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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended: December 31, 2004                                                
|          
|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 Registered
|                    |  |                                          
|NONE                |  |                                          

Securities registered pursuant to Section 12(g) of the
Act:


Common Stock ($.001 par value)


(Title of Class)


þ o


o


o þ






DOCUMENTS INCORPORATED BY REFERENCE












---










WORLD AIR HOLDINGS, INC.


2004 ANNUAL REPORT ON FORM 10-K


TABLE OF CONTENTS


|                                                   |  |                                                                                                                      |  |  |    |  |  | 
|-------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  |  | -- |  |  | 
|PART I                                            
|Item 1.                                            |  | Business                                                                                                             |  |  | 1  | 
|Item 2.                                            |  | Properties                                                                                                           |  |  | 17 | 
|Item 3.                                            |  | Legal Proceedings                                                                                                    |  |  | 18 | 
|PART II                                           
|Item 5.                                            |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |  | 20 | 
|Item 6.                                            |  | Selected Financial Data                                                                                              |  |  | 21 | 
|Item 7.                                            |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |  | 21 | 
|Item 7A.                                           |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |  | 35 | 
|Item 8.                                            |  | Financial Statements and Supplementary
    Data                                                                      |  |  | 36 | 
|Item 9A.                                           |  | Controls and Procedures                                                                                              |  |  | 65 | 
|PART III                                          
|Item 10.                                           |  | Directors and Executive Officers of the
    Registrant                                                               |  |  | 65 | 
|Item 11.                                           |  | Executive Compensation                                                                                               |  |  | 66 | 
|Item 12.                                           |  | Security Ownership of Certain Beneficial
    Owners and Management                                                   |  |  | 67 | 
|Item 13.                                           |  | Certain Relationships and Related
    Transactions                                                                   |  |  | 67 | 
|Item 14.                                           |  | Principal Accountant Fees and Services                                                                               |  |  | 67 | 
|PART IV                                           
|Item 15.                                           |  | Exhibits and Financial Statement
    Schedules                                                                       |  |  | 67 | 
|EX-10.28 EMPLOYMENT AGREEMENT - KENNETH M. FRALICK
|EX-12.1 STATEMENT RE: COMPUTATION OF EARNINGS     
|EX-21.1 SUBSIDIARIES OF THE REGISTRANT            
|EX-23.1 CONSENT OF KPMG LLP                       
|EX-31.1 SECTION 302, CERTIFICATION OF THE CEO     
|EX-31.2 SECTION 302, CERTIFICATION OF THE CFO     
|EX-32.1 SECTION 906, CERTIFICATION OF THE CEO     
|EX-32.2 SECTION 906, CERTIFICATION OF THE CFO     





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PART I







|        |         
|------- | --------
|Item 1. | Business











Available Information


www.worldairways.com


1



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Recent Developments


















2



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Overview & Operating Environment








3



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4



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Customers




|                                  |  |      |      |   |      |  |      |      |  |  |      |  
|--------------------------------- |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                  |  | 2004 |      |   | 2003 |  |      | 2002 | 
|                                  |  |      |      |   |      |  |      |      | 
|USAF                              |  |      | 77.5 | % |      |  | 74.7 | %    |  |  | 72.2 | %
|Sonair Serviceo Aereo (Sonair)  |  |      | 5.5  | % |      |  | 5.8  | %    |  |  | 5.8  | %
|Menlo Worldwide (Menlo)         |  |      | 5.2  | % |      |  | 5.8  | %    |  |  | 8.0  | %
|EVA Airways (EVA)               |  |      | 3.4  | % |      |  |     |      |  |  |     |  
|China Airlines (China Airlines) |  |      | 2.0  | % |      |  |     |      |  |  |     |  

USAF.


st th st th


|                                                 |  |      |       |  |      |   |       |      |  |   |       | 
|------------------------------------------------ |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                                 |  | 2004 |       |  | 2003 |   |       | 2002 | 
|                                                 |  |      |       |  |      |   |       |      | 
|Year ended
    September 30th                    |  |      |       |  |      |   |       |      |  |   |       | 
|Original contract award                          |  | $    | 125.8 |  |      | $ | 120.0 |      |  | $ | 175.0 | 
|                                                 |  |      |       |  |      |   |       |      | 
|Year ended
    December 31stUSAF revenue earned: |  |      |       |  |      |   |       |      |  |   |       | 
|Fixed passenger                                  |  | $    | 129.3 |  |      | $ | 73.6  |      |  | $ | 125.3 | 
|Expansion passenger                              |  |      | 255.7 |  |      |   | 207.1 |      |  |   | 141.5 | 
|Cargo fixed and expansion                        |  |      | 5.7   |  |      |   | 74.0  |      |  |   | 10.8  | 
|                                                 |  |      |       |  |      |   |       |      | 
|Total revenue earned                             |  | $    | 390.7 |  |      | $ | 354.7 |      |  | $ | 277.6 | 
|                                                 |  |      |       |  |      |   |       |      | 







5



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Menlo.


Sonair.


EVA.


China Airlines.




|                             |  |                         |       |  |      |   |       |      |  |   |       | 
|---------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                             |  | Year Ended December 31, |      
|                             |  |                         |      
|                             |  | 2004                    |       |  | 2003 |   |       | 2002 | 
|                             |  |                         |       |  |      |   |       |      | 
|Passenger Charter Operations |  | $                       | 432.6 |  |      | $ | 343.3 |      |  | $ | 306.5 | 
|Cargo Charter Operations     |  |                         | 69.1  |  |      |   | 128.5 |      |  |   | 76.0  | 

Backlog




Maintenance




6



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Aviation Fuel






Regulatory Matters








7



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th






th




8



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Employees




|                              |                 |           |     |       |   |  |      |       | 
|----------------------------- | --------------- | --------- | --- | ----- | - |  | ---- | ----- | 
|Classification                |                 | Employees |     |       | % | 
|                              |                 |           |     |       |   | 
|Officers                      |                 |           | 13  |       |   |  | 0.9  |      
|Administrative and Operations |                 |           | 399 |       |   |  | 29.1 |      
|Cockpit Crew                  |                 |           | 360 |       |   |  | 26.3 |      
|Flight Attendants             |                 |           | 599 |       |   |  | 43.7 |      
|                              |                 |           |     |       |   | 
|                              | Total Employees |           |     | 1,371 |   |  |      | 100.0 | 
|                              |                 |           |     |       |   | 



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th th




Risk Factors






| |                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys substantial debt and operating lease
    obligations 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.



10



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company is limited in its ability to obtain additional
    financing. Its indebtedness outstanding under its
    $30.0 million ATSB Loan is secured by substantially all of
    the Companys assets. In addition, the ATSB Loan contains
    restrictive provisions that require prepayments in the event the
    Company sells any significant assets, receives proceeds from
    future borrowings from other sources or issuances of certain
    securities, or receives 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 and other recurring fixed costs. Further,
    the Company may be required to prepay portions of the ATSB Loan
    under various circumstances. Accordingly, the Company may have
    to use its working capital to fund such payments and other
    recurring fixed costs instead of funding general corporate
    requirements.
|
| |  | The Companys ability to respond to competitive
    developments and adverse 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 keep it competitive or to
    withstand prolonged adverse economic conditions.                                                                                                                                                                       



| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The covenants contained in the loan agreement governing
    the ATSB Loan and the covenants included in the Companys
    operating leases may limit the Companys financial and
    operating flexibility.







| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | granting additional liens on the Companys 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 the Companys assets unless certain
    conditions are satisfied; and
|
| |  | amending the terms of agreements relating to the Companys
    other indebtedness for borrowed money or granting any additional
    negative pledges.       

11



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| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | Fluctuations in interest rates could adversely affect the
    Companys liquidity, 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.





| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | If the Company is unable to maintain high utilization
    rates for its aircraft, the Companys business will
    suffer.



12



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| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | In the event of an aircraft accident, the Company may
    incur substantial losses that may not be entirely covered by
    insurance.









| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | The Company 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.





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th th






| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company is subject to significant and increasing
    government regulation and oversight which 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.



14



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| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | The air transportation industry and the markets the
    Company serves are highly competitive.





| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 terrorist attacks of September 11, 2001 and
    government responses to them continue to have a material adverse
    impact on the air transportation industry.





| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in costs due to enhanced security measures and
    government directives in response to the terrorist
    attacks; and                                                                 
|
| |  | an increase in the cost of aviation insurance in general and the
    cost and availability of coverage for acts of war, terrorism,
    hijacking, sabotage and similar acts of peril in particular.

15



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| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | Increased insurance costs due to the terrorist attacks of
    September 11, 2001 may adversely impact the Companys
    operations and financial results.







| |                                                                 
| | ----------------------------------------------------------------
| | 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.



16



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| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

Flight Equipment






|                            |       |            |     |  |        |  |     |       |  |  |   |    | 
|--------------------------- | ----- | ---------- | --- |  | ------ |  | --- | ----- |  |  | - | -- | 
|                            |       | Capacity   |    
|                            |       |            |    
|                            |       | Passenger  |     |  | Cargo  |  |     |      
|Aircraft(a)                 |       | (Seats)(b) |     |  | (Tons) |  |     | Total | 
|                            |       |            |     |  |        |  |     |       | 
|McDonnell Douglas MD-11     |       |            | 409 |  |        |  |    |       |  |  | 4 |   
|McDonnell Douglas MD-11F    |       |            |    |  |        |  | 102 |       |  |  | 3 |   
|McDonnell Douglas MD-11ER   |       |            | 409 |  |        |  |    |       |  |  | 5 |   
|McDonnell Douglas DC-10-30  |       |            | 356 |  |        |  |    |       |  |  | 2 |   
|McDonnell Douglas DC-10-30F |       |            |    |  |        |  | 80  |       |  |  | 2 |   
|                            | Total |            |     |  |        |  |     |       |  |  |   | 16 | 




Notes




|    |  |                                                                                           
|--- |  | ------------------------------------------------------------------------------------------
|(a) |  | F aircraft are freighters; ER aircraft
    have extended-range capabilities.          
|   
|(b) |  | Based on maximum operating configurations. Other configurations
    are occasionally used.





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Ground Facilities











|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings.







18



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PART II







|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market For Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities.

SM


|               |  |              |      |  |     |   |      | 
|-------------- |  | ------------ | ---- |  | --- | - | ---- | 
|               |  | Common Stock |     
|               |  |              |     
|               |  | High         |      |  | Low |  
|               |  |              |      |  |     |  
|2004           |  |              |      |  |     |   |      | 
|Fourth Quarter |  | $            | 7.15 |  |     | $ | 5.01 | 
|Third Quarter  |  |              | 7.37 |  |     |   | 2.56 | 
|Second Quarter |  |              | 4.24 |  |     |   | 2.68 | 
|First Quarter  |  |              | 4.27 |  |     |   | 3.24 | 
|2003           |  |              |      |  |     |   |      | 
|Fourth Quarter |  |              | 4.90 |  |     |   | 2.91 | 
|Third Quarter  |  |              | 5.10 |  |     |   | 1.75 | 
|Second Quarter |  |              | 2.89 |  |     |   | .69  | 
|First Quarter  |  |              | 1.00 |  |     |   | .50  | 





