCNB National Bank of North Carolina,
                  dated September 4, 1991. (4)
         (c)      Security Agreement dated as of September 4, 1991, between
                  CCAIR, Inc., and NCNB National Bank of North Carolina. (4)
         (d)      Loan Purchase Agreement dated as of September 4, 1991, by and
                  among NCNB National Bank of North Carolina, British Aerospace,
                  Inc., and CCAIR, Inc. (4)
         (e)      Security Agreement dated as of September 4, 1991, between
                  CCAIR, Inc. and British Aerospace, Inc. An identical agreement
                  was executed with Jet Acceptance Corporation as of September
                  4, 1991, and is not filed herewith. (4)
         (f)      Pledge of Cash Collateral Account dated as of September 4,
                  1991, by and among CCAIR, Inc., NCNB National Bank of North
                  Carolina, British Aerospace, Inc., and Jet Acceptance
                  Corporation. (4)
         (g)      Loan Agreement dated as of August 14, 1992 between CCAIR, Inc.
                  and NationsBank of North Carolina, N.A. (6)
         (h)      Agreement dated as of January 17, 1994 among CCAIR, Inc., NationsBank of North Carolina, N.A.,
                  British Aerospace, Inc. and Jet Acceptance Corporation.  (10)
         (h)(i)   Assignment and Bill of Sale dated as of January 10, 1995 by and among CCAIR, Inc., NationsBank of
                  North Carolina, N.A., British Aerospace, Inc. and Jet Acceptance Corporation. (16)
10.5              Common Stock Purchase Agreement dated as of December 4, 1997 by and among CCAIR, Inc., and
                  Robert Priddy, Bonderman Family Limited Partnership, Hakatak Enterprises, Inc., Nominee, Par
                  Investment Partners, L.P. and Jonathan G. Ornstein.1
10.6              Form of Operating Lease between Jet Acceptance Corporation and CCAIR, Inc., dated as of November
                  24, 1997, for 20 aircraft with Serial Numbers N941AE, N962AE, N928AE, N943AE, N964AE,
                  N942AE, N957AE, N963AE, N920AE, N961AE, N966AE, N959AE, N965AE, N952AE, N919AE,
                  N958AE, N913AE, N927AE, N914AE, N930AE.
10.7     (a)      Settlement Agreement by and bewteen CCAIR, Inc., and Lynrise Air Lease, Inc. dated as of March 31,
                  1998. (18)
         (b)      Registration Rights Agreement by and among CCAIR, Inc., and Lynrise Air Lease, Inc.
         (c)      Form of 7% Convertible Subordinated Note Due 2004.
10.10    (a)(i)   Lease Agreement effective as of April 19, 1991 between the Asheville Regional Airport Authority and
                  CCAIR, Inc. (4)
         (a)(ii)  Letter dated August 28, 1991 by Asheville Regional Airport Authority amending Lease. (4)
</TABLE>

Note:  For footnote references see page E-4


                                                        E-1

<PAGE>

<TABLE>
<S> <C>


         (b)      Lease Agreement dated July 5, 1989 between Clarke County Airport Authority and CCAIR, Inc. (4)
         (c)      Agreement dated October 10, 1987 between the Central West Virginia Regional Airport Authority and
                  CCAIR, Inc. (1)
         (d)      Commuter Airline Agreement and Lease dated May 20, 1988 between the City of Charlotte and
                  CCAIR, Inc. (1)
         (e)      Agreement dated July 16, 1991 between the Chattanooga
                  Metropolitan Airport Authority and CCAIR, Inc. (4)
         (f)      Airport Use and Lease Agreement entered into as of January 1,
                  1989 between the Richland-Lexington Airport District and
                  CCAIR, Inc. (4)
         (g)      Agreement  dated July 1, 1988  between the City of Danville,  Virginia  and CCAIR,  Inc. (1) (h)
                  Airport Use and Lease  Agreement dated November 1, 1982 between  Greenville-Spartanburg  Airport
                  District and Sunbird, Inc. (1)
         (i)(i)   Letter Agreement dated July 13, 1988 from CCAIR, Inc. to Tri-State Airport Authority. (1)
         (i)(ii)  Letter dated February 25, 1991 by Tri-State Airport Authority amending Lease. (4)
         (j)(i)   Airport Use Agreement dated March 1, 1988 between the Board of Commissioners of Onslow County
                  and CCAIR, Inc. (1)
         (j)(ii)  Amendment to Lease dated July 15, 1988 between the same parties. (1)
         (k)      Operating Agreement dated April 15, 1987 between Metropolitan Knoxville Airport Authority and
                  CCAIR, Inc. (1)
         (l)      Lease Agreement dated March 1, 1988 between the City of Macon and CCAIR, Inc. (1)
         (m)      Letter Agreement dated September 5, 1990 between New Hanover County and CCAIR, Inc. (4)
         (n)      Lease Agreement dated May 1, 1989 between Tri-City Airport Commission and CCAIR, Inc. (4)
         (o)      Use Agreement dated May 1, 1991 between Airport Commission of Forsyth County and CCAIR, Inc. (4)

