FORM 10-K/A AMENDMENT #2

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                    For Fiscal Year Ended DECEMBER 31, 1998
                                       OR

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

                       For the transition period from to

                         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 March
16, 1999 was approximately $29,138,509.

As of March 16, 1999, there were 8,965,695 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, 1998, are incorporated by reference in Part III hereof, as
specified.



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



<PAGE>


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

        GENERAL - RESTRUCTURING PLAN
        ----------------------------

        In the six months ended December 31, 1997, the Company initiated its
plan to restructure the aircraft fleet. This plan consisted of eliminating nine
Shorts and fourteen Jetstream 31 aircraft operated by the Company, and replacing
them with six Dash 8 and fourteen Jetstream Super 31 aircraft. The Company
estimated total annual expense reductions in excess of $4 million per year,
commencing in 1998 arising from consummation of this plan. As a result of the
plan, the Company recognized a $9,881,000 restructuring charge in the six-month
period ended December 31, 1997. These charges related to aircraft lease
termination, return condition requirements, writedown of spare parts and other
assets to net resale value, transition rents, consulting fees and pilot
requalifications. At December 31, 1998, the replacement of aircraft has been
completed and the only unexpended accruals related to the restructuring are the
note payable issued to Lynrise Leasing in conjunction with the aircraft lease
terminations (see Note 9 to the financial statements) and an accrual of
$515,000, which represents the difference between the note payable issued to a
related-party partnership subsequent to December 31, 1998 to terminate an engine
sale leaseback transaction and the estimated proceeds to the Company from the
sale of the engines acquired from the partnership upon the issuance of the note
payable. Please see discussion under the heading "Restructuring" below under
Liquidity and Capital Resources and Note 8 to the financial statements for
further description of the restructuring charges.

RESULTS OF OPERATIONS
---------------------

        The following table sets forth selected operating data relating to the
Company's passenger service for the fiscal year 1998 and the comparative twelve
months in 1997, transition period ended December 31, 1997 and the comparative
six months in 1996, and fiscal years 1997 and 1996.

<TABLE>
<CAPTION>


                                        YEAR ENDED        SIX-MONTH PERIOD ENDED
                                        DECEMBER 31,           DECEMBER 31,     YEAR  ENDED JUNE 30,
                                       ------------            ------------     ----  --------------

                                        1998      1997      1997      1996      1997      1996
                                        ----      ----      ----      ----      ----      -----
                                             (Unaudited)           (Unaudited)

   
<S>                                   <C>       <C>       <C>       <C>       <C>        <C>    
Operating revenue (000)               $71,325   $67,330   $32,836   $33,993   $68,487    $66,234
Operating expense, net of
 restructuring and other
 nonrecurring charges (000)           $66,969   $67,543   $33,659   $33,208   $67,092    $65,347
Revenue passengers carried            865,173   779,450   396,799   411,362   794,013    783,997
Revenue passenger miles (000) (1)     167,445   142,916   72,417     76,068   146,567    144,695
Available seat miles (000) (2)        292,458   279,527   134,831   160,390   305,086    311,967
Passenger load factor (3)                57.3%     51.1%     53.7%     47.4%     48.0%      46.4%
Passenger breakeven load factor (4)      54.6%     52.0%     56.1%     46.9%     47.6%      46.3%
Yield per revenue passenger mile (5)     42.0(cent)46.0(cent)44.5(cent)44.0(cent)45.7(cent) 44.5(cent)
Passenger revenue per available
 seat mile                               24.1(cent)22.5(cent)23.9(cent)20.9(cent)22.0(cent) 20.7(cent)
Operating cost per available
 seat mile (6)                           22.9(cent)24.2(cent)25.0(cent)20.7(cent)22.0(cent) 20.9(cent)
Average passenger trip (miles)          193.5     183.4     182.5     184.9     184.6      183.9
Average passenger fare                 $81.38    $84.36    $81.18    $81.39    $84.41     $82.25
Completion factor                        96.9%     96.3%     96.4%     96.3%     95.9%      95.1%

</TABLE>


        (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.


