##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission File Number 0-26582
 World Air Holdings, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    20-2121036(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)The HLH Building, 101 World Drive,
Peachtree City, GA(Address of principal executive offices)
    
    30269(Zip Code)
 Registrants telephone number, including area code:
(770) 632-8002
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredNONE
 Securities registered pursuant to Section 12(g) of the Act:
 Common Stock ($.001 par value)  (Title of Class)
 o þ
 o þ
 o þ
 Form 10-K o
  o þ o
 o þ




---



##### Table of Contents



WORLD AIR HOLDINGS, INC.
 2005 ANNUAL REPORT ON FORM 10-K
 TABLE OF CONTENTS
 PART IPageItem 1.
    
    Business
    4Item 2.
    
    Properties
    15Item 3.
    
    Legal Proceedings
    16Item 4.
    
    Submission of Matters to Vote of Security Holders
    16PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    16Item 6.
    
    Selected Financial Data
    18Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    19Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    33Item 8.
    
    Financial Statements and Supplementary Data
    35Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    62Item 9A.
    
    Controls and Procedures
    62
 2




---



##### Table of Contents



PART IIIPageItem 10.
    
    Directors and Executive Officers of the Registrant
    72Item 11.
    
    Executive Compensation
    77Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    80Item 13.
    
    Certain Relationships and Related Transactions
    83Item 14.
    
    Principal Accountant Fees and Services
   83PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    84EX-10.4 WAVIER TO LOAN AGREEMENT DATED OCTOBER 28, 2005EX-10.5 WAVIER TO LOAN AGREEMENT DATED NOVEMBER 11, 2005EX-10.6 AMENDMENT NO. 1 TO WAVIER TO LOAN AGREEMENT DATED NOVEMBER 30, 2005EX-10.7 AMENDMENT NO. 2 TO WAVIER TO LOAN AGREEMENT DATED DECEMBER 15, 2005EX-10.15 BLOCKED ACCOUNT AGREEMENT DATED DECEMBER 30, 2003, WORLD AIRWAYS, INC.EX-10.16 FIRST AMENDMENT TO BLOCKED ACCOUNT AGREEMENT DATED MAY 25, 2005, WORLD AIRWAYS, INC.EX-10.17 BLOCKED ACCOUNT AGREEMENT DATED APRIL 27, 2005, NORTH AMERICAN AIRLINES, INC.EX-10.18 BLOCKED ACCOUNT AGREEMENT DATED MAY 25, 2005, WORLD AIR HOLDINGS, INC.EX-10.19 BLOCKED ACCOUNT AGREEMENT DATED MAY 25, 2005, NORTH AMERICAN AIRLINES, INC.EX-12.1 STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-21.1 SUBSIDIARIES OF THE REGISTRANTEX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, KPMG LLPEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  3




---



##### Table of Contents



PART I
 
 Item 1. Business
        World Airways Segment Performance
  Year Ended December 31,World Airways
    
    2005
    
    2004
    
    2003(in millions)Passenger Charter Operations
    
    $
    520.8
    
    
    $
    432.6
    
    
    $
    343.3Cargo Charter Operations
    
    
    99.9
    
    
    
    69.1
    
    
    
    128.5Other
    
    
    3.1
    
    
    
    2.2
    
    
    
    3.1
  USAF .
 4




---



##### Table of Contents



World Airways
    
    2005
    
    
    2004
    
    
    2003(in millions)Year ended September 30,
Original contract award
    
    $
    94.0
    
    
    $
    125.8
    
    
    $
    120.0Year ended December 31,
USAF revenue earned:Fixed passenger
    
    $
    102.4
    
    
    $
    129.3
    
    
    $
    73.6Expansion passenger
    
    
    375.0
    
    
    
    255.7
    
    
    
    207.1Cargo fixed and expansion
    
    
    0.2
    
    
    
    5.7
    
    
    
    74.0Total USAF revenue earned
    
    $
    477.6
    
    
    $
    390.7
    
    
    $
    354.7
   North American Segment Performance
  Period April 28 toNorth American
    
    December 31, 2005(in millions)Passenger Charter Operations
    
    $
    131.0Passenger Scheduled Service
    
    
    31.8Other
    
    
    0.5
   North American
    
    2005USAF
    
    
    63.5
    %Scheduled service
    
    
    19.5
    %
 5




---



##### Table of Contents



USAF.
 North American
    
    2005(in millions)Year ended September 30,
Original contract award
    
    $
    1.6Period ended December 31,
USAF revenue earned:Fixed passenger
    
    $
    1.6Expansion passenger
    
    
    102.0Total USAF revenue earned
    
    $
    103.6
   Scheduled Service.
 Available Information
 www.worldairholdings.com
  Overview & Operating Environment
  6




---



##### Table of Contents



Aircraft Leases
  Maintenance
  Aviation Fuel
  7




---



##### Table of Contents



Regulatory Matters
      8




---



##### Table of Contents



Employees
     Profit Sharing
  9




---



##### Table of Contents



Risk Factors
  The Companys
substantial operating lease obligations and debt limit its
ability to fund general corporate requirements, limit its flexibility in
responding to competitive developments and increase its vulnerability to
adverse economic and industry conditions.
    The covenants
contained in the Companys loan agreements and its operating
leases may limit the Companys financial and operating flexibility.
   
    
    The Company is limited in its ability to obtain additional financing.Prior to
the prepayment of the ATSB Loan, the Company was limited in its ability to obtain
additional financing. Its indebtedness outstanding under the $30.0 million ATSB Loan was
secured by substantially all of the Companys assets. In addition, the ATSB Loan contained
restrictive provisions that required prepayments in the event the Company sold any
significant assets, received proceeds from future borrowings from other sources or the
issuances of certain securities, or received net proceeds from insurance or condemnation.The Companys indebtedness under the Wachovia Loan and Security Agreement is secured by
substantially all of the Companys accounts receivables and other assets. In addition, the
Wachovia agreement contains restrictive provisions from future borrowings from other sources
or issuances of certain securities, or receipts of net proceeds from insurance or
condemnation.
    
    The Companys ability to fund general corporate requirements, including capital
expenditures, may be impaired. The Company has substantial obligations to pay principal
and interest on its debt, lease payments, and other recurring fixed costs. Accordingly,
the Company may have to use its working capital to fund such payments and other recurring
fixed costs instead of funding general corporate requirements.
    
    The Companys ability to respond to competitive developments and adverse
conditions may be limited.With a restricted ability to obtain additional financing and
with substantial fixed costs, the Company may not be able to fund the capital expenditures
required to remain competitive or to withstand prolonged adverse economic conditions.
  10




---



##### Table of Contents



Fluctuations in interest rates could adversely affect the Companys liquidity,
non-operating expenses and financial results.
  If the Company loses the USAF as a customer, its business would be significantly adversely affected.
  The Companys non-military customers may cancel or default on their contracts with the Company.
  The Companys business is dependent on the price and availability of aircraft fuel.
  If the Companys mix of business creates lower yields relative to the cost per
block hour, the Companys business will suffer.
  The Company may not be able to execute customer contracts that match aircraft
lease lives to customer contract terms.
 11




---



##### Table of Contents



In the event of an aircraft accident, the Company may incur substantial losses
that may not be entirely covered by insurance.
     The Companys aircraft could become more expensive to maintain, which may affect its profitability.
  The failure of the Companys contractors to provide essential services could harm its business.
  Many of the Companys employees are represented by unions, and a prolonged
dispute with the Companys employees could have an adverse impact on its
operations.
   12




---



##### Table of Contents



The Company is subject to significant and increasing government regulation and
oversight that can materially affect its ability to maintain or increase the
level of air operations.
   The Companys operating costs could increase as a result of past, current or
new regulations that impose additional requirements and restrictions on air
transportation operations.
  The air transportation industry and the markets the Company serves are highly competitive.
  13




---



##### Table of Contents



The Company depends on the expertise of its management team. If key individuals
leave unexpectedly, the Companys business and operations could suffer.
  The Companys business is sensitive to general economic conditions, unforeseen
events and seasonal fluctuations. As a result, the Companys prior performance
is not necessarily indicative of its future results.
  The airline industry has incurred significant losses resulting in airline
restructurings and bankruptcies, which could result in changes in our industry.
  The U.S. government ceasing to provide adequate war risk insurance could increase our operating
costs and result in service delays and disruptions.
  14




---



##### Table of Contents



The market price for the Companys Common Stock is volatile.
    Delaware law, as well as the Companys Certificate of Incorporation and Bylaws,
contain anti-takeover provisions that may indirectly affect the value of the
Companys Common Stock.
  FAA regulations restrict ownership of the Companys Common Stock by non-U.S.
citizens, which may lessen demand for the Companys stock.
  
 Item 2. Properties.
  15




---



##### Table of Contents



Item 3. Legal Proceedings.
    
 Item 4. Submission of Matters to Vote of Security Holders.
  
 PART II
 
 Item 5. Market For Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
 SM
  Common StockHigh
    
    
    Low2005Fourth Quarter
    
    $
    11.92
    
    
    $
    9.21Third Quarter
    
    
    13.89
    
    
    
    9.11Second Quarter
    
    
    11.90
    
    
    
    5.85First Quarter
    
    
    8.45
    
    
    
    5.632004Fourth Quarter
    
    
    7.15
    
    
    
    5.01Third Quarter
    
    
    7.37
    
    
    
    2.56Second Quarter
    
    
    4.24
    
    
    
    2.68First Quarter
    
    
    4.27
    
    
    
    3.24
 16




---



##### Table of Contents



17




---



##### Table of Contents



Item 6. Selected Financial Data
  Year Ended December 312005*
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(in thousands except per share data)Results of operations:Operating revenues
    
    $
    787,138
    
    
    $
    503,900
    
    
    $
    474,850
    
    
    $
    384,489
    
    
    $
    317,866Operating expenses
    
    
    730,522
    
    
    
    463,617
    
    
    
    446,422
    
    
    
    377,367
    
    
    
    338,595Operating income (loss)
    
    
    56,616
    
    
    
    40,283
    
    
    
    28,428
    
    
    
    7,122
    
    
    
    (20,729
    )Earnings (loss) before income taxes
    
    
    51,601
    
    
    
    34,032
    
    
    
    19,123
    
    
    
    2,041
    
    
    
    (26,037
    )Income tax expense
    
    
    19,973
    
    
    
    8,445
    
    
    
    3,802
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    31,628
    
    
    $
    25,587
    
    
    $
    15,321
    
    
    $
    2,041
    
    
    $
    (26,037
    )Basic earnings (loss) per common
share:
    
    $
    1.40
    
    
    $
    1.95
    
    
    $
    1.37
    
    
    $
    0.18
    
    
    $
    (2.42
    )Basic weighted average common shares
outstanding
    
    
    22,588
    
    
    
    13,095
    
    
    
    11,224
    
    
    
    11,073
    
    
    
    10,755Diluted earnings (loss) per common
share
    
    $
    1.19
    
    
    $
    1.09
    
    
    $
    0.95
    
    
    $
    0.18
    
    
    $
    (2.42
    )Diluted weighted average common shares
outstanding
    
    
    26,824
    
    
    
    24,591
    
    
    
    17,783
    
    
    
    11,073
    
    
    
    10,775Financial Position:Cash and cash equivalents
    
    $
    46,202
    
    
    $
    16,306
    
    
    $
    30,535
    
    
    $
    20,839
    
    
    $
    18,878Restricted
cash, current and non-current
    
    
    7,092
    
    
    
    4,926
    
    
    
    23,290
    
    
    
    665
    
    
    
    662Total assets
    
    
    260,646
    
    
    
    179,317
    
    
    
    157,301
    
    
    
    117,262
    
    
    
    112,229Notes payable and long-term debt
including current maturities
    
    
    24,000
    
    
    
    49,879
    
    
    
    76,534
    
    
    
    57,641
    
    
    
    62,396Stockholders equity (deficiency)
    
    $
    86,838
    
    
    $
    30,398
    
    
    $
    (8,030
    )
    
    $
    (28,867
    )
    
    $
    (31,104
    )
 
 *
    
    Financial data above includes the results of North
American from April 28, 2005 to December 31, 2005.  World Airways
    
    2005
    
    
    2004
    
    
    2003Block hours
    
    
    58,515
    
    
    
    47,759
    
    
    
    44,072Operating aircraft at year end
    
    
    17
    
    
    
    16
    
    
    
    18Average available aircraft per day
    
    
    16.6
    
    
    
    16.0
    
    
    
    16.9Average daily utilization (block hours
flown per day per aircraft)
    
    
    9.7
    
    
    
    8.1
    
    
    
    7.1
  North American
    
    2005Block hours
    
    
    17,175Operating aircraft at year end
    
    
    8Average available aircraft per day
    
    
    8.0Average daily utilization (block hours flown per day per aircraft)
    
    
    8.7
 18




---



##### Table of Contents



Item 7. Managements Discussion and Analysis Of Financial Condition and Results Of Operations.
  Critical Accounting Policies and Estimates
    Accounting for Aircraft Repair and Maintenance Costs
   19




---



##### Table of Contents



Losses on Contractual Lease Agreements
  Impairment of Long-Lived Assets
    Goodwill and Intangible Assets
 Goodwill and Other Intangible
Assets.
  20




---



##### Table of Contents



Legal Accruals
  Allowance for Doubtful Accounts and Bad Debt Expense
   Employee Benefit Plans
  Income Taxes
   21




---



##### Table of Contents



Overview and Results of Operations
 Overview
    2005
 
    
    The California legal matter with a settlement cost of $2.1 million was accrued
in 2005 (See Item 3. Legal Proceeding).
    
    Approximately $5.6 million in professional fees associated with the acquisition
of North American, including closing costs, legal, audit, and accounting fees and fees to
outside consultants for post-acquisition resolution of
issues, and costs related to the re-audit of North Americans
financial statements for the year ended December 31,
2004, which are not included in the Companys consolidated financial statements for the year
ended 2004, tax guidance, staff augmentation, amendment and restatement of the Companys
Form 10-Q for the quarter ended June 30, 2005, preparation of the Form 10-Q for the quarter
ended September 30, 2005 and other services. Additionally,
approximately $1.4 million of professional fees
were capitalized as part of the direct acquisition costs.
    
    $1.8 million of costs associated with Sarbanes-Oxley compliance.
    
    $1.2 million of non-cash charges related to the write-off and disposal of certain World Airways non-rotable fixed assets.
    
    A $1.6 million non-cash adjustment for costs associated with post-retirement
and life insurance benefits.
    
    $1.0 million of bad debt expense associated with the bankruptcy filing of Gemini Air Cargo, Inc.
    
    An increase in the Companys effective tax rate from
24.8% to 38.7%.
    
    $1.0 million liability for estimated losses based on contractual lease costs
for the remaining term of the Companys lease agreement for office space at its former
headquarters in Herndon, Virginia.
 2004
 
    
    $2.6 million in legal expense related to a claim of a German tour operator from 1996.
    
    $2.5 million of bad debt expense associated with air services provided to TM Travel.
    
    $1.5 million related to asset impairment of DC-10 parts.
    
    $1.1 million of personnel costs primarily associated with contractual
obligations arising from the retirement of the Companys former Chairman/CEO on May 6,
2004.
    
    An increase in the Companys effective tax rate from 19.9% to 24.8%.
    
    $0.5 million liability for estimated losses based on
contractual lease costs for the Companys lease arrangement for office space at its former headquarters in Herndon, Virginia.
 2003
 22




---



##### Table of Contents




    
    Recording a loss on debt extinguishment of $3.0 million due to the issuance, on
December 30, 2003, of $25.5 million principal amount of the Companys 8% Convertible Senior
Subordinated Debentures due 2009 (the Debentures) in exchange for $22.5 million principal
amount of then outstanding 8.0% Convertible Senior Subordinated Debentures due 2004 (the
Old Debentures) and $3.0 million in cash. This represented the difference between the
fair value of the Debentures and the carrying amount of the Old Debentures extinguished.
    