         (p)      Letter from Pitt County - City of Greenville Airport Authority dated May 31, 1990 announcing fee
                  structure. (4)
         (q)      Airport Use Agreement dated May 1, 1991 between Raleigh County Airport Authority and CCAIR, Inc.
                  (4)
         (r)      Letter Agreement dated July 7, 1990 between Mercer County Airport  Authority and CCAIR, Inc. (4)
                  (s)  Contract  for Conduct of  Commercial  Flight  Operations  dated  September  1, 1991 between
                  Maryland Aviation Administration and CCAIR, Inc. (6)
10.29    (a)      Commercial Use Permit between CCAIR, Inc., and City of Charlotte, North Carolina dated April 1,
                  1991, relating to Old Terminal Building at Charlotte/Douglas International Airport. (4)
         (b)      Commercial Use Permit dated April 15, 1992 between the City of Charlotte and CCAIR, Inc. (6)
10.30    (a)      Flight Attendant Agreement between CCAIR, Inc., and the Flight Attendants in the service of CCAIR,
                  Inc., as represented by the Association of Flight Attendants, effective May 22, 1991. (4)
         (b)      Letter of Agreement amendment dated May 6, 1992 between CCAIR, Inc. and the Flight Attendants
                  in service of CCAIR, Ins. as represented by the Association of Flight Attendants. (6)
10.31             Letter Agreement dated February 27, 1991 between Pennsylvania Airlines and CCAIR, Inc. (4)
10.32    (a)      Purchase Agreement No. 8-0237, dated as of February 23, 1992 between CCAIR, Inc. and de
                  Havilland Inc. (successor to Boeing of Canada, Ltd., a Delaware corporation, through its de Havilland
                  Division) as amended by letter agreements attached thereto for two de Havilland DHC-8-102 Aircraft
                  (N880CC) and (N881CC). (6)
         (b)      Purchase Agreement Assignment between CCAIR, Inc. and Mellon
                  Financial Services Corporation #3 dated as of May 15, 1992
                  (N880CC). This Purchase Agreement Assignment is substantially
                  identical to Purchase Agreement Assignment (N881CC), dated as
                  of May 15, 1992, not filed herewith. (6)
         (c)      Lease Agreement between CCAIR, Inc. and Mellon Financial
                  Services Corporation #3 dated as of May 15, 1992 (N880CC).
                  This Lease Agreement is substantially identical to Lease
                  Agreements (N881CC), (N882CC) and N883CC) dated as of May 15,
                  1992, not filed herewith. (6)
         (d)      Lease Supplement #1 between CCAIR, Inc. and Mellon Financial
                  Services Corporation #3 dated as of May 22, 1992 (N880CC).
                  This Lease Supplement #1 is substantially identical to Lease
                  Supplements (N881CC), (N882CC) and (N883CC) dated as of May
                  22, June 1 and June 12, 1992, respectively, not filed
                  herewith. (6)
         (e)      Tax Indemnity Agreement between CCAIR, Inc. and Mellon
                  Financial Services Corporation #3 dated as of May 15, 1992
                  (N880CC). This Tax Indemnity Agreement is substantially
                  identical to Tax Indemnity Agreements (N881CC), (N882CC) and
                  (N883CC) dated as of May 15, 1992, not filed herewith. (6)
         (f)      Assignment and Assumption Agreement dated as of November __,
                  1995 between C.I.T. Leasing Corporation and Mellon Financial
                  Services Corporation #3. (16)
         (g)      Aircraft Lease Termination dated as of November ___, 1995
                  between Mellon Financial Services Corporation #3 and CCAIR,
                  Inc. (16)