                                       11
<PAGE>


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


        (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 fiscal year 1998 (see Note 16 of
the financial statements):

<TABLE>
<CAPTION>


                                                         1998 QUARTERLY DATA   
                                                         -------------------   
               
                                                FIRST      SECOND     THIRD      FOURTH
                                               QUARTER    QUARTER    QUARTER    QUARTER
                                               -------    -------    -------    -------

<S>                                            <C>        <C>        <C>        <C>    
Operating revenue (000)                        $14,563    $18,083    $18,068    $20,601
Operating income (loss) (000)                      733      2,422      1,313     (  112)
Net income (loss) (000)                            549      2,103      1,098     (  370)
Earnings (loss) per share                          .06        .23        .12     (  .04)

Passengers carried                             162,795    218,415    239,404    244,559
Revenue passenger miles (000)                   29,416     39,488     45,646     52,895
Available seat miles (000)                      54,368     64,973     79,744     93,373
Passenger load factor                            54.1%      60.8%      57.2%      56.6%
Passenger breakeven load factor                  52.0%      53.6%      53.7%      57.6%
Yield per revenue passenger mile                 48.7(cent) 45.2(cent) 39.1(cent) 38.5(cent)
Average passenger trip (miles)                   180.7      180.8      190.7      216.3
Average passenger fare                         $ 88.05    $ 81.71    $ 74.57    $ 83.31
Operating cost per available
 seat mile                                       25.4(cent) 24.1(cent) 21.0(cent) 22.2(cent)
</TABLE>


FISCAL 1998
-----------

    The Company recognized $3,380,000 in net income in 1998 versus a loss of
$24,300,000 in the same period in 1997. Operating revenues increased 5.9% from
$67,330,000 to $71,325,000, and operating expenses decreased from $77,424,000 to
$66,969,000, a 13.5% reduction. Operating expenses in 1997 included fleet
restructuring and other nonrecurring charges of $9,881,000. Diluted income per
share was $.36 in 1998 versus a loss of $3.10 in 1997.


        OPERATING REVENUES
        ------------------

        Operating revenues increased $3,995,000 (5.9%) for the year ended
December 31, 1998 compared to the year ended December 31, 1997. This increase
was primarily attributable to the additional capacity flown by the Company in
1998, as Available Seat Miles (ASMs) increased 4.6% in 1998 over the prior year.
The capacity increase was the result of the Company's expansion into the state
of Florida: four round trip flights from Charlotte, North Carolina to
Gainesville were added in August, 1998, four round trip flights from Charlotte
to Tallahassee were added in October, 1998 and four round trip flights from
Tallahassee to Miami were also instituted in October, 1998. Passenger traffic,
measured by Revenue Passenger Miles (RPMs), increased by 17.1% in fiscal 1998,
as the load factor (percentage of seats occupied) increased from 51.1% to 57.3%,
a 12.1% increase. Yield (passenger revenue per RPM) decreased to 42.0(cent) in
1998 from 46.0(cent) in the same period in 1997. The airline industry has a
history of fare and traffic volatility. Even though the yield decreased by 8.7%,
the revenue per ASM increased from 22.5(cent) for the twelve months ended
December 31, 1997 to 24.1(cent) for 1998 as the reduction in yield was more than
offset by the increase in load factor. The average passenger trip increased from
183.4 miles in 1997 to 193.5 miles in 1998 due to the addition of the longer
stage length Florida service in 1998.