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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                              |                                                                             |                                      |         |        |      |   |         |        |  |   |         |        |  |      |         |         |   |   |         |        |  
|------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------ | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ |  | ---- | ------- | ------- | - | - | ------- | ------ | -
|                                                              |                                                                             | Year Ended December 31,              |        
|                                                              |                                                                             |                                      |        
|                                                              |                                                                             | 2004                                 |         |        | 2003 |   |         | 2002   |  |   | 2001    |        |  | 2000 |        
|                                                              |                                                                             |                                      |         |        |      |   |         |        |  |   |         |        |  |      |        
|                                                              |                                                                             | (In thousands except per share data) |        
|Results of operations:                                        |                                                                             |                                      |         |        |      |   |         |        |  |   |         |        |  |      |         |         |   |   |         |       
|Operating revenues                                            |                                                                             | $                                    | 503,900 |        |      | $ | 474,850 |        |  | $ | 384,489 |        |  | $    | 317,866 |         |   | $ | 264,033 |       
|Operating expenses                                            |                                                                             |                                      | 463,617 |        |      |   | 446,422 |        |  |   | 377,367 |        |  |      | 338,595 |         |   |   | 262,926 |       
|Operating income (loss)                                       |                                                                             |                                      | 40,283  |        |      |   | 28,428  |        |  |   | 7,122   |        |  |      | (20,729 | )       |   |   | 1,107   |       
|                                                              | Earnings (loss) before income taxes and accounting change                   |                                      |         | 34,032 |      |   |         | 19,123 |  |   |         | 2,041  |  |      |         | (26,037 | ) |   |         | (3,159 | )
|Accounting change                                             |                                                                             |                                      |        |        |      |   |        |        |  |   |        |        |  |      |        |         |   |   | 22,744  |       
|Income tax expense                                            |                                                                             |                                      | 8,445   |        |      |   | 3,802   |        |  |   |        |        |  |      |        |         |   |   |        |       
|Net earnings (loss)                                           |                                                                             |                                      | 25,587  |        |      |   | 15,321  |        |  |   | 2,041   |        |  |      | (26,037 | )       |   |   | 19,585  |       
|Basic earnings (loss) per common share:                       |                                                                             |                                      |         |        |      |   |         |        |  |   |         |        |  |      |         |         |   |   |         |       
|                                                              | Before accounting change                                                    |                                      |         | 1.95   |      |   |         | 1.37   |  |   |         | 0.18   |  |      |         | (2.42   | ) |   |         | (0.33  | )
|                                                              | Accounting change                                                           |                                      |         |       |      |   |         |       |  |   |         |       |  |      |         |        |   |   |         | 2.36   |  
|                                                              | Net earnings (loss)                                                         |                                      |         | 1.95   |      |   |         | 1.37   |  |   |         | 0.18   |  |      |         | (2.42   | ) |   |         | 2.03   |  
|                                                              | Weighted average common shares outstanding                                  |                                      |         | 13,095 |      |   |         | 11,224 |  |   |         | 11,073 |  |      |         | 10,755  |   |   |         | 9,641  |  
|Diluted earnings (loss) per common share:                     |                                                                             |                                      |         |        |      |   |         |        |  |   |         |        |  |      |         |         |   |   |         |       
|                                                              | Before accounting change                                                    |                                      |         | 1.09   |      |   |         | 0.95   |  |   |         | 0.18   |  |      |         | (2.42   | ) |   |         | (0.33  | )
|                                                              | Accounting change                                                           |                                      |         |       |      |   |         |       |  |   |         |       |  |      |         |        |   |   |         | 2.36   |  
|                                                              | Net earnings (loss)                                                         |                                      |         | 1.09   |      |   |         | 0.95   |  |   |         | 0.18   |  |      |         | (2.42   | ) |   |         | 2.03   |  
|                                                              | Weighted average common shares and common equivalent shares
    outstanding |                                      |         | 24,591 |      |   |         | 17,783 |  |   |         | 11,073 |  |      |         | 10,775  |   |   |         | 9,641  |  
|Financial Position:                                           |                                                                             |                                      |         |        |      |   |         |        |  |   |         |        |  |      |         |         |   |   |         |       
|Cash and cash equivalents                                     |                                                                             | $                                    | 49,956  |        |      | $ | 30,535  |        |  | $ | 20,839  |        |  | $    | 18,878  |         |   | $ | 11,558  |       
|Restricted cash                                               |                                                                             |                                      | 4,926   |        |      |   | 23,290  |        |  |   | 665     |        |  |      | 662     |         |   |   | 4,124   |       
|Total assets                                                  |                                                                             |                                      | 179,317 |        |      |   | 157,301 |        |  |   | 117,262 |        |  |      | 112,229 |         |   |   | 113,890 |       
|Notes payable and long-term debt including current maturities |                                                                             |                                      | 49,879  |        |      |   | 76,534  |        |  |   | 57,641  |        |  |      | 62,396  |         |   |   | 64,024  |       
|Stockholders equity (deficiency)                             |                                                                             |                                      | 30,398  |        |      |   | (8,030  | )      |  |   | (28,867 | )      |  |      | (31,104 | )       |   |   | (7,280  | )     








|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion And Analysis Of Financial
    Condition And Results Of Operations.





| |                             
| | ----------------------------
| | Critical Accounting Policies



21



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| |                                                     
| | ----------------------------------------------------
| | Accounting for Aircraft Repair and Maintenance Costs









| |                                       
| | --------------------------------------
| | Losses on Contractual Lease Agreements





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| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets





| |               
| | --------------
| | Legal Reserves





| |                                                     
| | ----------------------------------------------------
| | Allowance for Doubtful Accounts and Bad Debt Expense





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| |                       
| | ----------------------
| | Employee Benefit Plans





| |             
| | ------------
| | Income Taxes







Overview and Results of Operations




| |         
| | --------
| | Overview





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|                                                                       |                        |      |      |        |      |  |  |      |   |  |      |        |  |  |  |     |   |  |      |        |  |  |  |     |  
|---------------------------------------------------------------------- | ---------------------- | ---- | ---- | ------ | ---- |  |  | ---- | - |  | ---- | ------ |  |  |  | --- | - |  | ---- | ------ |  |  |  | --- | -
|                                                                       |                        | 2004 |      |        | 2003 |  |  | 2002 |  
|                                                                       |                        |      |      |        |      |  |  |      |  
|Block hours:                                                           |                        |      |      |        |      |  |  |      |   |  |      |        |  |  |  |     |   |  |      |        |  |  |  |    
|                                                                       | Full service passenger |      |      | 26,930 |      |  |  | 56   | % |  |      | 23,046 |  |  |  | 52  | % |  |      | 21,226 |  |  |  | 56  | %
|                                                                       | ACMI passenger         |      |      | 4,869  |      |  |  | 10   | % |  |      | 4,412  |  |  |  | 10  | % |  |      | 3,053  |  |  |  | 8   | %
|                                                                       | Full service cargo     |      |      | 811    |      |  |  | 2    | % |  |      | 9,182  |  |  |  | 21  | % |  |      | 4,966  |  |  |  | 13  | %
|                                                                       | ACMI cargo             |      |      | 14,058 |      |  |  | 30   | % |  |      | 6,514  |  |  |  | 15  | % |  |      | 8,049  |  |  |  | 21  | %
|                                                                       | Miscellaneous          |      |      | 1,091  |      |  |  | 2    | % |  |      | 918    |  |  |  | 2   | % |  |      | 755    |  |  |  | 2   | %
|                                                                       |                        |      |      |        |      |  |  |      |   |  |      |        |  |  |  |     |   | 
|                                                                       | Total                  |      |      | 47,759 |      |  |  | 100  | % |  |      | 44,072 |  |  |  | 100 | % |  |      | 38,049 |  |  |  | 100 | %
|                                                                       |                        |      |      |        |      |  |  |      |   |  |      |        |  |  |  |     |   | 
|Operating aircraft at year-end                                         |                        |      | 16   |        |      |  |  |      |   |  | 18   |        |  |  |  |     |   |  | 16   |        |  |  |  |    
|Average available aircraft per day                                     |                        |      | 16.0 |        |      |  |  |      |   |  | 16.9 |        |  |  |  |     |   |  | 15.8 |        |  |  |  |    
|Average daily utilization (block hours flown per day per
    aircraft) |                        |      | 8.1  |        |      |  |  |      |   |  | 7.1  |        |  |  |  |     |   |  | 6.6  |        |  |  |  |    



2004




| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recording a provision for litigation of $2.6 million
    related to a claim of a German tour operator from 1996.                                                     
|
| |  | Recording $2.5 million of bad debt expense associated with
    air services provided to TM Travel Services, Inc. (TM
    Travel).                                  
|
| |  | Recording a $1.5 million 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.
|
| |  | Increase in the Companys effective tax rate from 19.9% to
    24.8%.                                                                                                

2003




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.
|
| |  | Recording $1.9 million of bad debt expense associated with
    air services provided to Ritetime Aviation Services
    (Ritetime).                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Recording a $1.7 million liability for estimated losses
    based on contractual lease costs (reduced by estimated sub-lease
    rentals) that will continue to be incurred for the remaining
    term of the Companys lease agreement for office space at
    its former headquarters in Herndon, Virginia.                                                                                                                                                                                                                                                                            
|
| |  | Fees and expenses of $1.3 million paid due to 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

2002




| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recording a $2.0 million liability to the federal
    government for the return in 2003 of a portion of the grant
    funds received under the Air Transportation Safety and System
    Stabilization Act.

25



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recording a $1.7 million liability for estimated losses
    based on contractual lease costs (reduced by estimated sub-lease
    rentals) that will continue to be incurred for the remaining
    term of the Companys lease agreement for office space at
    its former headquarters in Herndon, Virginia.
|
| |  | Recording an $0.8 million receivable due from a lessor
    related to unused maintenance reserves.                                                                                                                                                                                                           







| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Completed the executive succession plan announced in February
    2004.                                                                                                                                         
|
| |  | Increased block hours by 8.4%.                                                                                                                                                                                  
|
| |  | Revenue surpassed $500 million for the first time,
    representing an increase of 6.1%.                                                                                                                        
|
| |  | Further diversified revenue mix by adding significant new cargo
    customers due to a resurgence of world demand for cargo in the
    Far East.                                                                
|
| |  | Decreased operating expense per block hour by 4.2%.                                                                                                                                                             
|
| |  | Decreased aircraft costs by $8.2 million, primarily due to
    the restructuring of existing leases and power-by-the-hour lease
    arrangements.                                                               
|
| |  | Increased operating income by 41.7% over the prior year.                                                                                                                                                        
|
| |  | Increased average daily aircraft utilization to 8.1 compared to
    7.1 hours per day.                                                                                                                          
|
| |  | Significantly improved the balance sheet due to the conversion
    of $7.4 million of Debentures into Common Stock.                                                                                             
|
| |  | Achieved positive stockholders equity in 2004, compared to
    a stockholders deficiency every year since 1996.                                                                                               
|
| |  | Formed an insurance subsidiary, World Risk Solutions, to help
    control the Companys insurance costs in 2005 and beyond.                                                                                     
|
| |  | Initiated steps for the formation of a holding company
    structure, with World Air Holdings being formally established in
    January 2005, which allows flexibility for potential growth and
    development.





| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continue to achieve consecutive profitable quarters.                                                                                                                                                      
|
| |  | Further diversify its revenue mix by adding more commercial
    passenger and cargo customers, while continuing to provide
    excellent service to the Companys largest customer, the
    U.S. military.
|
| |  | Continue to actively manage the Companys major cost
    categories (flight, maintenance, fuel and aircraft costs).                                                                                       
|
| |  | Seek additional aircraft lease cost reductions.                                                                                                                                                           
|
| |  | Improve the balance sheet through the conversion of all
    remaining Debentures into Common Stock.                                                                                                       
|
| |  | Work on concluding a new collective bargaining agreement with
    its pilots.                                                                                                                             
|
| |  | Manage fleet plans to meet customer needs.                                                                                                                                                                

Results of Operations




| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003

Operating Revenues.


26



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##### Table of Contents





|                       |  |      |        |  |      |   |        |            |  |   |          |   |  |  |      |   
|---------------------- |  | ---- | ------ |  | ---- | - | ------ | ---------- |  | - | -------- | - |  |  | ---- | --
|                       |  | 2004 |        |  | 2003 |   |        | Difference |  |   | % Change |  
|                       |  |      |        |  |      |   |        |            |  |   |          |  
|Total block hours      |  |      | 47,759 |  |      |   | 44,072 |            |  |   | 3,687    |   |  |  | 8.4  | % 
|Revenue per block hour |  | $    | 10,551 |  |      | $ | 10,774 |            |  | $ | (223     | ) |  |  | (2.1 | )%



Operating Expenses.


|                                 |  |      |       |  |      |   |        |            |  |   |          |   |  |  |      |   
|-------------------------------- |  | ---- | ----- |  | ---- | - | ------ | ---------- |  | - | -------- | - |  |  | ---- | --
|                                 |  | 2004 |       |  | 2003 |   |        | Difference |  |   | % Change |  
|                                 |  |      |       |  |      |   |        |            |  |   |          |  
|Operating expense per block hour |  | $    | 9,707 |  |      | $ | 10,129 |            |  | $ | (422     | ) |  |  | (4.2 | )%





| |   |                                            
| | - | -------------------------------------------
| |  | $9.1 million in flight attendant costs; and
|
| |  | $6.2 million in cockpit crew costs.        









| |   |                                                             
| | - | ------------------------------------------------------------
| |  | $2.6 million in MD-11 engine overhaul expense;              
|
| |  | $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.                               





27



---



##### Table of Contents











| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | $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.



Other Expense/ Net.




| |   |                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                                                                           





| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to Year Ended
    December 31, 2002

Operating Revenues.


