<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
                                   (Mark One)

           (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                 For the fiscal year ended: December 31, 2001 or

           (_) 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 Airways, Inc.
             (Exact name of registrant as specified in its charter)

          DELAWARE                                       94-1358276
(State or other jurisdiction of          (I.R.S. employer identification number)
 incorporation or organization)

HLH Building, 101 World Drive, Peachtree City, GA            30269
     (Address of Principal Executive Offices)              (Zip Code)

       Registrant's telephone number, including area code: (770) 632-8000

           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:

  Title of Each Class                Name of Each Exchange on Which Registered
  -------------------                -----------------------------------------
  Common Stock ($.001 par value)     The Nasdaq Stock Market, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  X   No_____
                                        ---

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

Aggregate market value of Common Stock held by non-affiliates as of March 15,
2002: $6,068,000.

Number of shares of Common Stock outstanding as of the close of business on
March 15, 2002 was 10,921,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of World Airways, Inc.'s Notice of Annual Stockholder's Meeting and
Proxy Statement, to be filed within 120 days after the end of the registrant's
fiscal year, are incorporated by reference into Part III of this Report.

<PAGE>

                               WORLD AIRWAYS, INC.
                         2001 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                         <C>
PART I
------

Item 1.    Business ....................................................................................      3

Item 2.    Properties ..................................................................................      9

Item 3.    Legal Proceedings ...........................................................................     10

Item 4.    Submission of Matters to a Vote of Security Holders .........................................     10

PART II
-------

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters .......................     11

Item 6.    Selected Financial Data .....................................................................     12

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations .......     13

Item 7a.   Quantitative and Qualitative Disclosures About Market Risk ..................................     21

Item 8.    Financial Statements and Supplementary Data .................................................     22

Item 9     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........     43

PART III
--------

Item 10.   Directors and Executive Officers of the Registrant ..........................................     44

Item 11.   Executive Compensation ......................................................................     45

Item 12.   Security Ownership of Certain Beneficial Owners and Management ..............................     45

Item 13.   Certain Relationships and Related Transactions ..............................................     45

PART IV
-------

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................     46
</TABLE>




                                       2

<PAGE>

PART I

Item 1.   Business

World Airways, Inc. ("World Airways" or the "Company") was organized in March
1948 and is a U.S. certificated air carrier. Airline operations account for 100%
of the Company's operating revenue. World Airways provides long-range passenger
and cargo charter and wet lease air transportation, serving the U.S. Government,
international passenger and cargo air carriers, tour operators, international
freight forwarders and cruise ship companies. As of December 31, 2001, the
Company operated eight MD-11 and seven DC-10-30 aircraft. During 2001, the
Company took delivery of four DC-10-30 aircraft. The principal executive offices
of World Airways are located in The HLH Building, 101 World Drive, Peachtree
City, Georgia 30269 and the Company's telephone number is (770) 632-8000. The
Company moved its principal executive offices from Herndon, Virginia to
Peachtree City, Georgia in the second quarter of 2001.

The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 (the "Act"). This report
contains forward looking statements that are subject to risks and uncertainties
including, but not limited to, the impact of competition in the market for air
transportation services, the cyclical nature of the air carrier business,
reliance on key marketing relationships, fluctuations in operating results and
other risks detailed from time to time in the Company's periodic reports filed
with the Securities and Exchange Commission (which reports are available from
the Company upon request). These various risks and uncertainties may cause the
Company's actual results to differ materially from those expressed in any of the
forward looking statements made by, or on behalf of, the Company in this
report.

Recent Developments

On September 11, 2001, the Federal Aviation Administration ("FAA") ordered all
civilian aircraft operating in U.S. airspace grounded due to terrorist attacks.
This grounding of aircraft lasted nearly three days. The September 11th events
have adversely affected our financial condition and results of operations and
have been very damaging to the entire airline industry.

The Air Transportation Safety and System Stabilization Act ("Stabilization Act")
was enacted on September 22, 2001 in direct response to the September 11, 2001
terrorist attacks on the United States. The Stabilization Act provides for:
a. Compensation to air carriers for direct and incremental losses, as defined in
   the Stabilization Act, incurred resulting from the September 11 events;
b. Loan guarantees to air carriers by the U.S. Government;
c. Reimbursement for increases in certain insurance premiums incurred by air
   carriers; and
d. Limitations on liabilities incurred or to be incurred by air carriers as a
   result of the September 11 events.

Under the Stabilization Act, each air carrier is entitled to receive as a grant
the lesser of its actual direct and incremental losses for the period September
11, 2001 to December 31, 2001 or its maximum allocation of grant funds as
determined by the Department of Transportation ("DOT"). See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for further discussion of the cash grants provided by and the loan
guarantees available under the Stabilization Act.

Ownership

At December 31, 2001, Naluri Berhad ("Naluri"), a Malaysian aviation company,
owned 11.1% of the outstanding Common Stock of World Airways and the balance was
publicly held.

Overview & Operating Environment

Historically most of the Company's contracts have required the Company to supply
aircraft, crew, maintenance, and insurance ("ACMI" or "wet lease") and the
Company's customers were responsible for other operating costs, including fuel.
In recent years the Company has increased its operations under "full service"
contracts whereby, in addition to ACMI costs, the Company is responsible for
most other costs associated with flight operations including landing, handling
and fuel. Under both types of contracts, the customer bears the risk of
utilizing the aircraft's passenger and/or cargo capacity.

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

                                       3

<PAGE>

World Airways focuses its marketing efforts on the U.S. Air Force ("USAF") Air
Mobility Command ("AMC"), freight operators, cruise ship companies, tour
operators and international airlines. The Company increases its potential
customer base by being able to serve both passenger and cargo customers with its
passenger, cargo, and passenger/cargo convertible aircraft.

Revenue from USAF contracts are based on "available seat miles", which are
defined as the number of miles an aircraft flies times the number of seats
available on the aircraft. The Company generally charges customers other than
the USAF on a block hour basis rather than on a per seat, per pound or seat mile
basis. "Block hours" are defined as the elapsed time from the moment wheel
blocks are removed from the aircraft at the point of origin to the time when the
wheel blocks are again put in place at the aircraft's destination. The Company
generally charges a lower rate per block hour for ACMI contracts than for full
service contracts, although it does not necessarily earn a lower profit.

Due to the high fixed costs of leasing and maintaining aircraft and costs for
cockpit crewmembers and flight attendants, the Company's aircraft must have high
utilization in order for the Company to operate profitably. Although World
Airways' preferred strategy is to enter into long-term contracts with customers,
the terms of existing customer contracts are shorter than the terms of the
Company's lease obligations with respect to its aircraft. There is no assurance
that the Company will be able to enter into additional contracts with new or
existing customers or that it will be able to obtain enough additional business
to fully utilize each aircraft. World Airways' financial position and results of
operations could be materially adversely affected by periods of low aircraft
utilization and yields, especially in the aftermath of the tragedy of September
11th.

Factors that affect the Company's ability to achieve high utilization of its
aircraft include the compatibility of the Company's aircraft with customer needs
and the Company's ability to react on short notice to customer requirements
(which can be unpredictable due to changes in traffic rights, aircraft delivery
schedules and aircraft maintenance requirements). Other factors that affect the
Company include domestic and foreign regulatory requirements, as well as a trend
toward aviation deregulation that is increasing alliances and code share
arrangements.

The market for ACMI and full service charter business is highly competitive.
Certain air carriers that the Company competes with have substantially greater
financial resources and more extensive facilities and equipment than the
Company. The Company believes that the most important bases for competition in
the charter business include the range as well as passenger and payload
capacities of the aircraft, in addition to the price, flexibility, quality and
reliability of the air transportation service provided. Competitors in the
passenger charter market include American International Airlines, Omni Air
International, Miami Air and American Trans Air and in the cargo charter market
include all-cargo carriers Atlas Air (including Polar Air Cargo), Gemini Air
Cargo, Evergreen and Centurion Air Cargo, as well as scheduled and non-scheduled
passenger carriers that have substantial belly capacity. The ability of the
Company to compete depends, in part, upon its success in convincing customers
that outsourcing a portion of their business is cost-effective.

The Company operates in a challenging business environment. The air
transportation industry is highly sensitive to general economic conditions.
Since a substantial portion of passenger airline travel (both business and
personal) is discretionary, the industry tends to experience adverse financial
results during general economic downturns and can be adversely affected by
unexpected global political developments. The financial results of air cargo
carriers are also adversely affected by general economic downturns that result
in reduced demand for air cargo transportation.

Similar to other airlines, the Company's business is seasonal. During the early
part of the first quarter, the Company typically experiences lower levels of
utilization and revenue per block hour ("yield"), due to lower demand relative
to other times of the year. The Company experiences higher levels of utilization
and yield in the middle of the first quarter continuing into the second quarter,
principally due to higher demand for passenger services associated with the
annual Hadj pilgrimage. Because the Islamic calendar is a lunar-based calendar,
the Hadj pilgrimage occurs approximately 10 to 12 days earlier each year
relative to the Western (Gregorian) calendar. In 2001, the Company's flight
operations associated with the Hadj pilgrimage occurred from late January to
early April. The Company will not be providing Hadj airlift services in 2002
because of weakened demand and various security considerations due to the
September 11th events.

World Airways' operating philosophy is to build on its existing relationships to
achieve a strong platform for future growth while at the same time grow its
passenger and cargo business. The Company's strategy is based, first and
foremost, upon providing the highest level of service to its customers, thereby
maintaining and expanding the amount of business being done with existing
customers. The Company attempts to maximize profitability by combining ACMI
contracts with full service agreements that meet the peak seasonal requirements
of its customers. The Company can respond to rapidly changing market conditions
and requirements because its fleet of aircraft can be deployed in a variety of
configurations.

                                       4

<PAGE>

The Company has unsold capacity in the second quarter of 2002 and beyond;
however, historically it has been successful in obtaining additional business to
utilize some or all of its available capacity. Although there can be no
assurance that it will be able to secure additional business to utilize unsold
capacity, the Company is actively seeking additional business for 2002 and
beyond.

Customers

The Company is highly dependent on revenues from the USAF. The loss of the USAF
as a customer would have a material adverse effect on the Company. The Company's
principal customers, and the percent of revenues from those customers, for the
last three years are as follows:

<TABLE>
<CAPTION>
                                                             2001            2000            1999
                                                             ----            ----            ----
         <S>                                                 <C>             <C>             <C>
         USAF                                                64.1%           42.9%           51.0%
         Emery Air Freight Corporation ("Emery")              9.4%            9.3%            9.3%
         Sonair Serviceo Aereo ("Sonair")                     8.3%            ---             ---
         P.T. Garuda Indonesia ("Garuda")                     5.5%            8.4%            ---
         Renaissance Cruises ("Renaissance")                  ---            14.0%            ---
         Malaysian Airline System Berhad ("MAS")              ---             ---            9.0%
</TABLE>

U.S. Air Force. The Company has provided air transportation services,
--------------
principally on an international basis, to the USAF since 1956. In exchange for
requiring pledges of aircraft to the Civil Reserve Aircraft Fleet ("CRAF") for
use in times of national emergency, the USAF grants awards to CRAF participants
for peacetime transportation of personnel and cargo.

The USAF awards points to air carriers acting alone or through teaming
arrangements in proportion to the number and type of aircraft made available to
CRAF. The Company utilizes teaming arrangements to maximize the value of
potential awards. The USAF grants fixed awards for transportation to CRAF
participants. These fixed awards (also referred to as "basic" awards) provide
for known and determinable amounts of revenue to be received during the contract
period, which runs from October 1st to September 30th, in exchange for air
transportation services. In addition, CRAF participants may be awarded
additional revenue during the contract period for air transportation services
required beyond those specified in the fixed awards. The Company refers to this
additional revenue as "expansion" revenue. The following table shows original
contract awards and actual revenue from the USAF for each of the last three
years (in millions):

<TABLE>
<CAPTION>
                                             2001            2000              1999
                                             ----            ----              ----
<S>                                         <C>             <C>               <C>
Original contract award                     $127.0          $ 27.0            $ 86.0
                                            ------          ------            ------
     (year ended September 30/th/)

Basic revenue earned                        $121.5          $ 63.5            $ 94.1

Expansion revenue earned                      79.8            49.8              40.5

Cargo revenue earned                           2.5             ---               ---
                                            ------          -------           ------

Total revenue earned                        $203.8          $113.3            $134.6
                                            ------          -------           ------
</TABLE>

The original contract award for the year beginning October 1, 2001 and ending
September 30, 2002 is $175.0 million, which includes basic flying of $112.0
million, expansion flying of $60.0 million and cargo flying of $3.0 million.
This was the first time that the AMC incorporated expansion flying into the
contract, and this allows the Company to preplan and utilize its aircraft fleet
and crews more efficiently. The Company also will receive additional expansion
business during the fiscal year 2002 contract period for less predictable flying
and other short notice requirements. The Company cannot determine how future
military spending budgets, airlift requirements, national security
considerations for a continued strong and balanced CRAF and teaming arrangements
will combine to affect future business with the USAF.

Garuda. The Company has flown for Garuda periodically since 1973. The Company
------
operated three, four and zero aircraft for Garuda during the 2001, 2000 and 1999
Hadj pilgrimages. The Company will not be providing Hadj airlift services in
2002 because of weakened demand and various security considerations due to the
September 11/th/ events.

                                       5

<PAGE>

Sonair. In November 2000, the Company began operating regular private charter
------
air service for Sonair between Houston, Texas and Luanda, Angola. Sonair is a
subsidiary of Angola's National Oil Company, SONANGOL. This charter air service
supports Angola's emerging petroleum industry. The initial term of the
agreement, which was for 14 months, ended December 31, 2001. In 2002, the
Company signed an amendment to its Sonair contract for a one-year extension
through December 31, 2002, for $22.7 million. In addition, the amended contract
provides for two additional one-year renewal options, which could extend the
contract through December 31, 2004, at $22.7 million per year, resulting in
total potential revenue of approximately $68 million.

Emery. The Company has provided an MD-11F freighter aircraft to Emery Air
-----
Freight Corporation since October 1998. The program for the aircraft, which has
been extended through September 2002, primarily operates five days per week
flying round trip between Dayton, Ohio and Brussels, Belgium. The Company
provided additional ad hoc cargo service with its DC-10-30 aircraft for Emery
during fiscal 2001.

Renaissance. The Company flew one aircraft for Renaissance from August 1999,
-----------
providing exclusive air service to Europe from New York, until the agreement was
mutually terminated in late 2000.

MAS. World Airways provided wet lease services to MAS from 1981 to 1999 for MAS'
---
scheduled passenger and cargo operations as well as transporting passengers for
annual Hadj pilgrimages. Naluri, which owns 11.1% of World Airways' Common Stock
at December 31, 2001, also owned 29% of MAS that it sold in February 2001. In
1999, the Company received approximately $7.3 million in revenue associated with
minimum guarantee payments from MAS for aircraft that were not utilized.
Effective October 1999, the Company ceased operating for MAS and in May 2000,
the Company received $7 million from MAS in settlement of all aircraft lease and
operating agreements between the two companies.

Information concerning the classification of the Company's revenues comprising
10% or more of total operating revenues is presented in the following table (in
millions):

                                                 Year Ended December 31,
                                                 -----------------------
                                            2001          2000          1999
                                         ----------    ----------    ----------

     Passenger Charter Operations        $  279.2      $  210.1      $  195.6
     Cargo Charter Operations                37.3          53.0          67.6

Backlog

The Company had contract backlog of $167.2 million and $207 million at December
31, 2001 and 2000, respectively. Approximately 69% of the backlog at December
31, 2001 relates to its contracts with USAF, and the entire $167.2 million of
backlog relates to air transportation services for 2002. The decrease in 2001
compared with 2000 is primarily due to the inclusion of Hadj airlift services
and two full years of cargo service for Emery at December 31, 2000. See Note 12
of the Company's "Notes to Financial Statements" in Item 8 for additional
information regarding major customers and foreign source revenue.

Maintenance

Airframe and engine maintenance costs that account for most of the Company's
maintenance expenses typically increase as the aircraft fleet ages. The Company
outsources major airframe maintenance and engine work to several suppliers. The
Company has agreements expiring in 2005 with Delta Air Lines for all off-wing
maintenance on the PW 4462 engines that power its MD-11 aircraft, and repair of
MD-11 aircraft and its components. The Company also has maintenance agreements
with Triumph for the repair of auxiliary power units on the MD-11 and DC-10-30
aircraft. These agreements with Triumph will expire in 2004 and 2005,
respectively. In addition, the Company has a maintenance agreement with
Honeywell for landing gear and brake repair on both aircraft types and it will
expire in 2006.

Aviation Fuel

The Company incurs fuel expenses for full-service flights provided to customers.
Certain full service contracts contain terms that limit the Company's exposure
to increases in fuel prices. However, the terms of such contracts are renewed
annually and take estimated market prices for fuel for the period under contract
into consideration. Both the cost and availability of aviation fuel are subject
to many economic and political factors and events occurring throughout the world
and remain subject to various unpredictable economic and market factors that
affect the supply of all petroleum products. Fluctuations in the price of fuel
have not had a significant impact on the Company's operations because, in
general, the Company's contracts with its customers that cover 96.7% of fuel
purchased limit

                                       6

<PAGE>

the Company's exposure to increases in fuel prices. Substantial increases in the
price or the unavailability of aviation fuel could have a material adverse
effect on the Company.

The Company's primary sources of aviation fuel are major oil companies at
commercial airports and from United States military organizations at military
bases. The Company's current fuel purchasing policy consists of the purchase of
fuel within seven days in advance of all flights based on current prices set by
individual suppliers. More than one supplier is under contract at several
locations. The Company does not purchase fuel under long-term contracts nor does
the Company enter into futures or fuel swap contracts.

Regulatory Matters

Since it was founded in 1948, the Company has been authorized to engage in
commercial air transportation by the U.S. Department of Transportation ("DOT")
or its predecessor agencies. The Company is currently authorized to engage in
scheduled and charter air transportation to provide combination (persons,
property and mail) and all-cargo services between all points in the U.S., its
territories and possessions. It also holds worldwide charter authority for both
combination and all-cargo operations. In addition, the Company is authorized to
conduct scheduled combination services to the foreign points listed in its DOT
certificate. The Company also holds certificates of authority to engage in
scheduled all-cargo services to a limited number of foreign destinations. The
Company does not operate any scheduled services on its own behalf.