                                       12
<PAGE>

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


        OPERATING EXPENSES
        ------------------
<TABLE>
<CAPTION>

                                    1998                           1997
                                 EXPENSE    COST       % OF     EXPENSE    COST       % OF
                                   (000)    PER ASM   REVENUES   (000)    PER ASM   REVENUES
===============================================================================================
<S>                                <C>      <C>        <C>        <C>       <C>       <C>  
Flight operations                  $21,569  7.47(cent) 30.2%      $22,389   8.0(cent) 34.1%
================================= --------- -------- ----------- --------- -------- ===========
Fuel                                $5,016   1.7(cent)  7.0%       $6,125   2.2(cent)  9.3%
================================= --------- -------- ----------- --------- -------- ===========
Maintenance                        $14,386   4.9(cent) 20.2%      $14,192   5.1(cent) 21.6%
================================= --------- -------- ----------- --------- -------- ===========
Ground operations                  $10,548   3.6(cent) 14.8%       $8,640   3.1(cent) 13.1%
================================= --------- -------- ----------- --------- -------- ===========
Advertising and commissions         $9,939   3.4(cent) 13.9%       $9,875   3.5(cent) 15.0%
================================= --------- -------- ----------- --------- -------- ===========
General and administrative          $4,577   1.6(cent)  6.4%       $4,804   1.7(cent)  7.3%
================================= --------- -------- ----------- --------- -------- ===========
Depreciation and amortization        $ 934   0.3(cent)  1.3%       $1,518   0.6(cent)  2.3%
================================= ========= ======== =========== ========= ======== ===========
     TOTAL                        $66,969   22.9(cent) 93.8%      $67,543  24.2(cent)102.7%
================================= ========= ======== =========== ========= ======== ===========
</TABLE>

        Operating costs excluding fleet restructuring and other nonrecurring
charges decreased $574,000 in 1998 over the twelve months ended December 31,
1997. The cost per ASM excluding fleet restructuring and other nonrecurring
charges decreased 5.4% over the same period, as the Company realized cost
reductions in flight operations expenses, fuel, and depreciation. These
decreases were partially offset by increased ground operation expense.

        Flight operations expenses decreased by $820,000, or 3.6% in 1998
compared to the same period in 1997. The cost per ASM of flight operations
decreased 7.5%. The Company benefited from reductions in hull insurance rates,
and as a result hull insurance expense decreased $221,000 in 1998 compared to
1997. The reduced lease rates associated with the Jetstream Super 31 aircraft
compared with the predecessor Jetstream 31 aircraft resulted in a $1,648,000
reduction in aircraft rent expense. Flight attendant expenses decreased by
$167,000, as the Company operated a maximum of 10 aircraft necessitating cabin
service in 1998 versus 13 in 1997. These expense reductions were offset by
increased pilot expenses of $798,000, which resulted from increased flying and
new pay rates which took effect in October, 1998 pursuant to the pilot contract
ratified in November, 1998. This contract is amendable in 2002.

        Fuel expenditures declined $1,109,000, or 18.1% compared to 1997 as the
cost of fuel per gallon decreased from $.820 in 1997 to $.628 in 1998, a 23.4%
decline. Fuel consumption increased from 7.5 million gallons to 8.0 million
gallons, or 6.7%. More fuel was consumed as a result of the increased flying in
1998. In 1998, fuel expense was 7.5% of operating costs; 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 utilized for
hedging purposes.

        Maintenance material, repairs and overhead increased $194,000 in 1998,
although the cost per ASM decreased 3.9% in 1998 when compared to 1997. The
power by the hour program on the Jetstream Super 31 aircraft resulted in reduced
maintenance expense related to these aircraft in 1998 compared with 1997. This
savings was offset by the increased costs associated with the six new Dash 8
aircraft added under operating leases in 1998. The Company incurred increased
maintenance expense in the fourth quarter of 1998 as extra maintenance
expenditures necessary to standardize this equipment to the same specifications
of the four Dash 8 aircraft already operated by the Company.

        Ground operations expenses increased $1,908,000, from $8,640,000 in 1997
to $10,548,000 in 1998. Continuing with US Airways' commitment in 1997 to
increase its performance in the areas of on-time performance and completed
flights, the Company increased its staffing levels at the Charlotte station
(Concourse D) to enhance customer satisfaction and improve operations. As such,
the Charlotte station had payroll increases of $520,000 in 1998 compared to
1997. Contract handling charges increased by $332,000 in 1998, principally due
to higher numbers of passengers being handled by others on behalf of the Company
in 1998. These charges represent handling fees charged by other airlines,
principally US Airways, at stations where the Company does not have employees
and thus contracts the handling of its passengers.


                                       13
<PAGE>


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

        Ground operations at the new Florida stations cost the Company $449,000
in 1998. More inclement weather, higher passenger counts and increased training
due to the conversion to a new reservations system in 1998 by US Airways, and
consequently the Company, accounted for the rest of the increase in ground
operations expenses in 1998 as compared to 1997.