    $1.9 million of bad debt expense associated with air services provided to
Ritetime.
    
    A $1.7 million liability for estimated losses based on contractual lease costs
(reduced by estimated sub-lease rentals) for the remaining term of the Companys lease
agreement for office space at its former headquarters in Herndon, Virginia.
    
    $1.3 million paid for fees and expenses associated with the termination of the
Wells Fargo Foothill, Inc. loan facility (Foothill Loan Facility).
    
    A $0.5 million write-off of deferred issuance fees related to the Foothill Loan
Facility.
  
    
    Completed the formation of a holding company structure with World Air Holdings
formally established in January 2005, allowing flexibility for potential growth and
development.
    
    Completed the all cash acquisition of North American effective April 27, 2005.
    
    Consolidated revenue surpassed $787 million,
representing a 56.2% increase over 2004.
    
    Increased block hours for World Airways by 22.5% over 2004.
    
    Increased ACMI cargo block hours at World Airways by 74.8% over 2004.
    
    Increased average daily aircraft utilization to 9.7 hours in 2005 compared to
8.1 hours per day in 2004 for World Airways.
    
    Converted all Debentures to equity.
 Results of Operations
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
  Operating
Revenues
  Increase/
    
    
    %World Airways
    
    2005
    
    
    2004
    
    
    (Decrease)
    
    
    ChangeTotal block hours
    
    
    58,515
    
    
    
    47,759
    
    
    
    10,756
    
    
    
    22.5
    %Revenue per block hour
    
    $
    10,659
    
    
    $
    10,551
    
    
    $
    108
    
    
    
    1.0
    %
  23




---



##### Table of Contents



North AmericanTotal block hours
    
    
    17,175Revenue per block hour
    
    $
    9,510
 Operating Expenses
  World Airways
    
    2005
    
    
    2004
    
    
    Increase/ (Decrease)
    
    
    % ChangeOperating expense
per block hour

    $
    9,742
    
    
    $
    9,707
    
    
    $
    35
    
    
    
    0.3
    %
 North
AmericanOperating expense per block hour
    
    

$9,444
 Flight Operations
  
    
    $6.7 million in cockpit crew costs;
    
    $3.6 million related to catering costs;
    
    $2.6 million in flight attendant costs;
    
    $1.3 million in passenger liability insurance expense;
    
    $1.1 million in flight communication cost; and
    
    $1.6 million is non-cash cost associated with the post-retirement and life insurance benefits.
  Maintenance
  
    
    $6.9 million in engine maintenance reserve expense due to higher block hours; and
    
    $8.8 million in engine overhaul expense.
  24




---



##### Table of Contents



Aircraft Rent and Insurance
  Fuel
  Commissions
  Sales, General and Administrative
  
    
    $1.4 million lower bad debt expense due to better accounts receivable
management; and
    
    $2.1 million lower fringe benefit expense, group insurance and workers
compensation due to negotiations with insurance and benefit providers.
  Legal Expense  California Matter
  Other Income (Expense)
  
    
    $0.8 million interest expense due to the conversion of the Debentures; and
    
    $0.5 million interest income due to higher interest rates.
 25




---



##### Table of Contents



Income Tax Expense
  Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
  Operating
Revenues .
 World Airways
    
    2004
    
    
    2003
    
    
    Difference
    
    
    % ChangeTotal block hours
    
    
    47,759
    
    
    
    44,072
    
    
    
    3,687
    
    
    
    8.4
    %Revenue per block hour
    
    $
    10,551
    
    
    $
    10,774
    
    
    $
    (223
    )
    
    
    (2.1
    )%
  Operating Expenses .
  World Airways
    
    2004
    
    
    2003
    
    
    Increase/ (Decrease)
    
    
    % ChangeOperating expense
per block hour
    
    $
    9,707
    
    
    $
    10,129
    
    
    $
    (422
    )
    
    
    (4.2
    %)
 Flight Operations
  
    
    $9.1 million in flight attendant costs; and
    
    $6.2 million in cockpit crew costs.
   Maintenance
  
    
    $2.6 million in MD-11 engine overhaul expense;
 26




---



##### Table of Contents




    
    $1.4 million in MD-11 landing gear overhaul expense; and
    
    $1.3 million in lower aircraft parts rental.
  
    
    $2.5 million for higher maintenance reserve payments;
    
    $1.6 million in mechanics wages and personnel costs;
    
    $1.5 million for asset impairment related to DC-10 aircraft parts; and
    
    $0.8 million for thrust reverser overhauls.
 Aircraft
Rent and Insurance
  Fuel
  Commissions
  Sales, General and Administrative
  
    
    $4.4 million (net) of higher wages and benefits due primarily to:
 -
    
    July 2003 salary increases;
 -
    
    Increased headcount;
 -
    
    Higher workers compensation expense; and
 -
    
    Additional medical claims paid or accrued for administrative employees.
 
    
    $2.6 million provision for litigation related to a claim of a German tour operator from 1996;
    
    $2.5 million of bad debt expense related to air services provided to TM Travel;
    
    $1.1 million higher accrual for profit sharing payments to administrative employees; and
    
    $1.1 million of personnel costs primarily associated with contractual
obligations arising from the retirement of the Companys former Chairman/CEO on May 6,
2004.
  Other Income (Expense)
 27




---



##### Table of Contents




    
    A loss on debt extinguishment of $3.0 million due to the restructuring of the
Companys convertible senior subordinated debentures, which represented the difference
between the fair value of the Debentures and the carrying amount of the Old Debentures
extinguished;
    
    Fees and expenses of $1.3 million paid due to termination of the Foothill loan facility; and
    
    Write-off of $0.5 million of deferred issuance fees related to the Foothill loan facility.
  Liquidity and Capital Resources
  Cash Flows from Operating Activities
  Cash Flows from Investing Activities
     28




---



##### Table of Contents



Cash paid for acquisition of North American
    
    $
    34,750Direct acquisition cost
    
    
    1,408Total cash cost
    
    
    36,158Less:North American cash and cash equivalents at April 27, 2005
    
    
    (8,640
    )Adjustment to distribution made to Seller to cover tax payments
as provided in Stock Purchase Agreement
    
    
    (565
    )Total cash used to acquire North American
    
    $
    26,953
 Cash Flows from Financing Activities
     Description of Certain Indebtedness
   29




---



##### Table of Contents



Contractual Cash Obligations and Other Commitments and Contingencies
  30




---



##### Table of Contents



Payment Due by PeriodContractual
    
    
    
    
    
    1
    
    
    2-3
    
    
    4-5
    
    
    More thanObligations
    
    Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    5 Years(in thousands)ATSB Loan
    
    $
    24,000
    
    
    $
    24,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    
    720,785
    
    
    
    111,911
    
    
    
    224,473
    
    
    
    170,694
    
    
    
    213,707Accrued
post-retirement
benefits
    
    
    7,709
    
    
    
    421
    
    
    
    1,166
    
    
    
    1,616
    
    
    
    4,506Total
    
    $
    752,494
    
    
    $
    136,332
    
    
    $
    225,639
    
    
    $
    172,310
    
    
    $
    218,213
 Contractual
obligations include lease extensions and aircraft commitments signed
by the Company as of June 30, 2006.
   
    
    Granting additional liens on its property or making significant investments;
    
    Paying dividends, redeeming capital stock, repricing outstanding stock options
or repaying indebtedness other than the ATSB Loan;
    
    Liquidating, winding up, dissolving or engaging in certain acquisitions or
certain sale-leaseback transactions;
    
    Engaging in certain transactions with affiliates or certain asset sales;
    
    Engaging in any business unrelated to the Companys existing business;
    
    Consolidating, merging with or into another entity or selling substantially all
of its assets unless certain conditions are satisfied; and
 31




---



##### Table of Contents




    
    Amending the terms of agreements relating to its indebtedness for borrowed
money or granting any additional negative pledges.
  
    
    Liens on the Companys property or Company guarantees, subject to certain conditions;
    
    Paying cash dividends, issuing capital stock, warrants, or options for cash,
except as otherwise permitted;
    
    Certain sale-leaseback transactions;
    
    Engaging in certain transactions with affiliates or certain asset sales;
    
    Engaging in any business unrelated to the Companys existing business;
    
    Consolidating, merging with or into another entity or selling substantially all of
the Companys assets unless certain conditions are satisfied;
    
    Amending any material contract that would result in a material adverse effect; and
    
    The creation of any lien or contract impairing the lenders right to recover
collateral during an event of default.
    
    
    the modification of thrust reversers on the Companys DC-10-30 aircraft by
October 2006 that is estimated to cost approximately $0.7 million per aircraft and is
scheduled on two DC-10 aircraft; and
    
    the modification of the high pressure compressor with ring case configuration
on the Companys MD-11 engines, which at December 31, 2005 were 52% complete. The first
compliance deadline is to have 66% of the fleet operating engines completed by August 31,
2006 with the remaining engines to be completed by June 2009. These modifications are
expected to cost approximately $0.3 million per engine.
  Recently Issued Accounting Standards
 Share-Based Payments Accounting for Stock Issued to
Employees Accounting for Stock-Based Compensation
 32




---



##### Table of Contents



Accounting Changes and Error Corrections.
 Other Matters
 Inflation
  Corporate Headquarters
   
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  Aircraft fuel:
 33




---



##### Table of Contents



Interest rates:
  Foreign currency exchange rate risks
 34




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 WORLD AIR HOLDINGS, INC.
 CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2004(in thousands)ASSETSCurrent assetsCash and cash equivalents
    
    $
    46,202
    
    
    $
    16,306Restricted cash
    
    
    6,262
    
    
    
    4,926Short-term investments
    
    
    827
    
    
    
    33,650Trade accounts receivable, less allowance for
doubtful accounts of $1,643 at December 31,
2005 and $209 at December 31, 2004
    
    
    57,235
    
    
    
    43,280Other receivables
    
    
    21,564
    
    
    
    9,102Prepaid expenses and other current assets
    
    
    20,246
    
    
    
    8,335Deferred tax assets
    
    
    3,846
    
    
    
    6,685Total current assets
    
    
    156,182
    
    
    
    122,284Equipment and propertyFlight and other equipment
    
    
    81,206
    
    
    
    84,514Less: accumulated depreciation and amortization
    
    
    47,480
    
    
    
    51,321Net equipment and property
    
    
    33,726
    
    
    
    33,193Goodwill and other intangible assetsGoodwill
    
    
    25,370
    
    
    
    Other intangible assets, net of accumulated
amortization of $740 at December 31, 2005
    
    
    7,355
    
    
    
    Net goodwill and other intangible assets
    
    
    32,725
    
    
    
    Long-term deposits
    
    
    28,298
    
    
    
    18,237Other assets and deferred charges, net of
accumulated amortization of $3,558 at December
31, 2005 and $2,019 at December 31, 2004
    
    
    9,715
    
    
    
    5,603Total assets
    
    $
    260,646
    
    
    $
    179,317
 35




---



##### Table of Contents



WORLD AIR HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2004(in thousands except shareamounts)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    24,000
    
    
    $
    6,000Accounts payable
    
    
    50,757
    
    
    
    35,482Current portion of accrued rent
    
    
    4,700
    
    
    
    5,489Current portion of deferred rent
    
    
    2,455
    
    
    
    3,242Unearned revenue
    
    
    16,512
    
    
    
    6,293Accrued maintenance
    
    
    9,739
    
    
    
    4,179Accrued salaries, wages and profit sharing
    
    
    25,576
    
    
    
    20,463Accrued taxes
    
    
    5,534
    
    
    
    8,482Other accrued liabilities
    
    
    8,727
    
    
    
    1,861Total current liabilities
    
    
    148,000
    
    
    
    91,491Long-term debt, net of current maturities
    
    
    
    
    
    
    43,879Deferred gain from sale-leaseback transactions, net of accumulated
amortization of $4,857 at December 31, 2005 and $4,269 at December 31,
2004
    
    
    650
    
    
    
    1,645Accrued post-retirement benefits
    
    
    6,995
    
    
    
    4,081Accrued and deferred rent, net of current portion
    
    
    14,551
    
    
    
    5,615Deferred income taxes
    
    
    3,612
    
    
    
    2,208Total liabilities
    
    
    173,808
    
    
    
    148,919Stockholders equityPreferred stock, $.001 par value (5,000,000 shares authorized; no
shares issued or outstanding)
    
    
    
    
    
    
    Common stock, $.001 par value (100,000,000 shares authorized;
25,002,645 shares issued and 23,921,402 shares outstanding at December
31, 2005; 17,430,023 shares issued and 16,348,780 shares outstanding at
December 31, 2004)
    
    
    25
    
    
    
    18Additional paid-in capital
    
    
    67,770
    
    
    
    42,712Retained earnings
    
    
    32,153
    
    
    
    525Deferred stock-based compensation
    
    
    (253
    )
    
    
    Treasury stock, at cost (1,081,243 shares at December 31, 2005 and 2004)
    
    
    (12,857
    )
    
    
    (12,857
    )Total stockholders equity
    
    
    86,838
    
    
    
    30,398Commitments and contingencies (Note 12)
    
    
    
    
    
    
    Total liabilities and stockholders equity
    
    $
    260,646
    
    
    $
    179,317
 See accompanying Notes to Consolidated Financial Statements
 36




---



##### Table of Contents



WORLD AIR HOLDINGS, INC.
 CONSOLIDATED STATEMENTS OF INCOME
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(in thousands except per share amounts)Operating revenuesFlight operations
    
    $
    783,939
    
    
    $
    501,698
    
    
    $
    471,824Other
    
    
    3,199
    
    
    
    2,202
    
    
    
    3,026Total
operating revenues
    
    
    787,138
    
    
    
    503,900
    
    
    
    474,850Operating expensesFlight
    
    
    218,498
    
    
    
    157,147
    
    
    
    143,640Maintenance
    
    
    113,769
    
    
    
    76,004
    
    
    
    75,513Aircraft costs
    
    
    109,562
    
    
    
    77,243
    
    
    
    85,487Fuel
    
    
    168,526
    
    
    
    74,474
    
    
    
    76,488Flight operations subcontracted to other carriers
    
    
    2,928
    
    
    
    1,812
    
    
    
    2,454Commissions
    
    
    36,265
    
    
    
    23,352
    
    
    
    17,433Depreciation and amortization
    
    
    6,286
    
    
    
    5,283
    
    
    
    5,239Sales, general and administrative
    
    
    72,588
    
    
    
    48,302
    
    
    
    40,168Legal expense  California matter
    
    
    2,100
    
    
    
    
    
    
    
    Total operating expenses
    
    
    730,522
    
    
    
    463,617
    
    
    
    446,422Operating income
    
    
    56,616
    
    
    
    40,283
    
    
    
    28,428Other income (expense)Interest expense
    
    
    (4,467
    )
    
    
    (5,139
    )
    
    
    (5,223
    )Interest income
    
    
    1,173
    
    
    
    584
    
    
    
    370Other, net
    
    
    (1,721
    )
    
    
    (1,696
    )
    
    
    (4,452
    )Total other income (expense)
    
    
    (5,015
    )
    
    
    (6,251
    )
    
    
    (9,305
    )Earnings before income tax expense
    
    
    51,601
    
    
    
    34,032
    
    
    
    19,123Income tax expense
    
    
    19,973
    
    
    
    8,445
    
    
    
    3,802Net earnings
    
    $
    31,628
    
    
    $
    25,587
    
    
    $
    15,321Basic earnings per shareNet earnings
    
    $
    1.40
    
    
    $
    1.95
    
    
    $
    1.37Weighted average shares outstanding
    
    
    22,588
    
    
    