The Company is subject to the jurisdiction of the FAA with respect to aircraft
maintenance, flight operations, equipment, aircraft noise, ground facilities,
dispatch, communications, training, weather observation, flight time, crew
qualifications, aircraft registration and other matters affecting air safety.
The FAA requires air carriers to obtain an operating certificate and operations
specifications authorizing the carriers to operate to particular airports on
approved international routes using specified equipment. These certificates and
specifications are subject to amendment, suspension, revocation, or termination
by the FAA. In addition, all of the Company's aircraft must have and maintain
certificates of airworthiness issued or approved by the FAA. The Company
currently holds an FAA air carrier operating certificate and operations
specifications under Part 121 of the Federal Aviation Regulations. The FAA has
the authority to suspend temporarily or revoke permanently the authority of the
Company or its licensed personnel for failure to comply with regulations
promulgated by the FAA and to assess civil penalties for such failures.

Under the Airport Noise and Capacity Act of 1990 and related FAA regulations,
the Company's aircraft must comply with certain Stage 3 noise restrictions. All
of the Company's aircraft meet the Stage 3 noise restrictions, which is
currently the most stringent FAA noise requirement. FAA regulations also require
compliance with the Traffic Alert and Collision Avoidance System ("TCAS"),
approved airborne windshear warning system and aging aircraft regulations, all
of which the Company is currently in compliance with.

In 2000, the FAA issued an Airworthiness Directive ("AD") that will require the
replacement of insulation blankets on the Company's MD-11 aircraft by June 2005.
The Company has begun replacement of the affected insulation blankets on MD-11
aircraft. This is being accomplished in phases, during scheduled maintenance
work, to minimize the impact on operational availability. The Company presently
estimates that the cost of the replacement, including labor and material will
total approximately $0.8 million per aircraft and approximately 25% of this work
was complete at December 31, 2001.

In March 2001, the FAA issued a rule that requires the Company to install
enhanced ground proximity warning systems in its aircraft by March 2005. The
Company currently estimates that the cost of such installation will be
approximately $65,000 per aircraft. In October 2001, the FAA also issued a
proposed rule that will require the Company to modify the engine thrust
reversers on its DC-10-30 aircraft. It is expected that the modifications will
have to be completed by February 2005 and will cost approximately $0.6 million
per aircraft. In response to the events of September 11/th/, the FAA issued
Special Federal Aviation Regulation ("SFAR") 92 in October 2001 regarding
general aircraft and cockpit security. The Company has complied with SFAR 92,
and is currently at level II with restraint bars installed on each cargo and
passenger aircraft. The Company is in the process of evaluating proposals
relating to new cockpit door requirements, which will have to be accomplished by
April 2003. The Company estimates that the cost of this phase of security will
approximate $60,000 per aircraft. Additional requirements recommended but not
yet put into law are cockpit security surveillance camera installations, which
are estimated to cost approximately $16,000 per aircraft. It has also been
recommended that the transponder be modified so that it cannot be disabled,
which would cost approximately $6,000 per aircraft.

Due to increased airport security needs as a result of the September 11/th/
events and the potential for future attacks, Congress enacted in November 2001
the Aviation and Transportation Security Act ("the Act") which established the
Transportation Security Administration ("the TSA") within the DOT. Consistent
with the Act the TSA imposed a security service fee, effective February 1, 2002,
in the amount of $2.50 per enplanement on passengers of domestic and foreign air
carriers in air transportation, foreign air transportation, and intrastate air
transportation originating at airports in the United States. The passengers will
not be charged for more than two en

                                       7

<PAGE>

planements per one-way trip or four enplanements per round trip. The air
carriers must remit the fees imposed monthly to the TSA by the last calendar day
of the following month.

Additional laws and regulations have been considered from time to time which
could significantly increase the cost of airline operations by imposing
additional requirements or restrictions on operations. Laws and regulations have
been considered from time to time that would prohibit or restrict the ownership
and transfer of airline routes. There is no assurance that laws and regulations
currently enacted or enacted in the future will not adversely affect the
Company's ability to maintain its current level of operations.

Several aspects of airline operations are subject to regulation or oversight by
Federal agencies other than the DOT or FAA. For instance, labor relations in the
air transportation industry are generally regulated under the Railway Labor Act,
which vests in the National Mediation Board certain regulatory powers with
respect to disputes between airlines and labor unions arising under collective
bargaining agreements. In addition, the Company is subject to the jurisdiction
of other governmental entities, including (i) the Federal Communications
Commission ("FCC") regarding its use of radio facilities pursuant to the Federal
Communications Act of 1934, as amended, (ii) the Commerce Department, the
Customs Service, the Immigration and Naturalization Service, and the Animal and
Plant Health Inspection Service of the Department of Agriculture regarding the
Company's international operations, (iii) the Environmental Protection Agency
(the "EPA") regarding compliance with standards for aircraft exhaust emissions
and (iv) the Department of Justice regarding certain merger and acquisition
transactions. The EPA regulates operations, including air carrier operations,
which affect the quality of air in the U.S. The Company believes it is in full
compliance with all applicable regulatory requirements.

The Company's international operations are generally governed by a network of
bilateral civil air transport agreements providing for the exchange of traffic
rights between governments which then select and designate air carriers
authorized to exercise such rights. In the absence of a bilateral agreement,
such international air services are governed by principles of comity and
reciprocity. Bilateral provisions pertaining to the wet lease services in which
the Company is engaged vary considerably depending on the particular country.
Most bilateral agreements into which the U.S. has entered permit either country
to terminate the agreement with one year's notification to the other. In the
event a bilateral agreement is terminated, international air service between the
affected countries is governed by the principles of comity and reciprocity.

Pursuant to federal law, no more than 25% of the voting interest in the Company
may be owned or controlled by foreign citizens. In addition, under existing
precedent and policy, actual control must reside in U.S. citizens. As a matter
of regulatory policy, the DOT has stated that it would not permit aggregate
equity ownership of a domestic air carrier by foreign citizens in an amount in
excess of 49%. The Company believes it fully complies as of the date hereof with
U.S. citizen ownership requirements.

Due to its participation in the CRAF program of the USAF, the Company is subject
to inspections approximately every two years by the military as a condition of
retaining its eligibility to perform military charter flights. The last such
inspection was undertaken in 2001 and the Company met the requirements for
continued participation in the CRAF program. The next inspection is anticipated
to occur in 2003. The USAF may terminate its contract with the Company if the
Company fails to pass such inspection or otherwise fails to maintain
satisfactory performance levels, if the Company loses its airworthiness
certificate or if the aircraft pledged to the contracts lose their U.S. registry
or are leased to unapproved carriers.

The Company believes it is in compliance in all material respects with all
requirements necessary to maintain in good standing its operating authority
granted by the DOT and its air carrier operating certificate issued by the FAA.
A modification, suspension, or revocation of any of the Company's DOT or FAA
authorizations or certificates could have a material adverse effect upon the
Company. The Company also is subject to state and local laws and regulations at
locations where it operates and the regulations of various local authorities,
which operate the airports it serves. Certain airport operations have adopted
local regulations that, among other things, impose curfews and noise abatement
regulations. While the Company believes it is currently in compliance in all
material respects with all appropriate standards and has all required licenses
and authorities, any material non-compliance by the Company therewith or the
revocation or suspension of licenses or authorities could have a material
adverse effect on the Company.

Employees

As of December 31, 2001, the Company had 947 full time equivalent employees
classified as follows:

     Classification                           Employees          %
     --------------                           ---------          -
     Officers                                      12           1.3
     Administrative and Operations                289          30.5
     Cockpit Crew                                 318          33.6
     Flight Attendants                            328          34.6
                                                  ---          ----
          Total Employees                         947         100.0
                                                  ---         -----

                                       8

<PAGE>

The Company's cockpit crewmembers are represented by the International
Brotherhood of Teamsters (the "Teamsters") and are subject to a collective
bargaining agreement that will be amendable June 30, 2003.

The Company's flight attendants also are represented by the Teamsters and are
subject to a four-year collective bargaining agreement that became amendable
July 1, 2000. In January 2002, the Company announced that it was requesting
formal mediation assistance from the National Mediation Board to advance
negotiations with its flight attendants. The Company concluded that mediation
was needed, although the Teamsters union declined to join the application. In
1994, the Company's flight attendants argued that the "scope clause" of the
collective bargaining agreement was violated by the Company's use of foreign
flight attendant crews on the Company's flights for Garuda Indonesia which had
historically been the Company's operating procedure. In contracts with certain
customers, the Company is obligated to permit its customers to deploy their own
flight attendants. While the arbitrator in this matter denied in 1997 the
Union's request for back pay to affected flight attendants for flying relating
to the 1994 Hadj, the arbitrator concluded that the Company's contract with its
flight attendants requires the Company to first actively seek profitable
business opportunities that require using the Company's flight attendants,
before the Company may accept wet lease business opportunities that use the
flight attendants of the Company's customers. Since 1997, the flight attendants
have filed a number of similar "scope clause" grievances with respect to other
wet-lease contracts and in 2001 they filed another "scope clause" grievance with
respect to the 2001 Garuda Hadj agreement. An adverse decision on one or more of
the grievances could have a material adverse impact on the financial condition
or results of operations of World Airways.

The Company's aircraft dispatchers, who are represented by the Transport Workers
Union ("TWU") are subject to a collective bargaining agreement that will be
amendable December 31, 2003. Fewer than 15 Company employees are covered by this
collective bargaining agreement.

The Company is unable to predict whether any of its employees not currently
represented by a labor union will elect to be represented by a labor union or
collective bargaining unit. The Company is not aware of any parties or group of
employees who have indicated any intent of petitioning for such an election. The
election by such employees of representation in such an organization could
result in employee compensation and working condition demands that could have a
material adverse effect on the financial results of the Company.

Item 2.  Properties

Flight Equipment

As of December 31, 2001, the Company's operating fleet consisted of eight MD-11
and seven DC-10-30 aircraft, all of which are operated under operating leases.
The MD-11 aircraft include five passenger aircraft (two of which are long-range
versions), one freighter aircraft and two convertible aircraft which were in
passenger configuration. The DC-10-30 aircraft include four freighter aircraft,
two passenger aircraft, and one convertible aircraft which was in freight
configuration. The Company also had one other DC-10-30 passenger aircraft that
it removed from service in 2000 and returned to the lessor in February 2001. The
Company has no scheduled deliveries of aircraft in 2002.

At December 31, 2001, the Company's operating fleet consisted of the following:

<TABLE>
<CAPTION>
                                                                          Capacity
                                                                          --------
               Aircraft/(a)/                Passenger (Seats)/(b)/      Cargo (Tons)       Total
              --------------                ----------------------      ------------       -----
         <S>                                <C>                         <C>                <C>
         McDonnell Douglas MD-11                     409                     --                3
         McDonnell Douglas MD-11F                     --                     95                1
         McDonnell Douglas MD-11CF                   410                     90                2
         McDonnell Douglas MD-11ER                   409                     --                2
         McDonnell Douglas DC-10-30                  356                     --                2
         McDonnell Douglas DC-10-30F                  --                     74                4
         McDonnell Douglas DC-10-30CF                380                     64                1
                                                                                           -----
              Total                                                                           15
                                                                                           =====
</TABLE>

Notes
(a)  "F" aircraft are freighters; "CF" are convertible freighters and may
     operate in either passenger or freight configurations. "ER" aircraft have
     extended-range capabilities.
(b)  Based on maximum operating configurations. Other configurations are
     occasionally used.

                                       9

<PAGE>

The lease terms for six of the MD-11 aircraft expire in 2005 and 2006, and in
2022 for the two MD-11ER aircraft (assuming the exercise of 10-year lease
extensions). In 1999, in conjunction with amending the leases for the two
MD-11ER aircraft, the lessor obtained the right, if the Company fails to meet
certain financial performance requirements, that allows the lessor to cancel the
lease of the aircraft with 12 months notice. While certain financial
requirements were not achieved in 2001, the Company has not been notified of any
intent of the lessor to cancel the lease and does not expect to be notified due
to excess capacity in the airline industry. If the Company fails to achieve a
certain annual net income level in 2002 and subsequent years up to May 2004, the
lessor has similar termination rights. The lease terms for three of the DC-10-30
aircraft expire in 2003, two expire in 2004, and another two expire in 2008. The
Company also had one other DC-10-30 passenger aircraft it had removed from
service in 2000 and returned to the lessor in February 2001.

Ground Facilities

The Company leases office space in Peachtree City, Georgia for its corporate
headquarters and substantially all of the administrative employees of the
Company.

Also, the Company leases office and warehouse space in Los Angeles, California;
Wilmington, Delaware; Miami, Florida; Atlanta, Georgia; Baltimore, Maryland; New
York, New York; Houston, Texas; Seattle, Washington; Yokota, Japan; and
Frankfurt, Germany. Additional small office and maintenance material storage
space is leased at often frequented airports to provide administrative and
maintenance support for commercial and military contracts.

Item 3.   Legal Proceedings

A claim has been filed in the 19/th/ Civil Court District Court, Frankfurt,
Germany, against the Company by a tour operator seeking approximately $3.5
million in compensation related to the cancellation of a summer program in 1996.
The Company believes it has substantial defenses to this action, although no
assurance can be given of the eventual outcome of this litigation.

Miami-Dade County is currently investigating and remediating various
environmental conditions at the Miami International Airport (MIA). During the
second quarter of 2001, the County filed a lawsuit against seventeen (17)
defendants, which does not currently include World Airways, in an attempt to
recover its past and future clean-up costs. This claim has been filed in the
Florida Circuit Court for the 11th Judicial District in Dade County Florida. In
addition to the seventeen (17) defendants named in the lawsuit, 243 other
agencies and companies that were prior tenants at MIA (potentially responsible
parties "PRP"), including World Airways, were issued letters advising of the
lawsuit and indicating that any PRP's could be named as additional defendants in
the future depending upon a determination as to the levels of contamination and
the extent to which any PRP may have contributed to any alleged contamination.
At this point certain PRP's, including World Airways, have joined a joint
defense group to respond to the County's inquiries and investigation of the
PRP's. This group is conducting preliminary investigations of the site in
question to determine each PRP's potential exposure. This process is ongoing and
the potential exposure of World Airways has yet to be determined.

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

Item 4.   Submission Of Matters To A Vote Of Security Holders

No matters were submitted to a vote of securities holders during the fourth
quarter of 2001.

                                       10

<PAGE>

PART II

Item 5.   Market For Registrant's Common Equity And Related Stockholder Matters

The Company's Common Stock currently trades on the Nasdaq SmallCap Market of The
Nasdaq-Amex Market Group(SM) under the symbol: WLDA. The high and low bid prices
of the Company's Common Stock, as reported by Nasdaq, for each quarter in the
last two fiscal years are as follows:

                                                              Common Stock
                                                              ------------
                                                          High             Low
                                                          ----             ---
         2001
         ----
         Fourth Quarter ................................   .95             .44

         Third Quarter .................................  1.55             .57

         Second Quarter ................................  1.25             .80

         First Quarter .................................  1.66             .69


         2000
         ----
         Fourth Quarter ................................  1.63             .63

         Third Quarter .................................  1.19             .63

         Second Quarter ................................  1.03             .50

         First Quarter .................................  1.50             .72

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

A borrowing agreement with GMAC Commercial Credit, LLC contains restrictions on
the Company's ability to pay dividends or make any distributions of Common Stock
in excess of 5% of the total aggregate outstanding amount of stock, except that
the Company may make quarterly dividends so long as in any six month period,
such dividends do not exceed 50% of the Company's aggregate net income for the
previous six months.

In June 2001, World Airways was informed by NASDAQ that the Company's common
stock had not maintained a closing bid price of $1.00 for thirty consecutive
trading days as required by a NASDAQ SmallCap Market rule. According to NASDAQ,
World Airways needed to meet the $1.00 price requirements within 90 days (by
September 18, 2001). If the closing bid price for the stock had been $1.00 or
more for ten consecutive trading days anytime before September 18, 2001, NASDAQ
would have determined if compliance with continued listing requirements had been
achieved. If by September 18, 2001, the Company had been unable to demonstrate
compliance, and had not requested a hearing before NASDAQ on a proposed
delisting, the stock would have been delisted from the SmallCap Market. In such
a case, the Company would have taken action to be listed on the over-the-counter
Bulletin Board. In October 2001, the Company received official notice from
NASDAQ that a moratorium had been placed on the minimum bid price and market
value of public float requirements in response to the extraordinary market
conditions following the September 11, 2001 terrorist attacks on the United
States. The Company received notification in February 2002 that it would have
180 calendar days, or until August 13, 2002, to regain compliance with the bid
price requirements.

The approximate number of shareholders of record at December 31, 2001 is 682,
and does not include those shareholders who hold shares in street name accounts.

                                       11

<PAGE>

Item 6.   Selected Financial Data

The following selected financial data are derived from the audited financial
statements of the Company. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto.