        Advertising, promotion and commissions expense remained flat, increasing
0.6% in 1998 as compared to 1997. Reservations expense remained flat in 1998 as
compared to 1997, as increased expenses related to higher passenger counts were
offset by reductions in fees charged by US Airways based upon the Company's
large percentage of traffic connecting to US Airways flights. Travel agency
commissions were also relatively flat, as commission increases based upon higher
revenues were offset by lower commission percentages paid in 1998 compared to
1997.

        General and administrative expenses decreased by $227,000, from
$4,804,000 in 1997 to $4,577,000 in 1998. Passenger liability insurance
decreased by $467,000 as reduced insurance rates more than offset traffic
increases. These insurance reductions more than offset the increases in legal
fees incurred by the Company in 1998. Negotiation of pilot and mechanic labor
contracts in 1998 necessitated the utilization of significantly more legal
services in 1998 than had been incurred in 1997.

        Depreciation and amortization expense decreased $584,000, or 38.5% in
1998 versus the same period in 1997 as a result of the write-off and
reclassification of all assets related to the terminated leases for the Shorts
and Jetstream 31 aircraft.

        The Company had no income tax expense in 1998, as net operating loss
carryforwards were available to offset income tax expense at the statutory rate
for financial statement purposes. In 1997, the Company's effective federal
income tax rate was 21.3%, which reflected the impact of the alternative minimum
tax on operations. At December 31, 1998, the Company had approximately $20.9
million of U.S. Federal tax operating loss carryforwards available to offset
future U.S. Federal taxable income.

        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.

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
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". Principally, as a result of
recognizing restructuring and other nonrecurring charges of $9,881,000 and
effecting a change in accounting method related to transitioning to the accrual
method for major component overhauls which resulted in a charge of $12,982,000
to income, the Company recognized a $24,300,000 net loss in the 1997 transition
period. In the 1997 transition period, operating revenues decreased $1,157,000
versus the same period in 1996, and operating expenses increased $452,000 in the
1997 transition period, exclusive of the restructuring and nonrecurring charges.

        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 fleet contraction, 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.

                                       14
<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. 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.

        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 excise tax on airline tickets. 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 attributable to 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 continued 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 as a result of 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 the 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.

        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.


                                       15
<PAGE>


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

        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, primarily
as a result of increases in US Airways' passenger handling fees. 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 enhanced passenger service.

        The Company took steps to mirror US Airways initiatives in these vital
performance measures. While the Company and US Airways were successful,
additional staffing levels were necessary to ensure meeting US Airways
commitment to service enhancements. 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.

        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 by depreciation being 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.

        As a result of the aircraft return plans, the Company 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 were 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.

                                       16
<PAGE>

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

        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 fiscal
1997 were $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%, while 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 excise tax on airline tickets 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.




                                       17
<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.

        Market fluctuations 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.




                                       18
<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 increased from the prior year. 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. Computer
reservations system 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.

        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.


                                       19
<PAGE>


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


        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.



                                       20
<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, as a result of 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.


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 1998 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 related
parties and a line of credit with Centura Bank, both secured by owned flight and
ground equipment.

        During 1998, management continued the implementation of 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 following
changes were made during 1998:

        1.     Completed previously announced fleet restructuring plan: 20
               Jetstream Super 31 aircraft placed into service in 1998, 14
               leased through the end of 2004 and six through the end of 1998.
               At the end of 1998, four Jetstreams were returned to the lessor
               and two leased through the end of 1999. All 14 Jetstream 31
               aircraft previously operated by the Company were removed from the
               fleet in 1998.

        2.     The addition of six Dash 8 aircraft to the fleet through
               short-term operating leases. Four of these leases expire in 2000,
               one in 2002 and one in 2005.

        3.     Instituted new service to Florida destinations.

        4.     Signed a letter of intent with Mesa Air Group, Inc. to be
               acquired as a wholly-owned subsidiary. A definitive purchase
               agreement was signed on January 28, 1999.


                                       21
<PAGE>

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


        5.     Enhanced labor stability by negotiating new pilots' and
               mechanics' contracts not amendable until 2002.
        6.     Refinanced $7,920,000 note payable classified as current on the
               balance sheet at December 31, 1997; this note is now long term.