    13,095
    
    
    
    11,224Diluted earnings per shareNet earnings
    
    $
    1.19
    
    
    $
    1.09
    
    
    $
    0.95Weighted average shares outstanding
    
    
    26,824
    
    
    
    24,591
    
    
    
    17,783
 See accompanying Notes to Consolidated Financial Statements
 37




---



##### Table of Contents



WORLD AIR HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS EQUITY (DEFICIT)
(in thousands)
 Additional
    
    
    Retained
    
    
    Deferred Stock-
    
    
    Treasury
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Earnings/
    
    
    Based
    
    
    Stock, at
    
    
    StockholdersStock
    
    
    Capital
    
    
    (Deficit)
    
    
    Compensation
    
    
    Cost
    
    
    Equity/(Deficit)Balance at December
31, 2002
    
    $
    12
    
    
    $
    24,361
    
    
    $
    (40,383
    )
    
    $
    
    
    
    $
    (12,857
    )
    
    $
    (28,867
    )Exercise of 344,100
stock options
    
    
    1
    
    
    
    298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    299Fair market value
of warrants issued
    
    
    
    
    
    
    4,792
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,792Tax benefit of
stock option
exercises
    
    
    
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    240Amortization of
warrants
    
    
    
    
    
    
    185
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185Net earnings and
comprehensive
earnings
    
    
    
    
    
    
    
    
    
    
    15,321
    
    
    
    
    
    
    
    
    
    
    
    15,321Balance at December
31, 2003
    
    
    13
    
    
    
    29,876
    
    
    
    (25,062
    )
    
    
    
    
    
    
    (12,857
    )
    
    
    (8,030
    )Exercise of
1,583,088 stock
options
    
    
    2
    
    
    
    1,505
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,507Exercise of
warrants for
1,021,994 shares
    
    
    1
    
    
    
    2,499
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Tax benefit of
stock option
exercises
    
    
    
    
    
    
    1,221
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,221Amortization of
warrants
    
    
    
    
    
    
    185
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185Issuance of
2,322,500 shares
upon debt
conversion
    
    
    2
    
    
    
    7,426
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,428Net earnings and
comprehensive
earnings
    
    
    
    
    
    
    
    
    
    
    25,587
    
    
    
    
    
    
    
    
    
    
    
    25,587Balance at December
31, 2004
    
    
    18
    
    
    
    42,712
    
    
    
    525
    
    
    
    
    
    
    
    (12,857
    )
    
    
    30,398Exercise of 835,975
stock options
    
    
    
    
    
    
    2,353
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,353Exercise of
warrants for
1,076,345 shares
    
    
    1
    
    
    
    2,499
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Tax benefit of
stock option
exercises
    
    
    
    
    
    
    1,465
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,465Amortization of
warrants
    
    
    
    
    
    
    143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143Issuance of
5,660,302 shares
upon conversion of
debt
    
    
    6
    
    
    
    18,119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,125Stock-based
compensation-accelerated vesting
    
    
    
    
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176Award of deferred
stock-based
compensation
    
    
    
    
    
    
    303
    
    
    
    
    
    
    
    (303
    )
    
    
    
    
    
    
    Amortization of
deferred
stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Net earnings and
comprehensive
earnings
    
    
    
    
    
    
    
    
    
    
    31,628
    
    
    
    
    
    
    
    
    
    
    
    31,628Balance at December
31, 2005
    
    $
    25
    
    
    $
    67,770
    
    
    $
    32,153
    
    
    $
    (253
    )
    
    $
    (12,857
    )
    
    $
    86,838
 See accompanying Notes to Consolidated Financial Statements
 38




---



##### Table of Contents



WORLD AIR HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)Cash and cash equivalents at beginning of year
    
    $
    16,306
    
    
    $
    16,535
    
    
    $
    5,839Cash flow from operating activitiesNet earnings
    
    
    31,628
    
    
    
    25,587
    
    
    
    15,321Adjustments to reconcile net earnings to net cash provided by operating
activities:Depreciation and amortization
    
    
    6,286
    
    
    
    5,283
    
    
    
    5,239Deferred gain recognition
    
    
    (588
    )
    
    
    (1,132
    )
    
    
    (1,132
    )Charges related to impairment of property and equipment
    
    
    
    
    
    
    1,500
    
    
    
    Loss on disposals of equipment and property
    
    
    1,331
    
    
    
    987
    
    
    
    408Tax benefit of stock option exercises
    
    
    1,465
    
    
    
    1,221
    
    
    
    240Amortization of warrants and debt issuance costs
    
    
    2,024
    
    
    
    2,019
    
    
    
    943Deferred income taxes
    
    
    (463
    )
    
    
    (4,750
    )
    
    
    Provision for doubtful accounts
    
    
    1,622
    
    
    
    13
    
    
    
    (59
    )Loss on debt extinguishment
    
    
    (88
    )
    
    
    
    
    
    
    2,989Other
    
    
    676
    
    
    
    (169
    )
    
    
    185Changes in operating assets and liabilities, exclusive of acquisitions:Accounts receivable
    
    
    (15,187
    )
    
    
    (20,949
    )
    
    
    (2,996
    )Restricted cash
    
    
    1,464
    
    
    
    364
    
    
    
    (22,625
    )Deposits, prepaid expenses and other assets
    
    
    (18,825
    )
    
    
    (1,187
    )
    
    
    (1,461
    )Accounts payable, accrued expenses and other liabilities
    
    
    21,742
    
    
    
    13,616
    
    
    
    7,289Unearned revenue
    
    
    768
    
    
    
    2,747
    
    
    
    2,570Net cash provided by operating activities
    
    
    33,855
    
    
    
    25,150
    
    
    
    6,911Cash flows from investing activitiesPurchases of equipment and property
    
    
    (7,161
    )
    
    
    (2,034
    )
    
    
    (2,773
    )Net (purchases) and sales of short term investments
    
    
    32,823
    
    
    
    (19,650
    )
    
    
    1,000Proceeds from disposals of equipment and property
    
    
    192
    
    
    
    35
    
    
    
    18Acquisition of North American, less cash acquired
    
    
    (26,953
    )
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (1,099
    )
    
    
    (21,649
    )
    
    
    (1,755
    )Cash flows from financing activitiesDecrease in notes payable
    
    
    
    
    
    
    
    
    
    
    (17,096
    )Decrease in restricted cash due to repayment of debt
    
    
    
    
    
    
    18,000
    
    
    
    Repayment of debt
    
    
    (6,000
    )
    
    
    (18,000
    )
    
    
    Proceeds from exercise of stock options
    
    
    2,353
    
    
    
    1,507
    
    
    
    299Proceeds from exercise of warrants
    
    
    2,500
    
    
    
    2,500
    
    
    
    Proceeds from issuance of debentures due in 2009, net of debentures due
in 2004 exchanged
    
    
    
    
    
    
    
    
    
    
    3,000Proceeds from ATSB guaranteed term loan
    
    
    
    
    
    
    
    
    
    
    30,000Payment of debt issuance costs
    
    
    
    
    
    
    (541
    )
    
    
    (2,245
    )Repayment of aircraft rent obligations
    
    
    (1,713
    )
    
    
    (7,196
    )
    
    
    (8,418
    )Net cash provided by (used in) financing activities
    
    
    (2,860
    )
    
    
    (3,730
    )
    
    
    5,540Net increase (decrease) in cash and cash equivalents
    
    
    29,896
    
    
    
    (229
    )
    
    
    10,696Cash and cash equivalents at end of year
    
    $
    46,202
    
    
    $
    16,306
    
    
    $
    16,535Supplemental information:Interest paid
    
    $
    2,820
    
    
    $
    3,121
    
    
    $
    4,662Income taxes paid
    
    $
    15,121
    
    
    $
    6,981
    
    
    $
    3,819Conversion of the Companys
convertible senior subordinated
debentures to common stock
    
    $
    18,125
    
    
    $
    7,428
    
    
    $
    
 See accompanying Notes to Consolidated Financial Statements
 39




---



##### Table of Contents



WORLD AIR HOLDINGS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization and Summary of Significant Accounting Policies
 Organization
      Financial Statement Reclassifications
   Segment Information
  40




---



##### Table of Contents



Year Ended December 31, 2005World AirHoldings, WorldWorld
    
    North
    
    Risk Solutions, andAirways
    
    American
    
    Eliminations
    
    TotalTotal revenue
    
    $
    623,719
    
    
    $
    163,333
    
    
    $
    86
    
    
    $
    787,138Operating expense
    
    
    570,059
    
    
    
    162,201
    
    
    
    (1,738
    )
    
    
    730,522Operating income
    
    $
    53,660
    
    
    $
    1,132
    
    
    $
    1,824
    
    
    $
    56,616Total assets
    
    $
    176,165
    
    
    $
    78,274
    
    
    $
    6,207
    
    
    $
    260,646Depreciation and
amortization
expense
    
    $
    5,181
    
    
    $
    1,105
    
    
    $
    
    
    
    $
    6,286Capital expenditures
    
    $
    6,579
    
    
    $
    577
    
    
    $
    5
    
    
    $
    7,161Total block hours
    
    
    58,515
    
    
    
    17,175
    
    
    
    
    
    
    
    75,690
  Use of Estimates
  Cash, Cash Equivalents and Restricted Cash
  Concentration of Credit Risk
   Short-Term Investments
  41




---



##### Table of Contents



Trade Accounts Receivable and Other Receivables
   Fair Value of Financial Instruments
  
    
    Cash and cash equivalents; short-term investments; restricted cash; accounts
receivable; accounts payable; and accrued expenses
  
    
    Long-term Debt
   Long-Term Operating Deposits
  42




---



##### Table of Contents



Prepaid Expenses and Other Current Assets
   Revenue Recognition
  Fuel Reconciliation Adjustments
  Commission Expense
  Passenger Taxes and Charges
  Income Taxes
  Earnings Per Share
  43




---



##### Table of Contents



2005Earnings (Numerator)
    
    
    Shares (Denominator)
    
    
    Per Share AmountBasic EPSEarnings available to common
stockholders
    
    $
    31,628
    
    
    
    22,588
    
    
    $
    1.40Effect of dilutive securitiesWarrants
    
    
    
    
    
    
    1,772Options
    
    
    
    
    
    
    1,454Restricted shares
    
    
    
    
    
    
    118% convertible debentures
    
    
    162
    
    
    
    999Amortization of debt issuance cost
    
    
    35
    
    
    
    Aircraft lease restructuring fees
    
    
    (13
    )
    
    
    Diluted EPSEarnings available to common
shareholders plus assumed
conversion
    
    $
    31,812
    
    
    
    26,824
    
    
    $
    1.19
 2004Earnings (Numerator)
    
    
    Shares (Denominator)
    
    
    Per Share AmountBasic EPSEarnings available to common
stockholders
    
    $
    25,587
    
    
    
    13,095
    
    
    $
    1.95Effect of dilutive securitiesWarrants
    
    
    
    
    
    
    1,992Options
    
    
    
    
    
    
    1,8428% convertible debentures
    
    
    1,290
    
    
    
    7,662Profit sharing
    
    
    (90
    )
    
    
    Amortization of debt issuance cost
    
    
    183
    
    
    
    Aircraft lease restructuring fees
    
    
    (273
    )
    
    
    Diluted EPSEarnings available to common
shareholders plus assumed
conversion
    
    $
    26,697
    
    
    
    24,591
    
    
    $
    1.09
 Earnings Per Share.
 2004Diluted EPS
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    YTDAs previously reported
    
    $
    0.34
    
    
    $
    0.13
    
    
    $
    0.31
    
    
    $
    0.32
    
    
    $
    1.08Revised
    
    
    0.34
    
    
    
    0.12
    
    
    
    0.31
    
    
    
    0.32
    
    
    
    1.09Variance
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    
    
    
    $
    0.01
 44




---



##### Table of Contents



2003Diluted EPS
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    YTDAs previously reported
    
    $
    0.47
    
    
    $
    0.44
    
    
    $
    0.11
    
    
    $
    0.06
    
    
    $
    0.98Revised
    
    
    0.44
    
    
    
    0.42
    
    
    
    0.11
    
    
    
    0.06
    
    
    
    0.95Variance
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    
    
    
    $
    
    
    
    $
    (0.03
    )
 Equipment and Property
   Flight equipment
    
    5-16 yearsOther equipment and property
    
    3-7 years
    Aircraft Maintenance
  Impairment of Long-Lived Assets
   Exit or Disposal Costs
  45




---



##### Table of Contents



Goodwill and Intangible Assets
 Goodwill and Other Intangible Assets.
  Other Assets and Deferred Charges
    Post-retirement Benefits Other Than Pensions
 Employers
Accounting for Post-retirement Benefits Other Than Pensions
 Accounting for Stock-Based Compensation
 Accounting for Stock Issued to Employees ) Accounting for Stock-Based Compensation
 46




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003Net earnings, as reported
    
    $
    31,628
    
    
    $
    25,587
    
    
    $
    15,321Deduct: Total stock-based
compensation expense determined under
fair value based method for all
awards, net of related tax effects
    
    
    (529
    )
    
    
    (810
    )
    
    
    (528
    )Pro forma net earnings
    
    
    31,099
    
    
    
    24,777
    
    
    
    14,793Earnings per shareBasic  as reported
    
    $
    1.40
    
    
    $
    1.95
    
    
    $
    1.37Basic  pro forma
    
    $
    1.38
    
    
    $
    1.89
    
    
    $
    1.32Diluted  as reported
    
    $
    1.19
    
    
    $
    1.09
    
    
    $
    0.95Diluted  pro forma
    
    $
    1.17
    
    
    $
    1.05
    
    
    $
    0.92
  2005
    
    
    2004
    
    
    2003Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    3.9
    %
    
    
    3.8
    %
    
    
    3.1
    %Expected life (in years)
    
    
    4.1
    
    
    
    4.7
    
    
    
    5.2Risk-free volatility
    
    
    44
    %
    
    
    79
    %
    
    
    102
    %
 Recently Issued Accounting Standards
 ShareBased Payments
 Accounting Changes and Error Corrections.
 2. Prepaid Expenses and Other Current Assets
  December 31,2005
    
    
    2004Prepaid insurance
    
    $
    3,980
    
    
    $
    2,884Prepaid rent
    
    
    7,259
    
    
    
    1,881Prepaid fuel
    
    
    2,038
    
    
    
    1,780Prepaid taxes
    
    
    2,736
    
    
    
    Deposits
    
    
    927
    
    
    
    725Inventories
    
    
    1,175
    
    
    
    
 47




---



##### Table of Contents



December 31,2005
    
    
    2004Other
    
    
    2,131
    
    
    
    1,065Total
    
    $
    20,246
    
    
    $
    8,335
 3. Other Assets and Deferred Charges
  December 31,2005
    
    
    2004Deferred rent
    
    $
    6,214
    
    
    $
    Fair market value of ATSB warrants
    
    
    4,792
    
    
    
    4,792Debt issuance costs  convertible debentures due in 2009
    
    
    
    
    
    
    1,397Debt issuance costs  term loan due in 2008
    
    
    1,433
    
    
    
    1,433Restricted cash
    
    
    830
    
    
    
    Other
    
    
    4
    
    
    
    13,273
    
    
    
    7,622Accumulated amortization
    
    
    (3,558
    )
    
    
    (2,019
    )Total
    
    $
    9,715
    
    
    $
    5,603
 4. Long-term Debt
  2005
    
    
    2004ATSB Loan
    
    $
    24,000
    
    
    $
    30,000Convertible senior subordinated debentures due December 2009 
principal amount of $18.1 million, with interest at 8% payable
semi-annually
    
    
    
    
    
    
    19,879Total
    
    
    24,000
    
    
    