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                --------------------------------------------------------------

                                                                   2001         2000          1999        1998          1997
                                                                   ----         ----          ----        ----          ----
                                                                             (in thousands except per share data)
<S>                                                             <C>          <C>           <C>         <C>           <C>
Results of operations:
Operating revenues                                              $  317,866    $ 264,033     $ 263,998   $ 271,149    $ 309,412
Operating expenses                                                 338,595      262,926       274,247     274,317      292,555
Operating income (loss)                                            (20,729)       1,107       (10,249)     (3,168)      16,857
Earnings (loss) from continuing
     operations before income taxes,
     extraordinary item and accounting change                      (26,037)      (3,159)      (13,653)    (10,905)      12,230
Earnings (loss) from continuing operations
     before extraordinary item and
     accounting change                                             (26,037)      (3,159)      (13,653)    (11,032)      11,967
Discontinued operations                                                 --           --            --          --         (515)
Extraordinary item                                                      --           --         6,030          --           --
Accounting change                                                       --       22,744            --          --           --
Net earnings (loss)                                                (26,037)      19,585        (7,623)    (11,032)      11,452
Basic earnings (loss) per common share:
     Continuing operations                                           (2.42)       (0.33)        (2.04)      (1.54)        1.16
     Discontinued operations                                            --           --            --          --        (0.05)
     Extraordinary item                                                 --           --          0.90          --           --
     Accounting change                                                  --         2.36            --          --           --
     Net earnings (loss)                                             (2.42)        2.03         (1.14)      (1.54)        1.11
     Weighted average Common Stock outstanding                      10,775        9,641         6,692       7,161       10,302
Diluted earnings (loss) per common share:
     Continuing operations                                           (2.42)       (0.33)        (2.04)      (1.54)        1.09
     Discontinued operations                                            --           --            --          --        (0.05)
     Extraordinary item                                                 --           --          0.90          --           --
     Accounting change                                                  --         2.36            --          --           --
     Net earnings (loss)                                             (2.42)        2.03         (1.14)      (1.54)        1.04
     Weighted average Common Stock and common
         equivalent shares outstanding                              10,775        9,641         6,692       7,161       12,279
Pro forma amounts assuming new method
     of accounting is applied retroactively (unaudited):
         Earnings (loss) before discontinued
              operations and extraordinary item                 $  (26,037)   $  (3,159)    $  (7,810)  $  (5,236)   $   8,035
         Net earnings (loss)                                       (26,037)      (3,159)       (1,780)     (5,236)       7,257
     Basic earnings (loss) per share:
         Before discontinued operations and
              extraordinary item                                     (2.42)       (0.33)        (1.17)      (0.73)        0.78
         Net earnings (loss)                                         (2.42)       (0.33)        (0.27)      (0.73)        0.70
     Diluted earnings (loss) per share:
         Before discontinued operations and
              extraordinary item                                     (2.42)       (0.33)        (1.17)      (0.73)        0.65
         Net earnings (loss)                                         (2.42)       (0.33)        (0.27)      (0.73)        0.59
Financial Position:
Cash and short-term investments                                 $   19,540    $  15,682     $  12,406   $  16,893    $  25,887
Total assets                                                       112,229      113,890       109,736     116,437      149,148
Notes payable and long-term obligations including
     current maturities                                             62,396       64,024        63,287      80,492       88,966
Stockholders' deficiency                                           (31,104)      (7,280)      (29,838)    (23,627)      (4,771)
</TABLE>

The Company changed its method of accounting for certain aircraft maintenance
costs from the accrual method of accounting to the direct expense method
effective January 1, 2000. See Note 3 of the Company's "Notes to Financial
Statements" in Item 8 for additional information.

                                       12

<PAGE>

Item 7.  Management's Discussion And Analysis Of Financial Condition And Results
         Of Operations

Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of World Airways as
reflected in its financial statements.

Critical Accounting Policies

The preparation of the financial statements requires the Company to make
estimates and judgments that affect the reported amount of assets, liabilities,
revenue and expenses, and related disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results may differ
from these estimates under different assumptions or conditions.

Critical accounting policies are those that are both most important to the
portrayal of the Company's financial condition and results and that require
management's most difficult, subjective, or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.

The following is an explanation of the Company's critical accounting policies,
the judgments and uncertainties affecting the application of these policies, and
the likelihood that materially different amounts would be reported under
different conditions or using different assumptions.

Accounting for Aircraft Maintenance Costs

The Company's maintenance costs are prone to greater fluctuations from year to
year under the direct expense method of accounting as opposed to the accrual
method of accounting, which was used prior to the change in accounting effective
January 1, 2000. Under the direct expense method, costs are recognized as
maintenance services are performed and as nonrefundable maintenance payments
required by lease agreements and maintenance contracts with outside maintenance
providers become due.

The Company's aircraft are maintained by outside maintenance providers. In
certain cases, aircraft maintenance costs are covered by maintenance "reserve"
payments made to the lessors of the Company's aircraft. In these cases, the
Company is required to set aside funds to cover future maintenance work. This is
done by remitting these non-refundable amounts to the lessors each month. After
qualifying maintenance is performed and paid for, the Company is reimbursed for
amounts paid from the funds held by the lessors. The result of this arrangement
is that the Company recognizes maintenance costs each month based on the amount
of the maintenance reserves required to be paid to its lessors (usually based on
a rate per hour flown). In other cases, maintenance work does not qualify for
reimbursement from lessor reserves. This may be due to the type of maintenance
performed or whether the aircraft component being maintained is covered by a
lease agreement.

For maintenance that is not covered by lessor reserves, the Company recognizes
the costs when maintenance services are performed and the costs are
determinable. Therefore, these maintenance costs will fluctuate from period to
period as scheduled maintenance work comes due or in the event unscheduled
maintenance work must be performed.

It is also important to note that aggregate maintenance reserves paid to each of
the Company's lessors may not be sufficient to cover actual maintenance costs
incurred. In these cases, the Company incurs the cost of any shortfall when the
maintenance services are performed and the costs are determinable.

Accounting for the Stabilization Act Grant

The 2001 fourth quarter results include the benefit of a $5.1 million grant the
Company received from the federal government under the Stabilization Act to
offset losses resulting from the terrorist attacks on the United States. This
grant is included as a credit to operating expenses in the statement of
operations.

Under the Stabilization Act, the Company is entitled to receive as a grant the
lesser of its actual direct and incremental losses for the period September 11,
2001 to December 31, 2001 or its maximum allocation of grant funds as determined
by the DOT.

The Company does not know its maximum allocation of grant funds, as the DOT has
not finalized its allocations. However, the Company believes that the DOT would
not have disbursed grant funds to the Company in excess of its maximum
allocation.

                                       13

<PAGE>

In determining the grant amount to recognize in the fourth quarter of 2001, the
Company compared the $5.1 million actually received to its calculation of actual
direct and incremental losses incurred through December 31, 2001. This
comparison was done separately for the Company's passenger and cargo results,
because the Company has been required to report information in its filings to
the DOT under the Stabilization Act in this manner, and in the aggregate for the
combined passenger and cargo results.

The $5.1 million of grant funds received, which was received on the Company's
passenger filings, exceed the actual direct and incremental passenger losses.
However, grant funds received are less than the Company's calculation of actual
direct and incremental losses incurred through December 31, 2001 on an aggregate
basis. The Company believes that it will not be required to return any of the
funds received under the passenger filings, because its aggregate direct and
incremental losses exceed the $5.1 million of grant funds received.

The Company believes that it may receive a maximum of $2.8 million of additional
grant funds in 2002, based on the excess of actual direct and incremental losses
over the $5.1 million of grant funds received through December 31, 2001.
However, no additional grants may be received or the Company may have to return
grant funds already received based on the DOT's final determination of the above
described amounts. Due to the uncertainty of the maximum allocation amount
determined by the DOT and the fact that the DOT has not completed its final
review of the Company's calculation of actual direct and incremental losses, the
Company determined that it would not be appropriate to accrue the benefit of any
additional grant funds until their receipt is certain.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. To the extent that the future undiscounted net cash flows expected
to be generated from an asset are less than the carrying amount of the asset, an
impairment loss will be recognized based on the difference between the asset's
carrying amount and its estimated fair market value.

If the Company determines that assets, such as aircraft parts, are no longer
needed to support operations, they are reclassified to assets held for sale and
are recorded at the lower of cost or estimated net realizable value. Net
realizable value is determined based on the estimated fair value (measured by
using a current selling price for similar assets) less estimated selling costs.
Changes in industry capacity, the manner of use by the Company of its assets,
and demand for air transportation can significantly impact fair value.

Results Of Operations

General

The Company incurred a net loss of $26.0 million for the year ended December 31,
2001, as compared to net income of $19.6 million for the year ended December 31,
2000 and a net loss of $7.6 million for the year ended December 31, 1999.
Results for 2001 include the benefit of a $5.1 million grant received from the
federal government under the Stabilization Act. Results for 2000 include a $22.7
million benefit resulting from the cumulative effect of an accounting change for
certain aircraft maintenance costs and a $7.0 million benefit relating to the
settlement of a contract dispute with a former customer. Results for 1999
include a $6.0 million extraordinary gain on the early extinguishment of debt.
Had the Company not received the benefit of these unusual items, the Company's
net losses would have been $31.1 million, $10.1 million, and $13.6 million for
the years ended December 31, 2001, 2000, and 1999, respectively.

                                       14

<PAGE>


The following table provides statistical data, used by management in evaluating
the operating performance of the Company, for the years ended December 31, 2001,
2000, and 1999.

<TABLE>
<CAPTION>

                                                                            Year Ended December 31,
                                                      -------------------------------------------------------------
                                                             2001                  2000                   1999
                                                             ----                  ----                   ----
         <S>                                          <C>        <C>        <C>        <C>          <C>        <C>
         Revenue block hours:
              Full service passenger                  18,108      54%       14,366      46%         13,461      40%
              Full service cargo                         337       1%          ---      ---            ---      ---
              ACMI passenger                           7,397      22%        6,419      21%          6,402      19%
              ACMI cargo                               7,053      22%        9,867      31%         13,190      39%
              Miscellaneous                              483       1%          657       2%            542       2%
                                                      ------     ----       ------     ----         ------     ----
              Total                                   33,378     100%       31,309     100%         33,595     100%
                                                      ------     ----       ------     ----         ------     ----

         Aircraft at year-end                                 15                      11                      10
         Average available aircraft per day                 12.9                     10.1                    10.9
         Average daily utilization                           7.1                      8.5                     8.4
              (block hours flown per day per aircraft)
</TABLE>

Adverse Impact of Terrorist Attacks

On September 11, 2001, the FAA ordered all civilian aircraft operating in U.S.
airspace grounded due to terrorist attacks. On September 22, 2001, President
Bush signed into law the Air Transportation Safety and System Stabilization Act
("Stabilization Act"), which provides, among other things, for (1) $5 billion in
payments to compensate U. S. air carriers for losses incurred as a result of the
terrorist attacks that occurred on September 11, 2001; (2) $10 billion in
federal credit instruments (loan guarantees) to U.S. air carriers to guarantee
loans from lenders to those air carriers, subject to certain conditions and
fees; (3) the authority of the Secretary of Transportation to reimburse air
carriers (which authority expires 180 days after enactment of the Stabilization
Act) for the increase in the cost of insurance; (4) deferral of the payment by
U.S. air carriers of certain taxes; and (5) a $100 million liability limit for
U.S. air carriers, at the discretion of the Secretary of Transportation, for
acts of terrorism committed during a 180-day period following enactment of the
Stabilization Act.

The impact of the terrorist attacks of September 11, 2001 and their aftermath on
the Company and the sufficiency of its financial resources to absorb this impact
will depend on a number of factors, including: (1) the adverse impact of the
terrorist attacks on the economy in general; (2) the level of air travel demand,
mix of cargo and passenger travel and related revenues; (3) the Company's
ability to reduce its operating costs and conserve its financial resources,
taking into account the increased costs that it will incur as a consequence of
the attacks; (4) the higher costs associated with new FAA security directives
and any other increased regulation of air carriers; (5) the significantly higher
costs of aviation insurance coverage, and the extent to which such insurance
will continue to be commercially available to the Company and its vendors; (6)
the ability of the Company to reduce its costs and the timing of those cost
reductions; (7) the ability of the Company to raise financing in light of the
various factors referred to herein; (8) the Company's ability to renegotiate its
aircraft lease rates; and (9) the extent of the benefits received by the Company
under the Stabilization Act or regulations issued pursuant thereto. Presently,
the Company is unable to estimate the entire impact on it of the events of
September 11, 2001, and the sufficiency of its financial resources to absorb
that impact, including the mitigating effects of the Stabilization Act and other
actions taken by the Company. However, given the magnitude of these
unprecedented events and the possible subsequent effects, the adverse impact to
the Company's financial condition, results of operations and its prospects will
be material.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Operating Revenues. Operating revenues increased $53.9 million, or 20.4%, to
------------------
$317.9 million in 2001 from $264.0 million in 2000. The increase in operating
revenue was primarily attributable to more block hours for USAF and commercial
passenger ACMI flying offset by less cargo ACMI and commercial full-service
flying. The USAF revenue increased in 2001 due to the larger fixed contract base
as well as additional expansion flying related to increased military activity.

Operating Expenses. Total operating expenses increased to $338.6 million in 2001
------------------
from $262.9 million in 2000. Total operating expenses for 2001 were reduced by a
$5.1 million grant received under the Stabilization Act from the federal
government. Total operating expenses for 2000 were reduced by a $7.0 million
contract dispute settlement received from Malaysia Airlines.

                                       15

<PAGE>

Flight expenses include all expenses related directly to the operation of the
aircraft other than maintenance, aircraft rent, insurance and fuel. Also
included are expenses related to flight dispatch and flight operations
administration. Flight expenses increased $17.8 million, or 20.2%, in 2001 to
$106.0 million from $88.2 million in 2000. This increase resulted primarily from
an increase of $16.3 million in pilot and flight attendant costs caused by
increased staffing levels necessitated by the increase in full service USAF
flying and additional cargo aircraft. Pilot payroll costs also increased due to
contractual wage increases.

Maintenance expenses increased $28.7 million, or 82.2%, in 2001 to $63.6 million
from $34.9 million in 2000. The increase in 2001 was primarily due to the
following:

     .    $7.4 million for completed engine overhauls, which are the amounts in
          excess of paid reserves that are available for reimbursement from the
          lessors;
     .    $5.0 million of thrust reverser and landing gear overhauls and $0.6
          million for additional work required on APU overhauls;
     .    credits in fiscal 2000 of $1.0 million for the reversal of maintenance
          accruals, $0.8 million for the recording of accounts receivable
          related to insurance settlements on aircraft repairs, $0.6 million for
          the cumulative interest on security deposits for two MD-11 aircraft
          and $3.0 million for engine parts that were recovered in the fourth
          quarter of 2000;
     .    $2.6 million of required lease reserve maintenance payments due
          primarily to the net three additional DC-10-30 aircraft added to the
          fleet as well as more block hours flown;
     .    $4.1 million in aircraft component repairs, of which approximately
          $2.0 million are not anticipated to be incurred in future
          periods...these are costs related to the initiation of the
          power-by-the-hour maintenance agreement for MD-11 aircraft components
          and the wheel/brake cost per landing agreement;
     .    $0.6 million related to the write-off of a prepaid maintenance item;
          and
     .    scheduled maintenance checks, insurance deductibles and higher wage as
          well as personnel expenses for mechanics.

Aircraft costs increased $7.1 million, or 10.1%, to $77.6 million in 2001 from
$70.5 million in 2000. This was primarily due to the increase in the number of
average aircraft to 12.9 in 2001 from 10.1 in 2000, offset by reductions in the
lease rates for the fleet of MD-11 aircraft. See "Liquidity and Capital
Resources" for information on deferrals of aircraft rent payments that affect
the financial position of the Company at December 31, 2001 and the Company's
financial commitments for 2002 and beyond.

Fuel expenses increased $13.0 million, or 46.4%, in 2001 to $41.0 million from
$28.0 million in 2000. This increase reflects the increase in block hours flown
together with an increase in average fuel prices per gallon to $0.88 in 2001
from $0.76 in 2000. The Company is generally able to pass fuel cost increases
through to its customers.

Commissions increased by $8.1 million in 2001 principally as a result of the
increase in AMC business in 2001 and an increase in the commission rate on this
AMC business.

Subcontract flying costs decreased $6.0 million to $0.9 million in 2001 from
$6.9 million in 2000. The higher costs in 2000 resulted from outsourcing flights
during 2000 due to aircraft being out of service for maintenance.

Sales, general and administrative expenses increased $5.8 million, or 20.5%, to
$34.1 million in 2001 from $28.3 million in 2000. This increase is primarily the
result of costs associated with the relocation of the Company's headquarters
from Virginia to Georgia as well as additional expense related to the allowance
for doubtful accounts receivable, outside legal fees, equipment rentals, outside
services, and employment recruiting and advertising. The Company expects to have
lower sales, general and administrative expenses in 2002 due to the absence of
relocation costs.

Other Expense/Net. Total other expense, net increased by $1.0 million in 2001
-----------------
compared with 2000. This increase was primarily due to $0.7 million of
prepayment penalties incurred due to the early repayment of debt in connection
with a sale leaseback of two owned engines in June 2001.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

During the third quarter ended September 30, 2000, the Company changed its
method of accounting for certain aircraft maintenance costs from the accrual
method of accounting to the direct expense method. Under the new accounting
method, maintenance costs are recognized as expense as maintenance services are
performed and as flight hours are flown for nonrefundable maintenance payments
required by lease agreements. The Company believes that the new accounting
principle is preferable because the direct expense method is the predominant
method used in the airline industry and there has not been an obligating event
prior to the maintenance checks actually being performed or flight hours being
flown. The cumulative effect of the accounting change was $22.7 million.

                                       16

<PAGE>

Operating Revenues. Although operating revenues were the same each year at $264
------------------
million, revenue per block hour flown increased to $8,433 in 2000 from $7,858 in
1999. Also, in 1999 the Company received approximately $7.3 million in revenue
associated with minimum guarantee payments from MAS. No similar payments were
received in 2000.

Operating Expenses. Total operating expenses decreased to $262.9 million in 2000
------------------
from $274.2 million in 1999. Total operating expenses for 2000 were reduced by a
$7.0 million contract dispute settlement received from MAS.

Flight expenses include all expenses related directly to the operation of the
aircraft other than maintenance, aircraft rent, and fuel. Also included are
expenses related to flight dispatch and flight operations administration. Flight
expenses increased $9.4 million, or 12%, in 2000 to $88.2 million from $78.8
million in 1999. This increase resulted primarily from increases in flight
attendant costs and passenger food costs due to more full service flying.

Maintenance expenses decreased $13.5 million, or 27.9%, in 2000 to $34.9 million
from $48.4 million in 1999. This decrease resulted from a number of reasons
including the change in accounting, the reduction in block hours flown and a
decrease in the average number of aircraft from 10.9 to 10.1. If the new method
of accounting that was adopted effective January 1, 2000 had been implemented
for 1999, maintenance expenses for 1999 would have been $5.8 million lower. The
Company also recorded a credit of $3.0 million for engine parts that were
recovered in the fourth quarter of 2000. These parts are included in equipment
and property at December 31, 2000.