28



---



##### Table of Contents





|                       |  |      |        |  |      |   |        |            |  |   |          |  |  |  |      |  
|---------------------- |  | ---- | ------ |  | ---- | - | ------ | ---------- |  | - | -------- |  |  |  | ---- | -
|                       |  | 2003 |        |  | 2002 |   |        | Difference |  |   | % Change | 
|                       |  |      |        |  |      |   |        |            |  |   |          | 
|Total block hours      |  |      | 44,072 |  |      |   | 38,049 |            |  |   | 6,023    |  |  |  | 15.8 | %
|Revenue per block hour |  | $    | 10,774 |  |      | $ | 10,105 |            |  | $ | 669      |  |  |  | 6.6  | %



Operating Expenses.


|                                 |  |      |        |  |      |   |       |            |  |   |          |  |  |  |     |  
|-------------------------------- |  | ---- | ------ |  | ---- | - | ----- | ---------- |  | - | -------- |  |  |  | --- | -
|                                 |  | 2003 |        |  | 2002 |   |       | Difference |  |   | % Change | 
|                                 |  |      |        |  |      |   |       |            |  |   |          | 
|Operating expense per block hour |  | $    | 10,129 |  |      | $ | 9,918 |            |  | $ | 211      |  |  |  | 2.1 | %





| |   |                                                
| | - | -----------------------------------------------
| |  | $9.8 million in cockpit crew costs;            
|
| |  | $7.3 million in flight attendant costs;        
|
| |  | $6.1 million in flight communication costs; and
|
| |  | $2.2 million in landing/security/handling fees.







| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | $3.7 million in maintenance reserves paid to the lessors of
    the Companys aircraft;
|
| |  | $3.1 million in component repairs;                                                     
|
| |  | $2.9 million in airframe checks and landing gear
    repairs; and                      
|
| |  | $2.7 million in materials expense.                                                     











| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | $2.4 million higher accrual for profit sharing payments to
    administrative employees;
|
| |  | $1.9 million of bad debt expense related to air services
    provided to Ritetime;      

29



---



##### Table of Contents





| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | $1.8 million (net) of higher wages, fringe benefits, and
    payroll taxes; and
|
| |  | $0.8 million of higher outside service and professional
    fees.              

Other Expense/ Net.




| |   |                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recording a loss on debt extinguishment of $3.0 million due
    to the restructuring of the Companys convertible senior
    subordinated debentures. This 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.                                                                                                                                                                                                      
|
| |  | Write-off of $0.5 million of deferred issuance fees related
    to the Foothill loan facility.                                                                                                                                                                                                    

Liquidity and Capital Resources








|                                     |  |                        |         |     |        |   |        |       |  |           |        |  |  |         |        |  |  |   |        | 
|------------------------------------ |  | ---------------------- | ------- | --- | ------ | - | ------ | ----- |  | --------- | ------ |  |  | ------- | ------ |  |  | - | ------ | 
|                                     |  | Payments Due by Period |        
|                                     |  |                        |        
|                                     |  |                        |         | 2-3 |        |   | 4-5    |       |  | More Than |       
|Contractual Obligations              |  | Total                  |         |     | 1 Year |   |        | Years |  |           | Years  |  |  | 5 Years |       
|                                     |  |                        |         |     |        |   |        |       |  |           |        |  |  |         |       
|                                     |  | (In thousands)         |        
|Convertible Senior Subordinated Debt |  | $                      | 18,113  |     |        | $ |       |       |  | $         |       |  |  | $       | 18,113 |  |  | $ |       | 
|Operating leases                     |  |                        | 192,577 |     |        |   | 65,636 |       |  |           | 64,288 |  |  |         | 31,366 |  |  |   | 31,287 | 
|Term Loan                            |  |                        | 30,000  |     |        |   | 6,000  |       |  |           | 12,000 |  |  |         | 12,000 |  |  |   |       | 
|Accrued Post-Retirement Benefits     |  |                        | 4,849   |     |        |   | 279    |       |  |           | 740    |  |  |         | 999    |  |  |   | 2,831  | 
|                                     |  |                        |         |     |        |   |        |       |  |           |        |  |  |         |       
|Total                                |  | $                      | 245,539 |     |        | $ | 71,915 |       |  | $         | 77,028 |  |  | $       | 62,478 |  |  | $ | 34,118 | 

30



---



##### Table of Contents













| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company is limited in its ability to obtain additional
    financing. Its indebtedness outstanding under its
    $30.0 million ATSB Loan is secured by substantially all of
    the Companys assets. In addition, the ATSB Loan contains
    restrictive provisions that require prepayments in the event the
    Company sells any significant assets, receives proceeds from
    future borrowings from other sources or issuances of certain
    securities, or receives 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 and other recurring fixed costs. Further,
    the Company may be required to prepay portions of the ATSB Loan
    under various circumstances. Accordingly, the Company may have
    to use its working capital to fund such payments and other
    recurring fixed costs instead of funding general corporate
    requirements.
|
| |  | The Companys ability to respond to competitive
    developments and adverse 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.                                                                                                                                                                        





| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;

31



---



##### Table of Contents





| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
|
| |  | Amending the terms of agreements relating to its indebtedness
    for borrowed money or granting any additional negative pledges.                 







| |                                     
| | ------------------------------------
| | Cash Flows from Operating Activities





| |                                     
| | ------------------------------------
| | Cash Flows from Investing Activities





| |                                     
| | ------------------------------------
| | Cash Flows from Financing Activities





| |                                            
| | -------------------------------------------
| | Capital Commitments/ Financing Developments

th th


32



---



##### Table of Contents



th th




th th








| |   |                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the replacement of insulation blankets on the Companys
    MD-11 aircraft by June 2005 that is expected to cost
    approximately $0.4 million per aircraft (approximately 90%
    of this work has been completed at December 31, 2004);                          
|
| |  | the installation of enhanced ground proximity warning systems in
    its aircraft by March 2005 that is expected to cost
    approximately $77,000 per MD-11 and $129,000 per
    DC-10-30 aircraft, with one MD-11 and three DC-10 yet to undergo
    modification;
|
| |  | the modification of thrust reversers on the Companys
    DC-10-30 aircraft by October 2006 that is estimated to cost
    approximately $0.6 million per aircraft and is scheduled on
    two DC-10 aircraft; and                                                   
|
| |  | the replacement of the ring case located in the compressor area
    of the Companys MD-11 engines, with two-thirds to be
    accomplished by August 2006 and the remainder by June 2009, and
    is expected to cost approximately $0.3 million per engine.        

33



---



##### Table of Contents







Recently Issued Accounting Standards


Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29


Share-Based Payment.


Other Matters




| |          
| | ---------
| | Inflation





| |                       
| | ----------------------
| | Corporate Headquarters



34



---



##### Table of Contents












|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk









35



---



##### Table of Contents








|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary Data.

WORLD AIR HOLDINGS, INC.


CONSOLIDATED BALANCE SHEETS


|                                                                             |                                                                                                |                            |         |        |         |   |         |        |        | 
|---------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------ | ------- | - | ------- | ------ | ------ | 
|                                                                             |                                                                                                | December 31,               |        
|                                                                             |                                                                                                |                            |        
|                                                                             |                                                                                                | 2004                       |         |        | 2003    |  
|                                                                             |                                                                                                |                            |         |        |         |  
|                                                                             |                                                                                                | (In thousands)             |        
|ASSETS                                                                      
|Current assets                                                               |                                                                                                |                            |         |        |         |   |         |       
|                                                                             | Cash and cash equivalents                                                                      |                            | $       | 49,956 |         |   | $       | 30,535 |       
|                                                                             | Restricted cash                                                                                |                            |         | 4,926  |         |   |         | 23,290 |       
|                                                                             | Accounts receivable, less allowance for doubtful accounts of
    $209 in 2004 and $196 in 2003 |                            |         | 52,382 |         |   |         | 31,446 |       
|                                                                             | Prepaid expenses and other current assets                                                      |                            |         | 8,335  |         |   |         | 7,721  |       
|                                                                             | Deferred tax assets                                                                            |                            |         | 6,685  |         |   |         |       |       
|                                                                             |                                                                                                |                            |         |        |         |  
|                                                                             |                                                                                                | Total current assets       |         |        | 122,284 |   |         |        | 92,992 | 
|Equipment and property                                                       |                                                                                                |                            |         |        |         |   |         |       
|                                                                             | Flight and other equipment                                                                     |                            |         | 84,514 |         |   |         | 86,346 |       
|                                                                             | Less: accumulated depreciation and amortization                                                |                            |         | 51,321 |         |   |         | 47,382 |       
|                                                                             |                                                                                                |                            |         |        |         |  
|                                                                             |                                                                                                | Net equipment and property |         |        | 33,193  |   |         |        | 38,964 | 
|Long-term deposits                                                           |                                                                                                |                            | 18,237  |        |         |   | 17,664  |       
|Other assets and deferred charges, net of amortization of $2,019
    in 2004 |                                                                                                |                            | 5,603   |        |         |   | 7,681   |       
|                                                                             |                                                                                                |                            |         |        |         |  
|                                                                            
|Total assets                                                                 |                                                                                                | $                          | 179,317 |        |         | $ | 157,301 |       
|                                                                             |                                                                                                |                            |         |        |         |  

36



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##### Table of Contents



WORLD AIR HOLDINGS, INC.


CONSOLIDATED BALANCE SHEETS  (Continued)


|                                                                                                                         |                                                                                                                                                                                                     |                           |                                         |         |        |        |         |         |        |        |  
|------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | --------------------------------------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | -
|                                                                                                                         |                                                                                                                                                                                                     | December 31,              |                                        
|                                                                                                                         |                                                                                                                                                                                                     |                           |                                        
|                                                                                                                         |                                                                                                                                                                                                     | 2004                      |                                         |         | 2003   |       
|                                                                                                                         |                                                                                                                                                                                                     |                           |                                         |         |        |       
|                                                                                                                         |                                                                                                                                                                                                     | (In thousands except      |                                        
|                                                                                                                         |                                                                                                                                                                                                     | share amounts)            |                                        
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)                                                                       
|Current liabilities                                                                                                      |                                                                                                                                                                                                     |                           |                                         |         |        |        |         |        
|                                                                                                                         | Current maturities of long-term debt                                                                                                                                                                |                           | $                                       | 6,000   |        |        | $       | 18,000  |       
|                                                                                                                         | Current portion of deferred rent                                                                                                                                                                    |                           |                                         | 3,242   |        |        |         | 1,792   |       
|                                                                                                                         | Accounts payable                                                                                                                                                                                    |                           |                                         | 35,482  |        |        |         | 28,167  |       
|                                                                                                                         | Accrued rent                                                                                                                                                                                        |                           |                                         | 5,489   |        |        |         | 9,881   |       
|                                                                                                                         | Unearned revenue                                                                                                                                                                                    |                           |                                         | 6,293   |        |        |         | 3,546   |       
|                                                                                                                         | Accrued maintenance                                                                                                                                                                                 |                           |                                         | 4,179   |        |        |         | 2,791   |       
|                                                                                                                         | Accrued salaries, wages and profit sharing                                                                                                                                                          |                           |                                         | 20,463  |        |        |         | 16,957  |       
|                                                                                                                         | Accrued taxes                                                                                                                                                                                       |                           |                                         | 8,482   |        |        |         | 2,581   |       
|                                                                                                                         | Other accrued liabilities                                                                                                                                                                           |                           |                                         | 1,861   |        |        |         | 2,506   |       
|                                                                                                                         |                                                                                                                                                                                                     |                           |                                         |         |        |       
|                                                                                                                         |                                                                                                                                                                                                     | Total current liabilities |                                         |         | 91,491 |        |         |         | 86,221 |       
|                                                                                                                         |                                                                                                                                                                                                     |                           |                                         |         |        |       
|Long-term debt, net of current maturities                                                                                |                                                                                                                                                                                                     |                           | 43,879                                  |         |        |        | 58,534  |        
|Deferred gain from sale-leaseback transactions, net of
    accumulated amortization of $4,269 in 2004 and $3,137 in 2003 |                                                                                                                                                                                                     |                           | 1,645                                   |         |        |        | 2,777   |        
|Accrued post-retirement benefits                                                                                         |                                                                                                                                                                                                     |                           | 4,081                                   |         |        |        | 3,583   |        
|Deferred tax liability                                                                                                   |                                                                                                                                                                                                     |                           | 2,208                                   |         |        |        |        |        
|Deferred rent, net of current portion                                                                                    |                                                                                                                                                                                                     |                           | 5,615                                   |         |        |        | 14,216  |        
|                                                                                                                         |                                                                                                                                                                                                     |                           |                                         |         |        |       
|Total liabilities                                                                                                        |                                                                                                                                                                                                     |                           | 148,919                                 |         |        |        | 165,331 |        
|                                                                                                                         |                                                                                                                                                                                                     |                           |                                         |         |        |       
|Stockholders equity (deficiency)                                                                                        |                                                                                                                                                                                                     |                           |                                         |         |        |        |         |        
|                                                                                                                         | Preferred Stock, $.001 par value (5,000,000 shares
    authorized and no shares issued or outstanding)                                                                                              |                           |                                         |        |        |        |         |        |       
|                                                                                                                         | Common Stock, $.001 par value (100,000,000 shares
    authorized; 17,430,023 shares issued and 16,348,780
    outstanding in 2004; 12,502,441 shares issued and
    11,421,198 outstanding in 2003) |                           |                                         | 18      |        |        |         | 13      |       
|                                                                                                                         | Additional paid-in capital                                                                                                                                                                          |                           |                                         | 42,712  |        |        |         | 29,876  |       
|                                                                                                                         | Retained earnings (accumulated deficit)                                                                                                                                                             |                           |                                         | 525     |        |        |         | (25,062 | )     
|                                                                                                                         | Treasury stock, at cost (Common Stock 
    1,081,243 shares in 2004 and 2003)                                                                                                                      |                           |                                         | (12,857 | )      |        |         | (12,857 | )     
|                                                                                                                         |                                                                                                                                                                                                     |                           |                                         |         |        |       
|                                                                                                                         |                                                                                                                                                                                                     |                           | Total stockholders equity (deficiency) |         |        | 30,398 |         |         |        | (8,030 | )
|                                                                                                                         |                                                                                                                                                                                                     |                           |                                         |         |        |       
|Commitments and contingencies (Note 12)                                                                                  |                                                                                                                                                                                                     |                           |                                        |         |        |        |        |        
|Total liabilities and stockholders equity (deficiency)                                                                  |                                                                                                                                                                                                     | $                         | 179,317                                 |         |        | $      | 157,301 |        
|                                                                                                                         |                                                                                                                                                                                                     |                           |                                         |         |        |       