    49,879Less: current maturities
    
    
    24,000
    
    
    
    6,000Total long-term debt, net of current maturities
    
    $
    
    
    
    $
    43,879
  Debtors Accounting for a Modification or Exchange of Debt
Instruments
 48




---



##### Table of Contents



th th th th
   49




---



##### Table of Contents



5. Operating Leases
     50




---



##### Table of Contents



2006
    
    $
    111,9112007
    
    
    120,4452008
    
    
    104,0282009
    
    
    91,2712010
    
    
    79,423Thereafter
    
    
    213,707Total
    
    $
    720,785
 Future
annual minimum lease payments include lease extensions and aircraft
commitments signed by the
Company as of June 30, 2006.
  6. Capital Stock
   51




---



##### Table of Contents



Number of
    
    
    
    
    
    
    
    
    
    Risk Free
    
    ExpectedShares
    
    Exercise Price
    
    Expiration Date
    
    Interest Rate
    
    Dividend Yield
    
    Volatility
    
    Expected Life1,269,022
    
    
    $
    0.78
    
    
    
    12/31/2008
    
    
    
    3.23
    %
    
    
    0
    %
    
    
    50
    %
    
    5.0 yrs111,111
    
    
    $
    2.50
    
    
    
    8/23/2004
    
    
    
    1.22
    %
    
    
    0
    %
    
    
    50
    %
    
    0.7 yrs111,111
    
    
    $
    2.50
    
    
    
    3/29/2005
    
    
    
    0.96
    %
    
    
    0
    %
    
    
    50
    %
    
    1.2 yrs886,979
    
    
    $
    3.20
    
    
    
    12/31/2009
    
    
    
    3.43
    %
    
    
    0
    %
    
    
    50
    %
    
    6.0 yrs
      Stock Incentive Plans
   52




---



##### Table of Contents



Number of
    
    
    WeightedOptions
    
    
    AverageOutstanding
    
    
    Exercise PriceBalance at December 31, 2002
    
    
    3,833
    
    
    $
    1.73Granted
    
    
    1,117
    
    
    
    1.18Exercised
    
    
    (344
    )
    
    
    0.87Forfeited
    
    
    (912
    )
    
    
    2.03Balance at December 31, 2003
    
    
    3,694
    
    
    
    1.58Granted
    
    
    696
    
    
    
    3.89Exercised
    
    
    (1,583
    )
    
    
    0.95Forfeited
    
    
    (174
    )
    
    
    2.04Balance at December 31, 2004
    
    
    2,633
    
    
    
    2.53Granted
    
    
    10
    
    
    
    7.53Exercised
    
    
    (836
    )
    
    
    2.82Forfeited
    
    
    (79
    )
    
    
    6.19Balance at December 31, 2005
    
    
    1,728
    
    
    $
    2.25
  Outstanding Options
    
    
    Exercisable OptionsWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber
    
    
    Remaining Life
    
    
    Average
    
    
    Number
    
    
    AverageRange of Exercise Price
    

of Options
    
    

Years
    
    

Exercise Price
    
    

of Options
    
    

Exercise Price$0.56 - 1.25
    
    
    872
    
    
    
    3.2
    
    
    $
    0.88
    
    
    
    746
    
    
    $
    0.881.26 - 2.50
    
    
    58
    
    
    
    1.4
    
    
    $
    1.52
    
    
    
    58
    
    
    $
    1.522.51 - 3.75
    
    
    684
    
    
    
    6.2
    
    
    $
    3.46
    
    
    
    313
    
    
    $
    3.403.76 - 5.00
    
    
    12
    
    
    
    6.1
    
    
    $
    4.06
    
    
    
    
    
    
    $
    5.01 - 6.25
    
    
    92
    
    
    
    4.7
    
    
    $
    6.02
    
    
    
    52
    
    
    $
    5.927.50 - 8.75
    
    
    10
    
    
    
    9.3
    
    
    $
    7.53
    
    
    
    2
    
    
    $
    7.53Total
    
    
    1,728
    
    
    
    
    
    
    
    
    
    
    
    1,171
   53




---



##### Table of Contents



7. North American Acquisition
  Business Combinations.
 Cash consideration
    
    $
    34,750Direct acquisition costs
    
    
    1,408Adjustment to distribution made to Seller to cover tax payments
as provided in Stock Purchase Agreement
    
    
    (565
    )$
    35,593
  Fair Value of NetAssetsAcquiredCash and cash equivalents
    
    $
    8,640Restricted cash
    
    
    2,372Other current assets
    
    
    16,239Equipment and property, net
    
    
    1,498Long-term deposits and other assets
    
    
    4,446Intangible assets acquired:ETOPS * program added value
    
    
    4,680Aircraft leases at market rates in excess of rental rates
    
    
    2,840Trademark
    
    
    575Goodwill
    
    
    25,370Total assets acquired
    
    
    66,660Liabilities assumed:Accounts payable and accrued liabilities
    
    
    (29,155
    )Deferred tax liabilities
    
    
    (1,912
    )Net assets acquired
    
    $
    35,593
 
 *
    
    ETOPS  Extended range Two Engine Operations
 Goodwill and Other Intangible Assets
 54




---



##### Table of Contents



Balance at December 31, 2004
    
    $
    Goodwill acquired at acquisition
    
    
    21,883Purchase price adjustment during fourth quarter 2005
    
    
    3,487Balance at December 31, 2005
    
    $
    25,370
   2005
    
    2004Total revenues
    
    $
    863,098
    
    
    $
    709,396Net earnings
    
    $
    34,222
    
    
    $
    24,131Basic earnings per share
    
    $
    1.52
    
    
    $
    1.84Weighted average shares outstanding
    
    
    22,588
    
    
    
    13,095Fully diluted earnings per share
    
    $
    1.28
    
    
    $
    1.03Weighted average shares outstanding
    
    
    26,824
    
    
    
    24,591
  8. Employee Benefit Plans
      55




---



##### Table of Contents



st
 
    
    The retirement eligibility provision was adjusted to reflect that World Airways
cockpit employees have the option to retire at the age of 55 with at least five years of
service in addition to the previously reflected age 60 provision
(See Note 14).
    
    A flat $50,000 life insurance benefit was added effective February 1, 2005 for
cockpit retirees who die prior to age 65.
  Year Ended December 31,2005
    
    
    2004
    
    
    2003Service cost
    
    $
    768
    
    
    $
    378
    
    
    $
    310Interest cost on accumulated post-retirement benefit obligation
    
    
    445
    
    
    
    243
    
    
    
    237Amortization of prior service cost
    
    
    10
    
    
    
    
    
    
    
    Net amortized loss
    
    
    272
    
    
    
    13
    
    
    
    12Adjustment for revised retirement eligibility
    
    
    1,599
    
    
    
    
    
    
    
    Net periodic post-retirement benefit cost
    
    $
    3,094
    
    
    $
    634
    
    
    $
    559
  2005
    
    
    2004Accumulated post-retirement benefit obligation, beginning of year
    
    $
    4,849
    
    
    $
    4,244Service cost
    
    
    768
    
    
    
    378Interest cost
    
    
    445
    
    
    
    243Benefits paid
    
    
    (180
    )
    
    
    (137
    )Adjustment for revised retirement eligibility
    
    
    1,599
    
    
    
    Actuarial loss
    
    
    1,956
    
    
    
    121Plan amendments
    
    
    100
    
    
    
    Accumulated post-retirement benefit obligation, end of year
    
    $
    9,537
    
    
    $
    4,849
  2005
    
    
    2004Unfunded status
    
    $
    9,537
    
    
    $
    4,849Unrecognized prior service cost
    
    
    (89
    )
    
    
    Unrecognized net loss
    
    
    (2,453
    )
    
    
    (768
    )Accrued post-retirement
benefits included in
liabilities on accompanying
balance sheets
    
    $
    6,995
    
    
    $
    4,081
 56




---



##### Table of Contents



Used for Net Periodic
    
    Used for BenefitPost-Retirement
    
    Obligations as ofAssumption
    
    Benefit Cost for 2005
    
    December 31, 2005Discount rate
    
    
    5.25
    %
    
    
    5.25
    %Salary increase*
    
    not applicable
    
    not applicableLong-term rate of return*
    
    not applicable
    
    not applicable
 Used for Net Periodic
    
    Used for BenefitPost-Retirement
    
    Obligations as ofAssumption
    
    Benefit Cost for 2004
    
    December 31, 2004Discount rate
    
    
    6.0
    %
    
    
    5.25
    %Salary increase*
    
    not applicable
    
    not applicableLong-term rate of return*
    
    not applicable
    
    not applicable
 
 *
    
    The salary increase assumption is not applicable because the
benefits are not related to compensation. The long-term rate of
return assumption is not applicable because the plan is funded on a
pay as go basis.
  2006
    
    $
    4212007
    
    
    5502008
    
    
    6162009
    
    
    7472010
    
    
    8692011 through 2015
    
    
    4,506Total
    
    $
    7,709
   57




---



##### Table of Contents



9. Income Taxes
  2005
    
    
    2004
    
    
    2003Current:Federal
    
    $
    18,959
    
    
    $
    12,422
    
    
    $
    3,562State
    
    
    1,477
    
    
    
    773
    
    
    
    240Deferred:Federal
    
    
    (317
    )
    
    
    (4,450
    )
    
    
    State
    
    
    (146
    )
    
    
    (300
    )
    
    
    $
    19,973
    
    
    $
    8,445
    
    
    $
    3,802
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Expected Federal income tax at the statutory rate of 35%
    
    $
    18,061
    
    
    $
    11,911
    
    
    $
    6,693State and local taxes (net of federal benefit)
    
    
    879
    
    
    
    307
    
    
    
    156Decrease in deferred tax asset valuation allowance
    
    
    (31
    )
    
    
    (5,075
    )
    
    
    (3,664
    )Other:Meals and entertainment
    
    
    1,086
    
    
    
    975
    
    
    
    961Other
    
    
    (22
    )
    
    
    327
    
    
    
    (344
    )Income tax expense
    
    $
    19,973
    
    
    $
    8,445
    
    
    $
    3,802
  2005
    
    
    2004Deferred tax assets:Net operating loss carry-forward
    
    $
    1,753
    
    
    $
    1,879Recognition of sale/leaseback gains
    
    
    386
    
    
    
    600Accrued post-retirement benefit obligation
    
    
    2,553
    
    
    
    1,490Profit sharing and compensated absences
    
    
    5,441
    
    
    
    4,888Deferred rent
    
    
    2,117
    
    
    
    3,210Allowance for doubtful accounts receivable
    
    
    604
    
    
    
    6Alternative minimum tax credit carry-forward
    
    
    2,789
    
    
    
    2,789Loss on convertible debt extinguishment
    
    
    
    
    
    
    645Legal expense
    
    
    1,067
    
    
    
    1,204Other
    
    
    1,193
    
    
    
    902Gross deferred tax assets
    
    
    17,903
    
    
    
    17,613Less: valuation allowance
    
    
    (3,717
    )
    
    
    (3,748
    )Net deferred tax assets
    
    
    14,186
    
    
    
    13,865Deferred tax liabilities:Prepaid expenses
    
    
    2,389
    
    
    
    Equipment and property
    
    
    8,550
    
    
    
    9,388Recoverable parts
    
    
    233
    
    
    
    Intangibles
    
    
    2,780
    
    
    
    Net deferred tax asset/(liability)
    
    $
    234
    
    
    $
    4,477
  58




---



##### Table of Contents



10. Major Customers and Products
  Year Ended December 31,World Airways
    
    2005
    
    2004
    
    2003U.S. Air Force (USAF) Air Mobility Command
    
    $
    477.6
    
    
    $
    390.7
    
    
    $
    354.7
 Period April 28 toNorth American
    
    December 31, 2005U.S. Air Force (USAF) Air Mobility Command
    
    $
    103.6
  Year Ended December 31,World Airways
    
    2005
    
    2004
    
    2003Passenger Charter Operations
    
    $
    520.8
    
    
    $
    432.6
    
    
    $
    343.3Cargo Charter Operations
    
    
    99.9
    
    
    
    69.1
    
    
    
    128.5
  59




---



##### Table of Contents



Period April 28to December 31,North American
    
    2005Passenger Charter Operations
    
    $
    131.0Passenger Scheduled Service
    
    
    31.8
 11. Related Party Transactions
 Corporate Headquarters
  12. Commitments and Contingencies
 Union Negotiations and Litigation:
 World Airways Cockpit Crewmembers
 World Airways Flight Attendants
 World Airways Aircraft Dispatchers
 North Americans Cockpit Crewmembers:
  60




---



##### Table of Contents



North Americans Flight
Attendants
 Litigation:
  13. Valuation and Qualifying
Accounts (in thousands)
 AdditionsBalance at
    
    Charged
    
    AmountsBeginning
    
    (Credited)
    
    Charged
    
    Balance atof Year
    
    to Expense
    
    to Allowance
    
    End of Year2005Allowance for accounts receivable
    
    $
    209
    
    
    $
    1,622
    
    
    $
    (188
    )
    
    $
    1,643Deferred tax valuation allowance
    
    $
    3,748
    
    
    $
    (31
    )
    
    $
    
    
    
    $
    3,7172004Allowance for accounts receivable
    
    $
    196
    
    
    $
    2,659
    
    
    $
    (2,646
    )
    
    $
    209Deferred tax valuation allowance
    
    $
    8,823
    
    
    $
    (5,075
    )
    
    $
    
    
    
    $
    3,7482003Allowance for accounts receivable
    
    $
    255
    
    
    $
    1,939
    
    
    $
    (1,998
    )
    
    $
    196Deferred tax valuation allowance
    
    $
    12,487
    
    
    $
    (3,664
    )
    
    $
    
    
    
    $
    8,823
 14. Quarterly Results (unaudited)
  Quarter EndedMar 31
    
    

Jun
30*
    
    

Sep 30
    
    

Dec 31*2005Operating revenues
    
    $
    159,549
    
    
    $
    171,882
    
    
    $
    217,180
    
    
    $
    238,527Operating income
    
    
    17,178
    
    
    
    10,789
    
    
    
    10,235
    
    
    
    18,414Net earnings
    
    
    9,898
    
    
    
    5,506
    
    
    
    5,470
    
    
    
    10,754Basic earnings per common share
    
    
    0.52
    
    
    
    0.23
    
    
    
    0.23
    
    
    
    0.45Diluted earnings per common share
    
    
    0.38
    
    
    
    0.21
    
    
    
    0.20
    
    
    
    0.40
 
 *
    
    During the second quarter of 2005,
the Company made adjustments to correct errors in the
application of generally accepted accounting principles. These adjustments included entries
regarding the timing of expensing recoverable spare parts, flight crew special pay requests, asset
disposals and certain other operating expenses including hotels, ground handling and outside
consultant fees, the timing of recognizing a vendor rebate and the incorrect use of the original
cost as a basis for recognizing depreciation expense of certain aircraft parts that were impaired.
As a result of the adjustments for the three month period ended June 30, 2005, revenues increased
approximately $0.2 million, operating expenses decreased $0.7 million, total other expenses
increased $0.8 million, and income tax expense increased $0.1 million. There
was no impact on net earnings.Additionally, during the fourth quarter of 2005,
the Company recorded a number of adjustments to
correct errors in the application of generally accepted accounting principles. These adjustments
included entries to correct errors relating to the disaggregation of deferred rent and deferred
gain on sale/leaseback transactions between current and non-current assets and liabilities, the
accounting for fuel reconciliation adjustments within revenue versus netting these fuel
reconciliation adjustments against fuel expense, the revision of the actuarial calculation of the
liability for a post-retirement health care and life insurance benefit plan for the World Airways
cockpit crews based on using the correct eligible retirement age within the calculation (see Note 8), and to
record maintenance reserve receivables due from aircraft lessors for maintenance completed and to
record the corresponding payable to the maintenance vendors who performed the maintenance service.
As a result of the adjustments for the three month period ended December 31, 2005, revenues
increased approximately $13.5 million, operating expenses
increased $16.4 million, total other
expenses decreased by $0.8 million, and income tax expense decreased by $0.8 million resulting in
a net earnings decrease of $1.3 million.
 61