Aircraft costs decreased $5.6 million, or 7.4%, in 2000 to $70.5 million from
$76.1 million in 1999. This decrease principally reflects reductions in the
lease rates for the fleet of MD-11 aircraft and the return of two DC-10-30
aircraft in the second quarter of 1999.

Fuel expenses increased $5.0 million, or 21.7%, in 2000 to $28 million from
$23.0 million in 1999. This increase reflects the increase in full service block
hours flown together with an increase in average fuel prices per gallon to $0.76
in 2000 from $0.68 in 1999. The Company is generally able to pass fuel cost
increases through to its customers.

Depreciation and amortization decreased $1.6 million, or 19.5%, in 2000 to $6.6
million from $8.2 million in 1999. This decrease resulted primarily from a
decrease resulting from the sale leaseback of an engine in the first quarter of
2000 and the ending of amortization of an intangible asset in 1999.

Sales, general and administrative expenses decreased $2.3 million, or 7.5%, in
2000 to $28.3 million from $30.6 million in 1999. This decrease principally
reflects the effect of cost control measures the Company has implemented in
personnel costs in recent years.

Other Expense/Net. Interest expense decreased $0.9 million in 2000 to $5.4
-----------------
million from $6.3 in 1999. This decrease resulted from reductions in the average
amount of debt outstanding. Other non-operating income in 1999 includes gains of
approximately $2 million on the sale of the Company's interest in an
unaffiliated communications company. There were no comparable gains in 2000.

Liquidity and Capital Resources

World Airways is highly leveraged. At December 31, 2001, World Airways' current
assets were $50.4 million and current liabilities were $80.5 million. As of
December 31, 2001, the Company had outstanding long-term debt and capital leases
of $40.9 million, and notes payable and current maturities of long-term
obligations of $21.5 million. In addition, the Company has significant long-term
obligations relating to operating leases for aircraft and spare engines.

The Company believes that aggregated information about contractual obligations
and commercial commitments provided in a single location is beneficial to
understanding and evaluating the Company's liquidity. The following table
presents this aggregated information as of December 31, 2001:

<TABLE>
<CAPTION>
                                                                   Payments Due by Period (in thousands)
                                                                   -------------------------------------
        Contractual obligations
        -----------------------
                                                    2002      2003       2004      2005      2006   Thereafter        Total
                                                    ----      ----       ----      ----      ----   ----------        -----
        <S>                                     <C>        <C>       <C>        <C>       <C>       <C>            <C>
        Notes payable                           $ 19,756   $   ---   $    ---   $   ---   $   ---     $    ---     $ 19,756
        Long-term debt and
              capital lease obligations            1,788       307     40,545       ---       ---          ---       42,640
        Operating leases                          81,045    84,216     71,285    57,930    29,908      258,955      583,339
                                                --------   -------   --------   -------   -------     --------     --------
        Total contractual cash obligations      $102,589   $84,523   $111,830   $57,930   $29,908     $258,955     $645,735
</TABLE>

The Company has no unconditional purchase obligations or other commercial
commitments (such as letters of credit or guarantees).

                                       17

<PAGE>

During the third and fourth quarters of 2001, the Company began paying amounts
less than its contractual aircraft rent obligations in order to conserve cash.
The Company continued to recognize expense for the full amount of its
contractual rent payments due. The accrual for unpaid contractual rent
obligations is $9.8 million and is included as accrued rent in the current
liabilities section of the Balance Sheet at December 31, 2001. The Company's
aircraft lessors have agreed to amended terms of the aircraft lease agreements
to provide for the repayment of the unpaid contractual rent obligations.

These amended lease terms provide for repayment of contractual rent obligations
under various methods including scheduled monthly payments bearing interest at 7
to 8 percent, payments based on a percentage of profits in future years, or with
specified maintenance deposits (as defined) previously paid by the Company and
held by lessors. In addition, the Company agreed to extend certain lease terms,
which will result in additional future minimum operating lease obligations of
approximately $36 million, which is not included in the Company's future minimum
lease obligations at December 31, 2001.

The Company has an agreement with GMAC Commercial Credit, LLC ("GMAC") expiring
in April 2004, whereby subject to certain conditions and limitations, GMAC will
make loans and advances against spare parts and receivables and issue or
facilitate the issuance of letters of credit ("the Agreement"). At December 31,
2001, the Agreement had a maximum capacity of up to $25.0 million, subject to
borrowing base amounts related to receivables and spare parts, as defined, which
collateralize borrowings. The Agreement provides for an unused facility fee of
..25 of 1% and interest on outstanding borrowings at prime plus 1%. Prime was
4.75% at December 31, 2001. Further, the receivables facility allows for the
issuing of letters of credit to a sub-limit of $4 million for an issuance and
availability fee and interest of .125 of 1%.

At December 31, 2001, the loans under the Agreement were $19.8 million, which
included $11 million against eligible spare parts inventory and $8.8 million
against eligible receivables. At December 31, 2001, outstanding letters of
credit were $1.4 million. At December 31, 2001, the Company had submitted all of
its available eligible receivables under the Agreement.

The Agreement contains dividend and borrowing restrictions as well as covenants
related to the Company's financial condition and operating results. In March
2002, GMAC agreed to an amendment which waived violation of the debt coverage
ratio covenant for the quarter ended December 31, 2001 and restated the tangible
net worth covenant as of March 31, 2002. This amendment requires that the
Company reduce the spare parts loan from $11 million to $6 million by July 1,
2002.

The Stabilization Act includes an Air Carrier Loan Guarantee Program. This
program is designed to assist viable airlines that suffered financially as a
result of September 11/th/ who do not otherwise have access to reasonable
credit. The loan guarantee is subject to certain conditions and fees, including
the potential requirement that the U.S. Government be issued warrants or other
equity instruments in connection with such loan guarantees. The program's
application deadline is June 28, 2002. The Company is currently evaluating
whether to apply. If the Company does apply and its application is approved, the
Company will undertake such a financing only if needed. There can be no
assurance that this source of financing will be available to the Company.

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

Although there can be no assurances, World Airways believes that the combination
of its existing contracts and additional business which it expects to obtain,
along with its existing cash, and financing arrangements, will be sufficient to
allow the Company to meet its cash requirements related to operating and capital
requirements for 2002.

Cash Flows from Operating Activities

Operating activities used $19.6 million in cash for the year ended December 31,
2001 compared to using $2.3 million in 2000. The cash used in 2001 principally
reflects the $26.0 million loss, net non-cash income statement charges of $6.6
million, a $9.5 million increase in trade accounts receivable, and a net
increase in cash of $9.3 million due to other changes in operating assets and
liabilities.

From February 2000 through August 2001, the Company had an 18-month salary
exchange program for most of its employees. Under the program, participating
employees exchanged up to 10% of wages for Common Stock on the basis of one
share of stock for each $1.19375 of wages exchanged and certain executives
exchanged additional amounts on the same basis. The program produced total cash
savings of approximately $5.6 million during the 18-month program and resulted
in the issuance of approximately 4.7 million shares of Common Stock.

Cash Flows from Investing Activities

Investing activities used $0.9 million in cash for the year ended December 31,
2001, compared to using $1.6 million in 2000. In 2001, cash was generated by the
sale and maturity of marketable investments, net of purchases of rotable spare
parts, computer equipment, leasehold improvements and other fixed assets. In
2000, cash was used primarily for the purchase of spare parts.

Cash Flows from Financing Activities

Financing activities generated $25.6 million in cash for the year ended December
31, 2001 compared to generating $6.6 million in 2000. In 2001, the Company
received $17.5 million of proceeds from sale leaseback transactions on four
engines and had deferred aircraft rent obligations of $9.8 million. The
repayment of debt on engines subject to the sale leaseback transactions, along
with scheduled debt payments, resulted in repayment of $9.9 million of debt. In
2000, the principal transactions were $6.1 million of cash generated by a sale
leaseback transaction offset by $6.4 million of debt repayments.

                                       18

<PAGE>

Capital Commitments/Financing Developments

The FAA has issued and proposed a number of Airworthiness Directives ("AD's")
that will require the Company to make modifications to its aircraft. They are as
follows:
     .    the replacement of insulation blankets on the Company's MD-11 aircraft
          by June 2005 that is expected to cost approximately $0.8 million per
          aircraft (approximately 25% of this work has been completed);
     .    the installation of enhanced ground proximity warning systems in its
          aircraft by March 2005 that is expected to cost approximately $65,000
          per aircraft;
     .    the modification of thrust reversers on the Company's DC-10-30
          aircraft by February 2005 that is estimated to cost approximately $0.6
          million per aircraft; and
     .    various modifications required by Special Federal Aviation Regulation
          ("SFAR") 92 regarding general aircraft and cockpit security in
          response to the events of September 11th and the Company will apply
          for reimbursement from the federal government for any costs incurred
          in accomplishing the required and recommended items relating to
          increased aircraft security.

The Company expects to finance the cost of the AD's through internally generated
funds.

World Airways' capital expenditures for 2002 other than the cost of AD's are
currently expected to be approximately $1.0 million, principally for the
purchase of aircraft related assets, which it expects to finance from working
capital.

In certain circumstances, including the Company's Common Stock being delisted
from trading and a change in control of the Company, as defined, the holders of
the Company's $40.5 million of convertible senior debentures due in 2004 could
require the Company to repurchase the outstanding debentures. The Company
obtained an outside legal opinion that delisting from the NASDAQ SmallCap Market
would not trigger a default if the Company was able to have its stock listed on
the over the counter ("OTC") bulletin board. Management believes that, in the
event of being delisted from trading on the NASDAQ SmallCap Market, the Company
would be successful in having its stock listed on an OTC bulletin board.

In 1996, in conjunction with leasing two MD-11ER aircraft the Company agreed to
assume leases of one or two MD-11F freighter aircraft for the remainder of their
24-year leases (that commenced in November and December 1995), in the event that
the existing lessee terminates its lease with the lessor. As of the date hereof,
the Company does not know if the existing lessee intends to terminate the
existing lease or not. As part of the agreement for the aircraft, the lessor
provided spare parts financing of which approximately $1.1 million is still
available.

Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, (SFAS
No. 141) and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142).
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations. SFAS No. 141 specifies criteria that intangible assets
acquired in a business combination must meet to be recognized and reported
separately from goodwill. SFAS No. 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead tested
for impairment at least annually in accordance with the provisions of SFAS No.
142. SFAS No. 142 also requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121 and subsequently, SFAS No. 144 after its adoption.

The Company adopted the provisions of SFAS No. 141 as of July 1, 2001, and SFAS
No. 142 is effective January 1, 2002. The Company does not expect either of
these standards to have an impact on the Company's financial position or results
of operations.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS No. 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development and/or normal
use of the assets. The Company also records a corresponding asset, which is
depreciated over the life of the asset. Subsequent to the initial measurement of
the asset retirement obligation, the obligation will be adjusted at the end of
each period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The Company is required to adopt SFAS No.
143 on January 1, 2003. The Company does not expect this standard to have a
material impact on the Company's future financial position or results of
operations.

In August, 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying

                                       19

<PAGE>

amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. SFAS No. 144 requires companies to separately
report discontinued operations and extends that reporting to a component of an
entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The Company is required to adopt SFAS No. 144 on January 1, 2002. The
Company does not expect this standard to have a material impact on the Company's
future financial position or results of operations.

Other Matters

Inflation

The Company believes that neither inflation nor changing prices have had a
material effect on the Company's revenues during the past three years.

Corporate Headquarters

In 2001, the Company relocated its corporate headquarters to Peachtree City,
Georgia. Hollis L. Harris, World Airways' Chairman, CEO, and President, is a
principal in the company that owns the building, for which the Company signed a
lease for a 15-year term beginning May 1, 2001. The Company's Board of Directors
verified with a nationally recognized tenant brokerage firm that the new lease
rate was equivalent to what could be obtained in arm's length negotiations with
an independent party. Obligations for rent under the lease aggregating $16.2
million at December 31, 2001 are included with future annual minimum lease
payments for operating leases in Note 8.

                                       20

<PAGE>

Item 7a.   Quantitative And Qualitative Disclosures About Market Risk

World Airways does not have any material exposure to market risks.

With respect to interest rate risks at December 31, 2001, interest rates on all
of the Company's long-term debt and capitalized lease obligations aggregating
$42.6 million are fixed. Borrowings under the Company's Credit Agreement, $19.8
million at December 31, 2001, bear interest at prime plus 1%. Based on the
average outstanding month-end balances during 2001, each 1% change in the prime
rate would have increased or decreased the Company's interest cost by
approximately $152,600. Based on the balance outstanding at December 31, 2001,
each 1% change in the prime rate will increase or decrease the Company's
interest cost by approximately $198,000 on an annual basis. See Notes 7 and 8 of
"Notes to Financial Statements" in Item 8. The Company has not entered into any
obligations for trading purposes.

With respect to foreign currency exchange rate risks, although a significant
percentage of the Company's revenues are derived from foreign customers, all
revenues and substantially all expenses are denominated in U.S. dollars. The
Company maintains minimal balances in foreign bank accounts to facilitate the
payment of expenses.

The Company is not exposed to commodity price risks except with respect to the
purchase of aviation fuel. However, fluctuations in the price of fuel have not
had a significant impact on the Company's operations in recent years because, in
general, the Company's contracts with its customers limit the Company's exposure
to increases in fuel prices. The Company purchases no fuel under long-term
contracts nor does the Company enter into futures or swap contracts at this
time.

                                       21

<PAGE>
Item 8.   Financial Statements And Supplementary Data

                               WORLD AIRWAYS, INC.
                                 BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                          December  31,
                                                                      ---------------------
                                                                        2001         2000
                                                                      --------     --------
<S>                                                                   <C>          <C>
ASSETS
Current assets
     Cash and cash equivalents, including restricted cash of $662
         in  2001 and $2,828 in 2000                                  $ 19,540     $ 14,386
     Short-term marketable investments                                      --        1,296
     Accounts receivable, less allowance for doubtful accounts
         of $1,350 in 2001 and $331 in 2000                             25,219       15,758
     Prepaid expenses and other current assets                           5,641        7,922
                                                                      --------     --------
         Total current assets                                           50,400       39,362

Equipment and property

     Flight and other equipment                                         74,292       90,060
     Equipment under capital leases                                      9,463        9,463
                                                                      --------     --------
                                                                        83,755       99,523
     Less:  accumulated depreciation and amortization                   41,223       41,974
                                                                      --------     --------
         Net equipment and property                                     42,532       57,549

Long-term deposits                                                      18,777       15,848

Marketable investments                                                      --          389

Other assets and deferred charges, net of amortization
     of $989 in 2001 and $817 in 2000                                      520          742
                                                                      --------     --------
Total assets                                                          $112,229     $113,890
                                                                      ========     ========
</TABLE>

                                       22

<PAGE>
                               WORLD AIRWAYS, INC.
                                 BALANCE SHEETS
                       (in thousands except share amounts)

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                            ------------------------
                                                                               2001           2000
                                                                            ---------      ---------
<S>                                                                         <C>            <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
     Notes payable                                                          $  19,756      $  11,532
     Current maturities of long-term obligations                                1,787          3,523
     Accounts payable                                                          30,527         18,780
     Accrued rent                                                              11,362            358
     Unearned revenue                                                           3,400          6,278
     Accrued maintenance                                                        1,543          2,182
     Accrued salaries and wages                                                 7,850          8,250
     Accrued taxes                                                              3,158          1,539
     Other accrued liabilities                                                  1,090          1,121
                                                                            ---------      ---------
         Total current liabilities                                             80,473         53,563
                                                                            ---------      ---------

Long-term obligations, net of current maturities                               40,853         48,969

Other liabilities

     Deferred gain from sale-leaseback transactions, net of accumulated
         amortization of $11,966 in 2001 and $10,313 in 2000                    6,096          3,351
     Accrued post-retirement benefits                                           2,861          2,992
     Deferred rent                                                             13,050         12,295
                                                                            ---------      ---------
         Total other liabilities                                               22,007         18,638
                                                                            ---------      ---------
Total liabilities                                                             143,333        121,170
                                                                            ---------      ---------

Stockholders' deficiency
     Preferred Stock, $.001 par value (5,000,000 shares
          authorized and no shares issued or outstanding)                          --             --
     Common Stock, $.001 par value (40,000,000 shares authorized;
         12,147,141 shares issued; 10,920,787 outstanding in
         2001 and 10,334,480 outstanding in 2000)                                  12             12
     Additional paid-in capital                                                24,165         23,980
     Deferred compensation, employee salary exchange program                       --         (1,735)
     Accumulated deficit                                                      (42,424)       (16,387)
     Treasury stock, at cost (Common Stock--1,226,354 shares in 2001
         and 1,812,661 shares in 2000)                                        (12,857)       (13,150)
                                                                            ---------      ---------
              Total stockholders' deficiency                                  (31,104)        (7,280)
                                                                            ---------      ---------
Commitments and contingencies

Total liabilities and stockholders' deficiency                              $ 112,229      $ 113,890
                                                                            =========      =========
</TABLE>

                 See accompanying Notes to Financial Statements

                                       23

<PAGE>
                                WORLD AIRWAYS, INC.
                            STATEMENTS OF OPERATIONS
                     (in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                                -----------------------------------
                                                                   2001         2000         1999
                                                                ---------    ---------    ---------
<S>                                                             <C>          <C>          <C>
Operating revenues
     Flight operations                                          $ 316,523    $ 263,067    $ 263,156
     Other                                                          1,343          966          842
                                                                ---------    ---------    ---------
         Total operating revenue                                  317,866      264,033      263,998
                                                                ---------    ---------    ---------
Operating expenses