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WORLD AIR HOLDINGS, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                   |                                                   |                                     |        |         |         |   |        |         |         |   |       |         |         |  
|---------------------------------- | ------------------------------------------------- | ----------------------------------- | ------ | ------- | ------- | - | ------ | ------- | ------- | - | ----- | ------- | ------- | -
|                                   |                                                   | Years Ended December 31,            |       
|                                   |                                                   |                                     |       
|                                   |                                                   | 2004                                |        |         | 2003    |   |        | 2002    |        
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|                                   |                                                   | (In thousands except per share      |       
|                                   |                                                   | amounts)                            |       
|Operating revenues                 |                                                   |                                     |        |         |         |   |        |         |         |   |       |        
|                                   | Flight operations                                 |                                     | $      | 501,698 |         |   | $      | 471,824 |         |   | $     | 382,509 |        
|                                   | Other                                             |                                     |        | 2,202   |         |   |        | 3,026   |         |   |       | 1,980   |        
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|                                   |                                                   | Total operating revenues            |        |         | 503,900 |   |        |         | 474,850 |   |       |         | 384,489 |  
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|Operating expenses                 |                                                   |                                     |        |         |         |   |        |         |         |   |       |        
|                                   | Flight                                            |                                     |        | 157,147 |         |   |        | 143,640 |         |   |       | 116,012 |        
|                                   | Maintenance                                       |                                     |        | 76,004  |         |   |        | 75,513  |         |   |       | 59,628  |        
|                                   | Aircraft costs                                    |                                     |        | 77,243  |         |   |        | 85,487  |         |   |       | 86,834  |        
|                                   | Fuel                                              |                                     |        | 74,474  |         |   |        | 76,488  |         |   |       | 57,864  |        
|                                   | Flight operations subcontracted to other carriers |                                     |        | 1,812   |         |   |        | 2,454   |         |   |       | 2,087   |        
|                                   | Commissions                                       |                                     |        | 23,352  |         |   |        | 17,433  |         |   |       | 15,834  |        
|                                   | Depreciation and amortization                     |                                     |        | 5,283   |         |   |        | 5,239   |         |   |       | 4,525   |        
|                                   | Sales, general, and administrative                |                                     |        | 48,302  |         |   |        | 40,168  |         |   |       | 32,631  |        
|                                   | Airline stabilization act grant repayment         |                                     |        |        |         |   |        |        |         |   |       | 1,952   |        
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|                                   |                                                   | Total operating expenses            |        |         | 463,617 |   |        |         | 446,422 |   |       |         | 377,367 |  
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|Operating income                   |                                                   |                                     | 40,283 |         |         |   | 28,428 |         |         |   | 7,122 |        
|Other income (expense)             |                                                   |                                     |        |         |         |   |        |         |         |   |       |        
|                                   | Interest expense                                  |                                     |        | (5,139  | )       |   |        | (5,223  | )       |   |       | (4,690  | )      
|                                   | Interest income                                   |                                     |        | 584     |         |   |        | 370     |         |   |       | 575     |        
|                                   | Other, net                                        |                                     |        | (1,696  | )       |   |        | (4,452  | )       |   |       | (966    | )      
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|                                   |                                                   | Total other, net                    |        |         | (6,251  | ) |        |         | (9,305  | ) |       |         | (5,081  | )
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|Earnings before income tax expense |                                                   |                                     | 34,032 |         |         |   | 19,123 |         |         |   | 2,041 |        
|Income tax expense                 |                                                   |                                     | 8,445  |         |         |   | 3,802  |         |         |   |      |        
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|                                   |                                                   | Net earnings                        |        | $       | 25,587  |   |        | $       | 15,321  |   |       | $       | 2,041   |  
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|Basic earnings per share:          |                                                   |                                     |        |         |         |   |        |         |         |   |       |        
|                                   |                                                   | Net earnings                        |        | $       | 1.95    |   |        | $       | 1.37    |   |       | $       | 0.18    |  
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|                                   |                                                   | Weighted average shares outstanding |        |         | 13,095  |   |        |         | 11,224  |   |       |         | 11,073  |  
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|Fully diluted earnings per share:  |                                                   |                                     |        |         |         |   |        |         |         |   |       |        
|                                   |                                                   | Net earnings                        |        | $       | 1.09    |   |        | $       | 0.95    |   |       | $       | 0.18    |  
|                                   |                                                   |                                     |        |         |         |   |        |         |        
|                                   |                                                   | Weighted average shares outstanding |        |         | 24,591  |   |        |         | 17,783  |   |       |         | 11,073  |  
|                                   |                                                   |                                     |        |         |         |   |        |         |        



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WORLD AIR HOLDINGS, INC.


CONSOLIDATED STATEMENTS OF CHANGES


IN STOCKHOLDERS EQUITY (DEFICIENCY)


Years ended December 31, 2004, 2003, and 2002


|                                                                            |  |                                     |    |            |         |   |             |           |  |          |         |   |       |                   |         |   |  |   |         |  
|--------------------------------------------------------------------------- |  | ----------------------------------- | -- | ---------- | ------- | - | ----------- | --------- |  | -------- | ------- | - | ----- | ----------------- | ------- | - |  | - | ------- | -
|                                                                            |  |                                     |    | Additional |         |   | Accumulated |           |  | Treasury |         |   | Total |                  
|                                                                            |  | Common                              |    |            | Paid-In |   |             | Earnings/ |  |          | Stock,  |   |       | Stockholders     |        
|                                                                            |  | Stock                               |    |            | Capital |   |             | (Deficit) |  |          | at Cost |   |       | Equity/Deficiency |        
|                                                                            |  |                                     |    |            |         |   |             |           |  |          |         |   |       |                   |        
|                                                                            |  | (In thousands except share amounts) |   
|Balances at December 31, 2001                                               |  | $                                   | 12 |            |         | $ | 24,165      |           |  | $        | (42,424 | ) |       | $                 | (12,857 | ) |  | $ | (31,104 | )
|Exercise of 11,200 stock options                                            |  |                                     |   |            |         |   | 11          |           |  |          |        |   |       |                   |        |   |  |   | 11      |  
|Accrual of changes in Employee Salary Exchange Program
    (145,000 shares) |  |                                     |   |            |         |   |            |           |  |          |        |   |       |                   |        |   |  |   |        |  
|Amortization of warrants                                                    |  |                                     |   |            |         |   | 185         |           |  |          |        |   |       |                   |        |   |  |   | 185     |  
|Net earnings and comprehensive earnings                                     |  |                                     |   |            |         |   |            |           |  |          | 2,041   |   |       |                   |        |   |  |   | 2,041   |  
|                                                                            |  |                                     |    |            |         |   |             |           |  |          |         |   |       |                   |        
|Balances at December 31, 2002                                               |  |                                     | 12 |            |         |   | 24,361      |           |  |          | (40,383 | ) |       |                   | (12,857 | ) |  |   | (28,867 | )
|                                                                            |  |                                     |    |            |         |   |             |           |  |          |         |   |       |                   |        
|Exercise of 344,100 stock options                                           |  |                                     | 1  |            |         |   | 298         |           |  |          |        |   |       |                   |        |   |  |   | 299     |  
|Fair market value of warrants issued                                        |  |                                     |   |            |         |   | 4,792       |           |  |          |        |   |       |                   |        |   |  |   | 4,792   |  
|Tax benefit of stock option exercises                                       |  |                                     |   |            |         |   | 240         |           |  |          |        |   |       |                   |        |   |  |   | 240     |  
|Amortization of warrants                                                    |  |                                     |   |            |         |   | 185         |           |  |          |        |   |       |                   |        |   |  |   | 185     |  
|Net earnings and comprehensive earnings                                     |  |                                     |   |            |         |   |            |           |  |          | 15,321  |   |       |                   |        |   |  |   | 15,321  |  
|                                                                            |  |                                     |    |            |         |   |             |           |  |          |         |   |       |                   |        
|Balances at December 31, 2003                                               |  |                                     | 13 |            |         |   | 29,876      |           |  |          | (25,062 | ) |       |                   | (12,857 | ) |  |   | (8,030  | )
|                                                                            |  |                                     |    |            |         |   |             |           |  |          |         |   |       |                   |        
|Exercise of 1,583,088 stock options                                         |  |                                     | 2  |            |         |   | 1,505       |           |  |          |        |   |       |                   |        |   |  |   | 1,507   |  
|Exercise of warrants for 1,021,994 shares                                   |  |                                     | 1  |            |         |   | 2,499       |           |  |          |        |   |       |                   |        |   |  |   | 2,500   |  
|Tax benefit of stock option exercises                                       |  |                                     |   |            |         |   | 1,221       |           |  |          |        |   |       |                   |        |   |  |   | 1,221   |  
|Amortization of warrants                                                    |  |                                     |   |            |         |   | 185         |           |  |          |        |   |       |                   |        |   |  |   | 185     |  
|Issuance of 2,322,500 shares for debt conversions                           |  |                                     | 2  |            |         |   | 7,426       |           |  |          |        |   |       |                   |        |   |  |   | 7,428   |  
|Net earnings and comprehensive earnings                                     |  |                                     |   |            |         |   |            |           |  |          | 25,587  |   |       |                   |        |   |  |   | 25,587  |  
|                                                                            |  |                                     |    |            |         |   |             |           |  |          |         |   |       |                   |        
|Balances at December 31, 2004                                               |  | $                                   | 18 |            |         | $ | 42,712      |           |  | $        | 525     |   |       | $                 | (12,857 | ) |  | $ | 30,398  |  
|                                                                            |  |                                     |    |            |         |   |             |           |  |          |         |   |       |                   |        