---



##### Table of Contents



The estimated aggregate impact of these out of period adjustments
to correct errors in the application of generally
accepted accounting principles for the year ended December 31, 2005 (including those recorded in
the second and fourth quarters of 2005) increased total operating
expenses by approximately $1.5 million,
decreased income tax expense by approximately $0.6 million and decreased net
earnings by approximately $0.9 million.The out of period impact of these adjustments
was deemed immaterial both individually and in the
aggregate, to the Companys Consolidated Balance Sheets, Consolidated Statements of Income,
Consolidated Statements of Changes in Stockholders Equity
(Deficit) and Consolidated Statements of Cash Flows for any prior
annual periods and prior interim periods including 2005 interim periods and to its results for the
year ended December 31, 2005, to trends for those periods affected, and to the fair presentation of
the Companys consolidated financial statements for those periods.
  Quarter EndedMar 31
    
    
    Jun 30
    
    
    Sep 30
    
    
    Dec 312004Operating revenues
    
    $
    129,584
    
    
    $
    115,060
    
    
    $
    129,175
    
    
    $
    130,081Operating income
    
    
    13,639
    
    
    
    4,388
    
    
    
    13,764
    
    
    
    8,492Net earnings
    
    
    7,875
    
    
    
    2,569
    
    
    
    7,054
    
    
    
    8,089Basic earnings per common share
    
    
    0.69
    
    
    
    0.22
    
    
    
    0.54
    
    
    
    0.51Diluted earnings per common share
    
    
    0.34
    
    
    
    0.12
    
    
    
    0.31
    
    
    
    0.32
  
 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 A. Disclosure Controls and Procedures
    62




---



##### Table of Contents



B. Managements Report on Internal Control Over Financial Reporting
      Internal Control 
Integrated Framework,
  1.
    
    The Company did not maintain effective company-level controls, as defined in COSO.
These deficiencies related to each of the five components of internal control as defined
by COSO (control environment, risk assessment, control activities, information and
communication, and monitoring). Specifically, the following deficiencies were identified:
 a.
    
    The Companys control environment did not set an adequate tone around
control consciousness, and this material weakness was a contributing factor in the
development of other material weaknesses described below.b.
    
    The Companys operations personnel did not have a sufficient
understanding of how their respective processes impacted the ultimate financial
reporting process.c.
    
    The Company failed to implement an adequate assignment of authority
and accountability and the necessary lines of communication between operations and
accounting personnel.d.
    
    The Company did not employ a staff sufficient in number or with
requisite accounting and financial reporting knowledge to ensure the preparation
of accurate, reliable and timely interim and annual consolidated financial
statements, and to ensure the proper selection of accounting policies and the
correct application of generally accepted accounting principles in those financial
statements.e.
    
    The Company did not provide adequate training opportunities for
accounting and operating personnel to maintain current knowledge of accounting
requirements.
 Each of these material weaknesses in the Companys company-level controls contributed to
the material weaknesses discussed in the following items 2 through 6.
 63




---



##### Table of Contents



2.
    
    The Company lacked personnel with sufficient institutional knowledge and expertise
in accounting for income taxes. In addition, the Company did not maintain effective
policies and procedures regarding the accounting for income taxes, including taxes
payable, deferred income tax assets and liabilities and the related income tax provision.
Specifically, the Companys policies and procedures did not provide for the effective
internal preparation and review of complex tax calculations, the review of the outsourced
tax provision, or preparation of sufficient documentation of the Companys income tax
accounting. These deficiencies resulted in material errors in the Companys preliminary
income tax provision in the 2005 consolidated financial statements.3.
    
    The Company did not have policies and procedures to ensure the effective monitoring
of the financial statement implications of all contracts throughout their life cycle.
Specifically, the following deficiencies were identified:
 a.
    
    The Company did not have adequate policies and procedures to
effectively identify and document the terms of significant contracts and to
consider and monitor the related accounting treatment for the provisions of these
contracts. This deficiency resulted in material errors in the classification of
debt and the accounting for certain lease agreements and a supply/service
agreement in the preliminary 2005 consolidated financial statements.b.
    
    For certain contracts the Company did not have adequate policies and
procedures to review and verify the inputs and assumptions used by third-party
service providers to determine amounts used in the preparation of the Companys
financial statements. This deficiency resulted in errors in the accounting for the Companys crew members
post-retirement benefit plan and company-wide self insured health care plan in the
preliminary 2005 consolidated financial statements.
 4.
    
    The Company did not maintain effective policies and procedures
relating to its accounting for and review of fixed assets to ensure that such
accounting complied with generally accepted accounting principles. Specifically,
the following deficiencies were identified:
 a.
    
    The Company did not maintain effective policies and procedures to
ensure that fixed asset disposals were reported to the accounting department on a
timely basis. The resulting lack of communication resulted in an overstatement of
fixed assets in the preliminary 2005 consolidated financial statements.b.
    
    The Company did not maintain a system whereby automatic entries were
made from the perpetual fixed asset inventory operating system to the fixed asset
sub-ledger, and therefore could not perform an effective reconciliation of the two
systems.c.
    
    The Company did not maintain effective policies and procedures to
review the accuracy of fixed asset depreciation expense, asset lives and salvage
values, or to perform timely inventories of certain fixed assets, which resulted
in errors in depreciation expense and fixed assets in the preliminary 2005
consolidated financial statements.
 5.
    
    The Company did not maintain effective policies and procedures relating to accounting
for certain aircraft maintenance processes. Specifically, the Company did not maintain
effective policies and procedures to ensure that maintenance reserve receivables and
related payables are recorded in the correct accounting period, and in the correct
amounts, and that the timing of completion of certain maintenance events are effectively
communicated by the maintenance department to the accounting department. This deficiency
resulted in errors in maintenance reserve receivables and related
payables and
a cut-off error in maintenance expense in the preliminary 2005 consolidated financial
statements.6.
    
    The Company did not have effective controls over the financial reporting close
process. Specifically, the following deficiencies were identified:
 a.
    
    The Company did not have a sufficient number of accounting
professionals with requisite technical and financial reporting knowledge to ensure
the proper selection of accounting policies and the correct application of
generally accepted accounting principles in the consolidated financial statements,
and to ensure that accurate and reliable financial statements were prepared and
reviewed on a timely basis, which resulted in material errors in the preliminary
2005 consolidated financial statements.b.
    
    The Company lacked effective policies and procedures to identify and
correctly record the accounting implications of complex and non-routine
transactions and to provide for sufficient review of financial information and
related presentation and disclosures, which resulted in material errors in the
preliminary 2005 consolidated financial statements.
 Each of the aforementioned material weaknesses results in more than a remote likelihood that a
material misstatement in the Companys consolidated financial statements would not be prevented
or detected.
  64




---



##### Table of Contents



C. Changes in Internal Control Over Financial Reporting
     D. Remediation of Material Weakness in Internal Controls
  1.
    
    The Company acquired privately-held North American and subsequently had to have its
independent auditors conduct a re-audit of North Americans 2004 financial statements,
previously
 65




---



##### Table of Contents



audited by a local accounting firm which was unable to provide consent to the inclusion of
its audit report in the Companys required SEC filings. Substantial resources were
required to restate the 2004 financial statements and build financial processes and
staffing at North American to provide the ability to prepare reliable financial statements
for inclusion in the Companys consolidated financial statements.2.
    
    The Company reorganized itself into a holding company structure whereby World Air
Holdings was created and became the parent Company of World Airways, North American and
World Risk Solutions.3.
    
    In 2005, the Company became an accelerated filer as defined by Rule 12b-2 of the
Exchange Act. As a result, the Company was required to comply with the assessment and
reporting requirements of Section 404 of the Sarbanes-Oxley Section Act of 2002 as of
December 31, 2005. At the same time, substantial resources were diverted from assessment
and remediation efforts to focus on the integration of the North American acquisition.4.
    
    The Company experienced significant delays in various SEC filings and restated the
second quarter 2005 Form 10-Q.
  1.
    
    Control Environment
 a.
    
    The assessment process under Sarbanes-Oxley Section 404 has allowed
the Company to utilize the process documentation and identified deficiencies to
focus process improvement on those areas with the highest level of risk.b.
    
    The Company is currently evaluating key process outputs and
evaluating who is the ultimate owner of the output, to ensure that the effective
process controls are in place. In addition, with the increase in the number and
enhancement of skill sets and experience of the Companys accounting
professionals, its corporate controller will be able to provide additional
oversight in terms of GAAP application.c.
    
    The Company has taken decisive steps to obtain the appropriate skill
sets and experience and increase the number of its qualified accounting personnel.
Listed below are some of the critical accounting and finance roles that have been
filled:
 i.
    
    In April 2006, the Company hired a new Chief
Financial Officer with a background in public company compliance and a
strong process improvement background.ii.
    
    During the fourth quarter of 2005, the Company
hired a tax director, who is a certified public accountant, with both
public accounting and industry experience, to build the tax team and to
supplement the Companys current processes.iii.
    
    During the third and fourth quarters of 2005, the
Company hired a corporate controller who is a certified public
accountant and an accounting/reporting manager who is also a certified
public accountant, respectively, both with airline industry experience
to improve the consolidation, disclosure and reporting processes.
 In addition to these key individuals, the Company has filled numerous accounting
vacancies and expanded the overall staffing of the accounting and finance
functions. The Company has also expended significant amounts to engage
professional consultants to supplement the accounting team.
 66




---



##### Table of Contents



d.
    
    The Company has committed resources to provide training to accounting
and operating personnel to ensure that the knowledge level required to ensure
effective internal control over financial reporting is maintained.
 2.
    
    Tax Process
 a.
    
    The Company has hired a tax director to assist the Companys
external tax professional with the preparation and review of the tax provision
model, and to develop policies and procedures related to the preparation and
review of complex tax calculations.b.
    
    The Company has hired an international tax firm to provide
guidance on complex tax issues to supplement the existing knowledge of the tax
staff.c.
    
    The Company has acquired access to an external tax database to
facilitate research of tax issues.
 3.
    
    Contracts
 a.
    
    The Company has hired an outside consultant to review all
contracts and prepare accounting summaries to provide a baseline for contract
administration.b.
    
    The Company plans to institute monthly update meetings between
the operating and accounting departments to facilitate communication on contract
issues, including changes to existing contracts, new contracts in process and
newly-executed contracts.c.
    
    The Company is developing policies and procedures to monitor the
inputs and assumptions used by third-party service providers in accounting for
certain contracts such as the Companys crew members post-retirement benefit
plan and the company-wide self insured health care plan.
 4.
    
    Fixed Assets
 a.
    
    The Company has formed an improvement team with the appropriate
process personnel with the goal of resolving the issues with the current
operating process.b.
    
    The Company has formed a strategy team to review the entire fixed
asset process with the goal of improving both the efficiency of the process and
creating a more robust control environment. In addition, systems alternatives
are also being evaluated.
 5.
    
    Maintenance
 a.
    
    The Company has documented and implemented a process to ensure
that maintenance reserve receivables and related payables are recorded in the
correct accounting period and in the correct amounts.b.
    
    The Company has documented and implemented procedures for the
Companys maintenance personnel to identify and communicate the timing of the
completion of maintenance events to the finance and accounting personnel.
 6.
    
    Financial Close Process
 a.
    
    The Company has hired additional accounting professionals with
requisite accounting and financial reporting knowledge to assist with the
preparation and review of the financial statements on a timely basis, and to
ensure the proper selection of accounting policies and the correct application
of generally accepted accounting principles in the consolidated financial
statements.b.
    
    The Company is currently evaluating the financial reporting
process to reduce the process complexities and eliminate unnecessary steps, and
to ensure the sufficiency of the Companys policies and procedures.c.
    
    The Company is developing policies and procedures to ensure
proper identification of and accounting for non-routine and complex
transactions, and to provide for sufficient review of financial information and
related presentation and disclosures.
 d.
    
    The Company plans to automate a number of manual processes to
ensure timely and accurate closing of the books.e.
    
    The Company has allocated financial resources for system upgrades
and training for employees.
 67




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ KPMG LLP
 
 Report of Independent Registered Public Accounting Firm
 
 Internal ControlIntegrated Framework
     68




---



##### Table of Contents



1.
    
    The Company did not maintain effective company-level controls, as defined in COSO.
These deficiencies related to each of the five components of internal control as defined
by COSO (control environment, risk assessment, control activities, information and
communication, and monitoring). Specifically, the following deficiencies were identified:
 a.
    
    The Companys control environment did not set an adequate tone around
control consciousness, and this material weakness was a contributing factor in the
development of other material weaknesses described below.b.
    
    The Companys operations personnel did not have a sufficient
understanding of how their respective processes impacted the ultimate financial
reporting process.
 c.
    
    The Company failed to implement an adequate assignment of authority
and accountability and the necessary lines of communication between operations and
accounting personnel.d.
    
    The Company did not employ a staff sufficient in number or with
requisite accounting and financial reporting knowledge to ensure the preparation
of accurate, reliable and timely interim and annual consolidated financial
statements, and to ensure the proper selection of accounting policies and the
correct application of generally accepted accounting principles in those financial
statements.e.
    
    The Company did not provide adequate training opportunities for
accounting and operating personnel to maintain current knowledge of accounting
requirements.
 Each of these material weaknesses in the Companys company-level controls contributed to
the material weaknesses discussed in the following items 2 through 6.2.
    
    The Company lacked personnel with sufficient institutional knowledge and expertise in
accounting for income taxes. In addition, the Company did not maintain effective policies
and procedures regarding the accounting for income taxes, including taxes payable,
deferred income tax assets and liabilities and the related income tax provision.
Specifically, the Companys policies and procedures did not provide for the effective
internal preparation and review of complex tax calculations, the review of the outsourced
tax provision, or preparation of sufficient documentation of the Companys income tax
accounting. These deficiencies resulted in material errors in the Companys preliminary
income tax provision in the 2005 consolidated financial statements.3.
    
    The Company did not have policies and procedures to ensure the effective monitoring
of the financial statement implications of all contracts throughout their life cycle.
Specifically, the following deficiencies were identified:
 a.
    
    The Company did not have adequate policies and procedures to
effectively identify and document the terms of significant contracts and to
consider and monitor the related accounting treatment for the provisions of these
contracts. This deficiency resulted in material errors in the classification of
debt and the accounting for certain lease agreements and a supply/service
agreement in the preliminary 2005 consolidated financial statements.b.
    
    For certain contracts the Company did not have adequate policies and
procedures to review and verify the inputs and assumptions used by third-party
service providers to determine amounts used in the preparation of the Companys
financial statements. This deficiency resulted in errors in the accounting for
the Companys crew members post-retirement benefit plan and company-wide self
insured health care plan in the preliminary 2005 consolidated financial
statements.
 69




---



##### Table of Contents



4.
    
    The Company did not maintain effective policies and procedures
relating to its accounting for and review of fixed assets to ensure that such
accounting complied with generally accepted accounting principles. Specifically,
the following deficiencies were identified:
 a.
    
    The Company did not maintain effective policies and procedures to
ensure that fixed asset disposals were reported to the accounting department on a
timely basis. The resulting lack of communication resulted in an overstatement of
fixed assets in the preliminary 2005 consolidated financial statements.b.
    