        7.     Issued 500,000 shares of common stock in September, 1998, the
               proceeds of which were used to satisfy a short-term note of
               $1,675,000 to Lynrise Air Lease, Inc., the lessor of the
               Company's previously operated Shorts aircraft.

        8.     Obtained a $1,100,000 note to finance the Company's expansion in
               September, 1998; $850,000 of this note was obtained through the
               Company's local bank, the remaining $250,000 was received from a
               member of the Company's Board of Directors.


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 for cabin class service, as they are
unpressurized and flew at slow speeds. 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 $9,720,000. The promissory note was issued in contemplation of the
Company's obligations to the 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.

        In September, 1998, the Company exercised its option issued in
conjunction with the note, whereby it paid Lynrise $1,675,000 in cash and
$130,000 in aircraft parts. Proceeds from the sale of 500,000 shares of Company
stock were used to pay the cash portion of the note. Upon the option's exercise,
the remainder of the note, $8,335,000, including unpaid interest from January 1
to September 30, 1998 was converted to a subordinated note, which is convertible
to common stock at $7.50 per share. This subordinated note is 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. In
December, 1998, the Company leased two of these Jetstreams for an additional
year and returned the remaining four to the lessor. The Jetstream Super 31
aircraft are newer and faster than the predecessor Jetstreams, and can operate
with fewer weight restrictions. The Jetstream 31 aircraft were returned to the
lessor in 1998. The Company estimated the cost of returning these aircraft at
$750,000, which was provided for as restructuring cost during the 1997
transition period. The actual cost of returning the aircraft was $1,034,000. The
difference of $284,000 is recorded as additional general and administrative
expense in 1998.

        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 net book value of parts held for resale was $1,200,000 on
December 31, 1997 and $945,000 on December 31, 1998. Additionally, the Company
wrote off $680,000 in unamortized leasehold improvements related to these two
aircraft types in the 1997 transition period.




                                       22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        -------------------------------------------------
        CONDITION AND RESULTS OF OPERATIONS              
        -----------------------------------              



        In June, 1995, the Company entered into a sale leaseback agreement with
a related-party partnership for certain engines owned by the Company. This lease
expired on June 30, 1998, and under provisions of the lease, the Company was
required to return the engines to the partnership in freshly overhauled
condition, or with a cash payment in lieu thereof based upon a stipulated
calculation. The Company recorded a liability of $515,000 in the transition
period ended December 31, 1997 as an estimate of its obligation to the
partnership. On March 30, 1999, the Company settled its obligation by issuing a
note payable to the partnership in the amount of $950,000 and receiving title to
the engines. The previously accrued amount, $515,000, is expected to approximate
the net settlement after sale of the engines.

        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, and spare parts inventory levels. In
addition, the fleet simplification has improved the Company's ability to achieve
higher levels of reliability, resulting in fewer flight cancellations and delays
and increased revenues. With the exception of the disposition of the remaining
parts held for resale and the sale of the engines obtained in the settlement of
the sale leaseback transaction referenced above, the restructuring is
substantially complete.

        The Company's balance sheet reflects a deficit in working capital,
defined as current assets less current liabilities, of approximately $5,125,000
on December 31, 1998 as compared to $16,705,000 on December 31, 1997. Working
capital is affected by the short-term note issued to Lynrise leasing, as well as
seasonality of operations and the timing of receipts from the ACH. 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, 1998
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 $11,016,000 at
December 31, 1998. As previously mentioned, the results of the restructuring are
expected to provide over $4 million in net cost savings going forward. 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 acquisition of the Company by Mesa is expected
to positively impact the Company's liquidity when finalized. 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 pending the Mesa acquisition. The Company also has a solid
infrastructure and has been able to exceed US Airways operating performance
goals consistently during 1998.


        FLEET
        -----

        In 1998, the Company assumed five Dash 8 aircraft leases from a former
operator of the aircraft. These leases begin expiring in April, 2000 with the
final lease ending in September, 2002, and are considered operating leases. The
Company also consummated a lease agreement for an additional Dash 8 aircraft in
1998 that is covered by economic development insurance provided by Her Majesty
the Queen in Right of Canada as Represented by the Ministry of Industry, Science
and Technology (the "Ministry"). As a result of entering into this lease
agreement, the Company has settled all claims by the Ministry, including a
purported claim of $16,996,995, as long as the Company fulfills its obligations
under the lease for the new aircraft. The lease expires in October, 2005.