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WORLD AIR HOLDINGS, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                               |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |        |         |        |        |        |        |  
|---------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------ | ------ | ------ | -
|                                               |                                                                                               | Years Ended December 31,                                                                    |                                                         
|                                               |                                                                                               |                                                                                             |                                                         
|                                               |                                                                                               | 2004                                                                                        |                                                          |         | 2003   |         |        | 2002    |       
|                                               |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |       
|                                               |                                                                                               | (In thousands)                                                                              |                                                         
|Cash and cash equivalents at beginning of year |                                                                                               | $                                                                                           | 30,535                                                   |         |        | $       | 20,839 |         |        | $       | 18,878 |       
|Cash flows from operating activities:          |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |        |         |        |       
|                                               | Net earnings                                                                                  |                                                                                             |                                                          | 25,587  |        |         |        | 15,321  |        |         |        | 2,041  |       
|                                               | Adjustments to reconcile net earnings to net cash provided by
    operating activities:       |                                                                                             |                                                          |         |        |         |        |         |        |         |        |        |       
|                                               |                                                                                               | Depreciation and amortization                                                               |                                                          |         | 5,283  |         |        |         | 5,239  |         |        |        | 4,525  |       
|                                               |                                                                                               | Deferred gain recognition                                                                   |                                                          |         | (1,132 | )       |        |         | (1,132 | )       |        |        | (2,187 | )     
|                                               |                                                                                               | Impairment of equipment and property                                                        |                                                          |         | 1,500  |         |        |         |       |         |        |        |       |       
|                                               |                                                                                               | Loss on disposals of equipment and property                                                 |                                                          |         | 987    |         |        |         | 408    |         |        |        | 1,085  |       
|                                               |                                                                                               | Tax benefit of stock option exercises                                                       |                                                          |         | 1,221  |         |        |         | 240    |         |        |        |       |       
|                                               |                                                                                               | Amortization of warrants and debt issuance costs                                            |                                                          |         | 2,019  |         |        |         | 943    |         |        |        | 258    |       
|                                               |                                                                                               | Deferred income taxes                                                                       |                                                          |         | (4,750 | )       |        |         |       |         |        |        |       |       
|                                               |                                                                                               | Provision for doubtful accounts                                                             |                                                          |         | 13     |         |        |         | (59    | )       |        |        | (695   | )     
|                                               |                                                                                               | Loss on debt extinguishment                                                                 |                                                          |         |       |         |        |         | 2,989  |         |        |        |       |       
|                                               |                                                                                               | Other                                                                                       |                                                          |         | (169   | )       |        |         | 185    |         |        |        | (896   | )     
|                                               |                                                                                               | Increase (decrease) in cash resulting from changes in operating
    assets and liabilities: |                                                          |         |        |         |        |         |        |         |        |        |        |       
|                                               |                                                                                               |                                                                                             | Accounts receivable                                      |         |        | (20,949 | )      |         |        | (2,996  | )      |        |        | (2,477 | )
|                                               |                                                                                               |                                                                                             | Restricted cash                                          |         |        | 364     |        |         |        | (22,625 | )      |        |        | (3     | )
|                                               |                                                                                               |                                                                                             | Deposits, prepaid expenses and other assets              |         |        | (1,187  | )      |         |        | (1,461  | )      |        |        | 336    |  
|                                               |                                                                                               |                                                                                             | Accounts payable, accrued expenses and other liabilities |         |        | 13,616  |        |         |        | 7,289   |        |        |        | 4,878  |  
|                                               |                                                                                               |                                                                                             | Unearned revenue                                         |         |        | 2,747   |        |         |        | 2,570   |        |        |        | (2,424 | )
|                                               |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |       
|                                               |                                                                                               | Net cash provided by operating activities                                                   |                                                          |         | 25,150 |         |        |         | 6,911  |         |        |        | 4,441  |       
|                                               |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |       
|Cash flows from investing activities:          |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |        |         |        |       
|                                               | Purchases of equipment and property                                                           |                                                                                             |                                                          | (2,034  | )      |         |        | (2,773  | )      |         |        | (5,184 | )     
|                                               | Proceeds from disposals of equipment and property                                             |                                                                                             |                                                          | 35      |        |         |        | 18      |        |         |        | 164    |       
|                                               |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |       
|                                               |                                                                                               | Net cash used in investing activities                                                       |                                                          |         | (1,999 | )       |        |         | (2,755 | )       |        |        | (5,020 | )     
|                                               |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |       
|Cash flows from financing activities:          |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |        |         |        |       
|                                               | Decrease in notes payable                                                                     |                                                                                             |                                                          |        |        |         |        | (17,096 | )      |         |        | (2,659 | )     
|                                               | Decrease in restricted cash due to repayment of debt                                          |                                                                                             |                                                          | 18,000  |        |         |        |        |        |         |        |       |       
|                                               | Repayment of debt                                                                             |                                                                                             |                                                          | (18,000 | )      |         |        |        |        |         |        | (2,096 | )     
|                                               | Deferral (repayment) of aircraft rent obligations                                             |                                                                                             |                                                          | (7,196  | )      |         |        | (8,418  | )      |         |        | 7,284  |       
|                                               | Proceeds from issuance of debentures due in 2009, net of
    debentures due in 2004 exchanged |                                                                                             |                                                          |        |        |         |        | 3,000   |        |         |        |       |       
|                                               | Proceeds from issuance of ATSB guaranteed term loan                                           |                                                                                             |                                                          |        |        |         |        | 30,000  |        |         |        |       |       
|                                               | Payment of debt issuance costs                                                                |                                                                                             |                                                          | (541    | )      |         |        | (2,245  | )      |         |        |       |       
|                                               | Proceeds from exercise of stock options                                                       |                                                                                             |                                                          | 1,507   |        |         |        | 299     |        |         |        | 11     |       
|                                               | Proceeds from exercise of warrants                                                            |                                                                                             |                                                          | 2,500   |        |         |        |        |        |         |        |       |       
|                                               |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |       
|                                               |                                                                                               | Net cash provided (used) by financing activities                                            |                                                          |         | (3,730 | )       |        |         | 5,540  |         |        |        | 2,540  |       
|                                               |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |       
|Net increase in cash and cash equivalents      |                                                                                               |                                                                                             | 19,421                                                   |         |        |         | 9,696  |         |        |         | 1,961  |       
|                                               |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |       
|Cash and cash equivalents at end of year       |                                                                                               | $                                                                                           | 49,956                                                   |         |        | $       | 30,535 |         |        | $       | 20,839 |       
|                                               |                                                                                               |                                                                                             |                                                          |         |        |         |        |         |       



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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                                                
|-- | ---------------------------------------------------------------
|1. | Organization and Summary of Significant Accounting
    Policies



| |             
| | ------------
| | Organization









| |                                      
| | -------------------------------------
| | Financial Statement Reclassifications





| |                    
| | -------------------
| | Segment Information





| |                 
| | ----------------
| | Use of Estimates





| |                 
| | ----------------
| | Cash Equivalents



41



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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | Cash and cash equivalents; restricted cash; accounts
    receivable; accounts payable; and accrued expenses





| |   |               
| | - | --------------
| |  | Long-term Debt







| |   |                             
| | - | ----------------------------
| |  | Long-Term Operating Deposits





| |                    
| | -------------------
| | Revenue Recognition





| |             
| | ------------
| | Income Taxes



42



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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                   
| | ------------------
| | Earnings Per Share



|                              |                                                                        |                                     |   |        |               |   |  |           |       |  |   |      |  | 
|----------------------------- | ---------------------------------------------------------------------- | ----------------------------------- | - | ------ | ------------- | - |  | --------- | ----- |  | - | ---- |  | 
|                              |                                                                        | 2004                                |  
|                              |                                                                        |                                     |  
|                              |                                                                        | Earnings                            |   |        | Shares        |   |  | Per Share |      
|                              |                                                                        | (Numerator)                         |   |        | (Denominator) |   |  | Amount    |      
|                              |                                                                        |                                     |   |        |               |   |  |           |      
|Basic EPS                     |                                                                        |                                     |   |        |               |   |  |           |       |  |   |     
|                              | Earnings available to common stockholders                              |                                     | $ | 25,587 |               |   |  | 13,095    |       |  | $ | 1.95 | 
|                              |                                                                        |                                     |   |        |               |   |  |           |      
|Effect of Dilutive Securities |                                                                        |                                     |   |        |               |   |  |           |       |  |   |     
|                              |                                                                        | Warrants                            |   |        |              |   |  |           | 1,992 |  |   |      |  | 
|                              |                                                                        | Options                             |   |        |              |   |  |           | 1,842 |  |   |      |  | 
|                              |                                                                        | 8% convertible debentures           |   |        | 1,290         |   |  |           | 7,662 |  |   |      |  | 
|                              |                                                                        | Profit sharing                      |   |        | (90           | ) |  |           |      |  |   |      |  | 
|                              |                                                                        | Amortization of debt issuance costs |   |        | 183           |   |  |           |      |  |   |      |  | 
|                              |                                                                        | Aircraft lease restructuring fees   |   |        | (273          | ) |  |           |      |  |   |      |  | 
|                              |                                                                        |                                     |   |        |               |   |  |           |      
|Diluted EPS                   |                                                                        |                                     |   |        |               |   |  |           |       |  |   |     
|                              | Earnings available to common stockholders plus assumed
    conversions |                                     | $ | 26,697 |               |   |  | 24,591    |       |  | $ | 1.09 | 
|                              |                                                                        |                                     |   |        |               |   |  |           |      

|                              |                                                                        |                                     |   |        |               |   |  |           |       |  |   |      |  | 
|----------------------------- | ---------------------------------------------------------------------- | ----------------------------------- | - | ------ | ------------- | - |  | --------- | ----- |  | - | ---- |  | 
|                              |                                                                        | 2003                                |  
|                              |                                                                        |                                     |  
|                              |                                                                        | Earnings                            |   |        | Shares        |   |  | Per Share |      
|                              |                                                                        | (Numerator)                         |   |        | (Denominator) |   |  | Amount    |      
|                              |                                                                        |                                     |   |        |               |   |  |           |      
|Basic EPS                     |                                                                        |                                     |   |        |               |   |  |           |       |  |   |     
|                              | Earnings available to common stockholders                              |                                     | $ | 15,321 |               |   |  | 11,224    |       |  | $ | 1.37 | 
|                              |                                                                        |                                     |   |        |               |   |  |           |      
|Effect of Dilutive Securities |                                                                        |                                     |   |        |               |   |  |           |       |  |   |     
|                              |                                                                        | Warrants                            |   |        |              |   |  |           | 2     |  |   |      |  | 
|                              |                                                                        | Options                             |   |        |              |   |  |           | 1,986 |  |   |      |  | 
|                              |                                                                        | 8% convertible debentures           |   |        | 2,060         |   |  |           | 4,571 |  |   |      |  | 
|                              |                                                                        | Amortization of debt issuance costs |   |        | 109           |   |  |           |      |  |   |      |  | 
|                              |                                                                        | Profit sharing                      |   |        | (587          | ) |  |           |      |  |   |      |  | 
|                              |                                                                        |                                     |   |        |               |   |  |           |      
|Diluted EPS                   |                                                                        |                                     |   |        |               |   |  |           |       |  |   |     
|                              | Earnings available to common stockholders plus assumed
    conversions |                                     | $ | 16,903 |               |   |  | 17,783    |       |  | $ | 0.95 | 
|                              |                                                                        |                                     |   |        |               |   |  |           |      



Earnings Per Share.


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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                       |  |      |      |  |    |  |      |    |  |  |      |  |  |     |      |  |  |  |       |  
|---------------------- |  | ---- | ---- |  | -- |  | ---- | -- |  |  | ---- |  |  | --- | ---- |  |  |  | ----- | -
|                       |  | 2004 |     
|                       |  |      |     
|Fully Diluted EPS      |  | Q1   |      |  | Q2 |  |      | Q3 |  |  | Q4   |  |  | YTD |     
|As Previously Reported |  |      | 0.34 |  |    |  | 0.13 |    |  |  | 0.31 |  |  |     | 0.32 |  |  |  | 1.08  |  
|Revised                |  |      | 0.34 |  |    |  | 0.12 |    |  |  | 0.31 |  |  |     | 0.32 |  |  |  | 1.09  |  
|                       |  |      |      |  |    |  |      |    |  |  |      |  |  |     |     
|Variance               |  |      |     |  |    |  | 0.01 |    |  |  |     |  |  |     |     |  |  |  | (0.01 | )
|                       |  |      |      |  |    |  |      |    |  |  |      |  |  |     |     

|                       |  |      |       |   |    |  |       |    |  |  |      |  |  |     |      |  |  |  |       |  
|---------------------- |  | ---- | ----- | - | -- |  | ----- | -- |  |  | ---- |  |  | --- | ---- |  |  |  | ----- | -
|                       |  | 2003 |      
|                       |  |      |      
|Fully Diluted EPS      |  | Q1   |       |   | Q2 |  |       | Q3 |  |  | Q4   |  |  | YTD |     
|As Previously Reported |  |      | 0.47  |   |    |  | 0.44  |    |  |  | 0.11 |  |  |     | 0.06 |  |  |  | 0.98  |  
|Revised                |  |      | 0.44  |   |    |  | 0.42  |    |  |  | 0.11 |  |  |     | 0.06 |  |  |  | 0.95  |  
|                       |  |      |       |   |    |  |       |    |  |  |      |  |  |     |     
|Variance               |  |      | (0.03 | ) |    |  | (0.02 | )  |  |  |     |  |  |     |     |  |  |  | (0.03 | )
|                       |  |      |       |   |    |  |       |    |  |  |      |  |  |     |     



| |                       
| | ----------------------
| | Equipment and Property





|                                 |  |  |             | 
|-------------------------------- |  |  | ----------- | 
|DC-10 and MD-11 flight equipment |  |  | 15-16 years | 
|Other equipment and property     |  |  | 5-7 years   | 







| |                     
| | --------------------
| | Aircraft Maintenance





| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets



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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                       
| | ----------------------
| | Exit or Disposal Costs





| |                                  
| | ---------------------------------
| | 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


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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Accounting for
Stock-Based Compensation


|                                                                                                                                           |                       |                         |        |      |      |   |        |      |  |   |       |      | 
|------------------------------------------------------------------------------------------------------------------------------------------ | --------------------- | ----------------------- | ------ | ---- | ---- | - | ------ | ---- |  | - | ----- | ---- | 
|                                                                                                                                           |                       | Year Ended December 31, |       
|                                                                                                                                           |                       |                         |       
|                                                                                                                                           |                       | 2004                    |        |      | 2003 |   |        | 2002 | 
|                                                                                                                                           |                       |                         |        |      |      |   |        |      | 
|Net earnings, as reported                                                                                                                  |                       | $                       | 25,587 |      |      | $ | 15,321 |      |  | $ | 2,041 |     
|Deduct: Total stock-based compensation expense determined under
    fair value based method for all awards, net of related tax
    effects |                       |                         | (810   | )    |      |   | (528   | )    |  |   | (877  | )   
|                                                                                                                                           |                       |                         |        |      |      |   |        |      | 
|Pro forma net income                                                                                                                       |                       |                         | 24,777 |      |      |   | 14,793 |      |  |   | 1,164 |     
|Earnings per share                                                                                                                         |                       |                         |        |      |      |   |        |      |  |   |       |     
|                                                                                                                                           | Basic  as reported   |                         | $      | 1.95 |      |   | $      | 1.37 |  |   | $     | 0.18 | 
|                                                                                                                                           | Basic  pro forma     |                         | $      | 1.89 |      |   | $      | 1.32 |  |   | $     | 0.11 | 
|                                                                                                                                           | Diluted  as reported |                         | $      | 1.09 |      |   | $      | 0.95 |  |   | $     | 0.18 | 
|                                                                                                                                           | Diluted  pro forma   |                         | $      | 1.05 |      |   | $      | 0.92 |  |   | $     | 0.07 | 



|                         |  |      |     |   |      |  |     |      |  |  |     |  
|------------------------ |  | ---- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                         |  | 2004 |     |   | 2003 |  |     | 2002 | 
|                         |  |      |     |   |      |  |     |      | 
|Expected dividend yield  |  |      | 0   | % |      |  | 0   | %    |  |  | 0   | %
|Risk-free interest rate  |  |      | 3.8 | % |      |  | 3.1 | %    |  |  | 4.1 | %
|Expected life (in years) |  |      | 4.7 |   |      |  | 5.2 |      |  |  | 4.9 |  
|Expected volatility      |  |      | 79  | % |      |  | 102 | %    |  |  | 141 | %



| |                           
| | --------------------------
| | Other Comprehensive Income





| |                                     
| | ------------------------------------
| | Recently Issued Accounting Standards

Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29


Share-Based Payment.