    The Company did not maintain a system whereby automatic entries were
made from the perpetual fixed asset inventory operating system to the fixed asset
sub-ledger, and therefore could not perform an effective reconciliation of the two
systems.c.
    
    The Company did not maintain effective policies and procedures to
review the accuracy of fixed asset depreciation expense, asset lives and salvage
values, or to perform timely inventories of certain fixed assets, which resulted
in errors in depreciation expense and fixed assets in the preliminary 2005
consolidated financial statements.
 5.
    
    The Company did not maintain effective policies and procedures relating to accounting
for certain aircraft maintenance processes. Specifically, the Company did not maintain
effective policies and procedures to ensure that maintenance reserve receivables and
related payables are recorded in the correct accounting period, and in the correct
amounts, and that the timing of completion of certain maintenance events are effectively
communicated by the maintenance department to the accounting department. This deficiency
resulted in errors in maintenance reserve receivables and related payables and a
cut-off error in maintenance expense in the preliminary 2005 consolidated financial
statements.6.
    
    The Company did not have effective controls over the financial reporting close
process. Specifically, the following deficiencies were identified:
 a.
    
    The Company did not have a sufficient number of accounting
professionals with requisite technical and financial reporting knowledge to ensure
the proper selection of accounting policies and the correct application of
generally accepted accounting principles in the consolidated financial statements,
and to ensure that accurate and reliable financial statements were prepared and
reviewed on a timely basis, which resulted in material errors in the preliminary
2005 consolidated financial statements.b.
    
    The Company lacked effective policies and procedures to identify and
correctly record the accounting implications of complex and non-routine
transactions and to provide for sufficient review of financial information and
related presentation and disclosures, which resulted in material errors in the
preliminary 2005 consolidated financial statements.
 Each of the aforementioned material
weaknesses results in more than a remote likelihood that a
material misstatement in the Companys consolidated financial statements would not be prevented
or detected.
 Internal ControlIntegrated Framework Internal ControlIntegrated Framework
 70




---



##### Table of Contents



71




---



##### Table of Contents



PART III
 
 Item 10.
    
    Directors and Executive Officers of the Registrant
 Directors and Executive Officers
 Directors
  Name
    
    Age
    
    Position(s) Held
    
    Term Expiration
    
    Period ServedGeneral Ronald R.
Fogleman
    
    
    64
    
    
    Chairman, Class II Director
    
    
    2006
    
    
    March 1998  PresentDaniel J. Altobello
    
    
    65
    
    
    Class I Director
    
    
    2008
    
    
    March 1998  PresentA. Scott Andrews
    
    
    47
    
    
    Class III Director
    
    
    2007
    
    
    June 1992  PresentJoel H. Cowan
    
    
    69
    
    
    Class III Director
    
    
    2007
    
    
    March 2000  PresentMadeline E. Hamill, PhD
    
    
    46
    
    
    Class I Director
    
    
    2008
    
    
    May 2005  PresentRussell L. Ray, Jr.
    
    
    70
    
    
    Class II Director
    
    
    2006
    
    
    July 1993  PresentPeter M. Sontag
    
    
    62
    
    
    Class I Director
    
    
    2008
    
    
    February 1994  PresentRandy J. Martinez
    
    
    50
    
    
    Class III Director; Chief
Executive Officer
    
    
    2007
    
    
    April 2004  PresentJeffrey L. MacKinney
    
    
    49
    
    
    Class II Director; President
    
    
    2006
    
    
    August 2005 -
Present
 General Ronald R. Fogleman.
 Daniel J. Altobello.
 A. Scott Andrews.
 72




---



##### Table of Contents



Joel H. Cowan.
 Madeline E. Hamill, PhD.
 Russell L. Ray, Jr.
 Peter M. Sontag.
 Randy J. Martinez.
 73




---



##### Table of Contents



Jeffrey L. MacKinney.
 Executives
  Name
    
    Age
    
    PositionRandy J. Martinez
    
    
    50
    
    
    Chief Executive Officer and DirectorJeffrey L. MacKinney
    
    
    49
    
    
    President and DirectorVirginia G. Clark*
    
    
    52
    
    
    Interim Chief Financial OfficerGilberto M. Duarte, Jr.
    
    
    61
    
    
    Executive Vice President and President  World Risk SolutionsCharles H. J. Addison
    
    
    45
    
    
    Chief Information OfficerRobert R. Binns
    
    
    41
    
    
    Chief Marketing OfficerMark M. McMillin
    
    
    51
    
    
    General Counsel & Corporate SecretaryCharles P. McDonald
    
    
    41
    
    
    Chief Operating Officer  World AirwaysSteven E. Harfst**
    
    
    42
    
    
    Chief Operating Officer  North American
 Randy J. Martinez
 Jeffrey L. MacKinney
 74




---



##### Table of Contents







Virginia G. Clark


Gilberto M. Duarte, Jr.


Charles H. J. Addison


Robert R. Binns


Mark M. McMillin th


Charles
P. McDonald


Steven E. Harfst 75




---



##### Table of Contents



*
    Ms. Clark was appointed Interim Chief Financial Officer of the Company pending the
employment of a full time Chief Financial Officer. On April 17, 2006, the Company entered into
an employment agreement with Michael W. Towe (Mr. Towe) whereby Mr. Towe is to serve as Chief
Financial Officer of the Company. Prior to joining the Company, Mr. Towe, 50, served as Chief
Financial Officer of Roper Industries from 2004 until March 14, 2006. Mr. Towe served as Chief
Financial Officer and Chief Operating Officer of GE TIP/Modular Space from 2002 through 2004 and
served as Chief Financial Officer of GE Capital, JC Penney Credit Services from 2000 through
2001.**
    Mr. Harfst resigned his employment with North American in February 2006. On February 1,
2006, the Company hired Jeffery W. Wehrenberg (Mr.
Wehrenberg) whereby Mr. Wehrenberg is to serve as Chief Operating Officer of North American
Airlines. Prior to joining North American, Mr. Wehrenberg, 46, served as President of New
Heights Aviation Services, LLC from August 2005 until February 2006. Mr. Wehrenberg served as
Vice President  Ground Operations and Director  System Operations Control at Mesaba Aviation
(Northwest Airlink) from September 2000 through June 2005. Audit Committee
 www.worldairholdings.com.
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
 www.worldairholdings.com
 76




---



##### Table of Contents



Item 11. Executive Compensation.
  Summary Compensation Table
 Long TermAnnual Compensation
    
    
    
    
    
    CompensationOther
    
    SharesAnnual
    
    Underlying
    
    All OtherName and Position
    
    Year
    
    Salary
    
    Bonus (1)
    
    Compensation
    
    Options
    
    CompensationRandy J. Martinez
    
    
    2005
    
    
    $
    304,692
    
    
    $
    397,475
    
    
    $
    -0-
    
    
    
    -0-
    
    
    $
    7,150
    (3)Chief Executive
    
    
    2004
    
    
    $
    261,063
    
    
    $
    343,125
    
    
    $
    -0-
    
    
    
    150,000
    
    
    $
    4,678
    (4)Officer (2)
    
    
    2003
    
    
    $
    203,365
    
    
    $
    97,975
    
    
    $
    -0-
    
    
    
    125,000
    
    
    $
    4,276
    (5)Jeffrey L. MacKinney
    
    
    2005
    
    
    $
    235,019
    
    
    $
    235,125
    
    
    $
    -0-
    
    
    
    -0-
    
    
    $
    7,037
    (7)President (6)
    
    
    2004
    
    
    $
    211,058
    
    
    $
    249,375
    
    
    $
    -0-
    
    
    
    100,000
    
    
    $
    4,608
    (8)2003
    
    
    $
    60,577
    
    
    $
    34,291
    
    
    $
    -0-
    
    
    
    100,000
    
    
    $
    -0-Gilberto M. Duarte, Jr.
    
    
    2005
    
    
    $
    200,362
    
    
    $
    160,000
    
    
    $
    -0-
    
    
    
    -0-
    
    
    $
    7,711
    (10)Executive Vice
    
    
    2004
    
    
    $
    200,102
    
    
    $
    160,000
    
    
    $
    -0-
    
    
    
    -0-
    
    
    $
    5,055
    (11)President (9)
    
    
    2003
    
    
    $
    200,000
    
    
    $
    117,570
    
    
    $
    -0-
    
    
    
    50,000
    
    
    $
    4,755
    (12)Steven E. Harfst (13)
    
    
    2005
    
    
    $
    126,538
    
    
    $
    231,488
    (14)
    
    $
    50,000
    (15)
    
    
    -0-
    
    
    $
    117
    (16)Charles P. McDonald
    
    
    2005
    
    
    $
    192,362
    
    
    $
    154,000
    
    
    $
    -0-
    
    
    
    -0-
    
    
    $
    7,709
    (18)Chief Operating
    
    
    2004
    
    
    $
    107,993
    
    
    $
    90,667
    
    
    $
    -0-
    
    
    

    100,000Officer (17)
 
 (1)
    
    Bonuses are paid to Company executives from a profit sharing pool that is distributed
among management. Bonuses reported for 2005 were earned and accrued as of December 31,
2005.(2)
    
    Randy J. Martinez became Chief Executive Officer effective April 28, 2005. Previously
he served as President and Chief Executive Officer of the Company and World Airways, since
April 2004. He joined World Airways in October 1998 as the Director of Crew Resources and
was later appointed Special Assistant to the Chairman in May 1999. In August 1999, he was
named the Chief Information Officer of World Airways and in June 2002 became Executive Vice
President, Marketing and Administration. In November 2003, Mr. Martinez became President
and Chief Operating Officer of World Airways.(3)
    
    Consists of (i) $ 1,545 in excess term life insurance premiums, and (ii) $ 5,605 in
annual Company contributions to a defined contribution plan paid on behalf of Mr. Martinez.(4)
    
    Consists of (i) $405 in excess term life insurance premiums, and (ii) $4,273 in annual
Company contributions to a defined contribution plan paid on behalf of Mr. Martinez.(5)
    
    Consists of (i) $315 in excess term life insurance premiums, and (ii) $3,961 in annual
Company contributions to a defined contribution plan paid on behalf of Mr. Martinez. 77




---



##### Table of Contents



(6)
    
    Jeffrey L. MacKinney became President in April 2005. Previously he served as Chief
Operating Officer of the Company and World Airways since April 2004. He joined World
Airways in August 2003 as Senior Vice President, Planning and Corporate Development.(7)
    
    Consists of (i) $ 1,214 in excess term life insurance premiums, and (ii) $ 5,823 in
annual Company contributions to a defined contribution plan paid on behalf of Mr.
MacKinney.(8)
    
    Consists of (i) $315 in excess term life insurance premiums, and (ii) $4,293 in annual
Company contributions to a defined contribution plan paid on behalf of Mr. MacKinney.(9)
    
    Gilberto M. Duarte, Jr. served as Executive Vice President of World Air Holdings and
President of World Risk Solutions until his retirement effective June 08, 2006.
Previously, he served as Chief Financial Officer of World Air Holdings and World Airways.
He joined World Airways in August 1998 as Vice President and Controller and was named Chief
Financial Officer, effective December 1998.(10)
    
    Consists of (i) $1,188 in excess term life insurance premiums, and (ii) $6,523 in
annual Company contributions to a defined contribution plan paid on behalf of Mr. Duarte.(11)
    
    Consists of (i) $1,188 in excess term life insurance premiums, and (ii) $3,867 in
annual Company contributions to a defined contribution plan paid on behalf of Mr. Duarte.(12)
    
    Consists of (i) $774 in excess term life insurance premiums, and (ii) $3,981 in annual
Company contributions to a defined contribution plan paid on behalf of Mr. Duarte.(13)
    
    Mr. Harfst resigned as Chief Executive Officer of North American Airlines, Inc.
effective February 06, 2006.(14)
    
    Consists of (i) $144,186 in estimated bonus which was paid in 2005 and
(ii) $12,302 which was earned and accrued as of December 31, 2005 pursuant to the bonus
schedule outlined in Mr. Harfsts pre-acquisition employment agreement. Also includes a
transition incentive of $75,000 which was payable to Mr. Harfst as part of his
post-acquisition amended and restated employment agreement.(15)
    
    Consists of a semi-monthly retention incentive which was payable to Mr. Harfst as part
of his post-acquisition amended and restated employment agreement.(16)
    
    Consists of (i) $60 in excess term life insurance premiums, and (ii) $57 in annual
Company contributions to a defined contribution plan paid on behalf of Mr. Harfst.(17)
    
    Charles P. McDonald became Chief Operating Officer at World
Airways in April 2005. Prior
to holding this position he served as Senior Vice President of Operations since May 2004.(18)
    
    Consists of (i) $1,101 in excess term life insurance premiums, and (ii) $6,608 in
annual Company contributions to a defined contribution plan paid on behalf of Mr. McDonald. Stock Option Grants and Restricted Stock
   78




---



##### Table of Contents



Aggregated Option Exercises in 2005 and
Fiscal Year-End Option Values
 Number of Shares Underlying
    
    Value of Unexercised In-the-Unexercised Options at
    
    Money Options at FiscalFiscalYear End
    
    Year EndNumber ofSharesAcquiredUponExercise of
    
    ValueName
    
    Options
    
    Realized
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableRandy J. Martinez
    
    
    90,000
    
    
    $
    596,452
    
    
    
    152,500
    
    
    
    127,500
    
    
    $
    1,058,752
    
    
    $
    834,900Jeffrey L. MacKinney
    
    
    10,000
    
    
    $
    42,693
    
    
    
    100,000
    
    
    
    90,000
    
    
    $
    648,600
    
    
    $
    565,500Gilberto M. Duarte, Jr.
    