     Flight                                                       106,022       88,238       78,802
     Maintenance                                                   63,560       34,930       48,411
     Aircraft costs                                                77,631       70,508       76,079
     Fuel                                                          40,955       27,972       22,986
     Flight operations subcontracted to other carriers                924        6,943        2,650
     Commissions                                                   14,514        6,450        6,594
     Depreciation and amortization                                  5,908        6,590        8,165
     Sales, general, and administrative                            34,134       28,270       30,560
     Settlement of contract dispute                                    --       (6,975)          --
     Airline stabilization act grant                               (5,053)          --           --
                                                                ---------    ---------    ---------
         Total operating expenses                                 338,595      262,926      274,247
                                                                ---------    ---------    ---------
Operating income (loss)                                           (20,729)       1,107      (10,249)
Other income (expense)
     Interest expense                                              (5,981)      (5,442)      (6,299)
     Interest income                                                  549        1,021          917
     Other, net                                                       124          155        1,978
                                                                ---------    ---------    ---------
         Total other, net                                          (5,308)      (4,266)      (3,404)
                                                                ---------    ---------    ---------
Earnings (loss) before income taxes, extraordinary item
     and cumulative effect of accounting change                   (26,037)      (3,159)     (13,653)
Income tax expense                                                     --           --           --
                                                                ---------    ---------    ---------
Earnings (loss) before extraordinary item and
     accounting change                                            (26,037)      (3,159)     (13,653)
Extraordinary item - gain on extinguishment of debt                    --           --        6,030
Cumulative effect of change in method of accounting
     for certain maintenance costs                                     --       22,744           --
                                                                ---------    ---------    ---------
         Net earnings (loss)                                    $ (26,037)   $  19,585    $  (7,623)
                                                                =========    =========    =========

Basic and diluted earnings (loss) per share:
     Earnings (loss) before extraordinary item and cumulative
         effect of accounting change                            $   (2.42)   $   (0.33)   $   (2.04)
     Extraordinary item                                                --           --         0.90
     Cumulative effect of accounting change                            --         2.36           --
                                                                ---------    ---------    ---------
         Net earnings (loss)                                    $   (2.42)   $    2.03    $   (1.14)
                                                                =========    =========    =========
Weighted average shares outstanding                                10,775        9,641        6,692
                                                                =========    =========    =========
Pro forma amounts assuming new method of accounting is
     applied retroactively (unaudited):
         Earnings (loss) before extraordinary item              $ (26,037)   $  (3,159)   $  (7,810)
         Net earnings (loss)                                      (26,037)      (3,159)      (1,780)
     Basic and diluted earnings (loss) per share:
         Before extraordinary item                                  (2.42)       (0.33)       (1.17)
         Net earnings (loss)                                        (2.42)       (0.33)       (0.27)
</TABLE>

                 See accompanying Notes to Financial Statements

                                       24

<PAGE>
                               WORLD AIRWAYS, INC.
                              STATEMENTS OF CHANGES
                           IN STOCKHOLDERS' DEFICIENCY
                  Years ended December 31, 2001, 2000, and 1999
                       (in thousands except share amounts)

<TABLE>
<CAPTION>

                                               Additional                                Treasury                    Total
                                      Common     Paid-In      Deferred     Accumulated     Stock,                 Stockholders'
                                      Stock      Capital    Compensation     Deficit      at Cost      Other        Deficiency
                                     --------  ----------   ------------   -----------   ---------    --------    -------------
<S>                                  <C>       <C>          <C>            <C>           <C>          <C>         <C>
Balance at December 31, 1998         $     12   $ 45,522        $   --      $(28,434)     $(39,381)   $ (1,346)     $(23,627)
8% Debentures converted into
    137,000 shares of Common Stock         --      1,207            --            --            --          --         1,207
Reclassification of
    WorldCorp receivables                  --         --            --            85            --        (399)         (314)
Settlement of receivables-
    WorldCorp, net
    (1,069,000 shares of
       Common Stock received)              --         --            --            --        (1,745)      1,745            --
Exercise of 10,000 stock options           --         10            --            --            --          --            10
Amortization of warrants                   --        118            --            --            --          --           118
Treasury stock (368,000 shares)
    issued to acquire 8%                   --         --            --            --           391          --           391
    Debentures
Net loss                                   --         --            --        (7,623)           --          --        (7,623)
                                     --------   --------      --------      --------      --------    --------      --------
Balance at December 31, 1999               12     46,857            --       (35,972)      (40,735)         --       (29,838)
Issuance of 3,733,000 shares
    of restricted Common Stock
    under Employee Salary
    Exchange Program                       --    (23,072)       (4,456)           --        27,528          --            --
Common stock purchases
     (224,000 shares)                      --         --            --            --          (286)         --          (286)
Amortization of deferred
    Compensation, accrual
    of changes in Employee
    Salary Exchange Program and
    other (379,000 shares)                 --         --         2,721            --           343          --         3,064
Amortization of warrants                   --        195            --            --            --          --           195
Net earnings                               --         --            --        19,585            --          --        19,585
                                     --------   --------      --------      --------      --------    --------      --------
Balance at December 31, 2000               12     23,980        (1,735)      (16,387)      (13,150)         --        (7,280)
Common stock purchases
     (17,500 shares)                       --         --            --            --           (18)         --           (18)
Amortization of deferred
    Compensation, accrual
    of changes in Employee
    Salary Exchange Program and
    other 603,000 shares)                  --         --         1,735            --           311          --         2,046
Amortization of warrants                   --        185            --            --            --          --           185
Net loss                                   --         --            --       (26,037)           --          --       (26,037)
                                     --------   --------      --------      --------      --------    --------      --------
    Balance at December 31, 2001     $     12   $ 24,165      $     --      $(42,424)     $(12,857)   $     --      $(31,104)
                                     ========   ========      ========      ========      ========    ========      ========
</TABLE>

                 See accompanying Notes to Financial Statements

                                       25

<PAGE>

                               WORLD AIRWAYS, INC.
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                       Years Ended December 31,
                                                                                ------------------------------------
                                                                                  2001          2000         1999
                                                                                  ----          ----         ----
<S>                                                                             <C>          <C>         <C>
Cash and cash equivalents at beginning of year                                  $ 14,386     $ 11,725    $   16,893
Cash flows from operating activities:
   Net earnings (loss)                                                           (26,037)      19,585        (7,623)
   Adjustments to reconcile net earnings (loss) to cash
     provided (used) by operating activities:
         Depreciation and amortization                                             5,908        6,590         8,165
         Deferred gain recognition                                                (1,655)      (1,248)       (1,057)
         Extraordinary gain                                                           --           --        (6,030)
         Cumulative effect of accounting change                                       --      (22,744)           --
         Recovered parts                                                              --       (3,000)           --
         Provision for doubtful accounts                                           1,019           --           450
         Deferred compensation and other                                           2,311        3,434           533
         Increase (decrease) in cash resulting from changes
              in operating assets and liabilities:
              Accounts receivable                                                (10,480)      (4,533)       (3,799)
              Deposits, prepaid expenses and other assets                           (175)      (3,709)         (626)
              Accounts payable, accrued expenses and other liabilities            12,386        1,209        15,963
              Unearned revenue                                                    (2,878)       2,126         1,823
                                                                                --------     --------    ----------
         Net cash provided (used) by operating activities                        (19,601)      (2,290)        7,799
                                                                                --------     --------    ----------

Cash flows from investing activities:
   Purchases of equipment and property                                            (3,563)      (2,508)       (2,103)
   Proceeds from disposals of equipment and property                                 996          227         1,398
   Maturities (purchase) of marketable investments, net                            1,685          681        (2,373)
                                                                                --------     --------    ----------
         Net cash used by investing activities                                      (882)      (1,600)       (3,078)
                                                                                --------     --------    ----------

Cash flows from financing activities:
   (Decrease) increase in line of credit, net                                      8,224        6,452          (134)
   Deferral of aircraft rent obligations                                           9,760           --            --
   Issuance of debt                                                                   --          675            --
   Repayment of debt                                                              (9,852)      (6,390)       (9,765)
   Proceeds of sale/leaseback transactions                                        17,505        6,100            --
    Acquisition of Common Stock, at cost                                              --        (286)            --
   Proceeds from exercise of stock options                                            --           --            10
                                                                                --------     --------    ----------
         Net cash provided (used) by financing activities                         25,637        6,551        (9,889)
                                                                                --------     --------    ----------

Net increase (decrease) in cash and cash equivalents                               5,154        2,661        (5,168)
                                                                                --------     --------    ----------

Cash and cash equivalents at end of year                                        $ 19,540     $ 14,386    $   11,725
                                                                                ========     ========    ==========
</TABLE>

                 See accompanying Notes to Financial Statements

                                       26

<PAGE>

                               WORLD AIRWAYS, INC.
                          NOTES TO FINANCIAL STATEMENTS

1.   Summary of Significant Accounting Policies

Organization

World Airways, Inc. ("World Airways" or the "Company") was organized in March
1948 and is a U.S. certificated air carrier. Airline operations account for 100%
of the Company's operating revenue. World Airways provides long-range passenger
and cargo charter and wet lease air transportation, serving the U.S. Government,
international passenger and cargo air carriers, tour operators, international
freight forwarders and cruise ship companies (see Note 12).

Financial Statement Reclassifications

Certain items in the prior year financial statements included herein have been
reclassified to conform to the 2001 financial statement presentation.

Segment Information

World Airways operates within one segment, air transportation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

The Company considers all liquid investments purchased with an original or
remaining maturity of ninety days or less to be cash equivalents.

Cash includes prepayments from customers that the Company classifies as
restricted cash. Such prepayments are generally for flights that are scheduled
to be flown within 30 days of the balance sheet date.

Marketable Investment Securities

Investments generally consist of commercial paper and municipal debt that the
Company accounts for as "available for sale" in accordance with Statement of
Financial Accounting Standards No. 115 (SFAS 115). At December 31, 2001, the
Company had no marketable investment securities. At December 31, 2000, the
investments' carrying value approximated market value. Investments that mature
within 12 months are classified as current assets.

Revenue Recognition

Revenues are recognized as the services are provided.

Income Taxes

The Company provides for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the financial
statements in the period that includes the enactment date.

                                       27

<PAGE>

Earnings (Loss) Per Common Share

Basic earnings (loss) per Common Share is computed by dividing net earnings
(loss) by the weighted average number of Common Shares outstanding during the
period. Diluted earnings (loss) per Common Share include the effects of common
equivalent shares outstanding during a period when there are earnings from
continuing operations. Basic and diluted earnings (loss) per share are the same
for each of the years in the three-year period ended December 31, 2001. In
fiscal 2000, the Company had a loss before extraordinary item and the cumulative
effect of accounting change and therefore basic and diluted earnings (loss) per
share are the same. The Company's common equivalent shares consist of shares
issuable for stock options, convertible debentures and warrants.

Equipment and Property

Equipment and property are stated at cost or, if acquired under capital leases,
at the present value of minimum lease payments.

Provisions for depreciation and amortization of equipment and property are
computed over estimated useful lives or the term of the lease, if shorter, for
capital leases, by the straight-line method, with estimated salvage values of 0
-15%. Estimated useful lives of equipment and property are as follows:

     DC10 and MD-11 flight equipment         15-16 years
     Other equipment and property             5-10 years

Major modifications and improvements including those performed in response to
Airworthiness Directives issued by the Federal Aviation Administration are
capitalized at cost. Routine maintenance and repairs are expensed as incurred.

Deferred gains realized in connection with the sale leaseback of aircraft and
equipment are amortized over the periods of the respective leases.

Aircraft Maintenance

Airframe and engine maintenance costs are recognized using the direct expense
method of accounting. Under this method, maintenance costs are recognized as
expense as maintenance services are performed and as flight hours are flown for
nonrefundable maintenance payments required by lease agreements (see Note 3).

Impairment of Long-Lived Assets

The Company reviews its long-lived assets used in operations for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. To the extent that the future undiscounted net cash
flows expected to be generated from an asset are less than the carrying amount
of the asset, an impairment loss will be recognized based on the difference
between the asset's carrying amount and its estimated fair market value.

Other Assets and Deferred Charges

Debt issuance costs are amortized on a straight-line basis over the period the
related debt is expected to be outstanding.

Post-retirement Benefits Other Than Pensions

World Airways' cockpit crewmembers and eligible dependents are covered under
post-retirement health care benefits to age 65. The Company accounts for the
benefit costs in accordance with Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Post-retirement Benefits Other Than Pensions"
("FAS No. 106"). The Company funds the benefit costs on a pay-as-you-go (cash)
basis.

                                       28

<PAGE>

Accounting for Stock-Based Compensation

The Company applies the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, by recording
compensation expense on the date of grant if the current market price of the
underlying Common Stock exceeds the exercise price. The company provides the pro
forma disclosures of FAS No. 123, Accounting for Stock-Based Compensation, by
providing pro forma net earnings (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-value-based method
of FAS No. 123 had been applied.

2.   Operating Environment

World Airways is highly leveraged. At December 31, 2001, World Airways' current
assets were $50.4 million and current liabilities were $80.5 million. As of
December 31, 2001, the Company had outstanding long-term debt and capital leases
of $40.9 million, and notes payable and current maturities of long-term
obligations of $21.5 million. In addition, the Company has significant long-term
obligations relating to operating leases for aircraft and spare engines. The
Company anticipates that its capital expenditures in 2002 will approximate $1
million.

See "Operating Leases" in Note 8 for information on amendments to the Company's
aircraft lease agreements.

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

Factors that affect the Company's ability to achieve high utilization of its
aircraft include the compatibility of the Company's aircraft with customer needs
and the Company's ability to react on short notice to customer requirements
(which can be unpredictable due to changes in traffic rights, aircraft delivery
schedules and aircraft maintenance requirements). Other factors that affect the
Company include domestic and foreign regulatory requirements, as well as a trend
toward aviation deregulation that is increasing alliances and code share
arrangements.

Due to the high fixed costs of leasing and maintaining aircraft and costs for
cockpit crewmembers and flight attendants, the Company's aircraft must have high
utilization in order for the Company to operate profitably. Although World
Airways' preferred strategy is to enter into long-term contracts with customers,
the terms of existing customer contracts are shorter than the terms of the
Company's lease obligations with respect to its aircraft. There is no assurance
that the Company will be able to enter into additional contracts with new or
existing customers or that it will be able to obtain enough additional business
to fully utilize each aircraft. World Airways' financial position and results of
operations could be materially adversely affected by periods of low aircraft
utilization and yields.

World Airways' operating philosophy is to build on its existing relationships to
achieve a strong platform for future growth while at the same time grow its full
service and cargo business. The Company's strategy is based, first and foremost,
upon providing the highest level of service to its customers, thereby
maintaining and expanding the amount of business being done with existing
customers. The Company attempts to maximize profitability by combining ACMI
contracts with full service agreements that meet the peak seasonal requirements
of its customers. The Company can respond to rapidly changing market conditions
and requirements because its fleet of aircraft can be deployed in a variety of
configurations.

The Company has unsold capacity in the second quarter of 2002 and beyond;
however, historically it has been successful in obtaining additional business to
utilize some or all of its available capacity. Although there can be no
assurance that it will be able to secure additional business to utilize unsold
capacity, the Company is actively seeking additional business for 2002 and
beyond.

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

Although there can be no assurances, the Company believes that the combination
of its existing contracts and additional business which it expects to obtain,
along with its existing cash and financing arrangements, will be sufficient to
allow the Company to meet its cash requirements related to operating and capital
requirements for 2002.

                                       29

<PAGE>

Adverse Impact of Terrorist Attacks

On September 11, 2001, the FAA ordered all civilian aircraft operating in U.S.
airspace grounded due to terrorist attacks. On September 22, 2001, President
Bush signed into law the Air Transportation Safety and System Stabilization Act
("Stabilization Act"), which provides, among other things, for (1) $5 billion in
payments to compensate U.S. air carriers for losses incurred as a result of the
terrorist attacks that occurred on September 11, 2001; (2) $10 billion in
federal credit instruments (loan guarantees) to U.S. air carriers to guarantee
loans from lenders to those air carriers, subject to certain conditions and
fees; (3) the authority of the Secretary of Transportation to reimburse air
carriers (which authority expires 180 days after enactment of the Stabilization
Act) for the increase in the cost of insurance; (4) deferral of the payment by
U.S. air carriers of certain taxes; and (5) a $100 million liability limit for
U.S. air carriers, at the discretion of the Secretary of Transportation, for
acts of terrorism committed during a 180-day period following enactment of the
Stabilization Act.

The impact of the terrorist attacks of September 11, 2001 and their aftermath on
the Company and the sufficiency of its financial resources to absorb this impact
will depend on a number of factors, including: (1) the adverse impact of the
terrorist attacks on the economy in general; (2) the level of air travel demand,
mix of cargo and passenger travel and related revenues; (3) the Company's
ability to reduce its operating costs and conserve its financial resources,
taking into account the increased costs that it will incur as a consequence of
the attacks; (4) the higher costs associated with new FAA security directives
and any other increased regulation of air carriers; (5) the significantly higher
costs of aviation insurance coverage, and the extent to which such insurance
will continue to be commercially available to the Company and its vendors; (6)
the ability of the Company to reduce its costs and the timing of those cost
reductions; (7) the ability of the Company to raise financing in light of the
various factors referred to herein; (8) the Company's ability to renegotiate its
aircraft lease rates; and (9) the extent of the benefits received by the Company
under the Stabilization Act or regulations issued pursuant thereto. Presently,
the Company is unable to estimate the entire impact on it of the events of
September 11, 2001, and the sufficiency of its financial resources to absorb
that impact, including the mitigating effects of the Stabilization Act and other
actions taken by the Company. However, given the magnitude of these
unprecedented events and the possible subsequent effects, the adverse impact to
the Company's financial condition, results of operations and its prospects will
be material.

Accounting  for the Stabilization Act Grant

The 2001 fourth quarter results include the benefit of a $5.1 million grant the
Company received from the federal government under the Stabilization Act to
offset losses resulting from the terrorist attacks on the United States. This
grant is included as a credit to operating expenses in the statement of
operations.

Under the Stabilization Act, the Company is entitled to receive as a grant the
lesser of its actual direct and incremental losses for the period September 11,
2001 to December 31, 2001 or its maximum allocation of grant funds as determined
by the DOT.

The Company does not know its maximum allocation of grant funds, as the DOT has
not finalized its allocations. However, the Company believes that the DOT would
not have disbursed grant funds to the Company in excess of its maximum
allocation.