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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|   |                                                        
|-- | -------------------------------------------------------
|2. | Supplemental Information  Statements of Cash
    Flows



|               |              |                          |   |       |      |  |   |       |  |  |   |       | 
|-------------- | ------------ | ------------------------ | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|               |              | Years Ended December 31, |  
|               |              |                          |  
|               |              | 2004                     |   |       | 2003 |  |   | 2002  | 
|               |              |                          |   |       |      |  |   |       | 
|Cash paid for: |              |                          |   |       |      |  |   |       |  |  |   |      
|               | Interest     |                          | $ | 3,121 |      |  | $ | 4,662 |  |  | $ | 3,407 | 
|               |              |                          |   |       |      |  |   |       | 
|               | Income taxes |                          | $ | 6,981 |      |  | $ | 3,819 |  |  | $ |      | 
|               |              |                          |   |       |      |  |   |       | 



|   |                                          
|-- | -----------------------------------------
|3. | Prepaid Expenses and Other Current Assets



|                  |       |              |       |       |      |   |       |       | 
|----------------- | ----- | ------------ | ----- | ----- | ---- | - | ----- | ----- | 
|                  |       | December 31, |      
|                  |       |              |      
|                  |       | 2004         |       |       | 2003 |  
|                  |       |              |       |       |      |  
|Prepaid insurance |       | $            | 2,884 |       |      | $ | 1,453 |      
|Prepaid rent      |       |              | 1,881 |       |      |   | 3,109 |      
|Prepaid fuel      |       |              | 1,780 |       |      |   |      |      
|Deposits          |       |              | 725   |       |      |   | 2,293 |      
|Other             |       |              | 1,065 |       |      |   | 866   |      
|                  |       |              |       |       |      |  
|                  | Total |              | $     | 8,335 |      |   | $     | 7,721 | 
|                  |       |              |       |       |      |  

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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |                                  
|-- | ---------------------------------
|4. | Other Assets and Deferred Charges



|                                                   |       |              |        |       |      |   |       |       | 
|-------------------------------------------------- | ----- | ------------ | ------ | ----- | ---- | - | ----- | ----- | 
|                                                   |       | December 31, |       
|                                                   |       |              |       
|                                                   |       | 2004         |        |       | 2003 |  
|                                                   |       |              |        |       |      |  
|Fair market value of ATSB warrants                 |       | $            | 4,792  |       |      | $ | 4,792 |      
|Debt issuance costs  convertible debt due in 2009 |       |              | 1,397  |       |      |   | 1,507 |      
|Debt issuance costs  term loan due in 2008        |       |              | 1,433  |       |      |   | 1,262 |      
|Other                                              |       |              | 0      |       |      |   | 120   |      
|                                                   |       |              |        |       |      |  
|                                                   |       |              | 7,622  |       |      |   | 7,681 |      
|Accumulated amortization                           |       |              | (2,019 | )     |      |   |      |      
|                                                   |       |              |        |       |      |  
|                                                   | Total |              | $      | 5,603 |      |   | $     | 7,681 | 
|                                                   |       |              |        |       |      |  



|   |               
|-- | --------------
|5. | Long-term Debt



|                                                                                                                                                                                                                     |                                                 |      |        |        |      |   |        |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ---- | ------ | ------ | ---- | - | ------ | ------ | 
|                                                                                                                                                                                                                     |                                                 | 2004 |        |        | 2003 |  
|                                                                                                                                                                                                                     |                                                 |      |        |        |      |  
|Term loan, with variable interest payable semi-annually and
    three annual principal payments of $6.0 million commencing
    December 2005, with a final payment of $12.0 million due in
    December 2008         |                                                 | $    | 30,000 |        |      | $ | 30,000 |       
|Convertible senior subordinated debentures due December
    2009  principal amount of $18.1 and
    $25.5 million, respectively, with interest at 8% payable
    semi-annually                                      |                                                 |      | 19,879 |        |      |   | 28,534 |       
|Convertible senior subordinated debentures due August 2004, the
    balance of which were called on December 30, 2003 with a
    redemption date of January 28, 2004  with
    interest at 8% payable semi-annually |                                                 |      |       |        |      |   | 18,000 |       
|                                                                                                                                                                                                                     |                                                 |      |        |        |      |  
|                                                                                                                                                                                                                     | Total                                           |      |        | 49,879 |      |   |        | 76,534 | 
|Less: current maturities                                                                                                                                                                                             |                                                 |      | 6,000  |        |      |   | 18,000 |       
|                                                                                                                                                                                                                     |                                                 |      |        |        |      |  
|                                                                                                                                                                                                                     | Total long-term debt, net of current maturities |      | $      | 43,879 |      |   | $      | 58,534 | 
|                                                                                                                                                                                                                     |                                                 |      |        |        |      |  

th th th th


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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








th th


Debtors Accounting
for a Modification or Exchange of Debt Instruments


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##### Table of Contents



WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|      |  |   |        | 
|----- |  | - | ------ | 
|2005  |  | $ | 6,000  | 
|2006  |  |   | 6,000  | 
|2007  |  |   | 6,000  | 
|2008  |  |   | 12,000 | 
|2009  |  |   | 18,113 | 
|      |  |   |       
|Total |  | $ | 48,113 | 
|      |  |   |       



|   |                 
|-- | ----------------
|6. | Operating Leases





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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)












51



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##### Table of Contents



WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)














|           |       |   |        |         | 
|---------- | ----- | - | ------ | ------- | 
|2005       |       | $ | 65,636 |        
|2006       |       |   | 34,844 |        
|2007       |       |   | 29,444 |        
|2008       |       |   | 19,713 |        
|2009       |       |   | 11,653 |        
|Thereafter |       |   | 31,287 |        
|           |       |   |       
|           | Total |   | $      | 192,577 | 
|           |       |   |       



|   |              
|-- | -------------
|7. | Capital Stock





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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|       |           |  |                |   |      |                 |  |  |               |  |  |                |      |   |            |  |   |               |  |  |    |   |  |  |         | 
|------ | --------- |  | -------------- | - | ---- | --------------- |  |  | ------------- |  |  | -------------- | ---- | - | ---------- |  | - | ------------- |  |  | -- | - |  |  | ------- | 
|       |           |  |                |   |      | Risk Free       |  |  | Expected      |  |  |                |      |  
|Number |           |  | Exercise Price |   |      | Expiration Date |  |  | Interest Rate |  |  | Dividend Yield |      |   | Volatility |  |   | Expected Life | 
|       |           |  |                |   |      |                 |  |  |               |  |  |                |      |   |            |  |   |               | 
|       | 1,269,022 |  |                | $ | 0.78 |                 |  |  | 12/31/2008    |  |  |                | 3.23 | % |            |  | 0 | %             |  |  | 50 | % |  |  | 5.0 yrs | 
|       | 111,111   |  |                | $ | 2.50 |                 |  |  | 8/23/2004     |  |  |                | 1.22 | % |            |  | 0 | %             |  |  | 50 | % |  |  | 0.7 yrs | 
|       | 111,111   |  |                | $ | 2.50 |                 |  |  | 3/29/2005     |  |  |                | 0.96 | % |            |  | 0 | %             |  |  | 50 | % |  |  | 1.2 yrs | 
|       | 886,979   |  |                | $ | 3.20 |                 |  |  | 12/31/2009    |  |  |                | 3.43 | % |            |  | 0 | %             |  |  | 50 | % |  |  | 6.0 yrs | 





|     |  |   |     | 
|---- |  | - | --- | 
|2005 |  | $ | 1.3 | 
|2006 |  |   | 1.0 | 
|2007 |  |   | 0.7 | 
|2008 |  |   | 0.3 | 
|     |  |   |    
|     |  | $ | 3.3 | 
|     |  |   |    





| |                   
| | ------------------
| | Stock Option Plans





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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|                             |           |             |       |        |                |   |      |      | 
|---------------------------- | --------- | ----------- | ----- | ------ | -------------- | - | ---- | ---- | 
|                             |           | Number of   |       |        | Weighted       |  
|                             |           | Options     |       |        | Average        |  
|                             |           | Outstanding |       |        | Exercise Price |  
|                             |           |             |       |        |                |  
|Balance at December 31, 2001 |           |             | 3,651 |        |                | $ | 1.81 |     
|                             | Granted   |             |       | 353    |                |   |      | 0.96 | 
|                             | Exercised |             |       | (11    | )              |   |      | 0.97 | 
|                             | Forfeited |             |       | (160   | )              |   |      | 2.09 | 
|                             |           |             |       |        |                |  
|Balance at December 31, 2002 |           |             | 3,833 |        |                |   | 1.73 |     
|                             | Granted   |             |       | 1,117  |                |   |      | 1.18 | 
|                             | Exercised |             |       | (344   | )              |   |      | 0.87 | 
|                             | Forfeited |             |       | (912   | )              |   |      | 2.03 | 
|                             |           |             |       |        |                |  
|Balance at December 31, 2003 |           |             | 3,694 |        |                |   | 1.58 |     
|                             | Granted   |             |       | 696    |                |   |      | 3.89 | 
|                             | Exercised |             |       | (1,583 | )              |   |      | 0.95 | 
|                             | Forfeited |             |       | (174   | )              |   |      | 2.04 | 
|                             |           |             |       |        |                |  
|Balance at December 31, 2004 |           |             | 2,633 |        |                |   | 2.53 |     
|                             |           |             |       |        |                |  



|                        |  |             |       |          |                |  |          |                |  |   |            |          |  |                |       |  |  |   |      | 
|----------------------- |  | ----------- | ----- | -------- | -------------- |  | -------- | -------------- |  | - | ---------- | -------- |  | -------------- | ----- |  |  | - | ---- | 
|                        |  | Outstanding |       |          | Exercisable    | 
|                        |  |             |       |          |                | 
|                        |  |             |       | Weighted |                |  |          |                | 
|                        |  |             |       | Average  |                |  | Weighted |                |  |   |            | Weighted | 
|                        |  | Number      |       |          | Remaining Life |  |          | Average        |  |   | Number     |          |  | Average        |      
|Range of Exercise Price |  | of Options  |       |          | Years          |  |          | Exercise Price |  |   | of Options |          |  | Exercise Price |      
|                        |  |             |       |          |                |  |          |                |  |   |            |          |  |                |      
|$0.00 - 1.25            |  |             | 1,363 |          |                |  | 4.2      |                |  | $ | 0.89       |          |  |                | 998   |  |  | $ | 0.90 | 
|1.26 - 2.50             |  |             | 111   |          |                |  | 2.3      |                |  |   | 1.73       |          |  |                | 111   |  |  |   | 1.73 | 
|2.51 - 3.75             |  |             | 770   |          |                |  | 7.2      |                |  |   | 3.46       |          |  |                | 184   |  |  |   | 3.38 | 
|3.76 - 5.00             |  |             | 20    |          |                |  | 7.1      |                |  |   | 4.06       |          |  |                | 2     |  |  |   | 4.06 | 
|5.01 - 6.25             |  |             | 107   |          |                |  | 6.0      |                |  |   | 6.04       |          |  |                | 37    |  |  |   | 5.83 | 
|6.26 - 7.50             |  |             | 262   |          |                |  | 0.9      |                |  |   | 7.11       |          |  |                | 112   |  |  |   | 7.09 | 
|                        |  |             |       |          |                |  |          |                |  |   |            |          |  |                |      
|                        |  |             | 2,633 |          |                |  |          |                |  |   |            |          |  |                | 1,444 |  |  |   |      | 
|                        |  |             |       |          |                |  |          |                |  |   |            |          |  |                |      





|   |                       
|-- | ----------------------
|8. | Employee Benefit Plans