</TABLE>

Note:  For footnote references see page E-4


                                                        E-2

<PAGE>

<TABLE>
<S> <C>


10.33    (a)      Lease Agreement (Spares) between CCAIR, Inc. and Mellon Financial Services Corporation #3 dated
                  as of August 14, 1992. (6)
         (b)      Lease Supplement between CCAIR, Inc. and Mellon Financial Services Corporation #3 dated as of
                  August 28, 1992. (6)
         (c)      Tax Indemnity Agreement between CCAIR, Inc. and Mellon Financial Services Corporation #3 dated
                  as of August 14, 1992. (6)
10.34             Agreement dated January 1, 1994 between CCAIR, Inc. and the Mechanics and related employees in
                  the service of CCAIR as represented by the International Brotherhood of Teamsters. (13)
10.35             Employment Agreement between Kenneth W. Gann and CCAIR, Inc. dated February 8, 1994. (13)
10.36    (a)      Agreement dated November 14, 1994, by and among CCAIR, Inc., British Aerospace Holdings, Inc.,
                  formerly British Aerospace, Inc., and Jet Acceptance Corporation. (16)
         (b)      Acceptance Supplement No. 2(N158PC) dated as of November 14, 1994 between Jet Acceptance
                  Corporation and CCAIR, Inc.  This Acceptance Supplement No. 2 is substantially identical to
                  Acceptance Supplements No. 2 between Jet Acceptance Corporation and CCAIR, Inc. (N164PC,
                  N162PC, N159PC, N157PC, N156PC, N190PC, N170PC, N169PC, N168PC, N163PC and N161PC),
                  notified herewith. (16)
10.37    (a)      Lease Agreement dated as of November 15, 1994 between C.I.T. Leasing Corporation and CCAIR, Inc.
                  for DHC-8-102 Aircraft (Reg. No. 880CC).  This Lease Agreement is substantially identical to Lease
                  Agreements dated as of November 15, 1994 between C.I.T. Leasing Corporation and CCAIR, Inc. for
                  DHC-8-102 Aircraft (Reg. No. 881CC, Reg. No. 882CC and Reg. No. 883CC), not filed herewith. (16)
         (b)      Lease Agreement (Spares) dated as of November 15, 1994 between C.I.T. Leasing Corporation and
                  CCAIR, Inc.  (16)
         (c)      Lease Supplement No. 1 is substantially identical to Lease Supplements No. 1 between C.I.T. Leasing
                  Corporation and CCAIR, Inc. for DHC-8-102 Aircraft (Reg. No. 881CC, Reg. No. 882CC and Reg. No.
                  883CC) and Lease Supplement No. 1 (Spares), not filed herewith. (16)
10.38    (a)      Amended and Restated Loan Agreement dated as of February 10, 1995, between JSX Capital
                  Corporation and CCAIR, Inc.  (16)
         (b)      Revolving Note dated February 10, 1995 in the principal amount of $2,500,000 by  CCAIR, Inc. to the
                  order of British Aerospace Holdings, Inc. (16)
         (c)      Amended and Restated Security Agreement dated as of February
                  10, 1995 between JSX Capital Corporation and CCAIR, Inc. (16)
         (d)      Amended and Restated Special Account and Disbursement
                  Authorization Agreement dated as of February 10, 1995 among
                  Wachovia Bank of North Carolina, N.A., CCAIR, Inc., British
                  Aerospace Holdings, Inc., Jet Acceptance Corporation and JSX
                  Capital Corporation. (16)
10.39             Letter Agreement dated September 28, 1995 between JSX Capital Corporation and CCAIR, Inc. (17)
10.40             September 1995 Master Agreement among CCAIR, Inc., British Aerospace Holdings, Inc., Jet
                  Acceptance Corporation and JSX Capital Corporation. (17)
10.41             Second Amendment to Amended and Restated Loan Agreement, Related Loan Documents and Master
                  Agreement as of July 9, 1997 between CCAIR, Inc., British Aerospace Holdings, Inc., Jet Acceptance
                  Corporation and British Aerospace Asset Management, Inc. (18)
10.42             CCAIR, Inc. Directors' Compensation Stock Option Plan as of November 14, 1996. (18)
10.43             Line of Credit Commitment as of October 8, 1996 between Centura Bank and CCAIR, Inc. (18)
11                Computation of earnings per share. (17)
16                Letter regarding change in Company's certifying accountant. (9)
18                Letter regarding change in accounting principles. (18)
23.1              Consent of Arthur Andersen, LLP. (18)
</TABLE>



Note:  For footnote references see page E-4


                                                        E-3

<PAGE>

<TABLE>
<S> <C>


Footnotes:

(1)      Incorporated by reference to Registration Statement on Form S-1, File No. 33-28967.
(2)      Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1989, File No. 0-
         17846.
(3)      Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1990, File No. 0-
         17846.
(4)      Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 0-
         17846.
(5)      Incorporated by reference to Current Report on Form 8-K, filed August 1,
         1991.
(6)      Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1992, File No. 0-
         17846.
(7)      Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1993, File No. 0-
         17846.
(8)      Incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form S-2, File No.
         33-65878.
(9)      Incorporated by reference to Current Report on Form 8-K/A, dated November 30, 1993, File No. 0-17846
(10)     Incorporated by reference to Registration Statement on Form S-2, File No. 33-77574.
(11)     Incorporated by reference to Amendment No. 1 to Registration Statement on Form S-2, File No. 33-77574.
(12)     Incorporated by reference to Amendment No. 2 to Registration Statement on Form S-2, File No. 33-77574.
(13)     Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1994, File No. 0-
         17846.
(14)     Incorporated by reference to Registration Statement on Form S-8 and Form S-3, File No. 33-89832.
(15)     Incorporated by reference to Quarterly Report on Form 10-Q for the three-month period ended March 31, 1995,
         File No. 0-17846.
(16)     Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form S-2, File No.
         33-77574.
(17)     Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1996, File No. 0-
         17846.
(18)     Filed herewith.


</TABLE>



                                                        E-4