                                       23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        -------------------------------------------------
        CONDITION AND RESULTS OF OPERATIONS              
        -----------------------------------              


        FINANCING
        ---------

        During fiscal 1998 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 rate plus 2% and is scheduled to terminate
on July 31, 1999, but must be extended by BAAM for successive one-year periods
until December 31, 2001.

        In September, 1998, the Company obtained subordinated loans from its
primary banking facility, Centura bank and a Board member for $1,100,000.
Interest at 13.75% is due monthly. The loans mature in September, 2003, with
principal payments beginning in October, 1999 at two levels. Principal payments
in the amount of $30,000 a month are due in the months of May through October
and principal payments of $15,000 a month in the months of November through
April. In conjunction with this transaction, the Company issued 112,467 warrants
to Centura that may be exercised at any time at $3.00 per share within ten
years. For any year the Company does not repay the loan in accordance with the
loan agreement, the Company must issue 12,497 additional warrants to the lenders
at the same exercise price. In the event a key member of management leaves the
Company and the lenders do not agree with his replacement, an additional 17,768
warrants must be issued to the lenders at an exercise price of $.01 per share.
The warrant agreements contain a put feature that provides that the lenders may
require the Company to purchase the warrants in cash at fair market value, less
the exercise price, at any time.

        In November, 1996 the Company secured a supplemental line of credit (the
"Centura Line") with 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 July 2, 1999. There was no
outstanding balance at December 31, 1998.

        During 1998, the Company obtained several short-term loans from certain
related parties. Individual amounts borrowed under these loans ranged from
$150,000 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 $209,000, respectively. In connection with these loans, the Company
issued to the lending parties noncompensatory warrants to purchase 12,500 shares
of the Company's common stock at the fair market value on the date of grant.

        CAPITAL EXPENDITURES
        --------------------

        Capital expenditures generally consist of fixed asset replacement.
Capital expenditures in 1998 were $1,712,000. These expenditures were
principally for rotable parts and aircraft leasehold improvements. The Company
projects 1999 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 ACH 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.




                                       24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        -------------------------------------------------
        CONDITION AND RESULTS OF OPERATIONS              
        -----------------------------------              

        Accounts receivable increased from $5,048,000 as of December 31, 1997 to
$6,346,000 as of December 31, 1998. The increase is principally due to higher
passenger counts of 70,330 as compared to 60,759 in December, 1998 versus
December, 1997. The year end receivable balance is comprised primarily of
December traffic receivables.

        Inventories increased from $510,000 on December 31, 1997 to $968,000 on
December 31, 1998, primarily as a result of the initial parts provisioning
necessary to support the introduction of the Jetstream Super 31 aircraft into
service in 1998.

        Accounts payable decreased from $8,129,000 to $5,540,000, primarily due
to increased payments to vendors in 1998 of balances that existed on December
31, 1997. Accrued expenses increased from $5,983,000 at December 31, 1997 to
$8,014,000 at the same date in 1998. The Company moved its payroll from the 29th
of each month to the 1st of the subsequent month in December, 1998, thus accrued
payroll increased $1,337,000 over the comparable periods. Accrued repair
expenses increased $766,000 due to timing of component repairs in the relevant
periods.

        The Company accepted delivery of six additional Dash 8 aircraft from
June, 1998 through October, 1998. Certain costs were incurred to integrate the
aircraft into the Company's operations. These expenditures are comprised
primarily of rental payments on the aircraft prior to their entrance into
scheduled flying, the retention and training of flight crews and initial
airworthiness inspection. As permitted under Statement of Position (SOP) 88-1,
"Accounting for Developmental and Preoperating Costs, Purchases and Exchanges of
Take-off and Landing Slots, and Airframe Modifications", the Company capitalized
$822,000 as preoperating costs in the December 31, 1998 balance sheet. As
required by SOP 98-5, "Reporting on the Costs of Start-Up Activities", the
capitalized amount less related amortization, $103,000 will be written off as of
January 1, 1999.

        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
        -----

        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.
FASB also issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" effective for fiscal years beginning after June 15, 1999. The
Company has not quantified the impact of SFAS No.
133 on its financial information.