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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)














st


|                                                                |  |                         |     |  |      |   |     |      |  |   |     |  
|--------------------------------------------------------------- |  | ----------------------- | --- |  | ---- | - | --- | ---- |  | - | --- | -
|                                                                |  | Year Ended December 31, |    
|                                                                |  |                         |    
|                                                                |  | 2004                    |     |  | 2003 |   |     | 2002 | 
|                                                                |  |                         |     |  |      |   |     |      | 
|Service cost                                                    |  | $                       | 378 |  |      | $ | 310 |      |  | $ | 260 |  
|Interest cost on accumulated post-retirement benefit obligation |  |                         | 243 |  |      |   | 237 |      |  |   | 212 |  
|Net amortized (gain) loss                                       |  |                         | 13  |  |      |   | 12  |      |  |   | (2  | )
|                                                                |  |                         |     |  |      |   |     |      | 
|Net periodic post-retirement benefit cost                       |  | $                       | 634 |  |      | $ | 559 |      |  | $ | 470 |  
|                                                                |  |                         |     |  |      |   |     |      | 

55



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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                                  |                |      |       |      |      |   |       |      |  
|----------------------------------------------------------------- | -------------- | ---- | ----- | ---- | ---- | - | ----- | ---- | -
|                                                                  |                | 2004 |       |      | 2003 |  
|                                                                  |                |      |       |      |      |  
|Accumulated post-retirement benefit obligation, beginning of year |                | $    | 4,244 |      |      | $ | 3,791 |     
|                                                                  | Service cost   |      |       | 378  |      |   |       | 310  |  
|                                                                  | Interest cost  |      |       | 243  |      |   |       | 237  |  
|                                                                  | Benefits paid  |      |       | (137 | )    |   |       | (210 | )
|                                                                  | Actuarial loss |      |       | 121  |      |   |       | 116  |  
|                                                                  |                |      |       |      |      |  
|Accumulated post-retirement benefit obligation, end of year       |                | $    | 4,849 |      |      | $ | 4,244 |     
|                                                                  |                |      |       |      |      |  



|                                                                                            |  |      |       |   |      |   |       |  
|------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                                                                            |  | 2004 |       |   | 2003 |  
|                                                                                            |  |      |       |   |      |  
|Unfunded status                                                                             |  | $    | 4,849 |   |      | $ | 4,244 |  
|Unrecognized net gain                                                                       |  |      | (768  | ) |      |   | (661  | )
|                                                                                            |  |      |       |   |      |  
|Accrued post-retirement benefits included in liabilities on
    accompanying balance sheets |  | $    | 4,081 |   |      | $ | 3,583 |  
|                                                                                            |  |      |       |   |      |  





|                          |  |                       |                |  |                   |  |                | 
|------------------------- |  | --------------------- | -------------- |  | ----------------- |  | -------------- | 
|                          |  | Used for Net Periodic |                |  | Used for Benefit  | 
|                          |  | Post-Retirement       |                |  | Obligations as of | 
|Assumption                |  | Benefit Cost for 2004 |                |  | December 31, 2004 | 
|                          |  |                       |                |  |                   | 
|Discount Rate             |  |                       | 6.0%           |  |                   |  | 5.25%          | 
|Salary Increase*          |  |                       | not applicable |  |                   |  | not applicable | 
|Long-term rate of return* |  |                       | not applicable |  |                   |  | not applicable | 

|                          |  |                       |                |  |                   |  |                | 
|------------------------- |  | --------------------- | -------------- |  | ----------------- |  | -------------- | 
|                          |  | Used for Net Periodic |                |  | Used for Benefit  | 
|                          |  | Post-Retirement       |                |  | Obligations as of | 
|Assumption                |  | Benefit Cost for 2003 |                |  | December 31, 2003 | 
|                          |  |                       |                |  |                   | 
|Discount Rate             |  |                       | 6.5%           |  |                   |  | 6.0%           | 
|Salary Increase*          |  |                       | not applicable |  |                   |  | not applicable | 
|Long-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 not
    funded.

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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                  |  |   |       | 
|----------------- |  | - | ----- | 
|2005              |  | $ | 279   | 
|2006              |  |   | 332   | 
|2007              |  |   | 408   | 
|2008              |  |   | 452   | 
|2009              |  |   | 547   | 
|2010 through 2014 |  |   | 2,831 | 
|                  |  |   |      
|Total             |  | $ | 4,849 | 
|                  |  |   |      



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



|          |         |      |       |        |      |   |       |       | 
|--------- | ------- | ---- | ----- | ------ | ---- | - | ----- | ----- | 
|          |         | 2004 |       |        | 2003 |  
|          |         |      |       |        |      |  
|Current:  |         |      |       |        |      |   |       |      
|          | Federal |      | $     | 12,422 |      |   | $     | 3,562 | 
|          | State   |      |       | 773    |      |   |       | 240   | 
|Deferred: |         |      |       |        |      |   |       |      
|          | Federal |      |       | (4,450 | )    |   |       |      | 
|          | State   |      |       | (300   | )    |   |       |      | 
|          |         |      |       |        |      |  
|          |         | $    | 8,445 |        |      | $ | 3,802 |      
|          |         |      |       |        |      |  





|                                                                       |                         |                          |        |     |      |   |        |      |   |   |        |     | 
|---------------------------------------------------------------------- | ----------------------- | ------------------------ | ------ | --- | ---- | - | ------ | ---- | - | - | ------ | --- | 
|                                                                       |                         | Years Ended December 31, |       
|                                                                       |                         |                          |       
|                                                                       |                         | 2004                     |        |     | 2003 |   |        | 2002 |  
|                                                                       |                         |                          |        |     |      |   |        |      |  
|Expected Federal income tax (benefit) at the statutory rate of
    35% |                         | $                        | 11,911 |     |      | $ | 6,693  |      |   | $ | 694    |    
|State and local taxes (net of federal benefit)                         |                         |                          | 307    |     |      |   | 156    |      |   |   |       |    
|Change in deferred tax asset valuation allowance                       |                         |                          | (5,075 | )   |      |   | (3,664 | )    |   |   | (1,600 | )  
|Other:                                                                 |                         |                          |        |     |      |   |        |      |   |   |        |    
|                                                                       | Meals and entertainment |                          |        | 975 |      |   |        | 961  |   |   |        | 833 | 
|                                                                       | Other                   |                          |        | 327 |      |   |        | (344 | ) |   |        | 73  | 
|                                                                       |                         |                          |        |     |      |   |        |      |  
|Income tax expense                                                     |                         | $                        | 8,445  |     |      | $ | 3,802  |      |   | $ |       |    
|                                                                       |                         |                          |        |     |      |   |        |      |  

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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                     |                                              |                           |   |        |        |   |   |        |        |  
|-------------------- | -------------------------------------------- | ------------------------- | - | ------ | ------ | - | - | ------ | ------ | -
|                     |                                              | 2004                      |   |        | 2003   |  
|                     |                                              |                           |   |        |        |  
|Deferred tax assets: |                                              |                           |   |        |        |   |   |       
|                     | Net operating loss carry-forward             |                           | $ | 1,879  |        |   | $ | 2,004  |       
|                     | Recognition of sale/leaseback gains          |                           |   | 600    |        |   |   | 1,014  |       
|                     | Accrued post-retirement benefit obligation   |                           |   | 1,490  |        |   |   | 1,308  |       
|                     | Compensated absences                         |                           |   | 4,888  |        |   |   | 3,575  |       
|                     | Deferred rent                                |                           |   | 3,210  |        |   |   | 5,843  |       
|                     | Allowance for doubtful accounts receivable   |                           |   | 6      |        |   |   | 71     |       
|                     | Alternative minimum tax credit carry-forward |                           |   | 2,789  |        |   |   | 2,789  |       
|                     | Loss on convertible debt extinguishment      |                           |   | 645    |        |   |   | 1,091  |       
|                     | Other                                        |                           |   | 2,106  |        |   |   | 1,047  |       
|                     |                                              |                           |   |        |        |  
|                     | Gross deferred tax assets                    |                           |   | 17,613 |        |   |   | 18,742 |       
|                     |                                              | Less: valuation allowance |   |        | (3,748 | ) |   |        | (8,823 | )
|                     |                                              |                           |   |        |        |  
|                     | Net deferred tax assets                      |                           |   | 13,865 |        |   |   | 9,919  |       
|                     | Deferred tax liabilities:                    |                           |   |        |        |   |   |        |       
|                     |                                              | Equipment and property    |   |        | 9,388  |   |   |        | 9,919  |  
|                     |                                              |                           |   |        |        |  
|                     | Net deferred tax asset                       |                           | $ | 4,477  |        |   | $ |       |       
|                     |                                              |                           |   |        |        |  









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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                
|--- | ---------------
|10. | Major Customers





|                             |  |                          |       |  |      |   |       |      |  |   |       | 
|---------------------------- |  | ------------------------ | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                             |  | Years Ended December 31, |      
|                             |  |                          |      
|                             |  | 2004                     |       |  | 2003 |   |       | 2002 | 
|                             |  |                          |       |  |      |   |       |      | 
|Passenger Charter Operations |  | $                        | 432.6 |  |      | $ | 343.3 |      |  | $ | 306.5 | 
|Cargo Charter Operations     |  |                          | 69.1  |  |      |   | 128.5 |      |  |   | 76.0  | 



|                                             |  |                          |         |  |      |   |         |      |  |   |         | 
|-------------------------------------------- |  | ------------------------ | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                                             |  | Years Ended December 31, |        
|                                             |  |                          |        
|                                             |  | 2004                     |         |  | 2003 |   |         | 2002 | 
|                                             |  |                          |         |  |      |   |         |      | 
|U.S. Air Force (USAF) Air Mobility Command |  | $                        | 390,732 |  |      | $ | 354,703 |      |  | $ | 277,573 | 



|                    |          |                          |             |         |         |        |   |         |         |        |   |         |         |        | 
|------------------- | -------- | ------------------------ | ----------- | ------- | ------- | ------ | - | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                    |          | Years Ended December 31, |            
|                    |          |                          |            
|                    |          | 2004                     |             |         | 2003    |        |   | 2002    |        
|                    |          |                          |             |         |         |        |   |         |        
|Operating Revenues: |          |                          |             |         |         |        |   |         |         |        |   |        
|                    | Domestic |                          | $           | 444,705 |         |        | $ | 440,947 |         |        | $ | 344,170 |        
|                    | Export  |                          |             |         |         |        |   |         |         |        |   |         |        
|                    |          |                          |  Taiwan    |         |         | 27,508 |   |         |         |       |   |         |         |       | 
|                    |          |                          |  Angola    |         |         | 27,592 |   |         |         | 27,622 |   |         |         | 22,325 | 
|                    |          |                          |  Hong Kong |         |         |       |   |         |         |       |   |         |         | 10,310 | 
|                    |          |                          |  Other     |         |         | 4,095  |   |         |         | 6,281  |   |         |         | 7,684  | 
|                    |          |                          |             |         |         |        |   |         |        
|                    |          | Total                    |             | $       | 503,900 |        |   | $       | 474,850 |        |   | $       | 384,489 |       
|                    |          |                          |             |         |         |        |   |         |        



|    |                           
|--- | --------------------------
|11. | Related Party Transactions



| |                       
| | ----------------------
| | Corporate Headquarters





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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|    |                              
|--- | -----------------------------
|12. | Commitments and Contingencies









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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










.