    
    50,000
    
    
    $
    255,702
    
    
    
    185,000
    
    
    
    15,000
    
    
    $
    1,631,550
    
    
    $
    131,700Steven E. Harfst
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    50,000
    
    
    $
    -0-
    
    
    $
    178,000Charles P. McDonald
    
    
    25,000
    
    
    $
    107,576
    
    
    
    15,000
    
    
    
    60,000
    
    
    $
    90,450
    
    
    $
    361,800
 Compensation of Members of the Board and Committees
  Policy with Regard to Directors Attendance at Annual Meeting of Stockholders
  Employment Agreements
 79




---



##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management.
 Principal Stockholders
  Shares
    
    PercentBeneficially
    
    of ClassName and Address of Beneficial Owner
    
    Owned (1)
    
    Owned (1)Barclays Global Investors, NA. (2)
    
    
    2,444,311
    
    
    
    10.19
    %45 Fremont StreetSan Francisco, CA 94105Contrarian Capital Management, L.L.C. (3)
    
    
    1,432,570
    
    
    
    5.97
    %411 West Putman AvenueSuite 225Greenwich, CT 06830Contrarian Equity Fund, L.P. (4)
    
    
    1,387,517
    
    
    
    5.78
    %411 West Putman AvenueSuite 225Greenwich, CT 06830Nicholas Applegate Capital Management LLC (5)
    
    
    1,224,891
    
    
    
    5.11
    %600 West Broadway, 29th FloorSan Diego, CA 92101Air Transportation Stabilization Board (6)
    
    
    2,156,001
    
    
    
    8.99
    %1120 Vermont AvenueWashington, DC 20005
 80




---



##### Table of Contents



(1)
    
    In setting forth this information, the Company relied upon its stock transfer records and
upon Schedule 13D and Schedule 13G filings of, and other information provided by, the persons
and entities listed in the table. Beneficial ownership is reported in accordance with the SEC
regulations and therefore includes shares of the Companys common stock which may be acquired
within 60 days after May 15, 2006 upon the exercise of outstanding stock options and warrants.
Shares of common stock issuable upon the exercise of such options and warrants are deemed
outstanding for purposes of computing the percentage of Common Stock owned by the beneficial
owner listed in the table, but are not deemed outstanding for purposes of computing the
percentage of outstanding common stock owned by any other stockholder. Except as otherwise
stated below, all shares are owned directly and of record, and each named person or entity has
sole voting and investment power with regard to the shares shown as owned by such person or
entity. For each stockholder, Percent of Class Owned
is based on the 23,995,502 shares of
common stock issued and outstanding on May 15, 2006, plus any shares which may be acquired by
the stockholder within 60 days after May 15, 2006.(2)
    
    In setting forth this information, the Company relied upon the January 31, 2006 Schedule 13G
filing of Barclays Global Investors, N.A. (Barclays) and other information provided by
Barclays.(3)
    
    In setting forth this information, the Company relied upon the February 14, 2006 Schedule 13G
filing of Contrarian Capital Management, LLC (Contrarian Capital) and other information
provided by Contrarian Capital.(4)
    
    In setting forth this information, the Company relied upon the February 14, 2006 Schedule 13G
filing of Contrarian Equity Fund, LP (Contrarian Equity) and other information provided by
Contrarian Equity.(5)
    
    In setting forth this information, the Company relied upon the February 14, 2006 Schedule 13G
filing of Nicholas Applegate Capital Management (Applegate) and other information provided
by Applegate.(6)
    
    Represents shares underlying immediately exercisable warrants to purchase common stock. Directors and Executive Officers
  Shares
    
    PercentBeneficially
    
    of ClassName of Beneficial Owner
    
    Capacity
    
    Owned (1)
    
    Owned (1)Randy J. Martinez
    
    Chief Executive Officer and Director
    
    
    256,252
    (2)
    
    
    *Gen. Ronald R. Fogleman
    
    Chairman of the Board of Directors
    
    
    72,553
    (3)
    
    
    *Daniel J. Altobello
    
    Director
    
    
    113,780
    (4)
    
    
    *A. Scott Andrews
    
    Director
    
    
    58,075
    (5)
    
    
    *Joel H. Cowan
    
    Director
    
    
    84,070
    (6)
    
    
    *Madeline E. Hamill
    
    Director
    
    
    3,332
    (7)
    
    
    *Jeffrey L. MacKinney
    
    President and Director
    
    
    130,000
    (8)
    
    
    *Russell L. Ray, Jr.
    
    Director
    
    
    179,863
    (9)
    
    
    *Peter M. Sontag
    
    Director
    
    
    54,035
    (10)
    
    
    *Gilberto M. Duarte, Jr.
    
    Executive Vice President
    
    
    200,000
    (11)
    
    
    *Charles P. McDonald
    
    Chief Operating Officer
    
    
    45,000
    (12)
    
    
    *Directors and Executive Officers as a Group (14 persons)
    
    
    1,315,472
    (16)
    
    
    5.5
    %
 81




---



##### Table of Contents



*
    
    Individual is the beneficial owner of less than one percent (1%) of the outstanding
common stock.(1)
    
    In setting forth this information, the Company relied on its stock transfer records and
other information provided by the persons listed in the table. Beneficial ownership is
reported in accordance with SEC regulations and therefore includes shares of common stock
that may be acquired within 60 days after May 15, 2006, upon the exercise of outstanding stock
options and warrants. Shares of common stock issuable upon the exercise of such options and
warrants are deemed outstanding for purposes of computing the percentage of common stock
owned by the beneficial owner listed in the table, but are not deemed outstanding for
purposes of computing the percentage of outstanding common stock owned by any other
stockholder. Except as otherwise stated below, all shares are owned directly and of record,
and each named person has sole voting and investment power with regard to the shares shown as
owned by such person. For each stockholder, Percent of Class Owned is based on the
23,995,502 shares of common stock issued and outstanding on May 15, 2006 plus any shares that
may be acquired by the stockholder as a result of the exercise of existing options and
warrants within sixty (60) days after May 15, 2006.(2)
    
    Consists of (i) 220,000 shares of common stock issuable to Mr. Martinez upon the exercise
of options granted, and (ii) 36,252 shares of common stock that he owns directly.(3)
    
    Consists of (i) 25,000 shares of common stock issuable to General Fogleman upon the
exercise of options granted, (ii) 10,000 shares of common
stock that he owns directly and (iii) 37,553 shares of
common stock that he owns indirectly.(4)
    
    Consists of (i) 25,000 shares of common stock issuable to Mr. Altobello upon the exercise
of options granted, and (ii) 88,780 shares that he owns directly.(5)
    
    Consists of (i) 18,075 shares of common stock issuable to Mr. Andrews upon the exercise of
options granted, and (ii) 40,000 shares of common stock that he owns directly.(6)
    
    Consists of (i) 30,000 shares of common stock issuable to Mr. Cowan upon the exercise of
options granted, and (ii) 54,070 shares of common stock that he owns indirectly.(7)
    
    Consists of 3,332 shares of common stock issuable to Ms. Hamill upon the exercise of
options granted.(8)
    
    Consists of 130,000 shares of common stock issuable to Mr. MacKinney upon the exercise of
options granted.(9)
    
    Consists of (i) 120,000 shares of common stock issuable to Mr. Ray upon the exercise of
options granted, (ii) 53,970 shares of common stock that he owns directly, and (iii) 5,893
shares of common stock owned in a rollover IRA account.(10)
    
    Consists of (i) 20,000 shares of common stock issuable to Mr. Sontag upon the exercise of
options granted, and (ii) 34,035 shares of common stock that he owns directly.(11)
    
    Consists of 200,000 shares of common stock issuable to Mr. Duarte upon the exercise of
options granted. On June 8, 2006, Mr. Duarte elected to
exercise all exercisable stock option held by him.(12)
    
    Consists of (i) 45,000 shares of common stock issuable to Mr. McDonald upon the exercise of
options granted.(13)
    
    Consists of (i) 954,707 shares of common stock issuable upon the exercise of options, and
(ii)360,765 shares of common stock which the persons in the group own directly or
indirectly. 82




---



##### Table of Contents



EQUITY COMPENSATION PLAN INFORMATION
  Number of SecuritiesRemaining AvailableNumber of
    
    
    Weighted
    
    
    for Future IssuanceSecurities To Be
    
    
    Average
    
    
    under EquityIssued Upon
    
    
    Exercise Price of
    
    
    Compensation PlansExercise of
    
    
    Options,
    
    
    (Excluding SecuritiesOptions, Warrants
    
    
    Warrants and
    
    
    Reflected in the FirstPlan Category
    
    and Rights
    
    
    Rights
    
    
    Column)Equity Compensation Plans
Approved by Security Holders
    
    
    3,873,976
    
    
    $
    1.92
    
    
    
    1,687,662Equity Compensation Plans Not
Approved by Security Holders
    
    
    60,000
    
    
    $
    4.54
    
    
    
    329,000Total
    
    
    3,933,976
    
    
    $
    1.96
    
    
    
    2,016,662
 Employee Benefit Plan
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services
  2005
    
    
    2004Audit fees(1)
    
    $
    5,670,000
    
    
    $
    337,000Audit-related fees(2)
    
    $
    174,000
    
    
    $
    67,000Audit and audit-related fees
    
    $
    5,844,000
    
    
    $
    404,000
 83




---



##### Table of Contents



2005
    
    
    2004Tax fees(3)
    
    $
    495,000
    
    
    $
    654,000All other fees
    
    $
    
    
    
    $
    Total fees
    
    $
    6,339,000
    
    
    $
    1,058,000
 
 (1)
    
    Audit fees include annual audit and limited quarterly review fees as well as review of SEC
filings and consents.(2)
    
    Audit-related fees consisted principally of fees for audits of financial statements of certain
employee benefit plans and due diligence services.(3)
    
    Tax fees consisted of fees for tax advisory and tax compliance services. Determination of Auditor Independence
  Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 Financial Statements
 
    
    Consolidated Balance Sheets, December 31, 2005 and 2004
    
    Consolidated Statements of Income, Years Ended December 31, 2005, 2004 and 2003
    
    Consolidated Statements of Changes in Stockholders Equity/(Deficit), Years Ended December 31,
2005, 2004 and 2003
    
    Consolidated Statements of Cash Flows, Years Ended December 31, 2005, 2004 and 2003
    
    Notes to Consolidated Financial Statements
    
    Reports of Independent Registered Public Accounting Firm(2)
    
    Financial Statement Schedules
 NOTE:
    
    All schedules are omitted because the requisite information is either presented in the
financial statements or notes thereto or is not present in amounts sufficient to require submission
of the schedules.
 84




---



##### Table of Contents



Exhibits
 ExhibitNo.
    
    Description2.1*
    
    Agreement and Plan of Merger, dated as of January 10, 2005, by and
among World Airways, Inc., World Air Holdings, Inc., and World Merger
Subsidiary, Inc. (incorporated by reference to Exhibit 2.1 to World
Air Holdings, Inc.s Current Report on Form 8-K, filed with the SEC
on January 10, 2005).2.2*
    
    Transfer Agreement, dated as of January 10, 2005, by and between
World Air Holdings, Inc. and World Airways, Inc. (incorporated by
reference to Exhibit 2.2 to World Air Holdings, Inc.s Current Report
on Form 8-K, filed with the SEC on January 10, 2005).3.1*
    
    Amended and Restated Certificate of Incorporation of World Air
Holdings, Inc. (incorporated by reference to Exhibit 3.1 to World Air
Holdings, Inc.s Current Report on Form 8-K, filed with the SEC on
January 10, 2005).3.2*
    
    Bylaws of World Air Holdings, Inc. (incorporated by reference to
Exhibit 3.2 to World Air Holdings, Inc.s Current Report on Form 8-K,
filed with the SEC on January 10, 2005).4.1*
    
    Stock Registration Rights Agreement between Malaysian Helicopter
Services Berhad and World Airways, Inc. (incorporated by reference to
Exhibit 10.2 to WorldCorp, Inc.s Current Report on Form 8-K, filed
with the SEC on March 14, 1994).4.2*
    
    Indenture, dated as of December 30, 2003, by and between World
Airways, Inc. and Wachovia Bank, National Association, as trustee
(incorporated by reference to Exhibit 99.1 to World Airways, Inc.s
Current Report on Form 8-K, filed with the SEC on January 21, 2004).4.3*
    
    First Supplemental Indenture, dated as of January 10, 2005, by and
among World Air Holdings, Inc., World Airways, Inc., and Wachovia
Bank, National Association, as trustee (incorporated by reference to
Exhibit 4.1 to World Air Holdings, Inc.s Current Report on Form 8-K,
filed with the SEC on January 10, 2005).4.4*
    
    Form of World Air Holdings, Inc. and World Airways, Inc., 8.0%
Convertible Senior Subordinated Debentures due 2009 (incorporated by
reference to Exhibit 4.3 to World Air Holdings, Inc.s and World
Airways, Inc.s Registration Statement on Form S-3, File No.
333-113135, filed with the SEC on January 24, 2005).4.5*
    
    Form of Purchase Agreement relating to the Companys 8.0% Convertible
Senior Subordinated Debentures due 2009 (incorporated by reference to
Exhibit 99.1 to World Airways, Inc.s Current Report on Form 8-K,
filed on November 12, 2003).4.6*
    
    Registration Rights Agreement, dated as of December 30, 2003, by and
among World Airways, Inc. and the purchasers of 8.0% Convertible
Senior Subordinated Debentures due 2009 (incorporated by reference to
Exhibit 99.2 to World Airways, Inc.s Current Report on Form 8-K,
filed with the SEC on January 21, 2004).4.7*
    
    Registration Rights Agreement, dated as of December 30, 2003, by and
among World Airways, Inc. and the Air Transportation Stabilization
Board (incorporated
 85




---



##### Table of Contents



ExhibitNo.
    
    Descriptionby reference to Exhibit 99.9 to World Airways,
Inc.s Current Report on Form 8-K, filed with the SEC on January 21,
2004).4.8*
    
    Joinder to Registration Rights Agreement, dated as of January 10,
2005, by and among World Air Holdings, Inc., World Airways, Inc. and
the Air Transportation Stabilization Board (incorporated by reference
to Exhibit 10.5 to World Air Holdings, Inc.s Current Report on Form
8-K, filed with the SEC on January 10, 2005).4.9*
    
    Warrant No. D-1-1, dated as of January 10, 2005, in favor of the Air
Transportation Stabilization Board (incorporated by reference to
Exhibit 10.6 to World Air Holdings, Inc.s Current Report on Form
8-K, filed with the SEC on January 10, 2005).4.10*
    
    Warrant No. D-1-2, dated as of January 10, 2005, in favor of the Air
Transportation Stabilization Board (incorporated by reference to
Exhibit 10.7 to World Air Holdings, Inc.s Current Report on Form
8-K, filed with the SEC on January 10, 2005).4.11*
    
    Warrant No. D-1-4, dated as of January 10, 2005, in favor of the Air
Transportation Stabilization Board (incorporated by reference to
Exhibit 10.8 to World Air Holdings, Inc.s Current Report on Form
8-K, filed with the SEC on January 10, 2005).10.1*
    
    Loan Agreement, dated as of December 30, 2003, by and among World
Airways, Inc., as borrower, Govco Incorporated, as primary Tranche A
lender, Citibank, N.A., as alternate Tranche A lender, collateral
agent and agent, Citicorp North America Inc., as Govco administrative
agent, Citicorp USA Inc., as Tranche B lender, Phoenix American
Financial Services, Inc., as loan administrator, and the Air
Transportation Stabilization Board (incorporated by reference to
Exhibit 99.3 to World Airways, Inc.s Current Report on Form 8-K,
filed with the SEC on January 21, 2004).10.2*
    
    Waiver to Loan Agreement, dated as of January 10, 2005, by and
between World Airways, Inc. and the Air Transportation Stabilization
Board (incorporated by reference to Exhibit 10.1 to World Air
Holdings, Inc.s Current Report on Form 8-K, filed with the SEC on
January 10, 2005).10.3*
    
    Amendment No. 1 and Waiver to Loan Agreement, dated as of April 27,
2005, by and among World Airways, Inc., North American Airlines,
Inc., World Airways Parts Company, LLC, Govco Incorporated, as
primary Tranche A lender, Citicorp North American Inc., as Govco
administrative agent, the other lenders, Citibank, N.A., as agent for
the lenders and collateral agent, International Lease Finance
Corporation, as supplemental guarantor and the Air Transportation
Stabilization Board (incorporated by reference to Exhibit 10.5 to
World Air Holdings, Inc.s Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2005, filed with the SEC on May 16,
2005).10.4
    
    Waiver to Loan Agreement, dated as of October 28, 2005, by and among
World Airways, Inc., North American Airlines, Inc., World Air
Holdings, Inc. and the Air Transportation Stabilization Board.10.5
    
    Waiver to Loan Agreement, dated as of November 11, 2005, by and among
World Airways, Inc., North American Airlines, Inc., World Air
Holdings, Inc. and the Air Transportation Stabilization Board.10.6
    
    Amendment No. 1 to Waiver to Loan Agreement, dated as of November 30,
2005,
 86




---



##### Table of Contents



ExhibitNo.
    