        YEAR 2000 COMPLIANCE
        --------------------

        Many currently installed computer systems, imbedded microchips and
software products are coded to accept two-digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
years beginning with "20" from years beginning with "19". Any programs that have
time sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in the computer shutting down or
performing incorrect computations. As a result, computer systems and software
used by many companies will need to be upgraded to comply with such "Year 2000"
requirements. Certain of the Company's systems, including information and
computer systems and automated equipment, will be affected by the Year 2000
issue.



                                       25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        -------------------------------------------------
        CONDITION AND RESULTS OF OPERATIONS              
        -----------------------------------              


        The Company completed its comprehensive inventory of its core business
applications to determine the adequacy of these systems to meet future business
requirements. The Company has also been performing system upgrades, which are
approximately 80% complete. After these upgrades and system evaluations are
complete, the Company will begin testing the results of its compliance work. To
date, the Company's Year 2000 remediation efforts have focused on its core
business computer applications (i.e., those systems that the Company is
dependent upon for the conduct of day-to-day business operations). Out of this
effort, a number of systems have already been identified for upgrade. In no case
has a system been replaced or contemplated to be replaced solely because of Year
2000 issues with the exception of the Company's voice mail system, which can be
replaced for approximately $20,000. Additionally, while the Company may have
incurred an opportunity cost for addressing the Year 2000 issue, it does not
believe that any specific information technology projects have been deferred as
a result of its Year 2000 efforts.

        The Company's reservation system is tied to its code-sharing partner, US
Airways. The Company's representatives have met with US Airways to assess the
Year 2000 progress of the reservations system providers. The Company has
installed an upgraded version of its current accounting, revenue accounting,
maintenance parts and payroll systems. Approximately 75% of these systems have
been tested. The Company has had extensive discussions with the manufacturers of
its various aircraft to discuss Year 2000 issues and identify the required
avionics and flight systems upgrades which will be implemented during 1999. The
aircraft manufacturers are also required to report the Year 2000 status of their
aircraft to the FAA.

        The Company is currently assessing other potential Year 2000 issues,
including noninformation technology systems. A broad-based Year 2000 Task Force
has been formed and has begun meeting to identify areas of concern and develop
action plans. The Company has also been meeting with similar task forces at US
Airways and Mesa. The Company's relationships with vendors contractors,
financial institutions and other third parties will be examined to determine the
status of the Year 2000 issue efforts on the part of the other parties to
material relationships. The Year 2000 Task Force will include both internal and
Company-external representation.

        The Company expects to incur Year 2000-specific costs in the future but
does not at present anticipate that these costs will be material. In the worst
case scenario, the Company believes that relationships it has with third parties
would cease as a result of either the Company or the third party not
successfully completing their Year 2000 remediation efforts. If this were to
occur, the Company would encounter disruptions to its business that could have a
material adverse effect on its business, financial position and results of
operations. The Company could be materially impacted by widespread economic or
financial market disruption or by Year 2000 computer system failures.

        The Company has not at this time established a formal Year 2000
contingency plan but will consider and, if necessary, address doing so as part
of its Year 2000 Task Force activities. The Company maintains and deploys
contingency plans designed to address various other potential business
interruptions. These plans may be applicable to address the interruption of
support provided by third parties resulting from their failure to be Year 2000
ready.

        The Company has relationships with certain governmental entities such as
the FAA upon which it is dependent to operate its aircraft. The FAA has
represented on its web page that its systems are Year 2000 compliant. If,
however, systems at the FAA fail, the Company's aircraft will not be able to
operate, or will operate at a substantially reduced level. If this were to
occur, the Company approximates that it would lose substantially all the revenue
associated with these nonoperated flights.

        For each day that the Company is unable to operate flights as a result
of Year 2000 failures, it anticipates a $225,000 loss of revenue and net loss of
approximately $110,000.


INFLATION
---------

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


                                       26
<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 Amendment #2 to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                                   CCAIR, INC.


DATE:   April 30, 1999                  BY: /s/ Kenneth W. Gann            
                                                ------------------

                                                Kenneth W. Gann, President and
                                                Chief Executive Officer

                                       27
<PAGE>