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WORLD AIR HOLDINGS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                                                 
|--- | ------------------------------------------------
|13. | Valuation and Qualifying Accounts (in thousands)

|                                  |  |            |        |           |            |  |        |              |  |  |             |   |  |   |        | 
|--------------------------------- |  | ---------- | ------ | --------- | ---------- |  | ------ | ------------ |  |  | ----------- | - |  | - | ------ | 
|                                  |  |            |        | Additions |            |  |        |              | 
|                                  |  | Balance at |        |           | Charged    |  |        | Amounts      |  |  |            
|                                  |  | Beginning  |        |           | (Credited) |  |        | Charged      |  |  | Balance at  |  
|                                  |  | of Year    |        |           | to Expense |  |        | to Allowance |  |  | End of Year |  
|                                  |  |            |        |           |            |  |        |              |  |  |             |  
|2004                              |  |            |        |           |            |  |        |              |  |  |             |   |  |   |        | 
|Allowance for accounts receivable |  | $          | 196    |           |            |  | 2,659  |              |  |  | (2,646      | ) |  | $ | 209    | 
|Deferred tax valuation allowance  |  | $          | 8,823  |           |            |  | (5,075 | )            |  |  |            |   |  | $ | 3,748  | 
|2003                              |  |            |        |           |            |  |        |              |  |  |             |   |  |   |        | 
|Allowance for accounts receivable |  | $          | 255    |           |            |  | 1,939  |              |  |  | (1,998      | ) |  | $ | 196    | 
|Deferred tax valuation allowance  |  | $          | 12,487 |           |            |  | (3,664 | )            |  |  |            |   |  | $ | 8,823  | 
|2002                              |  |            |        |           |            |  |        |              |  |  |             |   |  |   |        | 
|Allowance for accounts receivable |  | $          | 1,350  |           |            |  | (695   | )            |  |  | (400        | ) |  | $ | 255    | 
|Deferred tax valuation allowance  |  | $          | 28,473 |           |            |  | (1,600 | )            |  |  | (14,386     | ) |  | $ | 12,487 | 



|    |                              
|--- | -----------------------------
|14. | Quarterly Results (unaudited)



|                                   |  |               |         |  |        |   |         |        |  |   |         |  |  |   |         | 
|---------------------------------- |  | ------------- | ------- |  | ------ | - | ------- | ------ |  | - | ------- |  |  | - | ------- | 
|                                   |  | Quarter Ended |        
|                                   |  |               |        
|                                   |  | Mar 31        |         |  | Jun 30 |   |         | Sep 30 |  |   | Dec 31  | 
|                                   |  |               |         |  |        |   |         |        |  |   |         | 
|2004                               |  |               |         |  |        |   |         |        |  |   |         |  |  |   |         | 
|Operating revenues                 |  | $             | 129,584 |  |        | $ | 115,060 |        |  | $ | 129,175 |  |  | $ | 130,081 | 
|Operating income                   |  |               | 13,639  |  |        |   | 4,388   |        |  |   | 13,764  |  |  |   | 8,492   | 
|Net earnings                       |  |               | 7,875   |  |        |   | 2,569   |        |  |   | 7,054   |  |  |   | 8,089   | 
|                                   |  |               |         |  |        |   |         |        |  |   |         | 
|Basic earnings per common share:   |  |               | 0.69    |  |        |   | 0.22    |        |  |   | 0.54    |  |  |   | 0.51    | 
|                                   |  |               |         |  |        |   |         |        |  |   |         | 
|Diluted earnings per common share: |  |               | 0.34    |  |        |   | 0.12    |        |  |   | 0.31    |  |  |   | 0.32    | 
|                                   |  |               |         |  |        |   |         |        |  |   |         | 
|2003                               |  |               |         |  |        |   |         |        |  |   |         |  |  |   |         | 
|Operating revenues                 |  | $             | 123,643 |  |        | $ | 116,631 |        |  | $ | 112,294 |  |  | $ | 122,282 | 
|Operating income                   |  |               | 7,663   |  |        |   | 7,820   |        |  |   | 5,874   |  |  |   | 7,071   | 
|Net earnings                       |  |               | 6,615   |  |        |   | 6,393   |        |  |   | 1,444   |  |  |   | 869     | 
|                                   |  |               |         |  |        |   |         |        |  |   |         | 
|Basic earnings per common share:   |  |               | 0.60    |  |        |   | 0.58    |        |  |   | 0.13    |  |  |   | 0.08    | 
|                                   |  |               |         |  |        |   |         |        |  |   |         | 
|Diluted earnings per common share: |  |               | 0.44    |  |        |   | 0.42    |        |  |   | 0.11    |  |  |   | 0.06    | 
|                                   |  |               |         |  |        |   |         |        |  |   |         | 



63



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














| |         
| | --------
| | KPMG LLP









64



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|         |                         
|-------- | ------------------------
|Item 9A. | Controls and Procedures.






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



| |          
| | ---------
| | Directors





| |                   
| | ------------------
| | Executive Officers



|                        |  |  |    |  |  |                                                     
|----------------------- |  |  | -- |  |  | ----------------------------------------------------
|Randy J. Martinez       |  |  | 49 |  |  | President and Chief Executive Officer               
|Jeffrey L. MacKinney    |  |  | 48 |  |  | Chief Operating Officer                             
|Gilberto M. Duarte, Jr. |  |  | 60 |  |  | Chief Financial Officer                             
|Charles H.J. Addison    |  |  | 44 |  |  | Senior Vice President  Operational Support Services
|Robert R. Binns         |  |  | 40 |  |  | Senior Vice President  Marketing & Planning        
|Charles P. McDonald     |  |  | 40 |  |  | Senior Vice President  Operations                  

Randy J. Martinez th


Jeffrey L. MacKinney


65



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Gilberto M. Duarte, Jr.


Charles H.J. Addison


Robert R. Binns


Charles P. McDonald




| |                               
| | ------------------------------
| | Beneficial Ownership Reporting





| |               
| | --------------
| | Code of Ethics

www.worldairways.com







|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation.



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|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management.








|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions.








|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accountant Fees and Services.






PART IV







|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules.

Financial Statements




| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | Consolidated Balance Sheets, December 31, 2004 and 2003                                                                 
|
| |  | Consolidated Statements of Operations, Years Ended
    December 31, 2004, 2003 and 2002                                 
|
| |  | Consolidated Statements of Changes in Stockholders Equity/
    Deficiency, Years Ended December 31, 2004, 2003 and 2002
|
| |  | Consolidated Statements of Cash Flows, Years Ended
    December 31, 2004, 2003 and 2002                                 
|
| |  | Notes to Consolidated Financial Statements                                                                              
|
| |  | Report of Independent Registered Public Accounting Firm                                                                 

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.

Exhibits


|        |      |  |             |                                                                                                                                                                                                                                                                                                                           
|------- | ---- |  | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |            
|No.     |      |  | Description
|        |      |  |            
|        | 2.1* |  |             | 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).                                                                                                                               
|       
|        | 3.3* |  |             | Restated Certificate of Incorporation, as amended, of World
    Airways, Inc. (incorporated by reference to Exhibit 3.1 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).                                               

67



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|        |       |  |             |                                                                                                                                                                                                                                                                                                                                                
|------- | ----- |  | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |            
|No.     |       |  | Description
|        |       |  |            
|       
|        | 3.4*  |  |             | First Certificate of Amendment to the Restated Certificate of
    Incorporation, as amended, of World Airways, Inc. (incorporated
    by reference to Exhibit 3.1 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).                          
|       
|        | 3.5*  |  |             | Certificate of Correction of Restated Certificate of
    Incorporation, as amended, of World Airways, Inc. (incorporated
    by reference to Exhibit 3.4 to World Air Holdings,
    Inc.s Current Report on Form 8-K, filed with the SEC
    on January 10, 2005).                                                                            
|       
|        | 3.6*  |  |             | Second Certificate of Amendment to the Restated Certificate of
    Incorporation, as amended, of World Airways, Inc. (incorporated
    by reference to Exhibit 3.5 to World Air Holdings,
    Inc.s Current Report on Form 8-K, filed with the SEC
    on January 10, 2005).                                                                  
|       
|        | 3.7*  |  |             | Amended and Restated Bylaws of World Airways, Inc. (incorporated
    by reference to Exhibit 3.1 to World Airways, Inc.s
    Current Report on Form 8-K, filed with the SEC on
    November 11, 2004).                                                                                                                                        
|       
|        | 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 between World Airways, Inc. and Air Transportation
    Stabilization Board (incorporated by 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 Air Transportation Stabilization Board
    (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).
|       
|        | 4.9*  |  |             | Warrant No. D-1-1, dated as of January 10, 2005, in
    favor of 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 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 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).                                                                              

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|        |         |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | ------- |  | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |            
|No.     |         |  | Description
|        |         |  |            
|       
|        | 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 Air Transportation and
    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*   |  |             | 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).                                                                                                                                                                                                                                                                                                                                                            
|       
|        | 10.4*   |  |             | 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).                                                                                                                                                                                                                                                                                                                                                                     
|       
|        | 10.5*   |  |             | Intellectual Property Security Agreement, dated as of
    December 30, 2003, in favor of Citibank, N.A., the lenders
    signatory thereto, 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).                                                                                                                                                                                      
|       
|        | 10.6*   |  |             | 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).                                                                                                                                                                                                                                                                                                          
|       
|        | 10.7*   |  |             | 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).                                                                                                                                                                                                                                                           
|       
|        | 10.8*   |  |             | 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).                                                                                                                                                                                                                                        
|       
|        | 10.9*   |  |             | 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).                                                                                                                                                                                                                                                                                                                                                
|       
|        | 10.10*  |  |             | 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).                                                                                                                                                                                                                                                                                                                                                      
|       
|        | 10.11*  |  |             | 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).                                                                                                                                                                                                                                                                            
|       
|        | 10.12*  |  |             | 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).                                                                                                                                                                                                                                                                                                                
|       
|        | 10.13*  |  |             | 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).                                                                                                                                                                                                                                                                           
|       
|        | 10.14*+ |  |             | World Air Holdings, Inc. Amended and Restated 1995 Stock
    Incentive Plan (incorporated by reference to Appendix B to
    World Airways, Inc.s definite proxy statement, filed with
    the SEC on April 7, 2004).                                                                                                                                                                                                                                                                                                                                                                                                      

69



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##### Table of Contents



|        |         |  |             |                                                                                                                                                                                                                                                                                                                                                    
|------- | ------- |  | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |            
|No.     |         |  | Description
|        |         |  |            
|       
|        | 10.15*+ |  |             | 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).               
|       
|        | 10.16*+ |  |             | 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).                                                                         
|       
|        | 10.17*+ |  |             | 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).                                                                                                                         
|       
|        | 10.18*+ |  |             | 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).                                                                                                                 
|       
|        | 10.19*+ |  |             | 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).    
|       
|        | 10.20*+ |  |             | 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).    
|       
|        | 10.21*+ |  |             | 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).                   
|       
|        | 10.22*+ |  |             | 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).
|       
|        | 10.23*+ |  |             | 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).  
|       
|        | 10.24*+ |  |             | 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).                             
|       
|        | 10.25*+ |  |             | 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).         
|       
|        | 10.26*+ |  |             | 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).                                     
|       
|        | 10.27*+ |  |             | 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).                             
|       
|        | 10.28+  |  |             | Employment Agreement, dated as of April 26, 2004, by and
    between World Airways, Inc. and Kenneth M. Fralick.                                                                                                                                                                                                                                   

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##### Table of Contents



|        |       |  |             |                                                                                                                                                                                                                                                                               
|------- | ----- |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |            
|No.     |       |  | Description
|        |       |  |            
|       
|        | 10.29 |  |             | 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).
|       
|        | 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



71



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##### Table of Contents






SIGNATURES






| |                         
| | ------------------------
| | World Air Holdings, Inc.



| |     |                                
| | --- | -------------------------------
| | By: | /s/ Gilberto M.
    Duarte, Jr.

| |                        
| | -----------------------
| |                        
| | Gilberto M. Duarte, Jr.
| | Chief Financial Officer



|                                                       |  |                                       |  |                |  | 
|------------------------------------------------------ |  | ------------------------------------- |  | -------------- |  | 
|Signature                                              |  | Title                                 |  | Date          
|                                                       |  |                                       |  |               
|                                                      
|/s/ Randy J. MartinezRandy
    J. Martinez             |  | President and Chief Executive Officer |  | March 28, 2005
|                                                      
|/s/ Jeffrey L. MacKinneyJeffrey
    L. MacKinney       |  | Chief Operating Officer               |  | March 28, 2005
|                                                      
|/s/ Gilberto M. Duarte, Jr.Gilberto
    M. Duarte, Jr. |  | Chief Financial Officer               |  | March 28, 2005
|                                                      
|/s/ Ronald R. FoglemanRonald
    R. Fogleman           |  | Chairman and Director                 |  | March 28, 2005
|                                                      
|/s/ Daniel J. AltobelloDaniel
    J. Altobello         |  | Director                              |  | March 28, 2005
|                                                      
|/s/ A. Scott AndrewsA.
    Scott Andrews               |  | Director                              |  | March 28, 2005
|                                                      
|/s/ Joel H. CowanJoel
    H. Cowan                     |  | Director                              |  | March 28, 2005
|                                                      
|/s/ John E. EllingtonJohn
    E. Ellington             |  | Director                              |  | March 28, 2005
|                                                      
|/s/ Russell L. Ray, Jr.Russell
    L. Ray, Jr.         |  | Director                              |  | March 28, 2005
|                                                      
|/s/ Peter M. SontagPeter
    M. Sontag                 |  | Director                              |  | March 28, 2005

72