    Descriptionby and among World Airways, Inc., North American Airlines,
Inc., World Air Holdings, Inc. and the Air Transportation
Stabilization Board.10.7
    
    Amendment No. 2 to Waiver to Loan Agreement, dated as of December 15,
2005, by and among World Airways, Inc., North American Airlines,
Inc., World Air Holdings, Inc. and the Air Transportation
Stabilization Board.10.8*
    
    Joinder to Loan Agreement, dated as of January 10, 2005, entered into
by World Air Holdings, Inc. (incorporated by reference to Exhibit
10.2 to World Air Holdings, Inc.s Current Report on Form 8-K, filed
with the SEC on January 10, 2005).10.9*
    
    Parent Guarantee, dated as of January 10, 2005, entered into by World
Air Holdings, Inc. (incorporated by reference to Exhibit 10.3 to
World Air Holdings, Inc.s Current Report on Form 8-K, filed with the
SEC on January 10, 2005).10.10*
    
    Intellectual Property Security Agreement, dated as of December 30,
2003, in favor of Citibank, N.A., the lenders signatory thereto, the
Air Transportation Stabilization Board and International Lease
Finance Corporation (incorporated by reference to Exhibit 10.3 to
World Airways, Inc.s Annual Report on Form 10-K for the fiscal year
ended December 31, 2003, filed with the SEC on March 29, 2004).10.11*
    
    Payoff Letter, dated as of December 30, 2003, issued by Wells Fargo
Foothill, Inc. in favor of the Company (incorporated by reference to
Exhibit 10.4 to World Airways, Inc.s Annual Report on Form 10-K for
the fiscal year ended December 31, 2003, filed with the SEC on March
29, 2004).10.12*
    
    Mortgage and Security Agreement, dated as of December 30, 2003, by
and among World Airways, Inc. and World Airways Parts Company, LLC,
as grantors, in favor of Citibank, N.A., as collateral agent
(incorporated by reference to Exhibit 99.4 to World Airways, Inc.s
Current Report on Form 8-K, filed with the SEC on January 21, 2004).10.13*
    
    Joinder to and Modification of Mortgage and Security Agreement, dated
as of January 10, 2005, by and among World Air Holdings, Inc., World
Airways, Inc., World Airways Parts Company, LLC and Citibank, N.A.
(incorporated by reference to Exhibit 10.4 to World Air Holdings,
Inc.s Current Report on Form 8-K, filed with the SEC on January 10,
2005).10.14*
    
    Amended and Restated Mortgage and Security Agreement, dated as of
April 27, 2005, by and among World Air Holdings, Inc., World Airways,
Inc., World Airways Parts Company, LLC and North American Airlines,
Inc., as grantors, in favor of Citibank, N.A., as collateral agent
(incorporated by reference to Exhibit 10.6 to World Air Holdings,
Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2005, filed with the SEC on May 16, 2005).10.15
    
    Blocked Account Agreement, dated as of December 30, 2003, by and
among World Airways, Inc., Wachovia Bank, National Association and
Citibank, N.A., as collateral agent.10.16
    
    First Amendment to Blocked Account Agreement, dated as of May 25,
2005, by and among World Airways, Inc., Wachovia Bank, National
Association and Citibank, N.A., as collateral agent.10.17
    
    Blocked Account Control Agreement, dated as of April 27, 2005, by and
among North American Airlines, Inc., Citibank, N.A., as collateral
agent and Citibank, N.A., as depositary.
 87




---



##### Table of Contents



ExhibitNo.
    
    Description10.18
    
    Blocked Account Agreement, dated as of May 25, 2005, by and among
World Air Holdings, Inc., Wachovia Bank, National Association and
Citibank, N.A., as collateral agent.10.19
    
    Blocked Account Agreement, dated as of May 25, 2005, by and among
North American Airlines, Inc., Wachovia Bank, National Association
and Citibank, N.A., as collateral agent.10.20*
    
    Stock Purchase Agreement, dated as of April 27, 2005, by and among
World Air Holdings, Inc., North American Airlines, Inc., Dan
McKinnon, in his individual capacity and as trustee of the Dan and
Janice McKinnon Family Trust (incorporated by reference to Exhibit
10.1 to World Air Holdings, Inc.s Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 2005, filed with the SEC on May
16, 2005).10.21*
    
    Guaranty of Agreement, dated as of April 27, 2005, entered into by
World Airways (incorporated by reference to Exhibit 10.2 to World Air
Holdings, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2005, filed with the SEC on May 16, 2005).10.22*
    
    Escrow Agreement, dated as of April 27, 2005, entered into by and
among World Air Holdings, Inc., Dan McKinnon, as trustee and SunTrust
Bank, as escrow agent (incorporated by reference to Exhibit 10.3 to
World Air Holdings, Inc.s Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2005, filed with the SEC on May 16,
2005).10.23*
    
    Termination and Release, dated as of April 27, 2005, by and among Dan
McKinnon, in his individual capacity and as trustee, Janice McKinnon,
in her individual capacity and World Air Holdings, Inc. (incorporated
by reference to Exhibit 10.4 to World Air Holdings, Inc.s Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2005,
filed with the SEC on May 16, 2005).10.24*
    
    Subsidiary Guarantee, dated as of April 27, 2005, by North American
Airlines, Inc., as subsidiary guarantor, in favor of Citibank, N.A.,
as agent, Govco, as administrative agent, the lenders, International
Lease Finance Corporation, as supplemental guarantor, Phoenix
American Financial Services, as the loan administrator and the Air
Transportation Stabilization Board (incorporated by reference to
Exhibit 10.7 to World Air Holdings, Inc.s Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2005, filed with the SEC
on May 16, 2005).10.25*
    
    Holdings Guaranty (World Airways, Inc.), dated as of April 27, 2005,
by World Air Holdings, Inc., as guarantor, in favor of International
Lease Finance Corporation, as lessor under the leases (incorporated
by reference to Exhibit 10.8 to World Air Holdings, Inc.s Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2005,
filed with the SEC on May 16, 2005).10.26*
    
    Holdings Guaranty (North American Airlines, Inc.), dated as of April
27, 2005, by World Air Holdings, Inc., as guarantor, in favor of
International Lease Finance Corporation, as lessor under the leases
(incorporated by reference to Exhibit 10.9 to World Air Holdings,
Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2005, filed with the SEC on May 16, 2005).10.27*
    
    Form of Irrevocable Stock Power of World Air Holdings, Inc.,
assigning interest in World Risk Solutions, Ltd. (incorporated by
reference to Exhibit 10.9 to World Air Holdings, Inc.s Current
Report on Form 8-K, filed with the SEC on January 10, 2005).
 88




---



##### Table of Contents



ExhibitNo.
    
    Description10.28*
    
    Form of Irrevocable Stock Power of World Air Holdings, Inc.,
assigning interest in World Airways, Inc. (incorporated by reference
to Exhibit 10.10 to World Air Holdings, Inc.s Current Report on Form
8-K, filed with the SEC on January 10, 2005).10.29*
    
    Lease Agreement, dated as of March 26, 2004, by and between World
(DE) QRS 15-65, Inc., as landlord and World Airways, Inc., as tenant
(incorporated by reference to Exhibit 99.1 to World Airways, Inc.s
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2004, filed with the SEC on May 14, 2004).10.30*
    
    World Airways Parts Company, LLC Limited Liability Company Agreement,
dated as of November 27, 2002 (incorporated by reference to Exhibit
10.24 to World Airways, Inc.s Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, filed with the SEC on March 27,
2003).10.31*
    
    Support and Management Agreement, dated as of December 12, 2002, by
and between World Airways, Inc. and World Airways Parts Company, LLC
(incorporated by reference to Exhibit 10.25 to World Airways, Inc.s
Annual Report on Form 10-K for the fiscal year ended December 31,
2002, filed with the SEC on March 27, 2003).10.32*
    
    Credit Agreement, dated as of March 30, 2006, among World Airways,
Inc. and North American Airlines, Inc., as Borrowers, World Air
Holdings, Inc. and World Airways Parts Company, LLC as Guarantors,
and Wachovia Bank, National Association, as Agent and Lender
(incorporated by reference to Exhibit 10.1 to World Air Holdings,
Inc.s Current Report on Form 8-K on March 31, 2006, filed with the
SEC on April 4, 2006).10.33*
    
    Guaranty, dated as of March 30, 2006, given by World Air Holdings,
Inc. and World Airways Parts Company, LLC as Guarantors in favor of
Wachovia Bank, National Association, as Agent and Lender
(incorporated by reference to Exhibit 10.2 to World Air Holdings,
Inc.s Current Report on Form 8-K on March 31, 2006, filed with the
SEC on April 4, 2006).10.34*
    
    Security Agreement, dated as of March 30, 2006, among World Airways,
Inc., North American Airlines, Inc., World Air Holdings, Inc. and
World Airways Parts Company, LLC in favor of Wachovia Bank, National
Association as Agent and Lender (incorporated by reference to Exhibit
10.3 to World Air Holdings, Inc.s Current Report on Form 8-K on
March 31, 2006, filed with the SEC on April 4, 2006).10.36*+
    
    Restricted Stock Plan for Eligible Employees of the Company,
including forms for Award Agreements and Stock Option Agreements
(incorporated by reference to Exhibit 10.17 to World Airways, Inc.s
Annual Report on Form 10-K for the fiscal year ended December 31,
2001, filed with the SEC on April 1, 2002).10.37*+
    
    Form of Indemnification Agreement with Directors and Executive
Officers (incorporated by reference to Exhibit 10.13 to World
Airways, Inc.s Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, filed with the SEC on April 1, 2002).10.38*+
    
    Key Employee Retention Plan (incorporated by reference to Exhibit
10.18 to World Airways, Inc.s Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, filed with the SEC on April 1,
2002).
 89




---



##### Table of Contents



ExhibitNo.
    
    Description10.39*+
    
    World Airways, Inc. Non-Employees Stock Option Plan (incorporated by
reference to Exhibit 10.46 to World Airways, Inc.s Registration
Statement on Form S-1/A, No. 33-95488, filed with the SEC on October
4, 1995).10.40*+
    
    World Air Holdings, Inc. Amended and Restated 1995 Stock Incentive
Plan (incorporated by reference to Appendix B to World Airways,
Inc.s definitive proxy statement, filed with the SEC on April 7,
2004).10.41*+
    
    Fourth Amended and Restated Employment Agreement, dated as of April
1, 2004, by and between World Airways, Inc. and Randy J. Martinez
(incorporated by reference to Exhibit 99.5 to World Airways, Inc.s
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2004, filed with the SEC on August 13, 2004).10.42*+
    
    Third Amended and Restated Employment Agreement, dated as of November
1, 2003, by and between World Airways, Inc. and Randy J. Martinez
(incorporated by reference to Exhibit 10.29 to World Airways, Inc.s
Annual Report on Form 10-K for the fiscal year ended December 31,
2003, filed with the SEC on March 29, 2004).10.43*+
    
    Amendment Two to Employment Agreement, dated as of May 1, 2003, by
and between World Airways, Inc. and Randy J. Martinez (incorporated
by reference to Exhibit 10.11 to World Airways, Inc.s Annual Report
on Form 10-K for the fiscal year ended December 31, 2003, filed with
the SEC on March 29, 2004).10.44*+
    
    Second Amended and Restated Employment Agreement dated as of May 6,
2004, by and between World Airways, Inc. and Gilberto M. Duarte, Jr.
(incorporated by reference to Exhibit 99.3 to World Airways, Inc.s
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2004, filed with the SEC on August 13, 2004).10.45*+
    
    First Amended and Restated Employment Agreement, dated as of April 1,
2004, by and between World Airways, Inc. and Jeffrey L. MacKinney
(incorporated by reference to Exhibit 99.4 to World Airways, Inc.s
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2004, filed with the SEC on August 13, 2004).10.46*+
    
    Employment Agreement, dated as of August 22, 2003, by and between
World Airways, Inc. and Jeffrey L. MacKinney (incorporated by
reference to Exhibit 10.30 to World Airways, Inc.s Annual Report on
Form 10-K for the fiscal year ended December 31, 2003, filed with the
SEC on March 29, 2004).10.47*+
    
    Amended and Restated Employment Agreement, dated as of May 6, 2004,
by and between World Airways, Inc. and Charles H. J. Addison
(incorporated by reference to Exhibit 99.1 to World Airways, Inc.s
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2004, filed with the SEC on August 13, 2004).10.48*+
    
    Employment Agreement, dated as of April 26, 2004, by and between
World Airways, Inc. and Robert R. Binns (incorporated by reference to
Exhibit 99.2 to World Airways, Inc.s Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 2004, filed with the SEC on
August 13, 2004).10.49*+
    
    Employment Agreement, dated as of April 26, 2004, by and between
World Airways, Inc. and Charles P. McDonald (incorporated by
reference to Exhibit 99.6 to World Airways, Inc.s Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 2004, filed with
the SEC on August 13, 2004).10.50*+
    
    Employment Agreement, dated as of April 26, 2004, by and between
World Airways, Inc. and Kenneth M. Fralick (incorporated by reference
to Exhibit 10.28 to World Airways, Inc.s Annual Report on Form 10-K
for the fiscal year ended
 90




---



##### Table of Contents



ExhibitNo.
    
    DescriptionDecember 31, 2004, filed with the SEC on
March 31, 2005).10.51*+
    
    Agreement and General Release, dated as of November 9, 2004, by and
between World Airways, Inc. and Cindy M. Swinson (incorporated by
reference to Exhibit 10.1 to World Airways, Inc.s Current Report on
Form 8-K, filed with the SEC on November 22, 2004).10.52*+
    
    Amended and Restated Employment Agreement, dated as of May 1, 2005,
by and between North American Airlines, Inc. and Steven E. Harfst
(incorporated by reference to Exhibit 99.1 to World Air Holdings,
Inc.s Current Report on Form 8-K on April 27, 2005, filed with the
SEC on May 3, 2005).10.53*+
    
    Employment Agreement, dated as of May 25, 2005, by and between World
Air Holdings, Inc. and Mark M. McMillin (incorporated by reference to
Exhibit 99.1 to World Air Holdings, Inc.s Current Report on Form 8-K
on May 25, 2005, filed with the SEC on May 26, 2005).10.54*+
    
    Employment Agreement, dated as of April 17, 2006, by and between
World Air Holdings, Inc. and Michael W. Towe (incorporated by
reference to Exhibit 99.1 to World Air Holdings, Inc.s Current
Report on Form 8-K on April 17, 2006, filed with the SEC on April 19,
2006).10.55*+
    
    Employment Agreement, dated as of May 11, 2006, by and between North
American Airlines, Inc. and Jeffrey W. Wehrenberg (incorporated by
reference to Exhibit 99.1 to World Air Holdings, Inc.s Current
Report on Form 8-K on May 11, 2006, filed with the SEC on May 16,
2006).12.1
    
    Statement regarding Computation of Ratio of Earnings to Fixed Charges.21.1
    
    Subsidiaries of the Registrant.23.1
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated by reference pursuant to Rule 12b-32 of the Exchange Act.+
    
    Management contract or compensatory plan or arrangement. Status of Prior Documents
  91




---



##### Table of Contents



SIGNATURES
  World Air Holdings, Inc.By:
    
    /s/ Michael W. ToweMichael W. ToweChief Financial Officer
  92




---



##### Table of Contents



Signature
    
    Title
    
    Date/s/ Randy J. Martinez
    
    Chief Executive Officer and Director
    
    July 7, 2006Randy J. Martinez/s/ Jeffrey L. MacKinney
    
    President and Director
    
    July 7, 2006Jeffrey L. MacKinney/s/ Michael W. Towe
    
    Chief Financial Officer
    
    July 7, 2006Michael W. Towe/s/ Ronald R. Fogleman
    
    Chairman and Director
    
    July 7, 2006Ronald R. Fogleman/s/ Daniel J. Altobello
    
    Director
    
    July 7, 2006Daniel J. Altobello/s/ A. Scott Andrews
    
    Director
    
    July 7, 2006A. Scott Andrews/s/ Joel H. Cowan
    
    Director
    
    July 7, 2006Joel H. Cowan/s/ Madeline E. Hamill
    
    Director
    
    July 7, 2006Madeline E. Hamill/s/ Russell L. Ray, Jr.
    
    Director
    
    July 7, 2006Russell L. Ray, Jr./s/ Peter M. Sontag
    
    Director
    
    July 7, 2006Peter M. Sontag
 93