In determining the grant amount to recognize in the fourth quarter of 2001, the
Company compared the $5.1 million actually received to its calculation of actual
direct and incremental losses incurred through December 31, 2001. This
comparison was done separately for the Company's passenger and cargo results,
because the Company has been required to report information in its filings to
the DOT under the Stabilization Act in this manner, and in the aggregate for the
combined passenger and cargo results.

The $5.1 million of grant funds received, which was received on the Company's
passenger filings, exceed the actual direct and incremental passenger losses.
However, grant funds received are less than the Company's calculation of actual
direct and incremental losses incurred through December 31, 2001 on an aggregate
basis. The Company believes that it will not be required to return any of the
funds received under the passenger filings, because its aggregate direct and
incremental losses exceed the $5.1 million of grant funds received.

The Company believes that it may receive a maximum of $2.8 million of additional
grant funds in 2002, based on the excess of actual direct and incremental losses
over the $5.1 million of grant funds received through December 31, 2001.
However, no additional grants may be received or the Company may have to return
grant funds already received based on the DOT's final determination of the above
described amounts. Due to the uncertainty of the maximum allocation amount
determined by the DOT and the fact that the DOT has not completed its final
review of the Company's calculation of actual direct and incremental losses, the
Company determined that it would not be appropriate to accrue the benefit of any
additional grant funds until their receipt is certain.

The Stabilization Act includes an Air Carrier Loan Guarantee Program. This
Program is designed to assist viable airlines that suffered financially as a
result of September 11/th/ who do not otherwise have access to reasonable
credit. The loan guarantee is subject to certain conditions and fees, including
the potential requirement that the U.S. Government be issued warrants or other
equity instruments in connection with such loan guarantees. The program's
application deadline is June 28, 2002. The Company is currently evaluating
whether to apply. If the Company does apply and its application is approved, the
Company will undertake such a financing only if needed. There can be no
assurance that this source of financing will be available to the Company.

                                       30

<PAGE>

3.   Accounting Change

Effective January 1, 2000, the Company changed its method of accounting for
certain aircraft maintenance costs from the accrual method of accounting to the
direct expense method. Under the new accounting method, maintenance costs are
recognized as expense as maintenance services are performed and as flight hours
are flown for nonrefundable maintenance payments required by lease agreements.
The Company believes that the new accounting principle is preferable because the
direct expense method is the predominant method used in the airline industry and
there has not been an obligating event prior to the maintenance checks actually
being performed or flight hours being flown. The cumulative effect of the
accounting change was $22.7 million.

 4.  Naluri Ownership  & Transactions with Malaysia Airlines

At December 31, 2001 and 2000, Naluri Berhad ("Naluri"), a Malaysian aviation
company, owned 11.1% and 11.8%, respectively, of the outstanding Common Stock of
World Airways and the balance was publicly held.

World Airways provided air transportation to Malaysian Airline System Berhad
("MAS") from 1981 to 1999. Naluri also owned 29% of MAS that it sold to the
Government of Malaysia in February 2001. In 1999, the Company received
approximately $7.3 million in revenue associated with minimum guarantee payments
from MAS for aircraft that were not utilized. Effective October 1999, the
Company ceased operating for MAS. In May 2000, the Company received $7 million
from MAS in settlement of all aircraft lease and operating agreements between
the two companies.

5.   Supplemental Information -- Statements of Cash Flows

Additional information pertaining to certain cash payments and non-cash
investing and financing activities is as follows (in thousands):

                                                Years Ended December 31,
                                                ------------------------
                                            2001           2000          1999
                                           -----           ----          ----
     Cash paid for:
         Interest ....................    $4,582         $4,549         $5,755

The Company recorded a credit of $3.0 million for engine parts that were
recovered in the fourth quarter of 2000. These parts are included in equipment
and property at December 31, 2001 and 2000.

In 1999, the Company acquired 1,069,000 shares of its Common Stock owned by
WorldCorp Inc., the Company's former parent, as settlement of all amounts owed
to the Company by WorldCorp. Also in 1999, the Company issued 368,000 shares of
Treasury Stock with a fair market value of $391,000 as consideration given to
acquire $1.5 million of the Company's outstanding 8% Debentures and $1.2 million
of the 8% Debentures were converted by the holders into 137,000 shares of Common
Stock.

6.   Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in
thousands):

                                             December 31,
                                             ------------
                                          2001         2000
                                          ----         ----

     Prepaid rent                      $   2,645     $   2,490
     Deposits                                588         3,481
     Other                                 2,408         1,951
                                       ---------     ---------
         Total                         $   5,641     $   7,922
                                       =========     =========

7.   Notes Payable

The Company has an agreement with GMAC Commercial Credit, LLC ("GMAC") expiring
in April 2004, whereby subject to certain conditions and limitations, GMAC will
make loans and advances against spare parts and receivables and issue or
facilitate the issuance of letters of credit ("the Agreement"). At December 31,
2001, the Agreement had a maximum capacity of up to $25.0 million, subject to
borrowing base amounts related to receivables and spare parts, as defined, which
collateralize borrowings. The Agreement provides for an unused facility fee of
..25 of 1% and interest on outstanding borrowings at prime plus 1%. Prime was
4.75% at December 31, 2001. Further, the receivables facility allows for the
issuing of letters of credit to a sub-limit of $4 million for an issuance and
availability fee and interest of .125 of 1%.

At December 31, 2001, the loans under the Agreement were $19.8 million, which
included $11 million against eligible spare parts inventory and $8.8 million
against eligible receivables. At December 31, 2001, outstanding letters of
credit were $1.4 million. At December 31, 2001, the Company had submitted all of
its available eligible receivables under the Agreement.

The Agreement contains dividend and borrowing restrictions as well as covenants
related to the Company's financial condition and operating results. In March
2002, GMAC agreed to an amendment which waived violation of the debt coverage
ratio covenant for the quarter ended December 31, 2001 and restated the tangible
net worth covenant as of March 31, 2002. This amendment requires that the
Company reduce the spare parts loan from $11 million to $6 million by July 1,
2002.

                                       31

<PAGE>

8.   Long-term Obligations

Long-Term Debt

<TABLE>
<CAPTION>
                                                                                            2001         2000
                                                                                            ----         ----
<S>                                                                                     <C>          <C>
The Company's long-term obligations at December 31 are as follows (in thousands):
    Convertible senior subordinated debentures due 2004--with
        interest at 8% payable semi-annually                                            $  40,545    $  40,545
    Note payable due 2003--with principal and interest at 9.98% payable monthly,
        collateralized by one engine                                                           --        3,392
    Note payable due 2004--with principal and interest at 8.18% payable monthly,
        with a final payment of $2.2 million due June 2004, collateralized by
        one engine                                                                             --        4,176
    Spare parts loan due 2003--with principal and interest at 10% payable monthly,
        collateralized by certain MD-11 spare parts                                         1,417        2,632
    Spare parts loan due 2003--with principal and interest at 8.5% payable monthly,
        collateralized by certain MD-11 spare parts                                           597        1,063
    Capital lease obligations                                                                  --           91
    Other                                                                                      81          593
                                                                                        ---------    ---------
        Total                                                                              42,640       52,492
    Less: current maturities                                                                1,787        3,523
                                                                                        ---------    ---------
        Total long-term obligations, net of current maturities                          $  40,853    $  48,969
                                                                                        =========    =========
</TABLE>

The estimated fair value of the 8% Convertible Senior Subordinated Debentures
(the "Debentures") at December 31, 2001 approximated $16 million as determined
by the most recent quoted market price which was on January 31, 2002. The
Company believes that the carrying values of its other outstanding debt
approximate fair value.

The Debentures are unsecured obligations, convertible into shares of the
Company's Common Stock at $8.90 per share, subject to adjustment in certain
events, and subordinated to all present and future senior indebtedness of the
Company. In certain circumstances including the Company's Common Stock being
delisted from trading and a change in control of the Company, as defined, the
holders of the Debentures could require the Company to repurchase the
outstanding Debentures.

The Company has $1.1 million available for additional borrowings at December 31,
2001 under the 10% spare parts loan due 2003.

The following table shows annual amounts of scheduled principal maturities of
debt outstanding at December 31, 2001 (in thousands):

         2002                     $  1,788
         2003                          307
         2004                       40,545
         2005                          ---
         2006                          ---
                                  --------
        Total                     $ 42,640
                                  --------

Operating Leases

The Company's operating fleet consists of eight MD-11 and seven DC-10-30
aircraft, all of which are leased under operating leases. The MD-11 aircraft
included five passenger aircraft (two of which are long-range versions), one
freighter aircraft and two convertible aircraft. The DC-10-30 aircraft included
four freighter aircraft, two passenger aircraft, and one convertible aircraft.
The Company also had one other DC-10-30 passenger aircraft it had removed from
service in 2000 and returned to the lessor in February 2001.

                                       32

<PAGE>


Rental expense, primarily relating to aircraft leases, totaled approximately
$77.9 million, $72.4 million, and $77.9 million for the years ended December 31,
2001, 2000 and 1999, respectively.

As of December 31, 2001, future annual minimum lease payments for operating
leases that have initial or remaining lease terms in excess of one year were as
follows (in thousands):

         2002                         $   81,045
         2003                             84,216
         2004                             71,285
         2005                             57,930
         2006                             29,908
         Thereafter                      258,955
                                      ----------
              Total                   $  583,339
                                      ==========


During the third and fourth quarters of 2001, the Company began paying amounts
less than its contractual aircraft rent obligations in order to conserve cash.
The Company continued to recognize expense for the full amount of its
contractual rent payments due. The accrual for unpaid contractual rent
obligations is $9.8 million and is included as accrued rent in the current
liabilities section of the Balance Sheet at December 31, 2001. The Company's
aircraft lessors have agreed to amended terms of the aircraft lease agreements
to provide for the repayment of the unpaid contractual rent obligations.

These amended lease terms provide for repayment of contractual rent obligations
under various methods including scheduled monthly payments bearing interest at 7
to 8 percent, payments based on a percentage of profits in future years, or with
specified maintenance deposits (as defined) previously paid by the Company and
held by lessors. In addition, the Company agreed to extend certain lease terms,
which will result in additional future minimum operating lease obligations of
approximately $36 million which is not included in the Company's future minimum
lease obligations at December 31, 2001.

Lease terms for six of the MD-11 aircraft expire in 2005 and 2006, and in 2022
for the two MD-11ER aircraft (assuming the exercise of 10-year lease
extensions). Lease terms for three of the DC-10 aircraft expire in 2003, two
expire in 2004, and another two expire in 2008.

In 1999, in conjunction with amending the leases for the two MD-11ER aircraft,
the lessor obtained the right, in the event the Company is unable to meet
certain financial requirements, that allows the lessor to cancel the lease of
the aircraft with 12 months notice. While certain financial requirements were
not achieved in 2001, the Company has not been notified of any intent of the
lessor to cancel the lease and does not expect to be notified due to excess
capacity in the airline industry. If the Company fails to achieve a certain
annual net income level in 2002 and subsequent years up to May 2004, the lessor
has similar termination rights.

In addition, in 1999 the Company granted warrants to each of the two MD-11
aircraft lessors to purchase up to one million shares of Common Stock (see Note
9). The fair value of the warrants at the time of issuance is being amortized as
rent expense over the remaining terms of the related aircraft lease agreements.

9.   Capital Stock

At December 31, 2001, 11,280,000 shares of Common Stock are reserved for
issuance for outstanding convertible debt (4,556,000 shares), stock option plans
(4,440,000 shares), warrants (2,000,000 shares), and an employee salary exchange
program (284,000 shares).

In 1999, pursuant to amendments to lease agreements for the Company's MD-11
aircraft, the Company granted warrants to each of two lessors to purchase up to
1,000,000 shares of Common Stock at an exercise price of $2.50 per share. The
warrants were vested and fully exercisable at the date of grant. One million
warrants expire in August 2004 and the other million expire in March 2005. The
per share weighted-average fair value of the warrants was $0.90 on the date of
grant using the Black Scholes option-pricing model with the following
assumptions: expected dividend yield of 0.0%, risk free interest rate of 5.735%,
expected life of 5 years and expected volatility of 78%.

At December 31, 2001, the Company's outstanding Debentures are convertible into
an aggregate of 4,556,000 shares of Common Stock at $8.90 per share, subject to
adjustment in certain events.

In June 2001, World Airways was informed by NASDAQ that the Company's common
stock had not maintained a closing bid price of $1.00 for thirty consecutive
trading days as required by a NASDAQ SmallCap Market rule. According to NASDAQ,
World Airways needed to meet the $1.00 price requirements within 90 days (by
September 18, 2001). If the closing bid price for the stock had been

                                       33

<PAGE>

$1.00 or more for ten consecutive trading days anytime before September 18,
2001, NASDAQ would have determined if compliance with continued listing
requirements had been achieved. If by September 18, 2001, the Company had been
unable to demonstrate compliance, and had not requested a hearing before NASDAQ
on a proposed delisting, the stock would have been delisted from the SmallCap
Market. In such a case, the Company would have taken action to be listed on the
over-the-counter Bulletin Board. In October 2001, the Company received official
notice from NASDAQ that a moratorium had been placed on the minimum bid price
and market value of public float requirements in response to the extraordinary
market conditions following the September 11, 2001 terrorist attacks on the
United States. The Company received notification in February 2002 that it would
have 180 calendar days, or until August 13, 2002, to regain compliance with the
bid price requirements.

In February 2000, the Company implemented an 18-month salary exchange program
for most of its employees pursuant to which 5,000,000 shares of Common Stock
were initially reserved for issuance. Under the program, participating employees
exchanged up to 10% of wages for Common Stock on the basis of one share of stock
for each $1.19375 of wages exchanged and certain executives exchanged additional
amounts on the same basis. The exchange rate was determined from average stock
prices coinciding to when the Board of Directors approved the program. The
program produced total cash savings of approximately $5.6 million during the
18-month program and resulted in the issuance of approximately 4.7 million
shares of Common Stock. Approximately 3,733,000 shares were issued as restricted
shares at the beginning of the program. The recipients were able to vote the
shares received but were not able to sell the shares until the end of the
program. Expense associated with the value of the shares was recognized over the
18-month period. If an employee left the Company during the program, a pro-rata
portion of the shares was returned to the Company.

Stock Option Plans

Under a 1995 Stock Option Plan, as amended (the "1995 Plan"), members of the
Company's Board of Directors, employees, and consultants to the Company or its
affiliates are eligible to receive stock options. The Company has reserved
3,290,000 shares of Common Stock for issuance under the 1995 Plan. Options
expire at the earlier of the stated expiration, which shall not exceed ten years
from the date of grant, or one year after the termination of a grantee's
employment with the Company. Options are granted with an exercise price that
shall not be less than 85% of the fair market value of the Common Stock on the
date of grant. Outstanding options become vested and fully exercisable at
various times through July 2009.

Under a Non-Employee Directors' Stock Option Plan (the "Directors' Plan"),
non-affiliate directors are offered options to purchase 10,000 shares of Common
Stock upon election or appointment to the Board of Directors of the Company. The
Company has reserved 250,000 shares of Common Stock for issuance under the
Directors' Plan. On the third anniversary of an initial award, the director will
be given an option for 5,000 additional shares. Options granted under the
Directors' Plan vest in 36 equal monthly installments following the award, as
long as the individual remains a director of the Company. The exercise price for
options granted is the average closing price of the Common Stock during the 30
trading days immediately preceding the date of grant.

Under a 1999 Chief Executive Stock Option Plan (the "CEO Plan"), the Chief
Executive Officer (the "CEO") of the Company was granted an option to purchase
900,000 shares of Common Stock at $1.00 per share in conjunction with the CEO's
acceptance of an offer of employment in 1999. The option was granted at fair
market value and will expire April 1, 2007. Options become exercisable in
increments of 300,000 on December 31, 2000, May 1, 2001, and December 31, 2001.

The per share weighted-average fair value of stock options granted during 2001,
2000 and 1999 was $0.81, $0.72 and $1.15, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions:

                                           2001          2000            1999
                                           ----          ----            ----
         Expected dividend yield            0%             0%             0%
         Risk-free interest rate          4.3%           6.6%        6.6% - 6.7%
         Expected life (in years)         5.2            6.5           7 - 8
         Expected volatility              102%           102%            61%

The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost is recognized for stock options in the
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under FAS No. 123, the
Company's earnings (loss) would have been the pro forma amounts below (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                          2001                2000              1999
                                                          ----                ----              ----
     <S>                            <C>                <C>                <C>               <C>
     Net earnings (loss)            As reported        $ (26,037)         $  19,585         $   (7,623)
                                    Pro forma            (27,550)            18,476             (8,636)
     Basic and diluted earnings     As reported        $   (2.42)         $    2.03         $   (1.14)
         (loss) per common share    Pro forma          $   (2.56)         $    1.91         $   (1.29)
</TABLE>

                                       34

<PAGE>

Stock option activity during the last three years is as follows (in thousands,
except per share amounts):

                                                Number of          Weighted
                                                 Options            Average
                                               Outstanding      Exercise Prices
                                               -----------      ---------------
     Balance at December 31, 1998                 1,423            $  7.66
         Granted                                  2,170               1.18
         Exercised                                  (10)              1.00
         Forfeited                                 (464)              6.69
                                                -------
     Balance at December 31, 1999                 3,119               3.30
         Granted                                  1,491               0.85
         Forfeited                                 (696)              6.54
                                                -------
     Balance at December 31, 2000                 3,914               1.78
         Granted                                    316               1.08
         Forfeited                                 (579)              1.20
                                                -------
     Balance at December 31, 2001                 3,651               1.81
                                                =======

At December 31, 2001, the range of exercise prices and weighted-average
remaining life of outstanding options was $0.69--$12.50 and 5.4 years,
respectively. The following table summarizes stock options outstanding and
exercisable at December 31, 2001 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                   Outstanding                              Exercisable
                                -------------------------------------------------       ---------------------------
                                                    Weighted
                                                    Average           Weighted                         Weighted
         Range of                 Number          Remaining Life       Average          Number          Average
      Exercise Price            of Options            Years        Exercise Price     of Options     Excercise Price
      --------------            ----------        --------------   --------------     ----------     ---------------
     <S>                        <C>               <C>              <C>                <C>            <C>
     $  0.00 - 1.25               2,538                5.8            $   0.93           1,633          $   0.96
        1.26 - 2.50                 689                5.3                1.51             416              1.48
        5.00 - 6.25                  40                4.3                5.58              40              5.58
        6.26 - 7.50                 298                3.6                7.07             148              7.01
        7.51 - 8.75                  20                2.9                8.63              20              8.63
        8.76 - 10.00                  5                1.4               10.00               5             10.00
       10.01 - 11.25                 50                1.4               10.95              30             10.92
       11.26 - 12.50                 11                1.5               12.06              11             12.06
                                  -----                                                  -----
                                  3,651                                                  2,303
                                  =====                                                  =====
</TABLE>

At December 31, 2001, 2000 and 1999, the number of options exercisable was
2,303,000, 1,227,000, and 1,028,000, respectively, and the weighted-average
exercise price of the options was $1.79, $2.59, and $1.89, respectively.

10.  Employee Benefit Plans

The World Airways' Crewmembers Target Benefit Plan is a defined contribution
plan covering cockpit crewmembers with contributions based upon wages, as
defined. It is a tax-qualified retirement plan under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). Pension expense for the
Target Benefit plan totaled $2.1 million, $1.4 million, and $1.5 million for the
years ended December 31, 2001, 2000 and 1999, respectively.

The Company also sponsors a Crewmembers Deferred Income Plan. It is a
tax-qualified retirement plan under Section 401(k) of the Code. Under the plan,
crewmembers may elect to invest salary deferrals of up to $10,500 or 15% of
their salary in selected investment funds. The Company does not make any
contributions to the plan.

The Company's flight attendants participate in a pension plan maintained by the
International Brotherhood of Teamsters ("Teamsters"). Pension contributions made
to the Teamsters on behalf of the flight attendants totaled $0.7 million, $0.5
million, and $0.5 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

                                       35

<PAGE>

In 1998 an Employee Savings and Stock Ownership Plan (the "ESSOP") the Company
implemented in 1996 was amended and changed to The Employee 401(k) Savings Plan
(the "401(k) Plan") and a stock purchase feature of the former plan was
eliminated. The 401(k) Plan continues to hold shares of World Airways Common
Stock that were allocated to the participants' accounts prior to termination of
the stock purchase feature.

Under the 401(k) Plan, employees may elect to invest salary deferrals of up to
$10,500 or 15% of their salary in selected investment funds. The Company
contributes matching funds to the 401(k) Plan equal to 33% of participants'
voluntary deferrals up to 10%. The Company expensed approximately $0.2 million
annually for its contributions to the 401(k) Plan during 2001, 2000, and 1999.

The Company has adopted a profit sharing bonus plan (the "Profit Sharing Plan")
for its cockpit crewmembers and flight attendants pursuant to agreements with
the unions representing the two groups. It is not a tax-qualified plan under the
Code. Distributions under the Profit Sharing Plan are equal to 20% of earnings,
as defined, subject to an annual limitation of 10% of the total annual aggregate
compensation of World Airways employees participating in the Profit Sharing Plan
in that year. No distributions were made for 1999 through 2001.

World Airways' cockpit crewmembers and eligible dependents are covered under a
post-retirement health care benefits plan to age 65. The Company accrues for the
cost of health benefits in accordance with FAS No. 106 but funds the benefit
costs on a pay-as-you-go (cash) basis.

A summary of the net periodic post-retirement benefit costs is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                              -----------------------
                                                            2001        2000        1999
                                                          --------    --------    --------
     <S>                                                  <C>         <C>         <C>
     Service cost                                          $  193      $  148      $  162
     Interest cost on accumulated post-retirement
          benefit obligation                                  171         141         105
     Net amortized (gain) loss                                106          61         (54)
                                                          --------    --------    --------
     Net periodic post-retirement benefit cost             $  470      $  350      $  213
                                                          ========    ========    ========
</TABLE>

The reconciliation of the accumulated post-retirement benefit obligation was as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                             2001             2000
                                                                         -----------      -----------
     <S>                                                                 <C>              <C>
     Accumulated post-retirement benefit obligation, beginning of year    $    2,450       $    1,889
         Service cost                                                            193              148
         Interest cost                                                           171              141
         Benefits paid                                                         (281)            (132)
         Actuarial loss                                                          609              404
                                                                         -----------      -----------
     Accumulated post-retirement benefit obligation, end of year          $    3,142      $     2,450
                                                                         ===========      ===========
</TABLE>

The reconciliation of the accrued post-retirement benefits of year end was as
follows (in thousands):


                                             2001              2000
                                          -----------      -----------
     Unfunded status                       $   3,142        $   2,450
     Unrecognized net gain                      (281)             542
                                          -----------      -----------
     Accrued post-retirement benefits      $   2,861        $   2,992
                                          ===========      ===========

The assumed discount rate used to measure the accumulated post-retirement
benefit obligation for 2001 and 2000 was 7.00% and 7.25%, respectively. The
medical cost trend rate in 2001 was 10% trending down to an ultimate rate in
2029 of 5.0%. A one percentage point increase in the assumed health care cost
trend rates for each future year would have increased the aggregate of the
service and interest cost components of 2001 net periodic post-retirement
benefit cost by $37,000 and would have increased the accumulated post-retirement
benefit obligation as of December 31, 2001 by $238,000. A one percentage point
decrease in the assumed health care cost trend rates for each future year would
have decreased the aggregate of the service and interest cost components of 2001
net periodic post-retirement benefit cost by $32,000 and would have decreased
the accumulated post-retirement benefit obligation as of December 31, 2001 by
$213,000.

                                       36

<PAGE>

11.  Income Taxes

There was no income tax expense or benefit for the years ended December 31,
2001, 2000 and 1999.

Income tax expense attributable to earnings (loss) from continuing operations
before extraordinary item and accounting change differed from the statutory
income tax rate as a result of the following (in thousands):

<TABLE>
<CAPTION>
                                                                     Years ended December 31,
                                                           --------------------------------------------
                                                               2001            2000            1999
                                                           ------------    ------------    ------------
<S>                                                        <C>             <C>             <C>
Expected Federal income tax (benefit)
     at the statutory rate                                  $   (8,853)     $   (1,074)     $   (4,779)
Change in beginning of the year balance of the
         valuation allowance for deferred tax assets
       allocated to income tax expense                           8,074             108           3,791
Other:
     Meals and entertainment                                       998             790             773
     Other                                                        (219)            176             215
                                                           ------------    ------------    ------------
Income tax expense                                          $      ---      $      ---      $      ---
                                                           ============    ============    ============
</TABLE>



The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                              2001                  2000
                                                          -----------           -----------
<S>                                                       <C>                  <C>
Deferred tax assets:
     Net operating loss carryforward                       $  26,618             $  22,458
     Recognition of sales/leaseback gains                      2,134                 1,173
     Accrued maintenance in excess of reserves paid               32                   518
     Accrued post-retirement benefit obligation                1,001                 1,047
     Compensated absences                                        854                   701
     Accrued rent                                              4,568                 4,303
     Allowance for doubtful accounts receivable                  473                    18
     Alternative minimum tax credit carryforward               2,789                 2,790
     Other                                                       174                   221
                                                          -----------           -----------
     Gross deferred tax assets                                38,643                33,229
         Less:   valuation allowance                          29,329                21,255
                                                          -----------           -----------
     Net deferred tax assets                                   9,314                11,974
     Deferred tax liabilities:
         Property and equipment                                9,314                11,974
                                                          -----------           -----------
     Net deferred income taxes                             $     ---             $     ---
                                                          ===========           ===========
</TABLE>

The net changes in the total valuation allowance for the years ended December
31, 2001 and 2000 were due to the generation or expiration of net operating loss
("NOL") carryforwards and the realization of other deferred tax assets and
liabilities. In assessing the realizability of the deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
(including reversals of deferred tax liabilities) during the periods in which
those temporary differences will become deductible. Management believes it is
not likely that all of the deferred tax assets will be realized.

The availability of NOL carryforwards and alternative minimum tax credits
carryforwards to reduce the Company's future federal income tax liability is
subject to limitations under Section 382 of the Code. Generally, these
limitations restrict the availability of NOL carryforwards upon certain changes
in stock ownership by five percent shareholders which, in aggregate, exceed 50
percentage points in value in a three-year period ("Ownership Change").

The Company experienced an Ownership Change on July 17, 2000 primarily due to
vesting of restricted shares that were issued in February 2000 under the
Company's Employee Salary Exchange Program and the liquidation of WorldCorp,
Inc. in July 2000.

                                       37

<PAGE>

As of December 31, 2001, the Company had NOL carryforwards for federal income
tax purposes of $76 million. Substantially all of this amount, approximately $60
million, is subject to a $343,000 annual limitation resulting from the 2000
Ownership Change. Subsequent ownership changes, if any, would impose additional
limitations on the Company's NOL carryforwards. The Company's NOL's expire as
follows (in millions):

     2004    $    4.0
     2007        19.8
     2008         5.3
     2009        17.3
     2011         2.2
     2018         7.1
     2019         4.5
     2020         4.0
     2021        11.8
            ----------
             $   76.0
            ----------

The application of the Code in this area is subject to interpretation by the
Internal Revenue Service. The NOLs are subject to examination by the IRS and,
thus, are subject to adjustment or disallowance resulting from any such IRS
examination. The 382 limitation may be increased if certain built-in-gain items,
as defined under Section 382, are realized on or before July 17, 2005.

12.   Major Customers

The Company operates in one business segment, the air transportation industry.

Information concerning the classification of the Company's revenues comprising
10% or more of total operating revenues is presented in the following table (in
millions):

                                       Year Ended December 31,
                                       -----------------------
                                    2001         2000         1999
                                  -------      -------      -------
Passenger Charter Operations      $ 279.2      $ 210.1      $ 195.6
Cargo Charter Operations             37.3         53.0         67.6

Information concerning customers for years in which their revenues comprised 10%
or more of the Company's operating revenues is presented in the following table
(in thousands):

<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                                      -------------------------------------------
                                                          2001            2000             1999
                                                      -----------    -----------    -------------
     <S>                                              <C>            <C>            <C>
     U.S. Air Force ("USAF")Air Mobility Command      $   203,787    $   113,323    $     134,601
     Renaissance Tours ("Renaissance")                         --         36,862           11,181
     Emery Air Freight Corporation ("Emery")               29,889         24,665           24,550
     Malaysia Airlines ("MAS") (see Note 4)                    --             --           23,824
     P.T. Garuda Indonesia ("Garuda")                      17,651         22,248               --
</TABLE>

U.S. Air Force. The Company has provided air transportation services,
--------------
principally on an international basis, to the USAF since 1956. In exchange for
requiring pledges of aircraft to the Civil Reserve Aircraft Fleet ("CRAF") for
use in times of national emergency, the USAF grants awards to CRAF participants
for peacetime transportation of personnel and cargo.

The USAF awards points to air carriers acting alone or through teaming
arrangements in proportion to the number and type of aircraft made available to
CRAF. The Company utilizes teaming arrangements to maximize the value of
potential awards. The USAF grants fixed awards for transportation to CRAF
participants. These fixed awards (also referred to as "basic" awards) provide
for known and determinable amounts of revenue to be received during the contract
period, which runs from October 1/st/ to September 30/th/, in exchange for air
transportation services. In addition, CRAF participants may be awarded
additional revenue during the contract period for air transportation services
required beyond those specified in the fixed awards. The Company refers to this
additional revenue as "expansion" revenue.

The following table shows original contract awards and actual revenue from the
USAF for each of the last three years (in millions):


                                               2001         2000        1999
                                            ---------    ---------    ---------

Original Contract Award                     $  127.0     $   27.0     $   86.0
                                            ---------    ---------    ---------
     (year ended September 30/th/)

Basic revenue earned                        $  121.5     $   63.5     $   94.1

Expansion revenue earned                        79.8         49.8         40.5

Cargo revenue earned                             2.5          ---         ---
                                            ---------    ---------    ---------

Total revenue earned                        $  203.8     $  113.3     $  134.6
                                            ---------    ---------    ---------

                                       38

<PAGE>

The original contract award for the year beginning October 1, 2001 and ending
September 30, 2002 is $175.0 million, which includes basic flying of $112.0
million, expansion flying of $60.0 million and cargo flying of $3.0 million.
This was the first time that the USAF incorporated expansion flying into the
contract, and this allows the Company to preplan and utilize its aircraft fleet
and crews more efficiently. The Company also will receive additional expansion
business during the fiscal year 2002 contract period for less predictable flying
and other short notice requirements. The Company cannot determine how future
military spending budgets, airlift requirements, national security
considerations for a continued strong and balanced CRAF and teaming arrangements
will combine to affect future business with the USAF.

Garuda. The Company has flown for Garuda periodically since 1973. The Company
------
operated three, four and zero aircraft for Garuda during the 2001, 2000 and 1999
Hadj pilgrimages. The Company will not be providing Hadj airlift services in
2002 because of weakened demand and various security considerations due to the
September 11th events.

Sonair. In November 2000, the Company began operating regular private charter
------
air service for Sonair between Houston, Texas and Luanda, Angola. Sonair is a
subsidiary of Angola's National Oil Company, SONANGOL. This charter air service
supports Angola's emerging petroleum industry. The initial term of the
agreement, which was for 14 months, ended December 31, 2001. In 2002, the
Company signed an amendment to its Sonair contract for a one-year extension
through December 31, 2002, for $22.7 million. In addition, the amended contract
provides for two additional one-year renewal options, which could extend the
contract through December 31, 2004, at $22.7 million per year, resulting in
total potential revenue of approximately $68 million.

Emery. The Company has provided an MD-11F freighter aircraft to Emery Air
-----
Freight Corporation since October 1998. The program for the aircraft, which has
been extended through September 2002, primarily operates five days per week
flying round trip between Dayton, Ohio and Brussels, Belgium. The Company
provided additional ad hoc cargo service with its DC-10-30 aircraft for Emery
during fiscal 2001.

Renaissance. The Company flew one aircraft for Renaissance from August 1999,
-----------
providing exclusive air service to Europe from New York, until the agreement was
mutually terminated in late 2000.

MAS. World Airways provided wet lease services to MAS from 1981 to 1999 for MAS'
---
scheduled passenger and cargo operations as well as transporting passengers for
annual Hadj pilgrimages. Naluri, which owns 11.2% of World Airways' Common Stock
at December 31, 2001, also owned 29% of MAS that it sold in February 2001. In
1999, the Company received approximately $7.3 million in revenue associated with
minimum guarantee payments from MAS for aircraft that were not utilized.
Effective October 1999, the Company ceased operating for MAS and in May 2000,
the Company received $7 million from MAS in settlement of all aircraft lease and
operating agreements between the two companies.

The classification between domestic and export revenues is based on entity
definitions prescribed in the economic regulations of the Department of
Transportation. Information concerning the Company's export revenues is
presented in the following table (in thousands):


                                          Years Ended December 31,
                                          -----------------------
                                     2001           2000          1999
                                 -----------    -----------    -----------
Operating Revenues:
     Domestic                    $   258,735    $   218,887    $   201,779
     Export  - Malaysia                   --             --         33,749
             - Philippines                --             --             --
             - Indonesia              17,651         22,248             --
             - Angola                 26,300             --             --
             - United Kingdom             --             --          1,659
             - Other                  15,180         22,898         26,811
                                 -----------    -----------    -----------
         Total                   $   317,866    $   264,033    $   263,998
                                 ===========    ===========    ===========

13.  Related Party Transactions

In 2001, the Company relocated its corporate headquarters to Peachtree City,
Georgia. Hollis L. Harris, World Airways' Chairman, CEO and President, is a
principal in the company that owns the building, for which the Company signed a
lease for a 15-year term beginning May 1, 2001.

                                       39

<PAGE>

Obligations for rent under the lease aggregating $16.2 million at December 31,
2001 are included with future annual minimum lease payments for operating leases
in Note 8.

See Notes 4 and 12 for information about the Company's transactions with Naluri
and MAS.

14.  Commitments and Contingencies

The Company's flight attendants, approximately 35% of the Company's employees,
who are represented by the International Brotherhood of Teamsters, are subject
to a four-year collective bargaining agreement that became amendable July 1,
2000. In January 2002, the Company announced that it was requesting formal
mediation assistance from the National Mediation Board to advance negotiations
with its flight attendants. The Company concluded that mediation was needed,
although the Teamsters union declined to join the application. In 1994, the
Company's flight attendants argued that the "scope clause" of the collective
bargaining agreement was violated by the Company's use of foreign flight
attendant crews on the Company's flights for Garuda which has historically been
the Company's operating procedure. In contracts with certain customers, the
Company is obligated to permit its customers to deploy their own flight
attendants. While the arbitrator in this matter denied in 1997 the Union's
request for back pay to affected flight attendants for flying relating to the
1994 Hadj, the arbitrator concluded that the Company's contract with its flight
attendants requires the Company to first actively seek profitable business
opportunities that require using the Company's flight attendants, before the
Company may accept wet lease business opportunities that use the flight
attendants of the Company's customers. Since 1997, the flight attendants have
filed "scope clause" grievances with respect to other wet-lease contracts and in
2001 they filed another "scope clause" grievance with respect to the 2001 Garuda
Hadj agreement. An adverse decision on one or more of the grievances could have
a material adverse impact on the financial condition or results of operations of
World Airways.

A claim has been filed in the 19th Civil Court District Court, Frankfurt,
Germany, against the Company by a tour operator seeking approximately $3.5
million in compensation related to the cancellation of a summer program in 1996.
The Company believes it has substantial defenses to this action, although no
assurance can be given of the eventual outcome of this litigation.

Miami-Dade County is currently investigating and remediating various
environmental conditions at the Miami International Airport (MIA). During the
second quarter of 2001, the County filed a lawsuit against seventeen (17)
defendants, which does not currently include World Airways, in an attempt to
recover its past and future clean-up costs. This claim has been filed in the
Florida Circuit Court for the 11th Judicial District in Dade County Florida. In
addition to the seventeen (17) defendants named in the lawsuit, 243 other
agencies and companies that were prior tenants at MIA (potentially responsible
parties "PRP"), including World Airways, were issued letters advising of the
lawsuit and indicating that any PRP's could be named as additional defendants in
the future depending upon a determination as to the levels of contamination and
the extent to which any PRP may have contributed to any alleged contamination.
At this point certain PRP's, including World Airways, have joined a joint
defense group to respond to the County's inquiries and investigation of the
PRP's. This Group is conducting preliminary investigations of the site in
question to determine each PRP's potential exposure. This process is ongoing and
the potential exposure of World Airways has yet to be determined.

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

In 1993, the Company returned certain DC-10-30 aircraft to the lessor. As a
result of this early lease termination, the Company is responsible, until 2004
for one aircraft and 2005 for the second aircraft, for one-third of any deficit
in rent incurred in future leases of the aircraft, up to $100,000 monthly per
plane, with an overall combined cap. The Company's remaining contingent
liability related to this matter approximates $866,000.

                                       40

<PAGE>

15.  Valuation and Qualifying Accounts (in thousands)

                                              Allowance   Valuation Allowance
                                             for Doubtful     for Deferred
                                               Accounts         Tax Assets
                                             ------------     --------------
     Balance at December 31, 1998            $     1,560      $      35,362
         Additions charged to expense                450                 --
         Amounts charged to allowance               (162)            (4,943)
                                             ------------     --------------
     Balance at December 31, 1999                  1,848             30,419
         Additions charged to expense                 --                 --
         Amounts charged to allowance             (1,517)            (9,164)
                                             ------------       ------------
     Balance at December 31, 2000                    331             21,255
         Additions charged to expense              1,019              8,074
         Amounts charged to allowance                 --                 --
                                             ------------       ------------
     Balance at December 31, 2001            $     1,350        $    29,329
                                             ============       ============


16.  Unaudited Quarterly Results

The results of the Company's quarterly operations (unaudited) for 2001 and 2000
are as follows (in thousands except share data).

<TABLE>
<CAPTION>
                                                                              Quarter Ended
                                                          ---------------------------------------------------------
                                                             Mar 31          Jun 30        Sep 30          Dec 31
<S>                                                       <C>            <C>            <C>             <C>
2001
Operating revenues                                        $   73,769     $   76,579     $   85,187      $   82,331
Operating loss                                                (8,639)        (7,139)        (1,690)         (3,261)
Net loss                                                     (10,144)        (9,193)        (2,315)         (4,385)
                                                          ===========    ===========    ===========     ===========

Basic and diluted loss per common share:                       (0.97)         (0.85)         (0.21)          (0.40)
                                                          ===========    ===========    ===========     ===========

2000
Operating revenues                                        $   62,006     $   62,818     $   67,529      $   71,680
Operating income (loss)                                       (3,322)         2,381          1,073             975
Earnings (loss) before cumulative effect of
     accounting change                                        (4,232)         1,267             43            (237)
     Cumulative effect of accounting change                   22,224             --             --             520
     Net earnings (loss)                                      17,992          1,267             43             283
                                                          ===========    ===========    ===========     ===========

Basic and diluted earnings (loss) per common share:
     Before cumulative effect of
         accounting change                                     (0.54)          0.12             --           (0.02)
     Cumulative effect of accounting change                     2.82             --             --            0.05
                                                          -----------    -----------    -----------     -----------
Net earnings (loss)                                             2.28           0.12             --            0.03
                                                          ===========    ===========    ===========     ===========
</TABLE>

The sum of the four quarterly earnings (loss) per share amounts may not agree
with the earnings (loss) per share amounts for the full year due to the fact
that the full year calculation uses a 12-month weighted average number of
shares.

The fourth quarter of 2001 includes $1.2 million of charges for write-offs of
deposits and prepaid expenses resulting from disputes with vendors.

The quarterly data presented above for the first and second quarters of 2000
differ from amounts previously reported to reflect the effect of the change in
accounting principle and an increase in maintenance expense of $400,000 in the
first quarter.

The fourth quarter of 2000 reflects a $520,000 reversal of income taxes related
to the cumulative effect of the change in accounting principle. The Company also
recorded a credit of $3.0 million for engine parts that were recovered in the
fourth quarter of 2000. These parts are included in equipment and property at
December 31, 2000.

                                       41

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
World Airways, Inc.:

We have audited the accompanying balance sheets of World Airways, Inc. ("World
Airways") as of December 31, 2001 and 2000, and the related statements of
operations, changes in stockholders' deficiency and cash flows for each of the
years in the three-year period ended December 31, 2001. These financial
statements are the responsibility of World Airways' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of World Airways as of December
31, 2001 and 2000, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the financial statements, effective January 1, 2000,
the Company changed its method of accounting for certain aircraft maintenance
costs.

                                    KPMG LLP

McLean, Virginia
March 19, 2002, except for Note 7, which is as of March 28, 2002

Item 9.   Changes In and Disagreements with Accountants on Accounting and
          Financial Disclosure

Not applicable.

                                       42


<PAGE>


PART III

Item 10.  Directors and Executive Officers of the Registrant

Directors

The Company incorporates herein by reference the information concerning
directors contained in its Notice of Annual Stockholder's Meeting and Proxy
Statement to be filed within 120 days after the end of the Company's fiscal year
(the "2002 Proxy Statement").

Executive Officers

The following table sets forth the names and ages of all executive officers of
the Company and all positions and offices within the Company presently held by
such executive officers:

Hollis L. Harris           70   Chairman of the Board , Chief Executive Officer
                                and President
John E. Ellington.         67   Chief Operating Officer
Gilberto M. Duarte, Jr.    57   Chief Financial Officer
Randy J. Martinez          46   Chief Information Officer
Cindy M. Swinson           44   General Counsel and Secretary

Hollis L. Harris currently serves as Chairman, Chief Executive Officer and
President of the Company having been appointed Chairman, President, and CEO on
May 1, 1999. Prior to joining World Airways, Mr. Harris was Chairman, President,
and CEO of HLH Corporation from November 1998. From August 1996 to May 1998, he
was Chairman and CEO of CalJet Airline. From 1992 to 1996, Mr. Harris served as
Chairman, President, and CEO of Air Canada. From September 1990 to October 1991,
Mr. Harris served as Chairman, President, and CEO of Continental Airlines and
President and CEO of Continental Holdings, Inc. Prior to joining Continental
Airlines Mr. Harris worked with Delta Air Lines for 36 years, last serving as
President and Chief Operating Officer for several years and as a member of the
Board of Directors.

John E. Ellington rejoined the Company as Chief Operating Officer in January
2002. Mr. Ellington had previously served as the Company's Vice President of
Operations and Deputy Chief Operating Officer from June 1999 to September 2000.
In September 2000, Mr. Ellington founded MidSouth Aviation, an aviation
consulting firm for medium sized airports and small corporations. From December
1995 through April 1997, Mr. Ellington held the positions of Vice President of
Flight Operations, Director of Flight Operations and Director of Flight
Standards and Training for American Trans Air. In addition, Mr. Ellington's
experience includes more than 30 years with Delta Air Lines, where he held such
positions as Chief Pilot, Chief Line Check Airman, and Manager of Flight
Training.

Gilberto M. Duarte, Jr. serves as Chief Financial Officer. He joined the Company
in August 1998 as Vice President and Controller and was named Chief Financial
Officer, effective December 1998. Mr. Duarte's career spans 30 years in the
airline industry having held positions with Eastern Airlines as Division
Controller and Vice President of Airport Operations. From 1992 - 1995, he served
as Executive Vice President of Universal Aviation Services. From 1995 - 1997, he
served as Executive Vice President of BWIA International, based in Trinidad &
Tobago. Prior to joining World Airways, Gil served as President for Inktel
Marketing from 1997 - 1998.

Randy J. Martinez became the Chief Information Officer of World Airways on
August 9, 1999. He joined the airline in October 1998 as the Director of Crew
Resources and was later appointed to be the Special Assistant to the Chairman in
May 1999. Mr. Martinez came to World after a distinguished 21 year career with
the United States Air Force (Colonel retired and Command Pilot). Prior to his
leaving the military, he was the Principal Advisor to the Chief of Staff of the
North Atlantic Treaty Organization's (NATO) senior-most Strategic Planning
Staff. Mr. Martinez also served as the Senior Aide-de-Camp to the Chairman of
the Joint Chiefs of Staff at the Pentagon, Commander of the 457th Airlift
Squadron at Andrews Air Force Base (AFB) in Maryland and Chief of the Wing
Standardization & Evaluation Division in DESERT STORM for C-130's. He is a
combat experienced pilot and decorated officer.

Cindy M. Swinson joined the Company as General Counsel and Corporate Secretary
effective July 16, 2001. Prior to joining World Airways, Ms. Swinson was Vice
President, Corporate Secretary and General Counsel at Waffle House, Inc. From
July 1987 through May 1999, she was Vice President, Corporate Secretary and
General Counsel for the Cotton States Insurance Group. From March 1985 through
July 1987, Ms. Swinson served as Corporate Counsel for Canada Life Assurance
Company, responsible for the legal function of the United States division. Prior
to 1985, Ms. Swinson was in private practice in Savannah, Georgia representing
corporate clients in all aspects of civil litigation, securities, corporate and
real estate transactions.

                                       43

<PAGE>

Beneficial Ownership Reporting

The Company incorporates herein by reference the information required by Item
405 of Regulation S-K contained in its 2002 Proxy Statement.

Item 11.  Executive Compensation

The Company incorporates herein by reference the information concerning
executive compensation contained in the 2002 Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

The Company incorporates herein by reference the information concerning security
ownership of certain beneficial owners and management contained in the 2002
Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

The Company incorporates herein by reference the information concerning certain
relationships and related transactions contained in the 2002 Proxy Statement.

                                       44

<PAGE>


PART IV

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

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

(1)  Financial Statements

     The following financial statements of World Airways, Inc. are filed
     herewith:

     -    Balance Sheets, December 31, 2001 and 2000
     -    Statements of Operations, Years Ended December 31, 2001, 2000 and 1999
     -    Statements of Changes in Stockholders' Deficiency, Years Ended
          December 31, 2001, 2000 and 1999
     -    Statements of Cash Flows, Years Ended December 31, 2001, 2000 and 1999
     -    Notes to Financial Statements
     -    Independent Auditors' Report

(2)  Financial Statement Schedules

NOTE:  All schedules are omitted because the requisite information is either
       presented in the financial statements or notes thereto or is not present
       in amounts sufficient to require submission of the schedules.

(3)  Index to Exhibits

No.                       Description                                       Page
---                       -----------                                       ----

3.1  Amended and Restated Certificate of Incorporation (Exhibit 3.1           *
     to the Company's Registration Statement on Form S-1, Commission
     file no. 33-95488, filed August 8, 1995)

3.2  Amended and Restated Bylaws (Exhibit 3.2 to the Company's                *
     Registration Statement on Form S-1, Commission file no. 33-95488,
     filed August 8, 1995)

4.1  Article IV of the Amended and Restated Certificate of                    *
     Incorporation and Section 6 of the Amended and Restated Bylaws
     (Exhibits 3.1 and 3.2 to the Company's Registration Statement on
     Form S-1, Commission file no. 33-95488, filed August 8, 1995)

4.2  Stock Purchase Agreement among Malaysian Helicopter Services             *
     Berhad, WorldCorp, Inc., and the Company (Exhibit 10.1 to the
     Current Report on Form 8-K of WorldCorp, Inc. Commission file
     no. 1-9591, filed March 14, 1994)

4.3  Stock Registration Rights Agreement between Malaysian Helicopter         *
     Services Berhad and the Company (Exhibit 10.2 to the Current
     Report on Form 8-K of WorldCorp, Inc., Commission file no 1-9591,
     filed March 14, 1994)

4.4  Shareholders Agreement among Malaysian Helicopter Services Berhad,       *
     WorldCorp, Inc., and the Company, as amended (Exhibits 10.3 and
     10.4 to the Current Report on Form 8-K of WorldCorp, Inc.,
     Commission file no. 1-9591, filed March 14, 1994)

4.5  Indenture between the Company and First Union National Bank, as          *
     Trustee (Exhibit 4.1 to the Company's Registration Statement on
     Form S-3, Commission file no. 333-39673, filed November 6, 1997)

4.6  Form of 8% Convertible Subordinated Debenture due 2004, included         *
     in the Indenture (Exhibit 4.1 to the Company's Registration
     Statement on Form S-3, Commission file no. 333-39673, filed
     November 6, 1997)

4.7  Registration Rights Agreement among the Company and the Initial          *
     Purchasers of the Debentures (Exhibit 4.3 to the Company's
     Registration Statement on Form S-3, Commission file no. 333-39673,
     filed November 6, 1997)

                                       45

<PAGE>


4.8     Purchase Agreement among the Company and the Initial Purchasers     *
        of the Debentures (Exhibit 4.4 to the Company's Registration
        Statement on Form S-3, Commission file no. 333-39673, filed
        November 6, 1997)

10.1    First Amendment to Second Restated and Amended Accounts             *
        Receivable Management and Security Agreement dated August 8,
        2001 between the Company and BNY Financial Corporation.

10.2    Second Amended and Restated Employment Agreement dated June 1,      *  +
        2000 between Hollis L. Harris and the Company (Exhibit 10.1 to
        the Company's Quarterly Report on Form 10-Q filed November 13,
        2000)

10.3    Employment Agreement dated June 1, 1999 between Andrew Gilbert      *  +
        Morgan, Jr. and the Company (Exhibit 10.20 to the Company's
        Quarterly Report on Form 10-Q filed November 13, 2000)

10.4    Amendment One to the Employment Agreement dated May 1, 2001         *  +
        between Andrew Gilbert Morgan, Jr. and the Company

10.5    Agreement and General Release dated January 8, 2002 between         *  +
        Andrew Gilbert Morgan, Jr. and the Company

10.6    Amended and Restated Employment Agreement dated January 22,         *  +
        1999 between Gilberto. M. Duarte, Jr. and the Company (Exhibit
        10.16 to the Company's Quarterly Report on Form 10-Q filed
        May 10, 1999)

10.7    Amendment Two to the Employment Agreement dated May 1, 2001         *  +
        between Gilberto. M. Duarte, Jr. and the Company

10.8    Employment Agreement dated September 1, 1999 between Randy J.       *  +
        Martinez and the Company (Exhibit 10.8 to the Company's
        Annual Report on Form 10-K filed March 23, 2001)

10.9    Amendment One to the Employment Agreement dated May 1, 2001         *  +
        between Randy J. Martinez and the Company

10.10   Employment Agreement dated September 1, 1999 between Cathy          *  +
        Sigalas and the Company (Exhibit 10.9 to the Company's
        Annual Report on Form 10-K filed March 23, 2001)

10.11   Terms of Contract Termination between Cathy Sigalas and the         *  +
        Company

10.12   Employment Agreement dated January 16, 2002 between Cindy           *  +
        Swinson and the Company

10.13   Form of Indemnification Agreement with Directors and                *  +
        Executive Officers

10.14   Lease Agreement dated October 13, 2000, between Air Eagle           *
        Holdings, LLC as Landlord and  World Airways, Inc. as Tenant

10.15   Amendment One to the Lease Agreement dated April 18, 2001,          *
        between Air Eagle Holdings, LLC as Landlord and World Airways,
        Inc., as Tenant

10.16   Escrow Agreement dated October 27, 2000, between Air Eagle          *
        Properties, LLC ("Lessor"), World  Airways, Inc. ("Lessee"),
        and Peachtree National Bank ("Lender").

10.17   Restricted Stock Plan for Eligible Employees of World               *  +
        Airways, Inc.

10.18   Key Employee Retention Plan                                         *  +

10.19   Amended and Restated World Airways, Inc. 1995 Stock Option Plan
        including forms for Award Agreements and Stock Option Agreements    *  +

10.20   The World Airways, Inc. 1999 Chief Executive Stock Option Plan      *  +

                                       46

<PAGE>

23.1     Consent of Independent Auditors                                     *

___________________

* Incorporated by reference pursuant to Rule 12b-32.
+ Management Contract or Compensatory plan or arrangement

(b)  Reports on Form 8-K
     None

Status of Prior Documents

World Airways' Annual Report on Form 10-K for the year ended December 31, 2001,
at the time of filing with the Securities and Exchange Commission, shall modify
and supersede all prior documents filed pursuant to Sections 13, 14, and 15(d)
of the Securities Exchange Act of 1934 for purposes of any offers or sales of
any securities after the date of such filing pursuant to any Registration
Statement or Prospectus filed pursuant to the Securities Act of 1933, as
amended, which incorporates by reference such Annual Report on Form 10-K.

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

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                       World Airways, Inc.

                                       /s/ Gilberto M. Duarte, Jr.
                                       --------------------------------
                                       By: Gilberto M. Duarte, Jr.
                                           Chief Financial Officer

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

Signature                      Title                             Date
---------                      -----                             ----
/s/ Hollis L. Harris           Chairman, Chief Executive         March 26, 2002
---------------------------
Hollis L. Harris               Officer and President

/s/ John E. Ellington          Chief Operating Officer           March 26, 2002
---------------------------
John E. Ellington

/s/ Gilberto M. Duarte, Jr.    Chief Financial Officer           March 26, 2002
---------------------------
Gilberto M. Duarte, Jr.

/s/ Daniel J. Altobello        Director                          March 26, 2002
---------------------------
Daniel J. Altobello

/s/ A. Scott Andrews           Director                          March 26, 2002
---------------------------
A. Scott Andrews

/s/ Joel H. Cowan              Director                          March 26, 2002
---------------------------
Joel H. Cowan

                                       47

<PAGE>


/s/  Ronald R. Fogleman            Director                 March 26, 2002
--------------------------
Ronald R. Fogleman

/s/ Wan Malek Ibrahim              Director                 March 26, 2002
--------------------------
Wan Malek Ibrahim

/s/ Russell L. Ray, Jr.            Director                 March 26, 2002
--------------------------
Russell L. Ray, Jr.

/s/ Peter M. Sontag                Director                 March 26, 2002
--------------------------
Peter M. Sontag

/s/ Lim Kheng Yew                  Director                 March 26, 2002
--------------------------
Lim Kheng Yew

                                       48